Tech M&A Monthly: M&A Launch - 10 Tips to Ensure Success
Bruce Milne
Yes, welcome to Tech M&A Monthly Special Report, 10 Tips to Ensure a Successful Launch of an M&A Selling Process presented by a panel of experts. I'm Bruce Milne, CEO of the Corum Group, your host for today's event. Now, I'm pleased to turn it over to Timothy Goddard, who will be moderating today's webcast, Tim?
Timothy Goddard
Thank you, Bruce. I'm very happy to be here. Let's run through our agenda very quickly. After this brief welcome, we're gonna dive into some field reports, deals just closed. Very much looking forward to sharing those with you. Then we'll go into our May 2018 research report and then into those 10 tips that Bruce alluded to. After that, we should have some time for Q and A. So if you do have any questions, please put that into the window at the right side of your screen, and we will try to follow up with those at the end of the conference or afterwards if need be. But for now, let's dive in and hear from our first deal maker, Rob Schram, based here at HQ. Rob?
Rob Schram
It's my pleasure to announce the recent acquisition of our client, CodeMetro, by a soon-to-be-named private investor. Code Metro Software Suite MPA Works is the leading practice management solution for autism service providers. The company offers comprehensive business solutions exclusively focused on the special needs industry. Its professional products and service offerings have become a foundation for autism therapy providers, physical therapists, speech language pathologists, and occupational therapists worldwide seeking efficient streamlined business practices.
Corum is thrilled to have helped Code Metro's important work in the field of autism together with a partner who will ensure the broadest possible benefit from that work, and we're excited for CEO, Dr Kim Finger and her team, as they accelerate to meet the ever increasing demands within the special needs industry.
Timothy Goddard
Thanks, Rob. And they really are doing important work. It's always exciting to work with a client that really is doing good out there. And actually on that note, now over to Europe with Managing Director of Corum Group International, Jon Scott. Jon?
Jon Scott
I'm pleased to have lead the Corum team that advised Swiss-based, Genohm, in their recent acquisition by US-based Agilent Technologies. Privately held Genohm led by co-founder and CEO, Frederik Decouttere, with a staff of 40 as a developer of highly differentiated on-premise and cloud-based solutions for laboratory management. Their main laboratory software automation suites, SLIMS, is a digital platform that provides laboratories with a rapidly deployable and seamless laboratory information management system and an electronic lab notebook environment that is used in biobanks, research labs, and next generation gene sequencing facilities.
The Genohm platform tracks data and samples, tests that are conducted, and user results, and workflows from the original material shipment to the lab, all the way to the lab instruments. This acquisition will enable Agilent to provide a single informatic solution across laboratory and operational domains and bring greater context to analytical data enabling the scientist using this to generate far more efficient results. We really enjoyed working with Frederik and his team, and we were really impressed with their subject matter expertise in the operation of these types of labs. This is a great example of how a small and fast growing software company exploits the gaps in products from billion dollar companies. We had several very interested parties in the process, and Agilent came out on top frankly due to the strategic pick between the companies and their desire to aggressively use the Genohm technology in their existing products.
Genohm was also attracted to the integration success that Agilent has had in their past acquisitions. The transaction points out the continued demand that strategic buyers are creating and trying to fill out their products and the importance that entrepreneurial companies like Genohm play in the ecosystem. Congratulations to Frederik and his shareholders and employees. Back to you.
Timothy Goddard
Thanks Jon. And absolutely, congratulations to them. Now, let's go to Corum's research report on the last month of Tech M&A led by Elon Gasper along with Amber Stoner and Patrick Cunningham, Elon?
Research Report
Elon Gasper
Thanks, Tim. We begin with the public markets where the Dow and NASDAQ eked out an April rise. Tech, particularly US, still running ahead of the pack, and European issues did quite well in April. But all these markets remained volatile and off the all-time highs set in Q1, as rising US interest rates and geopolitical risks peeled capital out of the broader equity markets.
