© 2013 IBM Corporation 1 Acquisition Process Search through Closing Michael Loria Vice President,...

© 2013 IBM Corporation1

Acquisition Process

Search through Closing

Michael LoriaVice President, Security Systems

IBM Software Group


Michael LoriaVice President Business & Corporate Development Joined IBM in 2001

Marketing, Strategy, Channels and Alliances Vice President of Corporate and Business Development

– Lotus, Rational, Security Division– Acquisitions, Divestitures, Asset Purchases, OEM licensing

Prior to IBM Number of companies ranging from venture backed

startups, turnarounds, and global operations

Personal Graduate of Saint John Fisher College in

Rochester, NY. Rochester, Seattle, Boston Wife and 2 daughters Avid Boston Sports Fan Guitar Player, Charity work


Agenda for Today

IBM Structure and Organizations Business Objectives

How Acquisitions fit into IBM’s strategy

IBM Process

The role of M&A in IBM


Global Financing

Global Financing

Systems & Technology

Group

Systems & Technology

Group

IBM Software

Group

IBM Software

Group

Global ServicesGlobal

Services

Global Business Services

Global Business Services

Software Solutions

Group

Software Solutions

Group

Software Middleware

Group

Software Middleware

Group

Global Technical Services

Global Technical Services

Business AnalyticsCollaboration SolutionsCommerceIndustry Solutions

Business AnalyticsCollaboration SolutionsCommerceIndustry Solutions

WebsphereTivoliRationalInformation ManagementSecurity Solutions

WebsphereTivoliRationalInformation ManagementSecurity Solutions


IBM in Massachusetts

Year IBM founded: 1911First IBM office in Massachusetts: 1914

Major locations: Cambridge (Research’s Center for Social Software) Waltham (Innovation Center), Littleton & Westford (IBM Mass Lab)

– Largest Software Lab in NA

Acquired Company Locations (Multiple)

Massachusetts IBMers’ job roles: Software (65%), Consulting (15%), and

Sales & Distribution (10%).

Massachusetts IBMers were awarded more than 160 patents in 2010.


IBM’s Keys to Growth

Our world is becoming

INSTRUMENTEDOur world is becoming

INTERCONNECTEDVirtually all things, processes and ways of working are becoming

INTELLIGENT

Growth Markets

Cloud and Smarter Computing

Business Analytics and Optimization

Smarter Planet

Today, IBM is helping our clients

to change the way the

world literally works – and

to make the planet not just smaller

and flatter,” but smarter.

How much energy we waste: 6% to 10% lost because grids are not smart

How gridlocked transportation in cities is: $78B annual loss in U.S. in wasted gas, time

How our water supply is drying up: 6 fold increase at twice rate of population growth

Areas to consider for improvement

100 Million people moving to urban cities annually, equivelant to 10 NYCs


2015 Roadmap: IBM Transformation Continues

Base Revenue Growth ~2%

Base Revenue Growth ~2%

Shift to Faster growing Business Mix Provides ~1% Revenue Growth

Shift to Faster growing Business Mix Provides ~1% Revenue Growth

~20B of Acquisition Spend Provides ~2% Revenue

Growth

~20B of Acquisition Spend Provides ~2% Revenue

Growth

Enterprise Productivity Yields Margin Expansion

Enterprise Productivity Yields Margin Expansion

Shift to a Higher Value Portfolio Continues to

Provide Leverage

Shift to a Higher Value Portfolio Continues to

Provide Leverage

~50B Returned Through Share

Repurchase

~50B Returned Through Share

Repurchase

At Least $11.35

At Least $11.35

At Least $20.00

At Least $20.00

2015 OperatingEPS

2015 OperatingEPS

2010 OperatingEPS

2010 OperatingEPS

~$1.45~$1.45

Base RevenueGrowth

Base RevenueGrowth

~$0.70~$0.70

Revenue MixRevenue Mix

~$0.90~$0.90

FutureAcquisitions

FutureAcquisitions

~$2.05~$2.05

EnterpriseProductivityEnterprise

Productivity

~$0.75~$0.75

Margin MixMargin Mix

~$2.80~$2.80

SharesShares

12%CAGR12%

CAGR

Revenue GrowthRevenue Growth

Operating LeverageOperating Leverage

Key Objectives:• Add another $100B in free cash flow• Return $70B in capital to shareholders• Spend $20B on acquisitions• Nearly double software profits• Growth markets’ revenue contribution

