Big Tech's Pursuit of Small Tech Companies

high tech laboratory with a prototype vehicle chassis

In the dynamic and ever-evolving tech realm, the age-old adage “big fish eat little fish” holds true, as M&A remains a dominant force driving innovation and competition among startups, small companies, and tech giants.

Tech Companies on the Fast Track

The pursuit of innovation and market dominance has led to a significant trend in mergers and acquisitions (M&A) involving big tech companies and their smaller counterparts. The growth of the tech sector has led to a wave of consolidation through mergers and acquisitions (M&A).

For big tech corporations, acquiring smaller tech companies offers opportunities to diversify their portfolios, enter new markets, and gain access to advanced technologies that would take years to develop in-house. More so, big tech corporations are eager to acquire these smaller firms, driven by desire to secure solid financials and tap into a pool of talented human resources.

For example, Google has acquired over 200 companies since its inception, and many of these acquisitions have been of small software companies such as JotSpot which later became Google Sites. Amazon has also acquired hundreds of small software companies over the years. One of these companies is Twitch Interactive, which has since become a famous live-streaming platform for video games. Strategic acquisitions of these software companies helped big tech solidify their position as industry leaders, outpace competitors, and maintain market dominance.

What Big Tech Wants: Financials and Human Resources

When big tech companies consider acquiring a small software development company, they look for two key things: financial performance and human resources.

Financial performance is important because it indicates the target company’s growth potential and profitability. A strong financial track record increases the value of the acquisition and makes it a more attractive prospect for the acquirer. In 2012, Facebook acquired Instagram for $1 billion. At the time, Instagram was a small photo-sharing app with just 30 million users. The acquisition of Instagram was a major financial success for Facebook. Within a few years, Instagram had grown to over 1 billion users and was generating billions of dollars in revenue.

Human resources are also essential, as small software companies often have talented developers, engineers, and designers. Acquiring these businesses gives the acquirer access to this talent pool, which can help accelerate the development of new products and technologies. The human resources within these companies are invaluable in driving innovation and maintaining the acquirer’s competitive edge.

In 2016, Microsoft acquired GitHub, a code hosting platform, for $7.5 billion. GitHub was a popular destination for software developers to share code and collaborate on projects. This acquisition gave Microsoft access to GitHub’s user base and developer community, which helped Microsoft to improve its own developer tools and services.

The Role of a General Counsel in the Acquisition Process

The tech industry’s pursuit of small software companies through mergers and acquisitions continues to gain momentum. For big tech companies, these acquisitions present unparalleled opportunities for growth, innovation, and talent acquisition. As a result, small software businesses are increasingly becoming the focal point of interest for major players in the tech space.

When considering a potential sale of their company, small software business owners often seek legal representation. While engaging a law firm is crucial, having a competent and experienced general counsel leading the process is equally vital. The general counsel serves as the central coordinator, overseeing every detail of the transaction and ensuring that all parties involved do not overlook essential aspects that could jeopardize the sale.

The sale of a company involves complex negotiations, contracts, and due diligence, which can be overwhelming for business owners without proper legal guidance. A skilled general counsel possesses the expertise to navigate through the intricacies of the deal and advocate for the best interests of the business owner.

With the right legal guidance and expertise, business owners can leverage this trend to their advantage and achieve their business objectives. Gabriela N. Smith Legal Counsel | Asesora Legal offers the legal experience needed to navigate the complexities of such deals. If you are in need of legal counsel or an international law firm for any business-related matter, take the first step towards a successful future by availing the services of Gabriela N. Smith Legal Counsel | Asesora Legal. Contact us today for a consultation.

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