Buying a Bootstrapped Business for $12,000,000,000.00 🙉

Hey y'all 👋

In today's issue, I'll give you a peek at one of my guilty pleasures: strategy analysis

I'll dissect Intuit's acquisition of Mailchimp for $12bn as I would dissect a competitor's move in the market 🐒

The Basics: Who, How, Why?

Who: Intuit acquires Mailchimp
How: $12,000,000,000.00 in cash and stock
Why: Dominance over software/tooling market for small-/medium-sized businesses

Corporate acquisitions happen every day but check this out: Mailchimp was completely bootstrapped (= revenue-funded) from Day 1.

This means there were no external investors involved.

Just the two founders.

At 12 billion dollars it is the largest ever acquisition of a bootstrapped company.

Why is that interesting?

🥾 Capital Efficiency: It shows that you can build large companies without the need for venture funding.
🎢 Accelerating Trend: Mailchimp has reached a large scale as a bootstrapped company (= bundle of individuals). The next logical step are large-scale solo businesses.

Anyway, hats off to the founders and the team who were grinding for 20 years to turn Mailchimp into an overnight success.

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One of the cool things about acquisitions is that they are accompanied by press releases.

A press release for an acquisition is usually the brainchild of the senior-most executives of both companies.

You get a totally filtered yet directionally correct insight into the thinking & strategy of the involved companies.

Below is the Intuit/Mailchimp press release, which I'll use for the analysis 👇

Intuit to Acquire Mailchimp | Business Wire

Intuit (Nasdaq: INTU), the global technology platform that makes TurboTax, QuickBooks, Mint, and Credit Karma, today announced that it has agreed to acquire Mailchimp.

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💈 Macro: Serving Small- & Medium-Sized Businesses

Great companies don't get sold. They get acquired.

This quote describes the reality of M&A transactions.

Both sides of the table ask these questions:

Founders/startups: Who can we sell to?
Executives/corporates: Who can we buy?

At the end of the day, it's as simple as asking: what's the benefit of the transaction?

In the case of Intuit and Mailchimp, it starts with the audience: Owners of small- and medium-sized businesses (SMBs).

In the US there are roughly 30 million SMBs.

🔨 The Product Rationale: Grow & Run

Mailchimp facilitates customer acquisition, engagement, and retention through:

📣 Marketing: Newsletters & landing pages
💳 Websites & eCommerce: Checkout experience
⌗ Transactional email: Automated messaging for transactions

Intuit covers the money-related bases for SMBs through these products:

🧮 QuickBooks: Accounting software
💸 TurboTax: Tax filing software

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The perfect funnel.

end-to-end customer growth platformgrowrun

Grow: Mailchimp attracts the money.
Run: Intuit manages the money.

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What's the expected outcome?

Intuit has 7 million SMB customers and Mailchimp has around 400 thousand SMB customers in the US = upselling potential (+)

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💰 The Financing Rationale: How to Pay for the Deal

Intuit paid 12,000,000,000.00 for a company that did not take any external investment.

Yet, on the plus side of things you have:

💵 Revenue: 2020 revenue of ~800,000,000.00
Margins: Mailchimp's founder/CEO shared that Mailchimp has margins north of 50%!!!
🚀 Growth: 20% revenue growth compared to 2019
🗃 Customers: 800.000 paying customers (~50% in the US)

This looks like a pretty solid business to me.

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Intuit will have many options to capture and expand the value it can generate from Mailchimp:

Cross-/Up-selling of Products = Revenue (+)
Reduce OpEx = Cost (-) --> Profit Margin (+)

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🧩 The Strategy Rationale: Add the Next Piece to the Puzzle

Combination Accelerates Intuit’s Vision to Provide an End-to-End Customer Growth Platform for Small and Mid-Market Businesses

This is the first sentence from the press release.

A couple of thoughts:

If you're not a platform yet, what are you even doing? /s
Intuit is playing the long game for dominance in the SMB tooling market

A couple of weeks ago I wrote on a different newsletter about the importance of storytelling as a management tool.

In short: Consistent stories evolve into a narrative. Clear narratives make it easier to align all stakeholders in the same direction. This leads to operational efficiencies.

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Intuit talks over and over about becoming the main tool for SMBs:

Vision to Provide an End-to-End Customer Growth Platform for Small and Mid-Market Businesses
...to become the center of small business growth, and to disrupt the small business mid-market.
We’re focused on powering prosperity around the world for consumers and small businesses.
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There are 21 mentions of SMBs in the press release.

I counted.

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What's the expected outcome?

☺️ Instill investor confidence: Show the market that Intuit is on track to dominate the category --> share price (+).
📢 Simplify marketing: Align messaging to the SMB audience and increase acquisition efficacy --> Customer Acquisition Costs (-).

😬 Micro: Mailchimp Founders & Employees

$12,000,000,000.00 can buy you a lot of hot dogs 🌭

Especially if it is a payday for only two individuals: Ben Chestnut & Dan Kurzius.

The two founders held all the equity.

Their employees did not have shares in the company.

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Now come out with your torches and pitchforks 🔥🍴and say "but why didn't the founders share equity in their business? who would want to work for such a business?"

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The founders had another idea: Profit-Sharing

All their employees benefited from the annual profit upside of the business. Throughout the entire duration of the business.

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How I see it: the founders implemented a progressive profit-sharing incentive (= guaranteed money now) over a standard equity incentive (= possible money later).

Mailchimp Invests in Employees Through Profit Sharing | Mailchimp

Mailchimp has never really advertised the financial benefits we offer, but sometimes, it’s hard not to wanna talk about it.

Long story short: The Mailchimp acquisition is an extreme outlier on so many fronts.

This is my initial brain dump.

Do you have feedback/input/etc?

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Next week I'll be back w/ solo builder stuff 👷‍♂️

Stay healthy, stay happy 🙌

Art