Why Large Companies Acquire Small Companies
Large acquirers don’t care about small-company financials because mathematically those won’t affect the growth or value of the acquirer.
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Rather, buyer behavior is rooted in their strategy — a combination of product thesis, their theory of their market’s evolution, how they need to position for customers and against competitors, their long-term brand development, geographic expansion plans, and so on.
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Pundits couldn’t agree how to analyze the sale of Instagram to Facebook. It was said that Facebook drastically overpaid (a billion dollars for a company with fanatical users but zero revenue) but also that that Instagram was stupid to sell so early (because after more “inevitable” growth it would be worth much more, and would “inevitably” be bought or go public at that larger valuation).
