Competitive Advantage Through Acquisition (OPINION)

by Talk Business & Politics (admin@talkbusiness.net) 69 views 

In August, Wal-Mart Stores Inc. announced the acquisition of “e-commerce unicorn” Jet.com for $3 billion. The Hoboken, New Jersey, based firm, founded by serial entrepreneur Marc Lore, was the largest dollar-value e-commerce acquisition in the shortest amount of time from company inception, according to a recent article by Motley Fool.

Multiple sources reported that the conversations initially began as a discussion of a strategic investment rather than a complete acquisition. The Motley Fool article also pointed out that the all-cash acquisition at an estimated six times multiple of 2016 projected revenues ($500 million) is significantly higher than other pure e-commerce exits over the past few years. 

So why did this acquisition make sense for Walmart, and how can the acquisition lead to better competitive footing against Amazon?

Forbes, Fortune, Bloomberg and virtually every major financial and mainstream media source have opined on the potential strategy, benefits and challenges Walmart will face.

Building on other assessments, I believe these aspects drove the acquisition:

• Team: Marc Lore and his senior team have a track record of innovation and rapid growth.  His last company, Quidsi (Diapers.com and Soap.com), was acquired by Amazon for $600 million. Lore will evidently run both Jet.com and Walmart.com post-merger.

• Technology: Jet.com has a Smart Cart algorithm that constantly updates and matches the best pricing available from anyone. This feature aligns with Walmart’s commitment to “everyday low pricing.”

• Customers: Jet.com successfully serves the younger, higher-income demographic that has been elusive for Walmart historically.

So what could possibly go wrong? Yoram Solomon, in a recent Inc. magazine article, pointed out that 70 to 90 percent of all acquisitions fail to achieve the desired objective of driving innovation and competitive advantage. Several recent articles and scholarly works elaborate extensively on the reasons for frequent merger and acquisition failures.

The Harvard Business Review cited as top reasons for the failures that acquisitions were done for the wrong reasons; prices were wrong, often too high; business models ultimately didn’t make sense; and difficulty of integration of systems and cultures were underestimated.

Based on my experiences in large and small acquisitions, misaligned and irreconcilable cultures stand as the primary cause for failure. A close second cause of failure is the difficulty of integrating systems in a timely fashion to gain the perceived technical advantage.

In the case of Walmart and Jet.com, while the story is clearly yet to be told, there may already be reason for optimism. Giving Marc Lore the leadership of both Walmart.com and Jet.com and keeping the brands separate for now makes sense. This should allow Lore to attract talent and customers that might not otherwise affiliate with the Walmart brand. On the other side, Walmart.com should be able to leverage the speed and agility of the Jet.com technical team along with incorporating existing innovations around the Jet.com Smart Cart pricing algorithm.

As for me, I would not bet against CEO Doug McMillon and the Walmart team. 

Jeff Amerine is the principal at Fayetteville-based Startup Junkie Consulting Inc., and the host of the Startup Junkie podcast. His company offers free, world-class mentoring, counseling, education and support for entrepreneurs. More information is available at www.startupjunkieconsulting.com.

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