Field Study Mergers & Acquisitions concepts applied to the technology sector

wakefulchardDéveloppement de logiciels

17 févr. 2014 (il y a 3 années et 1 mois)

71 vue(s)

M&A concepts applied to the technology sector | March 20, 2013

1

Field Study


Mergers & Acquisitions concepts applied to the technology sector


March 20, 2013

M&A concepts applied to the technology sector | March 20, 2013

2

1.
Introduction


2.
Concepts


3.
Case: Oracle Sun


4.
Drivers for M&A in the technology sector


5.
Case introduction: Google Motorola

M&A concepts applied to the technology sector | March 20, 2013

3

Introduction

M&A types

Adapted from M&A Part I


Industrial


Vertical


Horizontal


Size, market power


Diversity, product
range, cross selling


Financial


P/E


leveraging


diversification


Market power : intended, not
announced



Size: production efficiency


Purchasing power


Production economies of
scale


Barrier to entry


minimum size


technology ?


Efficiency


flexibility


Outsourcing
-

offshoring


Size: distribution efficiency


Marketing power


Production economies of
scope


Replicating sales and
marketing processes to new
products / new markets


Absorb suppliers, absorb
transformers, absorb
distributors,

捡c瑵ring 瑨攠
v慬u攠捨慩n



Security of supplies, of
outlet.


Importance of make
-
or
-
buy
decision. Opportunity
costing


Own your real estate
airplanes, ships, …?


Own your suppliers,
distributors What are core
suppliers, distributors?

M&A types

Vertical

Horizontal

M&A concepts applied to the technology sector | March 20, 2013

4

Introduction

Scope


In scope


Industrial M&A in the technology sector



Out of scope


Financial M&A and conglomeration or acquisitions that build or optimize the parent
company

s portfolio of businesses


Market power and competition issues

M&A concepts applied to the technology sector | March 20, 2013

5

Introduction

Key messages


When a CEO wants to boost corporate performance or jump
-
start long
-
term
growth, the
thought of acquiring

another company can be
extraordinarily
seductive


Indeed, companies spend more than
$2 trillion on acquisitions every
year


Yet study after study puts the
failure rate

of mergers and acquisitions
somewhere between
70% and 90%.


Companies too often
pay

the
wrong price

and
integrate

the acquisition in
the
wrong way


The
success

or failure of an acquisition
lies

in the nuts and bolts of
integration
.


The New M&A Playbook, C. Christensen, R. Alton, C. Rising, and A. Waldeck, HBR, March 2011

M&A concepts applied to the technology sector | March 20, 2013

6

1.
Introduction


2.
Concepts


3.
Case: Oracle Sun


4.
Drivers for M&A in the technology sector


5.
Case introduction: Google Motorola

M&A concepts applied to the technology sector | March 20, 2013

7

Concepts

Focus on acquisition integration with the article: The New M&A Playbook, C.
Christensen, R. Alton, C. Rising, and A. Waldeck, HBR, March 2011

M&A goals

Leverage
My
Business
Model

Reinvent
My
Business
Model

Command
Higher Prices

Lower Cost

To improve a product or service that

s
still developing, one whose customers
are willing to pay for better functionality.

The parent plugs certain resources from
the acquisition into its existing model,
jettisoning the rest of the acquired
model and shutting down, laying off, or
selling redundant resources.

Acquire
Disruptive
Business
Model

Acquiring to
Decommotize

The most reliable sources of
unexpected growth in revenues and
margins are disruptive products and
business models.

One of the most effective ways to use
RBM acquisitions is as a defense
against commoditization.

Low Price

High Price

The New M&A Playbook, C. Christensen, R. Alton, C. Rising, and A. Waldeck, HBR, March 2011

M&A concepts applied to the technology sector | March 20, 2013

8

Concepts

RBM example: Oracle Sun


RBM

Acquire
Disruptive
Business Model

Acquiring to
Decommotize


Disruptive companies are those
whose initial products are simpler
and more affordable than the
established players


offerings.



They secure their foothold in the
low end of the market and then
move to higher
-
performance,
higher
-
margin products, market,
tier by market tier.


