“Selling out” Part 2: Business Integrators
“Selling out” Part 2: Business Integrators
In the previous post, I introduced the three types of corporate buyers:
Corporate Venture Builders
Business Integrators
Profitability Optimisers
and discussed the Venture Builders, what to expect from them post-acquisition, and how they might affect your long-term success in more detail.
Today’s insights are around Business Integrators: the companies that leverage M&A to deepen or broaden their own core business proposition.
The M&A strategy is very different from the one of the Venture Builders. A Venture Builder’s M&A strategy can be described as “investing into the future seeds,” focusing on multiple companies, independent operations post-acquisition, and a longer horizon for integration.
With the Business Integrators, the M&A strategy is a direct function of the business priorities for the core business operations. Companies are bought to be integrated – either as a new market under the same business model, or as a product that will become part of the existing proposition over time.
Think of #eBay who bought #PayPal in 2002 to improve peer-to-peer payments offering for their marketplaces business and replaced its own payment system Billpoint with it. Or #Microsoft that bought #Skype in 2011 and gradually transitioned a lot of its functionality into #Teams, retiring Skype for Business product altogether in 2021. In the same year, six years after splitting out #Paypal, eBay has removed it as the payment processing partner.
What are the implications for my business?
If your business has an excellent product that covers a very specific step in a broader customer journey already well-served by a large company,
or is operating in a small geographic market where the benefits of scale are limited,
joining a business integrator could be a fantastic lifeline to extend the market opportunity, switch to a more scalable infrastructure, and step out of the head-to-head feature competition.
On the other hand,
if your product is excellent and its market opportunity is broader than that of the potential acquirer, in the long term you might be more successful in grabbing that opportunity if you remain an independent company.
eBay has benefited greatly from the PayPal acquisition. However, since becoming an independent company again, PayPal accelerated its growth significantly.
What to expect when acquired by a Business Integrator?
When done well, an acquisition by a Business Integrator means becoming a part of the mothership – fast. When I worked for eBay, acquisitions were put on a tight PMI schedule, and 90 intense days later all systems were integrated, teams were warmly welcomed, and their new badges opened all eBay office doors around the world – speak about belonging!
Expect structured, intensive, and all-encompassing post-merger integration (PMI). Your financial systems, your corporate IT setup, your vacation policies will migrate to those of the acquirer. Some changes will be positive, like better tooling. Others will be constraining, reducing the flexibility of tools or behaviours.
The first months might be confusing: you will suddenly have a “real” manager and be a part of a Corporate Way of Doing Things. At the same time, your manager will likely still be learning about you and your business, so you might feel more constrained than supported by them at first. The first 90 days are a great opportunity to establish mutual rapport and share as much knowledge in both directions as possible – shared context will give both of you trust and independence needed to be successful.
What NOT to expect from such an acquisition?
Your own business was The Center of the Universe for its team while the company was independent. Now it is just another product / market to run and integrate within the large company. It’s a big change in perspective: before, the top priority has been clear and resources were hard to find, now resources are more ample yet the priorities are harder to define.
Just like the Venture Builders, even the best Business Integrators will not be able to save the sinking ship. If your product requires a significant rewrite or your team culture is weak, there will not be a magic solution coming from the new owner. You can however tap into a lot of knowledge and resources to improve things – with Business Integrators, there are significantly more tools, systems, and dedicated Learning and Development experts to help you.
Finally, as tough as it sounds, a successful acquisition by a Business Integrator means the end of your company as it was. When an integration goes well, you may see the brand disappear, the product dissipate, and the team go into different parts of the organisation. A true success is when the overall customer value proposition improves, even if it’s no longer visible to the outside that your company and your product made that possible.
When is a Business Integrator the right buyer for me?
If you have a great product that covers a small and specific part of a broader customer journey already well-served by a large company, joining forces with a Business Integrator can secure the future of the product.
If you operate in a small geography and your business proposition is close to that of a bigger international company, joining forces can give you access to more efficient operations, better product, and a more secure long-term market position.
If you are ready to leave in 2-3 years maximum and able to oversee and support the integration efforts, such acquisition can provide a well-managed transition.
When is a Business Integrator NOT the right buyer for me?
If your business can be a supplier to multiple large companies and your potential acquirer is one of them, remaining independent may be the best long-term strategy to realise the full potential. Think PayPal post-split with eBay when the constraints were removed.
If you want to continue running your business for a longer (3+ years) horizon and value independence and flexibility, this may not be the right step for you. You will get a real corporate manager, you will experience a lot of constraints, and your business priorities will become secondary to the larger company goals. A Corporate Builder or remaining independent is a much better match.
If the expected synergies with the acquirer are not proven and are not tangible, the chances of a successful acquisition with value creation are low – don’t count on them. Continuing the eBay example, the idea that Skype (acquired in 2005, largely written off in 2007, and sold under pressure in 2009) could bring additional value to the Marketplaces business made high-level sense, but it never materialised because there was no tangible use case for it.
So, you are reading this and thinking - this is still not my cup of tea... what are the other options?
What if your business model is clear, your operational priorities are known, and someone just needs to execute and do it well to make the best out of it?
Enter the Profitability Optimisers.
Subscribe to the newsletter and read about them next week!