You've built a uniquely valuable asset in your software company, but how do you convey that unique value to a buyer? How do you get a buyer to seriously consider acquiring your company? In today's fast-paced world of tech M&A, buyers don't have time for drawn out "books" of information. The best tool for reaching them is a clear, succinct Executive Summary document that clearly outlines the opportunity created by acquiring your company. But how do you write such a document? What are the pitfalls to avoid? How do you balance a need for brevity with a description of your complex technology and company? Find out as Corum's dealmakers discussed 10 Rules for Writing an Executive Summary That Sells.
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Good day to you. My name is Timothy Goddard, SVP of Marketing here at Corum. I'm happy to welcome you to this month's edition of Tech M&A Monthly. Today we're focusing on the Ten Rules For Writing an Executive Summary that sells. We have a number of other things to cover as well, so let's take a quick look at our agenda.
I'll be covering some upcoming conferences, we'll have our September Research Report, we'll have our special report on Executive Summaries, and then we will have time for Q&A at the close.
Our fall schedule is packed with upcoming events and I hope you will be able to join us. There is one coming up near you, and you can check our website for more details. We are happy to extend a complimentary registration to those of you on the webcast with us today. Selling Up Selling Out is our four-hour deep dive into the process of selling a company and the Merge Briefing is the 90-minute industry update that goes deeper into some of the things that we’ll talk about today, and it includes a broad look at the M&A market, drivers, trends, and an introduction to the process.
September 2017 Research Report: Bull Market Charges On
Now, I'm very happy to turn things over to Elon Gasper and our research team, including some new faces: Becky Hill, Patrick Cunningham, and Anna Lebedieva. Elon?
Thanks, Tim. We begin with the public markets, which pulled back a bit at the start of August but then resumed their historic climb, led by big tech stocks, which have now carried this bull market to new record highs on the Dow, Nasdaq and S&P again this week, and they are now drawing within a year of the internet bubble’s record-length run through the 1990s.
I’ll say it again: prospective sellers should be aware of the benefits of at least calibrating the value of your company and potentially reaping the other rewards of running a process during this highly favorable window.
Our Corum Index showed a small year over year gain in total transactions, a lower hurdle now that we’re comparing against the first months of the supply challenge that began in late 2016. Megadeal volume still lagged behind last August, though the top deal was much larger. PE-backed acquisitions continued to build, and venture exits managed a small increase. This year’s megadeals keep piling up, but only about half as fast as during last year’s boom; the lead sector then was Infrastructure, now it’s Vertical—we’ll dive deeper into these waves in our Quarterly report next month.
The 2017 megadeals included a rare two-fer in August, as The Advisory Board Company split in two, selling its healthcare IT services portion to UnitedHealth’s Optum for $1.3B, with its remaining, education-focused, EAB business taken private by top acquirer Vista Equity for $1.6B, surfacing value through vertical specialization per our Focused IT Services trend, seeking what the company’s CEO called “purity of industry.”
This sets the stage for our update on 3 of Corum’s 6 main sectors today, including IT Services, but let’s start with Vertical Applications. Becky?
Vertical Software Valuation Metrics
Vertical sales multiples remained at record levels, as the EBITDA multiple slipped by almost ten percent, reflecting a variety of performance levels across each subsector. In the energy management field, Boston IoT software maker Digital Lumens was bought by German lighting maker OSRAM, another hundred-year-old manufacturer acquiring the software it needs in order to compete in the internet of things.
Canada’s power demand management solutions developer Energate was picked up by long-time partner Tantalus, to expand its portfolio of smart grid applications.
A consolidation wave in team management SaaS for amateur sports leagues and schools has been driven in part by both financial and strategic buyers with an interest in controlling the digital flow of currency. ArbiterSports was picked up by Serent Capital, FixturesLive by Teamer, and Seattle-based Korrio by TeamSnap.
In the insurance software industry, Verisk Analytics paid $323M at nearly 10x revenue for specialty insurance SaaS provider Sequel for its high growth and marquee clients like Lloyds of London.
