At the Tech M&A Forum 2019 in London, Avalia’s CEO, Rodney Reis, presented how Avalia links data from software development with business projections to uncover valuable insights in M&A deals.
The keynote started with the case of a corporate that, by focusing on business results and overlooking the strategic importance of software assets, ended up passing on the acquisition of one of the best technology companies of all time. Over 20 years, this corporate revenues dropped by over 80% from billions to a few hundred million per year.
“Software is eating the world”, as Netscape founder and VC investor Marc Andreessen says, but understanding the true value and risks of a company’s software remains an under-invested activity when compared with financial and legal due diligence, and this case showed how this mode of operation can be detrimental to corporate growth.
Rodney Reis then presented the case of Mario, Prem, Luca, and Soni, legendary business leaders in Cisco’s history commonly referred to as MPLS, who came together through Cisco’s first acquisition, Crescendo Communications.
With only $5 million in revenues, in a deal that valued them at 18x sales, their product would become one of the best selling enterprise communications systems of all time, with revenues reaching over $13 billion per year after 20 years.
John Chambers, Cisco’s long-term CEO, through in-sourcing, a strategy of funding and acquiring startups, enabled MPLS to create 3 other companies over these 2 decades and with it additional billions in value for Cisco. This case highlighted the importance of recognising, complementing, and investing in talented people that join a corporation after an acquisition deal.
The keynote then moved on to present 3 case studies: a startup acquisition, a mid-size deal, and a mega-merger, and how data from software development can have significant impact in improving the buyer’s understanding of the target’s valuation and in defining the most important actions to be taken post-deal.
Combining data visualisations, interviews, and deep tech expertise, Avalia Systems helped a client improve their R&D resource planning, driving important revisions on the deal value and post-merger recruiting plans.
Using similar techniques, Avalia shows the impact of on-boarding, focus, and speed on a fast growing scale-up acquisition, using data to show how the launch of a new product was likely to be late, resulting in slower growth in the first year and a whopping 25% impact on the target’s valuation.
Finally, Rodney introduced Avalia’s IBM – Red Hat case and the analysis of the open source company’s fastest growing product, Ansible. Avalia’s team of experts used software development data to provide clear and actionable recommendations.
If you’d like to receive a copy of this presentation, please contact us at info@avalia.io and ask for the Tech M&A Forum 2019 slide deck.