Types of Tuck-in Acquisitions
Tuck-ins are classified by their primary purpose or benefit. In many cases a great acquisition fits multiple classifications.
- Product Expansion/Improvement
- We typically target smaller companies with unique technology, core expertise, and some reference customers. An acquisition that acquires a best in class feature or module addition combined with the key people who built it and some great logos accelerates your product roadmap years with a higher probability of success.
- The real trade off in this acquisition type is build, partner or buy decision. When you think of building, remember its not just an MVP version that is required. You need to build the MVP, get customer feedback, and then sell and implement a group of reference customers. When you think partner, its not just finding, negotiating, papering and announcing the partnership, it is also educating the partner and then selling and implementing a group of reference partners. Lastly, the buy decision is not only sourcing and closing the tuck-in but integrating the products as required and integrating the staff of both companies.
- Geographic Expansion
- A very nature expansion for U.S. companies is to Canada. The market is roughly 10% of the U.S. market but some incredible technology solutions, the same time-zone, and close cultural similarities.
- In most cases, I would recommend holding off expanding to selling in Europe until you are north of $15MM or $20MM of ARR. Note: You may have international customers who pull you international prior to that but delivering in Europe is different than expanding to Europe with your sales model.
- It is a very long and expensive road to organically expand to Europe. If you are going to do it, typically it makes sense to buy a small or modest foothold in Europe to be your team and beachhead.
- Customer Acquisition
- Sometimes called book acquisitions, optimally you can buy the customers and transition them to your SaaS platform directly.
- Frequently, we have structured these as paying for only those customers who transition over to our platform. In this case you need to make sure you platform is functional equivalent or superior to the tuck-in acquisitions solution.
- In addition, many times the only key resources needed are the lead customer success individual who has the relationships with many of the customers.
- Caution: If you are buying just the assets of a company, frequently the customers have a choice of whether to transition to the acquirer. Many procurement departments use this as an opportunity to shop the business.
On a different dimension, as tuck-ins get bigger, the concept of bolt-on acquisitions make more sense. Fundamentally, an acquired company runs as a stand alone entity except for G&A functions. This allows the acquired company to continue on its high growth trajectory without tackling the distracting integration issues immediately.