Understanding Your Exit Options: Identifying Potential Tech Acquirers Part 4

If you have been following my blog over the last several weeks, you will recall that I have written a series of blog posts to help start-up companies in 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 plan their exit strategy early on in their adventure, so that 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. Facebook
2. HP

Facebook:

Facebook is relatively new to the acquisition game.  In fact, it did not make its first acquisition until July 2007, when it purchased Parakey, and to date it has only completed 13 acquisitions.  Despite being new to the game, Facebook certainly established itself as one of the main players in the tech acquisition market in 2010 by acquiring 8 companies. Facebook’s Director of Corporate Development, Vaughan Smith, stated in November 2010 that he expected Facebook to double its 2010 acquisition volume in 2011.

According to Mark Zuckerburg, Facebook’s CEO, Facebook uses the acquisition market as a means to acquire people, not products.  As Facebook matures and grows as a company it faces the challenge of losing its entrepreneurial culture.  Facebook will have to rely more on the acquisition market to replenish the entrepreneurial lifeblood of the company.

In terms of size, Facebook targets young start-up companies in the less than 30 employee range with sticker prices of $50 million or less.  In fact, many of its acquisitions to date have cost $10 million or less and featured fewer than 15 employees.  Although the company is focused on talent, it has an interest in mobile, location, online advertising, messaging and payment services.

In terms of culture, Facebook looks for companies with innovative, young and hungry employees that will easily integrate into its entrepreneurial culture.  Once acquired Facebook immediately integrates their new team members onto core business projects like developing the iPhone4 Facebook application.

In the next few years, as Facebook matures, it will likely expand its acquisition motives to include new periphery business as well.  However, for now their acquisitions are entirely focused on talent.  This also means that Facebook will likely be increasing the amount of growth capital that it allocates to acquisition based growth.

HP:

HP is one of the most active players in the tech acquisition marketplace and according to its CEO, Léo Apotheker, it will remain a leader in the tech acquisition market in the years to come.  HP uses the acquisition market place to enter new markets, expand its service offerings and bolster its position in industries that it already operates in.  HP relies heavily on acquisitions to fuel its growth and consequently allocates a significant portion of its growth capital towards strategic acquisitions and has done so for many years.  Between 2000 and 2010, HP made 93 acquisitions.  In 2010, HP spent more than $8 Billion on 6 acquisitions.  The bulk of this growth capital was spent on Palm, ArcSight, 3Par and 3Com.  Although last year’s average deal size was significantly higher than in previous years, HP tends to target more mature and larger businesses for acquisition.  In fact, HP’s 2008 Electronic Data Systems acquisition is one of the largest acquisition deals ever made.

Geography is not usually a factor that influences HP’s acquisition decisions.  36.6% of its acquisitions between 2000 and 2010 involved companies based outside of North America, making HP more open to acquisitions outside of North America than most of the other tech “Power Acquirers.”  Culture and technology are also not major factors in HP’s acquisition decision process.  HP prefers technology that can be easily integrated with its product lines, but is not foreign to acquiring companies based on completely different technological platforms.

On March 14, 2011, HP’s Chief Executive Officer, Léo Apotheker, laid-out HP’s short and long-term growth strategies.  In doing so, Apotheker identified the following strategic growth areas:

1. Cloud: HP plans to build a full cloud stack and help transition customers to hybrid cloud environments and intends to leverage its scale, reliability and security in its current hardware, software and services offerings.
2. Connectivity: HP intends to maintain its leadership in the area of enterprise and consumer connectivity and will use the acquisition markets if necessary to ensure it stays on top.
3. Software: Through a build, buy and partner approach, HP intends to continue to enhance its leading management, analytics and security portfolio.

Most of HP’s acquisitions in the upcoming year will likely be in or around these strategic growth areas.

For a more detailed look at technologies and segments HP may be eyeing, take a look at Christopher Baum’s recent Software advice blog post on HP acquisition targets.  In this blog post, Chris reviews the last 10 years of HP’s M&A activity by segment and size to establish that HP’s next big acquisition target(s) will likely be in the software space or IT infrastructure space, as these products would round out HP’s end-to-end IT infrastructure and business software portfolio.  He identifies the following areas as likely acquisition areas and projects when HP might make a move:

1. An enterprise database solution
2. Business Intelligence
3. Graphics
4. Medical Imaging
5. Consumer Multimedia
6. Virtualization
7. Security
8. Network and Systems Management
9. Linux
10. Document Management

Summary:

Now you have several examples of how to evaluate potential acquisition targets for your business and are ready to create a list of potential target acquirers that would potentially be interested in your company based on their needs and requirements.  Creating a company exit strategy early-on in your companies exit strategy will boost your company’s likelihood of achieving its end-goal: a profitable and painless exit.