Hiatus Success Stories

Corum offers tech company sellers something unique in the M&A market: a hiatus program ‒ an opportunity for sellers to pause their participation in the M&A process with the intention of returning to it at a later time when conditions are more favorable. Taking a hiatus also gives sellers the time to address issues that buyers identified during the M&A process, issues that can stand in the way of getting an excellent offer.

During the hiatus period, Corum still keeps the seller top of mind when inquiries come in from prospective buyers. So when a prospective buyer asks, "Do you have a company that looks like this?" Corum can respond, “Yes we do.  They're not in the market right now, but we can contact them."

Corum clients that have taken advantage of the hiatus program have found that it can turn a good deal into a great deal. Here are two recent cases that illustrate the benefits of going on hiatus.

Case 1: Validating growth

A Corum client that was a highly successful tech company initially entered the M&A market in Q1 2021. The company was seeing explosive revenue growth ‒ 600% year over year ‒ with a 49% profit margin.  But potential buyers, especially PE firms, were skeptical that the growth would continue. Some of that skepticism related to the company's revenue model, which was not a pure SaaS model. So even though potential buyers, including competitors, expressed interest in the company, their offers were underwhelming. The highest initial offer was just $3 million. The deal was also highly structured with most of the price offered as an earnout.

Rather than settle for the low offer, the client went into hiatus. During the hiatus, which lasted five months, they continued to grow, reaching $5 million of Annual Recurring Revenue (ARR) ‒ a growth rate of 250%, with a 60% EBITDA margin, and over 50,000 customers. The company also expanded their team, and made adjustments that buyers had suggested previous to their entry into hiatus. 

At the same time, Corum let interested parties know that the client would be back to open discussions when they achieved their $5 million ARR target, demonstrating continued growth.

When the company re-entered the M&A market, the results were dramatic. New offers ranged from $6 million to $29.7 million. The winning bid included a $27 million Enterprise Value (EV) payout, with the founder retaining a 10% stake in the merged company. This meant the seller had the opportunity to earn an additional $10 to $25 million in the future if the merged company hit its targets.

Here is a comparison of the pre-and post-hiatus offers:

The seller was extremely happy with the opportunity the hiatus program presented, saying that during this period, "We were able to continue focusing almost all of our time growing the business while Corum looked for the right partner for us."

Case 2: Addressing Issues

Another Corum client who entered the M&A market found that he was not getting offers that reached his target. The company founder had a target of $22 million, but the initial round of offers ranged from $6 million to $18 million EV.

Some buyer issues standing in the way of better offers included concerns about customer concentration, contract renewal risks, low EBITDA margin, slowing growth, and a pending legal settlement with a former customer.

To address these issues, the client decided to take advantage of the hiatus program. During the five months the company was in hiatus they worked towards demonstrating the accuracy of their financial forecasts, showing higher growth and higher profitability. The hiatus also afforded them the time to address the buyer concerns that were aired in the initial M&A phase. For instance, the company addressed the contract renewal issue by getting four of their clients who represented 60% of their revenue to sign renewals. They also cleared up the lawsuit with the former customer.

When the company re-entered the market, they were able to defend their financial forecasts and demonstrate that they addressed the initial buyer concerns. At the same time, competitive pressures had materially increased buyer interest. And with that increased interest, the company secured six new offers, ranging from $15 million to $25 million EV. And the best part ‒ a buyer who initially passed on the deal came back with the winning bid: a $23 million EV deal, with $19 million in cash, and no holdbacks. Note that the winning bidder passed on the opportunity in the pre-hiatus phase of the process due to lack of fit. After the hiatus, the seller’s story was more compelling to the buyer. 

The winning bid also included significant equity in the merged company, something that offered the seller a chance to get a second bite of the apple down the road, far surpassing his initial expectations. The seller wanted to retain a sizable equity interest in the business to participate in its future growth and to benefit from a potential future sale.

Here is a comparison of the pre-and post-hiatus offers:

Here's what the client had to say about his Corum experience: "The Corum Group’s team is unmatched in their ability to expertly navigate the complexities of M&A transactions, providing valuable support at every step and bringing creative solutions to even the most challenging deal terms. This acquisition is a major milestone, and we couldn’t be more thrilled with the outcome."

Take advantage of the hiatus program

If you're considering an exit, understand that you don't have to settle for a less-than-optimal offer. Contact Corum and discover how the hiatus program can help you maximize your company’s value.