Karl Michael Popp. Mergers and Acquisitions. in the. Software Industry. Foundations of due diligence

Transcription

1 Karl Michael Popp Mergers and Acquisitions in the Software Industry Foundations of due diligence

2 1. INTRODUCTION ECONOMIC FOUNDATIONS: BUSINESS MODELS FOUNDATIONS OF MERGERS AND ACQUISITIONS FOUNDATIONS OF DUE DILIGENCE HANDLING RISKS IN MERGER DUE DILIGENCE FOUNDATIONS OF THE SOFTWARE BUSINESS AND THEIR RELEVANCE FOR DUE DILIGENCE FOUNDATIONS OF SOFTWARE ECOSYSTEMS AND THEIR RELEVANCE FOR DUE DILIGENCE PARTNERSHIP MODELS IN THE SOFTWARE INDUSTRY SUMMARY AND CONCLUSION BIBLIOGRAPHY ADVERTISING INDEX 258

3 Table of Contents 1. INTRODUCTION WHYTHISBOOK GOALS OF THIS BOOK ABIGTHANKYOU CHAPTERS OF THIS BOOK HACKING DUE DILIGENCE: A FUN INTRODUCTION ECONOMIC FOUNDATIONS: BUSINESS MODELS ÄNALYZING COMPANIES AS A MODEL BUILDING PROCESS MODELING COMPANIES AS BUSINESS SYSTEMS 24 COMPANIES AS BUSINESS SYSTEMS 24 DYNAMICS OF BUSINESS SYSTEMS 28 COMPLEXITY OF BUSINESS SYSTEMS 30 CRITICAL VIEW AT THE COMPLEXITY MODEL ENTERPRISE ARCHITECTURE AND MODELS OF BUSINESS SYSTEMS 33 BUSINESS STRATEGY AND BUSINESS PLAN LAYER 35 BUSINESS PROCESS MODEL LAYER 39 BUSINESS RESOURCES LAYER 43 A COMPLEXITY MODEL FOR BUSINESS SYSTEMS BASED 0N THE ENTERPRISE ARCHITECTURE 44

4 2.4 TAKEAWAYS FROM CHAPTER FOUNDATIONS OF MERGERS AND ACQUISITIONS DEFINITION OF MERGERS AND ACQUISITIONS BASED ON THE ENTERPRISE ARCHITECTURE 48 DESIGN OF THE NEW ENTITY AS A MODELING ACTIVITY 48 DEFINITION OF ACQUISITION 48 DEFINITION OF MERGER AND MERGER INTEGRATION TRANSACTION DETAILS AND DEAL TYPES 52 TRANSACTION DETAILS 52 PROS AND CONS OF ASSET AND SHARE DEALS 54 CARVE OUT 55 REVERSE MERGER 55 MERGER INTEGRATION MERGER INTEGRATION 56 MERGER INTEGRATION TASK 56 DECOMPOSITION OF THE TASK 57 DESIGN OF THE NEW ENTITY CHARACTERISTICS OF M&A TRANSACTIONS 60 BUSINESS DYNAMICS OFTARGET AND ACQUIRER 60 DEAL DYNAMICS 63 EXTERNAL FACTORS AND OBSTACLES 63 COMPLEXITY OF THE TARGET AND OF MERGER INTEGRATION M&A PROCESSES 65 M&A PROCESS MATURITY MODEL 66 ASIMPLIFIED M&APROCESS 67 BUILD M&A STRATEGY AND DECISION PROPOSAL 69 DECISION POINT 1 69 BUILD THE BUSINESS CASE 69 DECISION POINT 2 69 DECISION POINT 2: DECISION TO ACQUIRE AND SIGNING 70 CLOSING ACTIVITIES 70

