Introduction

 

Timothy Goddard

 

Good day to you. I'm Timothy Goddard, SVP of marketing here at Corum Group, and I'm happy to welcome you to the June edition of tech M&A monthly. We have a jam packed agenda, so I do want to jump right into that, starting with a special report on the World Financial Symposiums event in New York, field reports on deals we just closed here at Corum, our June research report, and then our special report: 14 steps to create a bidding war. We're very excited about this one.

 

Before we jump into the New York event, the last couple of weeks were record weeks for global events at Corum. The largest one we held was in Singapore, followed by Madrid, and then we also had a number of events in Australia, across North America, and in Europe. That was capped off by the World Financial Symposiums, which we are the platinum sponsor of. I'm going to hand this over to Ivan Ruzic, based in New York, to give us a rundown on that conference. Ivan?

 

Special Report: WFS New York 2017

 

Ivan Ruzic

 

The annual WFS growth and exit strategies for software and IT companies, took place in New York City on June 1, hosted by Venable, LLP, and with panelists representing bankers, PE, VC, and successful buyers and sellers.

 

The PE panel consisted of Bregal Sagemount, Riverside, and TA Associates. Conversation centered around the health of the current environment, and the effect of record levels of cash and cheap debt. As usual, one of the highlights was the seller's panel, this year comprised of the former CEOs of eXelate, bought by Neilsen; and DinerWare, which was acquired by Heartland. There was much discussion around various landmines in the selling process, and in particular the impact of deal fatigue.

 

The buyer's panel consisted of Accenture and IBM, two of the top buyers globally, as well as a smaller buyer, Interactions, which recently acquired our client Digital Roots. Discussion largely centered around clarifying the acquisition selection criteria used by these and other high profile buyers.

 

Other highlights included an excellent Q&A session with well-known VC General Catalyst Partners, and a presentation by Morgan Stanley on the state of the IPO and M&A markets.

 

The agenda was closed by Bruce Milne, who shared his thoughts on valuations and how to achieve them, based on three decades of selling companies. While there was ample networking time, nevertheless the conference seemed to fly by, a compliment to the caliber of the content, speakers, panelists, and participants.

 

Timothy Goddard

 

Thank you, Ivan.

 

Field Reports

 

Hospicesoft acquired by Optima Healthcare Solutions

 

Now to some exciting deal reports, starting with Steve Jones in Salt Lake City.

 

Steve Jones

 

Last week it was announced that our client, HospiceSoft out of Salem Utah was acquired by Optima Healthcare Solutions from Palm City Florida, a portfolio company of Private Equity firm Alpine Investors

 

HospiceSoft is on the cutting edge of innovation with the industry’s leading cloud-based EMR platform for hospice care facilities.  Hospice care is a growing industry that requires sensitivity and compassion, coupled with innovative technology solutions.  The CEO at HospiceSoft, Rex Hale, built a team that integrated human compassion, empathy, and understanding into their technology platform in a way that helps caregivers improve the hospice experience for their patients. They achieved this by optimizing the daily regimen of hospice centers—integrating with other external service providers and eliminating many manual and redundant processes.

 

Through the approach at Corum, we were able to find that Optima Healthcare Solutions to be the optimal partner for them.  Optima has a progressive vision that expands continuity of care beyond long-term care providers to include hospice services.  This will create a seamless experience for patients who transition from one stage of care to the next. The teams from Optima and Alpine are visionaries who saw great opportunity in applying HospiceSoft’s techniques to other market segments in their portfolio.

 

We at Corum closely follow disruptive technology trends and this union highlights the pressing need to digitize and connect our healthcare systems.  Having a unified patient experience from one stage of care to the next, along with a deep integration of patient records and 3rd party content providers, helps create a holistic view of the patient and provide deeper insight for comprehensive treatment and patient care. 

 

We continue to see high activity in this connected healthcare marketplace and believe the combination of these two companies positions Optima Healthcare Solutions to be an early leader in their space and we're glad to have worked with both companies.

