Mergers and acquisitions have always been a trustworthy business strategy, but in the last few years, larger tech companies are acquiring at a rate that has turned “acqui-hiring” (the business of acquiring for talent) from an occasional event to a regular part of the industry.
For some companies, acquisitions turn the startup into a fully fledged behemoth in its own right and its owners millionaires, seemingly overnight. For others, the acquisition is just a way to acquire the talents of the people involved. Or the product becomes its own feature for the acquirer’s product.
They can be done well, or they can prove to be ineffective for both parties involved. However, this is no longer just a trend. According to Deloitte’s 2014 Mergers and Acquisitions report, 84% of the 2,500 corporate and private equity respondents anticipated a sustained, if not accelerated pace of M&A activity in the next 24 months. 21% of those companies anticipated major transformational deals while a third of respondents were pursuing smaller strategic transactions. 59% of corporate respondents were anticipating to be involved in acquisitions in a foreign market. The strongest market for mergers and acquisitions was tech, followed by healthcare, and energy (both alternative energy and oil and gas). In a field like tech, it’s getting harder to ignore the prospect of acquiring promising smaller talents.
Acquire for Talent
Also called acqui-hires, acquisitions for talent is becoming an accelerating trend for tech entrepreneurs. In most tech pockets, there’s a huge competition between firms for top engineers, and those who have a demonstrated experience carry a huge advantage for the acquirer. The talent’s background also motivates decisions: one can tell a lot about someone by looking at what they’re trying to do with their products, how passionate they are, and the reputation that precedes them.
Rather than trying to hire away their core engineers, the team has already demonstrated that they work well together. Also, at least an entrepreneur can say that they paid more to obtain the company’s equity than to have to explain to your current team why you just promised millions to procure an engineer. Reversely, startups who are unable to get further funding can save face by getting acqu-hired by a larger company and saying that their company was bought out.
Acqui-hires Come with a Team Dynamic
Though horror stories abound of teams getting acqui-hired for huge sums of money, only to find out that the company culture wasn’t what they thought it was going to be, the important thing is to keep certain core members together.
After all, companies aren’t only acqui-hiring stand-alone talent, they’re acquiring a team that works well and comfortably together, with a few key members who will maximize the potential of a single player. For the team that started out around a kitchen table, with nothing but a pocketful of potential seed money and a creative instinct, ending up together at a big company (maybe Facebook, maybe Twitter, which are the most aggressive acquirers) is a great motivation to work like they’ve never worked before. That’s a great incentive for the acquirers. (Just try not to f*** up their internal culture).
Add a New Feature to Your Arsenal
The early milestones in the seed stage are some of the hardest that a company experiences, but it becomes easier (but still not easy) after funding. By the time they get approved for venture capital, the team will have sorted itself out and working at a comfortable pace, they should have some amount of customers and followers, and their product should be fully formed.
If you’re a larger enterprise and you’re looking to add a new feature to your product, then it makes more sense to acquire a pre-existing company that already has something that looks like what you want, than to try to build one from scratch.
Achieve Synergy & Market Share
Depending on how established your acquisition is, you may be able to capture their portion of the market share if you’re trying to diversify your company, as well as benefit financially from their prior success. For example, in an effort to inject more youth and innovation into Yahoo, Marissa Mayer has made over 112 acquisitions since taking over as CEO, including a key acquisition in Tumblr, the popular blogging platform for young adults, as well as a $30 billion stake in Alibaba, which is accounts for three-quarters of Yahoo’s market cap. Their recent acquisition of Polyvore marks their first foray into the fashion discovery market, and gives them an advantage for the amount of paid sponsorship and commerce-based model already built into Polyvore.