May 2014 M&A Webinar
Bruce Milne
Welcome to our global tech M&A monthly. This month we feature our annual seller’s panel. I’m Bruce Milne, your moderator for today.
Let’s go right to our agenda: We’ll return to our top ten disruptive tech trends feature, looking at digital force multipliers. Then a brief research report on the deals we’re highlighting this month. Then we’ll go to our seller’s panel, which you’ll really enjoy and finally some closing thoughts and Q&A.
Top Ten Disruptive Tech Trends: Digital Force Multipliers
In January of this year, we introduced our recurring feature, Top Ten Disruptive Tech Trends. These trends were based upon data extraction from the world’s largest buyer knowledge base, daily conversations with 3000 strategic buyers and over 500 private equity firms. This buyer information is then matched against conversations we have with thousands of sellers we have each month who attend our annual 150 conferences. These trends were then substantiated and researched and distilled into a presentation for our webinars.
We just did mobilization and online exchanges. This month we’re going to talk about Digital Force Multipliers. To do that we’re turning to Rob Schram, Vice President here at Corum.
Rob Schram
We’re going to hear from Corum client, Campus Special, later in today’s presentation. They are a great example of one of the technology trends Corum sees creating value in the technology sector; which is Digital Force Multipliers.
As the power of software development tools increase and the costs of building software come down, firms like Campus Special can sidestep software vendors and development shops in favor of internal dev teams addressing their custom technology needs.
Advancements like cloud-based platforms and hosting, improved offshore development resources, new generations of development tools and others enable firms like Campus Special to build their own platforms internally, broadening their product and service offerings and equipping their workers with the specific tools they need to multiply their impact.
These digitally-enhanced hybrid companies draw significant interest from buyers seeking growth and a three-fold benefit: Increased revenue, an innovative technology stack, and an employee base accustomed to utilizing that technology to drive results. Buyers possessing longer reach and more resources can leverage the technology to drive significant, rapid growth.
We’re also seeing non-tech companies looking to buy their way into this category, acquiring innovative technology to give them their own digital force multipliers.
Bruce Milne
Thanks, Rob. We’ll be hearing a lot more examples of digital force multipliers in our research report. While we have you up here, you just completed a transaction, didn’t you? Congratulations.
Rob Schram
That’s right, thanks, Bruce. It was a great pleasure working with Chau Ngyuen, the founder and CEO of Campus Special, and you’ll hear from him in a few moments. They were acquired by newly public online textbook rental and learning platform company Chegg, for the reasons that I noted above.
Campus Special began as a traditional hard copy coupon book provider for restaurants and other business, serving college campuses and utilizing an award-winning internship program as their primary sales team. As technology and customer behaviors changed, Campus Special changed with them, integrating a top-rated mobile app and online food ordering service. These helped put the company on the Inc 5000 list multiple times and caught the eye of Chegg, who have aggressive plans to increase the footprint of their new subsidiary in the months to come. And we’ll hear from Chau in a minute.
Corum Research Report
Bruce Milne
Thanks, Rob. We’ll hear from Chill in a minute, but before we do, let’s go to our Research Report with Elon Gasper, Erin Sanchez, and our newest draft Tyler Vickers.
Elon Gasper
Thanks, Bruce. We begin with the Public markets, on a bounce after a Q1 and early April dip—with the Dow setting an all-time record high last week, though tech indices remain stepped back from their frothier levels as exuberance for less profitable companies calmed a bit. We view that pullback as healthy, and given the intact backdrop of record cash stockpiles, cheap debt, and turbulent tech progress tossing up disruptive trends such as Digital Force Multipliers, we stand by our prediction for a fine market this year for tech M&A sellers.
Overall tech M&A activity continues to rise as we move into the second quarter of 2014. Our Corum Index shows several megadeals in April versus just one a year ago. The total number of transactions is also up compared to 2013, as are the number of PE deals and VC-backed exits.
Megadeals included a map data acquisition by global ecommerce leader Alibaba, which also filed this week for what may be the biggest tech IPO ever, and bar code titan Zebra taking advantage of that cheap money to borrow billions and triple its size, immediately becoming a major player in the Internet of Things. Zebra then bought into a new cloud- based software platform from Qualcomm. Other software investments and acquisitions seem likely.
Next we’ll review 3 of our markets, with a special focus on this month’s Trend: Digital Force Multipliers. We’ll highlight two different types of those deals: some like Campus Special, where a traditionally non-tech company has built tech for themselves, and some reversed, where one adds that value through tech M&A.
