Ben & David are joined by special guest Taylor Barada, VP and Head of Corporate Development & Strategic Partnerships at Adobe, to discuss how large tech acquirers approach buying companies. This episode is full of great insights for startups & entrepreneurs who might find themselves navigating the M&A process, as well as anyone curious about the craft of dealmaking and the strategic approach of large acquirers.
Topics covered include:
The Carve Out:
Full Transcript below: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)
Ben: Welcome to Episode of 18 of Acquired, the podcast where we talk about technology acquisitions. I’m Ben Gilbert.
David: I’m David Rosenthal.
Ben: And we are your hosts. Today we have a very special episode that kind of breaks the mould of the show. We had an opportunity that we absolutely couldn’t pass up and even though we’re not covering a single specific deal, we think this is going to be a super, super interesting episode for listeners out there. So David, you want to tell them about our guest?
David: Yeah. We are lucky to be joined by a special guest today, Taylor Barada who is the VP and head of Corp Dev, Corp Strategy & Strategic Partnerships at Adobe. So welcome, Taylor. Thanks for joining us.
Taylor: Yeah. Excited to be here, guys. Thanks for having me.
David: Of course, a quick a background on Taylor. He joined Adobe in 2013. Before that, he was the VP of Business at Zynga and before that, he was also relevant to our show, Head of Corp Dev at Yahoo. He has a JD-MBA from Northwestern and after Northwestern, spent a couple of years at Bain before getting into the deal-making world and perhaps most interestingly, you are the first guest on our show who is a former professional athlete. Taylor played professional soccer or probably more accurately, football in England. Maybe we’ll get into that. Lots of deal-making in that one.
Taylor: Yeah, exactly. No, I would say looking back on it, I didn’t have the language at the time but there was no real US scene when I came out of college and so effectively I became an independent solo soccer entrepreneur. I had to go kind of figure out how to insert myself into the European game. It was an amazing life experience, but not always the easiest.
Ben: Yeah. Man, that could be like a whole separate episode. Probably not in this podcast, but I’m sure it’s a cool story.
David: So what we thought we’d do for this episode is kind of stick to our typical structure but instead, as Ben mentioned, talking about one acquisition in particular, we just thought we’d use it as a vehicle to, Taylor, get your insights kind of from the inside of being in Corp Dev and how you think about deals and acquisition as you’re going through them. So we have a bunch of questions but I thought we’d start with sort of the acquisition history and facts section, as usual. I think the best way to kick off would be something that probably most of our listeners are curious about and I’m curious about. How do conversations typically start between Corp Dev and startups? Either when you’re approaching startups or when they’re approaching you, what’s the beginning of the story usually look like?
Taylor: It’s funny. I think you guys even doing this podcast in this focus is, I think, filling a nice gap and need because it’s not something I spend a ton of time thinking about because at some point, it’s just sort of natural and it seems very fluid and relationship driven and not some big moment of, you know, “Hey, we’re for sale,” although those things do happen. It could be very sort of mystical and seem like this dark black art that I find sometimes that entrepreneurs, when it feels that way they tend to pull back and be very reserved because they’re not sure what they can and can’t say, and they always say the wrong thing and which is totally fair.
So on our end, what I’ve always done individually when I’ve been a deal lead and I want the culture I try to create on our group is that you remember that the process is fluid and it’s hard to know which ones are going to actually go the distance and lead to a deal and which ones aren’t. The Valley as we all talk about in sort of the broader technology industry outside of the Valley is incredibly small. So because of that, it’s very relationship oriented and because of that, the way these conversations often start is just literally a connection and like, “Hey, you guys are in this space. This company is doing interesting things. You guys should just get to know each other.”
I’ve always liked after stumbling across it at some point in the last couple of years, Mark Suster’s blog post on investing in lines, not dots. I think that his concept is that it’s very hard to make a decision when you only have one point in time but when you’ve had connections over time and you have the benefit of sort of seeing people say what they’re going to go do and hopefully go do it or something better, it develops credibility and you have time to sort of process and have a perspective on how it fits in.
Oftentimes it’s as simple as that. We get introduced, we sort of say, “Hey, you should talk to someone.” There absolutely is the other sort of 20% case where some company has been going off in a space that we haven’t been tracking or a company that we haven’t necessarily focused on that they either get the stereotypical strategic interest from someone else in a space and they decide that they want to talk to others and see if they want to sell or they want to sell to us or frankly, sell to the highest bidder, that type of thing. And we’ll get those calls, we’ll take those calls and we will sometimes do those. But that’s a high bar and we try hard to develop relationships so that sort of 80% of it is more strategy driven, more relationship driven, and there’s broader perspective in a broader context that’s developed over a long period of time.
Ben: Yeah. That original kind of introduction when someone says, “Hey, you know, this company is a newer company,” they’re playing around in sort of a similar space or similar customer segment to you guys. What’s the context for starting that relationship? Is it a partnership or is it just like, you know, let’s not play any games, we sort of know that there might be some acquisition at some point in the future? What’s the incentive for that entrepreneur to just kind of start that conversation?
Taylor: Look, you can waste an enormous amount of time if you just run around the Valley talking to all the big companies. Right? That’s not your job. Your job is to build value for customers and at some point you’re going to be able to monetize that value either through an IPO or the sale of the company.
With that as context, I think sometimes you get into a scenario of like – And I’ve had introductions where a VC was an investor in a company, trying to make an introduction for us and the entrepreneur told the VC who was on his board like, “Why would I even take that meeting? I’m not trying to sell the company. You know that.”
I’ve always found that kind of humorous because the whole point is, it’s like the old saying of “when you want money, ask for advice; when you want advice, ask for money” and that whole thing. If you’re calling us asking to be sold, it certainly can happen but if your first interaction is that, it puts an awful lot of weight on that interaction and it doesn’t need to be that way. I think it also ignores the point, which I always make and when we sort of talk about it over time as things develop, is that if you’re smart as a seller, you’re going to have a fiduciary duty to get the highest value you can for the business when it comes to that time. So that just is. But at some point, once the deal takes place, you and the team will be working there. So is it a place where you think your vision can not just sort of go and get parked, but hopefully can be accelerated. It’s not an end as much as it is a beginning. Are they the type of people that you want to work with? Do they see the world the same way?
Those things, sometimes you think like, “Oh, that doesn’t matter. We’re just going to sell to the highest bidder.” It’s like yes, of course, we get that, everyone gets that. But it doesn’t mean that you should ignore all other stakeholders, all other factors. The way you sort of sus those out and frankly due diligence on us and other places and try to see whether it feels right is by getting it out to people over time. So I actually think it’s best when it’s explicitly not around a specific conversation. It’s certainly fine if there is a specific partnership that seems very interesting with the big company, but those also can be colossal waste of time. Every small company thinks that every big company is the keys to the kingdom and a partnership with them will unlock everything. But oftentimes they take a very long time to get done. Once they’re done, they take a very long time to mature. And the ones that are truly game changing for startups are few and far between.
