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!
Pros
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
Cons
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