keys to successful m&a: transparency, security, and process
TRANSCRIPT
Keys to Successful M&A:
Transparency, Security and Process
About SecureDocs, Inc.
SecureDocs is a virtual data room for sharing and storing
sensitive documents both internally and with outside parties.
SecureDocs, Inc. Company Basics:
• Founded by the team that created and launched GoToMyPC and
GoToMeeting, Appfolio, and RightScale
• Hundreds of Financial transactions worth tens of billions of dollars
completed on the platform.
• Web-based business software for financial and legal professionals
Nat Burgess, Corum Group
Nat is a lawyer, investment banker and angel investor with over 20 years of experience in the technology sector. Prior to joining Corum, Nat worked for Morgan Stanley in New York and Tokyo, Activision in Los Angeles, and the SEC in Los Angeles.
Nat has negotiated transactions with Microsoft, Intel, Google, Symantec, BMC, Fiserv, and many other leading companies. Prior to joining Corum, Nat co-founded Postcard Software, an early Internet company. He has invested in several technology startups, including Cequint, SiteScout, MessageMind, PockitDoc, and Viziify.
Nat is a frequent commentator on CNBC and MSNBC. He graduated from Yale College and the UCLA School of Law, and is a member of the Washington State Bar Association.
Nat BurgessPresidentCorum Group Ltd.
About Corum Group
We only work with:
Privately-held firms on the sell-side.
Software and related tech companies.
M&A specialists since 1985.
Optimal Outcome process
Team approach
Largest tech M&A educator
Largest database
Sold more software-related firms than anyone
About Corum Group
Staying ahead of consolidation
• AccountMate Software
• ACCPAC
• Activant
• Baan
• Best Software
• Brain International
• CDC Software
• Consona
• Daamgard
• Epicor
• Exact
• Geac
• Great Plains
• Halo Holdings
• Harper and Shuman
• Infor Global
• Infinium
• Intentia
• Invensys
• JD Edwards
• Lawson
• Macola
• Maxwell BusinessSystems
• Microsoft
• Myob Limited
• Navision
• Oracle
• PeachTree Software
• PeopleSoft
• Red Pepper
• PWA Group
• Ross Systems
• Real World
• SAGE Group
• SAP
• SBT Accounting
• Scala
• Sesam
• Softbrands
• Soloman
• State of the Art
US Exchanges
Aggregate Markets
Q4:10 Q1:11 Q2:11 Q3:11 Q4:11 Q1:12 Q2:12 Q3:12 Q4:12
EV/EBITDA 12.33x 12.34x 12.29x 9.44x 10.49x 10.95x 9.83x 10.43x 9.91x
EV/S 2.44x 2.38x 2.27x 1.82x 1.77x 2.04x 1.76x 1.80x 1.78 x
Top Strategic Acquirers: 2012
18
16 1615 15
14
12 1211 11
10 10 10 10 109
12
10 10 10
8
7 7 7
6 6
5 5
4 4
Top Private Equity Acquirers: 2012
Excess Cash Driving M&A
All estimates in US $Billions *As of Dec. 2012
Cash Reserves Increase Held Offshore
2007 2012 Amount Percent Amount Percent
$9 $121* $112* 1244%* $83* 68%*
$6 $67* $61* 1017%* $58* 87%*
$6 $32* $26* 433%* $25* 80%*
$6 $45 $39 650% $20 44%
$3 $46 $42 1050% $41 89%
$9 $15 $6 67% $7 47%
$4 $9 $5 125% $5 56%
10 Reason M&A Will Remain Strong
1. Extraordinary change – interrelated mega trends
2. Strategic buyers have record cash
3. Debt is at lowest cost ever
4. Private equity - over $1 trillion available
5. New public foreign buyers (e.g. China, India)
10 Reason M&A Will Remain Strong
6. Entrance of new non-tech buyers (e.g. Bosch)
7. Crowdfunded buyers (Facebook, Zynga, Groupon)
8. American companies are cheap to foreign investors
9. Strong financial markets
10. Software rising in importance (e.g. HP, IBM, Dell)
Manage:
• Transparency
• Security
• Process
To Achieve:
• Highest Value
• Lowest Execution Risk
• Minimal Post-Closing Liabilities
From Startup to Behemoth
Stages of Growth
PIONEER BUILDING ESTABLISHED
Val
uat
ion
Pre
miu
m
Transparency
Information
Transparency
PRELIMINARY DUE DILIGENCE CHECKLIST
Please populate the data room with the documents referred to below for Company and each of its subsidiaries and predecessors. (Unless the context otherwise requires, all references to the “Company” include Company and each of its subsidiaries and predecessors.) Except where a list, schedule or description is requested, please provide us with a copy of the requested agreement, correspondence or other document. Please do archive all “privileged” documents separately; however, please indicate whether any “privileged” documents have been withheld.We would be happy to discuss with you the most effective and least burdensome way in which you might respond to this request for documents. Thank you.
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Transparency
Timing
Detailed pipeline
Customer References
Customer List
Source Code Samples
Cap Table (& Distributions)
Intellectual Property
Corporate Documents
Financials
Litigation
Week: 1 2 3 4 5 6 7 8
Transparency
Transparency
BEST PRACTICE:
The Data Room should be updated to “complete” at the end of every quarter...
