Ikea Buys TaskRabbit: Why Do Companies Acquire Other Companies?

You’re sitting on the floor of your living room, surrounded by an explosion of Ikea packaging, wrenches, screws, and pieces of the new sofa or bureau you bought.

Sound familiar?

But trying to assemble these items can be a head scratcher, particularly with the strange pictograms offered by way of instruction. At a certain point, you may have been tempted to scream in frustration–or just go online to find a handyman who can help.

Ikea wants to be your furniture seller and your carpenter.  On Thursday, the home furnishings giant announced it would acquire app-based personal assistance company TaskRabbit, for an undisclosed sum.

Ikea, known for its Scandinavian-style furnishings, is owned by a foundation headquartered in the Netherlands. It had revenue of $37 billion in 2016, according to its most recent annual report. It operates 357 stores in 29 countries.

For its part, TaskRabbit has taken in $38 million in venture capital since launching in 2008. It deploys an army of self-employed contract workers–60,000 in 40 cities in the U.S. and London–that do everything from painting your walls to organizing your office.

It could be a great match. One of the biggest sources of business for TaskRabbit is reportedly in-home assembly of Ikea furniture. And in 2016 Ikea ran what it called a successful pilot with TaskRabbit offering the service to customers in London.

Neither company is publicly traded, so they aren’t required to release details of the transaction. Still, the news is an important illustration about why companies acquire other companies.

Why do companies acquire other companies?

  • Companies buy other companies if they have something they need. That could be products, or services or even important research, which is the case in many pharmaceutical deals: This summer we wrote about Gilead’s multi-billion acquisition of the drug maker Kite Pharma, which produces a cancer drug.
  • Companies could also be interested in acquiring new customers. That’s frequently the case in financial services companies deals. Think of all the bank acquisitions in recent decades.
  • Companies can acquire the competition: In 2016, Walmart purchased online retailer Jet.com for $3.3 billion. Jet.com is tiny in comparison, but it has important technology related to online sales that Walmart needs to stay competitive. That’s particularly true as Walmart goes head to head with Amazon.com, whose state of the art approach to online retail sales represents an existential threat to Walmart.
  • Smaller companies do it too: One of the most famous tech deals was Ebay’s acquisition of Paypal for $1.5 billion in 2002. In the early days of the Web, customers didn’t have an easy way to buy things online. Ebay was one of the largest online retailers at the time, and Paypal provided a convenient way to pay that didn’t rely on credit cards. After the acquisition, Paypal soon became much bigger than Ebay and was spun off again as an independent company in 2015.

The importance of startups to bigger companies   

Startups are often entrepreneurial and innovative small companies that see market opportunities and rush in to provide a product or service for which there’s a need. Rather than spend resources developing similar products or services, a large company will just buy a business that’s already developed them.

In TaskRabbit’s case, it leveraged the idea of social networks and ratings to become one of the big companies fueling the so-called gig economy. TaskRabbit’s workers are an army of fix-it and handy people you can hire to come to your house to do everything from organizing your sloppy office to hanging pictures, or assembling the Ikea furniture you just bought.

Top Takeaways:

  • Ikea has acquired TaskRabbit, a startup that offers a service many of its customers already use and want.
  • Big companies acquire smaller ones when they need something they don’t have–that can include research, new products and services, or customers. Sometimes they acquire the competition.
  • Startups that innovate and provide new products and services are frequently acquisition targets.

Read more: Trump Tax Plan: What’s In It and It How Will Affect You






Author:
Jeremy Quittner is the financial writer for Stash.



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