www.securedocs.com- Slides from the webinar, "Technology M&A: Deal Preparation and Management." Contains best practices for a successful M&A outcome from three different industry experts- an M&A lawyer, and investment banker, and a private equity firm.

1. Technology
M&A:
Deal
Prepara4on
and
Management

2. About
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3. About
Chris4an
Benne?
• Managing
Director
at
Pagemill
Partners
where
he
focuses
on
M&A
Advisory
for
soCware,
internet,
and
service
companies.
• Since
joining
Pagemill
in
2004,
has
successfully
closed
more
than
50
M&A
transac4ons
across
a
variety
of
technology
segments.
• Prior
to
Pagemill,
he
was
a
strategy
consultant,
ini4ally
at
The
San
Francisco
Consul4ng
Group
and
then
with
The
McKenna
Group.
• Chris4an
holds
an
A.B.
from
Dartmouth
in
Computer
Science
and
an
MBA
from
UC
Berkeley’s
Haas
School
of
Business.

4. Agenda
• Key
ac4ons
and
steps
to
take
in
advance
of
a
poten4al
transac4on
• Process
overview
and
best
prac4ces
for
value
maximiza4on
in
running
a
process
• Opportuni4es
and
strategies
to
maximize
value
and
certainty
of
close

5. Pre-­‐Process
Ma?ers
• External
Readiness
//
Strategic
&
Market
– Develop
strategic
relevance
to
buyers
in
advance
of
a
process
– Cul4vate
commercial
partnerships
with
poten4al
acquirers
– Build
awareness
and
rela4onships
– Improve
financial
profile
as
possible/available;
investment
4ming
and
impact
• Internal
Readiness
//
Organiza8onal
– Diligence
prepara4on;
organiza4on
ma?ers
– Proac4ve
internal
diligence
and
remedia4on;
financial
and
IP
ma?ers
– Alignment
of
internal
stakeholders

6. Process
Overview
Prepara4on
Phase
Deal
Marke4ng
30
Days
60
–
90
Days
Prepare
the
company
for
a
sale
process,
finalizing
the
poten$al
strategic
buyers
and
marke$ng
material
Ini$ate
an
organized
process
focused
on
maintaining
the
$meline
and
pushing
the
most
interested
buyers
to
management
mee$ngs
Due
Diligence
&
Closing
45
–
75
Days
Enter
exclusivity
with
the
selected
party
and
conduct
due
diligence,
leading
to
a
final
closing
• M&A
transac+ons
are
complex
and
require
crea+vity,
a9en+on,
and
significant
experience
to
be
executed
properly
• Maximize
quality
and
quan+ty
of
interest
in
a
businesses
throughout
the
M&A
process
• The
typical
+meline
is
six
to
nine
months
to
a
closed
transac+on

7. Prepara4on
Phase
Prepara4on
Phase
30
Days
•
Deal
Marke4ng
60
–
90
Days
•
Define objectives
•
– Develop strategy
– Determine timing
– Identify assets for sale
•
•
•
•
Develop preliminary valuation analysis
Develop preliminary strategy
–
–
–
–
Potential buyers
Sale process
Sale of stock or assets
Timing
Define key selling points
Prepare marketing materials
Prepare NDA and initial bid process letter
Gather intelligence on potential buyers
–
–
–
–
– Comparable public companies
– Precedent transactions
– Discounted cash flow analysis
•
45
–
75
Days
– Executive Summary
– Information Memorandum
– Management presentation
Review operations
– Assess strategic positions
– Review historical and projected financials
– Financial model / audited financials
Due
Diligence
&
Closing
Presumed level of interest
Financial strength
Buyers’ perspectives on value
Ability to execute a timely transaction
•
Finalize buyer list
•
Complete marketing strategy
Financial
Opera4onal
Strategic

8. Deal
Marke4ng
Prepara4on
Phase
30
Days
•
60
–
90
Days
Contact buyers
•
Due
Diligence
&
Closing
Deal
Marke4ng
45
–
75
Days
•
Distribute marketing materials
Select participants based on:
– Price
– Executive Summary
– Terms
– NDA
– Fit
•
Finalize management presentation
•
Arrange due diligence visits
•
Send Descriptive Memorandum upon execution of an NDA
•
Coordinate response to buyers’ questions
•
Continue gathering market feedback
•
Confirm financing arrangements (as appropriate)
•
Prepare data room and due diligence sessions
•
Receive preliminary indications of interest

9. Due
Diligence
&
Closing
Prepara4on
Phase
30
Days
Deal
Marke4ng
60
–
90
Days
•
Collect final LOIs
•
Choose party to enter into exclusivity
•
Facilitate comprehensive due diligence including:
–
–
–
–
Financial
Business
Human Resources
Technology
•
Draft and negotiate transaction agreements
•
Work with legal counsel and company to sign a final agreement
•
Target a simultaneous sign and close
•
Continue executing on the business
Due
Diligence
&
Closing
45
–
75
Days

