The document summarizes an event called the Better Acquisitions Gathering 2011 that brings together leaders in mergers and acquisitions to discuss strategies for successful acquisitions. The agenda includes roundtable discussions on acquisition and integration strategies, as well as a keynote speech. The introduction provides context about the challenges of maintaining leadership over long periods and the importance of acquisitions for growth. Statistics are presented on acquisition activity among top technology companies over the last five years, with over 1,100 acquisitions totaling $278 billion announced. The event aims to improve acquisition success rates and outcomes.
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Better Acquisitions
1. Better Acquisitions Gathering 2011
Woodside Capital Partners
Better Acquisitions Gathering 2011
Introduction and Market Overview
Kelly Porter
Managing Director
Woodside Capital Partners
January 13, 2011
650-559-7700
2. Better Acquisitions Gathering 2011
Agenda
2:00pm – 2:30pm Arrival and Registration
2:30pm – 2:45pm Introduction & Market Context
2:45pm – 4:15pm Roundtable: Acquisition and Deal Making Strategy
Moderator: Kelly Porter, Woodside Capital Partners
Andrew Siegel, Advance Publications (former Yahoo!)
Dave Sobota, Google
Eli Mendoza, IBM
Zander Lurie, CBS
4:15pm – 5:00pm Break
5:00pm – 6:30pm Roundtable: Integration Strategy
Moderator: Jonathan Dillon, Heystaks / Woodside Capital Partners
Amy Banse, Comcast
Lorraine McDonough, eBay
Chris Wormald, Research in Motion
Mike Foley, Electronic Arts
Robby Kwok, LinkedIn
6:30pm – 7:45pm Cocktails
7:45pm – 9:30pm Dinner and Keynote
Jed York, CEO, San Francisco 49ers
3. Better Acquisitions Gathering 2011
Welcome.
We’ve come together today to discuss that point in the arc of a company’s lifespan
when its shareholders decide to become part of a larger organization; conversely,
when a larger organization decides a smaller company should be made part of its
operating portfolio and strategic roadmap. In that moment, possibilities and
expectations loom large … and so do hurdles to success. Our Gathering addresses the
M&A ecosystem, bringing together some of the finest minds to discuss, simply, how
to undertake Better Acquisitions.
This presentation’s focus, and our discussion this afternoon, will cover some of the
challenges that exist in M&A today. The second part of the presentation provides an
overview and outlook of the M&A market in the internet / mobile / software / IT
industry sectors.
4. Better Acquisitions Gathering 2011
The Dow Industrials in 1911
Amalgamated
Central Leather U.S. Rubber
Copper
American Car & General Electric
U.S. Steel
Foundry Company
American Smelting
National Lead
& Refining
American Sugar Peoples Gas
Virtually all of us have seen this illustration of the Dow Industrials from
100 years ago versus the Dow today. Only one company – General Electric
- survives as a leader 100 years later. This table illustrates how difficult it is
to maintain leadership in any business.
5. Better Acquisitions Gathering 2011
For example, 10-15 years ago Microsoft was the predominant player in multiple sectors. Microsoft
looked invincible – they controlled the desktop, Office Suite, had the largest internet browser, and
had a huge hand in the downfall of Netscape. Microsoft is still a big and profound company that
deserves enormous respect – however few would have anticipated Microsoft’s struggle in key
strategic areas - like mobile, social and search … and that Microsoft would have a market cap that
is 25% less than Apple, which was on the fringe of the market in 1995.
6. Better Acquisitions Gathering 2011
Leadership is strongly rooted in continued innovation. Typically, large companies are not
well equipped to innovate or create new, market-defining products. Therefore it is
essential for the majority of large companies to acquire emerging-growth start-ups, and
especially important where change is rapid and innovation intense, as it is in the
technology industry.
Because of this, in our view, people who do acquisitions in large companies play the
most important role in inventing the future of their companies, and determining the
company’s long-term strategic future.
7. Better Acquisitions Gathering 2011
August 2005 Oct 2006 Nov 2009
Est $50M $1.65B $750M
Acquire well – as, for
example, Google has
done with Keyhole Oct 2004
(Google maps), Est $15M
Android, YouTube or
AdMob – and you
grow your company in
new and significant
ways.
Market Cap: From $23B to $197B
8. Better Acquisitions Gathering 2011
Acquire poorly - as Time
Warner did with AOL –
and you burden the
company’s balance sheet
with debt or dilute
shareholder equity, and
even more important, the
company’s strategic
importance can decline
precipitously.
9. Better Acquisitions Gathering 2011
Most Acquisitions Fail.
