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Slide 1
Tom KosnikFenwick and West Consulting ProfessorStanford Technology Ventures Program
Copyright © 2008 by the Board of Trustees of the Leland Stanford Junior University and Stanford Technology Ventures Program (STVP). This document may be reproduced for educational purposes only.
“Most Mergers and Acquisitions Fail.” ~ Conventional Wisdom and multiple empirical studies.
Mergers and AcquisitionsMergers and AcquisitionsSession 15Session 15
Slide 2
AgendaAgendaA. Announcements
B. Palm 1995 - Openings
C. Palm 1995 Discussion
D. Epilogue
E. Takeaways
Slide 3
How to assess a market opportunity - How to assess a market opportunity - before a market existsbefore a market exists
Sources: Moore (2002), Crossing the Chasm, Moore (2002), Inside the Tornado.
How big is the
market?
Chasm
Early Market
Bowling Alley
Tornado
Total Assimilation
Innovators EarlyAdopters
Early Majority
LateMajority
Laggards
Slide 4
Whole Product: The 100% Solution Whole Product: The 100% Solution (“Ecosystem” of Partners)(“Ecosystem” of Partners)
Software
Program
Platforms
Support
Consulting
Installation& Training
Connectivity
Etc.
Reference: Ted Levitt, Bill Davidow
Key Decisions: Which Pieces Do We Do and Which Do Our Partners Do?
Slide 5
How to evaluate your sources of fundingHow to evaluate your sources of funding
1. Legally Qualified: They satisfy any legal requirements. 2. Fit: Their selection criteria fit our investment opportunity.3. No conflicts: Their other investments do not compete with us. 4. Aligned: Their objectives are aligned with our objectives.5. Connected: They can give us access to customers, other
investors, government officials, etc.6. Well funded: They have the capacity to invest now, and in the
future if needed.7. Smart: They have expertise and experience that will help us to
succeed. 8. Trustworthy: They are honest. We trust them & vice versa.9. Autonomy/Control: They will allow us to control our business10.Good value: Their valuation, terms & conditions are fair.
Adapted from Kosnik (2000) guidelines on selecting investors for AVAcore Technologies.
Slide 6
How to evaluate your sources of fundingHow to evaluate your sources of fundingCriteria ABC VC Alpha CPU USR Other
Qualified
Fit
No Conflicts
Aligned
Connected
Well Funded
Smart
Trustworthy
Autonomy/ control
Good Value
Total score
Slide 7
What partners can give and get in a partnershipWhat partners can give and get in a partnershipPotential Stakes to bet on the Partnership
Partner can give: Partner can get:
Technology (product, platform, and process technologies)
Resources (money, time, talent, and knowledge )
Relationships (with customers, channels, investors, government)
Reputation (visibility, credibility, brand equity)
Core Competencies (critical capabilities for execution)
Chemistry of Key People (culture, character, personalities, values)
Company Vision (purpose, mission, values) and strategy
Adapted from: Kosnik (2000), “Managing a Portfolio of Polygamous Partnerships?” Talk for Stanford Center for Professional Education, January 26, 2000
Slide 8
Just as “dating” is used across Just as “dating” is used across a broad range of a broad range of personal personal relationships…relationships…
Depth of Commitment &
ExclusivityShort Unknown Long
Shallow/ Usually Polygamous
Blind
Date
Playing
the field
Platonic
Friendship
Deeper/Often Polygamous
Puppy
Love
Going
Steady
Living
Together
Deepest/Usually Monogamous
Romeo &
Juliet Engagement Marriage
Expected Length of the Relationship
Slide 9
““Partnership” is used across Partnership” is used across a broad range of institutional relationshipsa broad range of institutional relationships
Depth of Commitment &
ExclusivityShort Unknown Long
Shallow/ Usually Polygamous
Single Transaction (not a partnership)
Renewable VAR Agreement
5-Year Sourcing Contract
Deeper/Often Polygamous
Cooperative Advertising
R&D Partnership
Joint Venture
Deepest/Usually Monogamous
1 year exclusive license
Renewable Exclusive Terms
Merger/ Acquisition (not a partnership)
Expected Length of the Relationship
Slide 10
The Earning-Learning Matrix is a Tool to Evaluate The Earning-Learning Matrix is a Tool to Evaluate your Portfolio of Partnershipsyour Portfolio of Partnerships
Revenue &Profit Potential
from the Partner
High
Low
Partner’s Potential to Help YouDevelop Your Core Competencies
Low High
EarningPartner
LimitedPartner
StrategicPartner
LearningPartner
Source: Kosnik and Montgomery (1994), “Managing Cross Cultural Alliances: Can Trust be Achieved in a Polygamous World?”
