An overview of the M&A process for VC backed tech companies and how to prepare for an eventual sale of the company. The presentation was given to the joint Chatham and Madison NJ Tech Meetup on June 11, 2013
How emerging growth tech companies should prepare for M&A
Financing Environment and M&A for Tech Startups Chatham and Madison Tech Meetup June 11, 2013 George Abrahamgeorge@rhodiumstrategies.com917.776.4757@skiinggeorge
Who is George Abraham… Founder of Rhodium Strategies – advises emerginggrowth technology companies, their investors, andthe companies who buy them-----Strategic/M&A advice, business model generationworkshops, strategic consulting and independentvaluations-----Clients include emerging growth technologycompanies, VC funds & Global Fortune 100enterprises------Board member at Tekserve - $100m revenues, 200employees
Who is George Abraham (cont)… Founder of SAS Investors, an early stagetech transfer focused VC fundLed investments in Tacit Networks (sold to Packeteer for $78m);Textronics (sold to Adidas for $36m); Hydroglobe (sold toGraver Technologies) &Protonex (LSE: PTX.L; IPO valuedcompany at $110m)Managing Director at the tech i-Bank C.E.Unterberg Towbin; ran US privateplacements for VC backed companies.
Who is George Abraham (cont)… Selected Clients (present & past)Valuation Clients (100+ present & past)
Info on exits, IPO and trends in deal terms Best places to get this infoFenwick & West Venture Capital Surveywww.fenwick.comPrice Waterhouse MoneyTree Reportwww.pwcmoneytree.comPitchbook www.pitchbook.comNational Venture Capital Associationwww.nvca.org
Why do emerging tech companies sell? Google comes knockingDo they even know you exist?Timing is perfect; sector is hotTough to time the marketShareholder fatigue; can’t raise moneyOften the case – worst scenario for a good exitCompetition is brutal; Business not growingfast enough; Hard to create channels of dist.Need a strong partnerBoard & Mgt plan 1 to 2 years ahead to sellSmart way to go
If you don’t properly plan for M&A *Run short of cash before closing *Desperate negotiations *Panic among management team *Tough to hire a banker *Don’t have proper relationships with buyers
M&A Takes A Long Time 6 MONTHS TO A YEAR – PLUS PREP TIME
How to Plan for M&A Cash in bank to ride out the processIt costs money to sell your company –accountants, lawyers, bankers, travel etc etcWho are the natural buyers?What other industries could benefit fromyour business?Build strategic relationships 6 months toa year before starting M&A processPull together a good team of advisors –early in the process
Is your house in order? Books & Records up to date?All Shareholder authorizations and Board Minutes?Equity incentive options issued and papered?Employment agreements, invention assignmentagreements all signed and in one place?Etc etc etc…
Prepare before you pitch Information memorandumPitch deckProjections (remember the earn-out…)Justification for expected valuationDiligence to support your pitch
Companies are Bought – Not Sold Good exits happen when someone triesto buy your company rather than youtrying to sell your companyMost likely to happen when you have apre-existing relationship with the buyer
Help the acquirer answer a key question The Acquirer will want to know:How will buying this asset make myexisting business more valuable, andhow will I bring value to the asset I ambuying?In your pitch – answer this question!
Deal Terms Even if the deal isfor cash, younever get all thecash at closing!Earn outHoldback – 10% to 15%Employment agrmntNon-compete
Geiing from LOI to Closing DILIGENCEA highly invasive processThey will ask for shocking amounts ofinformationYou have to get it all to them – fastLEGAL DOCUMENTATIONTrees will die for your exitTempers will fray at times...
Almost always a hiccup right before closing Many things canderail closing at the11th hourMinority shareholdersLast minute diligenceissuesPersonality clashOut of control lawyersLoss of a key contractDispute aboutdistribution of proceeds
Summary Common mistake – notplanning and preparing forM&AGetting deals done is hard,time consuming, andrequires cash in the bankProper Prior Planning –helps drive exit valueThe M&A process is stressfuland will distract from yourcore business activitiesIf you are successful, timeat the beach will be wellearned
THANK YOU!!! George AbrahamRhodium Strategiesgeorge@rhodiumstrategies.com917.776.4757@skiinggeorge