Sellers Panel 2013

Introduction and Market Overview  

Ward Carter

Hello and welcome to the Corum Group’s Tech M&A Monthly. I’m Ward Carter, chairman of the Corum Group and I thank you for joining us today. We have participants from twenty countries and several hundred attendees. I’d encourage you to post questions to our team and our panelists, and we’ll try to address those at the close of the session.

Today our agenda includes market updates on the gaming sector and the healthcare space, followed by a report from Corum’s research department and concluding with our seller’s panel, featuring three Corum clients who recently sold their software companies. I’m certain our audience will find our seller’s recent experiences and advice of great interest as you consider your own M&A options.  

Casual Gaming Report

First I’d like to kick off with Corum’s Jim Perkins, a notable expert in the gaming industry, who just returned from the Casual Connect conference in San Francisco. This is a premiere event for the casual games industry, which I understand was a fantastic conference. Both Jim and Corum financial analyst Alina Soltys were featured speakers at that event. Jim, tell us what is going on in the gaming industry.  

Jim Perkins

Thanks, Ward. This year’s Casual Connect was a home run for all who attended. With record attendance, this conference is the meeting place for buyers and sellers of online and mobile game companies. The industry entertains over 300 million people worldwide every month on smartphones, tablets, and social networks. This is driving M&A with a record $4B in transactions last year.

Over 3000 industry executives came to hear what was happening in the global gaming market. Corum’s own Alina Soltys hosted a market update briefing, highlighting the latest industry stats and trends and making some very interesting predictions for casual, mobile, and online gaming.

In particular, one ongoing trend we see continuing and growing is the number and volume of Asia-based buyers entering the western market. I followed that with the definitive list of dos and don’ts in selling your company, along with a lively buyers and sellers panel.

Top industry buyers Will O’Brien from Big Fish Games, Kent Wakeford from Kabam, and Carlo Vetucci from Amazon gave a packed audience exclusive insight into what they look for when hiring companies.

The audience also enjoyed experiences, war stories, and lessons learned from a panel of CEOs that had recently sold their software. Of particular note was Michael Pole, CEO of Loops, he shared his experience in selling his company for $486M.

On August 27th we’ll be presenting much of the material from Casual Connect during a World Financial Symposium Market Spotlight webcast, plus some additional surprises. If you weren’t able to join us in San Francisco, I hope you will join us then. Back to you, Ward.  

Ward Carter

Jim, it sounds like it was a great conference. I know the mobile gaming market and online gaming is skyrocketing.  

Healthcare Report

Now, moving on to another sector which is seeing very strong activity, we’ll turn it over to Rob Schram for an update on some recent Corum transactions in the healthcare sector.  

Rob Schram

Thanks, Ward. As highlighted in recent M&A monthlies, Corum has seen exceptional activity in the health technology sector this year, with multiple deals closed and several more cued for acquisition in the coming months.

We recently announced the sale of two healthcare technology companies. The first was American Health Technology, acquired by Francisco Partners-backed Healthland. The second was Fastrack Healthcare Systems, acquired by Thoma Bravo-backed Mediware Information Systems.

Today I’m pleased to announce the sale of Data Strategies Inc., aka MDSuite, which was acquired by Integrated Solutions Group, the Hutchison, Kansas based parent company of Professional Data Services. This acquisition will significantly grow the company’s foothold in the electronic health records industry and position it as a national player within the ambulatory medical practice community.

We have three more healthcare technology companies in the market now, and we are experiencing high levels of interest from both strategic and financial buyers. If you are situated in this particularly active sector, it’s an excellent time to be considering your M&A options.

Please contact us to discuss the healthcare market and the transactional specifics related to your company. Also mark your calendars for the September 24 webcast on healthcare technology. Corum is co-sponsoring this event in concert with World Financial Symposiums. You can go to WFS.com for the details. Back to you, Ward.  

Ward Carter

Thanks, Rob. We look forward to hearing about those deals. Speaking of deals, let’s move on to Elon Gasper and the Corum research team. Elon?  

