I'm here to share some insights on using mergers and acquisitions as a strategy to grow marketplaces. This is particularly relevant to me as a couple companies I angel invested in have recently merged with other companies. This process, however, must be approached with caution to ensure it is productive and not merely a drain on resources or worse, value destructive.
First, it's essential to understand the principal motivations for engaging in M&A. Generally, there are three main reasons. One, to achieve greater scale, which involves acquiring a competitor to boost market share and enhance profitability by centralizing certain operations. Two, to increase scope, which allows a business to enter new markets or product lines, thereby enhancing the range of capabilities and offerings. And three, to acquire capabilities, such as skills, expertise, or technology, which can enable a company to innovate and potentially launch new business lines without starting from scratch.
Traditionally, marketplaces have utilized M&A primarily to scale by acquiring competitors, thus consolidating market shares. Grubhub’s merger with Seamless was a strategic move to cement our position as the leading food delivery player by expanding our reach in New York and other markets where we already competed against each other.
For scope, we acquired CampusFood to secure a foothold in college towns, which was essentially an extension into new geographic territories while ensuring national coverage faster than new market development would have allowed.
At Eventbrite, when we acquired Toneden, we acquired it for their marketing capabilities so we could launch a martech suite in the future.
When thinking about what to do with the acquired company, it's crucial to orchestrate the integration process thoughtfully. Many executives tend to rush integration which may lead to unnecessary complications. Here are three strategies for integration: full integration, partial integration, and maintaining operational independence. For example, when we acquired CampusFood at Grubhub, we opted for full integration by retiring their brand and assimilating their markets into the Grubhub brand. However, with Seamless, we retained their branding online to maintain SEO rankings, thus avoiding competition increases from platforms like DoorDash or Uber, which could have gained ground otherwise. We can debate whether either of these was the right strategy.
Timing and methodology in integration should be strategic too. Integrating too quickly and fully, as we observed with Eventbrite's acquisition of Ticketfly, led to customer and employee dissatisfaction due to misalignment in product capabilities and market needs. Robinhood did a great job leaving their acquisition X1 largely alone until the product was closer to being available in market, operating it as a separate business unit.
Finally, it is essential to evaluate whether M&A is the best option for your strategic goals. There might be cases where partnerships or internal development could be more advantageous considering the cultural and technological implications. A thoughtful evaluation can prevent costly mistakes and ensure the acquisition fulfills its intended objectives.
Whether choosing to go through with an M&A or opting for an alternative strategy, careful analysis and deliberation are paramount. I hope these perspectives provide some guidance as more organizations navigate the intricacies of M&A in their growth journeys, because when done well it can be an extremely profitable growth strategy.
Currently listening to my Instrumental Hip-Hop playlist on Spotify.
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