Maximize Value Creation From Technology Acquisitions

Fergal Lynch
MBA Distinction 2013
Durham University
Thesis Summary

1. Background
2. The Problem
3. Methodology
4. The Solution
5. New Model
Maximizing Value Creation from Technology
Acquisitions

The research studies the
important role technology
acquisitions play in the ICT
sector in particular, and
identifies the critical factors in
maximizing value creation.
This research report deals with
the challenges facing high-tech
corporations in how they
create value, and a sustainable
competitive advantage from
technology acquisitions.

Acquisitions are a crucial part of business
for large corporations competing in the
technology industry….

This research is focused on the phenomenon of large
multinational firms buying smaller technology firms and
integrating the acquired technology, talent and
capabilities into the larger acquiring organization.
Technology acquisitions are generally acquisitions of small
technology-based firms by large, established firms so that the larger firm
can “graft” the acquired technological capabilities onto their own resource base, which then acts as
a vital source of innovation streams 1

Acquiring new
technologies is vital to
remaining
innovative.

This provides a faster route to
market.

...means the alternative to develop
capabilities in-house is simply too
slow, resulting in a competitive
disadvantage 1
The breakneck speed
of innovation in the
technology sector…
…..coupled with short
product lifecycles…

Technology acquisitions are a distinct
subset of acquisitions, where the
technology, the people and the
capabilities they possess are a crucial
part of the acquisition1
The intangible aspect and basis on the knowledge
worker is what makes them so unique and requiring
distinction from other acquisition types.

However, all too often these
technology acquisitions fail…..

Research results consistently show that the majority
of acquisitions fail to deliver value.
Acquisition Success Rates
83% of all deals fail to
deliver shareholder
value with 53% actually
destroying value 2
58% of acquisitions are not
successful as they fail to meet
expectations and objectives 1

..... and the potential value is never realized
1 + 1 = 0
Synergies are not
achieved…..

….and conversely shed light on the root causes for the
challenges and business problems experienced.
How to maximize value creation?

1. What motivates
acquisitions?
2. How is acquisition
performance
measured and how is
value perceived?
3. What role does the
acquisition process
itself play?
4. What are the critical
factors in small
technology
acquisitions?
Thought process for
getting to the
answers....

How to view Acquisitions? The Different
Perspectives on M&A

Considerations when discussing ”value”
… acquisitions create value
when the combined
capabilities improve the
firm’s competitive position
in the market, which in
turn produces financial
operating results1
Consider both expected
value realisation and
serendipitous value
creation2
A capabilities perspective
is best applied1 … the
acquired capabilities can
create and sustain
elements of competitive
advantage for the firm.
Increased
Innovation and
patent activity
… it is not satisfactory to measure
all acquisitions on the same
performance …. the measures of
performance should be closely
related to the specific strategic
objectives associated with the
acquisition4
… the conclusion on value created
may differ depending on the
perspectives of the people involved,
such as financial experts, operational
managers and shareholders, and
suggest that using multiple
parameters gives a more enriched
view of performance 3
We need a
multi-faceted
approach5

This research examined the complete
acquisition process and offers an
original perspective on maximizing
value creation from small technology
acquisitions.

The research was conducted in a multinational
corporation operating in the ICT sector.
Semi-structured in-
depth interviews with
executives and senior
personnel involved in
each case.
Eight separate
technology
acquisition cases
were studied.

A Deductive
Approach to
the research.
Research
Conclusions
Academic
Literature
Review
Semi-
structured
interviews
Comparing
Theory and
Findings from
interviews
Interview
data analysis
Basic hypothesis
influencing
interview questions
and analysis

An acquisition is a process rather than an event1. The
outcome of an acquisition ultimately lies in
understanding and managing the process of decision-
making during the acquisition, and effective
management of this process.
Phase I
Strategy
Phase III
Post-Acquisition
Integration
Phase II
Planning
Acquisition
Day 1
• Strategy Creation
• Strategic Fit
• Grow or Buy
• Target Selection
• Cost/Benefit Analysis
• Type of Merger
• Information Gathering
• Financial Analysis
• Due Diligence
• Technical Due Dilignce
• Cultural Analysis
• Define Value Drivers
• Identify Synergies
• Plan Degree of Integration
• Autonomy
• Cultural Fit
• Speed of Integration
• Organizational Integration
• Integrating People and Teams
• Integrating & Commercializing the
Technology
• Knowledge Transfer

