Want To Sell Your Company?
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Posted on: December 8th, 2009 by PeHub
Corporate development managers from three of the tech industry’s biggest acquirers – Microsoft, Cisco and Google – were at Microsoft’s Silicon Valley campus last night, along with Accel’s Rich Wong.
They talked about how they shop for companies, what they look for, and what they expect to see happen next year.
Here are some highlights. Think of this as a live blog — except posted after the event. (Sponsor was the Churchill Club).
Microsoft’s M&A strategy, from Marc Brown: We’re a technology buyer, we look for early stage companies. We’d rather buy early and feed that into products and processes – we already have sales and distribution channels. We think it’s successful because we’ve been lucky – PowerPoint, Halo and so on. Also it’s a great source of talent – people focused on a particular technology are refreshing when brought into the Microsoft fold.
Cisco’s M&A strategy, from Charles Carmel: It’s about capturing innovation. We have 20,000 plus bright engineers, but we don’t have a monopoly on good ideas. When good ideas happen outside Cisco, our job is to figure out how to tap into that. We’ve got a toolkit – early stage venture capital, later stage minority investments, strategic partnerships, M&A. M&A is just one of the tools. It’s strategy first, deal second – what should be our growth strategy and what markets do we want to lead? We’ve evolved – in earlier stages of company, more focused on product or talent; now we’re more comfortable with platform acquisitions – established businesses, best in class, so we can build around them.
Google’s M&A strategy, from David Lawee: I’m underqualified – I don’t know what I’m doing. I feel like the minnow. What’s most distinctive is how old the company is. We’re much younger and so much earlier in a lot of things in terms of how we’re evolving. Biggest focus is on caliber of leadership coming into the team and the execution capacity they’re bringing. Could be thru tech leadership or in time to market (Google Analytics) or opening markets and changing people’s perspective, like Google Earth. All of those people are leading Google Maps today, and it’s a lot more, with Street Views and wikis. Looking at local data without the context of a map seems anachronistic – we’ve changed how people expect to perceive local data. The people motivated by stock price aren’t the people we’re good at retaining – Google is like landing in China. Great entrepreneurs can figure it out and end up succeeding. Those are people who have the vision, they’re about something bigger (than money).
What Accel looks for in a buyer, from Rich Wong: What we appreciate is professionalism that different people show in the process. What is really distracting to a startup is people who don’t give a fast no and don’t drag out a process that can be really damaging to a startup. Secondly, there are certain organizations where you wonder if trying to learn about the space or genuinely pursuing an interest in the company. Over time, you get the sense of which corp dev teams treat teams with respect, and info doesn’t make its way back to the competitive BU in the space.
Moderator (Steve Smith from Arma Partners): Are buyers too nice to say no?
Accel: Yes, it does happen. Corporate head doesn’t always talk to the BU leader. Turns out people too uncomfortable to say, we’re done. If you’ve been through the process a couple of times, you know who in the organization to call and say, are we done here.
Moderator: will Microsoft do the big blockbuster deal?
Microsoft: Never say never. We think constantly about build versus buy, what markets to enter, how to enter, most of the time we default to internal process. Part of that is culture, part of that is hubris. But there is a belief that because we’re a platform company, knowledge of the platform gives you unique ability to build things. With that backdrop, no news to break. But think of us as constantly looking, with our shareholders interest in mind, to continue the growth of Microsoft.
We do look across the board, but priorities of Microsoft are M&A. Search, for example. We spend a lot of time thinking about Google and what are we going to do. Done a string of acquisitions; lot of Yahoo strategy was about that. M&A is not the lead dog, it’s the strategy that will guide us. Around the company we talk about virtualization and cloud computing; it really is across the portfolio.
Moderator: will Cisco’s strategy be different?
Cisco: No. What’s evolved is the breadth of the business we’re taking forward, and the breadth of industries and geographies we’re attempting to lead in. Look at last few months – Tandberg in Europe, Starent in US, DBN in China. Different geographies and markets, all simultaneous.
Moderator: lot of fog on Cisco mirror about smart grid. Might we expect to see M&A there?
Cisco: Smart grid is one of 30-plus markets we’ve identified. We have a list on our home page. Don’t be surprised if you see us acquire in any one of those.
Moderator: Will Google put their list on the Web site?
Google: Maybe we would, if it was a good idea. We’re less established, we’re learning from these guys. Cisco is admired within Google as one of the best tactical M&A companies. You want to test boundaries of what you’re doing to make sure you’re innovating in every function that you have—HR, real estate. HR has stock options that are tradable; real estate, a homogeneous environment across the world. M&A, we’re innovating, and the founders are a big part of that process. Landscape is changing at lightening speed. Undercurrent of the industry is large discontinuities, such as mobile and smart phone market. Cloud space, degree to which people willing to share private information. Very active environment for entrepreneurship.
Moderator: Is your view toward M&A exit going to change if we have a healthy stock market?
