An offer you REALLY can’t refuse?

Hertfordshire-based chip manufacturer Imagination must have thought they’d won the lottery when Apple came calling. First they won the contract to make the graphics chips for their iPhones, iPads and iPods, then Apple offered to buy their business.

They said no.

What they didn’t understand was that was that Apple wasn’t just offering to buy their business, they were signalling their strategic intention to in-house their graphics chip manufacture. When Imagination refused Apple’s offer to buy their business, Apple simply opted for their alternative method to achieve their objective and announced that they would be setting up their own chip business. Imagination lost their biggest customer – and 70% off their share price. 

Apple had Imagination over a barrel. Such a large contract may have made Imagination feel secure but it made them heavily reliant on a single customer. It also made the pool of potential acquirers much smaller – Apple was probably the only game in town. 

Can they recover? The story was all over the financial press last month, so it’s possible that another company will make an offer – but they will be smelling a bargain so it’s unlikely to be anywhere near Apple’s original offer if they do. Their new financial instability will also make it harder for them to win a big new contract to replace Apple.

How can you avoid making the same mistake? There are a few things to be learnt from this case. The first lesson is to ensure your business isn’t reliant on one customer; a diverse client base is generally a must for buyers.  The second lesson is to understand why your buyer wants to buy your business – and what their alternatives might be. In this case market entry through an acquisition was the buyer’s first option BUT it wasn’t their only option so don’t assume you should say no. Thirdly, although Imagination wasn’t looking for a buyer, this case highlights the importance of competitive tension.  Unsolicited offers can appear highly attractive but there are risks.  Accepting an offer shifts the balance of power to the buyer and there is a real risk that the attractive price offered is reduced during the sale process.  This further emphasises the need to understand a buyer’s motivation.

To find out more about how acquirers might view your business, join us at our next 200 Minute Masterclass.

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