The science of acquisitions
I was interviewed earlier this week by Arancha Bustillo, a journalist from Expansión, Spain’s leading financial daily, about different types of acquisition, and why some companies are able to gain strategic advantages from them while others simply end up spending huge amounts of money on something that ends up clearly destroying value.
We’ve seen a lot of acquisitions in the tech sector over recent years. All the big players now have interminable lists of acquisitions of all types, based on different strategies and with differing outcomes. While some, like Yahoo! have been dead zones that entrepreneurs flee from as soon as they have the chance, leaving their ideas and hopes to wither, others, like Facebook, seem able to integrate the teams they buy, allowing them the space they need to work well, and creating impressive new synergies.
In the middle are cases such as Oracle, seemingly able to buy anything it wants and to integrate brands and technology reasonably well, but not looking after people so well; or Twitter, which hasn’t stopped buying small companies with products it wants, losing relatively little talent in the process; or Google, which has notched up some impressive failures, while the entrepreneurs it has acquired either take the money and run, or stick it out for a while, only to throw the towel in.
Acquisitions are never simple. The factors that allow a team of people to put a project together and make it fly are complicated, and undoubtedly change after an acquisition. The reasons for buying a company out can be to do with wanting the product or service, or to capture its users, or through the so-called acqui-hire, a maneuver to buy the talent the company requires by purchasing a company and its team. Buying a company also means dealing with possible culture clashes. Most companies try to find extra resources for the business they have just bought, to provide them with the synergies that come from having access to a bigger sales team, or to integrate them in processes that allow them to work better, while at the same time preserving their culture, their team, and their decision-making processes, while others limit themselves to integrating the new acquisition’s product, taking over their client base in the process.
The key to a successful takeover is keeping the focus on people. The products or services being acquired, or the market quotas that the company under purchase has, are completely secondary, however important they might seem. In short, companies that are interested in merging teams right from the first negotiations, that set tangible objectives and career plans for the incoming team, tend to get better outcomes than those looking to buy in something to save time and money. While Google is known to have purchased several companies purely to get its hands on their technology, the result has often been that the incoming team ends up leaving; Facebook, on the other hand, seems to take more care over how best to incorporate the teams that come with its acquisitions.
But an acquisition doesn’t end when the contract is signed. In reality, this is just the beginning. From that moment, every acquisition means hard work and the risk of failure. From cultural questions to motivation, new reporting obligations, coordination, and even awareness of who now owns the product. For some entrepreneurs this becomes an opportunity to carry on with what they were doing, to further develop their idea using more resources; but for others being bought out simply means that they have succeeded with one project, and can now move on to the next. Understanding this and acting accordingly when making an acquisition can provide a clear advantage for any company, which if exploited properly can result in enormous competitive advantages.
(En español, aquí)
