Sellers Panel 2019

Introduction and Education Technology Vertical Report: eSchoolView Acquired by LINQ

Joel Espelien

Good morning, afternoon, or evening, wherever you happen to be in the world. My name is Joel Espelien, president here at the Corum Group. Welcome to part three of our annual report. And for the math lovers out there in the audience, happy Pi Day. We have a lot to cover, so let's dive right in. We're going to have a field report on some deals that have recently closed, cover our March research report, then get into part three of our annual report, in which we get to hear from CEOs like you who have completed the process and successfully sold their companies. Really looking forward to that.

Joel Espelien

So let's get started. First, to Dan Bernstein based here in Seattle who's going to tell us about two recent deals. Dan.

Dan Bernstein

I'm happy to announce two fantastic transactions that we just completed in the education technology vertical. eSchoolView, a Columbus, Ohio based provider of website content and for management software was acquired by LINQ, a leader in education resource management. This acquisition allows LINQ to further expand its platform of products to provide a one stop shop of solutions to the K through 12 market.

Dan Bernstein

On the other side of the world, Adelaide, Australia based Planet Software was acquired by QSR International. Planet Software has built a state-of-the-art student placement software suite for higher education customers. As you may recall, we sold QSR International to Rubicon Technology Partners just last July, and Planet Software is QSR's first bolt on acquisition. You'll shortly hear from Chris Astle, the CEO of QSR, on the upcoming seller's panel. These acquisitions illustrate an important Corum top 10 trend and you on for this year, platform effects. Each acquire will benefit from both additional customers and a new product set that will allow them to grow within their respective markets.

Dan Bernstein

Congratulations to Grant, Rob, Dean, and Paul on your fantastic outcomes and thank you for letting me be a part of your transformational journey. Can't wait to take you guys fishing in the Gulf of Alaska.

Joel Espelien

Thanks, Dan. Great work. Now to our research report with Elon Gasper, Amber Stoner, Alden Mendoza and Yasmin Khodamoradi

Public Market Report: S&P Tech Index New Record High

Elon Gasper

Last month's public markets saw major indices continue their rebound from last year's low point. The S&P Tech Index climbed to a new record-high. International markets upswings were led by China's Shanghai index surging into a new bull market there. Though markets remain volatile, the long-lasting US economic expansion is keeping the window of opportunity still open for qualified potential sellers to at least calibrate your company's strategic value in options under favorable conditions for a M&A exit.

M&A Megadeals: Ellie Mae Acquired by Thoma Bravo

Elon Gasper

Our February Corum index showed tech M&A mega deals dropped, but note that most are inked by private equity as the behavioral convergence of financial and strategic buyers continues, a trend supported by the soaring number of PE platform deals.

Two of the mega deals were in the vertical sector. We'll cover it next. Yasmin?

Yasmin Khodamoradi

Valuations in the vertical sector improved significantly since their drop late last year, while buyers, private equity in particular, intensified their search for a profitable models and market leaders across a range of industries, including the financial sector where Ellie Mae, which provides mortgage loan origination SAS, was purchased for 3.7 billion, and seven and a half time sales by Thoma Bravo, adding to its Meridian Link purchase last year.

HealthCare Acquisitions: RSLs bought by Ethicon

Yasmin Khodamoradi

And in the healthcare sub sector, Johnson and Johnson's Ethicon spent 3.4 billion for robotic diagnostics and surgery firm RSLs to build on their previous acquisition of Ortho Taxi. Other healthcare acquisitions included payroll and scheduling solutions provider API, which was picked up by Clear Lake owned healthcare and compliance firm Simpler. Denver based Providigm, which develops quality assurance and federal compliance management software for nursing companies, was pocketed for 18 million by Healthcare Workforce Management and Veteran Health Stream. And Tennessee based clinical communication platform developer Perfect Serve made two deals last month, AI enabled physician shift scheduling firm Lightning Bolt and patient engagement startup Care Wire.

EHR Acquisitions Report: Aptima Buys AMD

Yasmin Khodamoradi

In the EHR space, Corum clients took on the roles of both buyers and sellers. We saw our former client AMD, backed by Marlon Equity, acquiring Aptima, another EHR and practice management software developer in Texas, which should enhance AMD's ambulatory care offerings. And Constellations Harris picked up Corum client Calling Health for its multiple patents and EHR for nursing facilities and senior housing providers.

