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CLOUD SELLERS
Bruce Milne
Let's move on. We have some great guests with us today and I will use this opportunity to transition in into the next section of our webinar, which is Cloud sellers. Over the past few months, I've been communicating with Nigel Thompson, who is the founder and CEO of CloudSync, a mobile device management company, based in Colorado. Last year he sold his company to Good Technology on a very healthy valuation. We're pleased that he was able to give us a few quick words about the transaction. He has extensive experience and has advice other CEOs who may be looking at the M&A process in their future.
Nigel Thompson
Hi, this is Nigel Thompson, former CEO of CloudSync, a Colorado company and now VP of Cloud Services for Good Technology. Earlier this year I sold my company to California-based Good Technology, and so far the integration has gone really well, both from a technical and personal level. My company developed a suite of products, primarily for developing, securing, and supporting mobile devices over the web, that was a SaaS offering and it was actually very synergistic and a compliment to Good's product portfolio for the mobile enterprise.
At CloudSync we decided early on not to take any venture capital, but rather to bootstrap the company into profitability by building a really solid product and getting it to market quickly, getting a pilot customer going, and to start to really build sales momentum. We focused also on a channel sales program, which was a lower cost for us, and we certainly utilized the web to get the word out. Ultimately I believe that this made us quite attractive. As a boot strap there was no outstanding debt for an acquirer to pay off and no additional investors to get past the acquisition.
This was my first time going through the M&A process, and I would imagine that like any other CEO who sold their company, the transaction process, no matter the outcome, has its obstacles, challenges and hurdles. However, I was told by my attorneys that this transaction went very smoothly and I think a lot of it had to do with the fit. It was a very strong product fit. From a corporate perspective, we didn't have any debt, and we didn't have any investors to negotiate with. We had a really good relationship with the buyer from the start.
In the end I suppose my advice to CEOs out there who may be considering an eventual M&A is to think through these three key things:
One, it is all about the product. You have to have that functional product with a market that is sufficient to attract the right customers if you want to attract the right buyers or investors. You have to build that momentum.
Two, do your best to boot strap. It is hard, but again the less that you have borrowed, the more attractive you are. Once you are ready you can really use the funding to accelerate growth in your company.
Lastly, find the right match. Whether it is an investor, a VC or a potential buyer, there must be product synergy and it has to feel like this is the right thing to do for the company and your employees.
With that said, I wish all the CEOs out there all the best and hopefully it will be a profitable company for you. Thanks.
Bruce Milne
Thank you, Nigel. Nigel's a native of Colorado where he founded CloudSync and we appreciate his contributions here today and wish him the best of luck with his new position as VP of Cloud Services for Good Technology.
Now, our next seller is Jeff Hook, and we have him on the line today and I can honestly say that this was a transaction made in heaven. Jeff was the founder of Fellowship Technologies, which provides a SaaS solution suite for church management. He experienced great growth over the past five or six years and ultimately was acquired by the Active Network just a couple of months back. Jeff, we're glad to have you with us here today to share your story.
Jeff Hook
I want to say thank you to Corum for this opportunity to tell the Fellowship Technologies story. For a little bit of background about our business, Fellowship Technologies is a SaaS for churches. We are subscription based, or an application in the Cloud, if you prefer. We do own and operate our own servers in a co-location site that provides us power, HVAC and bandwidth.
So, we pretty much are in control of our own destiny. We started the company in 2004 with a total investment of $3.1 million from a group of not VC, but VRC, Very Rich Christians. We became cash flow positive in year three and then last year we did right around $9.9 million in revenue. We currently have around 1800 churches in more than 11 countries now, we currently have about 90 employees and we had a unique start for the company in that we bought some IP from a large church here in Dallas. We have grown in revenue between 15% and 25% every year since inception, even through the great recession, so the company that we sold to thought that we were a pretty good target.
But we believe that we are much more than just the re-platforming of a traditional church management system. Instead we are using the web to really transform the church into a more process-based organization that can serve its congregation and its community better. Really utilizing the power of the internet to go across platforms, if you will.
As for our acquirer, Active Network is a software company that helps organizations with web-based registrations and other types of web-based software to power the world's activities and connect people with the things they want, love, and need to do. You may know them as Active.com and if you're registered for a marathon or race or done a corporate event you have probably used their software.
Last year, Active did around $280 million in revenue with business all over the world. They have primarily been VC-backed with a rather large investment from ESPN several years ago. Now we filed our S1 in February, about two weeks after they purchased us and we are preparing to go public. Like good comedy, timing is everything, so I think it will be very good for our owners.
As a matter of fact, recently Active was named one of the top 11 tech company IPOs in 2011 by the Business Insider Group.
