Buying Competitors: One Way of Increasing Market Share
This article appears in a multi-part series about business acquisitions. Nebraska business owners, investors and support professionals tell Nebraska Entrepreneur about the merger and acquisition (M&A) process and their best advice to business owners.
If you’re seeking total domination of your industry or product, buying out your competitors may be just the route to take. That’s what Hudl CEO David Graff and his team learned as they sought to continue growing their Lincoln-based software company.
Graff founded Hudl along with John Wirtz, COO, and Brian Kaiser, CTO, in 2006. While working as a University of Nebraska media relations graduate assistant, Graff witnessed the inefficiency of editing and viewing video clips on DVDs. If coaches wanted to send video footage home with players, or to potential recruits, they had to burn a DVD and find a way to distribute it.
It would be far easier, he thought, if coaches could take advantage of a cloud-based system that enabled video editing and viewing through the Web without the need for physical hardware. That way coaches, players and recruits could gain access to game highlights from anywhere, at any time and on any computer.
Hudl launched at NU’s football program in the Fall 2007. A second client, the New York Jets, was sold in January 2008.
Since then, Hudl has expanded to more than 10,000 high school and college teams nationwide, as well as 10 NFL teams, eight NHL teams and one NBA team.
“It’s been a lot of fun,” Graff said.
Continuing that growth momentum and reaching their goal of total market capture, however, proved frustrating as Hudl reps encountered teams who were interested in their product, but had already made significant investments with competitors who required teams to purchase expensive hardware.
“As we continued to grow in the high school space, we came across teams who had invested $50,000 or more in another product,” Graff said. ”Even though they wanted to switch to Hudl, they couldn’t go back to their boosters and athletic directors and explain why their $50,000 package wasn’t as good as our product that carried a much lower cost. We knew it made sense to go out and make that decision easier for coaches.”
In July 2011, Graff reached out to the president of Digital Sports Video (DSV), a leading competitor, to talk about a possible acquisition. Meeting for coffee near DSV headquarters in Reno, Nev., they agreed an acquisition made sense. Hudl’s Web-based software as a service solution was better suited to incorporate technology of the future.
The acquisition moved swiftly and closed in weeks.
“We laid out the direction we were heading and two weeks later I was out there with an offer,” Graff said. “One of our mantras around here is to dominate, and they had been competing against us for a while. Realizing there was a deal to be made was very exciting.”
In May 2012, Graff met with the president of APEX Software, which had become Hudl’s main competitor since the DSV acquisition. APEX had a strong presence on the East Coast, but like DSV, required clients to purchase expensive hardware to run the program.
Less than a month later, Graff closed his second acquisition deal.
“In both cases, it was a really smooth process,” Graff said. “We were very lucky to have good help.”
Working with the support and guidance of their board of directors, along with their legal team and tax advisors, enabled two successful, and quick, acquisitions.
Hudl advisors include Mike Dunlap, CEO of Nelnet; Jim McClurg, chairman of the University of Nebraska Board of Regents; and Jeff Raikes, CEO of the Bill and Melinda Gates Foundation. Dunlap especially had strong acquisition experience, and provided Graff with the right advice to move each deal along.
“Having good advisors and good legal counsel is invaluable, not just in the case of acquisitions,” Graff said. “I would encourage everyone to go out and find a seasoned advisor. A lot of them are willing to help you out at no cost; they are excited to be involved.”
In Graff’s case, he developed a relationship with McClurg during his graduate assistant days at Nebraska and maintains that relationship today. McClurg advised Graff when he approached him with the idea for Hudl and the two still meet once or twice a week.
“We started working with Jim at his kitchen table talking about how we should build a company around this idea,” Graff said. “He gives us great direction for where we should head.”
Long-term, Graff hasn’t ruled out the possibility of another acquisition, although there are no immediate plans on the radar. The company will focus its growth on adding additional sports, an effort made easier with existing clients who love the Hudl product.
“We have been very lucky in gaining traction with coaches,” Graff said. “We have a large network effect.”
Hudl now employs about 70 people, most based in Lincoln. They also have employees in Austin, Texas; Rochester, N.Y.; and Southern California, along with 14 field representatives nationwide.