Elon Musk’s bid to buy Twitter and take it private is becoming a reality, despite doubts that many had. After revealing that he had lined up $46.5 billion in financing last week, the Tesla CEO put the hammer down on Twitter to negotiate a deal.
Musk isn’t the first to want to buy Twitter, but he is the one who has been most successful. Salesforce, Disney and Alphabet were all past suitors of the company, but none of these deals panned out. So why has Musk’s story played out so differently from theirs?
While Salesforce’s driving interest in Twitter was its data, Disney found a deal appealing because of Twitter’s moves into sports streaming. Moreover, Google’s parent, Alphabet, was speculated as a rightful fit to buy the social media company with its dominance in search and advertising.
However, all these potential deals fell to the wayside. Alphabet ultimately chose to focus on its other ventures instead, while Disney and Salesforce backed away from bidding after facing concerns regarding the company’s image and the toxic bullying behavior of many of its users.
But now, Musk’s interest in acquiring Twitter is exactly what drove its past suitors away: the platform’s freedom of speech and his desire to protect it.
Earlier this month, Musk became Twitter’s largest shareholder after purchasing 9.2% of the company’s stock. Along with his many tweets and polls over the years regarding the way Twitter functions, Musk has taken active, measurable steps to assert himself as someone with strong interest in the company and the way it’s run.
As such, his bid to buy the company is not all that surprising. But what is noteworthy is his effective, strategic approach and how he’s managed to make such a major acquisition a reality.
Here are the major takeaways from Musk’s Twitter takeover.
1. Make your first offer the best offer
Elon Musk’s negotiation tactics have been compared to billionaire Warren Buffet’s approach: making an offer and sticking to it.
On April 14, Musk shared his intentions of buying the company and taking it private. Since earlier this year he’s been amassing shares on Twitter. To prevent Musk from accumulating more of the stock and make it harder for him to acquire the company without the board’s approval, the company adopted a “poison-pill.”
When news of Musk’s offer to acquire Twitter surfaced, Wall Street seemed skeptical as he did not give any details surrounding how he would come up with the money for the acquisition.
So how did Musk get Twitter to consider his offer?
Apparently, his ability to come up with $46.5 billion in financing changed leadership’s thinking from strongly opposed to seriously considering the offer.
According to CNN, CFRA senior equity analyst Angelo Zino said Monday that the Twitter board’s change of heart may have come “from the Board’s realization that an alternative bid from a ‘white knight’ may be difficult to come by, especially following the decline in asset prices from social media companies in recent weeks/months.”
Various sources have said that Twitter was not able to secure a ‘go-shop’ provision under its agreement with Musk that would allow it to solicit other bids once the deal is signed. Still, Twitter would be allowed to accept an offer from another party by paying Musk a break-up fee.
2. Be direct and clear with your offer
Buyers who are vague and unclear don’t see deals through to completion. As soon as Musk expressed interest in acquiring Twitter, he was completely transparent with his intention to buy the company for $44 billion and take it private. His direct openness made all the difference in this deal; had he beat around the bush and not disclosed the exact details of his offer, it likely wouldn’t have been finalized.
Likewise, it is crucial to be completely transparent and direct when making an offer on a business. Companies appreciate potential buyers who cut right to the chase and make a clear offer, as it shows that they are serious about the investment and understand the implications of taking on the business.
3. Have a solid acquisition strategy
As a buyer, it’s crucial to determine what you’re hoping to gain from the acquisition. It might be growth, exposure to new markets, eliminating competition or something else. It could even be a combination of multiple driving factors. By nailing down your goals and reasons for acquiring, you can devise a thoughtful and strong acquisition strategy.
Musk’s leading motivation for the deal with Twitter has clearly been his desire to protect the platform’s freedom of speech. Though he has, for quite a while, openly criticized various other aspects of the platform—like its algorithm and lack of an edit button—so it’s obvious that Musk has more post-acquisition plans for Twitter than simply ensuring its freedom of speech.
His gripes with the platform are exactly what have created his solid acquisition strategy. His open criticism of Twitter over the years has made the company clear on his desire to effect change, and he has taken even more steps to showcase this—including sharing Twitter polls and buying 9.2% of the company’s stock.
Along with him preemptively lining up $46.5 billion in financing, this strategy has kept Musk relevant and proved to be effective in his acquisition of the company.
4. Have a clear vision for the future
Musk has shown he’s ready and willing to take on ownership of Twitter and has clearly expressed why he’s the person to do it.
Improving the performance of the target company is one of the most common value-creating acquisition strategies. Put simply, you buy a company and radically reduce costs to improve margins and cash flows. In some cases, the acquirer may also take steps to accelerate revenue growth. (The six types of successful acquisitions)
The deal now puts the world’s richest man in charge of one of the most influential social media platforms. Musk has repeatedly stressed in recent days that his goal is to bolster free speech on the platform and work to “unlock” Twitter’s “extraordinary potential.”
“I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy,” Musk said in his offer letter to Twitter. “However, since making my investment I now realize the company will neither thrive nor serve this societal imperative in its current form. Twitter needs to be transformed as a private company.”
5. Let your pain points lead the way
We all have pain points—issues with a product or service that frustrate or inconvenience us. It is clear that Musk has encountered numerous pain points with Twitter, and they’ve inspired him enough for him to take matters into his own hands and put an offer out to buy the company.
By tuning into his pain points and wanting to solve them for himself and other Twitter users, Musk was able to make moves that are paying off well for him. Similarly, it’s crucial for other entrepreneurs to zero in on their own pain points and use them as inspiration and fuel for their acquisition. Identify what problem you are facing that isn’t being addressed, and then look for opportunities for solving this pain point in potential acquisitions. If it’s a pain point for you, then you’re likely passionate about it; and if you’re passionate about it, that is the perfect foundation for an acquisition.
6. Line up financing in advance
It’s clear that Musk is a man with a plan. He made an offer and provided proof to back it up in a securities filing that was made public on Thursday. Many believe it’s what swayed the board to come to their decision.
The New York Times reported that Musk detailed how he had put together financing from Morgan Stanley and a group of other lenders, which were offering $13 billion in debt financing, plus another $12.5 billion in loans against his stock in Tesla. He said he would use another $21 billion in cash to buy the rest of Twitter’s equity.
Twitter announced today that Musk, “has secured $25.5 billion of fully committed debt and margin loan financing and is providing an approximately $21.0 billion equity commitment. There are no financing conditions to the closing of the transaction.”
7. Buy a business you are familiar with
Musk is intimately familiar with Twitter. As an avid user with a somewhat rocky history with the platform, he has publicly criticized the company on multiple occasions to his 83.5 million followers.
By acquiring a platform he already had ample experience with, the transition of ownership can be that much smoother. Similarly, it would be wise to acquire a business that you have at least some familiarity with—whether you’re an avid user of its services or have experience with the niche it’s in.
Conclusion
Though he may seem one of a kind, Musk is like any other successful entrepreneur, and there is value in studying his journey. His acquisition of Twitter offers great insight for anyone considering acquiring now or down the road, no matter how large or small the acquisition.
For everyone who’s not Elon Musk but feels inspired by this recent acquisition, here is our most recent report with the latest trends and insights in the acquisition landscape.