From the inception of the company
Detailed pipeline
Customer References
Customer List
Source Code Samples
Cap Table (& Distributions)
Intellectual Property
Corporate Documents
Financials
Litigation
Transparency
If you are prepared, you can be:
• Crisp and professional
• Completely transparent
• In Control of the Schedule
Transparency
And avoid this
Transparency
Or this
Fill the Gaps over Time
1. Landlord Consent
2. Missing Shareholder (Russia)
3. Missing Shareholder (Iraq)
4. Articles of Incorporation (Olympia)
5. Work for hire (Bratislava)
6. Environmental Indemnification (landfill)
Access from Anywhere
1. Cab to the printer
2. Airplane to Hong Kong
3. Rental car to Fedex
4. Secure FTP
5. $ Virtual data room $
6. SecureDocs
Transparency Revisited
• Highest Value
• Lowest Execution Risk
• Minimal Post-Closing Liabilities
Security
Why the NDA doesn’t matter• Perceived as a formality
• Seldom litigated
• Can’t put the cat back in the bag
Security
Why the NDA does matter• IP protection for the benefit of the ultimate buyer
• Sets the proper tone
• Framework for negotiating precise terms of disclosure
• Read the fine print• Non-enforcement of patent rights against company and successors
• Assignment of ownership interests in patents
• Commitment to provide all due diligence materials in French
• 10 year term
• Non-compete
• Personal liability for signatories, including liquidated damages
Security
Staged Qualification1) Sector, Size, Customer Profile
2) Company, Products, Customers, Growth Rate
3) (NDA) Detailed financials, roadmap
Security Revisited
• Highest Value
• Lowest Execution Risk
• Minimal Post-Closing Liabilities
Process
IntegrationClosingDue
DiligenceNegotiationDiscoveryContactResearchPreparation
Stage 1: Preparation
IntegrationClosingDue
DiligenceNegotiationDiscoveryContactResearch
Preparaton
Preparation
Set tasks, timeline
Allocate staff resources
Conduct internal due diligence
Compile business/marketing plan
Ready financials/projections
Ready presentation materials
Begin collecting due diligence materials
Stage 2: Research
IntegrationClosingDue
DiligenceNegotiationDiscoveryContactResearch
Preparaton
Prepare buyers list (A&B level, financial, non tech)
Perform strategic analysis on each buyer
Prepare preliminary valuation
Determine proper contact (Execs, EA’s, advisors)
Outside advisor/board/investor influencers
Prepare position statement for each buyer
Preparation
Stage 3: Contact
IntegrationClosingDue
DiligenceNegotiationDiscoveryContact
Preparaton
Create introductory correspondence
Draft/customize executive summary
Execute NDAs and non-solicitations
Screen initial interest, valuation expectations
Establish log on all communications
Refine position/process based on feedback
ResearchPreparation
Stage 4: Discovery
IntegrationClosingDue
DiligenceNegotiationDiscovery
Preparaton
Coordinate conference calls, site visits, and meetings
Establish technology review process
Prepare formal valuation report
Develop synergy and contribution analysis
Set up NDA with customers, contractors, etc.
Finish due diligence on buyer
ContactResearchPreparation
Stage 5: Negotiation
IntegrationClosingDue
DiligenceNegotiation
Preparaton
Organize and host final visits
Provide structure & valuation guidance
Create an auction environment
Negotiate with top bidder(s)
Sign Letter of Intent (L.O.I.)
Inform other bidders of No Shop
DiscoveryContactResearchPreparation
Stage 6: Due Diligence
IntegrationClosingDue
Dilligence
Preparaton
Verification of financial statements/ projections
Determine if outside advisors/opinions needed
Establish confidential data room
Technical/Legal/Ownership due diligence
Written explanation of business model/methodologies
Complete definitive agreement/ attachments
NegotiationDiscoveryContactResearchPreparation
Stage 7: Closing
IntegrationClosing
Preparaton
Final reps & warranties
Determine escrow hold-backs
Final opinion(s)
Sign contracts
Arrange payment/distribution
Regulatory filings
Disclosure Schedules
Due DilligenceNegotiationDiscoveryContactResearchPreparation
Stage 8: Integration
Integration
Preparaton
Advanced planning – during negotiation
Determine synergies
Best practices analysis
Interim transition team
Employee retention plan
Set up monitoring/reporting
ClosingDue
DilligenceNegotiationDiscoveryContactResearchPreparation
Qualifying the BuyerTop 10 Questions
1. Why are you interested in my company?
2. What acquisitions has your company done?
3. What is your preferred deal structure?
4. What is your approval process?
5. Who is involved in the decision?
Qualifying the BuyerTop 10 Questions
6. How do you see our company fitting into yours?
7. What’s your integration process?
8. Who are your outside advisors?
9. How did your acquisitions work out?
10. Can I talk to companies you have acquired?
Top 10 Deal Killers
1. Dealing with only one buyer
2. Misalignment: shareholders/empl/mgmt
3. Contact at the wrong level
4. Improper research of potential buyers
5. Misunderstanding buyer process/models
Top 10 Deal Killers
6. Inability to portray value properly
7. Improper due diligence preparation
8. Not qualifying buyers properly
9. Not orchestrating all buyers properly
10. Ego – Greed – Arrogance
Top 6 Value Destroyers
1. Confidentiality—internal/external
2. Theft of technology
3. Loss of staff (non-solicitation)
4. Wear on CEO/management
5. Business drop-off—lack of focus
6. Going to market too late
Contact Us
SecureDocs, Inc.
7127 Hollister Ave., Suite 25a-320
Goleta, CA 93117
Phone: (866) 700-7975
www.securedocs.com
@SecureDocsVDR
Corum Group
19805 North Creek Parkway Suite 300
Bothell, WA 98011
Phone: (425) 455-8281
www.corumgroup.com
@CorumGroup