approaching 30% of geographic revenue

Key Objectives:• Add another $100B in free cash flow• Return $70B in capital to shareholders• Spend $20B on acquisitions• Nearly double software profits• Growth markets’ revenue contribution

approaching 30% of geographic revenue


• Since 2003, IBM has invested $22 billion through acquisitions

• Approx 100 companies, adding more than 44,000 employees

• More than 60 have been Software companies

• Close to one third of those acquisitions are in Massachusetts

• IBM investment in software

• More than US$8 billion in acquisitions and US$9 billion in research and development from 2007–2009

• 40 innovation centers, 80 R&D labs, 33,000 developers, more than 30,000 IBM Business Partners

• US$20 billion in future acquisitions

IBM’s “Investment Strategy” is both Organic and Inorganic


IBM’s Recent Additions in Massachusetts

Year 2003-2008

Security Intelligence SoftwareWaltham, October 2011

High-performance analytics, data warehousingMarlborough, MA November, 2010

Compliance, Governance and Risk managementWaltham, October 2010

Marketing and Web SoftwareWaltham, October 2010

Business Integration and Commerce SolutionsDublin, OH (large presence in Lowell, MA), August 2010

Data Storage and CompressionMarlborough, MA August 2010

Database Monitoring, protection, compliance, analyticsWaltham, MA November 2009

Security and Compliance tools for Software DevelopmentWaltham, MA July 2009

Dynamic Security Vulnerability TestingWaltham, MA July 2007

IBM Rational Acquires

Application Security and Compliance Management

IBM Rational Acquires

Security Vulnerability detection thru sophisticated static code analysis

IBM works world's top Venture Capital firms and In Massachusetts alone, IBM has already partnered with more than a 100

VCl backed, small technology companies.

MA has a strong corporate culture for Acquisitions Strong Incubators (Education, VCs, Software

Councils) Strong SW Talent, Experience Customers Local Presence


Strategy drives our Process

Small Medium Large• Attractive technology• Business not yet established

• Product in market• Challenged to scale

• Established products• Market leader• Global presence

Strategy Execution

Strategic Selection•Market Assessment•Strategic fit•Build or buy

Financial Discipline•Thorough process•Disciplined valuations

Efficient Integration•Integration teams•Best practices & tools

Leverage IBM•Product synergies•Global go-to-market•Global development•Global integrated support

Strategy Execution

Strategic Selection•Market Assessment•Strategic fit•Build or buy

Financial Discipline•Thorough process•Disciplined valuations

Efficient Integration•Integration teams•Best practices & tools

Leverage IBM•Product synergies•Global go-to-market•Global development•Global integrated support


Rationale for Acquisitions – A “how” and not a “why”

Acquisitions that are not tied to our Business Strategy

Purchases outside of core or adjacent markets

Financial Opportunities

“Ease” of doing a transaction

Avoid competitor actions

Rationale for an Acquisition Reasons not for Consideration

Accelerate Market Entry

AcceleratePortfolio

Extend CustomerValue Propositions

Fit with BU Strategy,Growth Markets, Accelerated

Business Expansion

Portfolio Gaps, Skills,Competitiveness

Expanded capabilities,Complete solutions


Alternate Deal Structures

Arm’s-LengthContractualAgreements

StrategicAlliances

Acquisitions

Resell

License,OEM

ExclusiveLicense

Joint MarketingAgreement

Developmentw/Exclusivity

Minority JV

JV withEarn Out

MajorityJV

100%M&APartial Acquisition

w/Buy-out Option

MajorityAcquisition

Partial (Minority)Acquisiton

Increasing Control(and potential reward)