This month, May, has put a bit more bounce in the old bull's step, but except for tech, those highs still haven't been topped, meaning there's actually no confirmation yet that we're still in the long bull market. While that gets worked out, here at Corum we continue to see the M&A window open, with high though disciplined demand from buyers and limited supply of sellers. So again we urge software execs to take advantage of this still-open window of opportunity to at least calibrate your value by starting an M&A process.
In our Corum Index of Tech M&A for April, it was megadeals springing up. Or should I say hailing down? Wow. We'll talk about those in a moment. The pipeline shows significant PE activity and limited VC supply. Attributes were nominal except for an increase in average life of target, all are consistent with the continuing supply crunch. The remarkable April shower of tech megadeals include a pair of wagering deals for our consumer stack, as UK's Sportsbooks operator, Sky Betting, was raked in for $4.7B by PokerStars owner, Stars Group, claiming it creates the world's largest public online gaming company. Plus catching a win with this week's major US Supreme Court decision allowing any state to have sports betting.
We'll hear about other megadeals as we go through sectors. Starting with Horizontal, Amber?
Amber Stoner
Sales multiples in the Horizontal sector held steady after reaching a multi-year high early this year, while EBITDA metrics also remained stable.
We saw significant demand, particularly from Private Equity, in the workforce management space. London-based workforce optimization and scheduling SaaS provider, Allocate Software, changed PE hands going from HgCapital to Vista Equity. Considering Vista's position as top PE acquirer for 2017, with nearly 2/3 of its deals last year being bolt-ons for existing portfolio companies, we expect to see additional acquisitions for the Allocate platform in the coming months. PeopleFluent, which handles all aspects of the employee lifecycle from recruitment to retention, was picked up for $150M by corporate e-learning specialist, Learning Technologies, expanding geographically and into a more full-service workforce management company. And employee workflow and field solutions developer, Keystyle, was bought by construction ERP specialist, Viewpoint.
As part of the extremely active construction space, Viewpoint was subsequently acquired in a megadeal we'll highlight later. In the customer analytics space, Chicago-based Mattersight, which applies behavior analytics to streamline customer service calls, was acquired for over $125M, at 2.5x sales by Israeli customer engagement giant, NICE, for its patented personality-oriented stack. Delighted, a provider of customer experience measurement solutions, was bought by customer insights company, Qualtrics, adding one-touch ratings and access to high-tech, on-demand services like Uber and Postmates.
Following the 2015 acquisitions of mobile fitness tracking apps by Under Armour and Adidas, we expected to see Nike join the M&A game, and it's finally done it, though in a different direction. Nike bought consumer data analytics startup, Zodiac, to help the athletic shoe and apparel maker serve customers faster and more personally at scale and followed that acquisition with Israeli computer vision expert, Invertex, for its scan to fit 3D tech.
Advertising enablement pushed buyers to expand their existing offerings. We saw Oracle snapping up London's Grapeshot for its content and context monitoring capabilities to complement Oracle's earlier purchase of Moat. And marketing performance management SaaS provider, Bizible, was acquired by Vista Equity backed Marketo, creating a more complete performance analytics and engagement platform. Patrick, what's going on in Internet?
Patrick Cunningham
Sales multiples were down while EBITDA multiples went up. Both metrics reversed course from Q1, trending back towards the mean.
The ticketing spree continued through last month. In the Netherlands, event ticketing and payment processing company, Paylogic, was bought out from LiveStyle by French media giant, Vivendi, to broaden its See Tickets' global network. Madrid-based events operator, Ticketea, was picked up by ticketing marketplace, Eventbrite, extending its footprint in continental Europe. And Helios and Matheson acquired Moviefone from Oath as a bolt-on to its Moviepass subsidiary. The deal was for $8.6M with $1M in cash. However, with Helios and Matheson's dramatic drop in stock value since the announcement, this deal serves as an important reminder of the importance of deal structure versus overall deal value.
