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A due diligence checklist.

A DUE DILIGENCE CHECKLIST Ordinarily, we report the inside details of company buyouts from a seller's perspective, if only because entrepreneurs tell better stories than their corporate counterparts. but Aldus's acquisition of Silicon Beach--which became official on February 26--raises a question we have't addressed before: How do buyers think about these deals?

We asked Larry Spelhaug, Aldus's marketing vice president, to tell us what the key issues in the deal looked like from Aldus's point of view. Spelhaug, who joined Aldus a week before acquisition talks got under way, says the basic framework of the deal existed from the beginning: After a five-hour meeting at Fall Comdex, Aldus president Paul Brainerd and Silicon Beach president Charlie Jackson emerged with a handshake agreement that defined the rest of the negotiations. "Paul and charlie are early founders in the industry," Spelhaug says. "They knew each other, and they had a sympathetic view of how a company should be run."

Spelhaug says the Comdex agreement dealth with the basic issued, particularly the acquisition price (ultimately $25.5 million in Aldus stock) and the question of Jackson's ongoing role; thereafter, he says there were no major surprises on either side. Both sides were eager to move quickly, he adds. "You can spend months studying this kind of thing, and you'll generally make the same decision as if you just punted."

Nevertheless, as a public company, Aldus had to go through an elaborate due diligence process that Spelhaug says "generated piles and piles of documents" and ultimately took almost three months to complete.

Spelhaug says Aldus paid closet attention to three key areas that are probably representative of the kind of issues that matter most to corporate buyers:

* Product and Technology fit. Spelhaug says Silicon Beach's revenues ($10.7 million vs. Aldus's $87.9 million) were less critical than the potential synergism between the two different product lines. Aldus now defines its business as "visual communications," Spelhaug says, and viewed Silicon Beach's Mac titles--particularly SuperCard, SuperPaint, Digital Darkroom, and Personal Press--as "logical extensions" to Aldus's products. To confirm this feeling, Aldus hired a research firm to poll its customers about which Silicon Beach titles they use. "We found there's already a lot of commonality in our user bases."

* Organization. "We're seen big companies acquire small companies, and may times they have problems communicating," Spelhaug says. Aldus managers "met with every single person" who worked for Silicon Beach, and also looked at the organizational structure. "Charlie set up product teams that are very much like our own," he says. "It's a much more mature organization than we expected, and in some areas it's slightly ahead of our own systems."

* Marketing synergism. Aldus also polled Silicon Beach's resellers and customers to get a sense of the company's position in the marketplace. Again, Spelhaug says Aldus liked what it found--and even saw opportunities in areas where Silicon Beach was relatively weak. "Silicon Beach has a great reputation, but Charlie hadn't built a marketing organization. That's a plus for us, because we have a distribution network in place they can take advantage of almost immediately."

Larry Spelhaug, vice president of marketing, Aldus Corp., 411 First Ave. South, Seattle, Wash. 98104; 206/622-5500.
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Title Annotation:the acquisition of Silicon Beach Software Inc. by Aldus Corp.
Date:Mar 5, 1990
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