So it doesn’t mean you shouldn’t do them. It just means you have to be pragmatic about what you should expect from them. So if there is a partnership you want, we oftentimes act as sort of a concierge into this wildly complex 15,000 person company which we sort of know how to navigate and from the outside it’s probably extremely hard to figure out who to get to if you want to talk about partnership around one particular product line. So we can definitely do that. But like I said, I think it's best oftentimes if it’s much more open-ended and it’s just, “Hey, we're in this space. We’d love to meet this VC that we both know. Thought we should get to know each other. Not looking for funding, not looking to sell but would love to grab coffee and just talk about what we’re doing.”
David: It’s amazing as we're talking about this and even as we are preparing for the episode like how much this mirrors the process of raising venture capital too, which to be honest, it's an education for me. I never really thought about but we coach our companies when they’re thinking about racing around all the time. You’re always racing. You’re not always closing, but you’re always racing because it takes time to build relationships and VC investors, as you point, the Suster blog post is great about needing to invest in lines, not dots. Occasionally there will be a dot that is so compelling you have to invest in or it would seem for you guys, you have to buy. But it takes time to build these relationships.
As you’re doing that, maybe talk a little bit about kind of the importance of culture and that relationship and the people fit? I know it’s something that’s really important to you and Adobe. How are you assessing that when you’re talking to entrepreneurs?
Taylor: I’d say Adobe, it’s uniquely important to us and we’ve walked away from extremely large deals north of a billion dollar because we didn’t feel like the culture fit was there. Part of it just has to do with how we think about what we’re doing and what we think has made us an enduring business over 30 years in a really dynamic space. The company has morphed from post script and printing tools and things like that into desktop publishing and then creative tools and now into marketing.
David: [INAUDIBLE] an acquisition a long time ago.
Taylor: Yeah. Again, that’s somewhat unique and my understanding was it was a couple guys and a product. But yes, the nascent piece was there and then they built around it.
Ben: You talked about the qualities that you look for when you’re acquiring someone to be a culture fit. How does that impact the outcome of the acquisition? And is there anything specifically that you sort of look for as okay, this is going to make this outcome financially successful for Adobe because this person has X mindset?
Taylor: I think it's definitely related. I always say we don’t care about winning the press release. You create value and one of the reasons why value in companies is not science in a strategic acquirer scenario versus a private equity and whatnot is that look, even in private equities, this is really true if you get down to it, is that you’re valuation becomes because of a present value of your future cash flows. Like what drives what those future cash flows is what you actually go do in the market together. Inevitably, we’re not like a holding company that’s just going to buy great properties and let them roll. We’re trying to have a point of view around the market and say, “Hey, look. We can come together.” And maybe it’s not 1 and 1 equals 3, but there’s some sort of element of that overused word of synergy and we're looking for leverage and looking for a perspective that we can accelerate the vision of the entrepreneur but also frankly accelerate our own vision and hopefully even broaden it at times just as we did when we went from creative to marketing with the Omniture acquisition.
So the reason it’s so important is that if you have an incredible strategy and an incredible vision, we all know it’s meaningless. It’s about execution. Big companies are no different than startups in that effect. Execution creates value. Strategy is what allows you have the opportunity to get into that mode. But you got to go do it. I think the one last thing – and we’ve touched on this a little bit when we were catching up before the call – is that to me, if I had to pick one hallmark that gives me a sort of good positive early indicator that we’re on the right track is when I start to see through the back and forth and comparing notes on the strategy and the vision that this concept of accelerating the entrepreneur’s vision around where they’re going is there but that’s not the only thing. The other thing is they actually start to embrace the broader vision that we have and say, “You know what, I actually think I can expand your vision and I want to get in. If I can work with you guys on that, I can do something bigger.”
So oftentimes you’ll see over time that the deals that work really well and where it particularly works well for the founders or CEOs is where they end up loving the concept of getting inside a bigger company and maybe they’re really product people and all this raising money and also their stuff is part of what they have to do but it’s not what they love, and often they’re unleashed and they can just go do what they want and spend all of their energy there.
Whether it’s here or to the smaller deals I did while I was at Yahoo, one was for a company called Citizen Sports – founder name is Mike Kerns. He founded that company with another guy named Jeff Ma who’s well known from Bringing Down the House days and all that from MIT. So Mike came in and just did phenomenally well. And then another was a company called IntoNow that was founded and spun out by a guy named Adam Cahan. Those two guys stuck around Yahoo for – Mike just left about a year ago and I think Adam is still at Yahoo and they rose to be two of Marissa’s SVPs of Product. And these were smaller acquisitions so it’s not like they came in the door doing that. But they had a real passion for sort of online media and where it could go and sort of not just what they were doing with their product but what you could do if you applied some of the principles of social and mobile to the broader Yahoo business. We’ve seen the same thing here at Adobe and I think it's a classic sign that things will work out quite well.
David: It’s really cool to hear you talk about that. In one of our early episodes we had Kurt DelBene from Microsoft on and we talked about the Acompli acquisition. He talked about this very fact that one of the things that Microsoft is thinking about now in terms of M&As is just what you’re talking about, about the people and the culture fit. Kurt is now leading the LinkedIn acquisition, which is much bigger and more complex. But for Javier Soltero at Acompli, he’s now running all of Outlook and exactly mirrored these themes.
Let’s move on. So we sort of break acquisition history and facts into two parts, and my favorite part is sort of the stories of the acquisitions sort of what we’ve been talking about here. But I bet a lot of our listeners will be really curious about like what’s the process. Once you’ve realized that there’s a relationship here that could bear fruit, what are the steps in the process when you’re actually working through a deal at that point from LOI to term sheet to definitive agreements? What are the key milestones for you guys?
Ben: Yeah. And what specifically are you looking for? Is it cool, the financial, check; cool, there’s no lawsuits against them, check; cool, your product is growing with users, check? Those sorts of things.
Taylor: Look, ultimately you’re going to do a deal if it makes strategic sense. The technology product fit is there and the financials you think makes sense for your shareholders, right? For us, the fourth one that I would put over, that cuts across all of that is just the people as we’ve already talked about.
So the hard part about the deal is these are all – Even though we have a “process” and every large acquirer is sort of a repeat player, so all the places that I’ve been and done this role are definitely in that and the other ones are people like you've mentioned, so Microsoft, Oracle, Facebook, etc. Repeat players absolutely have a process and there’s different flavors and each company has different places where different types of decisions either take place or which parts of the org are responsible for them. So there’s definitely a number of different ways to do it.