Research Report

Elon Gasper

Thanks, Ward. We begin with the Public markets, which continued their record-breaking climb in July with extraordinary gains in all three key indices we track. Ample cash on hand at strategics and PEs, cheap debt and a favorable macro outlook all keep powering M&A from the top, as our Corum Index shows with its long list of megadeals and the prices they commanded in July, the total amount almost doubling last July’s with buyers ranging from IT Services giants to electrical manufacturer Schneider in the high performance Vertical market.

There the growing SaaS valuations sure help keep the billion dollar chips flying, don’t they, Amber?   

Amber Stoner

Yeah they do, and speaking of Schneider, it is using that $5B acquisition of Invensys to win more energy-using customers and increase its industrial software and technology business. This deal is Schneider's largest since 2006 and will fortify the French group against larger players such as Switzerland's ABB and Germany's Siemens.

Moving to the US market, Thoma Bravo-backed Deltek bought Acumen, while PTC landed PE-backed Enigma Information Retrieval Systems. While Acumen is an enterprise project management SaaS provider and Enigma develops supplier relationship management software, both companies serve the aerospace, energy, and defense sectors.

What’s going on in the horizontal sector, Elon?  

Elon Gasper

That market is still standing on top for valuations, riding a wave of SaaS and SCM acquisitions, a recent example being German supply chain planning and simulation provider icon-scm, hauled in last week for $34M by Silicon Valley cloud SCM vendor E2open. Earlier last month an all-Valley deal saw SCM RFID player, TagArray, sold up to semi foundry service Maxim, and Hong Kong’s SML took Xterprise for its inventory management SaaS. Unusual aspects of each of these deals underline again the increasing importance of making a meticulous global search for buyers. Alina, besides SCM, other Horizontal sectors aren’t exactly lying down on the job either, are they?  

Alina Soltys

You’re right Elon. Activity persists all around - for example in the  BI subsector, Adobe Systems added Satellite for tag management to its suite of analytically focused marketing software - this suite started out with the Omniture Acquisition.

Yahoo has been on a spree of its own. One of 6 Yahoo acquisitions in July alone, plus several more already in August, is a small acqui-hire of Bejing-based startup Ztelic that tracks activity on social networks providing insightful analytics for enterprise clients. And more importantly, based on Yahoo’s active acquisition spree, this is the 1st China based acquisition in 10 years!

Palaran aka Lexity was acquired for an estimated $35-40M for their ecommerce SaaS solution that analysis an eShop and offers suggestions, apps and integrations to improve sales for the SMB customer base, a highly effective solution to increase revenue for end customers.

Jumping into the Consumer sector with Yahoo buying Qwiki for an estimated $50m, which helps mobile users create videos out of video and photo and sound clips directly on their iOS devices and a few others. In total, half of Yahoo’s acquisitions this month were mobile focused.

Moving on to some other trends: restaurant SaaS and apps were other big winners this month.

OpenTable purchased Rezbook from UrbanSpoon. This was the online reservation booking service that was connected to thousands of restaurants within the UrbanSpoon ecosystem, effectively consolidating those users under one banner.  

OpenTable’s partner, Yelp, used to rely solely on OpenTable’s reservation system. Not any more. Yelp reached out and paid just shy of $13M for SeatMe to have a seat at the table. Their partnership still remains with OpenTable, at least for now.  

Amber Stoner

And at least for now in the infrastructure market, a major trend remains the acquisition of virtualization and network security companies.

In the largest infrastructure deal of the month, Cisco acquired Sourcefire for over $2.5B. The combination of Sourcefire and Cisco will strengthen Cisco’s coverage and expertise in security, helping to accelerate business growth and market penetration.  Following two other recent Cisco deals in the security space, Virtuata and Cognitive Security, Cisco is seemingly looking to become the preeminent destination for protection from cyberthreats.  

Elon Gasper

Wait, what about their prior claim of no more big domestic acquisitions till the tax law changed?  

