Today in Built to Sell News, we’re covering:
- How small companies can fetch big multiples by courting a strategic acquirer
- Case Study of a Strategic Acquisition: Why Nasdaq Acquired Quandl
- Michael Jordan flipping his stake in the Charlotte Hornets for a tidy return
- Ethical Capital Partners’ rather unethical acquisition
👊 Punching above your weight
If you want to sell your company for a premium price, last week’s Microsoft announcement about incorporating Open AI’s features into Microsoft 365 highlights the benefits of finding a strategic acquirer for your business.
First, a little background on Microsoft’s big news. Last week, the company announced that in the future, your old favorite office productivity applications like PowerPoint, Word, Excel, and Outlook will come enabled with “Copilot”, an AI-based assistant that can do things like turn notes into a PowerPoint presentation or analyze the key insights from an Excel spreadsheet or convert meetings notes into a Word proposal. The demo is pretty cool to watch.
This news comes just two months after The New York Times reported Microsoft had made a $10 billion investment in Open AI, the company behind ChatGPT. In exchange, Microsoft is getting 49% of the company plus the right to 75% of OpenAI’s profits until it earns back its $10 billion plus an additional $3 billion it has already invested in the company–$1 billion in 2019, and another $2 billion which it quietly put into OpenAI in 2021.
If you really want to understand a strategic acquisition, go beyond the financial deal terms and look at how this investment could help Microsoft compete with rivals like Google. Start with Microsoft 365 (i.e. Excel, Word, PowerPoint etc.). According to a Financial Times report, if 10 percent of Microsoft’s 370 million commercial Office 365 users upgraded to an AI-enhanced bundle of software, it would generate $14.9 billion — more than their entire investment in OpenAI — over the next five years.
That’s just Microsoft 365. Now imagine they offer AI-augmented upgrades of all of their products and you start to see Microsoft’s strategic rationale for the deal.
A strategic acquirer is a company that has assets or operations that can make your company more valuable to them than it would be in the hands of a financial buyer, who is simply acquiring your future stream of profits. Unlike financial buyers, strategic acquirers can leverage their existing assets or operations to create synergies with the acquired company, which can result in greater overall value. For example:
- Care.com acquired Breedlove & Associates for six times revenue so they could cross-sell payroll services to their 7 million subscribers
- HubSpot acquired The Hustle for $27 million and Stripe acquired Indie Hackers to lower their customer acquisition costs
- VistaPrint acquired Webs.com for more than 10 times revenue because they wanted to diversify away from print and get into the website business
- Sage bought the 12 employee company, GoProposal, for eight figures because they would have another product to sell to their accounting channel
- Home Depot acquired Blinds.com in part so it could get better at selling complicated products online.
- Contentsquare acquired HotJar because they wanted to access the Small & Medium Business (SMB) market
- Petco acquired PupBox to learn about the subscription business model
- LeadPages acquired Drip to add email marketing to their suite of services
🎧 Built to Sell Radio: Case Study of a Strategic Acquisition: Why Nasdaq Acquired Quandl
Speaking of finding a strategic acquirer, this week on Built to Sell Radio, we bring you the story of Nasdaq’s acquisition of Quandl.
In 2011, Tammer Kamel launched Quandl, a company that provided investors with data designed to give them a competitive trading edge. For example, Quandl offered subscriptions that let investors access private jet flight information for public companies as a predictor for M&A activity.
By 2018, Quandl had grown to 75 employees. Kamel saw industry giants entering the space, but knowing the time and capital investment it would take to build a competitive offering, he believed they would prefer to acquire Quandl.
Kamel began shopping the business around to a list of potential strategic acquirers, and shortly after, Nasdaq acquired Quandl for a life-changing sum.
📽️ Clip-of-the-Week
It’s one thing to know you want to sell to a strategic, but the prospect of penetrating their inner sanctum can feel like trying to break into Fort Knox.
Learn the secret to connecting a strategic acquirer from the former head of GoDaddy’s acquisitions group, Touraj Parang.
🏆 The Trophy: How to Commemorate Your Win
After promising his children that he would take them to dine at 360 The Restaurant in the CN Tower if his business became successful, Kamel kept his word following the sale of his company. Listen to Kamel describe the moment at the 1:05:00 mark.
📣 Quote of the Week
“Your boss will soon be able to ask their Copilot to create a summary of who does the least work on average and have their termination letter already drafted in Outlook”.
Samuel Hammond, Economist
📈 Recent Deals
- According to an ESPN report, Michael Jordan is in talks to sell his majority stake in the Charlotte Hornets NBA franchise. Jordan reportedly acquired a majority stake in the NBA franchise for $275 million back in 2010. According to a 2020 Statista report, the Hornets are now worth $1.7 billion so it looks like another slam dunk for Jordan.
- Also this week, Canadian private equity group Ethical Capital Partners almost broke the internet when they made a rather unethical investment.
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Colin Morgan, Executive Producer of Built to Sell Radio
John Warrillow, Host of Built to Sell Radio
Daphne Parsekian, Copy Editor
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