eckert seamans technology initiative series extracting value from a technology company march 21,...
TRANSCRIPT
ECKERT SEAMANS TECHNOLOGY INITIATIVE SERIES
Extracting Value froma
Technology Company
March 21, 2006
ECKERT SEAMANS TECHNOLOGY INITIATIVE SERIES
Extracting Value froma
Technology Company
March 21, 2006
© Grant Thornton
Grant Thornton Corporate Finance LLCCurrent Trends In M&A
March 21st, 2006
© Grant Thornton
2005 was another robust year for M&A
Net M&A Announcements – US Targets Only
Source: Mergerstat
5,194
6,9277,251
8,668
10,607
7,818
6,993 7,256
8,4288,706
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Growth
+3.3%
© Grant Thornton
The largest broad sectors continue to be consumer, industrials and IT
M&A Activity In North America In 2005
CONSUMER24%
INFORMATION TECHNOLOGY
24%INDUSTRIALS
18%
FINANCIALS10%
HEALTHCARE9%
ENERGY8%
MATERIALS7%
Source: Capital IQ and Grant Thornton Corporate Finance analysis
Software
IT Services
Electronics
Hardware
Consumer Products
Retailing
Leisure ( hotels, restaurants)
Consumer Services
© Grant Thornton
Massachusetts, often more volatile than the national market, saw a spike in M&A during 2005
120
216
242257
331
394
309
239 245
284
348
0
50
100
150
200
250
300
350
400
450
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
M&A TransactionsMassachusetts Targets
Source: Mergerstat
Growth
+22.5%
© Grant Thornton
INFORMATION TECHNOLOGY
40%
CONSUMER24%
INDUSTRIALS14%
HEALTHCARE10%
FINANCIALS9%
OTHER3%
M&A in Massachusetts is dominated by IT
M&A Activity In Massachusetts In 2005
Source: Capital IQ and Grant Thornton Corporate Finance analysis
© Grant Thornton
EBITDA multiples differ widely by sector, with faster growing IT sectors driving premiums
Median EV/EBITDA multiplesTransactions between $10MM - 200MM
Source: Grant Thornton Corporate Finance study
7.67.8
10.7
6.4
7.2
9.9
7.8
7.3
11.3
7.37.5
9.9
7.8 7.8
9.7
7.6
8.4
11.6
4.5x
5.5x
6.5x
7.5x
8.5x
9.5x
10.5x
11.5x
12.5x
INDUSTRIALS CONSUMER INFORMATION TECHNOLOGY
2000 2001 2002 2003 2004 2005
© Grant Thornton
Revenue multiples tell the same story
Median EV/Revenue multiplesTransactions between $10MM - 200MM
Source: Grant Thornton Corporate Finance study
1.2
1.0
1.9
1.2
0.8
1.3
1.2
0.9
1.5
0.9
1.0
1.3
1.2 1.2
2.0
1.0
0.9
2.1
0.5x
0.7x
0.9x
1.1x
1.3x
1.5x
1.7x
1.9x
2.1x
2.3x
INDUSTRIALS CONSUMER INFORMATION TECHNOLOGY
2000 2001 2002 2003 2004 2005
© Grant Thornton
Private Equity raised record funds in 2005
$30.0
$42.0
$58.0
$48.0
$74.0
$35.4 $37.9
$18.7
$37.0$29.3
$125.4
1996 1997 1998 1999 2000 2001 2002 2003 2004 YTD2004
YTD2005*
Fund Raising ($billions)
Source: Buyouts newsletter
*As of 12/12/2005
© Grant Thornton10
Summary – Key Points
• M&A activity is at a 3-year high• Valuations are stronger than they have been in
years – "seller's market" • Cash continues to be king for sellers• Foreign companies active in acquiring U.S.
businesses of all sizes• The leveraged buyout market is now enormous• Abundant capital from traditional and non-
traditional providers
Eckert Seamans Technology Initiative Series
EXTRACTING VALUE FROM A TECHNOLOGY COMPANY
Presented by: Lee Steele, Financial Leadership Partner
March 21, 2006
12
About Tatum, LLP
Tatum is the largest and fastest–growing Executive Services Firm in the United States, helping companies in transition accelerate business success and Create More Value.™ Through more than 30 offices nationwide, Tatum’s 500+ Executive Partners and Principals provide strategic and operating leadership in Finance and Information Technology.
