Acquisition Candidate Analysis

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Acquisition Candidate Analysis presentation delivered at Product Management Camp Atlanta

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Acquisition Candidate Analysis

  1. 1. Acquisition Candidate Analysis Product Management Camp Atlanta DevelopmentCorporate www.developmentcorporate.com Twitter:@devcorporate Slideshare: http://www.slideshare.net/Devcorporate john.mecke@developmentcorporate.com
  2. 2. Background • 27 years enterprise software • Led 4 major acquisitions that space closed for over $200 million in • Served as trusted advisor for four consideration. Played a public company boards of supporting role in 4 other directors as well as three large acquisitions that closed for over private equity firms $300 million in consideration. • Developed over 325 in-depth • Led 8 major divestitures that analyses of public and private generated over $30 million in technology company acquisition consideration candidates • Led numerous cross border • Led the approach, initial projects, especially in Western management meetings, and due Europe, Korea, and Japan diligence for over 40 acquisition • Led over 12 major corporate projects restructuring projects 2
  3. 3. Agenda • Summary • Key Concepts • Process Overview • Acquisition ‘Teaser’ Presentation • Open Discussion 3
  4. 4. Summary • Product managers are • Today’s discussion is uniquely suited to analyze designed to arm you with acquisitions some key best practices you • They understand markets, can employ products / services, • Before pitching any competitors, marketing, acquisition, you need a development, sales, baseline acquisition strategy support, & finance • Check out: How to Build an • Most product managers M&A Strategy don’t understand how execs, boards, & investors evaluate potential acquisitions 4
  5. 5. Key Concepts (aka Stuff You Need to Know but Probably Have Never Been Exposed To in Depth) • Financial Literacy • Enterprise Value • Accretion/Dilution • Valuation Metrics • Acquisition Currencies 5
  6. 6. Financial Literacy • Product Managers need strong financial literacy: – Ability to find, read, and interpret Income Statements, Balance Sheets, Cash Flow, and public filings (10-K, 10-Q, Proxy Statements, etc.) • Executives, Boards, & Investors see things through numbers first, technology & strategy second • You have to pitch acquisitions in the language they understand • Check out: Product Management Financial Literacy 6
  7. 7. Enterprise Value • Total cost to acquire a • Market cap is only one company at its current component of a market value company’s value • Formula • For private companies – Market Cap (or equity you can estimate equity value) value by looking at – Minus Cash public company comps – Plus Debt • Resources – Plus Minority Interest / – How to calculate Enterprise Liquidation Preferences Value – How to calculate Enterprise Value of private companies 7
  8. 8. Examples 8
  9. 9. Accretion / Dilution • Accretion = the degree • Accretion is determined to which a specific by comparing the pro acquisition either forma P&L of the increases or decreases combined company the profitability of the with the company’s combined company existing metrics • Accretion/dilution can • Execs, boards, & impact gross margins, investors like operating profit acquisitions that are margins, EBITDA ‘immediately accretive’ margins or EPS 9
  10. 10. Valuation Metrics • Used as common • Commonly referred to metrics to compare the as valuation multiples relative valuation of a • Usually refer to trailing company to its peers twelve months (ttm) • Two most common numbers metrics: – Enterprise Value/Revenue – Enterprise Value / EBITDA 10
  11. 11. Typical Valuations 11
  12. 12. Acquisition Currency • How to pay for an acquisition • Typical sources: Cash, Debt, & Equity • Debt markets are constrained now – In 2007, you could borrow 4x to 8x PF restructured EBITDA – In 2010 2x – 3x is max and still hard to find • Typical deals are a mix of cash and stock • Check out: JDA & i2. The New Normal for Tech Deals 12
  13. 13. Acquisition Analysis Process • Gather market, financial, and competitive info Research • SEC, Industry Analysts, Press, etc. • Analyze market position, share, trends, financial performance, technology SWOTS, headcount, etc. Analysis & Modeling • Develop operational concept • Model PF NewCo Financials, Valuation Analysis, & Returns Analysis • Develop ‘Teaser’ Presentation ‘Teaser’ Presentation • Socialize internally with execs • Deliver to board / investors • Refine & update as new information is discovered Update & Refinement during overall process 13
  14. 14. Acquisition Teaser Presentation • 20 to 30 slide presentation • Key Questions that presents results of – How does this deal accelerate analysis the achievement of our goals & strategy? • Executives, boards, & – What are the tangible investors don’t want to read financial & valuation benefits 300 page theses the deal provides? • Want it in language they – What would the NewCo look understand like? – How much would it cost and can it be financed? – What are the risks & mitigations? 14
  15. 15. Teaser Contents • Summary Page • Financials • Investment Thesis – Historical P&L, Balance Sheet, Cash Flow – Key metrics comparison • Company Overview – Key investors / shareholders summary – Target Markets • Market Size & Trends • Operational Concept • Market Share Analysis – Strategic Alignment • Competitive Landscape & Positioning – Integration Concept • Analyst Opinions – Pro Forma NewCo P&L – Product/Service Overview • Valuation • Portfolio Summary – Valuation Model • Corporate Strategy • Individual P/S Overviews – Returns Model • Strategic Alliances • Risks & Mitigation • Go To Market Strategy / Tactics • Customer Base Analysis / Profile • Open Issues / Topics – Organization Overview • Org Chart • Headcount Analysis • Key Players 15
  16. 16. Teaser Contents • Summary Page • Financials • Investment Thesis – Historical P&L, Balance Sheet, Cash Flow – Key metrics comparison • Company Overview – Key investors / shareholders summary – Target Markets • Market Size & Trends • Operational Concept • Market Share Analysis – Strategic Alignment • Competitive Landscape & Positioning – Integration Concept • Analyst Opinions – Pro Forma NewCo P&L – Product/Service Overview • Valuation • Portfolio Summary – Valuation Model • Corporate Strategy • Individual P/S Overviews – Returns Model • Strategic Alliances • Risks & Mitigation • Go To Market Strategy / Tactics • Customer Base Analysis / Profile • Open Issues / Topics – Organization Overview • Org Chart • Headcount Analysis • Key Players 16
  17. 17. Summary Page Company Overview /Recent Developments Stock Price Trends • Founded 1979. Focused on ERP solutions for manufacturing • NASDAQ: QADI • HQ Santa Barbara CA. 1,500 heads. 625 Support, 350 R&D, 300 Sales & Marketing, 225 F&A • Direct operations in 25 countries • Highest rated challenger in Gartner MQ for Mid-Market/Tier 2 ERP • 6,000 active customers • Pamela Lopker, President and Chairman of the Board, Karl Lopker, CEO, Daniel Lender, CFO • Consistent challenges in executing revenue/profitability growth initiatives Financial Performance PF NewCo 17
  18. 18. Investment Thesis • Build best-in-class, global, manufacturing ERP provider • Extend QADI portfolio with MyCo chemical and process manufacturing offerings. >$100M cross sell opportunity <3 years • Take QADI private, restructure to acceptable levels of profitability, drive organic growth – Drive QADI to from 3% to 25% EBITDA margins • Exit to strategic acquirer in 3 to 5 years • Consolidate MyCo infrastructure into existing QADI operations • Generate $230M to $460M in incremental valution 18
  19. 19. Historical P&L 19
  20. 20. PF NewCo P&L 20
  21. 21. Valuation Model 21
  22. 22. Returns Analysis 22

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