In the travel market, companies are working to expand their experience offerings to consumers. This is a trend we've been following in multiple markets, as was presented in our Composite Commerce Market Spotlight last month. Tours and activities software company, FareHarbor, was purchased by online travel services provider, Booking Holdings, to tap into the tour reservation market. Just a day later, Iceland's tour management tech player, Bokun, was snapped up TripAdvisor to enhance its tour and activity offerings.
And London's cultural experience agency, SideStory, was picked up by boutique hotel booking company, Mr & Mrs Smith, to make its first step into the tours and activities sector. Nearby, Scottish reservations platform, ResDiary, was acquired by hotel giant, Accor, moving further into the wider leisure space. And moving down under, flight booking firm, Skidoo, was nabbed by Helloworld Travel Services to reinforce its ResWorld agency platform. What happened in Vertical?
Amber Stoner
Sales multiples in the Vertical sector continued their volatility as they dropped back near late 2016 levels, while EBITDA multiples headed back up toward February 2018 numbers.
As mentioned earlier, the construction M&A market is booming. Trimble paid $1.2B for construction management specialist, Viewpoint, to augment Trimble's recent acquisition of e-Builder. FieldEdge, providing home service contractors with business management SaaS solutions, was acquired by Advent International, which intends to merge it with payment processor, Clearent. In Sweden, PP7, developing project oriented solutions for the installation market, was bought by Vitec, a serial acquirer of vertical software companies, deepening its niche in the Swedish construction industry. Education saw a number of very diverse buyers. In the largest education deal in India, AI-enabled education platform developer, Embibe, was bought for $180M by conglomerate, Reliance, with the goal of making it the de facto standard across India's millions of schools.
In England, parental notification software provider, Contact Group, was acquired by accounting and payroll veteran, IRIS Software, adding to its roster of solutions for education institutions. And Edmodo, which offers a social network platform for K through 12 schools, was picked up for over $137M by China's game developer, NetDragon, which seeks to expand its online education division. In the automotive sector, 3D imagery startup, CAR360, was bought for nearly $22M by used car dealer, Carvana, to help enhance its online exchange.
And Boise-based NoPileups, which applies machine learning tech to prevent collisions within car wash tunnels, was picked up by former Corum client, DRB Systems, to build on its seasoned solutions for the car wash industry. Join us on the upcoming Connected Car Market Spotlight Webcast for a more in depth look at recent activity in automotive space.
Elon Gasper
And megadeals have kept blooming in May, including Walmart's $16B buy, its largest ever by far of Indian e-commerce leader, Flipkart, in a dramatic composite commerce flanking maneuver. Expanding its struggle against Amazon heavily into the soon-to-be world's 3rd largest consumer market and further underlining the urgency of that composite commerce trend driving buyers. Next month we'll talk more about that. Plus, more generally, how the developing tech megadeal wave creates opportunities for tuck-in acquisitions of smaller companies? Back to you, Tim.
Timothy Goddard
Thanks Elon. That composite commerce trend really is pretty remarkable. We did have a market spotlight on that just a few weeks ago. You can check that out at wfs.com. If you're anywhere in the retail space or touching that ecosystem in any way, shape, or form, from, with two clicks, it's something you want to be paying attention to because there's a lot of activity on the M&A side and beyond.
And so if you're taking your company to market, you need to start somewhere, and you generally start with a launch meeting. And so what we're going to do now is we're gonna walk through 10 tips that we've developed over the last 30 years of selling stuff for companies. The best practices of what it looks like to kick off an M&A process. And we're gonna have dealmakers from across the globe, starting with Martin Lowrie in Boston.
Martin Lowrie
Preparation for your launch meeting is the first step in adjusting your mindset to selling your company as opposed to selling your products and services. Adjusting the way you tell your story to the optics of the buyers requires practice and constant vigilance. Lest you slip back into the more comfortable product pitch. Gathering and organizing the information necessary to do this will get you immediately focused on the important factors in the eyes of the buyer community.