 

Timothy Goddard

 

Thanks, Steve. Every once in a while you get these deals that really are more important than the deal itself; this is such an important space for everybody, that I was really pleased to have been a part of this.

 

Now let's go down to Austin, Texas and hear from Allan Wilson.

 

Pipeline acquired by Prometheus Group

 

Allan Wilson

 

On Monday of this week it was announced that our client, Pipeline, was acquired by Prometheus, a Francisco Partners portfolio company. Pipeline provides solutions that help companies optimize their enterprise asset management processes, with specialized products and services that enable organizations to improve critical planning, scheduling, and work execution processes related to maintenance of capital projects and programs.

 

Pipeline provides integration and solutions that augment the capabilities of leading EAM systems and tools, including SAP PM, IBM Maximoff, Oracle EAM, Vintex Passport, and Oracle Primavera.

 

Prometheus Group is a leading global provider of comprehensive and intuitive asset management software solutions, specializing in improving the efficiency and effectiveness of maintenance, planning, scheduling, and execution.

 

Developed jointly with end users, Prometheus enhances the customer experience with intuitive functionality, graphic visualization, and simple processes, enabling the company's customers to increase productivity, reduce costs, and improve reporting. The acquisition of Pipeline will build upon Prometheus' strategy to provide a completely unified planning, scheduling, and work management and execution solution for industrial work in asset-intensive industries.

 

The addition of Pipeline's Maxivera and Sentemple products to the Prometheus suite will offer their customers fully-integrated solutions engineered to manage even the largest and complex shut down and turn around projects.

 

The acquisition of Pipeline further demonstrates the continued interest from PE and strategic buyers in software solutions for maintenance and repair of critical industrial assets.

 

Over the past couple of years, we at Corum have tracked IoT as one of our top ten trends for software M&A and management of critical assets is a beneficiary of IoT.

 

I look forward to following Pipeline's evolution as part of Prometheus.

 

Timothy Goddard

 

Thanks, Allan.

 

Corum Research Report: Bull Market charging ahead

 

And now we have a few more deals, so let's turn it over to the Corum research team with Elon Gasper, Amber Stoner, and Yasmin Khodamoradi.

 

Elon Gasper

 

Thanks, Tim.

 

We begin with the public markets, which continued to set records, led by big tech; last week the Dow finally broke above its March 1st all-time-high, confirming that this long bull market has entered its 9th year, rocketing ahead on an even steeper upward slope not seen since the 1990s dotcom bubble. This new wealth created in the public markets adds to buyers’ purchase power and to the pressure on them to bid for further growth.

 

Will this bull market beat the dotcom bubble’s record run in length? What we know is that this presents a historic, highly-favorable opportunity to exit a software company; and to take advantage you need to get started well before you see it closing.

 

Amber, what’s our Corum Index update show?

 

Amber Stoner

 

It shows overall transaction and megadeal volume held steady with buyers focusing on opportunities to move the needle. Private equity activity remains high, presenting a wealth of opportunities for sellers, as acquirers are looking to ink more cross-border deals and expand software portfolios as demonstrated by last month’s megadeals.

 

Thoma Bravo led a spinout of Lexmark’s Enterprise Software Business, comprised of Kofax, ReadSoft and Perceptive Software, for $1.4B. The reshuffle includes selling Perceptive Software to Thoma’s portfolio company Hyland and merging Kofax and ReadSoft under the Kofax name.

 

Sweden’s EQT flipped online financial database Bureau van Dijk to Moody’s for $2.5B, less than 2 years after buying it from Charterhouse.

 

And database management software developer IDERA, which bought Corum client Gurock last year, was sold by TA Associates to mid-market PE firm HGGC for over $1B.

 

Moving on to other deals, starting with the Vertical sector - Yasmin?

