It’s Business, And It’s Personal

What to know before acquiring a startup

| Jun 8, 2018 | Buying & Selling Businesses |

To get the best deal, those looking to buy a company in North Carolina or elsewhere may want to let logic override their emotions. In some cases, it may be easier for existing companies to simply make their own product. It could be possible to emulate the business model that makes a acquisition target attractive in the first place. Asking these questions can provide insight into whether an acquisition is worth pursuing.

Often, the value of a startup company is driven by its business model as opposed to the technology it offers. A poll revealed that recreating the products and services offered by companies such as Twitter and Facebook would cost between $50,000 and $1.5 million. When Facebook purchased Instagram for $1 billion, it was paying a high price tag to acquire its user base. The same was true when it bought WhatsApp for $19 billion.

Established companies may also find new distribution channels worth paying a premium for. When Microsoft purchased LinkedIn for $26 billion, it bet that it could provide something that the market had overlooked. Today, it provides Microsoft with $1 billion in revenue per quarter. While these success stories may have companies looking to find the next big acquisition, it is important that these purchases are made strategically.

Companies that want to grow quickly may think that acquiring a startup is the way to do that. However, those who want to purchase a business should know that it is not the only way to accomplish a strategic goal. It may be a good idea to work with a team of attorneys and accountants to determine if a given purchase is worth making. An attorney may also be able to help structure the deal in a manner favorable for the acquiring business.

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