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Marketing for M&A

January 18, 2010

The conventional wisdom in M&A is that ‘companies are bought not sold’.  But companies that market themselves to strategic buyers — in a subtle way — can attract the right buyers at better valuations.  How can executives and their boards engage in Marketing for M&A without appearing to hang a ‘For Sale’ sign on the company?

Some boards are reticent to even tee up the topic of exit strategy until an exit is imminent.  Perhaps it’s the remnant notion that real CEOs focus on IPOs – even though less than 1 percent of private companies go public.  This sentiment can make it difficult for a CEO to introduce the topic of exit strategy for fear of looking too anxious to sell.  But just because a potential acquirer shows interest doesn’t mean you have to sell.

In fact, Marketing for M&A well in advance of an exit makes good business sense because it can:

  • Identify a broader range of potential acquirers from different sectors.
  • Ensure that high potential acquirers are aware of the company and its solutions.
  • Help management understand why different acquirers might be interested, and how they would value of the business (e.g., revenue growth and profit potential, customer base, technology, people, partnerships).
  • Define new business development priorities; that is, find a reason to do business with strategic partners who are high potential acquirers.
  • Shape product development priorities by giving higher priority to features that strategic buyers would value.

The Novera Experience

When I joined Novera Software most experts agreed that the application server would not be a standalone category; startups would be bought by systems vendors.  Unfortunately, Novera had already missed the first wave of consolidation.  BEA bought our direct competitor, Weblogic, without considering Novera; our engineering-centric, Boston-based team had not met with BEA management.  Weblogic, on the other hand, had as an angel investor and board member Regis McKenna, the well-connected West Coast PR expert.  Sun Microsystems bought two applications server companies – Kiva and NetDynamics – passing over Novera even though it was the only one of the three companies that had build a Java application server to Sun’s J2EE standard.  HP bought Bluestone.

With only IBM, Oracle and Novell uncommitted to an application server platform the prospects for an exit via the systems vendors was bleak.  The Novera team created a Marketing for M&A plan and discovered an entire sector we had overlooked – the enterprise application integration or EAI vendors.

EAI vendors such as Tibco, Active Software, and TSI International were in the business of integrating back office applications such as Oracle and SAP.  However, because their technology for exchanging data between applications was asynchronous (that is, a publish-and-subscribe model) they were about to be shut out of the market for integrating with web applications built for the synchronous world of the internet.  The solution was to use a Java application server.  WebMethods, the XML pioneer, understood this when they bought Active Software en route to a spectacular IPO.  Through our Marketing for M&A campaign we made the case to TSI that Novera’s Java application server was the perfect complement to their Mercator data transformation engine.  TSI International acquired Novera and repositioned itself as Mercator Software.

Best Practices In Marketing for M&A

Having seen many excellent Marketing for M&A campaigns, here are some best practices:

  • Start with the big picture view of the major players in your industry.  It’s helpful to create a visual map of your market sector and adjacent sectors – the ecosystem of your industry.  A good business development executive can easily construct this.
  • Brainstorm the possible consolidation scenarios.  It’s apparent, for example, that Google and Apple are going head-to-head to create one-stop-shopping platforms for marketing on mobile devices.  Microsoft and Yahoo will not be far behind given their investments in internet marketing solutions.  What else will these companies need to acquire?

Jumping to another sector, will wind energy be a standalone industry, or will the  many wind information solutions and wind energy production companies end up in the hands of electric utilities or energy systems providers such as GE.

  • Boil this work down to the list of 5 or 10 most attractive and high potential acquirers of your business.
  • Here’s the critical step:  For each of the 5 or 10 high potential acquirers, define exactly what they would value about your company.  Stand in the shoes of each potential acquirer, with an appreciation for their market opportunity, competitive challenges and product gaps.  How would your company’s assets accelerate their strategic agenda?
  • A creative approach:  Imagine that you are a stock or industry analyst writing about the acquisition of your company after the fact. How might you make the case that this was a brilliant move on the part of the acquirer?  (I didn’t really understand the EMC/VMWare acquisition of SpringSource until I read an  analysis by the research firm 451).
  • Finally, look for opportunities to tell your story to these strategic partners.  Don’t assume they understand the strategic fit.  You need to connect the dots … in a subtle way!

Follow Dave on Twitter: @WDavidPower

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