 

Vertical Software Valuation Metrics

 

Yasmin Khodamoradi

 

Sales multiples in the Vertical sector hit record highs this month, buoyed by gains in the tech sector overall, with EBITDA tracking steadily behind. In addition to ample deals in Financial Services and Healthcare, we’ve seen increasing consolidation in agriculture drive ag-tech M&A activity downfield.

 

Most recently, Mueller-Elektronik, a pioneer in precision farming, was landed by Trimble to create a unified tech ecosystem for farmers.

 

In Denver, HydroBio, which created a data-driven irrigation management platform, was picked up by Monsanto subsidiary Climate Corporation.

 

We saw a couple more deals at the end of April as well, with Vista-backed EagleView here in Seattle purchasing geographical monitoring SaaS OmniEarth and German chemical giant BASF buying crop management SaaS provider ZedX.

 

In Financial Services, New York-based forex trading platform FastMatch was snapped up by pan-European stock exchange Euronext for $153M at 7.7x sales to establish a presence in the world’s largest traded asset class.

 

AI-powered equity analytics platform OTAS Technologies, was bought by institutional trading network Liquidnet to improve its buy-side decision-trading processes.

 

And KPMG fortified its fintech services by picking up Hong Kong-based Matchi, a curated database for financial institutions to connect with fintech providers.

 

M&A in the healthcare subsector has been active in several key areas including pharmacy-oriented software, data management and credentialing, and alternate care solutions.

 

As Steve previously mentioned, Corum client Hospicesoft was nabbed by Optima Healthcare Solutions, to strengthen their post-acute footprint. And in another hospice-deal, Austin-based Kinnser, was bought out from Insight Venture Partners by Thoma Bravo-backed Mediware to expand its reach in the alternate care market.

 

Pharmacy benefits manager Matrix Healthcare Services was sold to Express Scripts to scale up its customized pharmacy solutions.

 

And Data management SaaS provider Vistar was bought by symplr to help the Texas-based leader in the credentialing space pave a path to the payer market.

 

In the AEC space, Bulgarian GPS provider EuroGPS was bought by Italian telematics company Viasat Group to create an intelligent transport systems hub.

And Yard Club, a rental and fleet management platform with an online exchange built in, was acquired by Caterpillar to further commercialize peer-to-peer rentals of heavy equipment.

 

Finally, in EdTech, South African startup GetSmarter was scooped up by digital education giant 2U for over $100M and 6x sales- showing good companies with good tech are seeing high multiples globally.

 

Amber, how did the Consumer sector do?

 

Consumer Software Valuation Metrics

 

Amber Stoner

 

Sales multiples reached highs last seen in the summer of 2015, while EBITDA multiples reached multi-year highs, with disruptive trends and an unexpectedly strong console cycle driving a resurgent gaming market.

 

Hamburg-based InnoGames, developer of free-to-play game Forge of Empires, sold to its previous minority investor, Nordic entertainment firm, MTG for nearly $90M, over 2x revenue, creating a new entertainment vertical alongside its e-sports business, which includes ESL and DreamHack.

 

Tencent’s Supercell spent nearly $56M for London-based Space Ape as part of a long-term strategic partnership that also indicates Supercell is now in acquisition and investment mode after joining Tencent a year ago.

 

Fantasy sports startup StarStreet, operator of the online hit DRAFT, was bought by bookmaker Paddy Power Betfair for $19M to push it into the fantasy sports market in the US.

 

Fantasy Movie League, a box office predictions game creator, was rolled up by National CineMedia to weave into its Noovie digital strategy and bolster engagement with movie audiences.

 

Finally, virtual reality-focused Owlchemy Labs, which is known for developing games that closely mimic using real hands, was picked up by Google to complement its Daydream VR platform.

 

What’s new in IT Services, Elon?

 

IT Services Valuation Metrics

 

Elon Gasper

 

Companies’ valuations as a multiple of Sales held at historic records, with EBITDA equivalents rising amid further expansion of our Focused IT Services trend. Transactions were led by teleconferencing and communications services vendor West, taken private by PE Apollo Global for $2B to capitalize on customer migration to cloud-based solutions.