Swiss life insurance administrator BBT Software was purchased by Volaris, part of perennial high volume vertical acquirer, Constellation.
And insurance inspection-as-a-service provider OnSource was picked up by professional services firm Genpact to complement its acquisition of BrightClaim just three months before.
Elsewhere, pharmaceutical market intelligence specialist Context Matters, was purchased by Decision Resources, as the biomedical market continues to recognize the value of software.
Farther down the pharmaceutical pipeline, Health Enterprises, an alliance of independent hospitals, spun its remote order entry platform over to medication management company PipelineRx.
Automotive technology for fleet management and vehicle autonomy continue to be in high demand as PE firm Platinum Equity added traffic safety, mobility and compliance company American Traffic Solutions (ATS) as a new platform.
And Germany-based Siemens made its first acquisition in the autonomous vehicles sector by purchasing self-driving simulation software provider TASS International.
What’s going on in the Consumer sector, Patrick?
Consumer Software Valuation Metrics
Multiples in the Consumer sector have pulled back from highs in the first half of the year. We highlight a pair of artificial intelligence deals, including here in Seattle, where conversational AI startup Ozlo was picked up by Facebook, aiming to augment its chatbot efforts.
And in Belarus, AIMatter, maker of the popular AI-enabled photo-editing app Fabby, was acquired by Google.
Other consumer deals included MoviePass, the so-called Netflix of movie theatres, was sold for $27M to data and visualization firm Helios and Matheson, who plan to put their analytics stack to work behind MoviePass’ latest run at disrupting the market, marking another example of the data science monetization trend.
Atlanta-based golf ball tracer, gottaGolf, was bought by Swing by Swing, marking its first-ever acquisition as it added muscle to its social media platform.
In Germany, location messenger app Familonet was acquired by Daimler’s subsidiary moovel Group, to improve urban mobility offerings for its users.
Moving on to gaming, Australian slot-machine manufacturer Aristocrat made its first pure social gaming play with its $500 million acquisition of Israel-based Plarium, known best for its Vikings: War of Clans mobile game.
Next, bring us up to date on the August IT Services market, Anna?
IT Services Software Valuation Metrics
IT Services progressed into the second half of the year with the sales multiples holding their peak, while EBITDA-based values continued to rise to record levels. Focused services companies were in demand, with notable deals in marketing, retail and life science.
Globally, digital marketing services firms were acquired by big names in consulting and advertising. Top acquirer Accenture continued its acquisition campaign, with two purchases that it highlighted as data-driven agencies: digital optimization specialist Clearhead, and customer experience firm, Wire Stone.
WPP made a number of deals through portfolio companies. Subsidiary Grey Group acquired French digital agency Extreme-Sensio and then extended its reach to the Middle East with Dubai-based influencer marketing expert hug digital. Danish agency DIS/PLAY was picked up by WPP’s brand experience studio AKQA, for its regional footprint.
Retail marketer Advantage Solutions added a pair of digital services firms: Brand Connections, with marketing services for brands and national retailers, and Quiverr, which helps those brands drive revenue from Amazon, too.
In life science and health-care, U-D-G Healthcare spent $30M for Cambridge BioMarketing, specializing in rare disease drug launches, and $32M for healthcare management consulting firm Vynamic, to bolster its exposure for pharmaceutical companies.
And that’s our report. For next month’s quarterly report, we’ll fan out for a 6 market and 30 sector survey of activity and valuations, that's on October 12. Back to you, Tim.
10 Rules for Writing an Executive Summary That Sells
Now to our special report: Ten Rules For Writing an Executive Summary That Sells. We're going to do this a little bit differently if you've been to some of our more recent webcasts. We will start with the ten rules and then dive into some more detailed reports from the folks on the back end, in our research and client services group that make these reports happen. So let's walk through the Ten Rules briefly and then we'll hear from the experts.
Keep it brief, just 4-10 pages. Open up with a clear value statement, an armor-piercing sound bite. Tell the whole story in one page. The rest of the document is supporting material. Align yourself with success: key customers, suppliers, etc. Map to disruptive trends and best practices. Do not give a history lesson on your firm. Do not do a deep tech dive. You sell the company, not the product; this is not a product spec sheet. Catch the reader's eye with things like big numbers and important names. Finally, tell a clear, positive story about why you are going to market and what the opportunity for the buyer is.