But every deal is its own sort of perfect snowflake. They’re all snowflakes and so they’re deals and there’s unbelievable correlations from them and when you get into the granular, everyone is deciding ‘we’re going to make this happen,’ it becomes kind of a machine and the legal side and the diligent side starts to take on a life of its own and that really does happen. So I would say in general this is tough because on the outside particularly if you’re not going through a hardcore sort of auction process and a hired bank or whatever, but it’s a place where you sort of think, “Well, look. We're not really for sale but they seem to be interested so I’m open to doing this but I don’t want to sort of waste all my bandwidth and emotional energy in sort of exploring this and how we would do it.”
So typically there’s usually an early meeting with someone in the business unit that’s responsible for the product area where there is the strategic interest and the overlap, and try to get an understanding for the product vision, the product technology, give maybe a bit of demo, a little early point of view on numbers. I think sometimes it can be tough to decide when do you share what. I think we’re always finding if an entrepreneur feels like they want to get an NDA in place before they share some financials and things like that, we tend to try to make sure that we kind of have checkpoints like if we get someone who’s trying to sort of take a read on the market because they’re about to do a fundraising around, they just figured they better think about it and they want to talk a handful of people that are sort of the logical fits for that business and say they decide we’re one of them and then sort of check in with us, we will oftentimes do at least one call without an NDA where we just sort of say ‘tell us the story and we’ll go through that.’
So there’s sort of a high level business product check early on and then at some point you start to kind of have a feel for the financial side as well as you go through that. The biggest milestone you’ll find with large acquirers is kind of the LOI or the term sheet, and that almost always – and I truly mean almost always– includes a no-shop provision of some period of time. Typically, sort of 45-60 days, sometimes 30 days. Those are the types of things where once you get to that stage, you’ll have a lawyer involved and they can advise you what is “market”.
Ben: Just like in venture financing. Funny how that parallels.
Taylor: Yes. You’re going to have your lawyer and they’re going to be able to tell you what’s “market”. They’ll educate you on what the business ramifications are of what is being done. Every big company has slightly nuanced ways of doing things and because we are repeat players and the lawyers are repeat players, there’s certain things where it’s basically like, we’re not going to do that because of the precedent of it and that type of thing.
Oftentimes those are but depending on where the leverage lies, depends on how much those things get negotiated by the buyer and the seller, again, exactly like a venture round in that respect. Then once you get through that, that’s when you see the circle of knowledge on both sides expand but particularly on the buy side, sometimes it can be overwhelming because then we’re going to jump in and do a day minimum, oftentimes two or three days of kind of a deep dive, take us through the business, beginning to end in terms of going through the product and going through the go-to market, go through the financials, go through the operations, go through the technology architecture, etc. Then that’s when you build out a very detailed data room.
And I think with the super early stage companies, sometimes you’ll run into some issues where they didn’t have their house in order to get good legal advice early enough on and maybe they’re working with a couple of outside agencies and they didn’t have them sign an agreement, that type of stuff. Those at this point, I saw that more 10 years ago than I do today. I think the breadth of startup legal advice and sort of smart experienced Angels is certainly the venture community, people tend to have a pretty buttoned up shop particularly if they’re venture-backed, and things are pretty clean. But if you’re outside of the Valley and maybe the company was lucky enough to grow bootstrapped or whatever and they kind of just made it all work, every now and then you’ll run across things where they didn’t have their house in order and then it’s rarely a deal killer but it usually ends up as something that you got to sort of work around.
So you drive through that, at some point you put in place a definitive agreement where our lawyers will put together an acquisition agreement depending on if it’s a share purchase or an asset purchase, etc. and you kind of go back and forth on that, try to get if finalized and ultimately deals are announced once the definitive agreement has been signed and then there’s a question of is it a simultaneous sign and announce and close, meaning we signed it, we sent the money, we own it. Or is there split sign and close where we sign it, we announce it, and then there’s 30 days to meet XYZ closing conditions before we would actually close. You’ll see both.
Ben: You mentioned throughout all these steps, there was one point in there where the business owner talks with the company they’re acquiring and compares vision and strategy and digs in with Corp Dev. How involved is the business owner throughout that entire process? Are they in every single meeting? Are they in that first meeting? Is it the business owner that first contacts that company? What is their role and what is the role of Corp Dev throughout the entire acquisition process?
Taylor: It's critical. One thing to know is you can’t ignore Corp Dev. In many ways they’re going to be your guide and your partner throughout this, and I truly view it as a much more collaborative thing. If you’re going to get a deal done eventually, it’s going to be because everyone thinks it makes sense and you’re able to get together at a valuation that everyone feels good about, right? So I very much try to make it clear to people and make sure that our deal leads make it clear that no one can “make you do anything you don’t want to do.” So that is one thing I think out of the gates to kind of demystify the whole process and take a little pressure off.
The relationship with the business owner is critically important. I mean the language I use, and again, every company has sort of slightly different ways of thinking about this, but I think of it as there’s an executive sponsor and there’s a business owner. Oftentimes you will see particularly if a company has kind of got some VC intros and things like that, they will be really focused on trying to get in to meet the CEO or could get to meet the head of the whole business unit.
David: I’ve never been guilty of that.
Taylor: Yeah. And it’s fine. Everyone gets it. It’s the old thing of coming high and worked down. Sometimes it can be fine. Other times it can be either off-putting or even sort of counterproductive in that if you get in front of them too early before then business owner and corp dev have been able to kind of frame it and sus out in combination with you sort of your business well enough, then we can effectively translate and help people understand why this is exciting, why this matters. They might take one meeting and are like, “Ugh, I was not interested.” Then it creates this uphill battle where corp dev and the business owner are like ‘no, no, no, we got to spend a little more time on this. This one’s interesting.’
David: I’ve seen this play out. It’s so true.
Taylor: So even if you got this perfect ‘hey, my venture guy says he is golfing buddies and best friends with the CEO or whatever,’ it’s just a card. I generally just sort of say play it straight up, play it open and then treat the corp dev person and the business owner as people that are your partners to figure out whether this makes sense. Not someone who you got to kind of like micromanage and things. Ultimately it’s not like an enterprise software, sort of SaaS, you’re going into an IT group, they’ve got a need or a widget, you got a widget, you’re going to sell them on why yours is the best and then wham, we’re done, like get it done. Right?
It’s a very subtle collaborative dance where both sides are evaluating each other and getting to know each other. It’s sort of overblown to say it’s a marriage but look, you’re selling your baby that you put heart and soul into creating. You want to find out if we’re good stewards of it, if our visions align, and you should care about those.
David: It’s so funny going back to the parallels with venture. I mean it just keeps coming up. We see companies make this mistake with us all the time. They come in, they meet with one partner and that relationship is progressing at a natural pace. Then in the worst case, the founder CEO but oftentimes one of the other venture backers or somebody will come in and talk to another partner. We call it partner shopping and like nothing will kill a deal faster than that.
