Forecasting acquisitions in the technology world is an inexact science. And that’s putting it nicely.
Occasionally they make sense, like when Amazon purchased Kiva Systems in order to absorb a technology they already used extensively in their warehouses.
But acquisitions are rarely so obvious. The bulge-bracket technology
companies that do most of the acquiring often seem to be playing pin the
tail on the donkey in their acquisition strategy, without rhyme or
reason to anyone outside their four walls. This can be extremely
frustrating for an entrepreneur or VC looking to sell their company.
That doesn’t mean all is lost. A deeper dive into recent M&A
activity reveals common themes that shed light onto the rationale of big
companies looking to make acquisitions:
1) The biggest enemy of your biggest enemy is your biggest friend
Taken out of context, Microsoft’s acquisition of Yammer
in June 2012 may have seemed like throwing darts at a board. They
hadn’t been very active in the social space, and Yammer had almost
nothing to do with Microsoft’s core products: Windows and Office.
It did, however, make a great deal of sense in the context of
Yammer’s competitive marketplace. Yammer’s biggest competitor,
Salesforce Chatter, is a major differentiator driving Salesforce’s
domination of rival CRMs. For Yammer, by targeting their biggest
competitor (Salesforce’s) biggest competitor, MS Dynamics, Yammer was
able to find a partner who badly needed their technology for competitive
2) New entrants prefer to buy rather than build
The aforementioned Microsoft made a different type of acquisition in 2008 when they bought flight cost predictor Farecast
for about $100m. Unlike Yammer, the acquisition wasn’t in direct
response to a competitive threat. Rather, they were getting ready to
launch Bing and knew they needed to make a splash to get entrenched
Googlers to give them a chance. Since their developers’ hands were
probably full building the core Bing product, the idea of buying a side
feature that can differentiate their product was especially attractive.
3) Businesses in transition are always looking for a boost
Similarly, old-guard businesses looking to redefine themselves are
often willing to part with resources for the right acquisition. Dell
wasn’t exactly a new entrant into the enterprise software space, but
their well deserved reputation as primarily a hardware company has made
it difficult for them to catch up in the software space organically.
Their combination of inadequate in-house development resources, a large
pile of cash, and a sense of urgency to show their shareholders progress
towards a new Dell, all contributed to their purchase of Quest Software in July of 2012.
4) Public companies love playing musical chairs
One week after Dell’s acquisition of Quest, Oracle made news with another acquisition, this one of Involver, a SaaS social media manager. Hot on the heels of Vitrue’s acquisition, also by Oracle, and Buddy Media’s by Salesforce, the game of musical chairs in that industry had officially begun. It wasn’t long before Google followed suit with its acquisition of Wildfire.
Big public companies, by nature, are extremely conservative in their
decision-making. No executive wants to be the only one of his or her
peers that missed out on a big trend or new technology. This can work
against you if your company is in a quiet space, but it can also work in
your favor when the music starts in your space. Pay close attention to
who is buying your competitors, and when activity starts accelerating,
find the company without a seat.
Will you ever be able to completely understand the acquisition
strategy at a big public tech company? Of course not. Like a complex
weather pattern, the politics behind these decisions get exponentially
more difficult to project the further out.
But that doesn’t mean it’s a fruitless exercise to think about the
different reasons a larger company might want to purchase yours.
Hopefully, these four angles will serve as a valuable starting point to
build your list of potential acquirers.
Nick Petri is a Market Research Analyst at OpenView Venture Partners. You can find this post, as well as additional content on the OpenView Blog located here. You can also follow Nick on Twitter (@NCPetri) by clicking here.