Mergers and acquisitions (M&A) help businesses scale, diversify, and achieve strategic growth.

In digital industries like SaaS, ecommerce, and other tech-driven sectors, M&A strategies focus on customer acquisition, intellectual property (IP), recurring revenue streams, talent acquisition or strategic fit.

This article explores the different types of M&As relevant to digital businesses and provides real-world examples to show how these approaches foster growth and innovation.

Types of M&A in Digital Businesses

1. Horizontal Acquisitions

A horizontal acquisition means merging with direct competitors to expand market share and consolidate customer bases.

This type of transaction is common among SaaS companies that seek to strengthen their position in a specific niche and reduce competition.

Example

Salesforce’s acquisition of Slack (2021)

Salesforce, a leader in CRM solutions, acquired Slack for $27.7 billion to expand its offerings in the workplace communication space, enhancing its customer base and providing a more comprehensive solution to businesses.

When announcing the acquisition, the companies involved explained the reason behind the transaction:

"Together, Salesforce and Slack will deliver the Slack-first Customer 360 that gives companies a single source of truth for their business, and a single platform for connecting employees, customers, and partners with each other and the apps they use every day, all within their existing workflows".

2. Vertical Acquisitions

A vertical acquisition occurs when a business acquires companies from different stages of the supply chain, such as suppliers or distributors, to gain more control over operations.

Ecommerce companies and digital businesses use vertical acquisitions to optimize logistics, manufacturing, or distribution processes.

Example

Amazon’s acquisition of Whole Foods (2017)

Amazon’s $13.7 billion acquisition of Whole Foods allowed the ecommerce giant to get the brick-and-mortar retail stores and its grocery supply chain, enhancing its ecommerce business with physical distribution channels. This has been Amazon's biggest acquisition.

Guide: Sell-side M&A Process

3. Conglomerate Acquisitions

Conglomerate acquisitions are about expanding into unrelated industries by acquiring companies in different sectors to diversify risk and create new revenue streams.

SaaS companies often pursue this strategy to complement their core offerings or enter new markets.

Example

Microsoft’s acquisition of LinkedIn (2016)

Microsoft acquired LinkedIn for $26.2 billion to broaden its presence beyond software into social networking and talent management. The deal diversified Microsoft’s revenue sources by combining LinkedIn’s professional networking capabilities with Microsoft’s enterprise software solutions.

4. Market Extension Acquisitions

This type of acquisition allows companies in new geographic or customer markets to expand a company's reach and market footprint.

Market extension acquisitions are particularly useful for subscription-based businesses looking to enter new regional or demographic markets.

Example

Netflix’s acquisition of Millarworld (2017)

Netflix acquired Millarworld, a comic book publisher, to extend its content offerings globally and enhance its international market presence. This acquisition also allowed the streaming company to tap into the growing demand for exclusive, original content.

It was Netflix's first acquisition ever, and details were not disclosed.

“This is only the third time in history a major comic book company has been purchased at this level,” said at the time founder Mark Millar.

Recommended: M&A Deal Structure: What Sellers Need To Know

5. Talent-Focused Acquisitions (Acquihires)

Talent-focused acquisitions are also part of the digital landscape. It is when a company acquires a business primarily for its talent or intellectual property rather than its existing products or customer base. This tactic is often referred to as "Acqui-hire".

Common in SaaS and tech startups, this approach secures valuable teams, ideas, or technology for faster innovation and growth.

Example

Google’s acquisition of Nest Labs (2014)

Google’s $3.2 billion acquisition of Nest Labs wasn’t just about their products but about accessing the innovative engineering team behind the company’s smart home technology. This helped Google strengthen its position in the growing Internet of Things (IoT) market.

6. Reverse Mergers

A reverse merger is a type of corporate transaction where a private company becomes a publicly traded company by acquiring a publicly listed company. This process allows the private company to bypass the lengthy and costly process of going public through a traditional Initial Public Offering (IPO).

Particularly relevant for fast-growing digital businesses, such as SaaS and ecommerce firms, or companies that want to go public quickly to access capital markets. For example:

• Startups or businesses in growth phases seeking more visibility.
• Firms in niche industries or with unique models that may not attract IPO-level interest.

Example

DraftKings’ reverse merger with Diamond Eagle Acquisition Corp. (2020)

DraftKings, a leader in online sports betting, merged with Diamond Eagle Acquisition Corp., a publicly traded special purpose acquisition company (SPAC), to become publicly listed. This move helped DraftKings accelerate its growth in the gaming industry while gaining access to capital markets.

7. Concentric Mergers

Acquiring a company in a related industry to expand or enhance product offerings, often to create a more complete or integrated solution, it's called a Concentric Merger.

This type of acquisition allows digital businesses to diversify their portfolio while staying within their domain of expertise.

Example

PayPal’s acquisition of Honey Science (2020)

PayPal acquired Honey Science, a leading browser extension for online shopping, for $4 billion. This acquisition allowed PayPal to offer additional services (like coupon searching and price tracking) directly to users, thus expanding its digital payment solutions.

Curious about the right type of M&A for your business?

While mergers & acquisitions offer many growth opportunities, digital businesses must consider specific challenges, such as integration risks, differing corporate cultures, and valuation complexities.

Working with experienced M&A advisors can help digital enterprises overcome these obstacles effectively, ensuring the transactions align with long-term goals.

M&A strategies offer digital businesses a variety of pathways to scale, diversify, and innovate.

Whether expanding market reach through horizontal acquisitions or securing high-performing talent through an acqui-hire, each type of M&A has its advantages and challenges.

Looking to close an M&A deal? Contact us today.