Taylor: There’s less issue of that here because we’re not a partnership. There’s a natural organizational structure to a big company.
David: But you’re still going to somebody you think has influence but actually there’s no context on the relationship and back to that being the most important thing. I can totally see how that can blow up deals.
Taylor: Exactly. It really blows up deals and that’s the other thing why I say like there’s almost no misstep that you can’t get over if actually it makes business sense. That’s the other reason why I say getting people the mind space of like you’re building a great business, you’re going to get the eggs that you deserve and we’re looking for a collaboration to figure out whether we’re the right home for it. It takes all the pressure off because the real answer is you don’t need to micro manage and over manage it. We do this off all the time and if we’re approaching you with that mindset, like we’re in it together to figure out. Because the biggest reason people do that is because they’re in value optimization mode in the back of their mind, I think, I got to maximize value. And it’s like yeah, totally, it is literally in the by-laws. It’s your fiduciary responsibility, right? We get it. So it’s part of that. But if you over manage that and over play it at the wrong times, it comes across awkward.
Again, if it actually makes sense, you’re probably going to recover from it. So even if you do, it's not that big a deal. Like I said, I’ve never not done a deal but I’ve had deals where it was much harder to get there because someone figured out some way to get in front of either the CEO or some other head of a business unit or something earlier than we probably would have ideally wanted. Or sometimes it comes in that way and that’s fine too, but then people got to do their job. Where to bring that whole thread back around to the core question that you asked – I think it was Ben – the business owner of that sort of head of product is actually an extremely important relationship as well.
Like you should have a sense of if you were king for a day and ran that business, where would you think that the startup that you run fits in. And then how do you figure out who’s responsible for that part of the business. That’s absolutely just as important a relationship. I would never say only focus on that relationship and ignore corp dev but I also would never say focus on corp dev and don’t worry about that relationship. You kind of have to have both and sometimes, again, this probably also is like the venture. It’s very organic and wherever you have an in, a warm intro, take the warm intro and then ask the questions of ‘hey, should I talk to someone in corp dev or whatever?’
I have business unit partners who are very sophisticated of sponsored deals many times and part of the job of being a good product manager, let alone a business unit product owner or GM is understanding the outside market and knowing the ecosystem that you’re in. So they should be out there meeting startups and stuff. So oftentimes they will meet someone and they’ll hand it off and say, “You know what, I’ve met with this guy once or twice for coffee. I kind of like where he’s headed. Nothing to do here. I’m not looking to do it. He’s not going to sell. But I just kind of want to get him on Corp Dev’s radar. Can you meet with him? That type of thing.”
Other times, we’ve partnered with the business unit to develop a strategy overall and we kind of know the spaces that we're sort of particularly interested in and we’ll find the relationship or company, and we’ll get intros and we’ll pass them through.
I think that is one difference between the VC and M&A world is that sourcing is not some big magical thing. Every now and then we’ll find something that we didn’t expect because we’ve made an extra effort to get out and beat the bushes. But we’re out there in the market. There’s only so many acquirers. People find us 9 out of 10 times.
David: If you’re lucky as a VC firm, you also are in that position. Most of the time they’re lucky but…
This might be actually a good way to transition into sort of the next category that we talk about on the show is acquisition category. So every deal that we look at, we say was this a product acquisition or a business line acquisition or a people acquisition. We’re curious on your end like do you guys do the same thing or is it more organic like as you’re looking at different companies and then they tend to follow? Are you guys thinking like “yes, this is definitely an acquihire” or like, “oh, this could be a huge business line acquisition”? How is that going through your heads?
Taylor: There’s industry standard lingo. Acquihires, tech and talent deals, whatever sort of business acquisitions or product acquisitions, those types of things, I’ve heard those used. We’ve used those all the time.
We don’t get too hung up on it. One construct I’ve used inside of our business is – from my Bain days, I’ve had respect for some of the profit from the core analysis and they’ve done… There’s a book written a number of years ago called Profit from the Core and they’ve done analysis of 2000 companies and growth initiatives, both M&A and otherwise. The concept was that once you understand what your core business is as a large scale company, understanding the business that drives the most profits and sort of the most enduring from a perspective of who is the customer, what’s the channel of the market, what’s the geography you’re playing in, what’s the business model and what’s the product.
Any time you change one of those five things, you’re like a one step adjacent, so you’re further from the core and it creates risk. Actually they show through analyses of all these different companies that once you got – I think it was one step adjacency was maybe about a 30-40% chance of success but once you got out, like three or four of those things changes, you dropped off to like 10% chance of success. It doesn’t mean that you don’t take things that are multi-step adjacencies because sometimes those are where the biggest opportunities are. But you have to make sure that they’re worth the risk. Otherwise, you’re just leading to sort undisciplined diversification and you have no better chances of success than just a private equity investor or holding company and probably less because it’s not really how your business has been set up to focus the resources of the company on. Right?
So something like Omniture, we’ve gone back and looked at that in hindsight and that was probably a four-step adjacency. Anyways, it was SaaS, completely new product. It was an enterprise selling motion which we didn’t have in mature fashion at that point and in the business model in terms of recurring revenue was new because we hadn’t moved to that with the creative side of the business. It was after that that we moved from creative suite to creative cloud. So that was in hindsight a very risky big bet, but it was a large big business. It was the market leader, it had real momentum and so you can make that bet and then if you focus on the rest of the things, you could control what’s ended up being a $2 billion plus – it’s on the road to being more than that – business force.
So it’s not that you don’t do those things but you do them for the right reasons. So as you think about that, things that are in your core like meaning we're already in that part of the business, that’s where we're more likely to look for some tech and talent, smaller kind of deals, or we look for like a little bit of a core expansion where it’s kind of like a one-step adjacency where maybe we get a new product with a bit of a business around that’s been proven in the market but it’s not scaled yet. We bring that in and we scale it. The marketing caught them anyways. After the Omniture acquisition, there were a number of other add-on acquisitions that were done to broaden out the product portfolio and then sell through the same channel.
In the enterprise space in particular, you've seen that year after year. It’s extraordinarily and perhaps not even appreciated how unbelievably hard it is to build a true large scale enterprise sales force. The companies that have done that, it's such an unbelievably huge investment over like probably a decade to get there. That then it’s a question of how do you maximize the throughput of that channel every year and so finding additional products to put in the salesperson’s bag is a big part of it. So on the B2B enterprise side, that’s a big deal. On the consumer side, it's a slightly different element in terms and predictably all the networks and everything, with the social networks and platforms we’ve seen have changed the dynamics there a bit. But historically that was a little bit of Yahoo’s original strategy was, ‘okay, we have this portal. Let’s just keep adding on things.’ That was before my time at Yahoo. But you see the approach driven by the business strategy and at Adobe, my personal sort of belief is that it has to be a strategy-driven process. So the categorization of what you’re going after is driven by what you’re trying to accomplish strategically.
