With buyer cash and disruptive trends continuing to drive tech M&A deal flow, it is still the best time to take advantage of today’s environment. If you’re considering a sale, you won’t want to miss this month’s in-depth discussion with tech CEOs who recently sold their companies. Tune in March 10 to hear from software executives and owners like you, who successfully navigated the M&A field and sold their companies to a global array of buyers. Learn how they did it and what you can do to increase your value in today’s market. We’ll be hearing from:  

  • Moe Arnaiz, Founder & CEO of eMOBUS, acquired by Asentinel and Marlin Equity
  • William Harris, Chairman of Orthoview, acquired by Materialise
  • James Schmalz, Founder & CEO of Digital Extremes, acquired by Perfect World and Leyou Technologies  

Read Presentation Transcript

Read more Show less


Bruce Milne

Welcome to Tech M&A Monthly for our annual Seller’s Panel. I’m Bruce Milne, your moderator for today, CEO of the Corum Group. We have a jam-packed session in our agenda: A special report on HIMSS and RSA, our research report including valuations and deals being done, lots of new buyers out there, and then our Seller’s Panel, William Harris from OrthoView, Moe Arnaiz eMOBUS, and James Schmalz from Digital Extremes, followed by Q&A.

Special Report: HIMSS

Let’s go straight to our report from HIMSS from Dave Levine, our newest Corum VP.

Dave Levine

Thanks, Bruce. There was a lot going on at HIMSS last week in Las Vegas. There was record attendance and key themes included Population Health, Security and Interoperability.

On the population health front, companies were looking at ways to run predictive analytics on data from all potential data sources, pushing further into predictive care. What the patient does when they leave a hospital is as important as what they do when they are under the care of a provider, and giving caregivers insights into patient behavior by unlocking and integrating data throughout the continuum of care is a key challenge in health IT. New companies emerging as innovators in data analytics, and connecting that data in new ways, are attractive acquisition targets.

Data Security and prevention of cyber-attacks continues to be an important topic as hospitals wrestle with cyber threat, in some cases even paying a ransom to cyber attackers to get their systems back on line. The FBI Issued a warning to healthcare providers in early 2015 stating that the healthcare industry is not as resilient to cyber intrusions compared to other sectors.

The quest for Interoperability has been an ongoing topic as many of the EMR systems are seen as being closed, even with work by industry groups like the The CommonWell Health Alliance. Big moves are being made here as companies are wrestling with HIPAA regulations and innovation that will drive mergers, as the silos that once protected companies are being knocked down. 

All these factors, and many others, are keeping the healthtech M&A market robust. I’m looking forward to discussing this in more detail in a Market Spotlight webcast next month.

Bruce Milne

Thank you, Dave. Connected Health has recently been added to the Top Ten Disruptive Trends that drive our industry.

Special Report: RSA San Francisco

Now to Nat Burgess

Nat Burgess

This is Nat Burgess, President of Corum, just back from the RSA Conference in San Francisco.

I first spoke at RSA in 2000 and have been attending since then. They actually started as a cryptography conference in the early ‘90s, back when Corum was just starting conferences around tech M&A. Cryptography was about offense, protecting data, and gradually as the threats have increased, and the internet and data have grown, it’s become more and more about defense. This year was no exception. The big themes were

1: Big Data. As the logs and monitoring to spot problems grows, security becomes a data problem. So that was driving a lot of the innovation.

2: The sheer amount of money flowing in is mind-boggling. In the old days, the innovation sandbox, where the startups would have five minutes to pitch and be judged by a panel, those were true startups, with maybe a million or two under their belt. This year, there was one firm that had raised over $50M, but still considered part of the startup contingency. So lots of money.

3: Israel has grown in importance in this segment, year on year. This year really a lot of very promising and exciting companies are out of Israel, both in the innovation sandbox and in the established segments.

We saw a lot of old friends, met some new companies, and we remain bullish as security becomes embedded across the areas that we follow from our Top Ten Trends in terms of analytics, health care, online exchanges, security is more and more embedded, but also a place where innovation is happening and a lot of companies are emerging with new approaches.

