Microsoft’s acquisition of Sweden-based software firm Sendit in 1999 is a classic example of the complexities of mergers and acquisitions. In this five-part Case Study series, authors Robert J. Crawford, Research Associate at INSEAD, and Maurizio Zollo, Associate Professor of Strategy and Management at INSEAD, take readers through each phase of the acquisition and integration process.
Case A looks at the two companies and the advantages and disadvantages that each weighs during the ‘courtship’ phase. A partnership with Sendit, a Swedish firm specializing in software that brings the Internet to the mobile phone market, made sense because of Microsoft’s expressed interest in developing mobile Internet software. Sendit had chosen Windows as the platform for its software, giving the two companies strong technical compatibility. Both companies used subscriber-based revenue models, another similarity. On the other hand, telecommunications was all new market territory for Microsoft, and Sendit was still an unprofitable, unproven, concept in a market that had yet to form. The fact that Sendit is a Swedish firm also raised some concerns regarding potential culture clashes and the feasibility of coordination across nine time zones.
After providing background on both companies and their strategic focus, the authors ask readers to consider four options available to Microsoft:<UL>
<LI>Ignore Sendit and forge ahead alone
<LI>Forge a partnership, leveraging both companies’ complementary capabilities
<LI>License the software codes from Sendit and channel the product through Microsoft’s sales and distribution arms
Case B picks up at the end of first quarter 1999, soon after representatives from Sendit travel to Redmond, Washington. “We liked them. So now what?” asked Mark Ledsome, Microsoft Group Project Manager. ‘Now what’ turned to talks of Microsoft acquiring Sendit. During formal discussions, the main issue became valuation. Again, the reader is asked to see the challenges facing Ledsome:<UL>
<LI>How should he value a low revenue, loss-making company, especially taking into account high shareholder expectations of the future value potential for Sendit’s business?
<LI>How should they assess a company in a market sector with limited comparable public companies and a limited number of comparable prior transactions?
<LI>How should he manage the negotiations in order to maximize the chance that both companies reach an agreeable compromise?
<LI>Beyond pricing, what else should be included in an offer package that might stand a reasonable chance of being accepted by both parties?</UL>
Case C looks at ‘the day after’. After describing how the financial evaluation and negotiation processes were handled, the attention is rapidly turned to the integration challenge. The first task is figuring out how to place Sendit within the Microsoft ‘world’. Above all else, Microsoft knows that the success of the deal will rest on their ability to structure incentive programs that will ensure amaximum retention of Sendit’s talent. Retention and coordination issues are tackled in detail along all the key functional activities of Sendit, from their R&D to the marketing and sales functions, including the key problem of designing the relationship with Sendit’s founder and his top managers.
Despite well-intentioned efforts, we learn in Case D that the honeymoon is short-lived. After multiple high-level Sendit officials resign and problems with the development and sale of new products surface, its founder Hjalmar Windblah tries to understand what went wrong and what, if anything, can be done to fix it. We learn the answers to these questions in Case E, the Epilogue, where the fate of the venture is described until its sweet and sour ending.
The Case Series, which follows each phase of the acquisition and integration process, can be used in a strategy implementation, corporate development, M&A, or change management.