Acqhire is a new buzzword as an exit strategy when big tech companies have purchased small companies, primarily as a talent recruitment strategy with a sometimes significant signing bonus. So far, to the best of my knowledge, it only happens in the US. Facebook is probably the most well-known company in such type of takeovers started with several companies: Friendfeed, Beluga and most recently, Gowalla. Several investors (or tech pundits) for example, Mike Arrington & Jason Calacanis have provided their perspectives on the acqhire issue specifically on the Gowalla case. Hence I thought it might be interesting topic to examine in Asia. In my own humble opinion, I don’t think that it will ever happen for tech companies in Asia and here are several reasons why:
- Less frequency of acquisitions for tech companies in Asia due to technology arbitrage and pricing: First of all, most owners of Asian companies or conglomerates are thrifty and less expansive in their acquisitions. Our environment is less sophisticated as compared to what you see in Silicon Valley. If you see the acquisitions of Gowalla and Friendfeed which are examples of acqhire, the rationale is to hire talent on Facebook. They will put a price on the founders and then pay the rest with the stocks of the parent company. That’s also the reason why Twitter rejected the bid from Facebook four years ago, because the amount for payout was too low, based on rumors at that point of time.
- Asian companies only buy one talent and not an entire team of players: To an Asian owner, it’s too expensive to buy a team. Just buy the top guy and it’s enough. Unfortunately, if we examine the acqhire cases in Silicon Valley, it’s pure acquisition of teams of engineers. Probably, one case stood out, was the acquisition of Ngmoco by Gree, and the sole reason was the founder who was a former employee of EA. The cost to buy a team will be less appealing to Asian owners who feel that it’s too expensive, and the technology arbitrage argument kicks in.
- Your investors does not know how to sell: Most venture capitalists in Asia are not sophisticated enough to sell their portfolio of companies to potential acquirers. So, do you think that they are smart enough to structure a acqhire deal with the companies? Another argument is that in the web-tech space, the big four companies (Google, Facebook, Apple & Amazon) together with Microsoft are all located in the US, and hence it’s difficult for Asian investors to get them to acquire. While we see more Chinese & Japanese companies extending their reach to Southeast Asia, the investors are rarely involved in structuring these acquisitions. Usually in Asia, the entrepreneurs do the work most of the time. Time and time again, it’s easier to remind most readers that most venture capitalists in Asia are a bunch of bankers who have no operations experience and that’s why they cannot structure deals in the way how the US guys does it.
In conclusion, it is not difficult to fathom why acqhires are ridiculously difficult to execute for Asian companies in simple words: price, arbitrage and sophistication.