Bruce Milne

Thanks, Nat. Interesting you mention Israel. We’re running regular conference there and we have some clients there, and things are lining up very well for them for mergers.

Corum Research Report - Connected Cars on the Rise

Now, let’s go to Elon Gasper and Amber Stoner for our Corum Research report.

Elon Gasper

Thanks, Bruce. We begin with the public markets, which bounced back last month, erasing most of January’s losses, as they seek clearer direction now amid the many uncertainties that have given the Bull reason to pause and consider how ready he is for another charge forward. Our advice remains that tech execs should take advantage of this window of opportunity to at least calibrate the value of their assets, since our Corum Index still shows a relatively strong market with total deals pulled back only 5% year over year. The VC to PE portion of the pipeline lessening, and life of target creeping up as buyers dig deeper for deal flow, are further signs of a seller’s market opportunity window. The larger companies see it, as evidenced by higher megadeal volume and larger deal values. Amber, many of last month’s megadeals were in Infrastructure, right?

Infrastructure Software Market Valuations

Amber Stoner

Yes, and those infrastructure megadeals include a consortium of Chinese investors led by Quihoo 360 buying Norway-based web browser provider Opera Software for $1.2B, just over 2x revenue and 14x EBITDA.

And Cisco’s $1.4B acquisition of cloud-based IoT service platform provider Jasper Technologies, the first pure SaaS megadeal in the IoT space, which points to more IoT software deals to come in 2016.

In the overall sector, sales and EBITDA multiples have dropped since the beginning of the year, though security remains a key trend especially with last week’s RSA conference that Nat reported on earlier.

IID was snapped up by network management company Infoblox for $45M to add threat intelligence capabilities to Infoblox’s existing security solutions.

Dallas-based cybersecurity firm ISight Partners was bought by FireEye for $200M, a 5x revenue multiple. FireEye also spent an estimated $20M for Invotas to add security automation to its threat management platform.

IBM also tapped into the security space with a couple of acquisitions already this year: German fraud detection firm IRIS Analytics and US-based Resilient Systems, an incident-response platform provider.

Following its earlier acquisition of Jasper, Cisco spent another $260M to get cloud application management company CliQr Technologies to boost its cloud management services.

In the virtualization space, Israeli application virtualization startup Ravello Systems was grabbed by Oracle for a reported $500M. And Amazon’s AWS division picked up Italy’s NICE Software, which provides solutions to optimize high-performance computing and visualization workloads.

Elsewhere in the space, virtualized backup and recovery company Trilead was purchased by Hewlett Packard Enterprise in its first acquisition since it split from its PC and printer business last year.

Elon, what’s happening in the Consumer space?

Consumer Software Market Valuations

Elon Gasper

The Consumer software market enterprise value to sales ratio remained near its average value of the last couple years, but with quite positive dynamics for EBITDA ratios, as dependably profitable models continue to generate interest, with Entertainment companies in particular trading higher.

Notable among game company deals is Korean RPG developer Fiesta Online joining Germany’s gamigo in a quest for new content development possibly including more Asian market outreach via language localized versions; and sports videogame outfit World Golf Tour, teed up by facilities operator Topgolf to leverage its customer base, another example of a non-tech company newly become a tech buyer as it deploys nearly $100M in recent PE funding.

A highlight in the active esports space is the acquisition of esports pro-circuit specialist Major League Gaming by Activision Blizzard for $46M to further its strategy of establishing its own esports division.

In another esports expansion play, the UK’s Game Digital acquired gaming event firm MultiPlay and Spain’s Social Electronica Sports platform also.

Struggling GoPro followed the classic “software sells hardware” principle by adding some enabling video editing apps from start-ups Stupeflix in France and Vemory in Austin, Texas, reportedly for over $100M.

And finally, Japanese sporting goods maker ASICS joined the club by grabbing a fitness-tracking platform to call its own—Boston-based RunKeeper for $85M—taking this wave of fitness acquisitions past a billion dollars total. We expect further consolidation among the remaining handful of small companies in this space. 

What’s the news in the Horizontal sector, Amber?

Horizontal Software Market Valuations

Amber Stoner

Sales multiples in the Horizontal sector mirror summer 2015 levels though EBITDA values remain high as consolidation continues in the AdTech and HR spaces.