 

Driving home the focused part of our services trend is a sudden wave of M&A in the biomedical sector, beginning with DILIsym Services, specializing in drug-induced liver damage modeling, being acquired by Simulations Plus for $5M cash or 1.4x revenues to start with, plus up to $6M more in escrow and earnouts.

 

Next came some clinical trials-related services buyers including New York-based Medidata, which absorbed virtual trials firm Mytrus in April to augment its analytics platform.

 

Then last month patient retention specialist ThreeWire, assessment pioneer MedAvante and outcome calibration expert ProPhase were all rolled up by PE-backed clinical research expert WCG.

 

And just last week top acquirer Accenture entered this market by snapping up Texas-based lab informatics consultancy LabAnswer. M&A proceeds in waves, and those cross more sectors during hot markets, so good things happen when you are in play during times like these, right Tim?

 

Timothy Goddard

 

Absolutely. We've heard about a lot of those, there are a lot of buyers, some you've never heard of, and some like Accenture we just had at the WFS conference.

 

14 Steps to create a Bidding War

 

So now let's talk about how you actually get to the end game and how you get an optimal outcome once you get there. We've talked so many times on this webcast about doing that by getting multiple bidders. But how do you get multiple bidders fighting over your company? So that's what we're going to  talk about today. I'm very happy to turn things over to Corum founder and CEO Bruce Milne.

 

Bruce Milne

 

Thanks, Tim. As you heard earlier, I gave the closing address at the WFS on how to get the value you deserve. Everyone thought I would trot out all the numbers and the comparables, but what I talked about, and what the audience agreed upon is that you get the value deserved by creating a proper auction process, a bidding war, so to speak. So let's hear from the experts.

 

We talk a lot about preparation, getting ready for the marketplace, knowing how to handle due diligence, but one of the things we've seen in several of the last deals we've conducted, is that all of these clients are mapped to the top ten disruptive trends, including the deals we looked at today.

 

It's important to get not only the response, but to get your valuation up.

 

Now let's go to Jon Scott for step 2.

 

Jon Scott

 

Sometimes a company considering the market will only focus on strategic buyers. They will totally overlook the 3 trillion dollars that financial buyers, typically known as Private Equity, have ready to invest. It’s true that you may not be large enough to be a stand-alone or platform acquisition for a financial buyer but you might well be a “a bolt-on” to one of their existing portfolio companies. And best of all, the financial buyers are often paying on par with strategics and have a ready team to jump in and get a deal done quickly. You need to leverage both types of buyers to create a bidding war.

 

Bruce Milne

 

We just saw two examples of bolt-ons in portfolio deals here by PE. Thank you Jon. Now let's hear from Rob Schram.

 

Rob Schram

 

Corum’s knowledge base, spanning three decades of deal statistics, reveal that about 35% of the initial interest and 25% of the ultimate buyers come from what’s called the “B-List.”  These are deemed the less likely buyers, but since we don’t know what’s being discussed in board rooms or road-map planning sessions, it may be that your company represents the perfect missing piece of the puzzle; about 25% of the time, these candidates will outbid every other strategic and financial buyer to win the deal.  Some examples of B-list buyers include non-tech buyers in your space, newly-minted public companies, foreign buyers seeking a beachhead, companies seeking to leapfrog the competition, and players in adjacent sectors.

 

Bruce Milne

 

Thanks, Rob. Now back to Steve in Utah.

 

Steve Jones

 

Every buyer moves at a different pace so the timing of your outreach is critical.  Go early to those “B list” buyers who will need more time to get up to speed on your company. Ditto with the foreign buyers and very large companies sometimes.  In general, the better a buyer knows your company, the quicker they can make a decision, and the later you should approach them.   Then coordinate your interactions in a way that keeps everyone on the same timeline.  It can be chaotic, but it is critical that you create a well-orchestrated auction to get all of the parties at the same stage of interest at the same time.  