Erin, what’s been going on in the Vertical space?
Vertical Software Valuations
Erin Sanchez
The Vertical sector saw several Digital Force Multiplier deals in April. Dutch online printing and design services provider Vistaprint bought Italian online printing services provider Pixart Printing for $175M. Pixart is an excellent example of a Digital Force Multiplier that has built value-adding technology from the ground up. Originally a traditional 20th century printing service bureau, Pixart built out its web systems to become an ecommerce printing company.
In another Digital Force Multiplier deal this month, nonprofit fundraising services provider LW Robbins acquired KerstenDirect, a nonprofit digital advertising firm. Though it started as a direct mail service, KerstenDirect developed technology in-house to bring it into the digital age. Company and transaction value is driven by a growing focus on mobile apps.
Speaking of value, Tyler, is Horizontal still the highest valued sector?
Horizontal Software Valuations
Tyler Vickers
It is. Despite a dip last month, the Horizontal market still holds the distinction of having the highest trading multiples among our six sectors.
John Wiley & Sons made two purchases in April, picking up French corporate elearning SaaS vendor CrossKnowledge for $175M and workforce management provider Profiles International for $51M. Again, Profiles is a perfect example of the Digital Force Multiplier trend: a traditional assessment firm that leveraged its domain expertise to transform itself into a valuable tech company.
Market research guide JD Power & Associates bought analysis software company Correlate. This deal represents another one of our Top Ten disruptive Trends, Omnichannel Marketing. With this purchase, JD Power adds advertising analytics that help measure and link online consumer activity with offline sales, enabling marketers to optimize their digital strategy.
Infrastructure Software Valuations
Erin Sanchez
Infrastructure valuations continued their rebound in April. In the security space, we saw a Digital Force Multiplier deal when French semiconductor designer INSIDE Secure bought mobile security software provider Metaforic for $11.6M. Metaforic’s tools fill the gap in INSIDE’s mobile security portfolio, helping INSIDE become the only company able to provide security solutions for enterprise secure access, digital entertainment, and financial services markets.
Elon Gasper
And that touches on another of our top ten trends, Information Security, which we’ll spotlight in a subsequent webinar. That’s our quick update, next month we’ll catch up on all our 6 markets. Back to you, Bruce.
Bruce Milne
Thank you, great report. It’s really interesting, the increase in the number of deals, we’ll hear more about the Alibaba deal next month. It’s interesting to me that we have so many buyers that people have never heard of. JD Powers first software acquisition? Good to hear.
Now let’s move to our feature, the Seller’s Panel, with panel moderator Nat Burgess.
Annual Seller's Panel
Nat Burgess
Thanks, Bruce. If anyone wonders where our themes come from, like the Top Ten Trends, you’re about to get a clue. We’re going to be talking about cross-border deals, emerging markets, financial services, SaaS, early stage companies, the resurgent IPO market, content creation, digital media…got it?
Now let’s go to our panelists. We have three panelists today and we’ll go to each of them for a brief introduction. Tell us briefly about yourself and your company. Then we’re going to get into the Q&A session.
Javier, since you just survived an earthquake in Mexico City, we’ll start with you.
Javier Medina-Mora
I hope nothing else happens!
Hello everyone, my name is Javier. I was one of the founders of Inffinix, and chairman of the board until last December. Let me tell you about Inffinix. We create and provide software and services for the collection of delinquent accounts. Our clients, some of them very large international companies, are banks, telecoms, and retailers in 18 different countries, mostly in Latin America, but also in Europe and Asia.
We create value to our customers by helping them to increase their client loyalty and their profitability. We enable them to collect more, faster, and with less gross. This is achieved with our software suite, and services that bring best practices to our customers. We deliver the software for full use to our customers in only three months. Inffinix has had excellent performance revenues and they are growing consistently over the last 7 years. A significant driver for this has been our international expansion.
Inffinix has headquarters in Mexico City. We offer our solutions around the world, with offices in Brasil, Colombia, Hong Kong, and Spain.
Nad Burgess
Thank you, Javier. I think next we’ll go to Chau Ngyuen who Rob mentioned earlier. Chau, please give us a brief introduction?