To dig into this in much more detail I'm happy to introduce Debbi Davis, a research analyst here at Corum, based in the DC area to give an overview of the ES.
The written document that you first present to buyers is the Executive Summary. This is the first major step in a multi-stage process to engage and qualify potential buyers, and to create an auction environment. The document itself is about 4-10 pages. You don't go need to go much longer, because the purpose is to educate the buyer just enough that they want to get into dialogue with you and others on your management team.
The first page explains the basic opportunity your company represents. The rest is supporting information. This is not the place for a deep dive on technology or detailed financials—that will come later.
Align yourself with success—high profile users, leading industry partners, luminaries, press coverage, awards and so on.
The most critical part of the first page is the very first paragraph. In just a couple of sentences, it has to headline the opportunity you present to a buyer, making the reader want to keep reading. It's one of the most important, yet difficult, pieces of communication you will ever create.
Thank you, Debbi. Now to Houston and Jeff Brown, SVP of Client Services, on the difference between the ES and what we call “the book.”
Attendees often ask us in our conferences, “Why do you use the Executive Summary instead of the offering document?” That’s a good question.
The offering document, or what is sometimes called “the book”, originated long ago for real estate and hard asset transactions where valuations were well understood and fell in a narrow range.
That is not the case with high tech where intellectual property and other intangibles create the values, which can be wildly divergent.
It's less a story of the numbers—balance sheet and cash flow—than it is about new market opportunities in an industry where the next incremental sale is nearly all profit. Each buyer has different needs and if you presuppose what they want or need in the process with “the book,” you will make a mistake, and miss hearing that buyer who will value you most highly.
The value enhancers are many, but often buyer-dependent. For example, international buyers may highly value your domestic market footprint for expansion, while another firm most highly prizes your patents. Technology buyers are usually other technology companies, and they have little tolerance for long documents.
As Henry Hu of IBM said at a panel we recently hosted, "get to the point immediately." Remember, the major strategic and financial buyers see 300-500 opportunities a month, and don't want to wade through long documents.
Thus, the Executive Summary.
Now, across the Atlantic to Nina Seghatoleslami, VP of Client Services, based out of Barcelona, to talk about the first step in writing the ES: self-assessment.
Having worked in tech, in venture capital, and now in Europe with Corum, the M&A leader, I can tell you that a good Executive Summary has many common elements with a well-written business plan. It tells a story that is exciting. You start preparing it by doing a thorough self-assessment. Why would someone want to buy you? You have to map your company to best practices. Where are you positioned in your market? Where in the Gartner magic quadrant are you? Or are you a new category altogether?
Are you a technology leader? How do you apply to the disruptive trends? This is absolutely crucial because buyers are looking for solutions to the disruptive trends which shape their future.
What do you do particularly well? What are your value enhancers? Remember, it's not just about technology.
What are hidden assets? Do you have a great relationship with the press, are you well-known as a domain expert? That sort of thing.
Where do you stand in the market? Be realistic.
Lastly, how are you positioned for the future? Remember, that's what buyers are buying: the future.
Thank you, Nina. Now back to headquarters and another member of our client services team, self-professed deal geek Joel Espelien on the first page.
As mentioned earlier, the first page introduction gets the buyer excited about the opportunity—the armor-piercing sound bite—the disruptive trends you map to, or perhaps you're a new market category.
The second paragraph is supporting information: market size, growth, how you are uniquely positioned. Key financial metrics if relevant.
The third paragraph: more data, technology, domain expertise, key users, perhaps successful industry partners you align with.
In the second or third paragraph you can create an analogy or corollary: "the Company is the Concur of its field" or is "modeled like Airbnb."
To help underscore your success, we suggest a user or customer quote on your benefits: "After a global search, we chose ABC - we've doubled our performance within 6 months."
