When competitors are acquired…

It is clear that we are moving towards a consolidation phase in the technology sector.  M&A activity has been heating up over the last 18 months as strategic acquirers are looking to bulk up and broaden their product offerings.  During the last few months, we have had a few board discussions on this very topic.  The conversations were not about us trying to shop any of our companies as I firmly believe that companies are bought and not sold (see an earlier post).  Rather, our discussions focused on what happens when one of our competitors are acquired.  Usually when a competitor is bought at a huge price the first reaction is why it wasn’t me.  The second reaction usually becomes fear as you begin to worry about what your competitor’s product will do in terms of market share with a huge sales force and partner channel, strong brand name, and global infrastructure to support the customer growth. 

Having been through this a number of times, this is the point at which you need to take a deep breath, stay the course, and look at the situation in a positive light.  First of all, the majority of acquisitions fail.  Secondly, your competitor will be inwardly focused and quite distracted for the first 6 months trying to integrate with the parent company.  Finally, depending on how the acquisition was completed, employees will begin to leave as soon as they get the bulk of their money off of the table.  When a competitor is acquired, rather than sulk and worry about why it wasn’t you, try to aggressively exploit the situation and use it as an opportunity to grab market share and poach some experienced and talented personnel from your nemesis.  Last year, for example, one of my companies was able to build an incredible sales team overnight, saving us six months of hiring and giving us an opportunity to hit the market harder and faster.  So the next time this happens remember that you will more likely than not be in a better situation after your competitor is taken out of the market leaving you with plenty of opportunity to grow.

Published by Ed Sim

founder boldstart ventures, over 20 years experience seeding and leading first rounds in enterprise startups, @boldstartvc, Saas 2.0, googlization of IT, security, smart data; cherish family time + enjoy lacrosse + hockey

7 comments on “When competitors are acquired…”

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  2. Ed – great post, by the way. But the tricky question is: how to improve the probability of success of an M&A? I made a few suggestions on my blog, but was curious about what you’d suggest.

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