10. Valua4on
Considera4on
• Acquirers value a business based on a number of factors; commonly
these three are primary considerations:
− Strategic Value: Strategic importance of an asset that is difficult to
replicate, the value of new market opportunities made possible through the
acquisition, and the threat posed by the potential acquisition of an
interesting target by a competitor
− Fundamental Value: Company’s financial profile (growth, profitability,
cash flow, tangible assets, etc.) and market valuation multiples of
comparable transactions
− Process Driven Value: Competitive dynamic required to buy the business
through a well managed process

11. Timing,
Value,
and
Certainty
Maximiza4on
• Posi8ve
Timing
Drivers
– Buyers
are
indica4ng
specific
and
substan4al
interest
– Company
has
achieved
key
value
/
growth
inflec4ons
– Company
has
de-­‐risked
the
acquisi4on
for
the
poten4al
acquirers
(e.g.,
technology
risk,
market
risk,
execu4on
risk)
– Ability
to
sell
on
strategic
value
with
a
valua4on
floor
driven
by
fundamental
value
– Market
is
ac4vely
consolida4ng
• Ineffec8ve
8mes
to
sell:
– Only
thing
to
sell
is
“strategic
value”
/
future
poten4al
– When
a
company
is
out
of
capital
– End
of
a
consolida4on
wave
Goal
to
maximize
leverage—yields
higher
valua8ons,
improved
buyer
interest,
superior
deal
terms,
and
increases
certainty
of
close

12. About
Mykel
Sprinkles
• Senior
Associate
with
TVC
Capital,
a
soCware-­‐focused
growth
equity
firm.
• Sources
and
executes
growth
equity
investments
and
buyouts
in
the
soCware,
internet,
and
financial
technology
sectors.
• Began
his
career
on
the
funds
team
of
a
private
equity
real
estate
group
responsible
for
capital
raising,
manager
selec4on,
and
due
diligence.
• BS
in
Business
Administra4on
from
the
University
of
Richmond,
MBA
from
London
Business
School.

13. Perspec4ve
and
Landscape
• As
an
investor
in
growth
stage
technology
(soCware)
companies,
TVC
has
found
that
the
best
outcomes
are
the
result
of
companies
gegng
bought…
and
not
sold…
– Maximizes
valua4on
– Provides
a
greater
certainty
of
close
– Provides
a
greater
likelihood
of
a
smooth
transi4on
post
close
• What
are
the
steps
you
can
take
12-­‐24
months
prior
to
and
leading
up
to
a
target
transac4on
to
get
bought:
–
–
–
–
Become
a
strategic
priority
Professionalize
the
organiza4on
Bu?oning
up
Best
foot
forward

14. Perspec4ve
and
Landscape
SoRware
Industry
M&A
Ac8vity
Transac8on
Analysis
by
Size
–
2012
Ø In
SoCware,
96%
of
all
transac4ons
get
done
at
less
than
$100m.
Ø In
your
sector,
how
can
you
land
on
the
right
hand
side
of
the
distribu4on?
Ø What
are
the
drivers
to
op4mize?
Ø In
SoCware,
revenue
growth
rate
(x
axis)
is
the
primary
determinant
of
the
mul4ple
achieved.
Ø Know
your
sector
–
similar
informa4on
is
available
on
all
technology
sectors.

15. Steps
in
Gegng
Bought
Become
a
strategic
priority
–
get
buyers
knocking
on
your
door,
and
not
the
other
way
around.
•
Iden4fy
and
priori4ze
5
–
10
target
acquirers.
–
–
–
–
•
Complementary
and/or
subs4tute
products
Technology
gaps
Product
road
map
Customer
lists
Ini4ate
business
development
efforts
to
develop
deep
partnerships
with
target
list.
– Sales
and
marke4ng
programs
– Product
integra4ons
•
Execute!
– Put
top
team
members
on
the
projects
– Drive
tangible
value
– Capture
execu4ve
sponsorship

16. Steps
in
Gegng
Bought
Professionalize
the
organiza4on
–
strategic
buyers
and
public
en44es
want
assets
and
organiza4ons
that
can
migrate
into
their
corporate
structures
without
undue
heavy
liCing.
•
Demonstrate
organiza4onal
excellence
around
cri4cal
business
func4ons
and
key
valua4on
drivers.
– Sales
organiza4on
– Product
teams
– Research
organiza4on
– Client
services
•
Allocate
likely
limited
resources
accordingly.
•
Look
like
a
mature
company
that
will
fit
seamlessly
into
a
larger
en4ty.

