Tuesday, March 21, 2006

"DevCo" - 5 weeks after spin off announcement

This post is either early or late depending upon your point of view.  I have a lot to cover here.  First off, I'd like to mention that “DevCo” now has a General Manager.  Actually we've had this particular general manager on board for nearly a month, but have only recently gotten the final approvals to go ahead and publicly talk about it.  Basically, the delay was because you just don't go public with certain management changes before you've told the affected teams.

Effective April 1, 2006, Nigel Brown, Borland's current vice president of EMEA, will take the helm as general manager of Borland's IDE products. In this capacity, Brown will lead Borland's IDE product lines with support from a world wide team of engineering, marketing, services, sales, and G&A professionals from within Borland. He will play a key role in preparing the structure, team and plans for the divestiture of these product lines, and in managing this business once the sale is complete.

Brown has played an integral role at Borland for nearly a decade, and is credited with helping to grow the company's European operations to the $100M business that it is today. Brown has over 21 years of experience working within the IT sector and expertise in running global business operations. Matthew Thompson, Borland's senior vice president of worldwide sales, will serve as head of the EMEA region for Borland until a replacement is named.

Nigel Brown Background Information

Nigel Brown Vice-President and General Manager EMEA

Nigel has spent 21 years in the IT sector. He comes from a strong international sales and marketing background and has been with Borland for more than 9 years. Prior to this he was International Vice-President at Uniplex, joining from Lotus where he held positions of UK Corporate Sales Director and International Marketing Director.

Before being appointed to his current position Nigel was Managing Director of Borland’s UK operations and director of global accounts.

During the last 6 years Nigel has been running Borland’s business operations across Europe, Africa and the Middle-East. In addition to running offices in UK, France and Germany he also established new offices and companies in Sweden, Finland, Spain and Italy and expanded a partner operation across East Europe and the Middle-East. He has been personally involved in negotiating many of Borland’s largest customer contracts over the years with for example Ericsson, Nokia, Siemens, British Telecom, UBS, Barclays Capital, etc. Whilst being responsible for growing Borland’s direct ALM business in EMEA, he has also been Borland’s most successful region in selling the IDE products through an indirect business model.

Nigel has a BSc Honours degree in Management Sciences and a Diploma in Industrial Studies from Loughborough University UK, along with a Diploma in Marketing from the UK Institute of Marketing.

Meeting with Bear-Stearns

In other news, we had a long meeting this morning with a bunch of folks from Bear-Stearns, who has been retained by Borland to broker the spin-out.  This was our chance to finalize and walk through the financial models and plans with someone outside the company.  While Bear-Stearns has been heavily involved throughout this process, I got to finally meet with these folks face-to-face.  They played the part of the grumpy investor and ask a bunch of leading and probing questions.  Most of the questions were centered around how we arrived at certain numbers, what assumptions were made, and how the whole back-story plays into the financial model.  After dodging arrows for a while and taking copious notes, the Bear-Stearns guys indicated that it all looks really good.  We still have to tweak a few details here and there, but overall the models are holding together.

We also were able to get an idea of all the various steps that are typical of a transaction like this.  So here's a quick list of those steps as I was able to understand.  No time frames are laid out mainly because they are dependent on so many uncontrolled variables, that it would be silly to even speculate.  The ordering of some items may also be suspect since I'm filling in a few holes with what I see as common sense.

  1. Determine high-level feasibility of doing a spin out and decide to do it.
  2. Initiate internal process of gathering specific financial data on products (revenue, costs, profits, etc...)
  3. Publicly announce intention to spin out.
  4. Continue internal process of gathering financial numbers and creating business models while concurrently gathering interested parties.  Get Non-Disclosure Agreements in place.
  5. Send out investment memorandum that is the results of steps 2 and 4.  This contains an overview of the business along with current and projected revenues, costs, and profit or loss (P&L statements, balance sheet, etc).
  6. Recipients begin validating and mulling over the memorandum.  They also begin to formulate an initial offer or bid.
  7. Investors that are ready to move to “the next level” provide some real statement of intent along with an initial bid.
  8. At this point, some more heavy due-diligence can begin.  This is where more of the “virtual data room” is opened up.  Borland will be looking at the investors' offers under more scrutiny.  Like where are they getting the money, do they actually have what they said, etc... 
  9. At this stage, presentations to the individual investors will begin.  These presentations serve to allow the investors to pick our brain and basically “get comfortable” with the team, the business, and the opportunity.
  10. Once the presentations are done, the bids are finalized and the Borland exec team will select an investor.
  11. Final documents outlining the terms of the sale are then drawn up.
  12. Sale is publicly announced.
  13. The final bits of due-diligence and work needed to actually close the deal is done at this stage.
  14. The deal closes and “DevCo” is separated from Borland.  It will either be an independent concern or part of some other company (strategic investor).

Those are very high-level steps, and certainly don't convey the effort and work that is involved with each one.  Where are we in the process above?  Don't know if I can really say except that it is someplace near the top of that list.  For only 5 weeks of real work, we are doing quite well.

As we enter the 2nd quarter beginning April 1st, the spin-out products, teams, and management will be operating as a quasi-separated business.  We'll still be part of Borland.  We will continue to be responsible for generating revenue for Borland just like they are responsible to be carrying the costs of the business on their books.  The good thing is that it is beginning to look and feel like a separate business.  I can already begin to see some changes in the attitudes and excitement among the dev team members.  Folks are also starting to see this new company taking shape within Borland.  I can certainly start going down the path of comparing it to the gestation of a child within it's mother's womb...  But I won't and leave that to you... :-)

UPDATE: There seems to be some confusion regarding the outlined steps above, both internally and externally.  For reasons of confidentiality I did not intend to imply that these steps are what is being strictly adhered to.  They were merely outlined as “typical of a transaction like this.”  Some steps may be in different orders and some may be skipped altogether.  Also, there are some things I'm simply not privy to so I cannot even comment.  The way I see it is that most folks who do these kinds of things already have an idea, at a macro level, of what steps are involved.  Just like the process of buying or selling a home, most folks are aware of the various steps, yet the ordering and timing of those steps will vary, sometimes drastically, from transaction to transaction.