WHY DO BIG COMPANIES BUY LITTLE ONES?

 

Do they ‘live happily ever after’ or does it ‘end in tears’?

What happens when big companies buy little ones?

Also, you will discover later in this article the conventional reasons why big companies acquire small ones.

I was thinking about this point when reading earlier this week about the ‘spat’ between Greg Duffy and Tony Fadell.

The context is 2 years ago Google Incs Nest Labs [prior to their re-organization] bought upstart Dropcam for $555 million in cash.

Just prior to the acquisition, Google had acquired Nest Labs for about $3.2 billion.

Nest Labs build intelligent home thermostats and smoke and carbon monoxide detectors.

Dropcam was a provider of easy to use and configure WiFi webcams and trackers and cloud based storage. Dropcam owners can check in on their connected cameras from virtually anywhere and the video feed can be stored in their cloud and be viewed later.

That was 2 years ago….fast forward to this week.

I won’t bore you with all the details but there has been an acrimonious split and a heated exchange of views between the 2 protagonists, Greg Duffy and Tony Fadell.

It has been played out in the press….2 big egos clashing!

If you want to maximize your exit and achieve a large payout for your many years of hard work and risk, selling to a large company [ ideally a strategic buyer] should be your objective.

They have the money.

The 4 conventional reasons why a large company buys a smaller one are as follows:

  1. To sell your product to their customers.
  2. To leverage your technology to make one of their products better.
  3. To get hold of your key team members.
  4. To acquire a new distribution channel to sell their products.

However, often it’s not that straightforward….they don’t ‘live happily ever after’ and there are ‘tears’.

Big companies, by their very nature, are ’big’ and complicated.

Post completion, there may be the following issues:

  1. 1.    They are ‘big’ 

A deal may seem large to you [even life changing] but to them it’s a ‘rounding error’! It may not get much attention.

  1. 2.    Changing priorities 

The intentions are all there but when priorities change eg a different executive takes charge, the new product might not have the same attention.

A deal that made strategic sense last year suddenly is out of place with the new strategy.

  1. 3.    Cultural

This is significant…the challenge and importance of the clash of cultures. The dynamism creativity and risk associated with the small company clashes with the systems, processes and bureaucracy of the large business.

The mixing of the best of both is difficult and takes time.

 

These are important points to consider only if, post sale, you are staying on in some capacity.

If, however, you have ‘retired’ or ‘moved on’ and aren’t involved it isn’t your concern.

To discover how to sell your business to premium price buyers go to http://www.maximizeyourexit.com/sell-smart-net-what-youre-worth-t

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