Rationale for Tech Acquisitions

Acquisitions play an important role in the tech ecosystem (and unfortunately, can also contribute to the bubble). How do acquiring companies think about what and what not to buy? What is their rationale? Using a few consumer acquisitions as a starting point (e.g. WhatsApp, Instagram, Vine, etc.), I am compiling a working pro-con list from the acquiring company’s perspective. Please add!


Acquiring company’s ability to accelerate target’s growth / engagement and vice versa

Defensive tactic to avoid disruption or eliminate a threat

Better monetization ability and/or tactics

Improve user experience by merging products / workflows

Market power, greater network effects with larger user base

Access to a more valuable user base

Diversification of offerings

Block a competitor from acquiring the target

Inability to replicate the target’s product internally

Enhanced data collection

New technology and competencies (e.g. Oculus for Facebook)

New Talent (acquihire)

Improve target’s processes and/or eliminate cost redundancies (cost synergies likely limited for tech startups though)

Target company mismanaged












Difficulty pricing the target (e.g. uncertain pro forma growth, monetization, profitability, etc.); high valuations and uncertain ROI

Chance that the incentives of target’s employees are changed post-exit

Vision misalignment and/or improper culture fit (keeping the company independent may help mitigate this risk, e.g. Instagram)

Privacy concerns as companies and their access to personal data scale

Cheaper to build and launch the same product internally

Unrelated diversification; distraction from core goals