 

Bruce Milne

 

Thanks, Steve. Now to Peter Prince in London. Who might we hear from first?

 

Peter Prince

 

In our industry we have the term “rabbits”: firms that look at everything, first responders, but seldom top bidders – often smaller investment firms looking for “deals.” So, if we know they may not great buyers, why include them? Well, the reasons are two: first, they will ask you the same questions as the bigger, far more important buyers. It’s  a low risk opportunity to learn the concerns, and better understand how to respond. Second: sometimes these firms end up being the best bidder.

 

Bruce Milne

 

You practice your pitch on the rabbits and sometimes they become giants, as in the case of Gores and Constellation. Thanks, Peter.

 

Now to Rob Griggs on who to contact first.

 

Rob Griggs

 

When reaching out to the Specials, and the ones who are closest to your company, means you’ve collected critical market feedback, honed your value proposition and are ready to solicit the best possible response from your closest buyers! Waiting until you have offers in hand is a safe time to approach them without disrupting client relationships, or in the case of competitors letting them try to exploit that you’re for sale. An effective strategy is to approach them with, “I’ve always thought that when it came time to sell, you’d be a good partner, since we have offers I wanted to make sure you had an opportunity to respond.

 

Bruce Milne

 

Thank you, Rob.

 

Now to Julius Telerante in Berlin. We talked about the classes of buyers, but at what level do you contact.

 

Julius Telerante

 

This is where mistakes are made - approaching the buyer at the level which you have regular contact, too low in the organization. Often lower execs have a "make vs. buy" attitude, they don't think as strategically. It's hard later to go over their head to the top, which is where you should always start. That's why you use an advisor who has the right contact at the top.

 

Bruce Milne

 

Good stuff. Once you get into dialogue you're going to get a lot of questions. So now let's hear from Dan Bernstein.

 

Dan Bernstein

 

Buyers have a low tolerance for slow response rates to discovery requests. It all goes back to preparation. If you’re having to run all over the office trying to find that copy of the contract you signed in 1996 then these delays are likely to cause skepticism from the buyer that you’ve got your own house in order. And that’s the last thing you need when you’re trying to close the deal. So do yourself a favor, prepare and document everything ahead of time to make the process of discovery go smoothly. Respond quickly and with information that is being asked for.

 

Bruce Milne

 

Absolutely right. Preparation is key for getting through due diligence. Speaking of questions, you should have a few of your own for the buyer. Let's go back to Ivan Ruzic.

 

Ivan Ruzic

 

Here are some questions that can help you be more proactive and qualify your buyers. Why are you buying my business? What is it that attracted you? Who are your advisors? How familiar are you with my markets? Why would I want to be part of your company? What’s your preferred deal structure? What’s your approval process and who is involved? What other acquisition have you done? How did they work out? And finally, can I talk with the last two companies you acquired?

 

Bruce Milne

 

Thank you, Ivan. Back to HQ and Jeff Riley. You talking to so many companies and so many parties, so many people, so many conversations, how do you keep it all straight?

           

 

Jeff Riley

 

With so many different people playing different roles across prospective strategic and financial buying organizations, literally hundreds of communications will be generated in a typical M&A process. It’s imperative that you keep detailed notes of what was said. You need to keep the parties straight, know what they want or don’t want, understand their limitations, and how they make decisions. You don’t want to be the victim of serial negotiation.  Just the opposite, you want as many concessions as you can negotiate along the way – price, structure, employment agreements, non-competes, and timelines. Staying organized will help you achieve that, so keep those notes.

 

Bruce Milne

 

Yes, keep those notes. We keep hearing the term process. The process can take a while, so how do you keep the initial interest going all the way through?

 

Andy Hill

 

A great way to generate buzz about your business is to keep the positive news coming. A steady stream of releases announcing new clients, customer successes, partnerships, analyst coverage, product updates, new hires and industry awards will reinforce for buyers that your company is really going somewhere. These news bites will be an invaluable for your broker to maintain engagement with interested buyers and create a sense of urgency. And of course the best news of all is that you have exceeded your financial projections!