Despite the essential importance of acquiring well, the majority of acquisitions
fail. This is particularly interesting because of the way that acquisitions work
… only the best companies are chosen, significant diligence is undertaken,
teams of people analyze and dissect the acquisition, huge sums of shareholder
capital are spent, and more often than not, the people that come in via new
acquisitions come in with the best intentions …
10. Better Acquisitions Gathering 2011
The impact of better acquisitions.
The reason that failed acquisitions are an important issue is that the problem affects
everyone in the technology food chain. Not just the acquiring companies, but also
entrepreneurs, investors, bankers, attorneys, employees, suppliers, customers –
everyone. And in a world where M&A is the exit of choice nowadays - 90% of
positive exits are M&A – it is especially important. If more acquisitions succeeded,
perhaps companies would acquire more, and the logjam of private venture backed
companies seeking exits – numbering 8,000-9,000 by our estimate – might break.
11. Better Acquisitions Gathering 2011
M&A in key technology markets
To set the stage for the rest of our Gathering, let’s take a look at where the tech
M&A market is today. We started by surveying the acquisition activity of the 75
most active acquirers in the key technology markets of internet, software, mobile
and IT. The specific list of companies is on the next slide. We looked at their
acquisition activity over the past five years – a good representative time when we
had both good markets and a severe downturn, and what looks like a budding
recovery.
12. Better Acquisitions Gathering 2011
75 most active acquirers in key technology markets
Activision Blizzard, Inc. E-Commerce China Dangdang Inc. Oracle Corp.
Adobe Systems Inc. eBay Inc. priceline.com Incorporated
Akamai Technologies Inc. Electronic Arts Inc. Qwest Communications International Inc.
Alibaba.com Limited EMC Corporation Research In Motion Limited
Amazon.com Inc. Expedia Inc. Rovi Corporation
AOL, Inc. Facebook, Inc. Sage Group plc
Apple Inc. Gannett Co., Inc. Salesforce.com
Ariba Inc. Google Inc. SAP AG
Autodesk, Inc. Hewlett-Packard Company Scripps Networks Interactive, Inc.
Baidu, Inc. IAC/InterActiveCorp. SOFTBANK Corp.
BMC Software Inc. Intel Corporation Sprint Nextel Corp.
CA Technologies International Business Machines Corp. Symantec Corporation
Cap Gemini S.A. Intuit Inc. Tencent Holdings Ltd.
CBS Corporation Lenovo Group Ltd. The New York Times Company
Check Point Software Technologies Ltd. Liberty Capital Group Time Warner Inc.
China Mobile Limited Liberty Interactive, Inc. Trend Micro Inc.
Cisco Systems, Inc. Live Nation Entertainment, Inc. VeriSign Inc.
Citrix Systems, Inc. McAfee, Inc. Verizon Communications Inc.
Clearwire Corporation Microsoft Corporation Viacom, Inc.
Comcast Corporation NetApp, Inc. Vivendi
Dassault Systemes SA Netflix, Inc. VMware, Inc.
Dell Inc. News Corp. Vodafone Group plc
DIRECTV NHN Corp. Walt Disney Co.
Discovery Communications, Inc. Nintendo Co. Ltd. Western Digital Corp.
DreamWorks Animation SKG Inc. Nuance Communications, Inc. Yahoo! Inc.
13. Better Acquisitions Gathering 2011
75 most active acquirers in key technology markets
Five year acquisition summary – 1,154 acquisitions, $278B announced values
Number of Transactions Announced Value of Transactions $B
350 $100
301 $88
$90
300 265
247 $80
$68
250 $70
203
200 $60 $52
$50
$46
138
150 $40
100 $30 $24
$20
50
$10
0 $-
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
Looking at the two charts, you can see that a lot of transactions happened at the end of the credit
bubble – by the way, the end of a big up-cycle is usually when the mega-deals happen, then
volume dropped by more than half in 2009, and 2010 is starting to pick up again. Although both
charts above contain meaningful data, the graph on the left is more representative of overall M&A
activity – especially in transactions of below $100 million - since the valuations of nearly 2/3 of
transactions are not announced.
Source: CapitaI IQ
14. Better Acquisitions Gathering 2011
75 most active acquirers in key technology markets 57 deals, $217b total
Transaction sizes – last five years
$1b+ 85 deals, $41b total
If you are an investor or $250m-1b
entrepreneur, you should pay close
attention to the slices on this pie for 75 deals, $12b total
deals that are below $100 million or
$100m-250m
that are unannounced (and therefore
are likely also under $100 million) –
because this is where you are most
likely going to find liquidity for
your companies. It’s important to $20m-100m 149 deals,
consider this when deciding to raise $7b total
new capital with big valuations –
the fact is, very few companies are
acquired for more than $100M. The
top two slices - red and green –
show where 93% of the dollar Unannounced <$20M
volume is. Those are big
transactions which – if you’re the 126 deals, $1.3b total
acquirer – are either intended to
significantly augment the company
like Oracle did with Sun, or reinvent 662 Deals
the company.
