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Technology M

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M&A Advice from a Wall Street Veteran... 'Life all comes down to a few moments. ... From a macro perspective the M&A market is the best it has been in a year ... – PowerPoint PPT presentation

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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
2
MA Advice from a Wall Street Veteran...
  • Life all comes down to a few moments. This is
    one of them.

3
Is 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

4
What 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

5
Should 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

6
Have 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.
7
In 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
8
How 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
9
What 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
10
What 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

11
How 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

12
What 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

13
What Happens to Employee Options?
  • Most commonly converted into acquirors options
  • Exercise terms may be extended/accelerated
  • Problems with accelerated vesting

14
What 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

15
What 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

16
Lastly . . .
  • 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

17
SG 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
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