Does Dropbox regret its Mailbox acquisition?'


I don’t think so.

In corporate M&A, you’re making bets just like VCs do … only the bets are different.

If you are buying something that already has true scale, i.e., >=10% of your revenues … then you are making a bet you can grow that asset faster than it has grown, or at least, maintain its growth under your aegis.

If you buying something pre-scale, e.g., Mailbox … then you are making a bet it could be a vehicle that can get to scale, and that could have a material impact on the business, and often, that can get you there faster than you’d otherwise get yourself.  Many of these bets don’t pay off.  They can’t.  They haven’t yet achieved escape velocity at the time of acquisition.

Or put more simply in the SaaS world, almost any acquisition at <$20-$40m ARR (and realistically, probably toward the higher range here) … is at risk of dying post-deal.  And almost any acquisition of $40m+ ARR is at least of decelerating if you don’t do M&A right.

As long as some do hit though (e.g., Google buying Android + YouTube, Adobe buying Omniture, Microsoft buying Powerpoint, Facebook and Instagram, etc.) … and you don’t blow your entire budget on stuff that doesn’t pan out (this may be happening now at Yahoo) … it all works out.

This is also why M&A by companies with market caps of much less than $10 billion can be so stressful.  They don’t have enough chips on hand to play the game properly … so they feel like everything has to perform, and/or, at least be super dirt cheap in case it doesn’t.  Once you have a $10b+ valuation, you can spend a few hundred million on M&A without imperiling any C-level job.

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Published on December 20, 2015
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