What can we learn from Facebook about M&A?

For many people, Facebook is synonymous with pet pictures, status updates and birthday greetings, but are you aware that you can learn a lot about strategic growth and M&A by studying the company itself?

In its 12 or so years of existence, Facebook has acquired more than 60 companies. The best known of these are the image sharing platform Instagram (acquired for USD 1 billion in 2012) and the WhatsApp messaging service (acquired for USD 19 billion in 2014). With so many acquisitions on its CV, it’s safe to say that M&A is in the company’s DNA, and that there is a lot to learn from the mergers & acquisitions strategy of Facebook’s CEO, Mark Zuckerberg.

Here are five M&A lessons to learn from Facebook:

1: Don’t underestimate culture

Facebook’s M&A activities are characterised by the adage “culture eats strategy for breakfast”. This certainly does not mean that Mr. Zuckerberg and co. don’t also have a clear strategy behind their acquisitions, but they have understood that corporate culture should not be underestimated. Facebook focuses on finding companies that foster the same culture as they do, while also aiming to instil their own values early on in the companies they acquire.

Facebook was founded in February 2004, making it a relatively young company. Nearly all the companies they have acquired since are even younger. The flat structures, capacity for rapid change and the innovation mindset that often characterize start-ups, create a common cultural platform for Facebook and the companies in its growing portfolio.

Cultural mismatches are often a major cause of M&A failures, whether early on, around the negotiating table – or worse: as an expensive lesson after the deal is sealed.

For example, cultural differences are said to be one of the reasons why Hewlett Packard’s purchase of Autonomy Corporation (for USB 11 billion in 2011) has come to be seen as a horror story of how not to conduct an acquisition.

2: There is more than one type of acquisition

Acquisitions are not always about the buyer “swallowing up” the company they have acquired. Indeed, there is an important decision to be made about whether to fully incorporate the company into the buyer’s company, or to continue growing it under its own name and brand. This second option is especially relevant when acquiring a strong brand with a large customer or user base. Post-acquisition, both Instagram and WhatsApp have continued as separate products, under their own names.

Concerning the Instagram purchase, Mark Zuckerberg said:

 We need to be mindful about building on Instagrams features rather than just trying to ntegrate everything into Facebook. Thats why we are committed to building and growing Instagram independently. 20 Million people around the world love the Instagram app and the brand associated with it and our goal is to  help spread this app and brand to even morepeople.”

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3: Don’t forget your core activity

All acquisitions made and everything else Facebook does, form the company’s overall strategy and vision: “to give everyone in the world the power to share and make the world more open and connected”, as Mr. Zuckerberg himself puts it.

Mr. Zuckerberg also has clear ideas about how Facebook will succeed, and the company’s thinking around development and strategic purchases:

“You can plant a lot of seeds not be committed to any particular one of them but just see what grows. And this really isn`t how we approached this. We go mission-first then focus on the pieces we need and go deep on them and be committed to them”.

This was evident from the acquisition of Instagram:

“We will try to learn from Instagram`s experience to build similar features into our other products providing best photo sharing experience is one reason why so many people love Facebook and we new it would”.

There was a similar motivation behind Facebook’s 2014 purchase of virtual-reality company Oculus VR for USD 2 billion.

4: No-one is immune to disruption

No company is immune to change, not even Facebook. And no-one knows that better than Facebook themselves. The company has repeatedly bought out companies that could be considered competitors, or were about to become so. Facebook has found that strategic purchases are a quick and effective way of procuring new, innovative technology.

When Facebook realised that they were struggling to capture a position in the mobile market, the Instagram acquisition was part of the solution. The well-established “mobile first” mindset that Facebook and many others now exhibit perhaps makes it hard to envision how Facebook, with its web-based platform, once struggled with mobile. Conversely, Instagram, which began as, and still is, a mobile app, was light years ahead in terms of user experience, and lured away many of Facebook’s users with its new way of sharing photos.

Over the years, Facebook has repeatedly demonstrated that they are trailblazers and have a unique capacity for constant self-reinvention. Strategic acquisitions have repeatedly been part of their armoury in this respect, in recent years, notably, through acquisitions in VR and AI.

5: You can’t win them all

Instagram and WhatsApp aside, Facebook’s best-known acquisition story is perhaps a deal that never was: their repeated attempts to acquire Snapchat.

Apparently, Snapchat turned down USB 3 billion in 2013 following several rounds of negotiations. Facebook now appears to have accepted that Snapchat won’t be joining its portfolio, and has adopted a different strategy – namely, to develop the same services itself (as we can see in the new launch of Facebook Stories and the new status function in WhatsApp), and to buy up companies with similar products (e.g. in 2016, MSQRD, an app which, like Snapchat, lets you apply masks, filters and so on to photos and videos in real time). Snapchat, for its part, is in the process of relaunching itself as a lenses and camera company and ‘snapped up’ an IPO earlier this year.

A virtual data room is also a key ingrediencies in merges and acquisitions. Would you like to know more about our virtual data room?