1. The Role of Competitive Intelligence in Strategic Partnerships (M&A, Strategic Alliances, Consortia) Presented by: Arik R. Johnson arik@aurorawdc.com Managing Director Aurora WDC

2. Introductory Remarks About Arik About Aurora Agenda Items and Process for the Day

3. Strategic & Tactical Realms

4. This session is for you if... You would like to contribute to your firm’s relationship-building activity You would like to expand the application and “adding- value” of Intelligence within your firm Your firm’s growth strategy includes M&A You would like to learn what Intelligence processes are applied in relationship-building.

5. What we have learned about M&A Large consulting firms: –Casual scanning is norm –“Too-late” deals –Are not any more productive than “home-grown” talent in the initial M&A stages –Force their acquisition model on you (very large) Firms’ radar screen had better resolution Smaller deals were impressed and intimidated with consulting companies In-house Intelligence departments Intelligence consultants are more efficient and effective on the front- end.

6. Why M&A as an Intelligence activity? Harvard Business Review reports in 1998 there were 5,000 acquisitions in the US totaling $.5T KPMG Peat Marwick says in 1999 $2T was spent on acquisitions world-wide Cisco Systems grew in 1999 to $12B Rev. via 42 acquisitions, expected to make 25 in 2000 IPO’s are at an all time high Strong stock market produces buying leverage faster than lower interest rates

7. Steps in the M&A process Relationship criteria Scan, Search, and Identify Targets Evaluation and Analysis “Due Diligence” - in situ Recommendation Negotiation Consummation Integration

8. Steps in the M&A process Relationship CriteriaRelationship Criteria Scan, Search, and Identify TargetsScan, Search, and Identify Targets Evaluation and AnalyzationEvaluation and Analyzation “Due Diligence” (in situ)“Due Diligence” (in situ) RecommendationRecommendation Negotiation Consummation Integration

9. Level of functional involvement Stage ID Evaluate Due Consum- Criteria Targets Analyze Diligence Recommend Negotiation mation Integration Intelligence Research Business Units Finance Technical Assessment Legal Executives M&A Specialists Transition Team Logistics HR Level of CI Involvement High Low

10. M&A process activities Stage Relationship Criteria Identify Targets Evaluate, Analyze “Due Diligence” Negotiation Consummation Integration Delphi Technique Compilation CI Trades Sales Marketing Consultants Criteria Matching & Preliminary Analysis Products Financial Strategy in situ Audit and Examination Criteria Set Candidacy Purchase Candidate List Company Overview (SWOT) Intelligence Processes Management Guides Company Report (checklist) Support, Reference External Internal Candidacy Purchase

11. Delphi technique Reiterative process with executives 1. Initial criteria is brain-stormed Criteria compiled for ranking 2. Executives rank criteria by importance Criteria sorted by ranking for cut-off Completed relationship criteria Final approval

12. Criteria for acquisition candidacy Return on Investment (ROI) Break-even (B/E) Compounded Annual Growth Rate(CAGR) Gross Profit Margin (GPM) Fill manufacturing Products and services Intellectual property People and knowledge acquisition Investment scale and scope

13. Criteria for acquisition candidacy Fit Acceptable Criteria Definition CriteriaExceptions Break-even Break-even shouldB/E < 36 mos.Leveraged buy-out. occur before EOY3. Must be profitable Y1. Compounded CAGR must be greaterCAGR > Ind, There might not be Annual than industry forecast.CAGR > forecasts available Growth CAGR must be greater Our forecast for certain Rate than our forecast. market segments. Investment Total investment should I < $30MGreater investment Scale be less than $30M.would be considered with additional, outside partners.

14. Compilation from all sources Allow for multiple input sources Executives Sales and sales support personnel Suppliers Customers Surveillance Trade publications Specialty newsletters Venture capital activity

15. Candidate list Company name, address, phone, contact(s) Year founded Product-markets Differentia vs. competitors’ Funding history Revenues Employees Sales structure Existing relationship with our firm Notes and source of info

16. Company overview Description of Company –Recent sales, GPM, NIAT, employees, sales/emp, market cap, stock price, cash, founded, IPO date, revenue history Summary of situation and appeal Founders, investors Management Products Customers Intellectual property Acquisition criteria fit summary Begin SWOT analysis

17. In-situ audit and examination “Due diligence” Checklist –Topical –Specific questions for interviews Preliminary Audit Presentations Interviews Extended SWOT analysis Company Report (20 - 50 pages) Recommendation

18. Extended SWOT Analysis Market share gain Market entry Intellectual property Financial Management team Owners, founders Products/services Manufacturing Strategic fit

19. Criteria Strengths Weaknesses OpportunitiesThreats Gain- ext. current- no prod. history- Prod1 CAGR>250%- major competitors Mkt Shareprod. line- may have over- Prod2 CAGR>54% - entry into designed prods- Prod3 emerging Mkt 6 Intellectual- 4 patents- unclear if SW- some leveraging- 2 possible Property- 3 pending patents okay with our R&Dinfringement - 9 2B submt’d- need license forsuits - clear tech 1/2 of roadmap roadmap Product- prods extend- EDP is not our- can take Prod1- time to mkt Leverage our Mkts primary focus into our Gamma- no resources 1 & 2 - Prod2 requires with extra FAB’s to leverage cust support we don’t have Criteria Strengths Weaknesses OpportunitiesThreats Gain- ext. current- no prod. history- Prod1 CAGR>250%- major competitors Mkt Shareprod. line- may have over- Prod2 CAGR>54% - entry into designed prods- Prod3 emerging Mkt 6 Intellectual- 4 patents- unclear if SW- some leveraging- 2 possible Property- 3 pending patents okay with our R&Dinfringement - 9 2B Submt- need license forsuits - clear tech 1/2 of roadmap roadmap Product- prods extend- EDP is not our- can take Prod1- time to mkt Leverage our Mkts primary focus into our Gamma- no resources 1 & 2 - Prod2 requires with extra FAB’s to leverage cust support we don’t have Criteria Strengths Weaknesses OpportunitiesThreats Gain- ext. current- no prod. history- Prod1 CAGR>250%- major competitors Mkt Shareprod. line- may have over- Prod2 CAGR>54% - entry into designed prods- Prod3 emerging Mkt 6 Intellectual- 4 patents- unclear if SW- some leveraging- 2 possible Property- 3 pending patents okay with our R&Dinfringement - 9 2B Submt- need license forsuits - clear tech 1/2 of roadmap roadmap Product- prods extend- EDP is not our- can take Prod1- time to mkt Leverage our Mkts primary focus into our Gamma- no resources 1 & 2 - Prod2 requires with extra FAB’s to leverage cust support we don’t have Extended SWOT Analysis

20. Negotiation, consummation, integration Pass project to M&A specialists, stay involved Personal intelligence Negotiation strategy formulation Negotiation support Testing of assumptions Monitoring of directional changes Transitional support On to the next project...

21. Benefits from Intelligence involvement in M&A To the firm –Provides an “in-house” front end process –Provides continuous scanning resource –Reduces costs –“Due diligence” vs. intelligence To the Intelligence department –Extension of service into high-impact activities –Very visible “value-adding” service –Cross-pollination learning –Adrenaline rush

22. Summary Understand Intelligence’s contribution to business relationship development Understand the M&A process and Intelligence’s role as a “front-end” processor Possess a tested methodology for business relationship development Access to templates and examples Questions?

23. For Further Information Society of Competitive Intelligence Professionals www.SCIP.org Recon Best Practices Knowledgebase: www.AuroraWDC.com/essays