The next paragraph or two should then pick up other unique aspects: perhaps your unique R&D process, awards, patents, etc.
Since buyers are buying the future with newer technology companies, you need wrap up with a teaser about where you are going in the future: new products, international expansion, derivative technology, etc., anything that will reinforce market opportunity.
Close with a call to action: "Given the company's leadership in widget technology, ABC is seeking a larger partner with the global presence, distribution and user base to fully capitalize on this opportunity."
Thanks, Joel. Now, to walk us through the rest of the process we will turn things over to analyst Stephanie Jensen.
The organization and content of a good executive summary is fairly standard, though you won’t always include all sections.
Start with the first page Joel described: a precise summary of the company, along with a callout box to highlight particular items of interest.
Next, the company overview: Background, Clients, and Client Profiles. The background is just two or three paragraphs about company founding, awards, where it is headquartered and number of employees.
Then, who are your primary clients, what markets do they serve, are they global? This should include client profiles, with case studies and attestations from key clients.
Next, Market: the Opportunity, Competition, Sales and Marketing and Sales Pipeline.
For Market Opportunity, what is your target market, how large is it now and what is anticipated market growth? Are there adjacent or other markets the seller can move into? Along those lines, who are your major competitors, what makes your product unique and what is its market share? That leads naturally to the Sales and Marketing portion, a description of those initiatives and models, including resellers and sales channels, sales pipeline, outlining the number and expected schedule of incoming clients, with account values attached. If this is not applicable or available, at least include a general feel of how long it takes to close a deal. The next section will be Products – or, for services companies this may be Business Lines or Services. You’ll include a very brief product description, emphasizing unique or first-to-market features, a summary of pricing, technical details outlining your software stack, and a development roadmap. This should outline changes currently on the drawing board – nothing “pie in the sky.” The document then closes out with a summary, a one paragraph recap of the first page.
Thank you, Stephanie. Now we'll turn things over to our founder and CEO, Bruce Milne. All of this is well and good, but how do you actually put it together? Bruce?
As you've heard, the first paragraph of the Executive Summary is absolutely crucial. This is the most important transaction of your life, but you may only get a few seconds of the reader’s attention, so that first paragraph had better be good!
I consider this document production the toughest thing to do in tech M&A. Unfortunately, too many firms pass this responsibility to a junior who's never sold.
To get it right, up to fifteen of our staff professionals listen to a client in an Initial Presentation Meeting. Each of them must then provide at least five key points that a buyer will want—and need—to know. This collective input is essential to confirm messaging priority and phraseology.
Then, professional writers, with the help of assigned research, draft an initial version of the cover page that Joel discussed, with emphasis on the first paragraph. This is followed by a team of five executive staff, most former software CEOs, who go through at least two meetings: Collaborative, brain storming sessions are what gets the message tuned and the script right. We train constantly on this as we know great writing gets great results. Poor writing and the selling process can be a bust.
In only a minute or so, I can't go through examples, so I encourage you to attend the Selling Up Selling Out boot camp.
Thank you, Bruce. We'll return to the Ten Rules, hopefully you heard them all discussed once or twice throughout that. Q&A We're happy to take questions now as we are at the close of our prepared material.
Bruce, the first question here: “What is your opinion about video alternatives or supplements to Executive Summaries?”
Video alternative supplement? I love it. But don't necessarily lead with it. Make sure that everything is understood in a point by point form, written, and the video materials should be supplementary.
The reason I say this is there is nothing like personal interaction and you talking personally, gauging interest and customizing what you have to say based upon the knowledge and interest of that party. That's why I say it is supplementary, but don't use it as the primary communication to get everything across.
Another question, this person is a bit skeptical that you can get all the needed information into just four pages. What do you say to that, Bruce?
Actually, this is very interesting. You can. It doesn't mean you can always do it. I've seen it done over the years. The problem is often people fluff it up. Remember you're not doing a deep dive on anything, we're not going into technology, we're not going into finances, we're not going into a history lesson, we're not getting into the philosophy of the technology and material on competition and such, you simply want an overview. This relates to my last comment. All you're trying to do is get them on the phone talking to you. That's where the connections are made and that's where companies are sold.