Chau Ngyuen
I’m the founder and CEO of Campus Special. For those of you not familiar with us, we are an advertising company focused on the 18-24 demographic, so: college students. It’s very niche. We connect local mom-and-pop FNBs with the college audience via mobile and online SaaS and print solutions. We’re basically a marketing and advertising company for local merchants looking to target the college demo. We started this company in 2005 and were bootstrapped, so if more of you are listening, we did it the old fashioned way, you’re not alone, we had nothing but savings accounts and credit cards. Being bootstrapped, we’ve learned a lot about growing a business. Our business has grown tremendously, as Rob mentioned. Campus Special has been one of the fastest growing private companies in the country for four consecutive years.
Nat Burgess
That’s great, Chau. And congratulations. When you can pull that off and build a great company and you still own it, that’s a fantastic success.
I’d like to now go to Matt, who had a similar strategy and experience. Matt, can you give us a brief overview on Citytech please?
Matt Van Bergen
You bet, Matt. I was a co-founder of Citytech. For those that don’t know, we are a system integration firm that specializes in offering strategy, implementation and cloud hosting a digital marketing system. While we started our company in Chicago in 2003, we grew geographically to have offices in San Francisco, Columbus, Ohio, Bangalore, India, and Sydney, Australia.
And much like Chau, who spoke earlier, we also founded our company based on a self-contained strategy, and I’m happy to be on the panel today.
Nat Burgess
Thanks for joining us. I’d actually like to start with a question for Chau along those lines.
You were a bootstrapped company, so essentially you used credit cards funds and self-generated cash to finance your business. Then you went and sold the company to a newly-minted, high-flying, high-valued IPO that now carries your name. How did you get the confidence to take the risk, to go from boot-strapping entrepreneur to taking part in this enormous story with what is now called Campus Special?
Chau Ngyuen
It’s been an incredible ride. I think for the entrepreneurs who are listening, one thing we have in common, I find, is that we love to learn and we love challenges. We love to do new things. We got to a certain point where we realized there was a bigger payoff there. We’ve carved out this niche, and we knew there was a demand for our service. To be able to find the right suitor that had all the right synergies and resources, the right people and the right team, it was a dream come true, because now we’re on the big stage, so we get to do what we’ve been doing, and what we’re good at, except with bigger resources and a much bigger vision and plan, which is critical mass at every possible college in the entire country, which we couldn’t do without either raising capital or being acquired.
Nat Burgess
That’s a great way to put it. You guys got to rehearse and be really prepared, and now you’re out on the mainstage, playing a big game with a well-funded public company.
I’d like to ask Matt a somewhat different question, and that relates to the M&A process itself. Matt, in our experience, when the founder is going through the M&A process, there’s a point where the due diligence becomes overwhelming, where you’re staying up late answering questions for other people, and where you’re asking yourself, “Why am I doing this?”
I suspect that you may have hit at least one of those moments in your process. Can you tell us how you managed that and basically how you worked through that to get your transaction done?
Matt Van Bergen
A lot of late nights. The process was more than we imagined. While we thought we were pretty organized in how we managed the company and really had a simple business model, things like bringing forth contracts from years past, looking for the signed versions of those contracts, getting our books in order, answering all the due diligence questions, it was overwhelming. But certainly having Corum on our side with a lot of the mechanics, which was the bulk of the process, so we could focus on answering specific questions around our business model, staying focused on the culture fit, that was something we were able to do.
If I went through it again, we probably would have kept a couple things tied up and organized a little bit better, but we got through it, we survived, and having the right team on our side was key to getting to the finish line.
Nat Burgess
Javier, we have a question for you, and this relates to the M&A interest that came in for Inffinix. Obviously we can’t name names except for Equifax, but traditionally IT and software companies that start up in Mexico end up being acquired by local regional companies at relatively low valuation. What was really exciting working with you and Carlos at Inffinix was just the range of interest that came in from four or five different countries, and ultimately resulting in a transaction with Equifax in Atlanta.
In your mind, what were some of the aspects of Inffinix in your strategy and execution that made that possible, that attracted international buyer interest.
Javier Medina-Mora
Our international edition, and the expansion of selling our software outside of Mexico made us a player in the market. We participated in conferences and various events where our competitors and potential buyers get to know us and the specifics of our company. In fact, before going with Corum, we received three unsolicited approaches from companies, and in order to handle this, it was going to be a mess with the due diligence, a problem along the way. Our best decision was to look for an investment banker and we think we got the bank right. After that, we saw that the money was in consolidation and the process went very well.
