By Carl Grant, Senior Vice President of Business Development at Cooley LLP
Our country has emerged from the “Great Recession,” but the post downturn market continues to see a profound impact across all markets and industries from the now-ended recession. Aside from the obvious issues with revenue and profitability, the recession changed the way companies were doing business and brought new importance to certain types of corporate growth.
Take asymmetrical acquisitions for example. An asymmetrical acquisition is defined as an acquisition where a large company acquires a much smaller company. And we’re not talking slightly larger. The bigger company has to be 10 or more times the size of the smaller company for the acquisition to be considered “asymmetrical.”
There are two kinds of asymmetrical acquisitions. There are “bolt-on” asymmetrical acquisitions that add incrementally to a purchaser’s core competencies. There are also more dramatic “transformational” asymmetrical acquisitions, which can take a company into a new market or otherwise make fundamental changes.
The economic downturn vastly increased the popularity of the asymmetrical acquisition for multiple reasons. First, these smaller acquisitions were perceived as being lower risk for large companies during the challenging economic times.
Second, during the economic downturn, larger companies were looking for new markets or market segments in which to enter or expand to help create new sources of revenue. By purchasing a small company, the large enterprise could easily enter a new market or even add a new product or service that they could offer existing customers.
Although the economic climate was helping to drive these asymmetrical acquisitions, it was not the only factor for the increase in their numbers. According a recent article in Chief Executive magazine on the matter, the ability for companies to quickly leverage a great idea into a groundbreaking product and digital media were equally to blame. These things are increasing the amount of small acquisition targets while simultaneously making them more visible to large companies looking to make an acquisition.
Although asymmetrical acquisitions are increasingly popular, there are still things that companies need to take into account and consider before actively shopping for random acquisition targets.
According to the article, companies need to be strategic in their acquisition thinking. They need to have all of their management on board with the decision. They need to ensure that they move quickly enough to capitalize on the acquisition, while being cautious and deliberate in their approach. They also need to think carefully about the staff of both companies and if both organizations will meld well together.
If your company can accomplish these things, they may even wind up like asymmetrical acquisition giant, Cisco, who has constantly found ways to enter new and emerging markets while driving innovation through acquisition of smaller companies. Stumble, however, and you could enter the ranks of companies like Coca-Cola, which has historically fumbled their acquisition of small and innovative companies.
Has your company scooped up a much smaller company in the past? What was the reason? Was the recession a driving factor in your company making more of these acquisitions? Less? Drop us a comment and let us know.
Disclaimer: The postings on this site are my own and do not represent Cooley LLP’s positions, strategies or opinions.