Percent of Risk assumedBy Acquirer


Blue Wash(3 to 6 months)

Blue Wash(3 to 6 months)

13

Acquisitions Timeline (Pro Forma)

(2-3 Months) (3-6 Months) (1-2 Months) (2+ Years)

Line Owner (in a Brand)

SW Group Deal Specialists

Corporate Development

SW Group Integration Specialists

ID Badges, Laptops, email ids,Bluepages, Payroll authorizations, Org charts, Mgmt / Role continuity, Employee benefits, IBM-branded gift

Joint sales pipeline review at first line manager level, Coverage model, Getting things done, first week customer contacts

Communications Plan:Press, Analysts,Customers (both companies),Target company employees,IBM employees,Exec letters, Web postings

(On-Going)

Integration Executive (Line)

…

M+

A S

taff

ing

CostRevenue& Profit

Employees on IBM payroll Fulfillment / controls on IBM paper

CodeNameCodeName

ExploratoryApproval

ExploratoryApproval

ConceptApprovalConceptApproval

FinalApproval

FinalApproval

AECIAECI Data Request

Data Request

Close and“Day 1”

Close and“Day 1”

StrategyStrategy ExploratoryExploratory Negotiation & ContractsNegotiation & Contracts RegulatoryRegulatory Execution, Reporting, IntegrateExecution, Reporting, Integrate

Quarterly GM ReviewsTheme ReviewsIn-BoundsVenture Group ReviewsBankers Meetings

Quarterly GM ReviewsTheme ReviewsIn-BoundsVenture Group ReviewsBankers Meetings

TermSheetTermSheet

DataRoomData

Room

Due Diligence

Due Diligence

Integration PlanningIntegration PlanningTransfer of Business

(3 to 9 months)

Transfer of Business

(3 to 9 months)


Deal Committee Concept Decks and Combined Case

Customer Need/Value Proposition Market Size

Fit with BU Strategy

Vendor Landscape & Comparison

Alternatives Make vs. Partner vs. Buy

Company Profile Stand-alone Business Profile (Revenue, I&E)

Organization – Skills and Management Team

Culture

Portfolio Fit/Architecture

Value Drivers and Synergy Go-to-Market Model

Combined Case (Revenue, Expense, I&E, Integration Expenses)

Roadmap

Integration Plans/ Due Diligence Focus

Acquisition Valuation/Returns Business Growth/Investment

Profile– Integration Expense Plan

– Longer Term

Returns (NPV, IRR) and Timing

Operational Considerations and Impact (Short and Longer Term)

Business Unit Impact Analysis Expense Impact

Revenue Impact

Strategic ConsiderationsStrategic Considerations Financial ConsiderationsFinancial Considerations


IBM in Security

Managed Security Services

Mainframe and Server Security - RACF

SOA Security

Network Intrusion Prevention

Database Monitoring

Identity and Access Management

Application Security

Security as a Service

Compliance Management

Security IntelligenceIBM Security

DASCOM

Ma

rke

t C

ha

ng

es

Enterprise Reporting

Performance Management Platform

Business Intelligence Suite

IOD Business Optimization

BI Convergence with Collaboration

Text & Social Media Analytics

Simplified Delivery (i.e., Cloud )

Predictive Analytics

Decision Management

BI Convergence with Security

IBM Business Intelligence


Why I Do this

Externally focused

Work with many companies Venture Investment and Equity Firms New technologies, trends

Opportunity for a small team to have a big impact

On Customers On the Market Landscape On the Acquired Company On IBM

It is all I know how to do!

© 2013 IBM Corporation 1 Acquisition Process Search through Closing Michael Loria Vice President,...

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