You're gonna revisit things like your current year operating plan, your three-year forecast, making those staff changes you've been meaning to make for the last six months, sales and marketing strategies, KPIs like churn rate, length of your sale's cycle and pipeline, and making sure that all major shareholders are aligned with the selling process.
The better prepared you are, the more convincing you will be when faced with buyers and their inevitable questions. And once you've prepared for your launch meeting, you're going to feel a renewed level of confidence with your business, and you'll be invigorated and eager to take your company to market, exactly what's needed to create the most favorable impression in the eyes of the buyer.
Timothy Goddard
Thank you, Martin. Now down to Silicon Valley, Marc O'Brien.
Marc O’Brien
It is important to have the correct people attending your launch meeting to ensure the experience will translate to an optimal, actual launch when presenting to potential buyers. The best launch audience will include senior members of your M&A advisory team as well as key stakeholders from your side. From your advisor, you want to have multiple deal makers in the meeting as they have experience in the process and will know key areas of both additional focus and red flags.
It is important the senior deal makers attend but also key personnel in other areas. For an effective launch of your company into the market, it is essential the entire team has not only an understanding of the management presentation but can provide feedback from years of experience. A good example is the professional writer on staff that will be crafting the documents to be sent to potential buyers. No one knows your business better than you and having an experienced M&A writer, both absorb your material but also provide feedback, is a tremendous benefit.
The same is true on the research team who will build buyers' lists, valuations, and other materials. From your side, make sure you have people in the room who can speak authoritatively about core business areas, in particular, finance, technology, and overall strategy. The confidentiality of the process is important but so is having the right people engaged and available to answer questions from your advisor's team. Discuss with your advisor the best way to strike this balance well ahead of the meeting.
Timothy Goddard
Thanks Marc. Now across the pond to London and Peter Prince.
Peter Prince
At your launch meeting, you will want to give your corporate presentation as if speaking to a buyer. This means to practice the presentation several times with your advisor. Use their experience to learn your strengths and weaknesses as a presenter and to critique your style, content, and delivery. Working with your advisor is a safe environment to make mistakes in. Then just before the meeting, run through your presentation one last time, either the day before or on the day. During the launch meeting itself, you will want to give the presentation as if you were at a buyer pitch. This means no introductions. Just go right to it. During the presentation, don't interrupt and correct each other. If you make a mistake, don't let it trip you up. Just keep going. A good framework is tell them what you're going to tell them. Tell them and then tell them what you've just told them.
Timothy Goddard
Always good advice, Peter. Thank you. And to dig into this concept a little more, on to Steve Jones based in Salt Lake City. Steve?
Steve Jones
As mentioned throughout this discussion, your presentation in the launch meeting will be the first draft to what you present directly to a prospective buyer. So keep in mind what matters most to them. But buyers certainly want historical evidence of market adoption and customer traction, but they aren't buying your history. They're buying your future.
That means you can't spend time on a history lesson of where you're founding or how you got to this point. You only have a few minutes to get to the point and to tie the current success of your business to your vision of the future. More often than not, a company will share the three year plan, which is good. But you really need to think bigger.
This is the time to paint a picture of just how big and disruptive your solution can be in the hands of the right buyer. But it needs to be based on reality. Avoid using buzz words and hyperbole. But don't be shy in creating a sense of urgency. The message you're sending that if the buyer decides to pass, they aren't just missing out on potential growth from your company, but they run the risk of missing out on an entire market movement. Make it credible. Think big. Make the case that not only you can impact their growth plans, but the combination of your companies will change the trajectory of the entire marketplace.
Timothy Goddard
Good stuff. Thank you Steve. And in New York City, Ivan Ruzic.
