Startup CEO, 2nd Edition

Chapter 30The Role of M&A

“Mergers and Acquisitions” may seem more appropriate as the title for an MBA course than a chapter in this book. Yet “startup M&A” isn't the oxymoron it sounds like. It's one of the most important tools in every startup CEO's strategic arsenal, as is its flipside, divestiture.

Using Acquisitions as a Tool in Your Strategic Arsenal

Many entrepreneurs are afraid to do acquisitions. It's usually a combination of being daunted by the task – and it is daunting – and fear of introducing something that was not invented here. At Return Path, we're at 10 acquisitions and counting. Not all of them have worked but a couple of them have been transformational, and most have been relatively small and good “tuck‐ins.”

Every merger is unique but I have found that you can usually place them into one of four categories:

1. Buying technology. Many strategic plans involve the expansion of a company's capabilities by creating a new product. The classic question you have to ask is: “Is it cheaper to buy it or build it?” If you answer the former, it could make sense to buy a small company in order to acquire technology that they have already built or simply to buy the rights to that item of technology. (Once you have it, of course, it's your job to sell it.)
2. Buying teams. Even if you decide to “build” rather than “buy,” you may need to hire an entire team to execute on your latest project. Buy an entire team (a strategy that's recently been dubbed both “doing an HR deal” ...