Month: May 2019

Driven by ultra-easy central bank policy, global merger and acquisition activity is exploding. The value of transactions in the first eight months of 2018 reached $3.3 trillion worldwide, a 39% increase from 2017, and the market can expect another record-setting year in 2019. What does this mean? The data suggests that optimism about the efficacy of M&As has never been higher. Businesses are increasingly looking to M&As as the way to grow.

Growth is good, but growth can also be cancerous. Financial and strategic calculus may suggest a perfect fit between two companies, but that calculus is mostly irrelevant to the long-term success of an M&A transaction. What looks on paper to be a perfect fit ends up in protracted conflict arising from a mismatch of cultures, values and ideologies. Those intangible factors are often only obvious in hindsight, and it is tempting for decision makers to ignore them because of their very intangibility; after all, if it is not part of the model, it cannot possibly exist, right?

Most acquisitions fail. That is the sobering reality. 

Issues of high executive turnover, labored transition periods and lowered production standards arise when businesses either jump into a deal too quickly or leave internal disagreements unchecked for too long. It is not a secret that M&As have drawbacks, and a lot of ink has been spilled outlining the potential pitfalls of mergers and acquisitions. For a lot of companies, staying private and addressing issues internally is the best path to steady growth. It may not make for a bold headline or improve a company’s financial valuation, but there are real benefits to avoiding M&As altogether.

Facebook’s WhatsApp and Instagram acquisitions will rank among the most successful in all of tech. Yet, even with that success, issues of culture and values have come to the fore longer term.

Late-stage executive churn

In 2003, the Harvard Business Review looked at executive churn within targeted companies. It reported, “On average, about a quarter of the executives in acquired top management teams leave within the first year, a departure rate about three times higher than in comparable companies that haven’t been acquired. An additional 15% depart in the second year, roughly double the normal turnover rate.”

Upon further research, the Harvard Business Review survey found that “executives continued to depart at twice the normal rate for a minimum of nine years after the acquisition.” If we look at a company like Facebook, the Harvard study’s churn timeline doesn’t seem so far-fetched.

Back in 2012, Mark Zuckerberg was unjustly mocked for what was then an unthinkable $1 billion bid to buy Instagram. Five years later, Instagram was seen as perhaps Facebook’s most successful acquisition. Then, from disagreements with Facebook and the urge to start something new, Kevin Systrom and Mike Krieger, the co-founders of Instagram, exited the company at the end of last year. Nicole Jackson Colaco, Instagram’s director of Public Policy, left the company in early 2018. Around the same time, Keith Peiris, Instagram’s AR/Camera product lead, moved on as well. According to TechCrunch, “Instagram’s COO Marne Levine who was known as a strong unifying force, went back to lead partnerships at Facebook. Without an immediate replacement named, Instagram started to look more like just a product division within Facebook.”

Loss of autonomy — and even the perceived loss of autonomy — can be a prime driver of executive churn at targeted companies. In 2018, Facebook also lost Jan Koum, a board member and the co-founder of WhatsApp, the company Zuckerberg acquired in 2014 for $19 billion. Many speculated that Koum’s departure came after concerns about data privacy and Facebook’s advertising model. In either case, Koum’s departure was born out of concern for his company’s ability to function autonomously within Facebook — a concern, we’re learning, that was justified.

What we see here is the exodus of key decision-makers at two targeted companies. With Instagram and WhatsApp, Facebook is now left to move these properties forward without the help of critical executives who know the products they created more intimately than their acquirer ever could. It’s yet to be seen how much and in what ways these personnel changes will hurt Facebook’s bottom line. Facebook is still reporting substantial revenue growth year-over-year, but these recent departures make for a cloudier outlook. Keep in mind that WhatsApp and Instagram would count as major successes.

Righting the ship

Fortune ran an article in 2014 outlining some of the problems with acquisitions. One of the companies they reported on was Aptean, a roughly 1,500-person business software company formed in 2012 from a merger of CDC Software and Consona. Both CDC Software and Consona were the product of several previous acquisitions. The company had become a daisy chain of acquired businesses strung together under one name.

According to Aptean’s own chief architect, “The result was 30 companies that were really never integrated with each other. We had 30 vertically organized separate companies doing their own things, with their own tools. Everything from HR to software delivery and launch was in the hands of the product teams. There were attempts to try and solve that but there was really no interest.”

Aptean, like so many other companies, was not prepared for the herculean task of retraining and acclimating hundreds of workers. It can take years to onboard new teams, requiring long adjustment periods for employees who need to learn new systems and management styles. According to Forbes,”Worker experiences can vary dramatically even if values are aligned. You can speed up assimilation with focus, resources, support, communication and transparency, but it still takes time.”