Cross-device retargeting startup Tapad was picked up by Norway-based mobile carrier Telenor for $360M, a 6.3x revenue multiple, attempting to use the move into AdTech as a growth strategy in a deal similar to Verizon’s 2015 acquisition of AOL.

On the other side of the globe, New Zealand-based collaboration software firm Diligent was taken private by one of the top PE acquirers, Insight Venture Partners, for $624M, at 6.6x revenue.

This deal follows consolidation in related markets such as e-signature and contract management where Exari acquired Norway-based CMA Contiki and US-based Coupa Software picked up Canada’s Contractually.

Consolidation in the HR subsector continued with 3 acquisitions: payroll processing solutions company Summit Software was snapped up by PrismHR; PE-backed Kronos grabbed workforce management firm Empower Software Solutions; and JMI Equity bought HCM and payroll management SaaS provider CoreHR.

Elon Gasper

Finally, yesterday here in Seattle we saw more proof of the rapidly maturing connected car ecosystem, as Inrix, a pioneer in data and services for it, bought fellow Seattle company OpenCar and its automotive app development platform. To better understand the deal rationale, get further insight into the market or just try to keep up with how fast the car is becoming the center of the Internet of Things, you can hear from Inrix and other Connected Car leaders at the Automotive Spotlight we presented 2 weeks ago, now available on-demand at World Financial Symposiums’ site WFS.com.

And it looks like this one’s off to the races. Bruce?   

Bruce Milne

Thanks, great report. We are the platinum sponsor of the World Financial Symposium. Their theme is educating technology leaders.

What’s amazing to me is how many buyers there are. Quihoo, $1.2B as a megadeal. How many of you heard of them before? We’re at an interesting time now. Greed and fear are the two driving emotions in tech M&A. Greed because you want to hit the maximum value at the right time in the market, timing is so critical, or fear that you’ll miss it and be on the down cycle where the buyers and valuations disappear.

5 Benefits of a Professional Process

We’re right now having a record number of conferences. Next week will be our biggest week ever, 11 events globally, and record attendance from Singapore to Copenhagen, from LA to Helsinki. The reason is, everyone is balancing equally that fear and greed.

Our advice is to do a global search for an acquirer. There are five benefits of doing this in a professional way.

  1. First, you preparation process will help you forge a much better model for your firm, and we all need that.
  2. The research done on buyers and competitors will help you hone and refine your positioning statement.
  3. The market’s feedback. Buyers are very open with you, they have a lot more feet on the street user base and trade name than you do, which is why you want to partner with them, but they have insights that could help you improve your value.
  4. A lot of people forget this one. Not everyone is a buyer. In fact, out of the companies that go under NDA, only about 20% actually buy. What about they others? Many of them end up becoming partners, they want to work with you in another way, which will increase your value.
  5. Fifth is exit strategy.

What’s interesting about these, is any single one of these benefits will justify the time and expense of a global partner search. Inaction right now may not be to your betterment down the road, because we don’t know where this market is going. If it goes down, you don’t want to be part of that, you don’t want to miss the peak.

Sellers Panel

Now let’s move to our spotlight presentation, the Seller’s Panel. This, by the way, is the third of our three major events at the beginning of the year. The first is our Buyer’s Panel, we had SAP and Microsoft join us; then last month we had our PE panel and we had some of the top firms in the world, you see them here and the deals they have done. This one today is our Seller’s Panel.

Thank you do our deal makers who worked these transactions, Jon Scott, Senior VP in Amsterdam, Rob Schram, Senior VP, and Jim Perkins.

Now let’s move to our Seller’s Panel. We have three distinguished guests from three very different companies. We’ll start with William Harris, chairman of OrthoView. William joined us at a WFS event we sponsored in London and we really appreciated that.

William Harris

Hello, I’m William Harris from Avonglen, Ltd. We specialize in providing finance director, a non-executive director level support to high growth businesses. My business partner, Tim Hilton, and I, were finance director and chairman of OrthoView holdings until its sale to Materialize NV of Belgium in October 2014.

Working with CEO John Chambers and Jon Scott of Corum, we sold Orthoview to NASDAQ-listed Materialize for 8.5M pounds.