Ivan Ruzic
One of the many benefits of a properly run launch meeting is that it provides you with what may be your first 360 degree view of your company from an M&A perspective. As Marc discussed, you want to have a variety of perspectives in the room, ideally, multiple figured deal makers as well as world trade analysts and others. This international team can apply its decades of research and operational experience to dissecting and distilling the way your company looks to potential buyers.
The most important markets, the technology, unique value propositions, business model, financials, barriers to entry, customer quality, and the most likely buyers are just a few of the many areas of the team to review. Yes, and even presentation quality and presentation style. After all, buyers come from many different backgrounds with many different strategic imperatives. That's why it's important to secure as much feedback as possible and from as many different perspectives as possible.
Timothy Goddard
Thank you, Ivan. Now, to perhaps the less fun tip, Dan Bernstein based here in Seattle.
Dan Bernstein
If you haven't before, the launch meeting is the time to get everything on the table. Your advisor can only help you if they know everything about your business, the good, the bad, and the ugly. They will disclose to the buyer at the right time, noting that your leverage is higher early on in their interest. However, if your advisor does not know everything about your company, it will not reflect well on you and will severely limit your chance of achieving an optimal outcome in your process.
Remember, due diligence will uncover everything about your company, no matter how embarrassing. If I'm the buyer and I just spent five weeks going through an exhaustive due diligence process only to find out last minute that you have a pending litigation, what does that do to trust? Am I likely to think that you're hiding something else? I suspect so. The opposite is also true. If you told me of problems early, that makes me think that you're an honest, straight shooter and that only helps engender trust. I'm more likely to work through these problems with you to get to a deal.
Timothy Goddard
Thank you, Dan. Now to one of our new deal makers, Mattias Borg based in Zurich. Mattias?
Mattias Borg
As the CEO and co-founder of a business, you have probably created positioning statement in order to shape the way your business and products are perceived by customers. However, positioning your business for the potential acquirers of your company requires a very different kind of positioning statement. One is grab the attention of buyers conveys opportunity to your company over using just a few words.
For a successful outcome, it is important that you'll be able to get the help and guide that you need through refining your positioning statement to make a company attractive from a potential buyer's perspective. A good starting point is using the launch meeting as an opportunity to begin developing a positioning statement collaboratively with your advisor. Use the feedback on your buyer presentation on the many perspectives at the meeting to crop the brief sentence that sums up the unique value proposition that your company offers. This will form the kernel of the written documents that will eventually go to the buyers. It is vital that your advisors have a good understanding of the strategic imperatives, trends and technologies that drive both the strategic and financial buyers.
Timothy Goddard
Thank you, Mattias. Now to Phoenix, Jim Perkins, on buyer sectors.
Jim Perkins
It is critical to consider all buyer sectors when preparing for your M&A process. In most cases, we find that you may not know who your top buyers are. They can be in a different industry, likely in a different country, and quite possibly surprise you with how great a fit you are whence mutual discovery commences. Take two Corum client examples, Digital Extremes and Jagex, both bought by Chinese buyers. One in mining and construction and the other in food distribution. During both transactions, buyers from Europe, North America, Korea, and China significantly bid up the value of these tech firms at a fast pace.
Buyers are constantly looking to increase their value by acquiring companies in and out of their core space worldwide. Other less extreme examples might be sectors with customer overlap with new potential applications for your technology or in a different part in the supply chain. The launch meeting can be an excellent opportunity to brainstorm these various buyers and sectors that could make appropriate buyers. While most good business practice is, require concentrated focus, this is a unique opportunity to go abroad. You'll eventually need to whittle down your buyer’s list to a reasonable number, identifying the best representatives from each possible sector. But when starting off, you want to be sure to pursue every angle and consider all relevant buyer sectors.
Timothy Goddard
Thank you, Jim. Now to Rob Griggs based in Minneapolis on some special buyer circumstances.
