Dr. Karl Popp presented on challenges in acquiring software companies. Software acquisitions face specific risks including technology becoming outdated quickly, ecosystems not developing as expected, and underestimating integration costs. Successful due diligence for software companies requires an in-depth examination of the product architecture, use of open source and third-party components, and compliance with standards. It is also important to understand international operations, data protection laws, and potential workforce retention issues. Thorough due diligence and planning are key to avoiding failures when acquiring software companies.

1. © Dr. Karl Popp
Acquiring companies
in a digitalized world
Dr. Karl Popp
http://www.drkarlpopp.com
http://www.mergerduediligence.com
Follow me @karl_popp on twitter

2. Agenda
Agenda
• What is the difference between the
software industry and other industries
• Software acquisitions: Challenges and
failures
• Successful Technology due diligence
© Dr. Karl Popp

3. What is the difference between software and
other industries?
© Dr. Karl Popp

4. Why do software companies acquire?
• To buy innovation
• To speed up time to market
• To grow the marketshare in new markets
• To consolidate
© Dr. Karl Popp

5. Specifics of the software industry
• Companies
– Specific business models, e.g. freemium or cloud subscription
– International setup, even in small companies
– Average lifespan 12 years
• Products
– Very high speed of innovation, high frequency of product
deliveries
– Short product lifecycles
– Free components speed up innovation
• Ecosystems are key
– Platforms and ecosystems
– High switching cost for customers
• Intellectual property is front and center topic
© Dr. Karl Popp

6. Software acquisitions: challenges and failures
© Dr. Karl Popp

7. Selected risks in software M&A
Strategy failure
– Technology: In fast moving markets: wrong technology
acquired
– Ecosystem failure (not existing, not taking off)
– Does market consolidation pay off long-term?
Product failure:
– Massive use of viral open source software in commercial
product
Financial failure:
– Due to fantasy in due diligence (never fall in love
with an acquisition)
– Underestimated cost, Litigation
© Dr. Karl Popp

8. Selected risks in software M&A
Management failure:
– Due to inexperienced management and missing
standardisation in M&A processes
– Underestimated efforts in post merger integration
People failure: people leave
– Wrong communication
– No joint vision, mission and missing explanation what
the acquisition means for each employee
© Dr. Karl Popp

9. How to avoid failure: Let others
go through hell for you
What?
– WYSIATI what you see is all there is
– you don´t foresee what you don´t know
Why?
– Avoid disaster
How do we manage it?
– Read the book
„Deals from hell“
by Robert F. Bruner
© Dr. Karl Popp

10. Successful technology due diligence
© Dr. Karl Popp

11. Specifics of due diligence in the software
industry
Type of Due
Diligence
© Dr. Karl Popp
Distinctiveness of the software industry
Strategic due
diligence
High volatility. high impact of platform strategies and partner
ecosystems on success
Market due
diligence
High market size volatility
High likelihood of disruptions in markets
Commercial due
diligence
Diversity of business models, revenue models and their combinations
Technology due
diligence
Distinctiveness and high change rate of software platforms and other
technology, use of third party and open source software, security
vulnerabilities, compliance with corporate quality standards
Human resources
due diligence
High importance of workforce quality due to low automation in
production, identifying and keeping key players
Cultural due
diligence
Software industry raises high employee expectations in culture,
benefits and work environment
Intellectual
property due
diligence
Increased importance due to strong role of IP
Patents, Open source, Third party products

12. Successful technology due diligence: my
key points
• The product
– Check the product and its architecture
– Discuss and plan integration with acquirer´s products
– Check and plan efforts for compliance with corp.
standards
– Check use of open source and third party products and
license compatibility with future business models
• Other topics worth mentioning
– Globalization and localization of target solutions might be
a high effort activity
– Mind the export restrictions to and from Europe,US
– Data protection laws in Europe
© Dr. Karl Popp

13. Results: Ingredients for success
• Analyze and adapt your capability maturity to
integrate successfully
• Structure and tailor integration approach and
M&A process
• Avoid deals from hell
• Manage complexity and effort
• Blueprint
© Dr. Karl Popp

14. © Dr. Karl Popp
More information here:
http://www.mergerduediligence.com