When a company achieves success, its next move is to try and increase its market share through a combination of strategic moves. These may include competitive innovation, expansion, and eliminating competitors—either buying them outright or using market dominance to drive them out of business. This article explains how your organization can grow by innovation, acquisition, or expansion and looks at some of the most and least successful mergers in recent years.
How Google and Apple Became Dominant
One of the most public examples of this is Google’s owner, Alphabet. The company is known for buying smaller companies whose operations can be easily integrated into its existing business structure. This allows Google to grow with minimal disruption. Some of the businesses acquired offer services that Google has never developed–for example, Fitbit. But Google has also purchased several direct competitors, including video platform YouTube and the Waze navigation app. Google bought YouTube a year after Google Video failed to compete.
Apple is known for using innovation to dominate the competition, regularly bringing new iPhone models to market. Like Google, Apple regularly acquires successful smaller companies, buying a new company every three to four weeks in recent years, according to CEO Tim Cook.
Should Your Company Acquire Another Company?
In considering whether to buy another company, the first question you need to ask yourself is, “Can we afford it?” Leveraging other assets to fund an acquisition might lead to a negative domino effect on your overall finances. Case in point: Amid the rampant speculation about Elon Musk’s dealings with Twitter’s board of directors—first wanting to buy Twitter, then changing his mind—some business analysts have suggested Musk’s change of heart sprang from the realization that using Tesla stock to secure the Twitter purchase would lower the value of Tesla’s stock.
Exercising Market Dominance to Control Your Competition
Companies that seek to dominate the market through methods other than innovation and acquisitions may find themselves challenged by antitrust regulators. In recent years, dozens of complaints against Apple have been filed with the European Commission, which is more vigilant about anti-competitive behavior than U.S. agencies.
In 2019, Spotify filed an antitrust complaint against Apple with the E.C., accusing Apple’s App Store of predatory practices. It contended that Apple’s market domination gave it an unfair advantage and enabled it to limit consumer choices and stifle innovation. One year later, e-commerce firm Rakuten filed its own complaint, alleging that Apple was engaging in anti-competitive behavior by taking a commission on Rakuten e-books sold through the App Store while promoting its own Apple Books service. Epic Games, which manufactures the popular Fortnite, has also filed a complaint, challenging the 30 percent cut Apple takes on in-app purchases.
The E.C. has responded to each of these complaints, forcing Apple to spend a great deal of money on lawyers. Most companies strive to minimize legal costs and tend to shy away from protracted legal battles. They have found that innovation to keep up with technological changes and consumer preferences is generally more profitable. Below are examples of companies that have done so.
Using Innovation to Grow
ChargePoint Gets in on the Ground Floor of the Electric Car Industry
As its name suggests, ChargePoint operates E.V. charging stations and manufactures the technology. ChargePoint is the world’s largest online network of independently owned charging stations, operating in 14 countries. Its far-sighted founders created the company in 2007 when electric cars were rare. By the time the Infrastructure Investment and Jobs Act was signed into law in 2021, ChangePoint was in a strong position to capitalize on the upcoming investment of $7.5 billion in federal funds to build a nationwide public network of E.V. chargers.
A.B. Inbev Creates a New Industry With Its Own Discarded Byproduct Ingredients
A.B. InBev is an international beer-brewing company with headquarters located around the world. In 2021 it launched EverGrain to make productive uses of the barley protein and fiber typically discarded during the beer-making process. By turning them into barley flour, EverGrain could team up with international grocery manufacturers such as Birds Eye and Post Holdings to develop new products that are richer in protein than those made with basic flour.
Buzzer Succeeds by Focusing on Gen Z
Buzzer is a streaming service that delivers sports fans “live moments they can’t live without”—highlights from sports events, minus the sometimes-tedious plays that led up to them. Buzzer’s business model is based on the growing predominance of smartphones and social media used by younger generations to keep up with news and entertainment. Buzzer is aiming for all age markets, though: It knows some viewers want to see more than highlights and offers tiered subscriptions. Users can choose to buy highlights one at a time, watch ten minutes of a live game for 99 cents, or pay $2 to watch an entire quarter. Members of sports services such as NBA League Pass can use Buzzer’s notification features without an additional charge.
