Every company is looking for the PayPal to their eBay: the perfect strategic fit

Ian Bednowitz
A free video tutorial from Ian Bednowitz
Former Head of Mergers & Acqusitions, eBay; Bain consultant
4.3 instructor rating • 7 courses • 13,227 students

Lecture description

In this lecture I will discuss the importance of strategic fit, the key fundamental of M&A for Fortune 500 companies.  Fortune 500 and other large companies care most about how a startup can help their business succeed and achieve its strategy.  Through my eBay/PayPal  case example you will learn how to find strategic fit between a Fortune 500 company and another company.

PayPal was a perfect fit for eBay.  eBay ran a marketplace where buyers and sellers were trading goods, but there was no way to make payment on the platform.  This was a barrier to eBay’s growth.  eBay had developed a payment mechanism of its own but it wasn’t doing well with customers.  PayPal was a company with a payment solution that worked and customers were using, so eBay bought it to help accelerate the growth of the marketplace business – and it worked! 

Learn more from the full course

Get Acquired: Learn From The Head Of Acquisitions For eBay

The insider secrets to sell your startup to a Fortune 500 buyer from eBay's former head of M&A

02:18:38 of on-demand video • Updated May 2016

  • Understand how Fortune 500 companies look at startups
  • Understand how Heads of M&A, business development and CEOs consider when buying a company
  • Pitch your company effectively to a Fortune 500 company
  • Understand how you’ll be evaluated when walking into a boardroom
  • Build relationships with Fortune 500 companies
  • Recognize the key things that will separate you from other entrepreneurs
  • Understand how your mission can help other companies
  • Network effectively and get a foot in the door at Fortune 500 companies
  • Create a custom presentation that will communicate that you’ve spent days thinking about how you can work with the other company
  • Incorporate an exit strategy in your business plan from day 0
  • Feel more motivated working on your business now that you understand how to sell it
English [Auto] This first section I am going to teach you the fundamentals of M&A. These are the things that people like me head to them in any departments CEOs CFOs all the people that make decisions about startups to look at the things that we really look for and really care about. These things are not obvious not what you'll learn in any textbook or what you will think coming in it's not your PowerPoint presentation or your resume. A series of things everything from the strategic side of the company to your leadership to your relations. Well let's start with the first and most important lesson for how Fortune 500 companies think about startups and this causes a lot of confusion with people that I need to cause a ton of confusion with on tomorrow's also can causes confusion with people on my team. Strategic fit is the most important factor. A Fortune 500 company. Look now strategic fit is not the company's financial. That's what gets people confused they think well you know it's about the size of the business how well it's performing what its growth trajectory is and some of that stuff matters in different points in the process. But there's not a strategic fit. There's no conversation to be had. So what do I mean by Strategic I mean how well does the mission of the startup the goal the function of the startup and Hans mission of the Fortune 500 company. How well do they fit together. I'll give you an example of a very prominent example near and dear to my heart. Ebay and Paypal. Now this is a deal that is everybody's dream every head of M&A dream because the the strategic IT WAS SO PERFECT between these two companies. Now this happened in the early 2000s and at the time Ebay was growing really fast. It was the dominant e-commerce company on the Internet. And it had all these goods being transacted. People buying and selling on a platform with no consistent way to pay for those goods. Now payment is a critical part of Commerce. And so this was a hindrance. The base growth people were finding ways to pay there were different payment options. We've been using checks. There are all kinds of different ways to pay but without one consistent payment method people might get frustrated on a platform. If a buyer has one payment method a seller doesn't accept that payment with. Well then the transaction had happened. So there's a lot of problems that can happen here that would keep transactions from happening that would hinder growth that would stop customers coming to the platform. Most Fundamental also is trust. If I don't know how I'm going to pay for a good or service that I buy. How can I trust that I'm going to spend the time to shop. Now enter Pay-Pal Pay-Pal was one of moldable payment options on eBay. EBay had its own payment option. None of them were taking off that well. Hey how is performing very very well. The fit was perfect. You take a market place that's growing doing incredibly well that needs one consistent payment option and you take a payment option that is growing and is doing incredibly well on a platform and you put them together. Now in the next section or talk about the specifics of what those synergies were why that strategic that worked at a more detailed level but at the most fundamental level it's important to know that the two missions worked so well together it's like a bit like hand in glove and that's why that transaction led eBay to pay one and a half billion dollars for Paypal which at that time looked incredibly expensive. But looking that the value was tremendous. I will talk about this these as I said but e-bay ultimately spun off Pay-Pal very recently for a whopping $15 billion. Even as to say that it's Pay-Pal the vision would be spun off as a new company next year. Talk about a return. That is because the strategic fit the number one lesson if you are working in M&A if you want to join my team be in my role the first filter for any startup is how well do the two missions go together do you see the marriage working. Otherwise there's not a conversation to be had. And similarly if you are an entrepreneur and you are looking at which Fortune 500 companies are going to be a good fit for you and you see where the missions match most closely together that combination strategic strategic pitch strategic fit should become your mantra.