Amber Stoner

That seems like another sign of this deal’s importance. And Cisco has been buying internationally; we even have the CEO of one of those international acquisitions, SolveDirect, coming up in our sellers panel.  

Elon Gasper

Okay, then. On to the Internet Sector…  

Amber Stoner

A distinct trend in the Internet space is the acquisition of online learning companies especially in the US.

Academic test-preparation giant Kaplan, whose parent company is selling the Washington Post to Jeff Bezos, grabbed Grockit’s test prep assets and social learning platform just last week. With Grockit’s innovations in social learning and ‘gamification’ technology, this deal will help transform the 75-year-old company from paper-based to digital, much like the move we’ve seen from physical to virtual classrooms.

In another online learning deal, Rosetta Stone spent just over $22M to get Lexia, which provides online and downloadable native and foreign language reading instruction software for teachers and students. It’s the second deal the company has done this year, following its $8M bid for Livemocha in April.  

Elon Gasper

Back to July, for a quick look at our last segment, the IT Services market. There we saw some interesting cross border transactions, as Sweden’s Ericsson acquired both Canadian business support specialist Telcocell and Thailand-based TeleOSS Consulting, while Accenture bought ASM Research, expanding its connections with US DoD.

And that’s our July update. Back to you, Ward.  

Ward Carter

Great, thanks, Elon. It’s great to see continued strength in valuations, especially the volume of deals of leading buyers like Cisco and Yahoo. I think the near-record valuations we are seeing in the vertical and horizontal applications should send a strong signal to sellers that now is a great time to be in the market.  

Seller’s Panel

Now I’m very pleased to move on to our seller’s panel featuring three Corum clients who recently sold their software companies. We’ll be hearing from Gavin Weigh, Martin Bittner, and Heber Allred.

The first guest is Gavin Weigh who was the co-founder and CEO of RapidBlue, which is a Helsinki-based staff solutions provider and they also provide location-based analytics for the retail industry. They were recently acquired by ShopperTrak. Let’s turn it over to Gavin.  

Gavin Weigh

Hello. My name is Gavin Weigh, I was the CEO and co-founder of RapidBlue Solutions, a Helsinki-based retail analytics firm, acquired in 2013 by ShopperTrak of Chicago.

Today I’d like to share some of our experiences as first-time entrepreneurs around our exit and our future within the industry and how we managed to navigate our way through due diligence and close a successful acquisition.

At the end of 2012, RapidBlue was approached by a large market research firm who had a great interest in our technology platform and the business that we built around it. It became clear to us quite quickly that we would be attractive to a multitude of different companies operating in various industries. With this in mind, we approached Corum, who helped us build an auction process and a secondary process around how to navigate through, not only due diligence, but also through receiving successful offers.

We followed Corum’s process around building an auction. This involved a series of approximately 20 management presentations to a variety of companies like IBM, Walmart, Microsoft, and so on. We were at the table with some of the key players not only in technology, but also branching out into our own industry.

ShopperTrak quickly, for us, became the most attractive company, as they are a direct industry leader. What we noticed was that, in our experience, the first to approach is likely to be the first to buy. We found that our original possible acquirer came in with offers that were not as attractive for us as some of the others we received. So, we went forward with ShopperTrak and we entered into due diligence.

Due diligence is, I think, by default a difficult process. You find that you have to open up your own company and your career’s work in a way you have not done before. We were scrutinized on a variety of topics, ranging from financials to patents and general IPR. My advice around getting through due diligence is to insure that you maintain your business and its functionality at all costs. You have to run your business while you are selling your company.

This was something we focused heavily on. Corum helped us streamline our own information flow to ShopperTrak via creative documentation, insuring we always had data rooms available for any acquirers so that they could go in and speed up their own due diligence process.

We found that we had to produce a whole series of documents covering topics that we hadn’t necessarily documented before for our own internal uses, but were critical for external. These would be things like IPR analysis, cashflow forecasts given a variety of situations more applicable to larger firms.

