e biz cluster sept 19 m&a

Martin Horne

September 19, 2007

Ottawa eBusiness Cluster

Mergers and Acquisitions (M&A) Lessons Learned

Confidential Property of The FineLyne Group

Background

• The FineLyne Group is a small boutique M&A consultancy

• Martin Horne and Dan McCarthy Managing Partners

• 10 acquisition transactions $3M - $110M

• Representative transactions,

• Prior sold to Spar in 1997

• ProMIRA Software sold to Manugistics 1998

• Nitidus Technology sold to Parametric Technologies 2000

• TravelPod sold to Expedia in 2006

• FlightScape sold to CAE in 2007


M&A Process


1. Selection


1. Selection

Who’s A Good Potential Acquirer?

• Where are you in the Food Chain??

• Merge With “Equal” or Get Acquired

• What’s The Strategic Fit?

• Customer, Partner, Competitor, Unknown

• Top Tier – e.g. Google, IBM, Oracle, Amazon ..etc.

• 2nd Tier – Kaboose, Internet Brands, Local.com,

Kayak, Marchex


e.g. “Online” Food Chain

Advertisers

e.g. Bank Of America

Publisher

e.

Consumer

100% ($18.7B)

1%

2007 ONLINEAD SPEND

50%

5%

25%

15%

EBITDATRAFFIC

Buy

Visit

40% ($7.4B)

40% ($7.4B)

Ad Agencies

e.g. Avenue A

Ad Networks

e.g. Google

1. Selection


1. Selection

The Approach?

• Send email to CEO [email protected]

• Be direct and short (3-5 lines) ... read on Blackberry

• Mention competitors are interested & tight timeframe

• If in doubt send an email! (30-50)

•Try “a short no is better than a long maybe”

• If a NO move on ... don’t confuse NEED with WANT

• Have 10 page investor presentation & NDA ready


2. Negotiate


2. Negotiate

So They’re Interested and Want To Meet?

• CEO – CEO dinner (little yes...)

• Do they like you ... culture fit?

• Prepare top 5-10 questions

• Understand acquisition process

• How does 1 + 1 = 3?

• Never cross competitors NDA line...

• Never over sell.... due diligence reveals all


2. Negotiate

Price?

• Give price range but terms are often as important

• “Time to close” is a very important deal element

• Deal sponsor (i.e. CEO) and deal maker (i.e. VP M&A)

• Do deal makers work for them

• If larger or public company use acquirers multiples

• Do forward projecting financial model (1+1=3)

• Inform other suitors of any received term sheet


3. Close


3. Close

• Empower closer (lawyer, VC, agent, CFO)

• Firm timeline to ``Definitive Agreement`` & close

• Use electronic file collaboration service like eRooms

• Due Diligence List,

• IP, Patents, Contracts, Licenses, Financials,

Forecasts, Competition, Traffic, Suppliers, Agents,

Legal, Domain Registrations, Analytics, NDAs

• Start this process now


3. Close

• Reduce the number of parties to agreement • Payment in cash versus stock• Deal – buy the company versus purchasing it’s assets • Employment agreements,

• Spouses• 3-5 years

• Vesting and entitlement • Investors/stakeholders “woodwork”• Holdbacks and Escrows • Tax (corporate, income, GST)• Reps and Warranties (fraud & tax, cap liability)• Lawyers & Accountants (cross border)


4. Post Deal


4. Post Deal

• Support the deal – no dine and dash

• Respect NDA’s and non solicitation

• Skeleton board and operations

• Tax Audit

• Final disbursements


Conclusions

• Time is a deals worst enemy

• De-risk, de-risk, de-risk

• Take the cash!

• Don’t underestimate the human dynamics

• Don’t try and go it alone

Now Go and Sell Your Company ;-)


Questions

Questions?