Rob Griggs
One of the key processes that will start at your launch meeting is identifying those buyers who will need special handling. This is critical to facilitate the smoothest and highest rewarding by your outreach. When properly executing a managed global auction process, you would generally hold the special circumstances towards the end, waiting until your more traditional A and B list buyers have started their discovery process before you approach them.
Your special buyers each will have unique, individual circumstances and reasons for the outreach, and you should work with your advisor to strategize each on them as to the why or the why not and when to contact them or to never contact them is determined.
As you walk through the potential acquirers like Jim discussed, be considering which of the buyers need this kind of special handling. Do you have the existing business relationship that you don't want to disrupt? Maybe they're in your ecosystem or a competitor. Maybe they have made an approach in the past, and you still have warm contacts there. Or maybe you went to college with the Head of Finance.
Any possible angle that may impact the outreach method should be identified and noted, and the launching meeting is the beginning of this process. Just as we identify the synergistic value proposition for every buyer, we also need to know who requires extra special care and concern.
Timothy Goddard
Thank you, Rob. And now to wrap us up, another new deal maker. We're happy to have him on board, Serge Jonnaert, based in Orange County.
Serge Jonnaert
You've had your first exposure to the process and the team. Now be sure that you leave the launch meeting with a clear understanding of the path forward as well as what is expected from you at every stage along the way. Make sure to discuss the time table and your deliverables with your advisor as well as how to handle any pending inbound interest from perspective buyers. Ask any remaining questions.
The next phase maybe quiet for several weeks as your advisors do the heavy lifting, your written materials, your target buyers' list, and a whole lot more. Once that stage is over, the real fun begins. For a broad recap of the entire process consult The Eight Stages of an Optimal Outcome brochure.
Timothy Goddard
Thank you very much, Serge. And to find that brochure, you can see that in your resources section there on the screen. Now, let's go to Q and A. One question that is come in is, “Which of these tips do we think is the most important for smaller companies?” The answer might be all of them. But Bruce, do you have a, more thoughts on that?
Bruce Milne
Well, yeah, they're all important. Which you didn't hear a lot about was necessarily the, the spreadsheets and the comps and discounted cash flows, that sort of thing. Because the way you get optimal value and get this to work is by having the proper message and the proper messenger. And so the writing is absolutely critical. We find that what you have to do is have a collaborative process where the message is really well done and very well nuanced so that it gets the attention of the buyers. We have to remember that the buyers are seeing at least three to 500 opportunities a month. And so, they will give you basically is Henry Hu of IBM said one breath to get their attention. But the writing is absolutely crucial.
When we actually have these meetings, these IPM, initial presentation launch meetings, there'll be 15 to 20 people there all giving their ideas of what's crucial and then that’s what went into a very compelling document. I think it's a toughest thing to do and probably the most important to make it work for smaller companies.
Timothy Goddard
Thanks, Bruce. Uh Elon, you've been in a number of these launch meetings. What are your perspectives?
Elon Gasper
Well, I'm do want to echo what Bruce said about making sure that the messaging is properly formulated, and that everyone is on the same boat. And that messaging maybe very different than the messaging that sells your product. It may be very different than the slogans and marketing words that have been used and worked so well in your marketplace. But you're in a different phase now. The company, itself, is what your product is, and you're going to explore the reactions among a completely different group of customers, not customers for your product but customers for the company. So putting the time into getting that message right is very important.
Bruce Milne
I might add. I could point, Elon. I might add that a lot of the messaging, the work that has to be done is to map you to best practices. And more importantly, map your company to the disruptive trends that are shaping our industry because that's what the buyers are looking for. You've heard that over and over. That you're part of the future for them. And that means how do you solve problems of substance. How was your first mover or domain expertise? In particular, areas disruptive technologies are going to help them get an edge in the future. But it's absolute, that kind of thought leadership is crucial.
Timothy Goddard
Thanks very much guys. We've come to the end of our half hour. Thanks to everybody for joining us. We'll answer any other questions offline, and we'll go to our close.