October 2007 webinar continued ..
Ryan Blakely (cont.)
And then, anything SAS. Not necessarily a
sector, but more of an opportunity, both strategic and financial buyers have a
strong bias toward SAS opportunities. They value them highly, they
really like the stability and the recurring revenue of those opportunities. Were
seeing a lot of companies move to this model and a lot of buyers focusing and
really looking forward and looking towards those opportunities of bringing
additional recurring revenue into their current operations.
So, with that, I would like to turn it back over to Mark
for some closing comments and questions.
Mark Reed
Thank you Bruce, Miro, and Ryan. Great
stuff. Before we go to the Q&A, I just have a couple of
comments. First of all, we are offering all of you in the audience a
complimentary pass to Corums all day M&A conference entitled Selling Up,
Selling Out. Bruce mentioned that earlier. We give this
about 25 or 30 times a year around the world. You can go to our
website, www.corumgroup.com and look to the left hand side to see a
registration page. On that page you will see a place for promotion
code. The code for todays attendees is web3q. If you
enter that when you register, your $495 fee will be waived. So, with
that, lets go to the Q&A session and were running a little bit behind
schedule, so hopefully we can stay online a little bit longer than the 10
oclock hour we had scheduled.
My first question, Bruce, submitted from Germany is for
you. It is about how you grow your company. We are considering
raising another round of investment. Do you have any thoughts about
whether we should pursue the investment or consider M&A now?
Bruce Milne
Thats a great question. It was interesting,
during 2000, we had a lot of people that were actually running in parallel
tracks looking at the M&A market and also looking at raising money and
going public at that time. My view of this is that you have to really look
at where you want to be five or ten years down the road. If you
raise capital, remember that you are now mortgaged to that financing for some
years to come. In other words, you are going to be working in the
next few years before the math, trying to get a return to that
investor. Classically, that investor will want 5, 10, or whatever
their particular threshold is. So you have to decide if that is what
you want, and then naturally, if you sell, then youre going to have to sell
for that much more, which raises the risk. Is the market right 5 to
10 years out? Obviously youre going to be diluted, what kind of
terms will there be, what is the competitive landscape? Right now,
given the way the marketplace is, I would calibrate, you can fairly quickly
calibrate the M&A market and what happens in these transactions is that not
everyone is a buyer. Classically you will get about half from the A
list and half from the B list. A lot of them cant buy, but they end
up being partners in some way. A good example, we had a firm that
had looked at the exact same issue a few years ago, down in Portland, Oregon,
and they were trying to think, should they raise money or should they go and
sell? They went to the marketplace and they didnt sell for the
buyers, there were various reasons, their stocks were down, there were some
changes, so we put them on hiatus, but through that process of opening the door
as they did four or five major transactions, it increased their value, and they
went from a valuation expectation of maybe $8 to 10 million to $45
million. So, the process was good for them. They could
have raised money, the process had prepared them for that, it clearly opened
doors, so I guess the net of it is, to get back to a shorter answer here is
this. I would calibrate, in this kind of environment, to see what
the M&A market says. You will learn a lot about the perceptions
of you that will help you in preparing your company, should you want to go
ahead and do another round of funding.
Mark Reed
Thank you, Bruce. Ryan, Id like to lob a
question to you. It should be a short question, its just about
Slide 28. What was the left hand axis on that Slide?
Ryan Blakely
Yes, Slide 27 and 28, both of those dealt with specific
sectors turning up and specific sectors turning down. The left hand axis
is number of deals that were tracked during this past quarter. We
track hundreds and hundreds of deals on a quarterly basis, so that is what the
left hand axis is.
Mark Reed
Thank you. Miro, here is a question for you that
relates to the interest in private equity firms. The question is
this: Are there any M&A opportunities for small companies with private
equity firms not interested in anything less than $5 million in
sales? I assume the question is, for software companies with $5
million and less in annual sales, is there an opportunity with the private
equity players?
Miro Parizek
The $5 million revenue and whether or not a private equity
investor would be interested, I presume the distinction here is whether or not
a private equity buyout firm would be interested, versus a private equity
venture funding firm, because obviously venture capital, that would be the
scale, it would be under $5 million, probably, or sometimes
larger. In terms of private equity buyers that are looking to buy a
majority interest or controlling interest in the company, that would typically be
a bit too small for looking for a buyout acquisition from my experience in
Europe. Id have to defer to my colleagues in the states if they
have a different experience.
Bruce Milne
Generally, whats going to happen is, and as Ryan
mentioned, you have about 50% of the companies under $25
million. Whats happening is that the private equity firms and to
some degree the venture firms, are channeling funds to those companies, and
they are in turn, buying. So, it generally wont be directly with a
private equity firm, but through one of their portfolio companies.
Miro Parizek
Thats absolutely the same in Europe, and I guess thats
the extension of the question. The reality is, in that case, you do
need to go to the operating company. The private equity investors would
typically, if they are good, pass it on to the right people, but that would be
the job of your M&A advisor to do that, and that is to find the Sophoses of
the world that are backed by TA and offer them a security product that might be
a compliment to their product line, rather than going to TA with a $5 million
buyout opportunity and leaving it up to them to channel it to the right
players.
Mark Reed
Thank you. Heres a question which I am going to
send to you, Jerome. Can you hear me?
Jerome Fougerat
Yes, sure I can hear you.
Mark Reed
Heres the question, and Im sending it to you because it
relates to European activity. You say that European companies are
active buyers in the U.S. Can you tell me what they are looking
for? Technology, beachhead in new markets, brand? And can
you tell me some of the differences between dealing with a U.S. buyers versus a
European buyers in the M&A process?
Jerome Fougerat
Thank you, Mark, for this question, which has actually a
lot of suitable answers. European companies usually consider that if
they want to be very successful they have to be successful in the U.S. market,
so just because this is the one of the office market in many areas, and they
could find a lot of new technology that might be interesting to be deployed in
Europe, for example. So it seems to me that European buyers will
look for a beachhead to help them to deploy their own technology, or maybe
services, but also that they will look for the next buzz that they could import
to Europe. Whatever strategy here, you have to keep in mind that at
least two things are important, and mark the difference from the
U.S. In the beginning of discussions, you may consider quickly and
in person, meeting in Europe. That will help to boost confidence in
the relationship and the reality of the opportunity for both
sides. It will cost you a couple of thousand bucks, but it is worth
it to do so. The second thing which I think is important is that
European companies will turn towards U.S. companies that have a good
reputation, credibility, and ability. All that could help to
accentuate the time to market and gain strong interest from their
customers. Finally, you know what, do not underestimate the barriers
of language. Always make sure that potential European buyers really
understand the value proposition of your solutions and your
differentiators. I think this is really important. That
is my answer, back to you, Mark.
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