If a firm finds itself being
commoditized in this way,
acquisitions won

t improve the
output of its profit formula



Firms in this situation should
instead migrate to

where the
profits will be


the point in the
value chain that will capture the
best margins in the future.

Migrate to

w桥牥
瑨e⁰牯晩 s w楬氠扥


䍬潵C
Computing

Oracle Exalogic
and Exadata

Salesforce.com

s


湥w 浵汴m
-
yea爠c潮o牡c琠
e湡扬bs 瑨e洠瑯mc潮o楮略
扵楬摩湧nv楲瑵i汬y a汬映瑨e楲i
c汯畤lse牶楣es 潮

The New M&A Playbook, C. Christensen, R. Alton, C. Rising, and A. Waldeck, HBR, March 2011

M&A concepts applied to the technology sector | March 20, 2013

9

Concepts

Key question

What elements of the business model will change?


Customer value proposition


Offering that helps customers do an important job more effectively, conveniently, or
affordably than the alternatives.



Profit formula


Revenue model


Cost structure



Resources


Employees, customers, technology, products, facilities, and cash



Processes


Manufacturing, R&D, budgeting, and sales.


The New M&A Playbook, C. Christensen, R. Alton, C. Rising, and A. Waldeck, HBR, March 2011

M&A concepts applied to the technology sector | March 20, 2013

10

1.
Introduction


2.
Concepts


3.
Case: Oracle Sun


4.
Drivers for M&A in the technology sector


5.
Case introduction: Google Motorola

M&A concepts applied to the technology sector | March 20, 2013

11

Case Oracle Sun

1.
Oracle


2.
Oracle acquisition strategy


3.
Sun deal


4.
Implementation highlights


Role of the banker


Role of the consultant


Communication


Stakeholder management


Branding


Advertizing


Management


5.
Legal and regulatory

M&A concepts applied to the technology sector | March 20, 2013

12

1. Oracle

Founded in 1980,
Oracle is the largest business software company in the world, with
345,000 customers
-

including 100 of the Fortune Global 100
-

and supports these
customers in more than 145 countries.


Oracle business model is based on products
and services:


Database products


Middleware products


Application products


Logistics


Financials


HR


CRM


Business Intelligence


Consulting services for all products



Oracle main competitors are:


IBM for database and middleware software


SAP for application software


Microsoft for database, middleware and business
software



Sun is at the same time:


A competitor of Oracle in the database market, with
MySql


A competitor of IBM in the Unix server market


A key enabler for Oracle and IBM with the Java plate
-
form, in the middleware market


Oracle

s strategy is based on three
differentiation levers:


Technology products


Business application products


Open standard products



This translates into frontal competition
with Microsoft, SAP and IBM


(1) Technology

(2) Applications

(3) Open Standards

Microsoft

IBM

SAP

Oracle = (1) + (2) + (3)

Oracle

M&A concepts applied to the technology sector | March 20, 2013

13

1. Oracle

Oracle stock outperforms market and peers





Source: FT

Oracle stock outperforms NASDAQ, S&P 500,
DOW


Oracle stock outperforms SAP, Microsoft, IBM
and CISCO


Only Google, Amazon and Apple stocks are
doing better

M&A concepts applied to the technology sector | March 20, 2013

14

1. Oracle

Impressive margins, cash rich, and levered, unlike other software companies





Source: FT

AAPL net income = 8.24bn, Google net income = 6.52bn, Amazon net income = 902.00m, Oracle net income = 5.59bn, Microsoft net
inc
ome = 14.57bn, SAP net income =
1.79bn, IBM net income = 13.43bn, DELL gross margin = 18%, IBM gross margin = 45%, SUN gross margin = 45%

M&A concepts applied to the technology sector | March 20, 2013

15

2 Oracle acquisition strategy

Principles

Source:
http://www.cio.com/article/print/195950


Oracle brazenly acknowledges that it creates innovation and innovative products by buying them from
others.

This thinking, of course, is at odds with the long
-
held and romanticized view of innovation in Silicon Valley


"It's crazy to say you will only grow through innovation," said Oracle CEO Larry Ellison

a couple of weeks
ago in a New York Times article. "It's bizarre that there's a stigma to buying something rather than building it
yourself."

