REDMOND, Wash., Nov. 12, 2004 — Over the past decade, Microsoft has successfully closed more than 100 acquisitions, and a significant number of strategic investments. These transactions have helped create important new Microsoft businesses, inject top talent into the company and accelerate Microsoft’s time to market with innovative technologies. From Halo (Bungie Software) to PowerPoint (Forethought), acquisitions have had a real impact for Microsoft and its customers.
In September the head of Corporate Development, Brian Roberts, was named corporate vice president. The move reflects not only Roberts’ wide array of accomplishments in leading the group responsible for Microsoft’s acquisition and investment execution, but also the importance placed on those activities by the company’s senior leadership.
With the dust settling on his promotion, Roberts sat down with PressPass to offer some insights into Microsoft’s corporate development activities, and his plans for the group going forward.
PressPass: Although your title is new, you actually took control of Corporate Development about a year ago. What has changed since then?
Roberts: I am incredibly excited about the team’s progress over the last year on several fronts, and I’ll call out four of them in particular. First, we have focused considerable efforts on building our internal capabilities. My goal is to create the pre-eminent corporate development organization in the Fortune 500. I think we are well on the path. I am very pleased with our internal capability to tackle complex deal issues and provide expert transaction advice to our board of directors and senior leadership team. This capability is made possible by the complementary, cross-functional expertise of our deal teams.
Second, we have significantly improved our end-to-end processes by incorporating industry best practices and the learning from our historical successes and failures in a project spearheaded by Corporate Development and Venture Integration. And we’re not done. We remain self-critical and are committed to continuous improvement.
Third, our job is to support the leadership teams of each business group in achieving their strategic objectives. Last year was a breakthrough year in terms of strengthening relationships across key constituencies. We achieved this result by reaching out to business group leaders and coordinating that effort across their teams. As a result we are more agile and in a better position to support our business partners in achieving their strategic initiatives.
Finally, by using Microsoft technologies we have dramatically increased the level of real-time communication and collaboration across the many key deal stakeholders. As a result we have further increased our agility and can react in real time, a new competitive requirement.
PressPass: What are your goals for the next year and beyond?
Roberts: Our No. 1 goal is to continue to deliver best-in-class deal evaluation and execution. At a high level this requires outstanding internal capabilities and leadership. As I have mentioned, the capabilities of this team are pretty extraordinary and something of which we are quite proud. The team includes ex-bankers from pre-eminent investment banks including CSFB, Goldman Sachs, JP Morgan, Lazard Frres, Merrill Lynch and UBS. We also boast great leadership depth, which is responsible for driving the large accomplishments over the past year. We really are serious about creating the pre-eminent corporate development organization. Our mission is to source, evaluate and execute transactions that increase shareholder value and achieve Microsoft’s strategic objectives. That’s really the driving force of everything we do, and we want to be the best at doing it.
Secondly, we want to increase our “proactiveness” with the business groups we support. Clearly we help evaluate and execute each deal, but we also want to highlight areas that we believe, based on external trends, are important for Microsoft to consider.
PressPass: Does your promotion signal any kind of change in Microsoft’s acquisition and investment strategy?
Roberts: People might interpret it that way, but they shouldn’t. Our strategy has not changed. We will continue to evaluate opportunities that will deliver new, exciting scenarios and enhanced value to our customers and shareholders.
PressPass: What can you tell us about Microsoft’s acquisition strategy?
Roberts: Well, we can’t go into specifics of course, but it’s important to understand that acquisitions play a different role for each business group. There is no one-size-fits-all strategy. The acquisition types that make sense for MSN, for example, are very different from the ones that make sense for the Information Worker Business Unit.
In general, though, Microsoft undertakes four types of acquisitions. Probably about 60 percent of our deals are where we acquire technology, talent and/or intellectual property to enhance existing products and services. The goals are simple: improve customer satisfaction and increase addressable markets. Those are what I would describe as our bread-and-butter deals. We also look to acquire new standalone products and services for existing customers. Visio would be a great example here — a company that was built around a specific product that fills a key need for its customers. We also use acquisitions to accelerate our entry into new businesses. And then finally, we can use acquisitions to acquire a channel. So again, I think the answer is that we will continue to evaluate opportunities to deliver new and exciting scenarios and enhanced value to our customers and shareholders, and this will mean different things for each business group.
PressPass: You mentioned a collaborative process for investments and acquisitions. Who is typically involved in such a deal?
Roberts: There are a lot of stakeholders as you might imagine. In the corporate center, you have groups such as Venture Integration, Legal and Corporate Affairs, Tax, Corporate Accounting, the worldwide sales force, HR, IR, Corporate Communications and Treasury. All of these groups can be involved, especially for a larger acquisition. And then at the business level, the business leader who is sponsoring the acquisition is well supported by key leaders across his or her group, including finance, business development, strategy, marketing, HR, PR and others. So there are a number of different stakeholders involved. I don’t want people to believe that corporate development is the group that drives acquisitions. We are one of the stakeholders, and it is a very complex process.
PressPass: With so many people involved, how do you keep everyone on the same page?
Roberts: It is a constant challenge. We continually look at opportunities to improve the end-to-end process, and I do think we’ve done a great job at increasing the level of collaboration and communication. We’ve closed more than 100 acquisitions over the last decade, and, of course, we’ve had our successes and we’ve had some failures. After each deal, we undertake a rigorous post-mortem exercise led by Venture Integration to discover opportunities for improvement. When we look back at some of these acquisitions, one of the key lessons is the importance of getting the integration approach and strategy baked very early on in the deal evaluation, because it’s just so critical.
PressPass: What is the Venture Integration group, and what do they do?
Roberts: The mission of Venture Integration is to provide the knowledge, expertise and leadership necessary to fully integrate our acquisitions, establish post-deal governance, and maximize the value of what we do. The group was created in 2000. At that time, we realized that, as the level of acquisitions was increasing, there was an opportunity to improve our integration effectiveness– it became a fulltime job. So Microsoft built a dedicated organization of approximately 20 people. Corporate Development works hand-in-hand with Venture Integration throughout the process.
PressPass: What makes an acquisition successful or unsuccessful?
Roberts: For every acquisition, we identify very early what the key value drivers are. And we will design our due-diligence process and integration approach around these drivers. If we surface concerns that cannot be mitigated by a deal structure or an integration approach, we will part paths. And there are many examples of issues that can become deal killers. It may be our assessment of the culture. Maybe the talent is not as good as we’d hoped as we get to meet more of the team. The code quality could be poor, or worse, the code may be subject to the General Public License (GPL) often used for distribution of open source software.
Also, going back to integration, often times we will end discussions because we realize that the technology integration is just too substantial. The Microsoft approach, which is completely focused on delivering end-to-end solutions for customers that just work and that drive lower total cost of ownership, means that when we acquire companies, we need to make sure that we can integrate the technology so that for customers it’s seamless. That takes a lot of time, and sometimes we realize after due diligence we just cannot reasonably deliver that scenario.
For improving acquisition success and increasing accountability, Microsoft creates unique success metrics for each deal based on those value drivers I mentioned. And we now track our acquisition success by measuring our performance and results against those metrics in a quarterly process led by Venture Integration and our business group governance organizations.
People always ask which acquisitions we consider most successful, and it’s interesting that they often don’t realize that some Microsoft products they use every day were acquired. Does anyone remember the companies Forethought or SoftDesign? You probably know them today as Microsoft PowerPoint and Microsoft Project.