Get Absorbed Being acquired can be a very good thing for your business.
Opinions expressed by BIZ Experiences contributors are their own.
Enpocket is a 6-year-old software company that helps businesses create and send advertisements to mobile phone users, then monitor data such as click-through rates. The multimillion-dollar company's customer base includes MasterCard and Sprint. "What we're really working on is Web 3.0--what's next for the internet," says former CEO Mike Baker, 44.
What's next for Enpocket? In October, Nokia closed a deal to acquire the Boston-based company for an undisclosed sum as the phone maker moves into the software and services business. "We're a part of that transformation effort," says Baker, whose new title since the acquisition is vice president and head of mobile advertising.
Today, big companies use M&A as a shortcut to new channels, new content, new customers and new competencies. More than $10.5 billion in M&A transactions were announced in the third quarter of 2007 alone--31 percent higher than the third quarter of 2006 and the most in a single quarter since 2000, according to Dow Jones Venture One.
M&A is especially hot in the technology space, where Google, Microsoft and Yahoo are in a race to buy young companies and willing to pay a lot for them. Last year, Google paid $625 million for e-mail service provider Postini, while Yahoo acquired online advertising network Blue-Lithium for $300 million. Microsoft paid $6 billion in cash for advertising network aQuantive. These tech giants made other acquisitions as well. "The marketplace is very competitive for good companies, and [they're] often having to buy companies earlier in the development cycle," says J. Fentress Seagroves, transaction services partner at PricewaterhouseCoopers' private company services practice.
Baker liked the price Nokia offered for Enpocket, as well as its willingness to pay future value upfront. Nokia also asked Baker and his team to continue building Enpocket. Most of the 125 employees Enpocket had at acquisition stayed onboard, too. "That appealed to me," Baker says.
Acquisition by a large company offers your business access to additional capital, new channels and management experience. Baker sees the Nokia acquisition as a big growth opportunity for Enpocket, which now has greater resources, a global team and new markets to enter. But there are also challenges, like creating the process discipline of a big company while maintaining the BIZ Experiencesial spark driven by quick decisions and information sharing. "We're definitely starting to [see] to how decisions are made," Baker says. "Be prepared to put data behind your ideas."
Folding an acquired firm into the operations of a larger company also takes time. "In the acquired company, I often hear, 'We were bought by this company two years ago, and we still aren't on their payroll system,' or 'We still don't do joint sales,'" says Tim Galpin, a senior fellow at strategic consulting firm Katzenbach Partners. "You hear 'us and them' phrases, even though they [were] acquired by a company two or three years prior."
The most common deal-killers are lifetime warranties, ongoing litigation, tax liabilities, and noncompliance with labor and environmental laws. A large buyer will also expect your financial reports to comply with generally accepted accounting principles. "Get yourself ready for the sale by making sure your financial statements will pass muster," says Frederick D. Lipman, who oversees acquisition deals as a partner with Blank Rome and is author of Valuing Your Business. "You have to think like a buyer."
Baker is thinking big at Enpocket. "We anticipate essentially doubling [our revenue] every year," he says. "I'd like to spin this to be the leading interactive advertising business worldwide."
Chris Penttila is a freelance journalist in the Chapel Hill, North Carolina, area.
