Hold your phone to read the latest startup news and developments in the world of entrepreneurship, and find news of Microsoft's acquisition of CyberX for $ 165 million . What draws these whales' attention to such small fish? Did you know that the WhatsApp application you use daily to communicate with your friends was one day among these little fishes before Facebook acquired it for $ 19 billion in 2014?
Buying Deals: Why Whales Swallow Small Fish
Large companies resort to acquiring smaller companies for several reasons, including: increasing their market share, taking advantage of the technologies used in emerging companies to improve their products, taking advantage of the distinguished cadres present in small companies, or getting rid of competing companies in the market.
1- Increase the market share and geographical expansion
Acquisition is one of the most important strategic tools that are characterized by its ability to accelerate the time of arrival of the product to the market and to obtain new customers in addition to enabling the acquiring company to expand geographically and horizontally. A thoughtful and successful acquisition also pays off in increased profits, market entry, and customer diversity.
Hawaya (formerly Harmonica) was established in Egypt in 2017 with the aim of dating and reconciling marriages using technology while preserving Arab and Islamic culture and traditions. In 2019, the American company, Match Group , specializing in dating and dating, acquired Hawaya with the aim of providing its services in the Arab and Islamic market worldwide, and thanks to the acquisition, the company succeeded in providing its services in the Emirates, Kuwait and Saudi Arabia, in addition to Canada, France, Germany and the United States.
In 2017, Amazon acquired Souq for $ 580 million , the largest deal of its kind at the time in the Middle East. Because attracting customers is a matter of time and effort, Amazon preferred the acquisition option rather than entering the market on its own in the Middle East.
2- Take advantage of the advanced technologies in the acquired company
It may be difficult for the company to develop a specific technology it needs to provide better services and products, and instead of wasting time in attempts that may not achieve the required results, the company resorts to acquiring another company that has already succeeded in developing the required technology.
Google's acquisition of Android is a good example of this. In 2005, Google bought the Android company for $ 50 million . After the acquisition, Google continued to develop an operating system for mobile phones for 3 years and launched the first version of Android in 2008. Now the Android system is one of the most famous mobile phone operating systems in the world and has been able to outperform other competing systems such as Microsoft Windows and the Symbian system of Nokia and Blackberry.
3- Take advantage of distinguished cadres
The presence of distinguished cadres and talents in the company or institution is one of the factors of attraction for the acquiring companies. The presence of a distinguished and efficient work team capable of creativity, innovation and achieving results is one of the most important reasons that push large companies to acquire companies that employ these talents.
In 2018, Microsoft acquired Github for $ 7.5 billion . What does Microsoft see in this platform that make it pay this amount for its purchase? The platform is used by nearly 56 million users and is the largest software development platform in the world. This means that the acquisition gives Microsoft access to the largest community that includes software developers and programming professionals.
In entrepreneurship, startups also need access to the best programmers and other specialties, who can be reached through an independent website that provides a variety of freelance professionals in many fields and through the platform, you can benefit from the distinguished cadres who provide you with the best services.
4- Getting rid of a competing company
This policy is followed by some major companies when a competitor begins to appear and achieve widespread among users, and the acquisition of Careem by Uber is one of the most prominent examples.
$ 3.1 billion is the value of the deal, Uber, of its Middle Eastern rival Careem, as the two companies continue to provide their services and maintain their respective brands. This deal is considered the largest in the Middle East, but it faced some objections from the Egyptian Competition Protection Authority, which stipulated compliance with some conditions to protect the rights of passengers, drivers and investors.
An Analysis of the Biggest Deals: Behind the Deals of the Big Giants
In 2020, due to the pandemic conditions, the number of companies acquired by technology giants (Facebook, Amazon, Microsoft, Google, Apple) decreased from 46 companies in 2019 to 25 as of September 2, 2020.
The following graph shows the number of companies acquired by Facebook, Apple, Microsoft, Google and Amazon from 2016 to 2020./
Now let's look at the Big Five acquisitions
1- Microsoft
In the largest acquisition of the Big Five, Microsoft's acquisition of LinkedIn, estimated at $ 26.2 billion , provided Microsoft with access to more than 575 million professionals from the platform's users and to benefit from these distinguished cadres.
As for its acquisition of the Skype application for $ 8.5 billion , the application that millions use daily in making voice calls, video chats and chatting is a good opportunity to provide new services to the largest number of users, increase its market share, and benefit from Peer-to-Peer video chat technologies.
2- Amazon
Amazon has succeeded in bringing one of its competitors to its ranks after its acquisition of Zappos in 2009 for $ 1.2 billion , which is characterized by its culture that is based on customer satisfaction, which is consistent with the culture and vision of Amazon.
One of the companies that joined the Amazon fleet in 2014 was the video game platform Twitch in a $ 970 million deal that allowed Amazon to enter the video game market and gain new customers.
