No matter who you are, or in what field you are based in, one thing is certain: everyday, you come across words such as ‘mergers’ or ‘acquisitions’. Be it in your news feed or on social media, news about acquisitions are always flowing in.
How important are acquisitions and mergers? Who have been the biggest acquirers, and what is their mindset? Which industries see the most number of acquisitions?
In this article, I take a look at all things M&A: from the perspectives of an employer, an employee and the general populace!
TO BEGIN WITH
Let’s ease into the basics first, and I must admit, most of this is textbook knowledge.
In this day and age of cutthroat competition and rampant innovation, organisations and big corps need to do everything at their disposal to gain the upper hand. More often than not, this advantage is realized through the process of acquiring smaller, yet promising companies.
The last decade or so has seen a massive boom as far as the number of emerging startups is concerned. Taking the success of a few startups into account, this trend has also provided the impetus to established corps to reassess their positions and resort to acquiring the small companies. Moreover, being acquired can actually be heralded as a viable exit option for startups which are not doing as well as they might have hoped to.
FOR AN EMPLOYER
First off, what are the benefits of acquiring a company?
Mergers and acquisitions go a long way in generating cost efficiency and enhancing the revenue in the form of shares or market gains. What this means is that when two organisations join forces (in the form of a merger, or even an acquisition), they essentially pool in their resources together. These resources can include market shares, to technology, to even facilities for R&D.
And this in turn enables both the organisations to grow in terms of size and revenue. It is particularly useful in scenarios wherein the organisations would like to achieve lower costs of operation, or when the firms would like to enter a new market or introduce new products in a market.
Long story short, two heads are better than one. Mergers and acquisitions provide the financial leverage needed to stand out in this world of alliances and competition, and they have manifold benefits from an employer’s perspective.
FOR AN EMPLOYEE
This is where one can fathom what the true purpose of acquiring a company might actually be. More than the need to acquire the monetary resources, or the facilities, companies are usually acquired by bigger corps for one specific aspect – the talent within the employees.
A visible trend has emerged lately, with big corps buying up startups with one sole purpose – getting a hold of the talent within the startup. This might prove beneficial as far as the ‘brain drain’ effect is concerned – which usually results in employees shifting over to other companies or becoming future competitors.
The correct term for the employees in this scenario is ‘acquihires’, and there’s actually quite a bit of information regarding this.
A lot can be understood from the term itself. Acquihires refer to the talent which is acquired, when the parent startup is acquired by a big corp. For an employer, acquihires hold immense value, since it brings in functioning teams in key areas. Moreover, every company, every recruiting marketplace, is always on the hunt for skilled workers, so there’s no defined or easy approach to hiring talent nowadays.
For the acquihire, the advantage would be in the form of being on board with a much bigger organization. And since their talent is what attracted the big corp in the first place, these acquihires can expect quite a few incentives and perks.
But then again, a lot of factors come into play. The perks and incentives are directly proportional to the expertise or talent levels of the acquihire (as was the case of Kevin Rose in Google’s talent acquisition of Milk). One key disadvantage would be that the acquihires would – in most cases – be involved in developing new products for the big corp.
Needless to say, the employees who don’t come aboard to the big corp are immediately laid off.
Think of it as a small bonus for a new job. Your company title changes, and you might get a few more perks. Technically, it is as good as job hopping. But you would get more opportunities and scope for your talent to get noticed.
At the end of the day, the entire process is quite cosmetic. Employees get a nice bonus and a new job, and also save some face after their original startup might have failed. Investors get a small return on their money. The acquirer gets the talent, which was the intent of the whole operation anyway. Prima facie, it does seem like a win-win situation.
Let’s discuss the darker aspects now. The current debate nowadays is that there is a rising inequality in the process of acquihiring. The investors do not generally receive a proportional share of the net value going into the company.
Key example to consider: Activist investor firm Starboard Value issued an open letter to Yahoo CEO Marissa Myers back in October 2014. The underlying message within this open letter was an intent for Yahoo to put an end to its “aggressive acquisition strategy”.
This letter also points out that the money spent on acquisitions (to the tune of $1.3 Billion) has not really delivered anything substantial to the shareholders. Besides, the acquisitions have also failed to provide material revenue growth on a combined basis, as Starboard Value vehemently stated.
FACTS AND FIGURES
• Microsoft has been acquiring organisations for quite some time now, with over 170 acquisitions already under its belt.
Their recent acquisitions in the form of Acompli (a mobile email app), Equivio (a text analytics service), Revolution Analytics (statistical computing and predictive analytics) and Sunrise (a calendar application) hints at the company planning at making their presence felt in the mobile application, analytics and computing sector in the coming months.
• In the arena of mobile business, BlackBerry had acquired Movirtu, which establishes the fact that BlackBerry’s strong suit lies in the software sector, as I have discussed upon in my BlackBerry article here.
• In Cloud Computing, SAP had acquired Concur back in September 2014, at a whopping $8.3 Billion. This move was made to improve upon SAP’s portfolio of B2B Cloud Services.
• In the East, Chinese giant Alibaba has been on an acquisition rampage. The company has acquired many of China’s most significant firms, including Youku Todou (China’s top video streaming site), AutoNavi Holdings (China’s fourth popular mapping service), Chinavision Media Group (a company producing Chinese language TV Shows and movies) and even Weibo (a Chinese microblogging site, akin to Facebook or Twitter).
They’ve also made acquisitions in the west, in the form of US based messaging app Tango and popular taxi service Lyft – which is actually a direct rival to Uber.
• Finally, we come to Google. Their recent acquisition has been in the form of Nest Labs, which establishes the fact that Google now wants to tap into the Internet of Things as soon as possible.
So now getting back to the original topic, what would be the need of the hour?
Two words : INTERGRATED ACQUISITIONS
Instead of randomly acquiring companies and startups, a systematic approach would be welcome. Acquisitions should be made with the intent of not merely acquiring the resources, or even the talent pool for that matter, but an underlying drive must be to tap the information potential out there.
Think about it. Today, we are digitally connected, and we live ‘in the moment’, through social media interaction and mobile apps. Our empowerment has reached new pinnacles, and the current trends show that the consumers are literally changing the rules of engagement.
Organisations must observe these trends and accordingly formulate strategies – not merely from a ‘business-to-consumer’ perspective, but also from a ‘business-to-business’ one. Big data and information is the new norm, and this also brings in the element of machine-to-machine communication.
All in all, if companies can tap into this information and realize the potential, it would imply manifold success, in terms of technology and business leverages.