When Start-Ups Become the Acquirers
Two of the most notable startups of the last decade, WeWork and Airbnb, have increased their acquisition activity at the beginning of 2019. WeWork recently bought the office services company Managed by Q while AirBnB bought the hotel booking app HotelTonight. These two acquisitions provide examples of different strategies used by fast-growing real estate companies who are still trying to cement themselves as alternatives to the traditional industries they are trying to replace.
WeWork is a company that rents out real estate spaces to startups, entrepreneurs, small businesses, and large businesses. They just acquired Managed by Q, which supplies offices with cleaning, maintenance, and restocking services. WeWork would have had to outsource services from staffing companies or just require their tenants to maintain their workspace themselves. The We Company seems to be vertically integrating other companies in order to streamline operations recently, but their previous acquisitions actually tell another story. WeWork originally had an obsession with buying technology companies.
Since 2017, WeWork has acquired Spacemob, Unomy, Flatiron School, Meetup, Conductor, Naked Hub, MissionU, Teem, Euclid, and Managed by Q (in that order). These acquisitions can be separated into three types of acquisitions: horizontal integration, vertical integration, and venture capital. SpaceMob was an acquisition of another workspace company, which makes sense because WeWork focused on establishing a monopoly over the hot workspace industry. WeWork’s only other horizontal integrative acquisition was NakedHub, which also creates open workspaces for the modern startup. Their next acquisition, Unomy, was a non-traditional vertical integration purchase since corporate real estate companies never buy data analytics platforms. At the same time, however, a sales analytics platform is vital for WeWork’s business since they rely heavily on marketing a brand that appeals to the modern Silicon Valley entrepreneur. WeWork then acquired Conductor and Euclid (both sales/experience analytics platforms) for the same reason: to better understand their customers and retention rate. The acquisitions became less traditional with WeWork’s acquisition of the Flatiron School, a school that teaches web development. Unlike the previous two acquisitions, this one does not contribute to WeWork’s revenue structure in any way and falls under the same acquisition category as the acquisitions of Meetup, an app built around public meetups, and MissionU, another programming school.
WeWork has received a valuation of $47 billion from $13 billion in funding, and that allows them to acquire real estate and other companies to their heart’s content. WeWork became its own venture capital fund for a while when Adam Neumann, their CEO and Co-Founder, bought obscure companies right and left. It’s only recently that Neumann has chosen to vertically integrate WeWork with other companies, which leads me to believe that the man has finally grown up and given up on investing in the next Facebook with his multi-billion dollar mega-fund. With its new change of heart, I expect WeWork to continue making acquisitions that streamline its current operations as a real estate company.
AirBnB’s list of acquisitions follows a similar pattern, but they are more evenly dispersed between horizontal integrations — such as their recent acquisition of a similar platform named HotelTonight — and non-traditional buyouts like Trooly that could assist with AirBnB’s operations but seem pretty superfluous to their core operations at the end of the day since they lack any synergy with WeWork’s current operations. Unlike WeWork, however, a strong majority of AirBnB’s acquisitions are horizontal integrations of other booking platforms in their own, and lately other forms of real estate.
HotelTonight represents a new movement by Airbnb. Before that acquisition, they had a history of acquiring other booking platforms that only focused on small-time rentals. To break it into stages, Airbnb began by acquiring booking platforms in the normal housing space for both short-term and long-term rentals. Then it acquired more expensive booking platforms that specialized in villas like Luxury Retreats; I saw those acquisitions as an attempt to push the boundaries of Airbnb’s current operations. HotelTonight represents something new altogether: Airbnb’s movement towards accommodating real estate aimed towards vacationers looking for a luxury resort. I used to view Airbnb as an alternative to the short-term hotel stay, but it seems that they want to move into the hotel market instead of just focusing on replacing it.
In the present, WeWork is looking to strengthen its current operations, and Airbnb is looking to widen its market. I want to indicate that Airbnb has raised around $4.5 billion to an estimated value of $31 billion while WeWork has raised about $13 billion to an estimated valuation of $47 billion, two monstrous valuations that have allowed them to make acquisitions with equity and without the pressure that public investors would usually put on them. Airbnb makes almost twice as much revenue as WeWork, but their difference in valuations indicates a peculiar interest in WeWork for investors. Both companies have made certain acquisitions to strengthen their core operations, but their more mysterious acquisitions may be what sets the two companies apart from their traditional counterparts at the end of the day.
When Start-Ups Become the Acquirers
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