Accel: Environment is improving. Very diverse categories in last 120 days — totally different spaces. More activity in M&A. IPO market is hard to judge. There are more S1s and slightly more activity than 2008, which was pretty ugly. None of us here are communists. Our job for our investors is to get best price and have the right fit. Sometimes we think about where are these great companies going to go next, and we’re almost always wrong on the time with these vectors – slightly off in terms of our predictions. There’s an ethic—you still have to build your company to be a business, for the innovation you want to create. The schemers – build it to sell to Google in three years – isn’t going to work out. Ultimately you have to go back to your day job and build the company.
Moderator: Do venture backers help or hurt the process of making a deal?
Microsoft: It depends. It’s better if you know the people in advance. We have programs for that, to expose people to the Microsoft platform. True for bankers too. If I can call Rich on the phone, the process goes much smoother. Yes, they always ask for too much money, and we don’t give it to them. We have shareholders as well. As Rich said, if it’s a fast no, it’s better and let’s both move on.
Cisco: Goods and bads. We’ve bought companies that have gotten to substantial size, Linksys, with no venture backing. Husband and wife, decade of hard work, fantastic American dream kind of story. As an acquirer that’s great – we want to deal with the principals of the business. Having said that, great VCs, and Accel is one, add a tremendous amount of value in rounding out a company. A board, audited financials – all those things that VCs require in terms of discipline in their business is great value.
Google: I can only think of one transaction where VCs have been a negative. It’s the biggest transaction of your life; it’s good to have people who’ve done it before. You don’t want to share too much info early on; VCs can help you navigate that.
Accel: Sounds odd coming from me, but it depends is very true. Nothing worse than an out-of-context VC who doesn’t know what he’s doing in a particular industry. Even worse is when there’s no one on the playing field, when somebody thinks they’re the next YouTube. We’re not selling for X! Diligence your VCs – you’re going to be working with them for awhile. We do as well when we think about syndicate partners – we want to be with people who are pulling the wagon in the same way.
Microsoft: There was a fear of dealing with Microsoft. We’ve worked hard to overcome that.
Moderator: I know at Microsoft and Cisco, cash is sitting offshore. To what extent will global get bigger share of deal value.
Cisco: We’re doing it – first acquisitions in Europe and China. Active minority investments, half outside the U.S. We’re a global business. We very much believe if you look forward, percentage of M&A outside the U.S. will be higher.
Microsoft: Yes, although not because it’s captive cash. It’s the strategy that drives M&A. China, we spend a lot of time trying to understand the landscape and trying to determine whether that tech compatible with the rest of the world.
Google: We’re not making decisions as a result of where our cash is. Inevitably, we’ll do more globally. Nothing to prevent us from being as aggressive internationally. That’s been our strategy putting engineering centers into 60 offices globally. Our strategy is 1,000 points of light. Hard to work across time zones. We have capacity to add to those centers by acquisition in seamless way.
QUESTIONS FROM THE AUDIENCE:
Q: On Larry Ellison – what’s your reaction to acquisition of Sun Micro? Should the Europeans approve it and what’s the impact?
Cisco: Ask Oracle is the right answer to that question.
Microsoft: No comment.
Q: From Woodside Capital Partners: When you look around at the top 30-50 tech companies, who do you admire?
Microsoft: It’s Cisco—it’s true. The pace.
Cisco: Lots of things to admire about all these companies – who wouldn’t have wanted to have been a Google the last few years — on the M&A front I admire Oracle. It’s been very active and very different from Cisco and all the companies on stage. M&A can achieve a lot of things; Oracle done a good job of using it as consolidation tool. It’s not part of our historical mandate.
Accel: Somebody to watch is Adobe. Process nowhere close to as disciplined as these guys, but Shantanu has set a course, very successful income performance. Often gets missed among the big boys.
Q: What do you think about HP?
Google: Very few companies treated me respectfully in the 1990s; I felt bloodied by the process. When I think about characteristics of what we’re trying to do, it’s being cohesive and consistent and responsive and saying no and answering your e-mails. We try to do the best we can. It’s hard to manage your inbox when you say that 700 to 800 e-mails a day — but you try.
Microsoft: Our approach is over a decade or longer. We don’t know if things we buy today will really pan out. I’d assume HP is the same.
Accel: HP is very business unit centric historically; you have to talk to a lot of people. It’s hard sometimes. With these three gentlemen there’s a public face you can reach out to; HP is more amorphous. HP not doing the sexiest things in the world, but income stage, cash flow, cost management.
Q: Economist says culture is the critical sauce. How do you have time to understand what you’re buying?
Google: Hardest part of the job. When a set of execs meets with a large number of people inside the company, you get a pretty good feel. It’s like the interview process. People feel great about Omar (AdMob). All the leaders of the business loved him. I’d been keeping up a relationship with Omar for almost two years, just because I thought he was a phenomenal entrepreneur.
Q: To Cisco, you’ve done old-line companies.
Cisco: Yes, integration is the hardest part, but it doesn’t fix the problem of buying the wrong company. CEO is one individual; you’ve got to make sure rest of culture of company will play well inside of Cisco. Our process, you meet people…get a feeling all the way down to low levels of the company, it will work.