In 2017, another deal struck with the Whole Foods Market supermarket chain for $ 13.7 billion that allowed Amazon to sell its products in traditional stores as well as take advantage of shopping data and learn more about the habits of shoppers in traditional stores.
3- Google
Google acquired YouTube in 2006 for $ 1.65 billion to expand its ad service offering on the Internet. After the failure of Google in the field of video, it decided to include YouTube to take advantage of its success and the distinguished talents in it.
Google paid $ 3.2 billion to buy Nest, which specializes in smart home devices, in a move to increase its market share in the Internet of Things. This deal preceded an attempt to launch a smart TV, but the attempt did not produce the desired results.
Its acquisition of Looker, the data-analytics startup, in a $ 2.6 billion deal represents an attempt to leverage Looker's staff and expertise and bring together the two companies' top talent in data analysis and cloud infrastructure.
4- Apple
In 2014, Apple acquired Beats Electronics for $ 3 billion , a company that had achieved remarkable success in making headphones that were popular with artists and celebrities. Thanks to this deal, Apple was able to take advantage of the technologies used in Beats in the production of Airpods, which have become one of its most successful products.
$ 400 million worth of Apple's acquisition of Shazam to identify music tracks. This move increases Apple's control over the music market, and the app can be used to direct users to Apple Music. This is in addition to the data that the application has, such as the most popular songs or those that the listener cannot identify and the application needs to know.
The following infographic shows the most important Apple acquisitions
5- Facebook
The social media giant struck a $ 1 billion Instagram acquisition in 2012 with the goal of providing users with the best experience in sharing photos and expanding the range of services it provides.
Two years later, in 2014, Facebook bought the WhatsApp application that competes with Messenger for $ 19 billion and became the most famous messaging application that was a threat to Facebook's dominance of social networking applications.
Hefei Hanin is back: unsuccessful buyout deals
Despite the media coverage of the acquisition deals and the huge sums spent on them, some of them are not successful and do not achieve the desired goals, and the most famous examples in this context are:
Google and Motorola
Google spent $ 12.5 billion on its acquisition of Motorola in 2011, and the aim of the purchase was to develop first-class mobile devices after the Android operating system was able to attract a large number of users, but the actual results were disappointing. The company was unable to produce phones of the required quality and failed to update the operating systems on Motorola phones that are in the hands of users to the latest version of Android. Two years later, Google sold Motorola to Lenovo for $ 2.9 billion.
Microsoft and Nokia
In 2014 Microsoft acquired Nokia for $ 7.9 billion , and Nokia at that time had lost a large portion of its market share to competitors. This acquisition did not pay off due to the failure of the Lumia phone line, forcing the top management to restructure the company and lay off a large number of employees.
Avicenna and my treatment
In the Arab and Egyptian context, Ibn Sina acquired 75% of the therapeutic application in exchange for 25 million Egyptian pounds. Custom application to ask for medicines and beauty products from nearby users pharmacies and benefited from its services nearly 600 thousand users since its launch in 2018. But come the wind do not blow ships, after the announcement of the acquisition decided to Pharmacists Syndicate in Egypt to stop dealing with Ibn Sina because it is so The drugs are sold directly to the public, which is a serious legal violation. Avicenna ended up acquiescing in the pharmacists ’boycott campaign and canceling the investment.
Exit plans: acquisition is one option, not the only one
As an entrepreneur or the owner of a startup, all your interest in the beginning may be focused on building a successful company and providing excellent services or products that generate profits for your company. But how do you see the future of your company 10 or 20 years from now? Do you want to pass it on to your children, or do you intend to work with it for a certain period and then sell it to another company? Acquisition is not the only option for exit. If you want to sell your company or share, you have several options :
- Selling the company to an acquaintance or relative: You can sell your share or company to one of the relatives, founding partners, or senior employees, and what distinguishes this option is that the sale will be between you and a person you know and trust, but its disadvantage is its lack of objectivity, so you may not get the highest price For sale due to your previous knowledge of the buyer.
- Acquisition: means selling your company to another, bigger company like Uber and Careem. The acquisition is characterized by a high transaction value due to the buyer's need for the product or service provided by your company, and in the event of selling to a competitor, it is possible that your company will be valued at a higher value compared to the value of selling it to others.
- IPO of the company: This option means that you are offering a portion of the company in the form of shares on the stock exchange. Anyone can buy a part of your company and the work team in your company continues to practice largely the same tasks as it was before the IPO. This option is not suitable for all companies, as the company must meet some conditions according to the laws in force in each country.
The numbers that large companies invest in mergers and acquisitions deals are not a guarantee of their future success, and the trend of giant companies to include small companies has drawn the attention of the authorities responsible for regulating competition in various countries of the world to protect the rights and data of users and put the acquiring companies under the microscope.
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