Here's another question: “Is it advisable to have more than one version of the ES to target different kind of buyers?”
The answer is no. It's tough enough to build these as they are and as mentioned earlier, it's tough enough to build these as they are. As was mentioned earlier, you don't necessarily know what the buyer is looking for, so it's not a good idea to try to narrow your pitch too much at that stage until you learn more about what they are after, and that will come, as Bruce just mentioned, in the more ongoing personal interaction, once you have hooked them on this.
As a general rule, just because of the time and complexity, potential confusion, you could end up sending the wrong thing to the wrong person, these are the things we think about, it's best to have one good version rather than more than one maybe not as good version.
Absolutely. As you can see this is something of a pet topic of mine, because I think that people make some mistakes here. Someone told me that if they have 30 different partners, they have 30 different versions. That presupposes you know why any given buyer might buy you, and you don't know that. You can customize your cover letter a bit, you can customize your emails and phone calls when you engage them, and when you get into the actual call that is when you really do the selling after you really understand what they're looking for and respond accordingly. That's one of the reasons why we don't use the book, because that presupposes you know why a buyer wants to buy. If you've been to our conferences you see all the value enhancers, you've been doing this for 30 years, you know there are lots of reasons, so don't presuppose. They will tell you why they're interested and you can respond accordingly.
Another question, this one for the research team, Elon, it was mentioned in the section on sports management teams that this is partly about the flow of digital currency. Can you elaborate on that?
Digital currency flow is one of our Top Ten Trends and what is going on in this field right now is nothing short of revolutionary. There is a tremendous change in the amount of friction that attends any particular cash or credit transaction is unprecedented in history and is describing tremendous transformation. Buyers are attempting to get into that area by a variety of means.
One of those is to acquire companies in the middle of transactions already, transactions that are particularly amenable to digital currency flow, which means web distances, vast distances, and distances are addressing consumer areas, where the bulk of these sorts of friction-elminating opportunities exist. Those companies are making those acquisitions for several reasons. One is so they have a view from above the edge of how these things are happening in the real world. Secondly so they have a way to begin working those digital currency flows themselves in a smaller, vertical area where they can embrace the particular differences that the domain may take and generalize from that to other situations. Thirdly, to have a living laboratory where they can experiment with the way that digital currency flow is conducted and see if a variety of tweaks make it better or worse, just like any other consumer area and it is also a parallel to what is going on with the so-called flywheels that we address in our AI enablement trend. The web has made things alive and an opportunity to be there is important for larger companies.
These are the sorts of unusual buyers, sometimes, that you may not anticipate and that comes back to why you don't want to make assumptions about what the buyer is after.
Another question for Bruce. “We've had pretty enormous economy growth lately, is this going to continue?”
It's interesting, I had two situations happen in the past few days around growth. I went to my grandson's birthday picnic and one of the mothers told me her husband was wanting to buy stocks and she was worried because it seems like the world was falling apart, with so much bad news. I told her, “Be careful, there's so much drama in the news around politics or the natural disasters we get exposed to every day, don't get those mixed up with what's happening in the economy. The economy is roaring. Period.”
I listened to a commentary, yesterday, about a book a woman wrote, she is a leading economist and her conclusion was that there was some disparity in earnings and a down turn coming, because she had mapped how much tech companies had spent on R&D as a percentage of their total expenses. She said because that was down, we were heading for doom. I wanted to call into the show, except I didn't have the time, but she was completely wrong. The reason they aren't spending so much on R&D is because they are able to acquire what they need, there is a record amount of acquisition. Between strategic buyers and financial buyers, we have $4 trillion in funding startups, new technology companies, which in turn are growing, getting more funding, and are in turn being bought. So, true, they aren't doing as much R&D because they're buying a lot of this technology. These big companies today are a big collection of acquisitions. Things are looking good and hopefully tech M&A will continue.
That brings us to the end of our half-hour. If we didn't get to your question, we will follow up with you via email. Thanks to everyone for joining us, we hope you'll join us next time.