It is indeed undeniable that entrepreneurs dream of continuously growing their businesses. However, there are many strategies to achieve this challenging objective and it may be difficult for some business leaders to decide which methods are best for their particular startup. One of the proven and most effective ways to achieve greater heights in the corporate world is getting acquired by larger companies.
To put things into perspective, an acquisition occurs when a business takes over another without creating a new entity. As such, acquisitions are essentially corporate transactions where the acquirer purchases the most or all of the shares or assets of the target organization. Through this way, the acquiring corporation is able to make decisions for the acquired entity even without the approval of its shareholders.
While some business leaders find it difficult to relinquish control over the company that they have built, others find that getting their startups acquired by corporations bring a lot of benefits to all the stakeholders involved in the acquisition process.
How do Acquirers Benefit from Acquisitions?
One of the main reasons why companies pursue acquisitions is because this transaction helps them increase their market share, especially when the acquirer gains control of the acquired entity’s firms. At the same time, this strategy allows them to enter foreign markets or develop new product lines which were already penetrated by the target businesses.
Aside from market advantages, acquiring companies can also achieve synergies and increase the value of their own company. Acquirers can gain more resources and technologies that initiate the growth of the company. Companies that acquire other entities are also able to enjoy the benefits of having more skilled individuals who can share their expertise without having to train newly-recruited employees. These benefits undoubtedly allow the company to achieve its growth goals as it competes in cutthroat industries.
How do Acquired Businesses Benefit from Acquisitions?
Although larger corporations certainly profit from their acquisition activities, acquired entities also gain a lot of advantage when they participate in such corporate transactions. Smaller startups get access to more capital and resources when they get acquired by larger market players, allowing them to continue their operations on a much larger scale. For this reason, many early Philippine startups—such as Airborne Access. Anino Games, and Chikka—have used acquisition as a growth strategy for their respective ventures.
Airborne Access was a telecommunications startup company founded in 2002 which served as internet services provider for public establishments. Since its inception, it has been every business’ vision to cater to the needs of the mobile worker while increasing revenue for businesses like restaurants and cafes. After six years of operations, the company was then acquired by PLDT. Naturally, this acquisition proved to be strategically beneficial for the startup as it was able to use PLDT’s existing DSL infrastructure in order to deploy more hotspot access points to various locations, allowing the business to stay afloat especially when Globe also wanted to enter the Wi-Fi hotspot services industry.
Anino Games was the first video game company in the Philippines, beginning its operations back in 2001. Over the years, the business acted as both a game developing studio and a full-service third-party developer for larger game developing companies . Later on, the company was acquired by PlayLab, a Thai game developing company. This acquisition proved to benefit PlayLab primarily because the company no longer needed to train new employees if they had access to Anino’s talented game development team. At the same time, the Anino Games team gained access to newer technologies while enjoying better benefits.
Chikka is a company which provides unique messaging services through its Chikka.com Text Messenger. This platform aimed to connect Filipino SMS and Instant Messenger users overseas. Ultimately, this technology served as a cost-efficient way of bringing together Filipinos from all over the world at a time when international SMS cost quadruple the amount of regular text messages. Furthermore, the company successfully developed multiple technologies which held global patents. Eventually, Chikka was acquired by Smart in 2009. Although this move was originally done in order to appease shareholders, this acquisition provided Chikka with the means to discover the ins and outs of the telecommunication industry. At the same time, Smart was able to offer innovative value-added services to the growing population of Internet users in the Philippines with the help of the Chikka team. Since its partnership, Chikka and Smart were also able to release products that brought the telecommunication industry to where it is today.
What should You Look out for?
Although acquisitions come with a lot of benefits, it is essential for entrepreneurs to also take note of the disadvantages that come with this endeavor. According to the Corporate Finance Institute, even if managers practice due diligence throughout the acquisition process, it is still possible that the target company is not a suitable fit for the acquirers as some expected synergies may not come into fruition. In fact, the source also states that acquiring companies may even face issues in their respective labor, operations, and marketing divisions.
Perhaps one of the largest problems that may come up after a failed acquisition has to do with the changes in the organizational culture and structure of the acquiring company. More often than not, the controlling company is likely to reorganize and execute job cuts to boost performance while trimming down wage expenses. However, these reorganization efforts may reduce employee motivation and productivity. At the same time, conflicting company cultures and clashing objectives between the acquiring company and the target company can cause confusion and conflict among employees and stall efficient job performance.
Aside from causing issues among workers, complications in the company’s operational activities may also emerge. Acquisition activities are likely to increase the overhead costs and expenses of the acquiring company. Following the increase in market shares, the growth of the company can also mean that the company’s existing suppliers may no longer be able to provide enough product or service to shoulder the increasing demands, causing production issues and higher pressures on the suppliers.
Finally, both companies could experience branding issues, especially if one of the two organizations suffers from a poor brand image. Because of this, the company’s loyal customer base may lose interest or stop supporting the brand, decreasing the company’s potential revenues
Nevertheless, acquisitions undoubtedly serve as a good way to both exit an industry and grow a small startup. By assessing and weighing the advantages and disadvantages of similar business activities, small and large businesses can surely sustain the company’s advancement in the years to come.
Visual by: Chloe Gaw