Education & Automotive Acquisitions Report: Quad Partners Acquires School Admin

Yasmin Khodamoradi

In the K-12 education area, Texas-based admissions and enrollment specialist School Admin was picked up by education-focused PE from Quad Partners. Mobile workforce management firm Vericom sold its student's safety SaaS product, Sure Watch, to student enrollment veterans School Mint. In less than a year after Corum client QSR was acquired by Rubicon, they bolted on Corum client Planet Software, which provides student placement management software, to capitalize on their shared client base. Finally in the automotive space, telematic systems provider CalAmp provisioned its portfolio with two vehicle tracking firm, England based TRACKER and Lojac Mexico, paying 13 million for each of them. How did the Internet sector do, Alden?

Internet Sector Report: Scout 24 Acquired by Hellman and Freidman

Alden Mendoza

Sales multiples in the Internet sector are still near the low set in 2016, though even the multiples have risen to reward profitable models.

In the first mega deal of the year in the sector, Hellman and Friedman, in conjunction with The Blackstone Group, paid over 6 billion for the online class at five specialist Scout 24, following Hellman and Friedman largest ever acquisition of Ultimate Software. And pre-owned luxury vehicles, Specialist Auto Sport USA, was bought by online motorcycle marketplace, RumbleOn, for a little over 3 million, just a couple of months after buying another classifieds website.

Travel Industry M&A: Gaest.com Bought by Airbnb

Alden Mendoza

In the travel subsector, French home rental network, Nights Swapping, was grabbed by Home Exchange looking to solidify its leadership position in the peer to peer accommodation space. Airbnb made its first move into the workspace rental market by picking up Gaest.com, a Danish platform for short term rental of meeting spaces. In its fourth acquisition in three months, Unilever picked up snack box delivery service Graze, which accelerator Unilever's presence in the healthy food market. Finally, Campbell Soup Company sold its nutrition service firm Habit to their wellness startup, Viome, an acquisition that will expand Viome's offering via Habit's personalized nutrition plans. Amber, how did infrastructure fare?

Infrastructure & Security Report: Carbonite Buys Endpoint and Threat Intelligence

Amber Stoner

In the infrastructure sector, both sales EDIBTA multiples were up with EDIBTA metrics reaching historic levels. Security deals continued to dominate the sector. For instance, Endpoint Security and Threat Intelligence from Webroot was acquired for a 618 million, nearly three times revenue by backup and recovery specialist Carbonite in its largest deal ever. Security analytics 12 developer Interset, which utilizes machine learning to visualize attack paths, was bought by Apple life cycle management giant Microfocus to extend it security risk and governance lineup. Israel based Luminate pioneering software defined Perimeter Tech for access to corporate applications at Hybrid Clouds. It was picked up for 200 million by SYMANTEC and Zeed security, which makes use of AI to enable the maintenance of security across all connected devices in the network, was acquired by digital imaging company, Ricoh Spain to ramp up its workplace security capabilities.

In the security orchestration space, incident management platform, Demisto was picked up for 560 million by Palo Alto for its machine learning powered automation expertise, and event intelligence software firm SignifAI was bought for 37 million by New Relic to visit AI driven dev-ops offerings. Identity governance, with a space to watch last month as well as SecureAuth, carved out its core security assets, selling them to IT management company Help Systems to shore up its cybersecurity portfolio, and Atlanta based digital identity verification firm IDology was bought for 300 million, nearly eight times revenue by England's identity data intelligence giant GB Group to strengthen its footprint in North America.

Internet Of Things Acquisitions Report: M2MBlue Bought by Wireless Logistics

Amber Stoner

In line with our Internet of Things trend, another one's based device connectivity platform developer, M2MBlue was bought by machine to machine managed services provider Wireless Logic to foster its expansion into the ultra-high data usage space, and Corum client connected holdings, running in intelligence as a service platform, was picked up by So Let's Connect to integrate into its telematics products. Finally, here in Seattle Shippable, which enables companies to streamline code delivery processes was picked up by Israel's devops Unicorn J Frog to augment its continuous integration, continuous delivery capabilities.

