Here is a guest post by Chris Sheehan. Chris is the COO of TrueLens, an early stage startup in the social marketing space. He is also a member of the Board of Directors, advisors, and investors in Boston and New York. You can follow him on Twitter at @c_sheehan and his blog early stage adventures.
What is the corporate development and why should I care?
In the first wave on the Internet I was part of the team at BEA Systems, which built the company's own development. Our Charter was simple: add significant market cap value through the acquisition, investment and partnership. Specifically, our stated mission: "to support the BEA becomes the industry standard ebusiness application platform by leading the process of with the main leadership in the development and management of business strategy, acquisitions, investments in shares and selected strategic relationships"
For entrepreneurs, I think its useful to understand the role of corporate development plays in the larger software companies. Could be for potential partnerships--perhaps the acquisition. Or maybe you're growing fast enough themselves to obtain another company. Regardless, it is useful to have a basic knowledge of the team, what he's doing.
What is the corporate development?
-Most public business and consumer software companies (and still many high growth private companies) have the person or sometimes a team responsible for the development of enterprise
-mandate differs from the pure implementation of the role that combines strategy, implementation, and integration. Sometimes Charter includes strategic partnerships and minority investments
-for example, BEA Systems, we have adopted the former model. Each of us has been embedded deep in the organizational unit, closely with product, engineering, sales, finance and marketing teams on overall strategy and the strategic alliance, an investment or acquisition could add significant value. Our team had a solid mix of backgrounds including investment banking, VC, engineering and operations. So we covered strategy, acquisition/implementation (partnership, investment or M &), integration and post measurement solutions
Is there any point in an interview with corporate development, if I think about investments or acquisitions?
-I tend to think that it can be very useful. It is often difficult to navigate the Byzantium of the organizational structure from the outside and powerful corporate development assistance to facilitate who had to talk to the partnerships and relationships. They can also be extremely useful, simply understanding the product and business priorities of the divisions
-And most M & and deals with the usual don't happen just miraculously. Rather, they are often the culmination of bus development of partnerships/supplier-satisfaction where fit tested for the first time, a product of playing and the shops are somewhat smaller share of risks. The development of relations with corporate development early can prove very useful, later down the track, if you are considering an investment or acquisition
How would my company perceived from the perspective of the acquisition?
-the reason for the acquisition is different and it is important to understand where it fits in the boot. Some of the reasons that the shops are carried out in the area of software include:
-getting talent (see what Yahoo! has taken in the mobile space)
-to obtain the important components of the technology (vs the Assembly or partner. Quite often the time pressure on the market, pushing the company to buy rather than build)
-to extend the set of products (e.g. Oracle's recent acquisition of BlueKai full of a significant gap in their Cloud suite)
-acquire new skills (e.g. acquisition of many cloud/SaaS/mobile companies larger software companies as they move from on premise/perpetual license business models)
-extend the platform/software portfolio related to new markets (eg. VMWare's $ 1 billion acquisition of AirWatch is a big bet on the enterprise mobility space)
-I've also seen offers that are "change agent" shops, will help to change the nature and culture of the organization by the new leaders to be catalyst for change leaders
-Understanding the "why" from the perspective of potential buyers is the key
Types of acquisition
-very simply, the acquisition of software tend to fall into two broad categories – smaller, tuck-in acquisition or larger more strategic deals. Some of the common characteristics of the tuck-in acquisition:
-small value relative to the market value of the transferee
-analysis is often build/partner/or buy
-cash or shares & deals with 1 to 4 year retention packages
-often done in-house (no investment bankers, but sometimes an external consultant and financial diligence)
-easier integration (but this does not mean that it cannot be messed up)
-in the other of the spectrum are more strategic acquisitions, which will have a significant impact on the licensee. Significant could be measured as a% of market cap, which applies to the licensee, the impact on operating margins, earnings per share, etc.
-so much to the Facebook acquisition WhatsApp is an example of a significant strategic acquisition, Facebook, spending 10% of its market cap. These stores often include investment bankers (Allen & What Facebook while Morgan Stanley advised, one FB underwriters, we recommend WhatsApp) and investor calls to explain the strategic justification for the solution (Facebook is here)
-the prices paid in these stores often reflects the total addressable market opportunity
What is the typical investment/M & and process?
-at any time, corporate development pipeline has opportunities that are tracking. Some of it's input, some output (when I wrote it, I looked at one of my old BEA pipe, which is approaching 50 opportunities listed, split between a very high priority, high priority, low and medium priority, no interest)
-While corporate development plays a key role, finding a sponsor is critical, that could be a CEO, President, head of business unit product/engineering, etc. This person is the one to raise their hand to champion the agreement--and held accountable for results. How hard or easy, it is within each technology varies considerably. To know the insiders can be very helpful (talk to other entrepreneurs who have been obtained to give you a sense of the process and the key players)
-How long does it take to close a deal is different. Sometimes it is a relatively easy process, and sometimes it takes a month, often driven by the complexity of the diligence and the integration process and the dynamics of competition
Can help your VCs?
-Yes, by relevant introductions to companies interested in, either at the level of operations or corporate development
-Interestingly, the early trend, institutionalizing a corporate development team within the enterprise business to help companies with their portfolio to sell and buy side of the strategy. I think it is a smart move and has the potential to add significant value to the portfolio of the company and help drive VC returns and total company balance sheets. See Andreessen Horwitz team here. Their pitch: "helping to plan its strategic and financial future of the company. It's all about anticipating the needs and architecting the right way forward for your business ".
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