M&A concepts applied to the technology sector | March 20, 2013

16

3. Sun deal

Acquisition strategy rationale (
BEFORE
)



Oracle to acquire Sun Microsystems (

Sun

)


Purchase price of $9.50 per share in cash


Approximately $7.4 billion in equity value; $5.6 billion net of cash and debt


Transaction closed in January 2010



About Sun


Leading provider of standards
-
based computing infrastructure, including enterprise
computing systems, software and storage


Headquartered in Santa Clara, CA


30,000 employees worldwide, 47,000 enterprise customers worldwide



Industry transforming acquisition


Combines best
-
in
-
class enterprise software and mission
-
critical computing systems


Expected to deliver an integrated system, from applications to disk, optimized for higher
performance, improved reliability and enhanced security


Customers expected to benefit from decreased systems integration costs, and improved
performance, reliability, and security



Source: Oracle Web Site

M&A concepts applied to the technology sector | March 20, 2013

17

3. Sun deal


Acquisition strategy rationale (
BEFORE
)

The Most Complete and Open
Enterprise Technology Stack



Open and standards
-
based


Optimized, integrated and extensible


Higher performance, improved reliability and
enhanced security


Shorter deployment times


Easier to manage and upgrade


Lower cost of ownership


Reduced change management risk


Integrated support



Source: Oracle Web Site

New products

M&A concepts applied to the technology sector | March 20, 2013

18

3. Sun deal


Acquisition strategy rationale (
AFTER
)


Customer value proposition: Exalogic / Exadata


Radically simplify the integration between software and hardware



Profit formula: applying Oracle operating margin (45%) to Sun


Premium pricing vs open source pricing


Leaner cost structure



Resources: more investment in innovation and R&D


Development of employees, customers, technology, products, facilities, and cash



Processes: alignment and optimization


Optimizing sales (direct sales, strict control of Value Added Resellers), streamlining user
support, integrated marketing, shared R&D, integrated back offices

2011

2010

Hardware Systems Revenues

$7,092 M

$2,418 M

+193%

M&A concepts applied to the technology sector | March 20, 2013

19

4. Implementation highlights

Role of the banker





Charles E. Phillips is President of Oracle Corporation
and a member of the Board of Directors.

He joined Oracle in 2003. Before joining Oracle, Mr.
Phillips was with Morgan Stanley, a global investment
bank.


Phillips (alongside Goldman Sachs' Rick Sherlund) had
been widely regarded as the most influential software
analyst on the sell
-
side and a major advocate for
software M&A; particularly after the bubble burst and the
industry began a maturation phase

,
http://woodrow.typepad.com





Safra A. Catz has been President of Oracle Corporation
since January 2004 and a member of the Board of
Directors since October 2001.

She served as Oracle

s Chief Financial Officer from
November 2005 to September 2008, as Executive Vice
President from November 1999 to January 2004, and as
Senior Vice President from April 1999 to October 1999.

In May 2008, Ms. Catz was also appointed to a three
-
year term as member of the board of directors for HSBC
Holdings plc, one of the world's largest banking and
financial services organizations.

Phillips and Catz are Larry Ellison

s arms with regards to M&A strategy and
implementation. Phillips identifies the targets. Catz monitors the implementation and the
value creation.

Source: Oracle Web Site

M&A concepts applied to the technology sector | March 20, 2013

20

4. Implementation highlights

Role of the consultant

Some lessons learned, Doug Kehring, an Oracle SVP for corporate development



For one, it doesn

t work with bankers
-

it has a bank in house. Oracle, doesn

t use
bankers, not even for the contentious, $8.5 billion acquisition of BEA Systems Inc. in
January. Instead it relies on co
-
presidents Chuck Phillips and Safra Katz, backed up
by Kehring and a 16
-
person strategy and corp dev team. Chairman Larry Ellison has
also been known to weigh in from time to time.



Oracle is similarly self
-
reliant on integration, trying a big consulting firm on the 2005
PeopleSoft integration but deciding to do things itself instead. Kehring says speed is
paramount in Oracle

s integrations, and that targets immediately adopt Oracle

s
back
-
office policies.