Ben: Cool. Moving on to our next segment, we always talk about what would have happened otherwise and it’s the part where we try and figure out if this deal didn’t go through or were there other acquirers, or would that company have grown on their own. I feel like a good question to kind of dive into there is what percentage of deals that you look at actually end up happening?
Taylor: It’s very low. It’s a question of what “look at” means, right?
Taylor: We’ve historically done sort of 4 to 10+ deals a year. I think actually the market strategies are sort of strategic umbrellas big enough to do meaningfully more than that, but we’ve kind of intentionally focused on strategy that says we’re going to make sure that the ones we do are going to work. We’ve had bankers come in and be like, “What are you guys doing? How do you do it?” Because everyone around the Valley is sort of saying that the ones you’re doing seem to be working and I think a lot of it is just the willingness to say no. That starts at the top and we have a CEO, Shantanu Narayen, who I describe as having founder level passion. He’s been here 19 years. He’s been CEO for 9. No different than a founder who just feels it in their bones and feels that level of passion for protecting the mission and the vision that we're going after.
What that means is it's a very high bar on what makes it through the rubicon of strategy fit, tech fit, team fit, financial expectations, etc. So you have to be willing to say no and in order to make sure that you get the right ones. You have to be careful that that doesn’t make you risk averse and not moving quick enough and fast enough. But I wouldn’t even know how to put a percentage on it but I would probably say sub 10%. A lot of things have to align to make a deal happen on both seller and the buyer side. So you’re probably looking at that, but plus or minus a thousand inbounds a year. We probably get 2 to 5 emails a day with, “Hey, would you be interested in checking us out?” that sort of thing.
David: There are a lot of those.
Taylor: I mean a lot of those, the answer is again, no different than VC. For us, it's just like “Hey, that’s not a fit but I appreciate you thinking of us.” We try hard to give quick answers and quick no’s if we just don’t think it’s worth it and we don’t window shop. If we take a meeting, it’s because we think it could be interesting.
Ben: That’s awesome and that’s a great lead-in. The next segment that we usually do is tech themes where we look around and we try to figure out what technology themes in the industry and the world does this represent to you. I think a really good kind of twist on themes here is how have you tackled M&A differently at the different companies you've been at and how have you guys taken a different kind of strategic organizational approach between each one?
Taylor: Again, M&A is a tool. I mean, I’ve always joked that if I ever do something noteworthy enough that requires a memoir at some point and this stuff makes it in, it would be like it’s not about the deal. There’s the whole book with Lance Armstrong back in the day. It’s not about the bike. It’s like it’s not about the deal. I mean the deal itself is mechanical and if you love that world and there’s people who do and frankly it's a fascinating fun world on a lot of levels. If you love that world, those are the folks that end up in banking and I have tons of respect for those guys because I think their jobs are really, really hard and they only get paid if things get done. Then they oftentimes get a bad rap and I think there’s a lot of great ones out there.
But it's just a tool. So the question is, what is your strategy. If you sort of tie that back to your core question of like how are things a little bit different, different companies, I’d say at Yahoo we were going on a lot of different directions when I got in there. It was ’08–’09 when I joined and I found at times things were bubbling up bottoms-up in terms of people being entrepreneurial and trying to get things going at the business unit level. We were going through kind of a restructuring and there wasn’t as much of a clear ‘hey, we got to go do this top-down’ and you would get the inevitable ‘hey, we got a call’ and supposedly Google was looking at buying us and I was like, “So?” Doing what your competitors are doing is not a strategy.
So we spent time around getting alignment around strategy. We spent time around locking in the concept of process perspective of an executive sponsor so that you got the alignment early top-down on strategy. Then it made sure that when we were spending time on things, it tied to that. But frankly, Yahoo had a reputation and we worked hard on this but it was just a little bit of reality, some point of culture. We had a reputation for being a little bit slow and so we tried hard to make sure that we were transparent with entrepreneurs around the different hoops and stuff we were going to have to jump through together so that they could feel in control of it and we could feel like we were in it together instead of just feeling like this model with a bureaucratic thing. It wasn’t that but it was just a nature of sort of how things got done in that culture and sort of where they were. The culture of the company affects the process.
At Zynga, we had a company that founded like three years before. Mark’s an incredibly aggressive dynamic entrepreneur. If he believed it made sense and we could convince him that we could go do it. I remember working on a deal and we found out that some entrepreneurs had spun off from one company that we thought was interesting and gone and had done something else. He could just tell from talking to the guy that they left behind were the real creative guys that had walked out the door. So it was basically like he got off the phone and it was like being in amovie and he was like, “Find those guys.” Someone on the team got them on the phone. Literally 2 hours later we had them on the phone and I was like, “Can you come to San Francisco tomorrow?” and they were like, “No. Are you crazy?” I was like, “Great. We’ll be there at 1:00.”
David: That’s awesome.
Taylor: It was sort of like it was this incredible – It was fun because you felt like you were going to go make it happen immediately. It was that type of time in that company and from a strategy perspective we had sort of talking about in terms of what was happening with social and everything. We knew the categories that we needed to add from a social gaming perspective. We needed to find the teams to go do them because we didn’t have enough people in-house to do it. It was that type of voracious growth and so it made strategic business sense to try to move that fast. Part of which is again, the culture at the top. Look, I guess my point is the culture of the company, the strategy of the company, where it is in the arc of its growth will define what process it creates and how it goes about it and then also what it sort of means.
At Adobe, we have these bigger arcs that we’re working against and from a corporate strategy perspective, what we’ve been focused on for several years are sort of three big trends. One is, as I sort of say, everyone, both the consumer and the enterprise side has been dealing with it’s just this unbelievable wave of mobile. How do you get it to the point where it’s truly a tail end? There’s only a handful of companies that I think have really cracked the code. Facebook, the pivot they did, I was there at Zynga when there were trying to figure that out. Neither one of us really had it working for us. They figured out how to make it work for them. It really took their business to another height. It’s like every year when Mary Meeker, now at Kleiner Perkins, formerly Morgan Stanley, comes out with that internet report and there’s that slide where she shows the percentage of time spent on the internet shifting to mobile. In every year it outpaces the trend line from the year before. It’s like how do you get it to the point where that’s truly a tail end so that that is just naturally making your business exceed expectations? That was one. It’s like make mobile a tail end across our entire business.
Second was it’s obvious when you look at the consumer internet that the last 10 years have been around unlocking network effects through social networks, marketplace business models, platform business models. There’s interesting opportunity I think in the sort of SaaS based enterprise to look at unlocking similar network effects. The way you do that is by making data and content really strategic assets. Historically, enterprise software has largely been tools. We’ll sell you a tool and you do whatever you want with that tool. Whereas consumer platforms look at data and content as strategic assets that are sort of theirs and there’s a hybrid approach that I think you’re starting to see emerge in B2B businesses as well where customers certainly have their own data but they blend it with network level data from the technology providers as well.
