In a recent interview, M&A expert Harald Maehrle explained what companies can do proactively to prepare for a potential sale of their business. One key recommendation is to proactively build meaningful relationships with potential strategic buyers.
Building these relationships is part of a broader set of activities called “Strategic Business Development”.
In 2012, John O’Farrell, partner at Andreessen Horowitz and former executive at Loudcloud/Opsware, published a series of blog posts defining strategic business development and demonstrating its power to turn potential failure points into triumphs:
“At Opsware and its predecessor Loudcloud, strategic business development played a critical role in virtually every phase of the company, generating over $140M in direct revenue and contributing fundamentally to the survival and ultimate success of the company. In this series, I’ll use four examples from 2002 to 2007 to illustrate the unique high-impact role a small professional business development function can play.” (from: Who you gonna call?)
The series provides rare insight into the minds of the leaders of a company that managed not only to survive, but to thrive on the extinction of their original market segment. They pulled it off by transforming their company from a managed service provider into a software vendor. And ultimately, in 2007, they sold the software company to HP at 16 times TTM revenue, with a 74% markup vs. the average stock price of the last 6 months.
Even by the standards of the software industry, this was an extremely favorable valuation. As the blog posts show, Loudcloud/Opsware had done a lot in advance to turn the cards in their favor.
Here are the 5 articles that make up the series:
1. Who You Gonna Call? Navigating the Existential Crisis – January 2012
Here, John provides the following definition:
“Strategic business development is an investment in systematically mapping and networking your ecosystem to drive transformational opportunities.”
… and explains how Loudcloud managed to leverage its strategic customer relationship with EDS to survive the extinction of its market segment: Loudcloud sold its managed service business to EDS and transformed itself into a Opsware, a vendor of datacenter automation software.
2. Who You Gonna Call? Strategic M&A – January 2012
How Opsware developed and executed its own M&A strategy to build a complete datacenter automation solution. And the role of the strategic business development team in that process.
In this post, John compares two strategic partnerships of Opsware – one with Cisco and one with HP, highlighting that the term “strategic partnership” can refer to fundamentally different types of relationships with dramatically different business impact.
John highlights the importance of “mission clarity”: what do you really want to achieve with this partnership? Once that is clear, he provides some recommendations how to structure a partnership where the mission is significant additional revenue – vs. a deal just meant to provide PR impact.
Here again, we see how consistent strategic business development over the course of several years enabled the high business impact of one of the partnerships.
4. Knowing Where the Exits Are – May 2012
5. Selling the Company – June 2012
In two blog posts, the fascinating story of how Opsware managed the M&A process in 2007 that ultimately led to achieving the exorbitant price mentioned above. Including averting a huge crisis. Read and enjoy!
The text includes a link to the board presentation from November 2005 – where it was decided not to pursue selling the company (yet). This is a very good example how such decisions are framed and analyzed in the technology industry in the US: a clean, concise, and easy to understand slide deck, certainly not a lengthy text document, and opening (not closing) the presentation with a summary of the recommended decision.
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