 

Bruce Milne

 

Yes, you don't want to miss your financial projections as you're going along. At some point you'll have to address valuation, so let's hear from Dave Levine.

 

Dave Levine

 

Presenting a valuation report late, after you’ve received market feedback in a well-orchestrated process, will help to optimize your value. Throughout your interactions with buyers, you’ll learn what structures and valuation methods they are considering, and what specifically they like about your company. This information can be utilized to your advantage. A late-stage valuation that leverages market feedback will give you the needed edge to optimize your value with multiple bidders for your business.

 

Bruce Milne

 

Thank you. Now to Jim Perkins, who is in China negotiating a deal. What about approaching the end? How do you bring it all to a close?

 

Jim Perkins

 

As your transaction process nears the end, set realistic offer deadlines for the multiple buyers submitting LOIs.  Keep all final buyers engaged with consistent updated financials, product progress, and new product development – make sure they have everything they need in order to submit an LOI, and then set deadlines that don't make them feel rushed.  These initial LOIs will need to be negotiated—you will likely see 3 or 4 LOI iterations from each buyer—improving, especially if you've created the proper auction process. Don't forget to ask what each buyer plans for you after the sale – the integration plan. That could be the deciding factor.

 

Bruce Milne

 

Thanks, Jim. I'm glad you mentioned integration, it's critical. Now let's warp up and hear from Allan Wilson.

 

Allan Wilson

 

You are coming to the end of the auction process. You have three or four LOIs and with the help of your adviser, you have successfully negotiated one that you are prepared to sign and move to due diligence. You must deal with the unsuccessful bidders in a professional way and advise them that you have made a choice, but have them stay engaged, as anything can happen during due diligence. The buyer you have chose has asked for a no-shop for 45 days or even longer. Keep it as short as possible, and if it expires, allow for one-week renewals by mutual agreement. Before signing the LOI, insert wording that allows the no-shop provision to be removed if the deal structure is significantly altered during due diligence, allowing you to go back to the other buyers waiting in the wings.

 

Bruce Milne

Great wrap-up, Allan.

 

Q&A

 

Tim, let's turn things over to you for questions.

 

Timothy Goddard

 

Yes, we have some questions that have come in. We'll get back to you via email if we don't have time to get to all of them.

 

We talked a lot about how to start a bidding way from the ground up, but what if there is already an offer inbound?

 

Bruce Milne

 

Actually, we're surprised if somebody hasn't been approached these days. Most companies we have talked to have been approached in some way, some of them even have written offers in hand. So what do you do now? Is this the right buyer, the right price, the right structure? Is there anybody else out there that would pay more for you?

 

The reality is that if you remember some of the numbers we've talked about in the past, only 11% of the buyer outreaches actually result in a deal. It's not a good statistic. If you properly go through the process as we have talked about here, a true global search, your transaction value will improve an average of 48% and 3/4s of the time, the final buyer will be different than the first party that approached you. Lots to know there and keep in mind.

 

When we get a situation like this where there is a legitimate offer for someone, you obviously don't want to antagonize that potential buyer or rule them out. What we do is enter the situation where we do a preliminary evaluation to get into a dialogue about valuation structure and then we quickly move to the rest of the market to calibrate value.

 

Timothy Goddard

 

One last question and then I think we will be out of time.

 

Is there a market for small specialty companies, Bruce?

 

Bruce Milne

 

Really interesting. We have sold some companies that were near 0 revenue or less than a couple of millions dollars in the last few months, and what we're seeing is there is a tremendous appetite for these smaller companies, particularly if they map to these disruptive trends, which I think we will be updating in next month's semi-annual report.

 

Timothy Goddard

 

That's right, we'll take a refresh and take a look at what the trends have been driving so far this year.

 

With that, we're going to close out for the day. We hope you'll join us for one of our conferences and join us next month for our mid-year report. Now let's go to our close.