Nat Burgess
Thank you, Javier. It’s interesting that you had the inbound interest and you could have been overwhelmed trying to manage three due diligence processes simultaneously. It was exciting to put the process together and really figure out who put the highest value on your business and who you were most comfortable working with and for, and then just focusing on executing that transaction.
Javier Medina-Mora
I can explain our experience with Corum in just a couple of words: Corum made it happen. And they made it happen at a great price.
Nat Burgess
Thank you very much.
I’m going to ask the same question to all three panelists now, so one of you will have the most time to think about it, and one of you will be on the spot immediately. As you go back and think about the M&A process you’ve just gone through with us, what is the one strategic decision you took, the move you made, that had the biggest impact on establishing or reinforcing getting the deal done.
Chau, let me start with you with that question.
Chau Ngyuen
So I get to be on the spot then! I’ll answer that in a few ways. One of the things that really gave me a lot of confidence, as Corum took us through the process, was that ultimately, a deal is about the people and it is about the people. It’s about chemistry, the fit, the synergy between the people involved. If you can make that connection and you happen to have a great business that fits and makes sense, but fail to connect on the human level, often times that is where the magic happens. To be able to get on these conference calls, fly out with me, be on video conferences, all of that makes it a normal process. That first is daunting! You’re going to let someone look under the hood, take in every number and detail and everything, and it’s kind of scary, but ultimately we felt that a lot of our success came when we got in front of the different candidates and had the opportunity to show them who we were and how passionate we are about what we did, how much expertise we had, that kind of human interaction went a long way, and their confidence in you skyrockets when the realize you’re the right people.
Nat Burgess
That’s great, Chau, thank you. Matt, now we’ll pass the question to you. What’s the decision, communication or step you took that really helped drive the deal home.
Matt Van Bergen
Sure, and I have an answer to this similar to how Chau answered it. We were approached by a couple of development people and we had not given a lot of thought to things like valuation or how much the company was worth, and all those mechanical things. We also very much focused on the people side of it, the cultural fit. And also just understanding what happens on day one after that position, where does our company fall, how will our employees fit in, will they be diffused throughout the organization, those kind of questions.
After several conversations, even flying to multiple offices, we began to learn that our team was going to stay intact, we were going to be part of a growing part of the business, and really able to make a difference and move the needle. All those things were very important to us to moving forward, while the mechanics of the deal, the valuations, the terms and things like that, certainly we had great partners in Corum and our legal team to help lead us through that. But I think we were always a bit hesitant until we came down to making the decision and learning that the cultures were going to be a good fit, we understood exactly where we were going to fit in the organization, how we could contribute to its success, and I think those conversations were the most important to me. Up until getting that warm feeling, we were not exactly sure about the whole process. But once we got comfortable with it, then the switch moved to the on position for us.
Nat Burgess
That’s a similar dynamic, but it seems to be across all the transactions.
Javier, you’re the last one here, we’re running out of time, but I’d appreciate your answer on the same question.
Javier Medina-Mora
Okay. Well it’s very similar to Chau and Matt. At the very end, we feel that we created the most efficient and experience team with our investment banker and law firm. They were acting like an internal division, and they helped us cover a lot of ground very quickly, so I think that decision was the most important. After that, we really felt like we had a corporate development team inside the company.
Nat Burgess
That’s why we specialize. We know software. We learn business quickly. We don’t have to go to school for very long.
Actually, I’m going to give all three of you some feedback. One thing that I’ve noticed is that you all picked your partners very well and very carefully. Javier has a business partner, Carlos, who is an aggressive sales-oriented guy with a lot of integrity, and really helped push things forward. Matt, with Janet at his side, she’s pragmatic, very smart, very professional, and likewise that makes all the difference.
I’d like to congratulate all our panelists on fantastic success, it really was a pleasure working with all three of you. And with that, we’re going to go to our closing.
Bruce Milne
Thank you, Nat, Javier, Chau, and Matt. We had one final question, how did the sales process get initiated, target approached, etc. I’d encourage you to attend one of our merge briefings, where we talk specifically about this. It’s called the Optimal Outcome Process. From the very beginning to the very end, how you do it, do it right, and you can find a presentation of ours on Youtube as well.
We’re out of time. Next month we’re having a very special presentation on mis-perceptions and misinformation that kills deals. We look forward to sharing that with you. Now we’ll go to our close.