Slide 1 Tom Kosnik Fenwick and West Consulting Professor Stanford Technology Ventures Program...

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

AgendaAgendaA. Announcements

B. Palm 1995 - Openings

C. Palm 1995 Discussion

D. Epilogue

E. Takeaways

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

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?

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.

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

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

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

““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

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?”

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

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


Early Main Street

Mature Main Street


End of life

A

Faultline!

E

DC

B


Epilogue: What happened to Palm’ PDA and Smartphone Categories: The Situation in 2000


PDA

Smartphone

Time

Rev

enu

e gr

owth


Early Main Street

Mature Main Street


End of life

A

Faultline!

E

DC

B


Epilogue: What happened to Palm’ PDA and Smartphone Categories: The situation in 2008


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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