According to Thomson Reuters, there were more than 50,000 M&A deals worldwide last year. $3.2 trillion in deals is expected in 2018, more than $2.6 trillion of the last year.
A number of factors including technological advances, globalization and competitive conditions have contributed to a growth in business thinking from build-to-grow to buy-to-grow. Not only technology companies but also companies from other areas understand the necessity to acquire smaller companies to be able to stay in competition.
To be able to sell your startup, you must understand the dynamics of this kind of acquisition.
TALENT
You are wanted mostly for your talent sometimes. For example, Jet.com was founded by Marc Lore, a former leader at Amazon.com. Walmart bought Jet.com not just for its technology but also for the talent of its founder so to be able to stay in competition with Amazon.
PLATFORM
In this case, Microsoft’s acquisition of LinkedIn for $26 billion can be cited as an example. LinkedIn remodeled itself as an advanced, open content platform from a business oriented social network by purchasing Pulse. And Microsoft wanted to own that platform as a definitive professional publishing platform.
TECHNOLOGY
PetSmart’s acquisition of Chewy.com for $3.35 billion is one major example for this kind of acquisition of a startup by a bigger company. PetSmart made this purchase for Chewy’s ecommerce network and Chewy provided PetSmart with one of the fastest-growing e-commerce sites.
As another example, Dell’s acquisition of EMC in 2016 can be mentioned. Dell made this purchase to be able to serve new technology products and services and compete with cloud providers like Amazon and Microsoft. The deal created DELL EMC and company saw a surging demand for servers, networking equipment and computers. After the purchase, they signed on 10.000 new business customers in 2017.
BRAND
Hostess Brands is a packaged food company dating back to the beginning of the 20th century. The company that purchased Hostess Brands was motivated by plans to invest in seasonal and healthier versions of Hostess snack foods. They made this purchase to use the well-known brand name and existing distribution channels.
By looking at the growth rates in the sales of Hostess Brands – a 15% annual growth throughout 2015, 2016 – we can say that the acquisition strategy has proved to be a real success.
ACCESS TO A NEW DEMOGRAPHIC
Nordstrom’s decision of acquiring Trunk Club – a personalized clothing service – was to challenge traditional purchasing habits in accordance with the new generations. After this move, Nordstrom can now serve to those who want to get new clothes without shopping for them. This was a great way to own a vast number of loyal millennial customers.
DISTRIBUTION MODEL
Dollar Shave Club is US-based company serving quality razor blades and male grooming products to your door. To use that proven direct-to-consumer distribution channel and to own the loyal customer base, Unilever acquired this little company for $1 billion dollars. Besides the huge boost it got – 47% jump in direct-to-consumer sales between 2015 and 2016 – Unilever also won loyalty with that move.
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