Three Types of Acquisitions

43 points by stevefink 14 years ago | 10 comments

kinkora 14 years ago |

The 3rd type of acquisition (Business) is a lil generic and should be broken down into a few more parts.

IMHO, in the tech industry, I observed many times that if a company acquires another purely from a business perspective, it is either:

(a) Customer/Market - The acquired company has a huge and highly desirable market share,demographics,etc that the bigger company would like to "acquire". Also sometimes, it is simply to get the "pageviews". I.e. Google acquiring Blogger/Blogspot (community) or the myriad of blogging companies that AOL has acquired (market share).

(b) Expanding - The acquirer would like to expand from their core business and the best way to do this to acquire a company that is the best in the field. I.e. Apple acquires Quattro (advertising), Google acquires Android (mobile).

tantalor 14 years ago |

  > An important component in this calculation
  > is not just the actual cost to build the
  > technology but the opportunity cost of the
  > time it would take them to do so.

I don't think that's what opportunity cost means.

Of course the time to build the technology is part of the actual cost.

The opportunity cost might be the value derived from developing it in-house or acquiring a competitor.

jacquesgt 14 years ago | |

Opportunity cost means exactly what he thinks it means. The idea is that it might look cheaper to develop technology in-house, but if it takes longer to build than buy, the company is losing out on sales during the time it's building. It also could be losing out on early-mover advantages. Those reductions in revenue are called the opportunity cost (because the size of the opportunity is smaller).

Factoring in the opportunity cost may make buying a more attractive option. Keeping opportunity cost in mind can help the seller get a much better price than they would if they just considered the acquirer's cost to duplicate heir technology.

tantalor 14 years ago | | |

Sorry, I was thinking of "time" in terms of salary or wages, which are obviously costs.

Now I understand that "time" can also mean time-to-market, and I see how that can turn into an opportunity cost. Thanks!

The former is like "spent time", but the latter is like "lost time".

notbitter 14 years ago |

Talent ... As a rule of thumb, these acquisitions are priced at approximately $1M/engineer

Of which more than 90% will go to the founders and investors. The engineers being bought for $1M will be lucky to get $100K out of it.

Anybody out there want to justify or at least explain this practice?

BerislavLopac 14 years ago | |

If that is the case, wouldn't it be easier and better just to pay that money (or even half of it) to the engineers themselves to change employers? It seems more sensical to me that the talent acquisitions make sense primarily when the acquirer wants the founders themselves.

rokhayakebe 14 years ago |

4) Buy a company working on something you are, shut it down, and not worry about the potential competition.

beagle3 14 years ago | |

Microsoft did this for the Kinect: Two companies (3DVision and PrimeSense) both had RGB Depth cameras. They signed a deal with PrimeSense, and then bought 3DV and shut them down.

cperciva 14 years ago | |

That's really just a pre-emptive "acquire a startup which beat you in an important area".

gsiener 14 years ago |

Irrespective of the Hunch/Ebay acquisition, it's nice to see Chris blogging so much again.