Title: Technology M
1 Technology MA in 2002Ben HoweGlobal Head
of Mergers Acquisitions,SG Cowen(617)
946-3700bhowe_at_sgcowen.comJanuary 25, 2002
Massachusetts Software Internet Council
2MA Advice from a Wall Street Veteran...
- Life all comes down to a few moments. This is
one of them.
3Is It a Good Time to Sell My Company?
From a macro perspective the MA market is the
best it has been in a year
- Recession is almost over
- Buyers are back
- CEO and Board confidence has improved
- Currencies are stronger
- Sellers expectations are more humble
- The MA climate will improve as the year
progresses
4What Drives Value?
Company must present a compelling opportunity
- Large and credible market opportunity
- Leading edge and proven technology/products
- Attractive financial results (not necessarily
profitable) - High caliber team that wants to sign up
- Raw technology without meaningful revenues and
momentum is much tougher to sell
5Should We Wait Another Six Months?
Maybe . . .
- Certain milestones will enhance value and impact
potential buyers - Significant improvements in profitability
- Major technology achievement
- Endorsement from customer or partner
- Settling a major liability
6Have Valuations Improved?
- Yes, we bottomed out in Q3 of 2001
02 YTD Down 3
01 down 15
00 down 40
97 up 23
98 up 39
99 up 84
Based on market close 01/23/02.
7In Retrospect, Valuations Got Out of Hand
Old Economy
New Economy
Current Revenue Multiple
Peak Revenue Multiple
Current Revenue Multiple
Company
Company
Sector
Retail
Wal-Mart
1.3
x
30
x
1.9
x
Business Services
ADP
4.7
276
0.7
Content/Media
Cox Communications
7.9
217
13.3
Communications/ISP
SBC
2.7
12
0.6
Services
EDS
1.6
22
0.1
Software
Microsoft
11.3
252
3.8
Hardware
11
1.5
Dell
2.1
Infrastructure Services
Verizon
2.9
28
3.6
8How Long Will It Take What are the Steps in the
Process?
Preparation
3 weeks
Contact Buyers
Preparation Indications of Interest
Final Bids
ExecutedAgreement
Closing
48 weeks
Transaction Closed
9What are the Process Alternatives for a Sell-Side
Transaction?
Exclusive Negotiation
Private Auction
Public Auction
Mechanism Price Competition Confidentiality Proces
s Flexibility Minimize Business Disruption Conside
rations
Privately contact a limited number of potential
buyers (1025 buyers)
Make public announcement and contact broad
universe of potential buyers (30 buyers)
- Contact most logical potential buyer
Risk of unsuccessful sale and suboptimal valuation
Likely to elicit optimal valuation
Reluctance of potential buyers to participate in
auctions
10What Are The Critical Terms of a Transaction?
- 1. Price
- 2. Consideration cash or stock or cash
stock - 3. Transaction structure
- 4. Registration rights
- 5. Timetable/speed
- 6. Management roles/employment
contracts/retention agreements - 7. Board composition
- 8. Exclusivity/no shop
- 9. Break-up fee/fiduciary out
- 10. Escrow amounts/earn-outs
- 11. Conditions to closing
- 12. Representations and warranties
11How Much Time Is Required of Management?
- Management is key to success selling the story
- Critical periods marketing, due diligence
negotiation - CFO drives the process and the work product
12What Are The Typical Acquisition Challenges?
- Overpaying
- Acquiring/Selling lower growth rate lower
margins - Integration
- Sales force
- Product offering
- Customer communication
- Ability to focus on achieving near-term
projections - Competitive bidders
- Institutional reaction upon announcement
- Management/employee issues
13What Happens to Employee Options?
- Most commonly converted into acquirors options
- Exercise terms may be extended/accelerated
- Problems with accelerated vesting
14What Do You Look For in an MA Advisor?
- Strong knowledge passion for your business
- Preferably, a history of supporting the Company
- In depth knowledge and experience in the sector
- Solid contacts with the key potential buyers
- Senior level commitment to the project
- Senior members who have solid sales skills
- World-class execution skills
- True commitment to relentless service
- Strong references that are recent
15What Should I Expect To Pay?
- Retainer fee 50,000 to 250,000
- Minimum transaction fee much more common
- Incentive fee based on achieving a hurdle
transaction value - Out-of-pocket expenses
16Lastly . . .
- All we want you to do, Ross, is make us as rich
as possible. - Member of LBO group to F. Ross Johnson,
Barbarians at the Gates - Some of you entrepreneurs have heard this before
17SG Cowen MA Effort
- Exclusive focus on Technology and Healthcare
- 40 completed transactions per year
- Typical deal size from 50 to 500 million
- 7 billion dollar deals in last 18 months
- U.S., European and Asian MA coverage