17. Steps
in
Gegng
Bought
Bu?oning
up
–
as
the
company
progresses
in
its
4meline
toward
a
transac4on
ensure
that
the
house
is
in
order.
•
Corporate
clean
up.
–
•
Compliance
across
the
organiza4on.
–
–
–
–
•
Industry
specific,
regulatory
and
standards
boards
Relevant
cer4fica4ons
Federal
and
state
taxes
Insurance
coverage
Accoun4ng
and
finance.
–
–
–
•
Up-­‐to-­‐date
board
docs
and
other
corporate
/
legal
documents
Recent
409a
valua4on
Audited
financials
No
unknown
comp
and
accrued
benefit
liabili4es
Proac4vely
remove
roadblocks
to
a
smooth
transac4on.
–
–
Easy
steps
to
take
in
advance
to
op4mize
the
team’s
4me
and
focus
As
you
engage
advisors
demands
on
the
team’s
4me
will
increase

18. Steps
in
Gegng
Bought
Best
foot
forward
–
as
the
company
engages
buyers
have
a
clear
and
consistent
message
that
solidifies
strategic
fit
and
value.
•
Show
that
the
company
has
hit
its
projec4ons.
•
Demonstrate
that
key
valua4on
drivers
have
been
op4mized.
– And
will
remain
strong
going
forward
•
Steer
into
objec4ons.
– Know
your
weaknesses
and
address
them
directly
• Growth
rate,
margin
compression,
product
specific
issues,
etc…
– Show
that
you
understand
the
buyer
audience
and
be
prepared
to
address
poten4al
areas
of
concern
head
on
– Detail
how
poten4al
areas
of
concern
can
be
resolved
and
the
steps
that
have
been
taken
•
If
you
have
established
the
company
as
a
strategic
priority
poten4al
issues
become
easier
to
work
through
–
acquiring
the
asset
becomes
most
important!

19. Closing
Ques4on
Given
the
informa4on
provided,
what
are
the
biggest
obstacles
you
face
as
a
business
owner
/
execu4ve
in
effec4vely
posi4oning
your
company
for
purchase?
How
can
the
panel
use
their
experience
to
crea4vely
address
and
help
you
think
through
such
obstacles?

20. About
Tom
Cleary
• Member
of
Dykema’s
Corporate
Finance
Prac4ce
Group
• Extensive
experience
in
mergers,
acquisi4ons
and
dives4tures
and
in
public
and
private
offerings
of
equity
and
debt
securi4es.
• Acted
as
outside
corporate
and
securi4es
counsel
to
various
public
and
private
issuers,
including
an
array
of
high
technology,
aerospace
and
defense,
e-­‐commerce,
food
service
and
consumer
product
companies,
and
more.
• Tom
holds
a
B.S.
from
the
University
of
Notre
Dame
and
a
J.D.
from
the
University
of
California,
Berkeley’s
Boalt
Hall
School
of
Law.

21. THE
TIMING,
STEPS
AND
PROCESS
INVOLVED
WITH
A
SUCCESSFUL
SALE
TRANSACTION
• Role
of
a?orney
prior
to
the
involvement
of
the
target’s
sell
side
advisor
• Process,
structures
and
key
legal
and
other
terms
involved
in
a
sale
transac4on
• Important
issues
to
be
addressed
aCer
closing

22. ROLE
OF
THE
ATTORNEY
PRIOR
TO
THE
INVOLVEMENT
OF
THE
TARGET’S
SELL
SIDE
ADVISOR
•
•
•
•
•
Virtual
Data
Room
Intellectual
Property
Due
Diligence
Employment
and
Real
Estate
Financial
Statements
Market
Timing

23. PROCESS,
STRUCTURES
AND
KEY
LEGAL
AND
OTHER
TERMS
INVOLVED
IN
A
SALE
TRANSACTION
Choice
of
En4ty
–
Taxa4on
–
Asset
vs.
Stock
Sale
Process
–
Full
vs.
Limited
Auc4on;
Single
Buyer
Timing
–
Signing/Execu4on
Period/Closing
Terms
–
Price/Considera4on/Escrow/Earn-­‐Outs/
Purchase
Price
Adjustments/Representa4on
and
Warran4es/Closing
Condi4ons/Indemnifica4on
(Baskets,
Caps
and
Survival)
• Regulatory
Ma?ers
–
Hart
Sco?/SEC/CFIUS/
Exon
Florio
•
•
•
•

24. IMPORTANT
ISSUES
TO
BE
ADDRESSED
AFTER
CLOSING
•
•
•
•
Escrow
Releases
and
Indemnifica4on
Ma?ers
Employment
Ma?ers
Real
Estate
Ma?ers
Seller
Notes,
Earn-­‐Outs,
Purchase
Price
Adjustments,
and
Stock
Swaps

25. Q&A
Contact:
SecureDocs
866.700.7975
info@securedocs.com
www.securedocs.com
Tom
Cleary
213.457.1760
tcleary@dykema.com
Chris4an
Benne?
650.354.4085
cbenne?@pmib.com
Mykel
Sprinkles
858.345.5268
msprinkles@tvccapital.com