Orthoview, which is based in the science park in Southampton, England, had developed some innovative software for allowing orthopedic surgeons to plan joint replacements (hips, knees, etc) in a digital x-ray environment. We built relationships with most of the largest PAX vendors and prosthesis manufacturers around the world. The company was VC-backed and some of the funds invested were coming to the end of their terms, so it was important to them to secure an exit.

Foresight group, on behalf of the investor funds, were supportive throughout the process. In fact, the process took about 16 months, from meeting corporate finance advisors for the first time through completion.

Tim and I had been involved in a lot of buy side activity previously, so we knew what to expect and were well prepared for financial and legal due diligence, having gathered all the documents together for the data room long before we needed them.

I must admit I found it rather frustrating being on the sell side, because you feel much less in control than when you’re seeking to buy another business. So the big lesson for me was to be patient and allow the process to take its time without allowing it to get bogged down.

My advice to other executives looking at M&A, whether buying or selling, is to make sure you have strong processes in place. Insure there are sufficient resources to undertake the transaction without distracting management from running the business on a day to day basis. Remain calm, especially when it comes to crunch negotiations, and know when to break out to gather your thoughts.

Finally, have the best advisors around you possible. I like people who will give me a view, not just give me the pros and cons of a particular situation. They have been through the process many more times than I have, and I like to use their experience.

Bruce Milne

Thank you, William. What was interesting about this situation, was we met at the Director’s Club in London, where we often host our events, and William attended our Selling Up, Selling Out conference, which is our boot camp. Two words that resonated with him that are front and center in our presentations, are “you control the process.”

Now let’s go to Moe Arnaiz from eMOBUS.

Moe Arnaiz

My name is Moe Arnaiz, I was the founding CEO of a company called eMOBUS. We provided software and services in the managed mobility services space. We founded eMOBUS in late 2007, spent the next two years really refining our product to meet the market’s needs, and in 2010 we had sorted out our product and really started to ramp up sales.

Over the next four years, we had a ton of success, adding over 500 innovative customers, including Netflix, Silicon Valley Bank and CBS Interactive. In 2014 we had a hyper growth year and at the same time inbound interest in our business really peaked. Understanding the importance of timing in business, we felt like it was time to bring in some institutional money or attach ourselves to something larger through an exit. The shareholders preferred the exit, so we decided to take a look in the market for investment bankers that could help us in that process. We ultimately looked at four different investment bankers. We asked a lot of questions. We were leery of the value they could add, feeling that we understood our business the best and would be the best group to sell it. After further review, we also realized it would take a ton of time and require some experience through the process, so we ultimately settled on Corum.

We were familiar with Corum, sat through one of their presentations and were impressed, but ultimately we went with them because we were most impressed with how they marketed their business and we figured we’d be retaining them to market ours.

We moved forward with Corum, kicking off the project in February 2015. We had a one-day brainstorming session at their corporate offices. We built the assets we needed to go to market. They ultimately know what the buyers are looking for and have the skill to deliver that very concisely so that they can quickly evaluate it.

In April, we decided to do our outreach and that led to a ton of phone calls over the next two months. By June we had multiple LOIs on the table and at the end of August we settled on our LOI and within 45 days of that, we were sold.

Corum helped us find a great partner in Marlin Equity Partners, a very fast, professional, clean group, and a great fit in Asentinel, the company we were eventually rolled into. Our deal closed in October in 2015 and the lessons I learned in that process were:

  1. Run a good business
  2. Focus on your customers
  3. Focus on your top and bottom lines
  4. Run your business like you might sell it one day, follow GAP, keep financials clean, etc
  5. Don’t always follow the highest bid. You want to find the right partner.

Thank you.

Bruce Milne

Thank you, Moe. Great comments. I could almost feel some of you trying to get all that written down. Good stuff there.

One thing Moe mentioned that I want to underscore is that there is a lot to do here while you’re trying to run a company. It’s a full time job or more to do a merger properly while you’re running your company. That’s why we put five people on an account, because we can’t have our companies fall down, not meet their numbers, along the way. That dramatically affects valuations and offers.

