maximize value creation from technology acquisitions

Fergal Lynch MBA Distinction 2013 Durham University Thesis Summary

1. Background

2. The Problem

3. Methodology

4. The Solution

5. New Model

Maximizing Value Creation from Technology Acquisitions

The research studies the important role technology acquisitions play in the ICT

sector in particular, and identifies the critical factors in

maximizing value creation.

This research report deals with the challenges facing high-tech corporations in how they create value, and a sustainable competitive advantage from technology acquisitions.

Acquisitions are a crucial part of business for large corporations competing in the technology industry….

This research is focused on the phenomenon of large multinational firms buying smaller technology firms and

integrating the acquired technology, talent and capabilities into the larger acquiring organization.

Technology acquisitions are generally acquisitions of small technology-based firms by large, established firms so that the larger firm

can “graft” the acquired technological capabilities onto their own resource base, which then acts as a vital source of innovation streams 1

Acquiring new technologies is vital to

remaining

innovative.

This provides a faster route to market.

...means the alternative to develop capabilities in-house is simply too

slow, resulting in a competitive disadvantage 1

The breakneck speed of innovation in the technology sector…

…..coupled with short product lifecycles…

Technology acquisitions are a distinct subset of acquisitions, where the

technology, the people and the capabilities they possess are a crucial

part of the acquisition1

The intangible aspect and basis on the knowledge worker is what makes them so unique and requiring distinction from other acquisition types.

However, all too often these technology acquisitions fail…..

1. Background

2. The Problem

3. Methodology

4. The Solution

5. New Model

Maximizing Value Creation from Technology Acquisitions

Research results consistently show that the majority of acquisitions fail to deliver value.

Acquisition Success Rates

83% of all deals fail to

deliver shareholder value with 53% actually

destroying value 2

58% of acquisitions are not successful as they fail to meet expectations and objectives 1

..... and the potential value is never realized

1 + 1 = 0

Synergies are not achieved…..

….and conversely shed light on the root causes for the challenges and business problems experienced.

How to maximize value creation?

1. What motivates acquisitions?

2. How is acquisition performance measured and how is value perceived?

3. What role does the acquisition process itself play?

4. What are the critical factors in small technology acquisitions?

Thought process for getting to the answers....

How to view Acquisitions? The Different Perspectives on M&A

Considerations when discussing ”value”

… acquisitions create value when the combined

capabilities improve the firm’s competitive position

in the market, which in turn produces financial

operating results1

Consider both expected value realisation and serendipitous value

creation2

A capabilities perspective is best applied1 … the

acquired capabilities can create and sustain

elements of competitive advantage for the firm.

Increased Innovation and patent activity

… it is not satisfactory to measure all acquisitions on the same

performance …. the measures of performance should be closely related to the specific strategic objectives associated with the

acquisition4

… the conclusion on value created may differ depending on the

perspectives of the people involved, such as financial experts, operational

managers and shareholders, and suggest that using multiple

parameters gives a more enriched view of performance 3

We need a multi-faceted

approach5

1. Background

2. The Problem

3. Methodology

4. The Solution

5. New Model

Maximizing Value Creation from Technology Acquisitions

This research examined the complete acquisition process and offers an

original perspective on maximizing value creation from small technology

acquisitions.

The research was conducted in a multinational corporation operating in the ICT sector.

Semi-structured in-depth interviews with executives and senior personnel involved in each case.

Eight separate technology

acquisition cases were studied.

A Deductive Approach to the research.

Research Conclusions

Academic Literature

Review Semi-

structured interviews

Comparing Theory and

Findings from interviews

Interview data analysis

Basic hypothesis influencing

interview questions and analysis

1. Background

2. The Problem

3. Methodology

4. The Solution

5. New Model

Maximizing Value Creation from Technology Acquisitions

An acquisition is a process rather than an event1. The outcome of an acquisition ultimately lies in

understanding and managing the process of decision-making during the acquisition, and effective

management of this process.

Phase I Strategy

Phase III Post-Acquisition

Integration

Phase II Planning

Acquisition Day 1

• Strategy Creation • Strategic Fit • Grow or Buy • Target Selection • Cost/Benefit Analysis • Type of Merger

• Information Gathering • Financial Analysis • Due Diligence • Technical Due Dilignce • Cultural Analysis • Define Value Drivers • Identify Synergies • Plan Degree of Integration

• Autonomy • Cultural Fit • Speed of Integration • Organizational Integration • Integrating People and Teams • Integrating & Commercializing the

Technology • Knowledge Transfer

Findings From the Case Studies Acq’n Case

Critical Factors Outome / Value Created

Positive Influencers Negative Influencers

Case 1 + Physical autonomy preserved team identity. + Decision making autonomy for the product. + Onboarding support.

- Poor technical due diligence. - Initially no control over their product. - Losing of pre-acquisition customer base.

