© Dr. Karl Popp

Acquiring companies in a digitalized world

Dr. Karl Popp

http://www.drkarlpopp.com

http://www.mergerduediligence.com

Follow me @karl_popp on twitter

© Dr. Karl Popp

Agenda

• What is the difference between the software industry  and other industries 

• Software acquisitions: Challenges and failures

• Successful Technology due diligence

Agenda

© Dr. Karl Popp

What is the difference between software and other industries?

DIFF

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Why do software companies acquire?

• To buy innovation

• To speed up time to market

• To grow the marketshare in new markets

• To consolidate

© Dr. Karl Popp

Specifics of the software industry

CompaniesSpecific business models, e.g. freemium or cloud subscription

International setup, even in small companies

Average lifespan 12 years

ProductsVery high speed of innovation, high frequency of product deliveries

Short product lifecycles

Free components speed up innovation

Ecosystems are keyPlatforms and ecosystems

High switching cost for customers

Intellectual property is front and center topic

© Dr. Karl Popp

Software acquisitions: challenges and failures

#fail

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Selected risks in software M&A

Strategy failure

Technology: In fast moving markets: wrong technology acquired

Ecosystem failure (not existing, not taking off)

Does market consolidation pay off long-term?

Product failure:

Massive use of viral open source software in commercial product

Financial failure:

Due to fantasy in due diligence (never fall in love with an acquisition)

Underestimated cost, Litigation

© Dr. Karl Popp

Selected risks in software M&A

Management failure:

Due to inexperienced management and missing standardisation in M&A processes

Underestimated efforts in post merger integration

People failure: people leave

Wrong communication

No joint vision, mission and missing explanation what the acquisition means for each employee

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How to avoid failure: Let others go through hell for you

What?

WYSIATI what you see is all there is

you don´t foresee what you don´t know

Why?

Avoid disaster

How do we manage it?

Read the book„Deals from hell“ by Robert F. Bruner

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Successful technology due diligence

Due

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Specifics of due diligence in the software industry

Type of Due Diligence

Distinctiveness of the software industry

Strategic due diligence

High volatility. high impact of platform strategies and partner ecosystems on success

Market due diligence

High market size volatility

High likelihood of disruptions in markets

Commercial due diligence

Diversity of business models, revenue models and their combinations

Technology due diligence

Distinctiveness and high change rate of software platforms and other technology, use of third party and open source software, security vulnerabilities, compliance with corporate quality standards

Human resources due diligence

High importance of workforce quality due to low automation in production, identifying and keeping key players

Cultural due diligence

Software industry raises high employee expectations in culture, benefits and work environment

Intellectual property due diligence

Increased importance due to strong role of IP

Patents, Open source, Third party products

© Dr. Karl Popp

Successful technology due diligence: my key points

• The product– Check the product and its architecture– Discuss and plan integration with acquirer´s products– Check and plan efforts for compliance with corp.

standards– Check use of open source and third party products and

license compatibility with future business models

• Other topics worth mentioning– Globalization and localization of target solutions might be

a high effort activity– Mind the export restrictions to and from Europe,US – Data protection laws in Europe

© Dr. Karl Popp

Results: Ingredients for success

• Analyze and adapt your capability maturity to integrate successfully

• Structure and tailor integration approach and M&A process

Avoid deals from hell

Manage complexity and effort

Blueprint

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More information here:

http://www.mergerduediligence.com