Acquisitions are often initiated to solve a problem then and there, so long acclimation periods require time most businesses don’t have or are unwilling to give. Aptean was willing to put in the work to shore up foreseeable issues that come from a business model built on mergers and acquisitions. If there’s one thing to learn from Aptean it’s that early M&A struggles can be managed, but it takes recognition at the point of conflict to enact a plan to remedy the situation.

One fairly recent M&A that has received a lot of attention is Amazon’s purchase of Whole Foods. If we look at Whole Foods one year after the acquisition, a familiar narrative to Facebook and Aptean arises, only now Amazon and Whole Foods have the added challenge of competing in the retail space while maintaining customer satisfaction.

Growing pains

Similar to Instagram and Whatsapp, Whole Foods was a big fish in a big pond that has been swallowed by a blue whale. To what end? As The Wall Street Journal points out, “More than a dozen executives and senior managers have left since Amazon acquired Whole Foods last year, according to former employees and recruiters steering them to new jobs.”

There appears to be little harmony between Amazon and Whole Foods right now, and the bruises are already showing. Whole Foods may be reporting a 19% rise in sales year-over-year, but customers are complaining about the quality of their produce. Businesses are weary of steep price hikes for prime shelving space, and perhaps most concerning of all, Amazon — the blue whale — isn’t getting the return on its investment.

Late last year, Forbes ran an article about the Amazon-Whole Foods deal, writing, “Amazon, even after acquiring Whole Foods for $13.7 billion in 2017 and offering two-hour grocery delivery service, is finding little success in the grocery business.” It may be that Amazon’s plans for Whole Foods are far-reaching and require several years to fall into place, but just like Facebook, the company is encountering problems now that if gone unaddressed could jeopardize the viability of the acquisition. Bloomberg reported that, “The number of Amazon Prime members who shop for groceries at least once a month declined in 2018 compared with 2017… The drop was surprising given the company’s Whole Foods investment and expansion of two-hour delivery service Prime Now.”

In the short-term, we see that shoppers at Whole Foods are unhappy, vendors are feeling pinched and Amazon is losing money to Walmart and Kroger and Target (businesses with more physical stores to service online orders). Looking ahead, Amazon’s plans for Whole Foods are ambitious, and with proper management of these early issues, this acquisition could prove beneficial to both companies, but only time will tell.

The perks of going it alone

An overwhelming majority of companies that engage in M&As are public. The reason for this is because public companies are accountable to their shareholders, who demand revenue growth year-over-year. The fastest way for a business to demonstrate growth and reinvest capital is to acquire another company. When financial valuations, shareholders and exit strategies are top of mind for a business, little attention is paid to company culture.

Now consider a private company that avoids M&As. Over time, that company can benefit immensely from its autonomy. Money that would have otherwise been used to buy a competing business can be reinvested into R&D and far-reaching growth projects that may not suit the revenue timeline of a shareholder. Executive turnover is lower, which leads to lower churn, company-wide. These benefits contribute to company culture. Demonstrating good company culture means that employees stay longer and are given the opportunity to work on projects that excite them. Good company culture is becoming harder to find as businesses increasingly turn to M&As to solve their problems.

Look before you leap

Ultimately, expectations and creative control have always loomed large over the fate of any merger or acquisition. It is natural for a business to want to absorb the brain trust of a competing company. Buying out a business to integrate its products into your suite can be a sound financial practice as well. But when things go south — whether that be through executive churn at the targeted company or problems with integration — people rarely point to the baked-in complications associated with M&As as a responsible party.

With each acquisition, a business may be forfeiting a part of its core DNA. There are issues of long-term employee retention and ideological compatibility that weigh heavy on any M&A. What’s more, acquisitions can require 10-year implementation plans (or longer), but with such a high turnover rate, it becomes incredibly difficult to make the transition work.

In the abstract, warning against these issues can come off as patronizing. But with this year expected to bring more M&A activity than 2018, the best way for businesses to assess the merits of a merger or acquisition tomorrow is to study the troubles befallen many high-profile companies today.

Source: Tech Crunch

With Uber expected to make its debut on the public market by Friday, May 10, on-demand ride-hailing drivers are planning to strike on Wednesday. The New York Taxi Workers Association is calling on U.S.-based drivers to stand in solidarity with drivers in London and log off from both Uber and Lyft on May 8 between 7 a.m. and 9 a.m.

