M&A

“TO BE OR NOT TO BE?”“TO BE OR NOT TO BE?”

Dr. Giora Yaron

M&A Experience base

Comsys I; Sold to Conexant 1996

Pentacom; Sold to Cisco, 1999

P-cube; Sold to Cisco 2004

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P-cube; Sold to Cisco 2004

Mercury; Sold to HP 2006

Qumranet; Sold to RedHat 2009

M&A Key consideration;

Maximizing Share Holders Value

Breadth of product portfolio

Competitive landscape

Market segment

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Market segment

Maturing? Exploding? [Scitex/Creo/Kodak]

Disruptive technology emerges [Kodak films, Galileo/Marvell]

Founders desire

THE EMOTIONAL QUESTION

Do I want to sell

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or

take it all the way?

THE TWO SIDES OF M&A

Acquirer view

Defensive; control product transition (Rockwell/Comsys)

Catch-up strategy; “On the fly fix” for a strategic

miss (Cisco/P-cube, Qumranet/RedHat)

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miss (Cisco/P-cube, Qumranet/RedHat)

Strategic response to deliver 1+1>2 (HP/Mercury)

Seller view

Defensive; competitive new technologies, market changes [Rockwell/Comsys, Cisco/P-cube, Qumranet/RedHat]

Quick liquidity

ACQUIRER VIEW; DEFENSE PLAY

[ROCKWELL/COMSYS]

CPU processing power increases

HW enhanced instructions can be done in SW

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SW

No need for HW modem

Rockwell market leader (70% market share) in HW modems.

Comsys technology threatens hundreds of millions of Rockwell revenue

Rockwell acquires Comsys to control market transition

CATCH-UP STRATEGY; CISCO/P-CUBE

P-cube develops Deep Packet Inspection [DPI] for next generation networking systems

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networking systems

P2P takes the market by a storm

Cisco has a hole in its product offering

Cisco acquires P-cube to meet market need “on the fly”

CATCH-UP STRATEGY; REDHAT/QUMRANET

Qumranet develops Hypervisor for Linux

RedHat market leader for Linux has no virtualization strategyvirtualization strategy

The compute world is going vitrual

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RedHat acquires Qumranet for its KVM Hypervisor

STRATEGIC MOVE;1+1>2

(HP/MERCURY)

HP Openview has wide acceptance in the data center mgt market, but competing hard against IBM Tivoli

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competing hard against IBM Tivoli

Mercury “owns” BTO market

(performance analysis infrastructure and application)

HP acquires Mercury; 1+1>2

BIG COMPANY; UNIQUE CONSIDERATIONS

Breaking the $1B revenue barrier

Customers pushing for “end to end”

solution

Must

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Must increase number of deals at the $10m-$25m level

Must go global rather than national

Must develop global support infrastructure

Must develop global IT infrastructure

Conclusion; Expend via acquisitions or be acquired

“VALIDATION POINT”

Mercury sold to HP

Stock shoots overnight from $34 to $52!!

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Largest acquisition in the history of the country!!!

Considerations to insure successful

M&AConsiderationsStrategic fit

Product portfolio fit

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Product portfolio fit

Company DNA

Case studiesConexant/Comsys

Cisco/P-cube

HP/Mercury

RedHat/Qumranet

VALUATION DEFLECTION POINTS

Technology feasibility; up to $100m (Pentacom, Qumranet)

Market traction; up to $250m (P-cube)

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Market traction; up to $250m (P-cube)

Customer base; up to billions (Mercury)

ALL THE WAY VS. M&A

THE ISRAELI PERSPECTIVE

Historically had no mgt infrastructure to go all the way; No more!!

Historically US lead innovation in all

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Historically US lead innovation in all technology segments; No more!!

Historically US market were first to adopt new technology; No more!!

Today more than ever before Israeli

Based companies can go “all the way”

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THANK YOU!