12 Negotiation Must Haves for an Optimal Outcome

December 2019 Tech M&A Monthly - Introduction

Heidi Owen

Good morning, afternoon, or evening, wherever you are in the world. Welcome to the Corum Tech M&A Monthly. My name is Heidi Owen, Director of Marketing for Corum Group and I will be your host for today. Before I get to our schedule, I'd like to point out the Q&A sidebar. Feel free to ask us any questions you might have during the presentation. The slide deck will be made available to you and you can email us at any time at info@corumgroup.com. So, let's get started.

We have a packed agenda starting with our most recent deal announcements for the month of November. Next, we'll go to our field reports. After that, we'll go to our core monthly Tech M&A Report. Then, we'll finish with a special report with Tim Goddard on 12 Negotiation Must Haves for an Optimal Outcome. For our tech founders and investors listening, be sure to stick around. This is an important topic for you.

Now, without further delay, let's go over some of the recent deals that just closed. It's been a big month here at Corum. Jon Scott will start us off from Scotland.

 

DEM Solutions-Altair Acquisition

Jon Scott

I'm excited to announce the sale of Corum client Edinburgh, Scotland-based DEM Solutions to publicly traded Troy, Michigan-based Altair. DEM Solutions are makers of EDEM, the market leader for discrete element method software for bulk material simulation. The acquisition will make Altair's leading solutions for machinery and material simulation even more powerful with the addition of EDEM for bulk material simulation that can provide insight into the interaction between materials such as pellets, tablets, powders, and rocks wood machinery. The system level simulation capability will provide critical insights for optimizing machinery design, material handling and manufacturing at a broad spectrum of industries including pharmaceutical, chemical, food processing, and heavy engineering such as mining. DEM is an excellent fit and we wish DEM CEO, Ian Williamson, and his staff the best of luck going forward.

Heidi Owen

Now to Rob Griggs in the Midwest.

 

Battery Ventures and Newform Acquisition of EleVia Software

Rob Griggs

I'm very happy to announce the successful exit of our client, EleVia Software, to Battery Ventures and Newforma. EleVia delivers and supports software that facilitates key financial and operational processes for the architectural and engineering markets.

Rob Griggs

With software modules for electronic invoicing, Payable Approval and Tracking, AR management and collections, forecasting, and more. These modules improve cash flow, automate tasks, improve productivity, reduce operating costs, and provide valuable insight into project performance and profitability. Working with the Battery Ventures and Newforma teams was a lot of fun. They were wonderful to work with and we're very excited to have the EleVia team working closely with Brock Philp and his. We're ecstatic for Jim, Steve, John, Ron, and the rest of the EleVia to be a part of the Newforma team. Congratulations to everyone and all the best for the future.

Heidi Owen

Well done. And finishing things off from Corum HQ, let's go to Rob Schram in Seattle.

 

Integron-KORE Wireless Group Acquisition

Rob Schram

It is my pleasure to announce the sale of our client, Integron, headquartered in Rochester, New York to KORE Wireless Group based in Alpharetta, Georgia.

Integron's industry-leading edge-to-cloud managed services address the complex demands of global enterprise IoT deployments, applying deep expertise from hardware selection and multiple carrier contracts to device management, security, coverage, and global roll out. KORE, a portfolio company of ABRY Partners, is a pioneer, leader, and trusted advisor in IoT deployment, delivering transformative business performance via IoT solutions that empower organizations of all sizes to improve IoT, operational, and business results. We congratulate the Integron execs on building world class IoT solutions for connected health, energy and transportation industries. Our congratulations as well to KORE CEO Romil Bahl and his executive team. We look forward to witnessing the industry transforming effect of this powerful partnership.

Heidi Owen

Excellent news all around. Congrats to all our clients who just sold. Let's turn to the field to hear from Ivan Ruzic on his recent speaking engagement in Washington, DC.

 

Corum Group at the First StartupYourMorning Event

Ivan Ruzic

In mid-November, I was privileged to present at the first StartupYourMorning event in Washington, DC. StartupYourMorning is a monthly breakfast lecture series for entrepreneurs hosted by the organizers of the annual DC Startup Week's Conference.