Slide 11
How to Assess the Difference Between How to Assess the Difference Between Ownership and ControlOwnership and Control
None All
1%
100%
Ownershipgiven up byentrepreneur
Control given upby entrepreneur
USR buys the companyand gives the founderscomplete autonomy
Band of Dentists
Passive Investors
Company is bought by USR, CEO is replaced
A new CEO “buys”10% of companyand takes over
Angel Investor
Venture Capitalist
Slide 12
Epilogue: Key events in life of PalmEpilogue: Key events in life of Palm
1995 1996 1997 1999 2000 2001
USR buys Palm
Palm Pilot Ships
Palm Pilot leads PDA Mkt.
3Com buys USR
Donna, Jeff and Ed Leave 3COm to found Handspring
3com spins off Palm Inc.
2002 2003 2004 2005 2006 2007
Palm Inc. sets up Palmsource as indep. Subsidiary
Palm Inc.Acquires Handspring
Palm Inc. Becomes PalmOne (HW) and Palmsource (SW)
Access Acquires Palmsource
PalmOne buys back Palm name to become Palm Inc. Again.
Elevation Partners Acquires 25% stake in Palm Inc.
Both Product families must deliver:Delightful User Experience
High ValueTop of Mind Awareness
To very different segments
Epilogue: PalmOne in 2007 had two Business Units – Each with a Portfolio of Products
PDASmartphone
= Treo
Time
Rev
enu
e gr
owth
Technology adoptionlife cycle
Early Main Street
Mature Main Street
Declining Main Street
End of life
A
Faultline!
E
DC
B
Dealing With Darwin © 2005, TCG Advisors LLC
Epilogue: What happened to Palm’ PDA and Smartphone Categories: The Situation in 1995
The Category Maturity Life Cycle
PDA
Smartphone
Time
Rev
enu
e gr
owth
Technology adoptionlife cycle
Early Main Street
Mature Main Street
Declining Main Street
End of life
A
Faultline!
E
DC
B
Dealing With Darwin © 2005, TCG Advisors LLC
Epilogue: What happened to Palm’ PDA and Smartphone Categories: The Situation in 2000
The Category Maturity Life Cycle
PDA
Smartphone
Time
Rev
enu
e gr
owth
Technology adoptionlife cycle
Early Main Street
Mature Main Street
Declining Main Street
End of life
A
Faultline!
E
DC
B
Dealing With Darwin © 2005, TCG Advisors LLC
Epilogue: What happened to Palm’ PDA and Smartphone Categories: The situation in 2008
The Category Maturity Life Cycle
PDASmartphone
How should you pick your team mates
for an entrepreneurial venture?
Do I enjoythem?
Do I trust them?
YES!
YES!
NO!
NO!
Soul mates
Dream team mates
Team mates
Play mates
Devils’Advocates
Bozos
Class mates
Lessons were drawn from 50+ companies
AccentureAMS
Ernst & YoungFarm Credit System
Harris TrustInformation Week
KTHNUS Enterprise
SCPDStanford OTL
STVPYahoo!
Apple ComputerApplied MaterialsApplied Komatsu
TechnologiesCummins EngineHewlett Packard
NikeReebokYamaha
AI Associates AmiKai
Chasm GroupChemdex/Ventro
EpitropeEuphorion Gigabeat
IPS Mobile Insights
Transcape Reactivity
RTG
AirifyAVAcore
EroxHandspring
Palm ComputingPalmOnePalm Inc.
Size and Age of Company
Older, Larger
Companies
Younger,Smaller
“Startup”Companies
Primary Line of Business
HardwareServices
Electronic ArtsLotus
MicrosoftOracleSiebel
Access Danger Manac Nuance
Orange Gum pcOrder Rapt Saba
Trilogy SoftwareWillow Road
Software
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