New England Office:Tatum, LLP233 Needham Street – Suite 300Newton, MA 02464www.tatumllc.comJanice DiPietro, Managing [email protected] 617-454-1088 (office) 617-922-9487 (cell)
13
Extracting Value – The Financial Perspective“Advance Planning and Preparation” – A Few Elements
Never too early to startEstablish a realistic company pre-money valuation
Do your homework; use outside data sources and expertiseGet financial house in order
GAAP/near-GAAP historical financialsIndependent outside accounting firm reviewUpgrade financial and accounting systemsExamine internal controls; should you be “SoX-ready?”Upgrade corporate governance structure; eg:
― By-laws; equity structure and capacity― Independent director(s), with relevant expertise
Clean up capital structure― Minimize obstacles for the next investor
“Advance Planning and Preparation” – A Few Elements
14
Develop an interactive financial projections modelP&L, balance sheet, and cash flowIllustrate the incremental value produced with outside capital
Develop a 3-year business planInclude a succinct and polished Executive Summary
Assess/enhance the leadership teamSelect qualified outside advisors
“Advance Planning and Preparation” – A Few Elements(Continued)
15
Eckert Seamans Technology Initiative SeriesEXTRACTING VALUE FROM A TECHNOLOGY COMPANY
THANK YOU!
ECKERT SEAMANS ATTORNEYS AT LAW
Extracting Value from a Technology Company
Executing the Transaction
Presented by:Anil Khosla, Esq.
ECKERT SEAMANS ATTORNEYS AT LAW
• The closer you are to compliance with Sarbanes Oxley the better– Review governance and structure– Expands market to public companies
• May require reorganization– What is best way to structure?– Clean up corporate books and records
• Prepare Board– Set up special committee to act quickly– Arrange for appraisals in advance
Be Proactive
ECKERT SEAMANS ATTORNEYS AT LAW
• Refer to standard Buyer due diligence check list– Anticipate issues: intellectual property, environmental
• Set up data room (offsite)– Avoid disruption of business
– Maintains confidentiality
• Anticipate required consents, votes, approvals
Anticipate Due Diligence
ECKERT SEAMANS ATTORNEYS AT LAW
• Company is more attractive to Buyer
• Saves time and costs
• Allows deal to proceed quickly
Benefits
www.bernstein.com
March 21, 2006
Christopher O. ArnoldVice President
Eckert Seamans TechnologyInitiative Series
Pre
-Tra
nsac
tion
21 Bernstein
Transactions Perceived as Life Changing
Investment Income
Lack of Control
Impersonal Legacy
Post-Transaction
Cash, Stock, and Options
Earned Income
Control
Personal Legacy
TransactionBusiness
Pre-Transaction
Pre
-Tra
nsac
tion
22 Bernstein
Difficult Questions Come Up
What is my business really worth?
Should I sell my business or keep working?
What is the right deal structure?
How do I make sure the deal closes?
Did I get enough to meet myfinancial objectives?
How should I manage my single-stock exposure?
What if I am restricted from selling?
How should I invest my financial assets?
All should be asked Pre-Transaction
Typical Pre-Transaction Questions
Typical Post-Transaction Questions
Pre
-Tra
nsac
tion
23 Bernstein
Planning for the Generations
PhilanthropyLifetime Spending Multigenerational Wealth
Personal Taxable
• Savings
Family WealthTaxable
• Living Trust• GST Trust• GRAT
Charitable Tax Advantaged
• Foundation• CRT• CLT
RetirementTax Deferred
• IRA• 401(k)
Solutions
VehiclesU.S. Bonds
Foreign Stocks
U.S.Stocks
Client
Hedge Funds
Pre
-Tra
nsac
tion
24 Bernstein
Teamwork Among Client’s Advisors Is Critical
Client
T&
E
Att
orn
ey
Bernstein
Acco
un
tant
Investment Banker
Corporate
Attorney
Pre
-Tra
nsac
tion
25 Bernstein
Opportunities for Improvement
Reduce asset volatility and enhance return by diversifying
Establish a core portfolio to meet lifestyle needs
Integrate investment, estate, and tax plans to meet goals
Take action pre- and post-transaction
Ensure that steps taken are meaningful and manageable