The topic of the presentation was planning for your future exit. And as one of the organizers said, we spend countlesss hours building our businesses, but how often do we take a step back and think about how we're going to exit. It was wonderful to see how many young entrepreneurs were in the audience, which bodes well for the future of innovation here in the United States. The main thesis of the presentation was that the best exits are planned exits and that to secure an optimal outcome, exit planning should not be an afterthought. It's a normal board responsibility. Our presentation is based around Corum's research and cumulative experience gained through several hundred successful exits, covering a wide range of exit planning topics including, exactly what constitutes an optimal outcome, tech trends, structuring the tech M&A process, and potential deal killers. All of which was a first for many in the audience.

Heidi Owen

Thanks, Ivan. Rob, tell us about your recent speaking engagement with the WFS.

 

Corum Group at the WFS Growth & Exit Strategies for Software and IT Companies

Rob Griggs

On the 12th of November 2020, World Financial Symposiums held their flagship conference, the Growth & Exit Strategies for Software and IT Companies in Chicago for the very first time. It was hosted by gold sponsor Polsinelli. Corum was once again the platinum sponsor for the WFS event and as conference chairman, I spoke on Corum's Top 10 Disruptive Trends and the current market activity in tech M&A. Despite some unseasonably chilly weather, it was a fantastic event and very well attended with over 100 tech CEOs and founders at the event. Guest speakers in tech and finance from Periscope Equity, Astra Capital, Syndigo, Espresso Capital, J.P. Morgan, Tensility Ventures and others, offer their insights and perspective on growth strategy and exit planning. I want to give a huge thanks to the WFS team for another excellent event. These really are must attend events for education and networking around tech M&A.

Heidi Owen

Thanks, Rob. Now it's time for our monthly tech M&A report with the Corum research team.

 

December 2019 Tech M&A Report: Public Markets, Corum Index, and Megadeals

Elon Gasper

Thanks, Heidi. We begin with the public markets, which surged to new records across multiple indices in November. The S&P tech managing a nearly 8% gain, Chinese stocks, one of the few exceptions, dropping back on trade and other geopolitical concerns. We hope this champion bull has many years left in him, but if that seems unlikely to you too and your company's in a position to take advantage of this M&A window of opportunity, our advice is to start a process to at least calibrate your value and give yourself a chance to take something off the table or prepare for succession if that's a timely concern since the change from this one-of-a kind sellers’ market could be sudden and long lasting.

Our November Corum index printed almost all year-over-year decreases, most reflect a lack of supply as does the only up the arrow in startup acquisitions, showing buyers digging deep for tech and growth. Four of the months, five megadeals joined this year's internet megadeal stack as buyers scooped up value after many months of declines in that sector.

MagicLab, the owner of online dating site Bumble, hooked up with PE Blackstone Group for a reported $3 billion. eBay sold its ticketing business StubHub for $4 billion to Swiss reseller Viagogo, a move that should help it gain a greater stronghold in the secondary ticketing market. And in its largest deal ever, PayPal spent $4 billion on shopping and rewards platform, Honey.

Next, valuations and some recent deals in three of our six sectors starting with vertical. Yasmin?

 

December 2019 Tech M&A Report: Verticals - Healthcare

Yasmin Khodamoradi

Sales multiples in the vertical sector rolled back to May levels, but EBITDA multiples remain notably high. M&A deal flow continued led by the healthcare subsector where healthcare information management company, Policy Reporter, was sold to patient access solutions provider, TrialCard, in its third acquisition this year. Genetic testing automation company, Clear Genetics, was purchased for $50 million by medical genetics firm, Invitae. And surgical inventory management firm, Censis Technologies, was picked up by industrial software vendor Fortive.

NLP-based diagnosis and triage startup, Health Navigator, was bought by Amazon in its first healthcare acquisition this year. And patient experience platform, Medfusion, was bought for $43 million by ambulatory-focus tech developer, NextGen Healthcare, to meet the growing need for patient-initiated health data retrieval.