Now, finally let’s hear from James Schmalz, founder and CEO of Digital Extremes.

James Schmalz

Thank you. I’m James Schmalz from Digital Extremes. We make video games and I’ve been doing this for about 23 years. I started right after university, just making games on my own, making $1200 a month when I got to do it full time, and everything grew from there. Every year we started adding a few more people, games in general got bigger, so we had to grow the company, and then 22 years later, we’d had a great deal of success, especially in the last couple of years.

I’d know Jim Perkins from Corum for almost all 22 of those years because he was in the industry. We had a conversation at a video game conference and he asked if I’d thought about selling the company. I had not at that point because we were on a skyrocketing path of success at that time, but he suggested I check out the market. I thought that would be a really interesting experience, so he and I started talking to some companies and seeing what the possibilities out there were. There were plenty of times when we didn’t bother having conversations because we knew it would be a bad partnership, but something that really caught our ear when we were talking to people was our ability to have more exposure to the Asian markets. Anyone who is at all familiar with the games industry knows that Asian markets, China in particular, are just monsters for video games. Culturally we don’t have that perfect fit for over there.

So, as we were talking to companies in that market that were interested, it got us excited and it seemed to lead to a real possibility of an acquisition that made a lot of sense for us to grow even further. Eventually we were majority purchased by Leyou Technologies and so far they have been an absolutely fantastic partner. In our industry, again anyone who is familiar knows that certain times acquisitions happen and they turn into nightmares because of cultural incompatibilities between companies. So far, ours has been perfect. They are helping us access China and the Asian markets better, and have proven to be fantastic partners in helping us achieve the next level of goals.

Ultimately the whole process, it took longer than expected, but it has so far exceeded our expectations in terms of what we could accomplish by going through an acquisition of this sort. It’s not something we were initially even interested in doing, so it’s turned out great on all fronts. Thanks to Jim at Corum for leading us on that path, because it has been fantastic for everybody on our side.

Bruce Milne

Thank you, James. I’m sure there will be a couple of questions for you.

Jim, you’re on also. You first met Corum when we sold your company, right?

Jim Perkins

That’s right, back in 1996. We did that deal together, Bruce. What I want to comment on is that in dealing with Asian companies you require certain approvals, both from the Hong Kong stock exchange, where Leyou is listed, and from the Ontario government, where James is located.

It was quite a process, but we got it done. I must say that the team at Digital Extremes were very well prepared, both from a financial document point of view and a legal document point of view. So when PWC came in to do their audit, they passed with flying colors. One lesson there is to be prepared and they were very well prepared.

Bruce Milne

They were and it helped, and I remember just as they were closing, James, I got up and I looked at the stock and it had dropped some crazy percentage, maybe 50%, it had spiked down, part of this extreme volatility of last summer, but it still got done.

James Schmalz

The Asian markets are still on quite the roller coaster, but hopefully things are looking to stabilize going forward.

Jim Perkins

The Asian buyers are still the top buyers in this market, regardless of the volatility of the market, they have the most cash, and it’s transitioning from gaming to other businesses as well, we’ve noticed in other transactions.

Bruce Milne

Well they have a staggering amount of cash, as we saw from the largest deal this month with Qihoo. Speaking of cash, one of the things we talked about earlier is that there is around $4T now, $3T of it in the PEs, they’re now the largest active buyers, and we’re going to be co-sponsoring with Vista in Austin for a conference later this year. They were one of the largest buyers last year with 43 deals. The strategics have about $1B. Keep in mind that these companies are really just a large collection of acquisitions. They don’t develop themselves anymore, so they are hungry for new young talent and good ideas.


Let’s go to some questions.

I had one quick question that came in. “I’ve been on the fence about selling. How long will it take to get interest in my company?”

The prep process, you got this from the presenters today, it may take a while to close sometimes, but the prep process—and feel free to chime in here—is anywhere from four to six weeks and it depends on the issues you run into.

Once you’re on the market though, you tend to get a fairly quick response. Rob, how fast was that transaction?