We

re buying the go
-
to
-
market part of the business,


he said.



Kehring also talked about the importance of communicating about deals in the media,
a lesson that Microsoft is learning now. He noted that Microsoft has had different
executives saying different things.


Oracle is relentlessly focused
-

on strategy, on integration, on message.

Source:
http://industry.bnet.com/technology/100015/Oracle Speaks on M&A, Is Microsoft Listening?

M&A concepts applied to the technology sector | March 20, 2013

21

4. Implementation highlights

Communication: centralized, structured, focused www.oracle.com/sun


Source: Oracle Web Site

M&A concepts applied to the technology sector | March 20, 2013

22

4. Implementation highlights

Stakeholder management: what

s in it for me?


M&A concepts applied to the technology sector | March 20, 2013

23

4. Implementation highlights

Branding

M&A concepts applied to the technology sector | March 20, 2013

24

4. Implementation highlights

Advertising

M&A concepts applied to the technology sector | March 20, 2013

25

4. Implementation highlights

Management




Mark Hurd is President of Oracle Corporation and a
member of the company's Board of Directors. He joined
Oracle in 2010. As President, Mr. Hurd oversees the
corporate direction and strategy for Oracle's global field
operations, including marketing, sales, consulting,
alliances and channels, and support. He focuses on
strategy, leadership, innovation, and customers.

Before joining Oracle, Mr. Hurd served as Chairman of
the Board, Chief Executive Officer, and President of HP,
where his focus on customers, innovation, improved
operational efficiency and execution led to significant
company growth.


Mark Hurd, former CEO of HP has replaced Charles E. Phillips as President

Source: Oracle Web Site





Safra A. Catz has been President of Oracle Corporation
since January 2004 and a member of the Board of
Directors since October 2001.

She served as Oracle

s Chief Financial Officer from
November 2005 to September 2008, as Executive Vice
President from November 1999 to January 2004, and as
Senior Vice President from April 1999 to October 1999.

In May 2008, Ms. Catz was also appointed to a three
-
year term as member of the board of directors for HSBC
Holdings plc, one of the world's largest banking and
financial services organizations.

5. Legal and regulatory

Anything Europe could say about the deal?

EU Commission


The acquisition of Sun Microsystems by Oracle
Corporation was completed by Oracle on January 27,
2010. Significantly, Oracle, previously only a software
vendor, now owned both hardware and software product
lines from Sun (e.g. SPARCstations and Java,
respectively).


A major issue of the purchase was the fact that Sun was
a major competitor to Oracle, raising many concerns
among antitrust regulators, open source advocates,
customers, and employees. The EU Commission
delayed the acquisition for several months over concerns
of Oracle's plans for MySQL, Sun's competitor to the
Oracle Database. The commission finally approved the
takeover, apparently pressured by the U.S. to do so,
according to a Wikileaks cable released in September
2011.


Source: Wikipedia


Oracle Android Lawsuit


Oracle filed a patent infringement lawsuit against
Google over its use of Java in the Android platform.
Android apps run in the Dalvik Java virtual machine. The
apps are written in Java but are compiled into Dalvik's
custom bytecode format which is incompatible with
standard Java runtime environments. Google thus
avoided licensing fees associated with J2ME, the mobile
version of Java. However, aspects of the Dalvik system
are very similar to the Java technology patented by Sun
and now Oracle.


The court found that Oracle's primary copyright claim,
based on the Java Application Programming Interface
(API), failed because the portions Google reused were
not copyrightable. Google was found liable for a small
amount of literal code copying. Oracle will be limited to
statutory damages for these claims. The jury found that
Google did not infringe Oracle's patents. Oracle has said
they will appeal.


