To acquire or to not acquire…

What does acquisition mean?

Acquisition means different things in different contexts. What I focus on in this blog is the context of buying companies. A good definition can be found in Oxfords English Dictionary.

An act of purchase of one company by another.

Why does a company acquire other ones?

There is an infinite list of reasons why a company acquires another one but the most common are:

  1. To acquire hard to get talent: One of the surest ways to get acquired, today, is to have a couple of really good ML engineers on the team and send Google or Facebook an email. This type of acquisition is called an acquihire.
  2. Get your hands on a piece of technology: Perhaps another company is struggling to sell a cool piece of technology they built. There is, however, an opportunity to use their technology to meet a strategic goal for your company. Great opportunity for an acquisition! Facebook is a good example of a company who has acquired a lot of companies to build out their video infastructure and analytics technology.
  3. Acquire a product your customer wants: This is similar to a technology acquisition with the difference of acquiring a customer facing product, i.e., the product should generate revenue. In this case you would want to build a basic business case to ensure the financials ad up. Typically called a product acquisition.
  4. To grow your business: This is the most complex acquisition and usually the riskiest one. While a product acquisition could be cheap an acquisition to grow your business is almost always by definition expensive. The reason is that the acquisition has to be large enough to materially impact the revenue of your business and therefore typically expensive. Making such a large bet requires extensive analysis.

Keep in mind that a company can reach goals through, and usually does, other means than acquisitions.

  • Instead of buying a company with talent money could be invested into hiring.
  • Instead of buying a company for a product money could be invested into either build it or deliver it through a partnership.

I’ll try to keep writing small nuggets of wisdom each week. Let me know if you have any questions and I’ll be happy to explore them.

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