Understanding the Success Rate of Acquired Businesses

In the dynamic world of business, acquisitions are both a testament to a company's growth strategy and a risky venture. From giants like Google, Salesforce, and Microsoft to more recent examples such as ZoomInfo, acquisitions can either flourish, as with Twitch and Slack, or fizzle out, as many others do.

This article explores the success rate of businesses that are acquired and sold. While it is difficult to provide an exact statistical figure due to the myriad factors at play, we can take a probabilistic approach to understand the overall success rate better.

Examples of Successful Acquisitions

Google exemplifies the success of strategic acquisitions through its purchase of Android and YouTube, which have since become core products. Salesforce has also achieved growth through acquisitions like Mulesoft, ExactTarget, and recently Slack. Microsoft's acquisition of LinkedIn, though initially rocky, has since thrived under its watch.

Amazon's acquisition of Twitch has also proven successful, leading to its continued flourishing. ZoomInfo, a prominent SaaS player, began as an acquisition and grew into a significant product, despite the challenges of merging with its existing product.

Factors Influencing Success

However, not all acquisitions succeed. There are numerous examples where businesses are shut down post-acquisition. The success of an acquisition largely depends on the priorities and efforts of the acquiring company. Giant corporations with massive resources and talented engineers can often sustain and grow acquired businesses over an extended period.

At Adobe Sign/EchoSign, for instance, we saw significant growth post-acquisition, but it wasn't always a top priority. This highlights the importance of sustained effort and strategic focus for success.

Estimating the Success Rate

To provide a more concrete understanding, let's make some assumptions about the global business landscape. Let's assume that the total number of businesses in the world is 100 million, distributed across small, medium, and large categories by revenue.

For example: 30% are small businesses 20% are medium businesses 50% are large businesses Which translates to:

30 million small businesses 20 million medium businesses 50 million large businesses

Next, let's consider the likelihood of being sold:

Suppose the sold rate is: 20% of small businesses 30% of medium businesses 40% of large businesses Which means:

6 million small businesses sold 6 million medium businesses sold 20 million large businesses sold

Now, let's look at the post-acquisition success rate. Success can be defined by an increase in revenues over five years post-acquisition. If the success rates are:

Suppose the success rates are: 30% of small businesses 50% of medium businesses 70% of large businesses Which means:

1.8 million small businesses 3 million medium businesses 14 million large businesses

The blended success rate is:

Total sold: 6 million 6 million 20 million 32 million businesses Successful businesses: 1.8 million 3 million 14 million 18.8 million businesses Overall success rate: 18.8 million / 32 million 62.5%

This approximation suggests that approximately 62.5% of businesses that are acquired and sold experience success, defined as an increase in revenues over the following five years.

Conclusion

The success rate of acquired businesses post-sale is a complex and dynamic metric that depends on numerous factors. While it's difficult to provide an exact figure, our analysis suggests that the majority of acquired businesses do indeed experience success. This underscores the importance of a strategic approach to acquisitions and the sustained effort and focus required to ensure their success.

For those considering or discussing the acquisition and sale of businesses, careful research and strategic planning can significantly improve the chances of success.