Having got through the due diligence phase, it took approximately two and a half months. There were very limited delays, and I think both parties feel afterward that the process was relatively smooth. I would put a lot of that down to us having a clear template to follow provided by Corum, and also from ShopperTrak having their own process.

My advice to any CEO going in to or considering going into an acquisition process, is to engage in an auction. If you are attractive to one industry player, there is a high likelihood that can also engage several other players that will be interested in acquiring your firm, and you will ultimately receive better terms. Focus on maintaining normal business. Insure that your books remain healthy, it’s one less thing to worry about. If you feel that your business is growing and the sales are coming in, you will find that due diligence and the whole acquisition process will be a less stressful event. Be prepared for extremely long days and high stress levels. Running a business in itself requires lots of effort. Running a business and selling a business in parallel requires that you are entirely focused on only that. It can take anywhere from weeks to many months.

It’s about digging in, insuring that your business is highly functional, and getting yourself out to as many different companies as you possibly can. Having been successfully acquired by ShopperTrak, we were very glad to see that the technology that we have built here in Helsinki is now being pushed onto a global scale. We’ve found that our way of operating is far more streamlined. We’ve managed to adopt a lot of the highly developed processes of a larger company. We’ve also been able to maintain our entrepreneurial freedom. We are able to operate our unit, as it were, with higher budgets and on a larger scale.

I think for RapidBlue, this has been an extremely successful acquisition. It will continue to be a successful acquisition for ShopperTrak. Despite the stress and the long hours, it’s an excellent process to go through and to complete.  

Ward Carter

Thanks a lot, Gavin, those are really great comments and consistent with a lot of what we hear from a lot of people who have recently gone through the process. The auction process is really a very valuable way to make sure you get the best possible deal.

Next I’d like to move to Martin Bittner. Martin is based in Austria. His company, Solvedirect, is a cloud-based IT service management software solutions company. It was recently sold by Corum to Cisco, and we’re pleased to have Martin with us this afternoon.

Martin, I know that you and I spoke earlier about some of the experiences that you had while going through the process and as you move from a long list of potential buyer candidates to a shorter list to a final bidder, maybe along the way there were a few surprises?  

Martin Bittner

Excellent question, actually. The situation of Solvedirect is a little bit special. We sold the company in 2007 to another company and split it off again in 2010. We built in the second round for global acquisition. We built five strategies. One of them was who do we sell to and another was competitive buyers. We thought about financial conglomerate for IPOs, we considered all of them over the last three years.

We built the long list together with Corum, it was a widening of our approach, including our three years’ work. The surprises were very limited because if you work so much with your clients and with your partners that you can bear the noise of being on the market and Corum was a very well-received filter or coach on that. That was the area relevant to those who knew us already, so the surprises were limited.  

Ward Carter

Interesting. I know you’d been through some venture capital rounds in the past. What did you find that was maybe different from that process.  

Martin Bittner

Good question. Mostly the audience today will have had the experience of pitching to VC which is very much market value growth positioning. It doesn’t attach to a real business value of the potential buyer because the VC is agnostic, they are just talking about multiples.

If you do 20 presentations to people who want to acquire you, you really have to target them just to their business value, to their products. It’s always the same story, but in a different color. You present in 20 different colors for 20 different pitches. Sometimes it’s market, sometimes it’s competitive threat, sometimes its future growth. The preparation of our pitches was maybe four or five times the effort of a standard VC pitch.

Be prepared if you sell your company to really dig into your buyer’s thinking and behavior. Back to you.  

Ward Carter

You stressed the importance of preparation. I know you work very much with our Corum European deal team. Can you talk about any of the key things that you did as far as positioning during that preparation phase?  

Martin Bittner

Most of the audience might also think of selling their companies or being acquired. Our special situation, as I mentioned with the first question, was that our owners targeted us for a local position. We clearly prepared for getting the right partners, getting the right positioning, retiring some messages which were not from the valuation perspective. As a company we had multiple messages out there, so we took back some of those to focus our position.

