Yahoo’s recently completed sale to Verizon for nearly $4.5B is clearly a major event in the world of technology M&A. Despite the size, drama and media attention such deals receive, however, the fundamental principles that go into achieving an optimal outcome remain the same, which means technology companies of any size can take lessons from the process.
The first principle is that everyone, regardless of sophistication or prior deal experience, needs an advisor. Marissa Mayer is one of the most well-connected technology CEOs in the world, with a deep history in Silicon Valley at Google and a rolodex of fellow CEOs that any entrepreneur would die for. Yet the Yahoo Board didn’t dream of going it alone and letting Marissa just call a couple of the company’s closest partners to arrange a sale.
Instead, Yahoo went out and got the best M&A and legal advisors available, retaining a phalanx of professionals including three different investment banks, consisting of both Goldman Sachs and JP Morgan as well as Blackstone spinoff PJT Partners. Total sell-side advisor fees paid when the deal is all said and done will easily top $50 million.
So what does an unlimited checkbook and the world’s top bulge-bracket bankers get you? Often such details are secret, but the unique circumstances of this deal (as well as Yahoo’s status as a public company) mean that the whole story has now been published as part of Yahoo’s proxy statement. The details provide a case study on what it means to run a rigorous and professional M&A process leading to both maximum value and optimum terms for the seller. The process ultimately took over a year (from February 12, 2016 to February 21, 2017) and included:
1. An extensive outreach to a well-crafted universe of buyers. Yahoo’s bankers began with a list of 51 companies, including both strategic and financial (i.e. Private Equity) buyers.
2. From this initial list 32 parties (10 strategics and 22 financials) signed NDAs and performed initial due diligence in a secure data room created for the transaction.
3. 26 of these parties attended management team presentations to learn more about the company.
4. 15 companies (including 4 strategics and 11 financials) ultimately submitted preliminary offers. Notably, Verizon was in this group but was initially one of the lowest bids of any company in the process.
5. The bankers ultimately focused the process on a short list of first 9, then 6 of the most attractive offers. Beyond solely focusing on price, the bankers used the process to surface other critical terms, including structure, financing risk, liability and IP ownership issues.
6. As a result of this process, which included an 11th hour attempt at a “topping bid” by another strategic, the Yahoo board concluded that Verizon was the best partner. They entered into a definitive agreement for a $4.8B reverse spinoff acquisition on July 23, 2016.
7. Following the announcement of the deal, Yahoo was hit with the mother-of-all M&A deal hiccups. To wit, Yahoo discovered two separate instances of hacking and identity theft affecting more than one billion Yahoo users. The deal could have easily fallen part at this stage (and nearly did). To Yahoo’s advisors’ credit, however, the rigor of the process and the presence of other bidders waiting in the wings helped keep Verizon at the table. The parties ultimately agreed to a $350 reduction to the purchase price as compensation for these incidents.
An amazing (and grueling) process. And a great outcome for the Yahoo shareholder. But, of course, smaller privately-held technology companies can’t possibly afford to run an M&A process like Yahoo’s, can they?
The surprising reality is that the Corum Group has been providing megadeal-like levels of service for small and middle-market technology companies for over 30 years.
Using a time-tested process very similar to that used by Goldman Sachs et al to sell Yahoo, Corum Group has guided over 300 hundred software companies to an optimal exit. The 8-step Corum process includes buyers from all corners of the globe, including strategic and the ever-more-critical PE funds & portfolio companies. This process consistently generates multiple bidders, which is the single most important factor in retaining control of the M&A process.
Yahoo got to an optimal outcome. With the right advisor and the right process, you can too.
Joel Espelien is Vice President of Client Services for the Corum Group and has over 20 years of experience doing private company M&A. He lives in the Seattle area.