Findings From the Case Studies
Acq’n
Case
Critical Factors Outome / Value Created
Positive Influencers Negative Influencers
Case 1 + Physical autonomy preserved team identity.
+ Decision making autonomy for the product.
+ Onboarding support.
- Poor technical due diligence.
- Initially no control over their product.
- Losing of pre-acquisition customer base.
As Expected
Case 2 + Onboarding support.
+ Good strategic fit for product/technology.
- No support or trust shown to acquired mgmt.
- No influence on product decisions.
- Physically isolated in own satelite office
Below Expected
Case 3 + Great strategic fit for product/technology.
+ Fast integration and no ”dead-time”.
- No influence on decisions affecting the product
- No common understanding on product
strategy.
- Big company processes affecting productivity.
Below Expected
Case 4 + Strong engineering & management talent.
+ Good strategic fit for product/technology.
+ Onboarding support.
- Slow and frustrating integration. No support.
- Big company processes affecting productivity.
- Poor technical due diligence.
As Expected
Case 5 + Strong engineering & management talent.
+ Fully trusted and empowered.
+ Leadership support and commitment.
- Complex integration and company split-up.
- Integrated to a team in different time zone.
- Seemed no strategic fit for the product.
Above Expected
Case 6 + Retained decision making autonomy over
the product.
+ Retained operational autonomy.
- Slow integration and felt isolated. As Expected
Case 7 - Poor technical due diligence.
- Lacking strategic fit, reactionary purchase.
Below Expected
Case 8 + Leadership support and commitment.
+ Great strategic fit for product/technology.
+ Retained decision making autonomy over
the technology / product.
- Slow integration needed for knowledge
transfer.
- Resistance to change in acquiring organisation.
Above Expected

Analysis and
comparison of the
findings from the
individual cases
revealed......

Corporate Level
Business Unit
Team / Individual
... that different factors impact at different
levels in the organisation....

Corporate Level
Business Unit
Team / Individual
Influential
Key Critical Factors for Value Creation
Observable
Measures of Value Created
...and some factors are observable while
others are influential

Corporate Level
Business Unit
Team / Individual
Influential
Key Critical Factors for Value Creation
Observable
Measures of Value Created
• Motivated and inspired individuals.
• New capabilities, culture and working
practices learned.
• Improved productivity.
• Profits.
• Increased market share & customer retention.
• Competitive advantage.
• Shareholder wealth increased.
• Improved competences.
• Acquired technology commercialized.
• Retention of key employees.
• Knowledge transfer and scale needs met.
• New innovative products commercialized.
• Improved operational performance.
• Acquisition objectives achieved.
• Commitment.
• Leadership.
• Listening to the acquired talent.
• Sound technical due-diligence.
• Cooperative planning, setting objectives.
• Acquisition process perspective.
• Autonomy and decision making.
• Onboarding ”buddies”.
• Speed of the integration.
• Individual needs.
• Meaningful and motivating work.
• Strategic fit.
• Leadership, trust & commitment to
the acquisition.
• Plans to productise the technology.
• Decision making autonomy & relative
standing.
Critical Factor Mapping

Maximize Value Creation From Technology Acquisitions

1. Autonomy and keeping decision-making and
strategic influence over the technology.
2. Speed of Integration with a clear goal to
commercializing the technology
3. Retention of Key Employees and Knowledge
Transfer
4. Relative Standing, ability to influence and
Commitment shown to the acquisition target

1. The primary focus needs to be on commercializing the technology. The leadership, trust,
commitment, strategic fit, and autonomy of the acquired team (with the ability to influence
decisions relating to the product) are all needed to make that happen.
2. Commercializing the acquired technology positively impacts on employee retention. While
these talent acquisitions are to a large extent about people, it is a focus on the technology
itself, getting it productized, that is needed to create sustainable value.
3. This focus underpins all other aspects that can derive value from the acquisition….
Although the focus may be on commercializing the technology this is not necessarily the
ultimate goal or measure of success.
Building A Practical Model
This research extends the understanding of the relationship between the
different factors and proposes a “Virtuous Circle of Value Creation” model
linking all the critical factors that contribute to value creation from technology
acquisitions. The multi-faceted measures of value created from acquisitions
are contained within the virtuous circle model.

Virtuous Circle of Value Creation Model
+
Relative
Standing+
Codifiable+
Smart people willing
and able to absorb
+
Improved
Competences
Competitive
Advantage
Innovations
Speed of
Integration
Measures of Value
Creation
Strategic Fit
Effective Technical
Due Diligence
Cultural Fit
Profits Market
Share
Patents
Incubate, protect
and support
Customer
Retention
Increased
Share Price
Synergies
achieved
+
+
Having meaningful and
motivating work
+
Autonomy
+
+
Suportive
Leadership
Trust &
Empowerment
Co-operative
planning
Commitment to the
Acquisition
+
+
+
+
+
Employee
Retention
Knowledge
Transfer
Successful
Appropriation of
Technologies and
Capabilities
Technology
Commercialized

1. Background
2. The Problem
3. Methodology
4. The Solution
5. New Model
6. Supplementary Information
Maximizing Value Creation from Technology
Acquisitions

Contact Information
For enquiries relating to
• Complete version of the research
• Citation requests
• Trainings, lectures or consultancy
Contact the author
Fergal Lynch MBA
Global Business and Technology Management Professional

Maximize Value Creation From Technology Acquisitions

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