Part one of our two-part series on expansion through M&A
This is part one of our series on growth through M&A and focuses on a few key reasons to consider M&A driven expansion, along with crucial strategies to make it successful. In part two, I will break down specific cases highlight some of my learnings from Airbnb’s and Rover’s acquisitions in Europe and what we learned.
Thorough planning and execution are key for a successful launch in Europe. This preparation and implementation also extends to acquisitions, which can be an essential part of the process. A great acquisition can serve as a catalyst of European success and unlock tremendous growth potential. Similarly, a few overlooked aspects when acquiring a company, can virtually guarantee the opposite.
I’ve guided US tech companies, including Airbnb and Rover, through acquisitions and would like to share tips based on my first hand experiences. If you want to know how acquisitions can be integrated in an international expansion, you’ve come to the right place.
Here are a few key reasons to expand and strategies to consider incorporating as part of your expansion strategy:
- Accelerate internationalization: Acquisitions are typically a much faster market entry route compared to organic growth, which is used by companies when they are under external (e.g. from competitors, market dynamics, regulation) or internal pressure (e.g. from investors).
- Access to a larger total addressable market (TAM): Buying an existing player makes a lot of sense when you can access a larger TAM via an additional business in that market. If you already have theoretical access to this market (e.g. because you are a software product that can be used anywhere) a local presence can accelerate TAM expansion.
- Pre-empt competition: If your competitor is planning international expansion, you can deny them access to a market through an acquisition, or at least slow down their process.
- Remove local competition: With a dominant competitor in a local market, sometimes it is more cost efficient to buy that competitor than starting a fight for local customers on their home turf.
- Test a (slightly) different business model: Acquisitions enable you to test potential business models in Europe first and then bring them to your home market. But beware, this approach most likely requires more intense due diligence, as you will likely be less familiar with a different model and the drawbacks that accompany it.
- Acquire an under-valued business: Startup valuations in Europe are usually not as high as they are in the US. Acquiring an under-valued startup can serve as a great entry point and add an immediate return in equity on investment.
- Key assets: Acquiring a company comes with plenty of assets, but those assets often have wildly varied values. Some will support your growth and some could hamper it (e.g. as legacy issues or talent debt).
Here are the three main assets you should always include in both your short and long-term evaluations:
- Tech product
You might be interested in only one or two of these assets, but you always get all of them. Align the acquired team from the get-go on the business priorities post-acquisition. Make it clear that some of their hard work is more valuable and that spurring growth means making the painful, but necessary choice of embracing specific projects over others.
M&As are not the right strategy for everyone, but to those who do choose the M&A path, simply planning for eventualities and giving serious thought to the above will give you a far greater ability to make the right decision.
In part two of the series, I’ll be matching these general principles with actual practice by breaking down the expansions of Airbnb and Rover. In that upcoming post, you’ll see how both Airbnb and Rover blazed a trail to success and the decisions they made to get there.