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Global technology M&A update - 2Q11 highlights - Delivering on the promise of strategic acquisitions - EY - Global

Global technology M&A update: 2Q11 highlights

Delivering on the promise of strategic acquisitions

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Technology industry deal-making integration issues arising from 2Q11 deal analysis

2Q11 deal-making situationMajor integration impact
1Technology trend-driven deals: these include a broad spectrum of big-ticket as well as smaller deals designed to facilitate the technology trends we've watched develop over the past several quartersUncertainty is the biggest concern — about evolving standards, regulatory requirements and overall integration (sales force, product/services, marketing, human resources, IT, etc.). Also, complex integration of SaaS offerings (including back-office process, tax compliance and security risk management issues) must be considered. Finally, some of these are huge deals — with billions of dollars at stake — which places enormous pressure on value creation expectations.
2Globalization: CB deals increaseCB deal integration requires special attention to culture, regulatory, security, tax and communication issues. An up-front understanding of the issues is vital. Clear and frequent communication is critical.
3China on the rise: emerging market deal-making on the riseDoing deals with China is complex and can pose special integration challenges due to cultural, business and political differences. Advance planning and gaining financial and operational control quickly in the post-deal environment are critical.
4Consolidation: semiconductor consolidation continuesThe need for cost containment and the merging of duplicate processes and systems, plus identifying and planning to leverage synergy (such as integrating sales channels in order to sell complementary products to improve market position and increase enterprise value).
5Strategic acquisitions: companies positioning for future growthAcquiring companies for their strategic value requires special attention to the retention of key talent and preservation of winning cultures and intellectual property. Safeguarding and creating incremental value for shareholders by maintaining or improving performance post-deal will require setting earn-out/milestone achievements at the outset of the integration process — but rapidly changing markets also require built-in flexibility.
Source: EY analysis.

"Strategic growth acquisitions require a clear vision as well as a plan to deliver incremental value — and the flexibility to listen and adjust to the market as necessary."Erika Schraner, Americas Technology Operational Transaction Services Leader, Ernst & Young LLP

Integration has never been more challenging than it is today, as powerful megatrends such as cloud computing, smart mobility and social networking are launching a time of hyper-innovation.

Organic growth isn't always fast enough for large technology companies to maintain their competitive edge, so they are using current capital for strategic acquisitions that position them for future growth. In 2Q 2011 such deals ranged from picking up key talent by buying a two-person company to 10 multibillion-dollar deals.

One eye on strategy, the other on operational execution

Extraordinary discipline and a dual focus — with one eye on strategy and the other on operational execution — are required for the resulting transaction integration journey to deliver true incremental growth in shareholder value. The chart at right identifies deal-making integration issues arising from our analysis of 2Q 2011 technology M&A transactions.

Technology industry deal-making integration issues
arise from 2Q11 deal analysis

Capitalizing on synergies

From an operational perspective, companies must be prepared to address the impact on both organizations efficiently, capitalizing on synergies quickly. For example, immediate cost containment or opportunistic cost cutting and operational improvements must be recognized and implemented rapidly.

Success requires clear objectives and flexibility

From a strategy perspective, companies must have clear objectives, deep understanding of both businesses and cultures and inherent flexibility — capable of addressing issues as they arise and making mid-course adjustments as necessary. For example, success in a strategic purchase requires the buyer to identify quickly key talent and intellectual property assets and take immediate and aggressive steps to protect and retain them.

High-risk, high-reward

Growth transactions are not for the feint-of-heart. They are high-risk, high-reward propositions and require a clear vision, strong engaged leadership and clear and frequent communication of the vision, expectations and rewards.

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