“In the IPO filing, Uber said drivers will only get more dissatisfied because they plan to cut our pay and stop incentives,” NYTWA member Sonam Lama said in a press release. “We don’t want our wages to stay just minimum. We want Uber to answer to us, not to investors. The gig economy is all about exploiting workers by taking away our rights. It has to stop. Uber is the worst actor in the gig economy.”

In San Francisco, drivers are organizing a protest at Uber’s HQ followed by a 12-hour app shutoff. In a statement to TechCrunch, an Uber spokesperson said drivers are at the core of its service.

“Drivers are at the heart of our service─we can’t succeed without them─and thousands of people come into work at Uber every day focused on how to make their experience better, on and off the road,” an Uber spokesperson said. “Whether it’s more consistent earnings, stronger insurance protections or fully funded four-year degrees for drivers or their families, we’ll continue working to improve the experience for and with drivers.” When Lyft went public, “it was a sad day,” Gig Workers Rising organizer Shona Clarkson told TechCrunch last month.

“It’s hard to see this company making tons of money when you have insecure housing or aren’t sure you can make rent or pay medical bills,” she said.

In response, Lyft drivers went on strike in San Francisco and San Diego. While some drivers want to be W-2 employees and others don’t mind being 1099 independent contractors, these drivers are united around wanting higher wages, transparent policies around wages, tips, fare breakdowns and mileage rates, benefits and a voice, Clarkson said.

“Lyft drivers’ hourly earnings have increased over the last two years, and they have earned more than $10 billion on the Lyft platform,” a Lyft spokesperson told TechCrunch. “Over 75% drive less than 10 hours a week to supplement their existing jobs. On average, Lyft drivers earn over $20 per hour. We know that access to flexible, extra income makes a big difference for millions of people, and we’re constantly working to improve how we can best serve our driver community.”

As part of their respective IPOs, both Uber and Lyft offered some drivers bonuses but pale in comparison to what executives will walk away with. Lyft, for example, offered some drivers up to a one-time bonus of $10,000. Similarly, Uber offered some drivers a bonus up to $40,000.

“Drivers I know who were offered that deal from Lyft in the lead up to IPO were incredibly insulted and angry about it,” Clarkson said. “Both companies just do a lot of PR work to make it seem like they’re treating drivers well.”

Uber is pricing its IPO between $44 to $50 a share, seeking a valuation up to $84 billion. Lyft set a range of $62 to $68 for its IPO, seeking to raise up to $2.1 billion. Since its debut on the Nasdaq, Lyft’s stock has suffered after skyrocketing nearly 10% on day one. Lyft is currently trading at around $60 per share.

Source: Tech Crunch

Facebook today announced a series of changes to the way it ranks videos on its social network, which determines how widely they’re distributed. According to the updated guidelines, Facebook will now prioritize videos that focus on original content, those where users are engaged for longer periods of time and those where users return repeatedly to watch more.

The company wants to feature more high-quality videos, and less of those that feature “unoriginal or repurposed content” from other sources where there’s been little value added, it says. That seems to imply a bit of crackdown on the prolific video memes — those that lift someone else’s content (sometimes without proper credit) and then publish it to their own Page to cash in.

Facebook says it’s also now going to demote videos from Pages that are involved in Sharing Schemes. These are programs run by unethical content mills that compensate other Page owners for posting content and running ads to promote it.

In addition, Facebook will reward videos that have a more engaged and loyal fan base.

Before, Facebook encouraged video creators to keep their viewers watching for at least a minute. Going forward, it will actively add more weight in rankings to those videos where viewers watch for at least three minutes.

And it will reward videos where viewers repeatedly return to watch week after week.

The goal with the changes is to promote those videos that people value, the company says, while also helping great video creators reach more people across the social network by way of improved distribution.

The changes come at a time when Facebook’s video effort, Facebook Watch, is facing increased competition for viewers’ time and interest from a range of players, including Apple’s streaming service Apple TV+, as well as number of places to watch free, ad-supported content, like The Roku Channel or Amazon’s IMDb, for example, in addition to, of course, YouTube. And soon, the highly anticipated streaming service from Disney will eat into more of viewers’ time, too.

Facebook Watch has also been dinged for featuring low-quality content compared to newcomers like Apple TV+, which has signed big-name talent like Spielberg, Witherspoon and Oprah. Meanwhile, Facebook Watch has focused on things like MTV’s “The Real World” or “Buffy” re-runs in terms of its “premium” content.

With YouTube recently promising its own original content will become free and ad-supported in time, Facebook needed to keep up by making its own video site less meme-filled and more engaging than before. That can only happen if it promotes videos when they meet certain quality thresholds — which is what these guidelines aim to address.

Source: Tech Crunch