5 MERGER INTEGRATION 71 PROCESS IMPACT OF GIVING UP ASSUMPTIONS M&A ORGANIZATION 74 TYPICAL ROLES AND TEAMS WORKING ON M&A 74 M&A ORGANIZATIONAL MATURITY MODEL 75 M&A ORGANIZATION IN SMALL COMPANIES 76 M&A ORGANIZATION IN MEDIUM SIZED COMPANIES 78 M&A ORGANIZATION IN LARGE COMPANIES PATTERNS IN DEVELOPING M&A ORGANIZATION IN FREQUENT ACQUIRERS 81 STEP 1: GET AND CENTRALIZE M&A KNOWLEDGE AND EXPERIENCE 81 STEP 2: GETTHE PROCESS RIGHT 81 STEP 3: GET BUFFER RESOURCES IN PLACE FOR CENTRAL FUNCTIONS 82 STEP 4: DECI DE IF CENTRAL OR DECENTRAL OR HYBRID APPROACH 82 HYBRID APPROACH TAKEAWAYS FROM CHAPTER FOUNDATIONS OF DUE DIUGENCE THE GOALS AND OBJECTIVES OF DUE DILIGENCE THE DECISION TO ACQUIRE DECOMPOSING THE OUE DIUGENCE TASKS CLASSIC TYPES OF DUE DILIGENCE ACTIVITIES 91 STRATEGIC DUE DILIGENCE 91 MARKET DUE DILIGENCE 92 COMMERCIAL DUE DILIGENCE 92 TECHNICAL DUE DILIGENCE 92 HUMAN RESOURCES DUE DILIGENCE 92 CULTURAL DUE DILIGENCE 93 INTELLECTUAL PROPERTY DUE DILIGENCE 93 FINANCIAL DUE DILIGENCE 93 TAX DUE DILIGENCE 93

6 4.5 CRITICALEXAMINATIONOF DUE DILIGENCE TYPESANDTHEIRFREQUENCY DUE DILIGENCE AS A MODELING ACTIVITY 96 INHERENT CHALLENGES OF DUE DILIGENCE ACTIVITIES MERGER INTEGRATION DUE DILIGENCE 102 DEFINITION OF MERGER INTEGRATION DUE DILIGENCE 102 REVIEW OF THE DESIGN OF THE NEW ENTITY 103 REVIEW MERGER INTEGRATION PLANS 104 REVIEW MERGER INTEGRATION PROJECT TAKEAWAYS FROM CHAPTER HANDLING RISKS IN MERGER DUE DILIGENCE PROBABILITY, LIKELIHOOD AND THE BLACK SWAN 106 PROBABILITY AND LIKELIHOOD 106 THE BLACK SWAN FOUNDATIONS OF RISKS AND RISK MANAGEMENT 108 DEFINITION OF RISK 108 DEFINITION OF ISSUE 108 DEFINITION OF DEAL BREAKER 109 DEFINITION OF RISK MANAGEMENT DETECTION OF RISKS IN GENERAL 110 How CAN YOU DETECT RISKS? 110 COMMON APPROACHES OF DETECTING RISKS DETECTION OF RISKS IN MERGER DUE DILIGENCE 111 DETECTING RISKS FOR THE TRANSACTION 111 DEFINING RISKS FOR THE TARGET COMPANY 113 RISKS OF THE MERGER INTEGRATION EVALUATION OF RISKS 120 STEPS IN EVALUATING RISKS 120

7 TREATMENT OF RISKS EXPERIENCE MANAGEMENT FOR RISK MANAGEMENT TAKEAWAYS FROM CHAPTER FOUNDATIONS OF THE SOFTWARE BUSINESS AND THEIR RELEVANCE FOR DUE DILIGENCE A GENERAL CLASSIFICATION OF BUSINESS MOOELS 125 BUSINESS MODEL ARCHETYPES 129 DlSRUPTIVE BUSINESS MODELS SPECIFICS OF INVENTORS 131 COST SPECIFICS OFIPLESSORS 132 DELIVERY MODELS AND COST REVENUE MODELS 134 COMPENSATOR, EFFECT AND CAUSALITY 136 RATING AND CHARGING 138 PRICING 141 TIMING OFCOMPENSATION INTELLECTUAL PROPERTY DUE DILIGENCE 147 USAGE OF INTELLECTUAL PROPERTY RIGHTS IN THE SOFTWARE INDUSTRY 148 DEFINITION OF IP DUE DILIGENCE 151 REVIEW OF THE UTILIZATION OF INTELLECTUAL PROPERTY 153 REVIEW OF OWN INTELLECTUAL PROPERTY AND INTELLECTUAL PROPERTY USED 155 DEAL BREAKERS REGARDING IP BUSINESS MODEL RISKS IN THE SOFTWARE INDUSTRY 160 RISKS IN THREE BUSINESS MODEL ARCHETYPES 160 MlTIGATIONOF THESE RISKS 161