On the financial side of the healthcare sector, cost management SaaS MedPricer.com, was acquired for $35 million by healthcare improvement company, Premier, to optimize savings in purchase services.

 

December 2019 Tech M&A Acquisitions: Manufacturing, Education, and Real Estate

Yasmin Khodamoradi

Moving on to manufacturing, in addition to the DEM deal John covered earlier, we saw a couple more acquisitions in the simulation space as Siemens rolled up virtual testing software developer, MultiMechanics, and cloud-based print preparation software maker, Atlas, to expand its additive manufacturing portfolio.

In education, Riverside's e-learning business, n2y, was sold to Providence Equity Partners, further expanding its portfolio of K-12 solutions. Enrollment management company, Smart Choice, was picked up by K-12 solutions provider SchoolMint. And online parent communication site, SimplyCircle, was acquired by web-and-mobile communication and fundraising platform, Konstella. Lastly, e-learning provider, Schoology, was purchased by K-12 solutions provider, PowerSchool, adding 20 million students to its education suite.

In real estate, property management software developer, Buildium, was pocketed for over $580 million at 12 times revenue by real estate technology platform RealPage to tap into the SMB market. Finally, AI-based RFP solution, Synlio, was bought by building operations platform, Building Engines, to automate the request for proposal process.

What happened in Consumer?

 

Tech M&A Acquisitions in Consumers: Gaming Market

Billy Hao

Consumer sales valuations climbed back near Q2 levels, particularly boosted by the core gaming subsector as EBITDA multiples remained relatively steady. In the entertainment and esports area, Torque Esport paid $35 million in stock for prediction platform, WinView, plus $37 million for AdTech SaaS, Frankly, announcing plans to create a combined news, gaming, sports, and esports platform. For more on the burgeoning eSports market, see the recent World Financial Symposium's panel moderated by Corum's Jim Perkins.

Elsewhere in the games market, Beat Games, the Prague studio behind the hit Beat Saber title, was picked up by Facebook's Oculus in its first VR game deal. Montreal-based video games developer, Tuque Games, was acquired by Hasbro hobby games subsidiary, Wizards of the Coast, to expand its digital games capabilities. In California, connected service app developer, Drivemode, was acquired by Honda to strengthen its digital and connected mobility products.

What's up in the IT services sector, Stephanie?

 

December 2019 IT Services Sector M&A Report

Stephanie Jensen

IT services valuations remain stable, driven by trends like Focused IT Services and IoT as Corum client, Witekio, an embedded systems and IoT expert, was picked up by tech solutions provider, Avnet, increasing its IoT footprint. And as Rob mentioned, IoT deployment specialist KORE Wireless bought Corum client, Integron. And data integration specialist, Matricis Informatique, was acquired for over $5 million by Canadian IT consultant, Alithya Group, boosting its expertise in the Internet of Things and Artificial Intelligence spaces.

Speaking of which, Chicago AI and consulting startup, Opex Analytics, was scooped up by Llamasoft, a supply chain network designer to form an applied AI powerhouse. This is the first Llamasoft acquisition since 2015. In the backup services market, managed hosting provider, VSS Holdings, was acquired by Canadian Converge Technology Solutions to build on the platform of regionally focused hybrid IT infrastructure providers. Backup and disaster recovery assets of cloud services provider, OffsiteDataSync, were bought by J2 Global to beef up its cloud backup business.

In the security services domain, cybersecurity company, FoxGuard Solutions, was picked up by French nuclear reactor company, Framatome to strengthen its cybersecurity offering in the energy industry.

Among systems integrators, French SAP specialists, Silveo, was pocketed by Accenture to enhance its SCM and manufacturing capabilities. In Italy, PA Group was wrapped up for $66 million by Milan telco, Retelit. And AWS systems integrator, Onica Group, was picked up by a managed cloud computing provider, Rackspace.

Elon Gasper

And that's our report. See you next month for our Annual Review webinar, covering all six sectors in 29 sub sectors with new top ten trends, top acquirers leaderboard, and more, the final word on the year and the decade. Back to you, Heidi.

