The Middle Market Review Insights on the Middle Market.

Subscribe Subscribe

Subscribe Today

Please provide valid email address

I want to receive:

Thanks for subscribing!

CEOs

Selling to a Strategic Buyer

Tags

Board RoomIn a recent Inc.com article “Why I Sold Zappos“, Tony Hsieh, the company’s founder, discusses selling to a strategic buyer, Amazon. For any business owner considering a sale, it is a great article as it highlights the positives and negatives of selling to both strategic and financial buyers.

Discussions of selling to Amazon began in 2005, but Tony was hesitant as he felt Zappos would “probably be folded into their operations, and our brand and culture would be at risk of disappearing.” As we discussed in “5 Major Differences Between Strategic and Financial Buyers“, strategic buyers usually evaluate acquisitions in the context of how the business will tie-in and integrate with their existing company and business units. In most cases, this will mean not only a loss of control, but as Tony feared, a loss of your firm’s independent culture.

In order to help fuel Zappos growth, Tony raised money from financial partners. Bringing in value-added financial partners can be very beneficial. In addition to funding growth, great financial partners can provide: (1) sound financial management advice; (2) assistance with corporate strategy; (3) generation of new ideas; (4) key introductions to improve your management team; and (5) market information. The challenge with having financial partners is they ultimately need to realize a return on their investment and this can sometimes conflict with your vision and strategy for the business. This conflict started to emerge for Tony and his financial partners in 2008 as the combination of the recession and credit crisis created tensions on Zappos’ board of directors. Ultimately, Tony decided the best solution was to buy-out his financial partners.

As Tony began discussions with potential investors, Amazon approached Zappos. Initially, Tony did not think it was the best option; however, he began to get the sense that Amazon was open to “letting Zappos continue to operate as an independent entity.” After numerous discussions and meetings, Tony and the board of directors decided to sell to Amazon and closed the transaction on November 1, 2009. Since the acquisition, Zappos continues to operate independently and reports to a management committee that includes Tony, the CEO of Amazon, two other Amazon executives, and two Zappos executives. The relationship “is governed by a document that formally recognizes the uniqueness of Zappos’s culture and Amazon’s duty to protect it.”

While a sale to a strategic buyer can have implications for the continuity of your firm’s culture, any financial transaction is likely to have implications. How you manage them is up to you, and the Zappos-Amazon deal is a great example that with the right partner and structure, it is possible to preserve your firm’s culture. 

(Image courtesy of Chrispitality)

Learn More About Joining Axial

Request Information

Subscribe to Middle Market Review

Subscribe to Middle Market Review

Please provide valid email address

I want to receive:

Subscribe

Thanks for subscribing!