It was very valuable having Corum on the team, managing the process and expectations to our stakeholders and owners about how long it takes to get through the M&A process. The owners had specific reasons for selling by a certain date and Corum helped a lot of that in terms of managing te process and making it clear that we have to go through certain steps in preparation to get to an auctioning result, a good result, a very valuable result, which we couldn’t have achieved by being pressed just by the owners. That was really important and brought value for the whole team.  

Ward Carter

Thanks, Martin. Managing expectations is, quite frankly, a big part of our job.

Our next guest is Heber Allred, who was the founder of PlanSwift, based out of Utah. PlanSwift is a construction estimating software company. It allows for point and click estimating using digital blueprints. Heber build a very successful company which was recently sold to Textura.

As kind of a sidebar here, Textura was a pre-public company at the time we did this transaction several months ago. Since that time they have gone public and their stock has doubled since the IPO, so it is a very successful new IPO and Heber has had the benefit of that, and he’s also received shares of Textura.

We’re happy to turn this over to Heber now for some comments.  

Heber Allred

Alright, thanks, Ward. My name is Heber Allred, founder of PlanSwift, a construction takeoff and estimating software. Starting in 2007, over a five-year period, we grew the company to over 17,000 users worldwide. Then we recently sold it with the help of the Corum Group.

Through the process of selling the company, I have learned some key points that will hopefully help you in selling your own company as well.

The first recommendation I have is to get a company such as Corum to represent you. This will help you avoid the missteps that could be extremely costly to you and along with all the other services they provide that have been mentioned, it also sends a signal to the buyers that you are serious and that when you approach them as a potential acquisition, they will feel a sense of urgency to act on the deal because someone else could potentially acquire you, possibly a competitor. That was a good key advantage that it gave us as well.

In my particular deal, I was selling the company so that I could move on to other business ventures and so early on in the process, this was actually the number one deal killer for potential buyers because they could see that I was running the day-by-day business and they weren’t about to acquire the company just to see me move on to something else. I learned that I had to start a transition of delegating the management of the company to another key individual in the company. This took us about six to eight months. The other individual was already very important and a key role in the company. They were in a position to take on the role of president for me. In order to do that, I had to put in place a lot of incentives and things so that this person would run the company like I would. You have to remember that it is really easy for us as business owners to have a value in our own minds of this baby we’ve created, so to speak, but you have to create the incentives inside of someone else, too, like a percentage of the profitability or something so that they will run it with the same incentives you do.

Another key point I learned was that you have to keep the negotiations positive with the buyer, especially if you are going to go along with the company. You’re going to have to work with them for a good long time, so you don’t want to let the negotiations get bitter or negative in any way. You have to be cautious. Another point I would bring up is to be patient. As was mentioned earlier in the webinar, the first company to approach you is not necessarily the one that will buy you. There were several companies early on in the process for us that we thought would be the buyer. The company that actually ended up acquiring us, at first we didn’t really get the signal that they would be the buyer. You have to take every buyer seriously and you also have to be patient. They’re going to buy you when they’re ready to buy you.

The timing of the market is important. We went to market early in 2008. That was just before the economic downturn. A lot of the buyers froze their spending and we had to put it on hold for a little while. Then we brought it back to market again. You can’t get your mind set too firmly on how you think the deal should turn out or when you think it should happen. Obviously you can do everything within your power to affect that, though.

Another thing I learned was to be cautious about companies that come in, potentially to acquire you, and then take your ideas from you. You’ll want to take the Corum Group’s advice, counsel with them, about how much information you disclose and when you disclose it. A few of the early potential buyers, we disclosed information to them and they ended up not buying and developing their own version of what we had. You just have to be cautious. There’s no real easy answer, in my opinion, of how to filter that or how to know exactly what to know when. You just have to be smart about it and be cautious.

As was mentioned earlier, you have to be braced for due diligence. Next to delegating the company to someone else, that was the most difficult thing for me in the process, due diligence was the next most challenging. It’s just very intense and you have to sprint for the finish line, so to speak. This is the final lap of the race and you have to put in that extra effort and be ready for it, braced for it.

