One of the most important elements when evaluating an M&A target is the target company’s Product & Services portfolio. The ultimate Product question to be answered is: “Does it make more sense to build or acquire?”
It is important for the acquiring company to answer a few key questions about the target company’s product portfolio. Some of these questions are of a strategic or tactical nature, some are technical, others have financial implications:
- How will the target company’s product portfolio improve the acquirer’s product portfolio?
- Are there synergies from a code base and operating system standpoint?
- Are the target company’s products complementary? If they overlap, perhaps the acquisition is less about the acquired product portfolio and more about acquiring customers.
- Is the target company a strong competitor from a product standpoint?
- What is the Revenue model associated with the target company’s various products?
- How does product pricing compare between the acquirer and target company? Is there pricing power? Is there an opportunity to capture revenue lift through price increases?
- What are customer renewal rates?
- How quickly could the acquirer train its sales force to sell the target company’s products and services? Would the acquirer’s sales force be motived to sell the target company’s products given price points and associated commissions? Would the acquirer need to change its commission structure to motivate its sales force to sell the target company’s products? Is that worth doing?
- How much Product Development investment is required each year to maintain or improve the target company’s product portfolio?
- Does the target company have a superior Product Development team that could be leveraged across the acquirer’s organization?
- How much investment would be required to replicate the desirable portions of the target company’s product portfolio?
- Does is make more sense to build vs. acquire as it relates to this product area?
- If acquire, what is the target company’s product portfolio worth? What is the target company worth?
Hopefully Adobe asked these questions as it reviewed Figma’s UI products and tools.
Later this week we will cover the Cultural aspect of evaluating an M&A transaction.