Regardless of the legal merits, commentators have
questioned the wisdom of the lawsuit over Android, a
platform which has reinvigorated the Java community. In
addition, it gave another worrying signal to open source
community members


Source Wikipedia

M&A concepts applied to the technology sector | March 20, 2013

26

M&A concepts applied to the technology sector | March 20, 2013

27

1.
Introduction


2.
Concepts


3.
Case: Oracle Sun


4.
Drivers for M&A in the technology sector


5.
Case introduction: Google Motorola

M&A concepts applied to the technology sector | March 20, 2013

28

Drivers for M&A in the technology sector

Vertical and horizontal integration context

Consumers

Enterprises

Revenue

Margin

Profit

Services

Google,
Amazon,
Apple

IBM, HP

Software

Microsoft,
Apple,
Google

IBM, Oracle,
SAP,
Microsoft,
HP

Hardware

Apple, HP

IBM, Oracle,
HP

Vertical and horizontal integration
strategies

Have impacts on revenues,
margins and profit

IBM and vertical integration in the eighties, Microsoft and horizontal integration in the
nineties, Apple and vertical integration today. Who

s next?

M&A concepts applied to the technology sector | March 20, 2013

29

Drivers for M&A in the technology sector

Manufacturing and Intellectual Property (IP) pay off

16 business models

Differentiated returns

Temptation for the Manufacturer / Innovator (investing above their industry average in R&D like
AAPL) and IP Landlord (like MSFT) models is great

The Business Models investors prefer, P. Weill, T. Malone, T. Apel, Center for Information Systems Research, Research
Brief, November 2011

% of revenue by asset type and asset right

M&A concepts applied to the technology sector | March 20, 2013

30

1.
Introduction


2.
Concepts


3.
Case: Oracle Sun


4.
Drivers for M&A in the technology sector


5.
Case introduction: Google Motorola

M&A concepts applied to the technology sector | March 20, 2013

31

Google Motorola

Analysis framework: M&A goal


M&A goals

Leverage
My
Business
Model

Reinvent
My
Business
Model

Command
Higher Prices

Lower Cost

To improve a product or service that

s
still developing, one whose customers
are willing to pay for better functionality.

The parent plugs certain resources from
the acquisition into its existing model,
jettisoning the rest of the acquired
model and shutting down, laying off, or
selling redundant resources.

Acquire
Disruptive
Business
Model

Acquiring to
Decommotize

The most reliable sources of
unexpected growth in revenues and
margins are disruptive products and
business models.

One of the most effective ways to use
RBM acquisitions is as a defense
against commoditization.

Low Price

High Price

The New M&A Playbook, C. Christensen, R. Alton, C. Rising, and A. Waldeck, HBR, March 2011

M&A concepts applied to the technology sector | March 20, 2013

32

Google Motorola

Analysis framework: what elements of Motorola will Google change?


Why doing the deal


Drivers


Price


What elements of the business model will change


Customer value proposition: an offering that helps customers do an important job more
effectively, conveniently, or affordably than the alternatives.


Profit formula: revenue model and a cost structure


Resources

such as employees, customers, technology, products, facilities, and cash


Processes such as manufacturing, R&D, budgeting, and sales.


How, who, when?


Features of the implementation plan

M&A concepts applied to the technology sector | March 20, 2013

33

Google Motorola

By Richard Waters, Financial Times

Vertical success requires more than just a Motorola



Verticalisation


is an ungainly word for what has
become a highly fashionable trend in the tech world.
With Google slapping down $12.5bn in cash this week to
buy Motorola Mobility, the idea just received another big
boost. But like many business fashions, there is a risk
that this one is about to become an uncontrollable
bandwagon


with unhappy consequences.


Until recently, the idea that the best products come from
companies that combine both hardware and software
expertise under the same roof went against the grain of
accepted thinking in technology. The PC era was built on
a horizontal model, with different companies supplying
everything from the chips to hardware and operating
system. That was itself a reversal of an earlier
computing era dominated by IBM

s integrated
mainframe computers.


It took Apple to bring things back to the future. With the
iPhone


and now the iPad


it has gone even further,
building out its own chain of retail stores and, through
the App Store, corralling the services that breathe life
into its devices. With a move into chip design, it has
even taken control of the most important component in
its hardware.

Google

s hardware hire must move fast
to catch Apple


Why would an internet company hire
someone who has played a key role in
the world

s most impressive hardware
supply chain?


The response to that question could
also provide an answer to one of the
more intriguing questions hanging over
some of the leading software and
internet concerns: are they preparing a
deeper push into the hardware
business? If so, their business models
and margin profiles could be in for a
drastic change.


By Richard Waters, Financial Times