Rob Schram

The eMOBUS transaction was fairly typical, Bruce. We got our prep together, we launched to the long list and got a feel for the market, they asked good questions, but they aren’t where the bulk of the interest will come from. Then we go to the long list and specials, and that takes maybe three weeks. During that whole sequence, interest is rolling in. So within two months we have a pretty good hopper of interested and qualified prospective acquirers, maybe 25, and then that is where the fun begins. From there you boil it down to where you have maybe five, any one of which you’re willing to sell to, then we start asking the hard questions, doing the due diligence and controlling the process. All we need is one at the end of that process and we found a good one. That’s pretty typical.

Bruce Milne

That’s great.

Another question, housekeeping steps to be taken. We have some information online, we can give you a CEO checklist that we use in prepping companies.

There was a question, “What are the legal and financial processes that should be in place before approaching?” Moe, you went through this, I’ll throw it to you.

Moe Arnaiz

I think that you need to have everything in order in terms of how your company is set up, from a corporate structure perspective. Also from a financial perspective, make sure you’re following GAP as I mentioned. You have to have all the key metrics to show your company as successful and growing. I think the clearer you can paint the view of your business for your acquirer, the easier it will be in terms of the process.

Bruce Milne

Great. We had the question, what is a smallest EV you would take out? We have companies that are no revenue right now that have a hot idea and are actually getting pretty good responses.

“How early in your startup do you start to prepare the foundation for a high-value exit?” That’s part of the prep idea and essentially you can’t start too early. As we often talk about at our conferences, you need to begin with the end in mind. What would a buyer want, what would that look like? That’s the prep we go through. I’ll open that up to anyone else who might want to answer that. Jon, I know you’re involved with a lot of smaller companies in Europe?

Jon Scott

Thanks, Bruce.

I think the issue with the concept of beginning with the end in mind, is today we see companies starting out literally that are creating virtual data rooms immediately, keeping all their electronic documents, contracts and information in a data room so they can, at any point in time, be ready to enter into an M&A possibility. They are set. I would say have an idea who your potential buyers might be and follow them closely, and make sure you’re set from the standpoint of legal structure, contracts, and that to respond quickly. Speed is the key here. You don’t want to take a lot of time when you’re in a process once someone is interested.

Rob Schram

I’d like to dovetail with what Jon said and also tie into what you mentioned earlier, Bruce. Because there is so much money in the market right now, often times both strategics and buyers are trying to lay down cash in pretty big chunks. If you’re a small company, even though you may represent a perfect missing piece of a puzzle to another company, it’s really important to establish early on intimate working relationships with potential buyers. In other words, get yourself sponsors and champions within these companies who will go to corp dev and say, “We really need this.” Then they’ll make it happen. Otherwise, from a corp dev perspective, a small deal doesn’t look that great internally and on their resume and you won’t get the traction that you otherwise deserve.

Bruce Milne

There’s a question I’d like to throw to James. “I’ve heard Asian buyers take a long time, or is that just that they haven’t been doing many transactions and they’re getting more experience?” I know yours took a while there.

James Schmalz

From what I understand, our process took quite a bit longer than a typical one. I’m not familiar with the typical process, but after hearing from Jim and our lawyer who deals with other acquisitions, ours was extraordinarily long. I think the main issue there was not necessarily the acquiring company, it was dealing with cultural differences between the Hong Kong lawyers and our Canadian lawyers. Ultimately it was an acquisition of a Canadian company that they formed with our company, so everything was under Canadian law. Our lawyers were dealing with their HK lawyers, and with the time change and all that, it just made it take longer than we all expected. Other than that it all worked out, obviously, and was ultimately quite smooth.

Bruce Milne

One of the things that happens, we’re involved in a transaction right now, where the buyer is getting their act together, they’re raising some money and getting some board approval and getting everyone in sink. You have to be careful. Those types of situations can drag you out, too.

I’m seeing more questions than we’ll have time to get to. A lot are about accounting standard, what companies can go to market now, and when do you need audits? All of that is covered in our Selling Up, Selling Out conference, and I encourage you to attend one of those.

Unfortunately we’re out of time here. I really appreciate the panelists, what a great group. We wish you the best and I look forward to seeing some of you fishing this summer. If we didn’t get to your question, we will get back to you via email. Otherwise, join us at one of our future conferences. Now we’ll go to our closing.