So those are some big trends that we’ve been open really pursuing and really sort of came from outside-in analysis of what was happening not just in our own space but actually was happening across the broader landscape including the consumer world that I’ve sort of seen at Yahoo and Zynga.
Ben: That’s great. That’s really cool. The kind of next section or I guess our last section before we do Carve Outs is the conclusion. This is where we decide, usually David and I, did this acquisition go well, do we call it an A like Instagram down the line –
David: Hard to argue with that one.
Ben: Do you guys have any kind of internal process where you look back or even just isolated examples of what you look for and success metrics of ‘yes, that was a good acquisition and we should do more things like this’?
Taylor So one of the things that our team is responsible for under me is the M&A integration function. I’ve always felt like that’s critical to be combined in the same group because otherwise, it breeds a behavior that sort of feels like, “Hey, we're just responsible for banging out the deal.” It doesn’t matter if you throw it over the wall and someone else will integrate it. That type of thing. I always myself have thought of the job as a growth job. It just happens that a deal is part of it and you have to partner with the entrepreneur and partner with the business owner and sort of be CEO of that growth opportunity until someone else can truly take the mantle that will be responsible for running that business. If you think about it that way, there’s little things where you put a little extra amount of care and attention in things like retention packages. Even though the entrepreneur is telling you that this person is critical, you’re actually sensing that maybe that’s more for historical reasons and they don’t understand that in a bigger company once they’re inside. This person who’s been their right hand person from an operational perspective, there’s three other functions that are going to serve that purpose for them and they’re actually less important so you kind of wait and sort of talk to them and collaborate to figure out how actually – maybe reward them more at the time of the deal, but actually put a little more retention for someone else that their importance is going to go up post acquisition. Those types of nuances.
Taylor: If you’re not focused on the integration when you’re doing the deal, you just do things differently. So that’s important. By having an integration function in there, we make sure that they’re in our weekly meetings and that we share learnings and it’s sort of part of the culture. So to me it starts with culture inside the group which is it’s a growth leader function, not kind of a deal function. So that’s one.
From a formal, sort of post mortem evaluation process, we commit to reporting out to our CEO and CFO as well as the board every quarter. We do a report for 2 years after a deal that reports against basic key value drivers and metrics there. As you might imagine, there’s a financial one. There’s a product one. There’s sort of employee retention depending on how many people we're trying to retain. That type of stuff. We try to make sure that we’re being hard on ourselves and not just greens across the board, but we’re being honest about where things are sort of yelling red. Every once in a while we’ll do a more formal deep dive post-mortem if something hasn’t gone well. These things are really hard and as I alluded to earlier with the statistics from the Profit From The Core, I always joke that in general this is not NBA free throw shooting. It’s much more hall of fame baseball hitting. Meaning to those that aren’t sports fans, it’s not 70, 80, 90 percent. It’s probably plus or minus 30 percent is not all bad. Our track record,
Adobe is actually dramatically higher than that. Every now and then it’s like you make lemonades out of lemons where things didn’t work out how you expected them to, but you have the right team and the culture fit and the product to build from and you went in a slightly different direction. That’s okay too. That goes back to why culture fit is important. If things go wrong and the market plays out differently, you can still create value.
There are definitely companies that have meaningful hundreds of millions of dollar bets that are effectively swinging this in complete write downs and we haven’t had that. I think a lot of it has to do with the culture of focusing on thinking about the long range before you even do the deal. So the post mortem and the valuation is important, but it’s more the fact that you know that you’re going to be doing it and you know that that’s what we all care about. That’s what sort of changes the upfront.
David: I love that as a way to wrap it too that culture is what’s going to drive things. It’s interesting to think about back to this analogy with venture, like the happiest day of the next two years of your company is going to be when you close that around, and then the real hard work starts. It’s the entrepreneurial drive that’s going to keep founders engaged when life is quite challenging. I’m sure that’s the same after an acquisition inside the company and it gets back to if it’s not the right culture fit, you’re not going to have that drive to keep going.
Taylor: A hundred percent. It can be sad too because you see it where – I mean, entrepreneurs who sell something and it doesn’t fit and it ends up withering on the vine or being killed or diced inside a big company, you meet those guys later or women and it’s like they can’t be more bitter. Something they poured their life into they feel wasn’t respected or honored and whatnot. Sometimes the market plays out differently and they get that and that’s that. But if a big company through bureaucracy or missteps or lack of culture fit or whatever destroys the labor of love that every startup is, that’s just such a tragedy, right? Yet in turn, the legacy that accrues to the founder when something is phenomenally successful post acquisition is enormous and you see that. So that’s why I think the fit and people being aligned and going about things the same way just matters so much. Because what you said about that kind of moment in time they celebrate it, got the money in the bank and when you do a sell in the company, it’s literally not just the money in the company’s bank, it’s usually the money in the entrepreneur’s bank account. So it’s worth celebrating. It’s awesome. It’s amazing. We always love to celebrate with them.
That’s why we test so much the venture thing as like yeah, literally it’s day one. It's the beginning, not the end. If you aren’t fired up about that, by the way it’s okay if you’re not. You just got to be honest about it early on because if you try to pretend like ‘I am in it for the long haul. I’m so excited for this vision,’ it’s like we’ll figure that out in the process.
David: That’s when you’re going to be better, right?
Taylor: You can’t fake passion.
David: Yeah, totally.
Ben: So true in so many walks of life.
David: Let’s move real quick. We do have a follow-up we want to make sure we cover this week that I will just mention briefly. So Taylor, one of the things we do is if something new happens on one of the deals we’ve covered in the past, we call it out on the show. In this case, relevant to two episodes we’ve had in the past, Instagram launched Stories. So we covered Instagram as one of our early shows and then we covered Facebook’s failed acquisition of Snapchat. Super interesting to watch what’s happening with Instagram Stories.
Ben: Yeah. I don’t want to dive too much into this because it’s not the dedicated episode for it, but you know, Facebook is very scared of Snapchat. Snapchat doesn’t have the global penetration that Facebook does so there’s plenty of opportunity to defend international turf there. But they very well should be afraid of Snapchat because of the engagement that they’re getting and it's the first place that people check and where a lot more activity happens in Instagram. It’s really interesting to see Facebook after having some failed attempts to launch Facebook branded platforms to disrupt Snapchat.
David: Snapchat and others.
Ben: Instead saying, “You know what, all these kids are already on Instagram. Even though Instagram is about that one perfectly curated crafted photo, let’s see if we can throw this completely other paradigm into this and see if Instagram can be the one hub for that generation.”