Active had wanted to get into the faith-based arena for quite some time and they had been knocking down my door since 2007. Instead of saying no, I just kept saying no, not now. Then, in 2010, I started to seriously listen and tentatively agreed to sell for what I knew was a very good valuation. As the stock market had begun to improve, I really started to believe their story and that it would make sense to do an IPO. I also had more leverage to negotiate our valuations, due to the market improvement.
However, as the due diligence progressed, we chose to back off of the LOIs. This was due to a couple of reasons, the most important of which was how to deal with our employee ownership and the problems associated with them being uncredited investors.
We also knew that Active wouldn't go away and we finally agreed to another offer about 9 months later that took care of the issues from the previous offer. We're now about three months into the integration and it is going very well. I recently commented to both the CEO and President that in five years this acquisition will be perceived by the church market as ingenious.
My three big takeaways are:
One, if possible, look for a strategic acquirer. To us, this was not the end but instead just a point at the crossroads for us to move onto another path.
Two, when you're ready to sell, be prepared. Based on the original due diligence, we learned some things and moved to GAP accounting and made other process changes that the active due diligence process had brought to the surface. This actually prepared us better for the integration and made it much smoother.
Three, don't fall in love with the deal emotionally. Look at it as a business deal so that you can keep your head about you.
That's it for me, I'll be happy to take any questions if there are any.
Bruce Milne
Jeff, thank you. We'll get to your questions in just a minute. One just came in, I'm a christian, can I get the list of those VRCs?
Before we move on to the questions, and we have a bunch, just a quick announcement. As a lot of you know from this webcast, Corum is the leading educator in the world on tech M&A topics. We do over a hundred events a year, online and live, we sell more companies than anyone, and those educational events and co-sponsorships and constant transactions provide a wealth of experience and information draw to help you in your own efforts to harvest your wealth, as we just saw in these presentations. Wonderful stuff. Now you can better access that information with the new Corum iPhone app. It is free from the Apple Apps store. You can message our staff globally, check weekly education schedules, follow the software M&A market, specific deals, our blog, sample tech M&A monthly webinars, and access recent transactions, whitepapers, and so on. There will even be language versions coming. This is a great app and we're very proud of it. It was developed by our friends at Nanaimo Studios in Canada. Nanaimo are the makers of the award-winning idea organizer and other great products.
As we saw in Jeff's presentation, we're seeing a shift, and he went through the dynamics of thinking about the market, not now to an offer, and then another offer. Things are shifting from a buyer's to a seller's market, and in that regard education is increasingly important. With that idea, let's hear from Daniel Holland, who is our conference chairman about our upcoming schedule.
Daniel Holland
Thank you, Bruce. We're very excited to announce 10 live events coming up in the next two months in five different countries. As attendees today you are granted a complimentary VIP pass to attend any one of these events for free. Please keep an eye on your inbox for a message from Bruce about this in the next few days.
Check out our full calendar in the events section of our website and please don't hesitate to let us know if you'd like a calendar for events closer to you. Thanks very much.
Bruce Milne
Thanks, Daniel. Having done this for 20 years, I can say that the better educated you are, the higher your chances for success and the better your value.Ward, let's turn it over to you for a little bit of time on questions.
Ward Carter
Thanks, Bruce. Just a couple here. This is a question I'd like to bounce to Jeff Hook. Jeff, a lot of press on the recent outages experienced by Amazon. Are any of your users feeling nervous about the reliability of the platform or is it impacting your sales process in new clients?
Jeff Hook
Not really. The software as a service, when we first started back in 2004, people were concerned about putting things in the Cloud, but recently it has not appeared to even be an issue any more and I think that part of that comes from the fact that our uptime is so great. We can actually deploy new code during the day while the system is up, we've written some stuff to do that. We're real believers in being able to deploy often, so even though the church environment is slow to embrace some of that, we've seen a big switch in the last two or three years that it is not even an issue.
Ward Carter
Thanks, Jeff. We had a questions regarding patents, and Elon's comments. Elon, you said that M&A due diligence needs to support the business utility of patents. The question is how could it not?
Elon Gasper
Well, one example Ward would be that if you said your patent rights were valuable, because, say, they could be enforced against an infringer, and you figured that you had that pinned down with assignments from the inventors, but in due diligence you have to be sure, do you still have the inventors under hire? Do you have them under contract for future support in a trial? Acquirers know that when it comes to actually enforcing a patent, it is possible to do it without the inventors, but they can make the argument that it is harder and that your valuation should be reduced accordingly.
Ward Carter
Okay, appreciate that Elon. That concludes our May M&A monthly. Thanks for attending and thanks to all of our speakers.
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