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17 March 2020

The Top 10 Acquisitions of All-Time

2Frameworks
15Insights

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Frameworks in this episode

Strategy5 steps

Counterpositioning

Build a business model so painful for the incumbent to copy that they won't even try.

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Finance7 steps

The Absolute Dollar Return Method (Acquired's Grading Framework)

Grade acquisitions by how many net dollars of value they added, not by flashy ROI multiples.

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Insights & moments

The myth-busts, hot takes, explainers, and tools worth keeping.

Myth Buster· 1

Myth Buster

Why Microsoft Bungled M&A for a Decade

Despite having a robust corporate development team, Microsoft famously struggled with M&A during the Ballmer era, which the hosts attribute to 'not invented here' culture and internal cronyism.

  • Not-invented-here syndrome crushed integration of acquired companies
  • Acquisitions were sometimes made for internal political reasons rather than strategic fit
  • Culture is described as value-destructive for meaningful growth through M&A

“Microsoft famously bungled MA for most of the Ballmer era.”

Ben Gilbert
#Microsoft#corporate culture#M&A failures

Hot Take· 2

Hot Take

Instagram vs. YouTube: Why Free Content Wins on Margin

Comparing Instagram and YouTube reveals a stark margin gap: Instagram pays creators nothing while YouTube shares roughly half its revenue, making Instagram the far better investment purely on economics.

  • Instagram generates ~$20B in revenue from content creators are never paid for
  • YouTube pays out roughly half its revenue to creators plus significant bandwidth costs
  • Purely as an investor, the hosts would put 100% of capital into Instagram over YouTube

“I would put all of all 100% of my dollars between those two into Instagram and zero into YouTube, even though I love YouTube.”

Ben Gilbert
#Instagram#YouTube#content economics#margins
Hot Take

Why Google's Golden Age of M&A Ended

Google dominates the list with four of the top ten deals, all made 10-15 years ago; the hosts argue this era ended once Facebook emerged as a rival acquirer and Google shifted toward building in-house via Google X.

  • Facebook's rise gave startups a second major strategic acquirer, changing dynamics
  • Google X represents an attempt to recreate founding conditions in-house, which the hosts think doesn't work as well
  • Leadership shift from Eric Schmidt to Larry Page as CEO coincided with the slowdown in major M&A

“I think two things happened to Google, maybe three things, in the period after when they were making these incredible acquisitions.”

David Rosenthal
#Google#M&A strategy#corporate strategy

Explainer· 2

Explainer

The Ground Rules for Ranking History's Best Acquisitions

Before ranking, Ben and David lay out the criteria they used: enough time must have passed, it must be a majority purchase (not a minority investment), the ranking reflects a moment in time, and component acquisitions get a subjective discount.

  • Excludes recent deals like Visa/Plaid since outcomes aren't knowable yet
  • Minority stakes (e.g., Liberty Media/Sirius XM) are investments, not acquisitions, and are excluded
  • Rankings reflect market caps as of a specific date and will shift over time
  • Component technologies get a subjective 'percent responsible' discount

“It must be a majority purchase.”

Ben Gilbert
#methodology#M&A
Explainer

PA Semi: When an Acquisition Is Necessary But Not Sufficient

Apple's 2008 $278M purchase of chip company PA Semi seeded Apple's custom silicon strategy, but the hosts wrestle with how to value something that's foundational yet only one ingredient among many.

  • PA Semi seeded Apple's in-house silicon strategy behind the iPhone, iPad, and wearables
  • Hosts apply a stacked discount (25% then 5%) to avoid over-crediting the deal
  • Even heavily discounted, it still generated an estimated $11B market cap contribution

“So necessary but not sufficient.”

Ben Gilbert
#Apple#silicon#hardware#component acquisitions

Story· 9

Story

WhatsApp: A Legendary Deal That Still Doesn't Make the Cut

WhatsApp is discussed as one of the best acquisitions ever for defensive reasons, but the revenue-based methodology excludes it since it generates almost no direct revenue for Facebook.

  • WhatsApp generates essentially zero revenue for Facebook
  • Its value was defensive (protecting Facebook's core), which the ranking method can't capture
  • Still 'too soon to tell' on the revenue front despite being a 6-year-old deal

“So by our screen, you know, WhatsApp essentially generates zero revenue for Facebook, so they're not gonna show up on the list.”

Ben Gilbert
#WhatsApp#Facebook#defensive acquisitions
Story

Pixar: Disney's Priciest Buy With the Lowest Return

Despite being beloved and foundational to Acquired's history, Disney's $7.4B Pixar deal scores the lowest annualized return on the whole list once you isolate its annual revenue contribution.