Elon Gasper

Finally, in the first March mega deal, Chinese livestreamer YY paid one and a half billion dollars for a Singapore's BIGO, with its social media streaming app and short video service. YY extending its ambitions internationally has the Chinese mobile entertainment scene, Titans and that's our February report.

Sellers Panel Introduction

Joel Espelien

Thanks, Elon, and to all the research team for another great report. There's just a tremendous amount of M&A activity taking place right now. And now I'm pleased to introduce our 2019 sellers. We're going to hear from Fredrick Decoutere from Genohm, Eric Collins from Connected Holdings, and Chris Astle from QSR. This is a great group that reflects both the geographic as well as the technological diversity of the deals that are happening.

Genohm is a Swiss company with offices in Lausanne. In the laboratory automation space there was acquired by a publicly traded strategic buyer, Agilent Technologies. As Amber mentioned earlier, Connected Holdings is a US company with offices in Orange County, California that has an IoT platform for transportation and smart logistics. Connected was acquired by Phillips Connect Technology, part of the Phillips Group, which is a family owned privately held company based out of the Los Angeles area with over 90 years of history in parts for commercial trucks and semi trailers. QSR is an Australian company with offices in Melbourne in the qualitative data analytic space that was acquired by a US private equity firm, Rubicon Technology Partners. So with introductions out of the way, let's hear from each of our sellers. First we start with Genohm. Frederick, take it away.

Genohm CEO on the M&A Exit Process: Find a Professional Broker

Frederick Decouttere

My name is Frederick Decoutere, and I served as CEO for Genohm since 2011 all the way up until the point where the company got acquired by Agilent Technologies in 2018. We strongly looked at how we could combine or maybe even more specifically myself, I looked into how I could combine a very fast growing company. There's a lot of day to day work versus or towards a new leads, new customers, existing customers, etc, etc, plus the incoming attention from a wide range of bigger companies that wanted to discuss some of these scenarios. At that point I decided again to get a bit of my board at the time to look into professional advisors who could help us in not just brokering the deal but also helping myself and my management team to successfully go through a due diligence process. We quickly turn it down to them. A few players with within the informatics field that we saw us as useful.

We talked with three to four international key players and in the end selected the Corum Group to represent us in the entire process all the way down to the transaction as possible. It was one of the very few brokers that I discussed with where I got a feeling that they weren't just in it for the transaction for the deal but also looked at it from a CEO's perspective. And I think myself and my management team, we highly appreciate that different point of view on the transaction market. Well, let me say it was the first time I actually did it as a CEO. I knew it was going to be an exhausting process, due diligence and everything that's involved. And I would say reality is that it's about this, I would say ten times as exhaustive than what I ever imagined beforehand.

That was the biggest surprise for me and the entire M&A process. And this surprise actually still remains because I don't really see how we can accelerate most of these things. It's just a very exhaustive periods in like I said, jaggery assessing business to run and you have a second, parallel business just on top of that with a lot of questions, a lot of teams that's actually approached you to do a very deep due diligence. I think that's also maybe a little bit linked to the current M&A market. I would say maybe transaction prices and valuations are really nice, but they come with a way more thorough deal, the due diligence process on the other side of the balance.

In the end we went with a professional broker, somebody that runs between us and the interested parties. I think the Corum Group brought a lot of experience to the table, gave us a lot of hints, advice on how to prepare for certain parts of the due diligence. And that's really greatly helped. I can only imagine if you go at it alone, you would probably also figure it out but probably waste a lot of valuable time that you should have been investing in, your business during the same timeframe. So, in the end, that's really the final conclusion. I don't think I would ever do an M&A process without a broker that stands by my side to finish it successfully.

And maybe that's the final conclusion. I don't want this to sounds like an advertorial for Corum Group because they have competitors as well and everybody should do their homework, talk with the broker that gives you the best feeling that convinces you the most of being able to not just sell your business but also stand by your side during the process. Me personally, I can only conclude that we haven't had a very good relationship and an outcome and entire process with Corum and John Scott in particular. And so I would definitely, if the opportunity arises approach him again for their advice and maybe a second jump head first towards an M&A exit.

