Have you ever thought about the path a startup takes from the initial idea, all the way to a successful exit through a strategic acquisition? This topic is very important for the entrepreneurial ecosystem.
Let’s take a look at some numbers. According to a report by Crunchbase, over 15,000 startups were acquired globally in 2020 alone, and that number shouldn’t really surprise you.
Let’s take a slightly different approach today and look at a few lesser-known startup strategic acquisitions, and hopefully uncover some valuable insights and strategies that can help you achieve a successful and impactful exit.
Groupon’s Acquisition of LivingSocial
LivingSocial was founded in 2007 as an online daily deals platform and quickly gained traction by offering discounts on local services and products, expanding to over 25 countries at its peak. Groupon, seeking to consolidate its market position and eliminate competition, acquired LivingSocial in 2016.
Although the exact terms were not disclosed, the strategic acquisition was part of Groupon’s strategic move to streamline operations and integrate LivingSocial’s user base, which had significantly dwindled from 70 million to a few million active users.
Post-acquisition, Groupon focused on enhancing its deal offerings and improving customer experience. They ultimately aimed to achieve better financial stability and market presence amidst declining revenues in the daily deals industry.
Zynga’s Acquisition of Small Giant Games
Small Giant Games is a Finnish game development studio founded in 2013, and it achieved notable success with its mobile game “Empires & Puzzles”. It rapidly gained popularity, accumulating millions of downloads and generating significant revenue through in-app purchases.
In December 2018, Zynga acquired Small Giant Games for $560 million, recognizing the studio’s ability to create engaging, high-quality mobile games with strong user retention rates. The acquisition deal included an initial payment of $330 million in cash and $230 million in Zynga stock, with additional earnouts based on performance.
Post-acquisition, Zynga leveraged Small Giant Games’ expertise to enhance its portfolio. It contributed to Zynga’s 45% year-over-year revenue growth in 2019 and helped solidify its position in the competitive mobile gaming market.
Mailchimp’s Strategic Acquisition of Sawa
Sawa, a creative automation platform founded in 2016, aimed to simplify the design and production of marketing materials for small businesses. It gained traction with its user-friendly tools and automation capabilities.
In January 2019, Mailchimp acquired Sawa to enhance its marketing platform, seeking to integrate advanced design automation features. This strategic move allowed Mailchimp to offer more robust creative services to its 12 million customers.
The strategic acquisition helped Mailchimp increase its market share in the marketing automation sector. It significantly contributed to its revenue, which surpassed $700 million in 2019. By leveraging Sawa’s technology, Mailchimp improved its user experience and solidified its position as a leading all-in-one marketing platform for small businesses.
HubSpot’s Acquisition of The Hustle
The Hustle, a media company founded in 2016, quickly grew its subscriber base to over 1.5 million by delivering engaging daily business and tech news through its newsletters. Recognizing the potential to enhance its content marketing strategy, HubSpot acquired The Hustle in February 2021 for an undisclosed amount.
This strategic acquisition aimed to bolster HubSpot’s media and content creation capabilities. It also provided valuable insights and resources to its customer base of over 100,000 businesses. Integrating The Hustle’s content allowed HubSpot to deliver more diverse and compelling marketing resources.
It also drove increased customer engagement and supported its strategy to become a comprehensive growth platform for businesses.
Square’s Strategic Acquisition of Weebly
Weebly was founded in 2006 and became a popular website builder with over 50 million users. It offered easy-to-use tools for individuals and small businesses to create professional websites and e-commerce stores.
In April 2018, Square acquired Weebly for $365 million in a combined cash and stock deal. This strategic acquisition allowed Square to expand its suite of services beyond payments, integrating Weebly’s website building and e-commerce capabilities into its ecosystem. The merger aimed to provide a comprehensive solution for small businesses, combining online and offline commerce tools.
Post-acquisition, Square reported a significant enhancement in its e-commerce offerings, contributing to its growth as an all-in-one platform for business operations, which saw its revenue increase by 51% year-over-year in 2019.
What we Can Learn from These Strategic Startup Acquisitions
If you ever plan to think in this direction, as an entrepreneur you need to keep in mind that preparing for an acquisition starts long before potential buyers show any interest. Your startup needs to have a viable business idea. It also needs to focus on building a solid foundation with clean financial records, scalable operations, and a strong customer base.
According to a study by TechCrunch, startups with meticulous financial records and transparent operations are 30% more likely to attract favorable acquisition offers. Positioning your startup to highlight unique value propositions and market niches can significantly enhance its attractiveness to potential buyers.
Companies like Weebly and Small Giant Games successfully positioned themselves in competitive markets, which made them appealing acquisition targets for larger firms like Square and Zynga.
If you want to enter negotiations about acquisition, you have to carefully consider your startup’s valuation, terms, and cultural fit. As a founder, you should seek to understand your company’s true worth and negotiate terms that align with your long-term vision.
For instance, the founders of Small Giant Games secured a deal with Zynga that included significant earnouts based on performance, ensuring continued investment in the company’s success.
If you want to maintain growth (and you do), you need to ensure a smooth transition post-acquisition. HubSpot’s strategic acquisition of The Hustle can teach us a bit about the importance of integrating new teams and capabilities seamlessly to drive continued engagement and growth.
Real-World Tips
If you really want to build a sellable business, you need to maintain clean financials, scalable operations, and a strong customer base. These elements are critical in attracting potential buyers. According to PwC, 88% of successful startup acquisitions were of companies with transparent and well-organized financial records.
You don’t have to do everything yourself. Leverage experienced advisors and mentors to significantly enhance your startup’s acquisition process. A study by CB Insights found that startups with strong advisory boards are 25% more likely to secure favorable acquisition deals.
As a founder you should focus on creating a unique value proposition (a topic we’ll cover in a future post) that differentiates your business in the marketplace. Insights from founders who have successfully exited, such as those of The Hustle and Weebly, show us the importance of positioning the company as a valuable and integral part of the buyer’s strategic vision.
Wrapping Up
What makes your startup attractive for a strategic acquisition? A report by McKinsey showed that 60% of successful acquisitions involve companies that had clear, differentiated market positions.
The stories of LivingSocial, Small Giant Games, Sawa, The Hustle, and Weebly can teach us that thoughtful planning and execution can lead to fruitful exits. Stay well-prepared and informed, as this can make all the difference in achieving a successful and lucrative exit.