High-Profile Acquisitions: Wins and Losses
Successful acquisitions often occur because of aligned goals and objectives, strong corporate culture, and leadership that are willing to work together. While unsuccessful acquisitions are often caused by a failure to conduct adequate due diligence, lack of preparation before merging two different corporate cultures, and lack of foresight into rapid transformations in media technology and consumer habits.
Here are a few successes and failures of high-profile acquisitions in recent years:
Win: Disney’s Acquisition of Pixar and Marvel
Disney bought Pixar and Marvel but did not try to integrate either into the Disney corporate structure. Rather than risk disrupting their respective creative processes, Disney allowed each to continue operating independently. The acquisitions generated value for Disney’s stock without destroying what had made Pixar and Marvel successful.
Loss: AOL-Time Warner
AOL and Time Warner’s merger got off on the wrong foot when its negotiations were carried out by a small number of senior executives who kept their colleagues in the dark. (Most Time Warner executives didn’t learn of the merger until the day it was announced.) In 2000, the idea of combining AOL’s internet-email services and Time Warner’s massive print-broadcast-cable divisions seemed far-sighted, sure to create synergy between the two giants. This was the height of the dot-com bubble, and many believed the internet boom would continue for years.
By failing to consult with technology experts, Time Warner missed the fact that insurgent broadband companies were starting to overtake AOL, whose success was based on dial-up technology.
Equally important, the two companies’ cultures did not work well together, and their respective executives never managed to overcome the lack of cohesion. When the dot-com bubble burst and the economy slid into recession, Time Warner-AOL’s stock-market valuation plunged. The two entities parted ways a few years later.
Win: Drug-Store Chains
Recent years have seen a surge in drug store/pharmacy acquisitions by other drug-store companies. The trend has been driven partly by Amazon’s expansion into the healthcare services market. For example, CVS has been swallowing up smaller chains around the U.S. that were previously local to particular regions. Likewise, Walgreens recently bought 2,000 Rite-Aid stores. In both cases, the purchaser shut down some stores but did not entirely overhaul their operations.
Loss: eBay-Skype
The eBay-Skype acquisition sprang from a bad assessment of consumer behavior. eBay bought Skype in 2005 based on a hunch that consumers would utilize the e-commerce service more often if buyers and sellers could connect personally and see each other during transactions.
eBay’s hunch was incorrect. Buyers and sellers didn’t want to get friendly; they just wanted to carry out transactions as quickly and efficiently as possible. Executives at eBay refused to admit their error, blaming the problem on mismanagement at Skype. But after several rounds of executive turnovers, eBay eventually sold off most of its financial interest in Skype.
Loss: Bank of America-Countrywide
U.S. financial markets were in an “irrational exuberance” at the start of 2008, with massive investor enthusiasm caused by continuously rising stock values. The rise was fueled by cheap mortgages based on mortgage-backed securities, a new and precarious financial instrument.
Bank of America had been expanding rapidly by acquiring other commercial banks. When BoA executives learned Countrywide Financial was responsible for 20 percent of all mortgages in the U.S., they knew buying it would push BoA to the top of the commercial banking industry.
Caught up in the goal of becoming #1, BoA neglected to carry out the due diligence, which would have revealed that many of Countrywide’s mortgages were on the verge of defaulting. The defaults began a few months after the deal closed. Dozens of other lenders met the same fate, and the country fell into a recession. By 2009, Bank of America’s stock price had fallen by 90 percent.
How Our Experienced Attorneys at Gertsburg Licata Can Help
Mergers and acquisitions is one of Gertsburg Licata’s key practice areas. The firm negotiates acquisitions for large and small companies throughout the U.S. and the world, always mitigating risk and limiting liability. If you are wondering if you should buy out a competitor, call 216-573-6000 or contact them here.
Gertsburg Licata is a full-service, strategic growth firm, specializing in business law, M&A advisory and executive talent solutions for entrepreneurs and executives of start-up and middle-market enterprises. Our proven process ensures time and resources are dedicated to identifying the goals of your organization and how your executive talent needs align with that vision. Our expert recruiters partner with you to build your dream management team, securing the best talent to help drive value for your employees and customers. Contact us today to discuss how we can help you secure your next competitive advantage.
Michael Callam is president of Gertsburg Licata Acquisitions. Contact Mr. Callam today at [email protected] or (216) 573-6000 x7003.
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