Business Technology

Selling out to a large firm – how one SME made the tough decision to accept a takeover

7 min read

18 November 2015

Innocent, Pret and Instagram – they've all come under fire for accepting deals with larger firms in the form of Coca-Cola, McDonald's and Facebook respectively. But what's a small company to do when a takeover opportunity arises?

The internet has revolutionised the way in which academic books and papers circulate and are published, as it is in so many other areas of life information.

Large academic publishers have been struggling with how to handle this revolution and, in particular, with the thorny issue of copyright and ownership and free access. As with other online publishing the question is – what should you charge for and what, if anything, should you give away free?

One SME that is at the forefront of this brave new world of academic publishing and innovation is Mendeley. Launched in 2008 by three academics from Bauhaus-University in Weimar, Germany, it helps researchers to organise their papers, annotate them and collaborate with others.

Today around 4m scientists use the online service. The company’s three founders had little experience as entrepreneurs but believe that this was actually a blessing as they weren’t fully aware of the challenges that they would face.

Paul Föckler, Victor Henning and Jan Reichelt set up the company in London because their first investors were based in the city and the tech industry was bigger in the UK capital than it was in Berlin.

They also wanted to be immersed in the English-speaking environment, as well as at the heart of the academic world, which is largely influenced by academics and institutions from the US and the UK.

“Startups in the UK have from the outset a more global approach, which startups in Germany are catching on to,” said Victor Henning.

“I would also say that startups in the UK have traditionally covered a vast area of different industries, whilst start-ups in Germany have been more focused on ecommerce and marketplaces. 

“Maybe startups in the UK can think bigger and be more bold, because the ecosystem, mentality and investor support are more supportive of this approach, however, the two ecosystems are increasingly converging and the gap has been narrowing in the past three years.”

During the first few months of the company’s development, money came from the savings of the founders. They then approached high-profile business angels as well as venture capitalists including Stefan Glänzer, former executive chairman of Last.fm and Taavet Hinrikus, former director of strategy at Skype.

Another big break came about because Paul Föckler had been working on web projects for travel broadcaster and former Python Michael Palin. Palin allowed the small Mendeley team to set up shop in his production office in Covent Garden where they started development and marketing.

“Initially, we exclusively did grassroots marketing,” said Henning. “We wrote to scientifically-minded bloggers and journalists as well as blogging academics, told them about our idea, and asked for their feedback.

“We also developed a ‘Mendeley Advisor’ strategy, where we built a core community of 2,500 Mendeley advocates who represent Mendeley around the world at their institutions, and they in turn get early insights into product development plus a direct connection to our team for their feedback and ideas.”

For many SME founders, the opportunity to be bought out by a large company is the ultimate goal and for Mendeley this came about when the international publisher Elsevier made a bid.

“Mendeley has always been a very open organisation, we’ve always been very transparent,” said Henning.

“Of course that allows for great opportunities to talk with users, customers, as well as partners, because you provide a basis for useful discussions. Interestingly, the strategies of Elsevier and Mendeley about building a global research collaboration platform had been aligned the most.

“Elsevier suggested that to achieve such an ambitious target it might make sense to have the two companies fully integrated and be completely committed. I could see that from a conceptual point of view this could make sense, also because the assets and market positions of the two companies were very complementary.”

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Some academics have expressed strong criticism of the move – especially as they feared it might reduce access to free material – and Henning and his colleagues thought long and hard before accepting the Elsevier bid which is rumoured to be between $69m and $100m.

“As a founder and director of a business with millions of end users and institutional customers and 50 employees, you have the responsibility for the business as a whole, to make sure you develop the business and get it to the next level, to continue to deliver value to users and the academic community, and to achieve the vision you set out to achieve,” he said.

Henning argues that Mendeley still offers academics the same easy access to a wide variety of research documents and papers. Now that it is part of Elsevier, he said it can offer more opportunities to including an improved version of the service, a community programme and an Open Access journal that will provide greater forums for sharing scholarly information.

Being accused of “selling out,” and abandoning principles is something that many smaller companies are accused of when they accept an offer from a larger group.

In 2010 the founders of Innocent smoothies had to defend themselves against criticism after they sold a 58 per cent stake to Coca Cola, as did sandwich chain Pret a Manager when McDonalds bought a third of it. Instagram also came under fire when Facebook took over.

For Mendeley’s part, Henning’s message to his critics is: “I always encourage people to judge us by the facts, in addition to the emotions.”