Did you receive any news feed on X company acquiring company Y? Have you ever wondered why is it necessary for organizations to acquire other companies when they can develop that capability within their org? Why do companies spend a million (or sometimes a billion) dollars to acquire another company?
Let’s find out why!
The year 2016 has seen quite a few acquisitions. Among the most renowned events, following were the notable ones:
- AT&T acquired Time Warner
- Qualcomm acquired NXP semiconductors
- Microsoft acquired LinkedIn
For more information on the acquisitions, go to this link
Now, the common aspect among all the acquisition events is the involvement of large enterprises as the “acquirer”. Enterprises acquire other companies for various reasons. Let’s start by looking at the most common ones:
New Market Entry
Acquiring a startup working with a different market segment than the acquirer allows them to enter into that particular market. Going back to my earlier blog post, this is how enterprises do “Architectural Innovation”.
Addition to Product Portfolio or Feature List
Let’s be realistic. Bringing innovation into your product line may be important. However, it does not come easily and also it is time consuming. For large enterprises who have an urgent mandate to improve their product and wants lesser time to market, sometimes go with this strategy. This will help them achieve “Disruptive Innovation” quicker and may lead to improved market share.
Curb out competition
Sometimes, it may happen that a large enterprise realizes that another organization is eating into it’s market share due to a better product or value proposition. If the larger enterprise doesn’t have the means to quickly take care of this situation (due to long development cycles or time to market), it may consider acquiring it’s competitor to regain the market share.
Is acquisition only a game for large enterprises?
At the first instance, it may look like it. But all the reasons that we discussed on why large enterprises acquire other companies may be present in a startup or small private organization as well. Let’s look at the following statistics.
It can be seen that companies like Twitter, Facebook, etc. have all performed acquisitions to stay ahead of the game (All the numbers mentioned are before any of the companies went public). The reasons that we discussed for larger enterprises applies to the startups as well which is why we see the above numbers.
So, next time before you think that acquisition is done by larger enterprises only, think twice!