Understanding Your Exit Options: Identifying Potential Tech Acquirers Part 3

If you have been following my blog over the last several weeks, you will recall that I wrote a series of blog posts to help start-up companies with designing effective company exit strategies. This series of posts is titled “Understanding Your Exit Options,” as it is intended to teach start-up companies how to identify exit options and plan their exit strategies early on in their adventure, so they do not overly complicate or block exit opportunities along the way with IT, cultural, product compatibility and product positioning decisions.

In this week’s blog post, I will discuss the cultural and technology interests of the following “Power Acquirers”:

1. Microsoft
2. Apple

Review of the Technology “Power Acquirer” Cultural and Technology Interests Continued:

Microsoft:
Since 2005, Microsoft has made 85 acquisitions totaling approximately $13 billion. However, between January 1 and December 2, 2010, Microsoft only completed 1 acquisition.

Microsoft’s current strategy is to acquire companies in business areas where they operate, but aren’t winning. They generally target larger and more mature companies. In general, they try not to acquire open source companies and target Windows compatible and focused software products. Microsoft often uses acquisitions as a means to acquire top industry talent to help bolster its current product development staff in strategic business areas. For example, Microsoft acquired Winternals, a systems recovery and data protection developer, in July 2006 to bring Mark Russinovich, one of the world’s foremost experts, on the Windows kernel into its team.
In terms of areas, Microsoft has targeted the majority of its growth capital in the past 3 years towards search and advertising acquisitions and agreements. Starting in January 2008, Microsoft started targeting the search market as a strategic space when it acquired Fast Search for $1.2 billion and further bolstered its position in this segment by negotiating a 10 year search exclusive outsourcing contract with Yahoo! in 2009. Microsoft continues to target the search market and the periphery markets like online advertising. Microsoft has also shown a strong interest in the social networking space, as it made a formal offer to acquire Facebook in December 2010 for $15 billion and then opted to purchase a small stake in Facebook when their offer was turned down.

Another segment that Microsoft has focused significant efforts and growth capital towards is the cloud computing segment. Microsoft believes that “the cloud really opens [it] up to new revenue streams that [it hasn’t] had access to before. And not simply the revenue you get from delivering the service, but also the opportunity to capture some of the IT budget that customers would have spent on hardware.”

Microsoft has also shown an interest in further bolstering its gaming and mobile offerings. Microsoft looks likely to make a move in the gaming segment and recently signed a mobile development deal with Nokia that appears to be blazing the trail towards a future acquisition, as it ends Nokia’s vertically integrated business approach by agreeing to phase out the Symbient Mobile Operating System. Microsoft has had some bad luck with integration over the years, so it tends to focus on easily “integrateable” companies both from an IT and cultural perspective.

Apple:

Until recently, Apple had been relatively inactive in the tech acquisition market. Apple only acquired 21 companies between 2000 and 2010. That is less than a quarter of the Microsoft or Google acquisition counts during the same period. Prior to 2010, Apple was often regarded as an “organic grower” that focused on cultivating its unique culture and controlling all aspects of its design process. Consequently, most of Apple’s acquisitions prior to 2010 were small in size and focused on talent and/or supplemental technology that Apple wanted to integrate into its product.

However, as Apple’s presence has grown in the mobile space, Apple has become more open to acquiring new revenue streams in adjacent spaces that complement its own business. In fact, in 2009, Apple attempted to enter the mobile advertising space by making an offer on AdMob, but Google snatched them away in the 11th hour of negotiations. Shortly after being burnt by its slow moving acquisition process, Apple reaffirmed its interest in the mobile advertising space by acquiring Quatro for $275 million. Apple continued its acquisition activity through the remainder of 2010 by acquiring 3 more companies: Intrinsity, Poly9 and Siri.

Apple typically targets smaller lesser known players in the market place that have solid technology foundations. They also look for talent that they can integrate onto their teams. For example, Apple acquired:

1. Lala.com for online cataloging and streaming of music (to bolster iTunes) and its founder, Bill Nguyen
2. Placebase to jump start the process of developing its own mobile mapping software to reduce dependence on Google
3. Siri to improve its voice-based controls and concierge services.

Apple does not target companies for audiences; they are firm believers that they can generate audiences for their products and do not need to purchase audiences. Apple also tends to target smaller companies.

Apple places a high premium on company culture and technology since its ultimate goal is to integrate the acquiring firm’s technology and team into its products and design teams.

Apple is interested in the mobile advertising, mapping, entertainment, gaming, music and mobile markets. Historically, Apple has avoided in-house manufacturing all together.

Apple publicly stated in February 2010 that it has over $25 billion in the bank and it intends to use some of this as expansion capital. Thus, we can expect to see Apple continue its increasing presence in the tech acquisition market.

Next Week’s Post: 

In my next blog post, I will continue to break-down the cultural and technology interests of a few other “Power Acquirers” in the tech segment.