As Expected

Case 2 + Onboarding support. + Good strategic fit for product/technology.

- No support or trust shown to acquired mgmt. - No influence on product decisions. - Physically isolated in own satelite office

Below Expected

Case 3 + Great strategic fit for product/technology. + Fast integration and no ”dead-time”.

- No influence on decisions affecting the product - No common understanding on product strategy. - Big company processes affecting productivity.

Below Expected

Case 4 + Strong engineering & management talent. + Good strategic fit for product/technology. + Onboarding support.

- Slow and frustrating integration. No support. - Big company processes affecting productivity. - Poor technical due diligence.

As Expected

Case 5 + Strong engineering & management talent. + Fully trusted and empowered. + Leadership support and commitment.

- Complex integration and company split-up. - Integrated to a team in different time zone. - Seemed no strategic fit for the product.

Above Expected

Case 6 + Retained decision making autonomy over the product. + Retained operational autonomy.

- Slow integration and felt isolated. As Expected

Case 7 - Poor technical due diligence. - Lacking strategic fit, reactionary purchase.

Below Expected

Case 8 + Leadership support and commitment. + Great strategic fit for product/technology. + Retained decision making autonomy over the technology / product.

- Slow integration needed for knowledge transfer. - Resistance to change in acquiring organisation.

Above Expected

Analysis and comparison of the findings from the individual cases

revealed......

Corporate Level

Business Unit

Team / Individual

... that different factors impact at different levels in the organisation....

Corporate Level

Business Unit

Team / Individual

Influential Key Critical Factors for Value Creation

Observable Measures of Value Created

...and some factors are observable while others are influential

Corporate Level

Business Unit

Team / Individual

Influential Key Critical Factors for Value Creation

Observable Measures of Value Created

• Motivated and inspired individuals. • New capabilities, culture and working

practices learned. • Improved productivity.

• Profits. • Increased market share & customer retention. • Competitive advantage. • Shareholder wealth increased.

• Improved competences. • Acquired technology commercialized. • Retention of key employees. • Knowledge transfer and scale needs met. • New innovative products commercialized. • Improved operational performance. • Acquisition objectives achieved.

• Commitment. • Leadership. • Listening to the acquired talent. • Sound technical due-diligence. • Cooperative planning, setting objectives. • Acquisition process perspective.

• Autonomy and decision making. • Onboarding ”buddies”. • Speed of the integration. • Individual needs. • Meaningful and motivating work.

• Strategic fit. • Leadership, trust & commitment to

the acquisition. • Plans to productise the technology. • Decision making autonomy & relative

standing.

Critical Factor Mapping

1. Autonomy and keeping decision-making and strategic influence over the technology.

2. Speed of Integration with a clear goal to commercializing the technology

3. Retention of Key Employees and Knowledge Transfer

4. Relative Standing, ability to influence and Commitment shown to the acquisition target

1. Background

2. The Problem

3. Methodology

4. The Solution

5. New Model

Maximizing Value Creation from Technology Acquisitions

1. The primary focus needs to be on commercializing the technology. The leadership, trust, commitment, strategic fit, and autonomy of the acquired team (with the ability to influence decisions relating to the product) are all needed to make that happen.

2. Commercializing the acquired technology positively impacts on employee retention. While these talent acquisitions are to a large extent about people, it is a focus on the technology itself, getting it productized, that is needed to create sustainable value.

3. This focus underpins all other aspects that can derive value from the acquisition…. Although the focus may be on commercializing the technology this is not necessarily the ultimate goal or measure of success.

Building A Practical Model

This research extends the understanding of the relationship between the different factors and proposes a “Virtuous Circle of Value Creation” model

linking all the critical factors that contribute to value creation from technology acquisitions. The multi-faceted measures of value created from acquisitions

are contained within the virtuous circle model.

Virtuous Circle of Value Creation Model

+ Relative Standing +

Codifiable +

Smart people willing and able to absorb

+

Improved Competences

Competitive Advantage

Innovations

Speed of Integration

Measures of Value Creation

Strategic Fit

Effective Technical Due Diligence

Cultural Fit

Profits Market Share

Patents

Incubate, protect and support

Customer Retention

Increased Share Price

Synergies achieved

+

+

Having meaningful and motivating work

+

Autonomy +

+

Suportive Leadership

Trust & Empowerment

Co-operative planning

Commitment to the Acquisition

+

+

+

+

+

Employee Retention

Knowledge Transfer

Successful Appropriation of Technologies and

Capabilities

Technology Commercialized

1. Background

2. The Problem

3. Methodology

4. The Solution

5. New Model

6. Supplementary Information

Maximizing Value Creation from Technology Acquisitions

Contact Information

For enquiries relating to • Complete version of the research • Citation requests • Trainings, lectures or consultancy

Contact the author

Fergal Lynch MBA Global Business and Technology Management Professional