David: I feel like this might merit a future episode.
David: If you want to hear that, let us know on email or Slack. But let’s move on quickly to Carve Out’s. Taylor, do you want to go first?
Taylor: Absolutely. So my three most recent reads – By the way, I read constantly. My wife is definitely much more of a purger and I think if I moved entirely to a Kindle, she’d be happy. But I tend to not only like to read books but then sort of see them around the house, it just kind of makes me happy. I grew up in one of those households and so it’s just part of life and part of sort of embracing everything that’s out there to be learned and you feel like you can never have enough time to get through them all. But the three most recent ones I’ve read and actually loved all three, one was Mindset by Carol Dweck, which talks about the growth versus fixed mindset.
David: Great book.
Taylor: Just phenomenal. Look, the basic concept you can embrace and understand in 30 seconds, the concept of already approaching life with this feeling that everything is fixed and you just got whatever talents you were given in life and that is what it is and you have to sort of expose those but you don’t have a chance to grow, or do you believe that actually you have what you have but it’s basically irrelevant and the question is what are you going to grow towards through hard work and effort. What was fascinating by reading the book is when you describe it the way you just did, anyone who’s sort of an ambitious type A entrepreneur or like those of us on those podcast are I’m sure thinking, “Well, I’m a growth person. I’m always trying to get better. It’s great.”
I read this book and it was very humbling to sort of realize that some parts of your life, you were completely growth oriented. In other ways you had intrinsically and sort of had this concept of a fixed mindset that ‘Oh, well. I have talent in that or I don’t.’ So thinking deeply about that for yourself, for your kids if you’re a parent, for your team if you’re a leader, I thought was incredibly powerful.
Ben: Wow. I was having drinks with a friend the other night and he asked me, “So are you more of a routine person or are you flexible to do whatever?” It was so interesting in the work that we do at Pioneer Square Labs, we’re super flexible. If it’s like, “Hey, you got to fly down to LA in 2 days because the opportunity for this company is to meet with someone there,” doing that or if it's your marketing today or your product today, like all over the place and schedule changes all the time, but in my personal life I need to wake up at the same time and have the exact same morning routine every morning or else I’m not myself. It’s amazing how different we can be in different aspects of our lives and we think of ourselves as either a routine person or a growth person or whatever it is. It’s not necessarily unilateral across the board.
Taylor: That makes me think of another one which if you’re exploring all the podcasts and this one is I think literally you’re near the top of the charts but I’ve definitely been enjoying. Tim Ferriss is one and his focus on routines and the questions around morning routines and stuff, it just fascinates me because I’m probably – there’s things where I’m somewhat routine oriented but there’s a lot of things where I rebel against it and don’t want to commit to an absolutely strict routine because I kind of like the dynamic that you describe of like being ready for the most important thing and hop on the plane and go to that. It's fascinating to sort of think about how important routines and systems are to success. That’s another one.
Before I turn it over, I’ll just flag the other two. This second would be Shoe Dog about Phil Knight from Nike - unbelievable entrepreneurial journey and just an incredible revealing memoir that I’ve really just found illuminating and inspiring and awesome. But it also to me, you know, for you David on the venture side, you will come away reading this book, you will feel like you’re doing God’s work. Because I think we underestimate how this concept that capital is almost available from anywhere and that you guys in the venture community and I actually I have Adobe Ventures under me as well so we do this here and there. It’s like we’re competing to be the ones who provide capital to the right businesses wherever and it's like there was this point in time where businesses that are now changing the world literally couldn’t get capital. It’s just insane. Reading the story, and I’m not talking about a short period of time. I can’t remember. Like 7, 8, almost 10 years he was on a shoestring trying to get these bank loans. It was just crazy. It blew your mind. That one was phenomenal.
David: David is doing God’s work. Let’s be clear.
Taylor: Yeah, exactly. The last would be Originals by Adam Grant. That was just sort of focusing in on creativity and sort of what are the hallmarks of people and how do they go about that and how to be original and who are the originals and stuff. As I said, I think one of the fun things about software and internet is it gives a lot of clay for all of us to play with. You can absolutely be an original if you want to go be. So those three have been a lot of fun in the last probably even 2 or 3 weeks I was churning through all of them.
David: That’s awesome. The Originals, I hadn’t heard of that. I have to add it to my list. I’ll go next real quick because it picks up on a couple of those themes from a disparate angle. We started the episode on a sports topic, so I can’t not end it on one given that it's the Olympics right now. My Carve Out is if you haven’t seen, everybody’s got to go watch Simone Biles, the woman’s gymnast. This girl is like the most dominant athlete in her sport I think I have ever seen. She makes Michael Jordan look like he’s in the D league, you know, would be the epic comparison. She now just won the individual gold medal in the Olympics by an enormous margin.
Ben: I’ve never seen the person who is best in their sport be so far ahead of the entire pack.
David: Incredible. I was watching an interview with her, reading an interview with her, and one of the things that was sent in, it reminds me of the Mindset, Taylor, of your carve out. When she was a little younger – she’s still only 19 but when she was a little younger, she didn’t really have a lot of confidence in herself and would say, “Oh, well. I’m not as good as the other girls.” And now that she is the most dominant athlete that’s ever lived in the sport. Pretty inspiring. So that’s mine for the week.
Taylor: Love it.
Ben: Mine’s a quickie. For those of you who listened to the Alaskan Airlines episode, know that I have a thing for airplanes and there’s this incredible video on Vox, it’s only 10 minutes long, on the history of the Concorde – how it came to be, how that was funded, what the other supersonic airplane undertakings were, and why we don't have supersonic flight today. So for airplane nerds out there, you probably know it all but it’s just a really well put together little 10 minute video and it’s thrilling. So I highly recommend going and checking it out. That’s all we’ve got.
David: Awesome. That’s a wrap. Thanks everybody for listening and most importantly, huge thank you to Taylor for joining us.
Ben: Yeah. Taylor, where can our audience find you?
Taylor: I’m here at Adobe so feel free to drop me a line at Barada@Adobe.com if you have something that you think we should be looking at. I’m also on Twitter, just @TaylorBarada and LinkedIn as well. So feel free to reach out and happy to chat.
Ben: Awesome. Listeners, if you like the show. Rate us on iTunes. Tweet this episode to your friends. Share it wherever you see fit and thanks so much for listening.
David: We’ll see you next time.
We finally did it. After five years and over 100 episodes, we decided to formalize the answer to Acquired’s most frequently asked question: “what are the best acquisitions of all time?” Here it is: The Acquired Top Ten. You can listen to the full episode (above, which includes honorable mentions), or read our quick blog post below.
Note: we ranked the list by our estimate of absolute dollar return to the acquirer. We could have used ROI multiple or annualized return, but we decided the ultimate yardstick of success should be the absolute dollar amount added to the parent company’s enterprise value. Afterall, you can’t eat IRR! For more on our methodology, please see the notes at the end of this post. And for all our trademark Acquired editorial and discussion tune in to the full episode above!