Joel Espelien

Thanks, Frederick, for the kind words and the solid advice and yes, due diligence can be exhausting. Note that Agilent is a classic technology buyer, clearly a great fit for the unique technology created by Frederick and his team. This is really a textbook strategic acquisition by an industry leader, and for some of you that's going to be the optimum outcome. A more recent trend, however is for private software and technology companies to partner up with companies outside of the traditional Silicon Valley or Enterprise Software World. As we talked about it in our annual report back in January, there's been a huge wave of technology acquisitions by non traditional strategic buyers. This includes everything from retailers like Walmart, package food companies like Kraft Heinz, big AIG companies like Monsanto and John Deere, as well as automakers like Ford and GM.

Beyond these large cap blue chip names, the tech M&A world is welcoming a host of small and medium cap industrial companies looking to add IoT and other technologies to their product portfolios. And this was the essence of course at the recent acquisition of my client, Connected Holdings to Phillips Connect Technologies. But enough for me. Let's let Eric Collins tell the story. Eric?

Connected Holdings on The M&A Process: Equity Rollover

Eric Collins

Yeah. So, we started Connected Holdings four years ago and it was a spin out of the company that I had been running for six, seven years before that. Well, this is the first M&A transaction than I've been on the front line of doing, and though I think this one went maybe as easy as they possibly can, it was still quite hard. It was quite a few months negotiating in before we got to a term sheet, and then from the term sheet on, it was a good four months of just hard crank turning to actually get the closing done. Every deal that I've ever been involved in to make the deal happen, especially if it's a significant deal, it has to be a win situation for everybody. And when we came into this deal, this deal wasn't actually a complete acquisition and that I didn't liquidate my position. I rolled my position forward and I'm significant stakeholder in the new merged entity. And so that cash that came in was really about buying out all of my equity holding partners and retiring all of the debt that we had and funded the company with. Yeah.

So, coming into this concept of doing a merger, I was in a situation where through these spin outs, my original partners were all off running other companies and participated in the current hidden value creating process and getting the transportation business under control at all and yet still needed the support of this business. And then we had some vision that I had also sold to our acquirers about additional businesses, but we can keep building around this technology.

And so the recap basically ended up leaving me in a stronger equity position on the transportation business than I had been if I kept to the 50% gross margins flooding scheme that we had already a contract for, and then it left me in a much larger system, more significant equity position for the future going so as well, which is why I was willing to do it without taking equity money off of the table. I think it was, it was absolutely critical. I don't think I could have pulled this off with this much complexity while keeping the business going on without a very sophisticated outside group that's in the business of doing this middle level of simplification. It takes just an administrative process, let alone negotiate with all the different parties. I would never, never tried to do this on my own. I mean it allowed me to maintain a very positive relationship all the way through, even though some of the things that we were strategically going back with. What we're saying is that we're emotional things and you have to have that community. You have to have that role being played by somebody, and I think the broker kind of a function. I don't appreciate it that much in the real estate world but I truly appreciate it with this level of complexity.

And I think there's really two kinds of deal when you're selling companies or strategic kind in the sort of a money driven kind of earnings and revenue driven kind and it's strategic. It's a strategic type of M&A transaction, as there's a whole lot more interesting and exciting from my perspective. And it's the ones that you can get in the big multiples on and we absolutely did that here.

Joel Espelien

Thanks Eric. Great perspective on a couple of points. First, the need for the CEO to maintain that positive relationship with the buyer, who is, of course, your future boss. And second, a great perspective on the advantages of being able to do an equity rollover in that type of transaction. Also to clarify the comment about deals based on financial statements, our view is that it's rarely, if ever, about the financial statements when it comes to privately held technology companies. Connected Holdings had some financial challenges to be sure, but it was in a very exciting space, which naturally made a great opportunity for a strategic buyer like PCT. Of course, for companies that have both growth and profitability going for them, a number of alternatives are available, which is a perfect segue to hearing from Chris at QSR. Chris?

QSR International on the M&A Process

Chris Astle

So, yeah. A little bit about the company. QSR International, we're 30 years young now. Originally founded by a husband and wife team who were studying at La Trobe University. She was a sociologist and he was a computer scientists. As the story goes, basically an application was created that allowed social workers to complete computer aided qualitative data analytics. We were one of the first products that were released to market back in the mid-eighties. A product at that point that was predominantly used by academics in the Australian market. But over time and through a very strong word of mouth, we've grown now to be the market leader in the quality of data analytics space. We've got very strong presence here in the US market, a very strong presence in Europe, and we pride ourselves, really, on the rate of innovation and technology and value that we're bringing to our academic customers around the world.