Source: CapitaI IQ
15. Better Acquisitions Gathering 2011
75 most active acquirers in key technology markets
The 10 most active acquirers - number of transactions last five years
100
90 86
80 74
70
These 10 companies did about 70 65
60
60
half of the acquisitions over the 50
50 44
past five years. Again, as an
40
investor or entrepreneur, these 30
30 25 24
are the companies that are most 20
likely to acquire you. And if 10
you are doing acquisitions, you 0
probably have competed against
these companies in transactions.
Source: CapitaI IQ
16. Better Acquisitions Gathering 2011
Announced dollar volume ($b) overlaid number of deals
The 10-Most Active Acquirers – Last Five Years
This slide provides directional 100
information, since so many
deals have unannounced 90 86 $37.9
valuations. You can see that
80 74
IBM, Oracle, HP, Cisco and
70
SAP have undertaken more 70 65
mega-transactions, and 60
companies like Google, 60
Microsoft, EMC, Autodesk and $21.3 50
50 44
Yahoo! are tending to invest in $18.5
smaller companies. This points 40 $16.7
to how these companies put $14.2
30
together their acquisition 30 25 24
portfolios in terms of size, risk $9.0 $9.3
20
and financial diversification. $5.0
10
$0.7 $1.8
0
Source: CapitaI IQ
18. Better Acquisitions Gathering 2011
Key acquirers that have accelerated M&A activity – last five years
Market Composite IBM Google
300 25 30
250 20 25
200 20
15
150 15
10
100 10
50 5 5
0 0 0
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
Facebook
10
5
0
2006 2007 2008 2009 2010
Source: CapitaI IQ
19. Better Acquisitions Gathering 2011
Current M&A market: key themes
1. Opportunity to build great companies is as strong as ever.
2. Hot companies staying private longer – access to capital for liquidity and
growth, maintain control, hassles of being public. Need for new
acquisition model?
3. Valuations are high, particularly in social segment – Twitter @ $4b, Zynga
@ $5b, Groupon @ $6b – bubble?
4. Hurdle to IPO is higher.
1980s: 32 tech IPO’s per year
Early 1990s: 100+ tech IPO’s per year
Late 1990s: 240 tech IPO’s per year Fewer IPO’s
1999-2000: 400 tech IPO’s per year
than in 1980’s
2001-2007: 62 tech IPO’s per year
2008-2010: 22 tech IPO’s per year
20. Better Acquisitions Gathering 2011
Current M&A market – key factors – top acquirers have plenty of cash
Motivator to acquire?
Rank Company Cash + STI Rank Company Name Cash + STI
1 Cisco $38,925 14 Vodafone Group $7,300
2 China Mobile $38,719 15 EMC $6,695
3 Microsoft $36,559 16 Kyocera $5,619
4 Apple $25,620 17 eBay Inc. $4,944
5 Google $24,485 18 Time Warner $4,800
6 Intel $20,750 19 Sprint Nextel $3,924
7 Oracle $18,469 20 Clearwire $3,805
8 IBM $14,017 21 NetApp, Inc. $3,724
9 Nintendo $13,399 22 Yahoo! Inc. $3,291
10 Dell $11,008 23 Activision Blizzard $3,245
11 Hewlett-Packard $10,934 24 Western Digital $2,734
12 News Corp. $8,709 25 Walt Disney $2,722
13 Softbank $7,430
Analysts suggest that the high amount of cash on companies’ balance sheets will translate to increased
M&A activity in 2011. It is true that companies have significant cash - the last time companies had this
much cash on their balance sheets was in 1958. However cash is not necessarily a key driver to increased
M&A activity. Cash is important, but the most important component is confidence (for the CEO of the
acquiring company – in his market, in his own business, visibility) and a strategic emphasis on growth by
the acquirer, as opposed to defensiveness. Because we are still in a nascent recovery, confidence is
returning gradually.
Source: CapitaI IQ
21. Better Acquisitions Gathering 2011
Current M&A market – key factors – stock prices back up
Key to confidence of acquiring CEO’s
Source: Yahoo! Finance
22. Better Acquisitions Gathering 2011
2011 market projections
• Expect overall volume of deals to increase as recovery
continues. Pent-up demand.
• Expect few blockbuster deals – these usually come at end of
boom cycle.
• Expect disproportionally large increase in deal activity in the
<$100M segment.
• Comment: Longer term concern due to relative fragility of
U.S. economy – now may be the time to exit.
23. Better Acquisitions Gathering 2011
Woodside Capital Partners
Better Acquisitions Gathering 2011
Introduction and Market Overview
Kelly Porter
Managing Director
Woodside Capital Partners
January 13, 2011
650-559-7700