Article: Acquisitions

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Acquisitions

1 Acquisitions

Definition of topic software startup acquisitions

A startup acquisition happens when another company buys the startup company and its resources, assets and operations. An acquisition can be a very profitable exit strategy for an investor in the startup company.

Types of software startup acquisitions

In a software startup acquisition, the buying company can be ^[1]:

a larger company that wants to acquire the expertise of the startup company
a competing company that wants to acquire a higher market share
a supplier or distributor that is vertically integrating with the startup company
a company that wants to break up the startup company and its assets

Relevance to software business

In 1990s, acquiring other technology companies was a popular strategy for industry leaders in the software industry. Between the years 1992 and 2000, $3.5 trillion was spent on acquisitions. One reason for this was that the leaders could not be as innovative as the startups in the software industry. ^[2]

Acquiring a startup company in the software business industry is becoming increasingly popular. As of April 2008, the total number of acquisitions made by Yahoo! was 55 ^[3] and for Microsoft 118 ^[4]. A total of 53 companies have been acquired by Google since July 2008. ^[5]

Advantages

An acquisition of another software company can have several advantages. One key advantage is that both of the companies can make better use of their assets. An acquisition can also help both of the companies to establish platform leadership and penetrate new markets. Acqusitions tend to be very valuable in the software industry if both of the companies are in similar markets with similar technologies. ^[6]

Example of the phenomena

In the technology industry, Google is very well-known of its many acquisitions. The acquisitions have made several of Google's services and products successful, such as ^[7]:

Writely, which resulted in Google Docs
Keyhole, which resulted in Google Maps
Android, which resulted in Google to release a new mobile platform

Some of Google's acquisitions, however, do not result in new services or products, such as DoubleClick, which gave Google several new advertisers for its AdWords service. ^[7]

Theoretical approaches

Suggests that firms should learn from their prior experiences from acquisitions. They also propose that learning from acquisition experience could be a critical source of competitive advantage. ^[8]

Currently interesting research questions

Bahadir, Bharadwaj and Srivastava propose an interesting research question for further research: How much do customer and channel relationship influence a firm's acquisition value? ^[9]

Another study suggests that further research is needed on understading how to value target assets and how to avoid paying an excessive premium for the acquisition. ^[8]

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References

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