 

Special Report: 12 Negotiation Must Haves for an Optimal Outcome

Heidi Owen

Great job. Thanks to the Corum Research Team. Now, it's time for this month's special report led by Tim Goddard, EVP of Corporate Strategies.

Tim Goddard

Thanks, Heidi. The negotiation phase is easily one of the most stressful parts of the exit process. To avoid making a serious mistake, you've got to be on your game and surround yourself with experienced professionals. So, here are 12 Negotiation Must Haves for an Optimal Outcome. Senior Vice President Martin Lowrie in Boston will start us out.

 

Negotiation Tip #1 and #2: Determine Your Own Position Before Beginning and Reveal Problems Early While Leverage is Highest

Martin Lowrie

Number one, we often think of negotiation as an event, but actually in a well-managed process, you should understand that we're always negotiating and positioning in every interaction we have. One important negotiating prerequisite is determining your own position long before the conversations with buyers get underway. This is important for a couple of reasons. Firstly, in many situations, there are multiple shareholders involved and determining your collective position upfront ensures that everyone is in alignment, enabling you to communicate with one voice, avoiding mixed signals that bias could take advantage of.

Secondly, and perhaps more importantly, by determining your position upfront, you avoid making on the spot decisions that could erode your position or cause downstream internal disagreement. Having clarity regarding the end game you're seeking is an important factor to being successful in this process.

Number two, negotiating whenever possible should be conducted from a position of strength. The strength of your position is predetermined by identifying your weaknesses and eradicating them. If any weaknesses are impossible to eradicate, then declare them as early as possible so as to remove them from being used against you when they could undermine your position for the maximum benefit of your adversary. Failing to use this tactic can cause significant damage to the strength of your negotiating position. Think of it in the terms of one yachtsman taking the wind out of the sail of another at the beginning of a race. Any advantage gained now could be the difference in the final outcome. Remember, sometimes defense is the best form of attack and can often turn your weakness into a strength.

 

Negotiation Tip #3 and #4: Tackle the Most Difficult Issues First and Make use of “Straw Man”

Tim Goddard

Great advice. Thanks, Martin. Let's hear from Vice President Lonnie Schilling in New York.

Lonnie Schilling

Number three, another key to successful negotiations is to identify and prioritize all the issues from the start. The most difficult issues should be addressed as early as possible. As we just mentioned, your leverage is greatest in the early stages of the process. Use this leverage to establish your position and resolve the most pressing conflicts at the outset. You stand to gain a few key benefits by addressing the most difficult issue first. If you're going to address the most difficult issue, you save time and money that would have been wasted on issues further down the list. But more importantly, when you do resolve the most difficult issue, you set the stage for a much smoother resolution to lesser issues. You also learn how the buyer negotiates. Understanding their style and negotiation protocol will only strengthen your position down the line.

Number four, in a successful negotiation, there needs to be flexibility shown on both sides. Without this flexibility, it's tough for the opposing parties to feel like they've reached a fair middle ground. One way to do this is to include so-called "straw man" in your proposals. In other words, as part of your negotiations, put in a concept or two that you are absolutely willing to take off the table. This will help you focus on the other conditions you feel you really need and try to weigh some of those straw man terms that really aren't that important to you. This will show the other party that you can be flexible and you don't necessarily have to have everything in your favor.

 

Negotiation Tip #5 and #6: Don’t Let the Buyer “Serially Negotiate” Don’t Imply by Words or Body Language – You Accept Buyer Positions

Tim Goddard

Now, let's go to Vice President Ian Thurbon in Arizona.

Ian Thurbon

Number five, one of the most effective negotiating ploys by buyers is serial negotiations. After an LOI is signed, some buyers present issues individually, and you as the seller are pushed to reach a solution on each of them before moving onto the next. The problem is, you don't know at the beginning how many issues there will be and which ones are actually important to you and the buyer. Your response as a seller, on the offensive, should be to ask all the issues to be put on the table first so that you can understand all of them together at one time. Then you can reshuffle them, making sure that you stage the issues so that the buyer can win one, and then you can win one that is important to you. Inevitably, you will be left with a few big ones to hammer out, but at least you won't have given away too much early on.