Another key point I learned was that your attorneys will fight for you, their attorneys will fight for them. Don’t be surprised if they go back and forth with each other. They are trying to act in the best interests of the buyer, and you’re acting in your best interest. Don’t be discouraged with it, they’re just doing their job. Don’t give in on anything critical, but be prepared to make some compromises if you need to close the deal.

One point I would make about deal structure: there are a lot of different ways for the deal to be structured, how much cash, when, how much stock, etc. The guideline I used for myself and hopefully it’s a good one for you was, “Does this deal structure get me closer to where I want to be in life?” Obviously for me this was the largest transaction of my life and after we go through the negotiations, I just have to step back and ask myself, “Am I prepared to take this deal structure, and is it going to get me closer to where I want to be in life?” That’s just a really good yes or no question for me.

One thing that worked out really well for us, we were just getting to the size of company where we were just starting to get benefits for our employees. This acquisition was actually a positive thing for our employees that way.

Those are just some key points that I learned. After it’s all said and done, it was really fun fishing!  

Ward Carter

Thanks for your comments, they were very insightful. This next slide is very current. As many of you know, Corum has been taking their clients up to Langera Island in the far northern reaches of the Pacific near Alaska. We’ve been doing it for nearly 20 years now. We do it as a way to celebrate. As you can see from the big smile on Heber’s face, he really enjoyed catching that big fish, one of several he caught. There were a big group of executives that had a great time fishing for four days.

Heber has a bunch of startups on his mind, and hopefully we can get him back there in the next year or two.

We have room now for a question. The question is: “Often we see situations where there are pre-existing contracts, software license agreements, service agreements, and so on. Those can create challenges given terminology that may not have been drafted as carefully as it should have been.”

Heber or Martin, was that an issue for either of you?  

Martin Bittner

In our case, as a small company you try to get every catch you can. We had one case that was subject to close, finally, and we paid back some and it was much cheaper doing that, bringing back some life to things.  

Ward Carter

Heber, was that much of an issue for you?  

Heber Allred

Not much. Early on, while we were building the company, we had the plan of selling the company, so we kept that in mind to make sure we didn’t get into any exclusive deals or anything that would prohibit a sale. There were some things we had to go through. We had to polish up some of our contracts, so to speak, clarify some points, but we only had that on a few contracts. The companies that we were dealing with were very open to clarifying those points.  

Ward Carter

It’s something we really stress in our Selling Up Selling Out conference, the importance of sharing your contracts early on to avoid those kinds of challenges. The last thing you want to do is have a change of control clause or something like that, which really causes a roadblock when it gets time to close.

One question about any threshold revenue size for acquisitions. The question has to do with a fire ideal that sold for 10x revenue and others at a ratio of enterprise value, EBITDA… can you give us some insight into technology company revenue multiples?

We talked about that during this session from Elon, it varies dramatically by sector. I think we were looking at some of the public companies as an example in the horizontal space that were 3x revenues.  

Elon Gapser

There are also a lot of differences between the subsectors in the horizontal market as well. It’s really a matter of the change that goes on in each one of the various subsectors, it’s a very dynamic market. This can be subject, in particular, as we’ve talked about before, to these waves of consolidation that move through the market in particular areas, where one large company decides to make a move and address a market that before that was too small for the larger companies to bother with. That catalyzes the others to pick partners as well. The important thing, of course, is to not be left over after they all get done picking partners.

As far as what the valuations are and whether they’re driven by sales or EBITDA. We do have a mid-year report going out to follow our annual report, where we go through all of the 26 subsectors that Corum covers, and talk about the dynamics in those and we certainly invite anyone to give us a call if you want to delve deeper into what the possibilities are for their strategic options.  

Ward Carter

Thanks, Elon. We’ll have to follow up on the rest of the questions by email. If you have questions about your specific situation, please email us.

That concludes our presentation for today. I really want to thank our presenters, the Corum team, and especially our guest speakers, Martin, Gavin and Heber. Thanks for being with us and we hope to see you at an upcoming conference.