Sunday, August 23, 2009

Strat"e"gic Acquisitions

Acquisitions are very easy to look at and talk about especially if one talks and hears about the success stories. Though it's not easy to decide until at least 4-5 years of an acquisition about the true outcome - before either it starts showing some continuous benefits(revenues) or it collapses after a quick growth, and the third and desired option is that it becomes a visionary fitment into the organization and it doesn't just grow because of the acquisition but also gains market value and respect.

There are certain parameters for an acquisition to be successful, these parameters not necessarily are ingredients of a magic potion, but they certainly are worth looking into while I do a necropsy of some of the acquisitions that have happened in the last 10 years I'll try to highlight some of those points and map them with what went wrong and what were the success factors:
  • Fitment into the business for improvising the business model - "e-bay's purchase of bill-me-later" : Payment mechanism has been one of the most important factors driving success of the online sellers. In today's world even though credit reliance has taken a toll on the economy - it's never been more important to gauge whom to give credit and whom not to. (Bill me Later)BML's model is interesting - it offers transaction-based credit to online shoppers at the time of checkout. Consumers provide BML with their date of birth and last four digits of their social security number. BML's engine decides whether to approve and extend credit for the transaction. Though this acquisition has come in at slightly a wrong time when a seller would hesitate to offer a sale at credit to any individual however excellent the past credit history of an individual be, but this acquisition for $820 mn comes in 6 years after e-bay had done another strategic acquisition to bolster their online payment model - Paypal! e-bay being the gorilla in the online auction market in 2002 they wanted a best of breed online payment mechanism. Even after acquisition of Bill point in 1999 they could not match the trust that pay pal had developed in the minds of the people. And it was for this mindshare that e-bay decided to acquire paypal in 2002 for around $1.5bn. The moved did work wonder very well for e-bay and they managed to maintain their status of market leaders in the online auction world. It would take another couple of years to gauge the true benefit of BML acquisition but I think very few of e-bays decisions have gone wrong in terms of acquisitions or purchase of stakes that they have done. (I would certainly want to talk about they taking 25% stake in craigslist in one of my subsequent blogs)
  • Common vision - "Google's purchase of Youtube": This was termed as "CRAZY" by strategists when Google decided to do the acquisition in 2006 for a gargantuan sum of $1.65 bn. All google had to do was to fit in the 65 odd employees that youtube then had into their 10,000 + employees. But google had one clear intention that they wanted to continue and enhance their ability of delivering content in all forms to users. Today, 3 years from the deal though am not sure of the financial figures but it's obvious that Youtube seems to be the choice of viewers on any of the social networking sites apart from the demand that youtube has generated and the coverage it gets to all possible TV shows, movie clippings, sports world et al. And google has come a long way since then knowing how to best capitalize with youtube by using various mash up techniques to integrate youtube not just into google acquired platforms but also on outside networks. What's important here is to also understnad that it's not just the common vision that drives this but also a technological fitment in terms of strategy and platform.
  • Increase the market coverage and penetration - "New York Times's (NYT) acquisition of": New York Times has been one of the oldest and most read newspapers in the United States and currently is the larget metropolitan newspaper in the United States. It was one of the early adopters of the web and it has been available online since 1995 and today it boasts of around 160 mn readers. But in 2005 a need was felt to grow the readers and they had to find a perfect mix of a similar entity that had the web presence for it content in varied fields. This is when they decided to acquire to get the 22 mn users of compared to 13 mn users of NYT to aggregate the users and increase the readership, and this deal came in for $ 410 mn. The deal has certainly worked wonders for NYT and it has been a continuous growth since then for NYT in terms of market presence.
These are some of the acqusitions that according to me have really worked well for the parent company but there have been several other's worth a mention and although they have been much bigger in size in terms of the dollar value of transaction like AOL or Hotmal acqusitions by Time Warner and Microsoft, but they are contentious deals and need a different level of discussion on whether they were success or failures!

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