  • Pixar is treated as worth roughly one film's revenue per year, tripled for merch/parks
  • Absolute dollar return calculated at about $2.3B
  • Lowest annualized return (~2%) of any deal on the list

“This you should also note is our lowest annualized return out of anything from the entire list with about two percent per year”

Ben Gilbert
#Disney#Pixar#media M&A
Story

Bungie & Halo: The $30M Bet That Built Xbox

Microsoft's 2000 acquisition of Bungie for an estimated $30M is credited with making Halo the killer app that bootstrapped the entire Xbox franchise, now worth $11B/year.

  • Halo franchise generated ~$5B in lifetime revenue
  • Xbox franchise generates ~$11B/year for Microsoft
  • Estimated current market cap contribution: ~$8B

“getting that thing for thirty million, even with all the work they poured into it afterward, was a friggin' steal in order to bootstrap the…”

Ben Gilbert
#Microsoft#Bungie#Xbox#gaming
Story

Marvel: Beating Pixar's Numbers for Half the Price

Disney's 2009 $4.2B Marvel acquisition outperforms its Pixar deal on every axis — more revenue, lower price, faster payback — landing at #10 on the list with a $16B absolute return.

  • Marvel generates 2x+ Pixar's annual revenue contribution to Disney
  • Purchase price was almost half of Pixar's
  • Absolute dollar return calculated at over $16B

“And so it's sort of this like every lever that you have uh the ability to sort of pull and make this one a better…”

Ben Gilbert
#Disney#Marvel#media M&A
Story

ESPN: A 36-Year Compounding Machine

Capital Cities/ABC's 1984 acquisition of ESPN for under $200M is the oldest deal on the list and delivers a Berkshire-Hathaway-like 15% annualized return over more than three decades.

  • ESPN now contributes over $10B in annual revenue to Disney
  • Absolute dollar return estimated at over $30B, a 166x ROI multiple
  • 15% annualized return sustained since 1984

“That is just incredible. That is like Berkshire Hathaway levels of return by an acquisition within a company.”

David Rosenthal
#Disney#ESPN#media#long-term compounding
Story

eBay/PayPal and the Rise of the 'PayPal Mafia'

eBay's 2002 acquisition of PayPal for $1.5B not only spun out a $47B independent company but also seeded the founders behind Tesla, LinkedIn, Yelp, and more.

  • PayPal spun out independently in 2015 at a $47B market cap
  • Absolute dollar return calculated at $45.6B, a 28% annualized return
  • PayPal alumni went on to found or lead numerous major tech companies

“the value of PayPal growing inside eBay was friggin' crazy.”

Ben Gilbert
#eBay#PayPal#fintech#founders
Story

Booking.com: The Sleeper Hit That Renamed the Whole Company

Priceline's 2005 $135M purchase of booking.com and Active Hotels became so dominant that the parent company eventually renamed itself Booking Holdings.

  • Booking.com now contributes over $10B in annual revenue
  • 48% annualized return sustained over 15 years
  • Booking Holdings' market cap dwarfs Expedia's despite less brand recognition among casual observers

“the company is now called the name of the little company.”

Ben Gilbert
#Priceline#Booking.com#travel
Story

Apple Buys NeXT (and Gets Steve Jobs Back)

Apple's 1997 $429M acquisition of NeXT is framed as the greatest 'aqua-hire' ever, bringing back Steve Jobs and the technology foundation (NeXTSTEP) that became Mac OS X, iOS, iPadOS, and watchOS.

  • NeXT's technology lineage underlies virtually every current Apple OS
  • Hosts apply a 95% 'future dependency' discount, still yielding a ~$62.5B absolute return
  • Called the greatest aqua-hire of all time

“Greatest aqua hire of all time.”

Ben Gilbert
#Apple#Steve Jobs#NeXT#operating systems
Story

YouTube: From Sequoia's First Public Memo to $15B in Revenue

Google's 2006 $1.65B purchase of one-year-old YouTube, incubated inside Sequoia, is tied to the only publicly available Sequoia investment memo, later revealed during the Viacom lawsuit.

  • YouTube now generates roughly $15B/year in disclosed revenue
  • Absolute dollar return estimated at $84B, a 52x ROI multiple
  • The Sequoia memo believed to be Roelof Botha's first investment

“the only publicly available Sequoia investment memo out there because of course it was uh part of discovery in the YouTube Viacom lawsuit.”

Ben Gilbert
#Google#YouTube#Sequoia#venture capital

Q&A· 1

Q&A

Why Strong Performance Persists (and Why Value Lives in the Future)

Hamilton Helmer explains the two empirical observations that led him to write Seven Powers: strong company performance tends to persist year over year, and the vast majority of a company's valuation depends on results years into the future.

  • High performers like Intel tend to stay high performers, unlike hedge fund managers
  • Roughly 85% of a growing company's valuation comes from results after year three
  • Understanding what drives persistence is key to understanding what drives value

“One was that really strong performance is persistent.”

Hamilton Helmer

“what you find is 85% of the value is after year three.”

Hamilton Helmer
#Seven Powers#valuation#business strategy