Today, Priti Youssef Choksi is a partner with venture firm Norwest Venture Partners. But she previously spent five-and-a-half years at Google, where she worked on strategic partnerships, and nearly nine years at Facebook, where she began in corporate development and later focused on M&A.
Because Choksi knows firsthand how some of the biggest companies on the planet think about potential acquisition targets and how deals ultimately come together, we asked if she would share some of those insights with us during our recent founder-centric Early Stage event. The idea was to help attendees better how understand how — and why — certain acquisitions come together; her advice was so helpful that we wanted to share it more widely here.
So where to start? Choksi suggested people first understand the “build, partner, or buy” mentality of big acquirers. Indeed, while deals can look very much alike to outsiders (a deal is a deal is a deal), they are not. First, big companies will build internally if they are bolstering a strategic asset or what they need involves sensitive information or technology. A good example of something that Google would never buy, for example, is search tech, because search is the company’s crown jewel, she noted. Companies will meanwhile partner in order to fill a product or service gap or when they’re looking to stand up a new platform, she said, pointing to the early days of Google’s Android ecosystem.
As for when they finally go shopping, companies are driven by three things, said Choksi: talent, technology and traction. With talent, as you might imagine, companies may conduct an acqui-hire with the goal of filling a talent or leadership gap internally or to acquire niche skills that their current employees don’t already have, she said.
Companies meanwhile shop for technology when they need outside tech to boost their organic efforts. Choksi pointed to Luma.io by way of example. Back in 2013, the young company, which created a video-capture, stabilization and sharing app, was acquired by Instagram (which was itself already owned by Facebook); a week after it closed the Luma deal, Facebook launched video on Instagram largely based on Luma’s platform.
Finally, traction deals are those where the acquirer is buying into a business via an established player, said Choski, pointing to WhatsApp’s acquisition by Facebook and Whole Foods’ acquisition by Amazon. Traction deals are “where you see multibillion outcomes, typically,” she noted.
Of course, few deals succeed, but Choski suggested that predictors of success aren’t so mysterious. One common thread is that both sides are aligned, meaning everyone is being set up for success, there’s a plan of record, someone clearly has ownership of the deal and attention is being paid to how to manage employees’ anxiety through the process.
Indeed, said Choksi, contrary to what many founders might think, deal terms are not a top predictor of success and that, “if you’re dealing with a serial acquirer, there is a standard of fairness and consistency that they’ll want to manage through their M&A program,” so a target shouldn’t get too hung up on a “specific deal term.”
As for pricing, well, that’s a little more complicated. A founder should “understand what’s market by consulting with board and investors and also studying comparable transactions,” she said.
If it’s possible to run a parallel process with two acquirers to “find not just the best fit but to maximize for financial outcomes,” that’s ideal, she added.
Of course, how to become an attractive acquisition target is the biggest question in a lot of founders’ minds (at least, those who don’t necessarily have a huge addressable market or a path to being number one in their respective space).
Here, Choksi suggested that it’s really never too early to begin cultivating relationships, saying to “make business development a priority.” Leverage your board of directors, your advisors, former colleagues to get those warm intros, and keep them warm, she said. You can do this by understanding its priorities and sending periodic product updates that align with those priorities.
It’s also a “massive gift to big companies to get market feedback from smaller companies, because that feedback is often very elusive,” she added.
One thing to note: You might think about hiring bankers to get you in front of acquirers and to generate competitive interest. That’s fine, but Choksi said that she couldn’t think of a “single deal that was inbound from a banker or adviser” in her time at either Google or Facebook.
“That isn’t because of the source of the deal,” she continued, but “most likely those folks don’t have a strong sense of what the strategic priorities are of a Facebook or Google. It’s really hard to tell from the outside what is important to them.”
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