Accel: If you read Blink, the book, VCs see lots of companies, sometimes people are schemers, sometimes great technology but can’t articulate. You can figure out very quickly, within 60 minutes, whether to take a second meeting. You can generally tell whether someone’s an authentic person relatively quickly. You can figure out if you trust. I try to do a better job of that in my profession – it’s important.
Q: (Too long)
Microsoft: Services component is about partners. We’ll continue in other areas to buy companies, in tech broadly. Cloud – Azure live in February. We know others want to play in that space, will be an interesting five or 10 or 15 years.
Moderator: Dell and Oracle are very mature businesses; doing different things than buying tech to fill out the platforms. Probably more financially driven deals.
Q: All of your companies have grown thru acquisitions. What’s your outlook for 2010?
Cisco: You acquire small to medium companies, and look to partnerships with companies of similar size. During nuclear winter of first half of 09, people were still going to work every day and thinking about what they should do. We’ve been thinking about our ideas for awhile; when felt had stable footing, went into execution mode. In 2010, now that initial pipeline has cleared, will be interesting to see if IPO and M&A activity continues. We plan to stay aggressive.
Google: Easy to gravitate to big-dollar deals. But Android, Keyhole, Urchin were seminal deals for Google. Android a huge impact in terms of our tactics in mobile space. Talked about Keyhole, our first step out from pure search. Impact of Urchin and Google Analytics really facilitated our advertisers. I’d suspect we’d continue to be just as aggressive in terms of number of those things we do.
Q: From Wells Fargo; do you find yourself in competitive situations?
Microsoft: Yes, but we don’t like them. It’s why we try to meet people ahead of time, so company can make decision ahead of time. They happen and we try to compete to a point, but after that, we’re willing to walk away. Part of my job is to not get deal fever.
Cisco: There’s best case and reality. Best case, you get to know a company and take your time, naturally develops, you buy the company. That definitely occurs, when we’re doing our job the right way. But sometimes we get a call later than we would like; we prepare ourselves for all the outcomes. We execute extremely fast when necessary – we feel that’s a competitive advantage, but never our preferred path.
Google: As entrepreneur it behooves you to get more than one person to the table. My expectation is entrepreneurs will do that; I don’t begrudge anybody to optimize value for shareholders. We do have walkaway prices; you don’t want to blow your hand. That’s why experience in VCs so important. Finessing that very important time; might be a few days or a week to end up at a place happy to work with for the rest of your life, that’s a tough job as a CEO.
Moderator: Interesting to observe number of public companies in tech space has declined by 50%. Rich getting richer, and not a second tier of aggressive potential acquirers. I think fewer highly competitive deals than used to be.
Google: I wish that was our experience. I feel like every deal is competitive.
Moderator: That’s because we want you to think that.
Cisco: Most important thing you have as repeat acquirer is reputation; not being known as someone who’s cheap. We don’t mind paying a few extra dollars to get right deal done. Of course the company will do their market checks, but what you want board to know is, you’ll treat them fairly.
Q: If a competing corporation makes a venture investment, is it more interesting to you?
Microsoft: Depends on the rights they’re granted and a bunch of factors. Think about signaling if Cisco has put money in, where in process are they going to find out about it. Depends on what the strings are.
Cisco: We have a very active venture practice ourselves. We tell companies, like everything, there are tradeoffs. Other side, someone who views Cisco as direct competitor will have trepidation about approaching you. We need to be open minded about full cycle.
Q: From Galaxy Ventures – can you describe friendly internal competition and what sort of evaluation process you may go through.
Google: Every approval process for a deal, every meeting, has a buy-build-partner slide. It’s how you have to think about it. Sometimes you can’t get to market fast enough by building, that’s why you’re in the room. So buy versus partner, need to understand the objectives of business as standalone versus our own objectives at Google. So Maps-Keyhole, they were selling an enterprise product. That’s not where we wanted them to spend development resources. Better for us to acquire the company, for common goal they wanted to pursue. If you can achieve things through partnership, great.
Cisco: We try very hard to structure our organization so it’s a seamless discussion with the external company. We have one organization that does the full gamut of relationships to external companies. If you’re thinking Cisco could be an investor or acquirer, you’re talking to the same person.
Q: What about use of investment banks?
Microsoft: It depends. Flavor tends to be negative. What usually happens is competitive situation, that’s what a banker does, makes sure company gets highest price. Puts more pressure on price I need to pay. I also find the ones who are good know how to run a process to make it fair for everyone; also done it many times and can help unseasoned entrepreneur make decisions quickly and efficiently.
Google: Anything that prevents the natural dialog between company and entrepreneur impacts our conviction, which impacts price. In almost every circumstance where there’s been a banker, we bid less. We don’t know, not talking to the principals.
Accel: It depends. If VCs themselves know the likely acquirers fine, but sometimes you don’t know everybody you need to know, helpful to get introductions. Certain bankers have professional, disciplined, fair process, gets known over time. Sometimes VCs don’t have experience to judge receptiveness of public markets versus private offers; lot of scenarios where banker could make sense. |
