Vision - November/December 2007 - (Page 39)

One of the clear advantages of privatization is the ability to get away from expensive and arduous regulatory requirements like Sarbanes-Oxley (SOX) in the United States and J-SOX in Japan. Keeping company information secret has always been an advantage of private companies and with ever increasing competition, privatization offers the prospect to guard competitive secrets. Privatization also offers companies time—as opposed to working from quarter to quarter. Time is a valuable resource companies can use to address strategic issues in a more thoughtful and prolonged manner. This is especially important for firms that have had difficulty publicly executing strategy under the microscope of both Wall Street and the public. aC q U i r i n g t h e r i g h t elements Acquisition—as opposed to a public offering— increasingly is becoming the goal for smaller start-ups in the technology space. Acquisition creates needed liquidity for early investors. It also ensures big rivals don’t simply duplicate the technology in-house— making the start-up suddenly obsolete. Further, being acquired by a larger market player lets firms bypass managing the regulatory requirements like SOX they would have to manage if they went public. In a way, by being acquired by a larger public firm, these small firms are simply outsourcing regulatory compliance to the larger firm which is already familiar with the process and likely has a capable internal staff of experts. Making these acquisitions also makes sense for the acquirer. Small firms can use their leanness and flexibility to look at prob- menu where companies can add to their portfolios by picking up the pieces complementing their current holdings and offerings. lems differently. Their size allows them to move quicker than competitors and their leanness frequently requires them to innovate with smaller budgets. Through the acquisition larger firms often get new technology solutions they wouldn’t have thought of, more quickly and with less expense than trying to build the solution in-house. What developments might slow or stop the trend of acquisitions and privatization? Any of the drivers that moved the industry here would need to unravel or the benefits would need to diminish. A major change in the cost of financing, a renewed desire to develop the needed technologies in-house versus buying up companies to acquire the technology, or a change in the regulatory regime could all warrant a reversal of the trend. Because the barriers to enter the industry often are low—requiring minimal capital investments in many cases—new competitors can crop up with relative ease. privatization Increased barriers to entry could also change will drive an the role mergers and acquisitions play in the a la carte future. O n - g O i n g C e sag a Noteworthy Deals in the Consumer Technology Arena Deal Blackstone, Carlyle, Permira Funds, and Texas Pacific take Freescale Semiconductor private KKR and Silver Lake Partners takes Philips Semiconductors private Nokia acquires GPS map-maker Navteq KKR & GS Capital Partners takes Harman International private CISCO Systems acquires Scientific Atlanta Inc Verizon Communications acquires MCI Seagate Technology acquires Maxtor Corp Google acquires YouTube Lenovo acquires personal computer arm of IBM Motorola acquires Netopia Schultze Asset Management acquires Tweeter (millions USD) Value $17,600 $10,200 $8,100 $8,000 $6,900 $6,746 $1,900 $1,650 $1,250 $208 $38 One thing is for sure, the story around the companies going private is not over yet. While many of the firms that go private drop off the mind of investors and off the radar of Wall Street, there is still more to come. Many of the companies going private, have done so with the help of firms who will themselves want liquidity within a few years. It is only a matter of time before these companies are back in play. As these companies come back in play, they will likely end up under the umbrella of bigger companies in the industry. By the end, privatization will have driven an a la carte menu where companies can add to their portfolios by picking up the pieces complementing their current holdings and offerings. The industry will be left with an increasing number of brandholding companies—where companies have assembled a wide selection of product offers across a myriad of brands under one umbrella. This will allow these companies to have a diverse offering while at the same time economizing on scale. To this point, there has been minimal empire building in the consumer technology arena where ego-lead managers build inefficient and encumbered conglomerates. Many if not most of the mergers and acquisitions are targeted acquisitions resulting in stronger, object-oriented companies. On the other side, privatization offers many companies needed shelter to refine and refocus strategic direction. Both of these developments will intensify competition in the industry. This will in turn require all companies—private or not—to refine and refocus their strategic direction and identify the competitive hurdles that lay ahead. • www.ce.org November/December 2007 39 http://www.ce.org

Table of Contents Feed for the Digital Edition of Vision - November/December 2007

Vision - November/December 2007 Contents Shapiro's Spectrum In This Issue The Economist C4 Visionary Tech Speak Going Global Eye on Business Tech Policy Special Supplement: CES Unveiled 2008 CES Technologies to Watch Eastern Europe Embraces CE M&A Fest Displaying the Future CEA Newsline Market Insider Just the Stats

Vision - November/December 2007

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