8 6.7 TAKEAWAYS FROM CHAPTER FOUNDATIONS OF SOFTWARE ECOSYSTEMS AND THEIR RELEVANCE FOR DUE DILIGENCE NATURAL ECOSYSTEMS 166 DEFINITION OF NATURAL ECOSYSTEMS 166 STRUCTURAL PROPERTIES OF ECOSYSTEMS 167 BEHAVIOR PROPERTIES OF AN ECOSYSTEM 168 BEHAVIOR OF SINGLE ELEMENTS OF THE ECOSYSTEM ECONOMIC ECOSYSTEMS 172 DEFINITION OF ECONOMIC ECOSYSTEMS 172 STRUCTURE OF ECONOMIC ECOSYSTEMS 172 BEHAVIOR OF ECONOMIC ECOSYSTEMS 173 STRATEGIES IN ECONOMIC ECOSYSTEMS SOFTWARE ECOSYSTEM OVERVIEW TYPES OF SOFTWARE ECOSYSTEMS SOFTWARE ECOSYSTEM GOALS 180 FINANCIAL GOALS 181 CUSTOMER RELATED GOALS 184 PRODUCT RELATED GOALS 185 NETWORK EFFECT RELATED GOALS 187 MARKET RELATED GOALS EXCHANGE OF GOODS AND SERVICES IN AN ECOSYSTEM ROLES OF SOFTWARE COMPANIES IN AN ECOSYSTEM 195 SUPPLIERS 196 SOFTWARE PARTNER 199 COMPETITOR 201 SYSTEM INTEGRATOR 202 ACQUISITION TARGET 202

9 7.8 ONLINE COMMUNITIES OF USERS, CUSTOMERS AND PARTNERS STANDARDS AND ECOSYSTEMS 204 EXAMPLE: OPEN DESIGN ALLIANCE 205 EXAMPLE: ECLIPSE TAKEAWAYS FROM CHAPTER PARTNERSHIP MODELS IN THE SOFTWARE INDUSTRY PARTNER CATEGORIES OVERVIEW OF PARTNERSHIP MODELS SOFTWARE VENDOR RESELLS YOUR SOFTWARE 214 DEFINITION OFRESELL 214 REQUIREMENTS FOR RESELL 216 VARIATIONS OF RESELLER RELATIONSHIPS SYSTEM INTEGRATOR RESELLS YOUR SOFTWARE 221 DEFINITION OF RESELL BY SYSTEM INTEGRATOR 222 REQUIREMENTS FOR RESELL BY SYSTEM INTEGRATOR REVENUE SHARE FROM A SOFTWARE VENDOR TO THE PARTNER 225 DEFINITION OF REVENUE SHARE 225 REQUIREMENTS FOR REVENUE SHARE REFERRAL PROGRAMS 229 DEFINITION OFAREFERRAL PROGRAM 229 REQUIREMENTS FOR A REFERRAL PROGRAM ONLINE PARTNER SOLUTION MARKETPLACE 231 DEFINITION OF ONLINE PARTNER SOLUTION MARKETPLACE 232 REQUIREMENTS FOR ONLINE PARTNER SOLUTION MARKETPLACE OUTBOUNDOEM 236 DEFINITION OFOUTBOUND OEM 236 REQUIREMENTS FOR OUTBOUND OEM 238 PROCESS TO GETAN OUTBOUNDOEM 238

10 8.9 CERTIFIED INTERFACE PARTNERSHIPS 238 DEFINITION OF CERTIFIED SOLUTIONS 239 REQUIREMENTS FOR CERTIFICATION SOFTWARE DEVELOPMENT COOPERATIONS 241 DEFINITION OF SOFTWARE DEVELOPMENT COOPERATIONS 242 REQUIREMENTS TAKEAWAYS FROM CHAPTER SUMMARY AND CONCLUSION BIBLIOGRAPHY ADVERTISING INDEX 258