Why ‘AcqHiring’ will never be an exit strategy in Asia

Acqhire is the new buzzword referring to an exit strategy when big tech companies purchase small companies, primarily as a talent recruitment strategy, sometimes with a 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 involved in such takeover types. It 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:

Your investors do 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.

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 Silicon Valley. Most conglomerates purchase for functionality and not the complete package that comes with the acquisition, which include talent and other assets of the company which are not exactly functional, like a sales and marketing division.

Facebook’s rationale for acquisitions like Gowalla and Friendfeed, on the other hand, is to hire talent for 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.

As far as obtaining expertise goes, Asian companies prefer to build the same technology by outsourcing to a Chinese or Indian firm, as it’s cheaper. Hence the tech arbitrage is the costs in cloning the same company overseas as opposed to locally.

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 that’s enough. In Silicon Valley, if we examine the acqhire cases, they usually involve the acquisition of teams of engineers. One case stood out in Asia was the acquisition of Ngmoco by DeNA, and the sole reason was that the founder was a former employee of Electronic Arts.

In conclusion, it is not difficult to fathom why acqhires are ridiculously difficult to execute for Asian companies in simple words: sophistication, arbitrage, price.

Image: Andrew Feinberg

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