Purchase Price: $4.2 billion, 2009
Estimated Current Contribution to Market Cap: $20.5 billion
Absolute Dollar Return: $16.3 billion
Back in 2009, Marvel Studios was recently formed, most of its movie rights were leased out, and the prevailing wisdom was that Marvel was just some old comic book IP company that only nerds cared about. Since then, Marvel Cinematic Universe films have grossed $22.5b in total box office receipts (including the single biggest movie of all-time), for an average of $2.2b annually. Disney earns about two dollars in parks and merchandise revenue for every one dollar earned from films (discussed on our Disney, Plus episode). Therefore we estimate Marvel generates about $6.75b in annual revenue for Disney, or nearly 10% of all the company’s revenue. Not bad for a set of nerdy comic book franchises…
Total Purchase Price: $70 million (estimated), 2004
Estimated Current Contribution to Market Cap: $16.9 billion
Absolute Dollar Return: $16.8 billion
Morgan Stanley estimated that Google Maps generated $2.95b in revenue in 2019. Although that’s small compared to Google’s overall revenue of $160b+, it still accounts for over $16b in market cap by our calculations. Ironically the majority of Maps’ usage (and presumably revenue) comes from mobile, which grew out of by far the smallest of the 3 acquisitions, ZipDash. Tiny yet mighty!
Total Purchase Price: $188 million (by ABC), 1984
Estimated Current Contribution to Market Cap: $31.2 billion
Absolute Dollar Return: $31.0 billion
ABC’s 1984 acquisition of ESPN is heavyweight champion and still undisputed G.O.A.T. of media acquisitions.With an estimated $10.3B in 2018 revenue, ESPN’s value has compounded annually within ABC/Disney at >15% for an astounding THIRTY-FIVE YEARS. Single-handedly responsible for one of the greatest business model innovations in history with the advent of cable carriage fees, ESPN proves Albert Einstein’s famous statement that “Compound interest is the eighth wonder of the world.”
Total Purchase Price: $1.5 billion, 2002
Value Realized at Spinoff: $47.1 billion
Absolute Dollar Return: $45.6 billion
Who would have thought facilitating payments for Beanie Baby trades could be so lucrative? The only acquisition on our list whose value we can precisely measure, eBay spun off PayPal into a stand-alone public company in July 2015. Its value at the time? A cool 31x what eBay paid in 2002.
Total Purchase Price: $135 million, 2005
Estimated Current Contribution to Market Cap: $49.9 billion
Absolute Dollar Return: $49.8 billion
Remember the Priceline Negotiator? Boy did he get himself a screaming deal on this one. This purchase might have ranked even higher if Booking Holdings’ stock (Priceline even renamed the whole company after this acquisition!) weren’t down ~20% due to COVID-19 fears when we did the analysis. We also took a conservative approach, using only the (massive) $10.8b in annual revenue from the company’s “Agency Revenues” segment as Booking.com’s contribution — there is likely more revenue in other segments that’s also attributable to Booking.com, though we can’t be sure how much.
Total Purchase Price: $429 million, 1997
Estimated Current Contribution to Market Cap: $63.0 billion
Absolute Dollar Return: $62.6 billion
How do you put a value on Steve Jobs? Turns out we didn’t have to! NeXTSTEP, NeXT’s operating system, underpins all of Apple’s modern operating systems today: MacOS, iOS, WatchOS, and beyond. Literally every dollar of Apple’s $260b in annual revenue comes from NeXT roots, and from Steve wiping the product slate clean upon his return. With the acquisition being necessary but not sufficient to create Apple’s $1.4 trillion market cap today, we conservatively attributed 5% of Apple to this purchase.
Total Purchase Price: $50 million, 2005
Estimated Current Contribution to Market Cap: $72 billion
Absolute Dollar Return: $72 billion
Speaking of operating system acquisitions, NeXT was great, but on a pure value basis Android beats it. We took Google Play Store revenues (where Google’s 30% cut is worth about $7.7b) and added the dollar amount we estimate Google saves in Traffic Acquisition Costs by owning default search on Android ($4.8b), to reach an estimated annual revenue contribution to Google of $12.5b from the diminutive robot OS. Android also takes the award for largest ROI multiple: >1400x. Yep, you can’t eat IRR, but that’s a figure VCs only dream of.
Total Purchase Price: $1.65 billion, 2006
Estimated Current Contribution to Market Cap: $86.2 billion
Absolute Dollar Return: $84.5 billion
We admit it, we screwed up on our first episode covering YouTube: there’s no way this deal was a “C”. With Google recently reporting YouTube revenues for the first time ($15b — almost 10% of Google’s revenue!), it’s clear this acquisition was a juggernaut. It’s past-time for an Acquired revisit.
That said, while YouTube as the world’s second-highest-traffic search engine (second-only to their parent company!) grosses $15b, much of that revenue (over 50%?) gets paid out to creators, and YouTube’s hosting and bandwidth costs are significant. But we’ll leave the debate over the division’s profitability to the podcast.
Total Purchase Price: $3.1 billion, 2007
Estimated Current Contribution to Market Cap: $126.4 billion
Absolute Dollar Return: $123.3 billion
A dark horse rides into second place! The only acquisition on this list not-yet covered on Acquired (to be remedied very soon), this deal was far, far more important than most people realize. Effectively extending Google’s advertising reach from just its own properties to the entire internet, DoubleClick and its associated products generated over $20b in revenue within Google last year. Given what we now know about the nature of competition in internet advertising services, it’s unlikely governments and antitrust authorities would allow another deal like this again, much like #1 on our list...
Purchase Price: $1 billion, 2012
Estimated Current Contribution to Market Cap: $153 billion
Absolute Dollar Return: $152 billion
When it comes to G.O.A.T. status, if ESPN is M&A’s Lebron, Insta is its MJ. No offense to ESPN/Lebron, but we’ll probably never see another acquisition that’s so unquestionably dominant across every dimension of the M&A game as Facebook’s 2012 purchase of Instagram. Reported by Bloomberg to be doing $20B of revenue annually now within Facebook (up from ~$0 just eight years ago), Instagram takes the Acquired crown by a mile. And unlike YouTube, Facebook keeps nearly all of that $20b for itself! At risk of stretching the MJ analogy too far, given the circumstances at the time of the deal — Facebook’s “missing” of mobile and existential questions surrounding its ill-fated IPO — buying Instagram was Facebook’s equivalent of Jordan’s Game 6. Whether this deal was ultimately good or bad for the world at-large is another question, but there’s no doubt Instagram goes down in history as the greatest acquisition of all-time.
Methodology and Notes:
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Transcript: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)
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