Many B2B companies are partnering with similar companies in their industry. But when would it be smarter to acquire that company instead of partnering with them? When is it smart to sell?
B2B executives who have experienced both sides of the company coin of acquiring and being acquired share their insights.
Acquiring Partners and Rivals
B2B companies around the world are engaging in strategic partnerships within and across industries. One example is GetIT Comms’ 2012 partnership with Wildfire Interactive. Anol Bhattacharya, CEO of digital marketing provider GetIT Comms, said at the time, “This partnership enables us to do what we do even better.”
Other examples include Apple’s partnership with Clearwell, and TrendHunter.com’s recent list of 10 B2B partnerships. Also, we recently heard about BlackBerry boosting its security partnership with Samsung Electronics in order to attract more business customers.
Then last month Intel announced it would acquire rival Altera, in a move meant to consolidate Intel’s hold on the processor market.
We have come across a buffet of advice on how to make B2B partnerships work, such as this tip from business platform Powerlinx: “Creating a business partnership plan to map out the relationship, including performance and action accountability as well as metrics allows you to then develop and implement your customer impact strategy more efficiently and stay focused on the bigger picture.”
But sometimes a partnership can segue into an acquisition. Such is the case with LinkedIn’s acquisition of Bizo in July 2014 for $175M. In the announcement of that acquisition LinkedIn Vice President David Thacker wrote, “The Bizo team has been part of our LinkedIn API Partner Program for some time now. Through these interactions, we’ve gotten to know the team and their capabilities well, which surfaced the possibilities of a deeper relationship between the two of us.”
In February 2015, Russell Glass, founder/CEO of Bizo, walked readers through the reasoning behind LinkedIn’s purchase of Bizo and his decision to sell. “We ultimately sold to LinkedIn in large part because we believed that the platform and the brand provided a huge opportunity for our products to reach even more marketers and to reach them faster,” Glass wrote. “We also felt confident that we would be successful at LinkedIn because of how closely our cultures matched.”
Asked if those goals have been achieved, Glass, now Head of Products, Marketing Solutions at LinkedIn, told B2Bnn, “Our cultures are an even better fit than I had originally thought! Each month that goes by reaffirms both how special the fit is and also how critical it is to allow us to execute successfully in a much bigger organization. We are reaching more marketers way faster than we could have at Bizo, but we’re still focused on building great products to accomplish our mission.”
It is also apparent that competition can lead to acquisition. As TechCrunch reported in July of last year, “Once bitter rivals ScribbleLive and CoveritLive are now family.” Toronto-based Scribble Technologies acquired CoveritLive from Demand Media “effectively bringing two of the largest live content creation companies under one roof.”
We acquired CoveritLive (CiL) for several reasons. One, we wanted to get more traction in the sports vertical, and the CiL platform had features catering to that market. Second, we wanted to develop our self-serve business; CiL had created an entry level pricing package that users could purchase easily with credit cards, and we wanted to leverage that model for ScribbleLive’s content marketing platform. Lastly, we did the acquisition to keep our competitive advantage. There was enough overlap in our product technologies that a threat could develop if CiL were to be acquired by a third party. Acquiring CiL ourselves removed the possibility of that threat.
Traction in the sports vertical for ScribbleLive meant gaining footing with “key clients in the sports industry; including the NFL, NBA, NHL and MLB, as well as 100 other professional sports teams,” according to The Globe and Mail.
Acquisition Pros and Cons
ScribbleLive’s Misfud discussed the benefits and dangers associated with acquiring a similar company within his industry. “Pro would be that you can get great incremental value from an acquisition, and potentially leapfrog the competition,” said Misfud. “The con of course, is that you might not be able to extract all the value that you’re trying to get. You have to make sure you select a company that can offer you real gains, whether it’s a new market segment, new knowledge, technology, or talent. Then as the acquisition happens, make sure you focus on extracting all the value that you planned for, instead of simply letting the acquisition be an end goal in itself.”
As a CEO who experienced the acquisition process from the perspective of his company being acquired by LinkedIn, Glass offers his insights on the pros and cons involved.
“The acquisition process can be a very positive one if there is good product and cultural alignment,” said Glass. “However it can also be highly defocusing for the company that is being acquired so it is critical that management keeps the company completely dialled into their goals as many M&A processes don’t lead to anything and it will be more critical than ever to show strength in the core business to move on to the next stage.”
What Being Acquired Means for B2B Company Founders
Glass was asked what the transition was like for him in terms of moving from founder/CEO of his own company to working for a different company. Glass replied:
The transition from founder/CEO to a product leader at LinkedIn has been rewarding but challenging at the same time. The upside is huge learnings for me on how large companies operate, how to build consensus, and the ability to execute against meaningful ideas on a truly global scale. I am absolutely a better leader and entrepreneur for having spent the last 10 months at LinkedIn. The challenges I have faced are the transition from leading an entire organization to a small part of the company and learning how to build consensus across many different areas of the company to accomplish my goals.
Moreover, Glass provided insights for B2B company founders whose businesses are in the process of being acquired. “I would suggest that the leader of any B2B organization that gets acquired should focus first on the culture fit,” said Glass. “This has made my transition far easier because the host doesn’t reject the ‘foreign body’ and in our case was thrilled to have me and our team join the company. The transition would have been far more difficult, or potentially impossible, without the great culture fit.”
What to Consider in Acquisition and Selling Decisions
Many B2B firms are often partnering with similar companies in their industry, and it is often a smart move to align services and customer reach. But when would it be smarter to acquire that company instead of partnering with them? The examples above point to a number of factors including preemptive strikes (e.g., ScribbleLive’s acquisition of CiL before a third party could move in and do so), increasing client base and gaining foothold in new verticals, leapfrogging competition, and gaining new knowledge, technology, or talent.
When is it smart for B2B companies to sell? Glass wrote that “There are a number of factors involved in deciding to sell” including weighing “what value you are getting for the business, compared with its ‘fair market value.’”
And, as noted above, the bottom-line for Glass is a “great culture fit.” The business interactions between Bizo and LinkedIn helped the companies develop a relationship which, in turn, allowed Glass to feel confident that the cultures would match.
What’s your take on partnering vs. selling? Let us know in the Comments below