So, why did we decide to sell? I think the easiest way to answer this in all honesty is that the former board of directors were continually looking at the network, but we need to be creating as a business to really look at potential strategic partnerships as we move forward. It was a privately held organization. We were very fortunate in that we're cash rich and we were growing very strongly year on year and we've enjoyed that throughout the course of our history.

So did the board, I think, certainly when I came in as a CEO. I've been in the business, what, for nine years, and I've been in the role of CEO now for three. And the conversation that I had with John and with the board of directors at that time really was around, "Okay, what do we need to be doing here to really identify the right strategic partner for us to move forward?" We knew at that point we had one core product, really, servicing academia, and that was generating around about 80, 85% of our revenues at that point. But we knew that we wanted more product. We knew that we wanted to move into, enter a new market, and obviously with that we would start to target new customer groups and with that the cash requirements that we needed for the business. We knew that what we're significant in the way that we looked at how we could do this quickly, and that really led us to a point where we decided that we really do want to look at some form of external investment to come in to help us scale the business as we move forward.

So, what, back in 2016 I think it was thereabouts. We needed basically an advisor who could bring a very strong network of strategic or PE partners to us so we could start to have some of those conversations more in volume as we move forward, and the great news after all of that activity is that we were lucky enough to find Corum and Dan in particular, and Corum really brought significant value to us in the numbers of obviously potential targets there that we could be looking at in terms of the different types of partnerships that we could evaluate at that point.

And Corum really helped us go through that whole investment process. They helped us in terms of the guidance that we needed, not only in the way that we communicated to potential partners our message and obviously the clarity there that we needed to be providing as an executive team to any particular PE or strategic partner. But they are invaluable and Dan was invaluable in terms of helping us basically go through that process from initial inquiry through to obviously a small select group of interested parties and then going into a period of exclusivity, and so the deal really came together as a result of obviously the process that I've just outlined with Corum helping us to be introduced to a much wider array of potential partner investors.

With that we clearly went through a number of executive presentations. They were short but exact presentations that typically lasted for probably, what, 30 minutes to an hour. I think the walkaway that I had in those presentations was that it was very important that you got your value and your secret sauce over to those investor panels very quickly, and I think from that we were lucky enough to get to a point where we had a number of interested parties. And as a result of that, I think the word that, again, Corum did and helping guide that whole conversation around how any particular investment could be working and obviously the structure there with that investment and the way that would then be worked through from a legal perspective. Corum and Dan helped us there in terms of getting some of that finer detail really locked down as we went through that whole process.

So I think for me I was it was really great to just step back from that whole process and reflect and realize just how much institutional knowledge that we have within the business and how much that knowledge ultimately has been validated as a result of going through this whole journey.

Joel Espelien

Thanks, Chris. Private equity was clearly a great fit here in order to accelerate QSR's growth. Rubicon Technology got a real gem and, as we heard earlier, has already started building out the platform by bolting on Planet Software. We look forward to seeing where they take QSR. Thanks again to everybody on the panel. Things have been very valuable for our audience to see the diversity of transactions. Really, every company is unique and the perfect buyer for one is not the right fit for another, meaning, of course, that a global search remains far and away the best way to reach that optimal outcome. We've just got a minute or two left for Q and. A. If you do have a question, please go ahead and send that through the window. If we can't get to it, we'll be happy to follow up with you offline. Our first question is a common one.

Q&A and Closing: Do I need a relationship with my buyer?

Joel Espelien

Do I need to have a preexisting relationship with the buyer in order to sell my company? The clear answer to that is no. Genohm had had some discussions with Agilent, but the real deep dive occurred after the M&A process was underway. Connected did not know PCT at all prior to 2018 and QSR, of course, had never met Rubicon prior to doing that deal. It's a big world out there and that's increasingly common that sellers do not know the buyer in advance. In fact, getting out there, meeting new companies is one of the fundamental benefits of running an effective M&A process.

With that, I think we are about out of time. We look forward to seeing you here next month for our big quarterly tech M&A webcast in which we review all the deals and valuations across our various sectors and markets. And also note if you missed any prior broadcast, they're available on our website along with extended interviews with the sellers you heard from today. And with that, let's go to our close.