Number six, after the receipt of an LOI, it's important to get on the phone with the buyer to review the T&Cs. Your initial objective is to understand the term sheet and to set a positive tone for further discussions, but be careful not to imply agreement to certain buyer conditions. Even a passive or inferred suggestion that you're okay with an unattractive term, or with a complex and unusual framework, will only cause problems later.

The inverse is equally true. This is, be clear when you don't agree with the position that seems unreasonable and explain why. You don't have to lie and give the case at this point, but it helps to put the preliminary concerns on the table for further discussion once your M&A council is fully engaged. This approach saves backtracking, streamlines the LOI process, and sends a clear message to the buyer that you're a competent negotiator.

 

Negotiation Tip #7 and #8: Don’t Let Them Get the Milk Without Buying the Cow and Don’t Get Emotional – Use Intermediaries to Take the Heat

Tim Goddard

Now, let's travel across the Atlantic to Zurich to hear from Vice President Mattias Borg.

Mattias Borg

Number seven is important. During the negotiation process, it is often the case that the prospective buyer would try to introduce the idea of go-to-model partnership rather than an outright purchase. This may sound very compelling, especially if the buyer has a large sales force and the dominant position in the market. However, test marriages seldom work and the buyers seem to try to "get the milk without buying the cow," as they say. It is important that this dialogue be closed down quickly. It should be made clear that the purchase of the company is the only option on the table. Many times, the buyer may be simply trying to buy time to test for market acceptance of the joint solution or to learn more about your secret sauce so they can make it themselves.

With that in mind, let's talk about number eight. Negotiations can get heated. Reactions can be irrational. Sometimes it's an act and sometimes it's real. I've had in-house attorneys tell me that they would not agree to a point because they didn't want to. It didn't matter that it was immaterial to them. It was personal. They thought they had given enough.

No matter how frustrating the process, remember that if you complete the deal, you're going to have to work with the other side, perhaps even for years. I've worked with companies that let operating people drive the deal until it was time to negotiate the transaction. Then, they brought in the corporate development team so that their relationship with the operating people could be maintained. It is a good idea and it works. They can be tough in negotiations and preserve relationships. Don't let the transaction poison your relationship. Use your intermediaries to take the heat, express your frustrations to us and let us take the heat from the other side.

 

Negotiation Tip #9 and #10: Ensure Rapid Document Turnaround and Get an Experienced Attorney

Tim Goddard

Thanks, Mathias. Nina Seghatoleslami, our Senior Vice President in Barcelona, will bring us points nine and ten.

Nina Seghatoleslami

Number nine, responsiveness in the critical stages of final negotiations of a letter of intent is incredibly important. All requests for additional information must be handled as quickly and professionally as possible. Every opportunity to demonstrate knowledge, capability, timeliness, professionalism and communications with your acquirer, has a direct and positive outcome on price and structure. Your sense of urgency automatically translates into keeping the inquirer moving forward with the same purpose. I've always believed that positive momentum keeps churning along, creating more positive momentum. Conversely, the opposite can also be true, so I've always wanted to create my positive momentum, make it contagious, have others share in the pace and share an upside reward of getting a job done well. Remember, this is a courtship process and you need to be very responsive.

Now pay attention to number ten and remember it well.

M&A law is a discipline unto itself. There are firms that dabble and then there are the experts who understand the intricate dance between buyer and seller. Tech M&A deals are complicated and an inexperienced attorney can kill them. This means that your company attorney is probably not the right choice. So, here's some of the questions to ask to find the right attorney for you.

• Ask them about their last couple of deals.
• Do they have a track record of successful technology M&A?
• How do they approach negotiating risk?
• Discuss the risk-reward trade off they've made in the past.
• What is the range of capabilities of the firm?
• Can they review the patent, tax, and other issues that may arise?
• What's the chemistry like between you and the attorney?

It can be an emotional experience, so make sure they're not adding additional stress. Don't be reluctant to ask for references and do follow through.

Finally, a great way to find a good lawyer is to visit a Corum event. We worked with some of the top firms to host our tech M&A workshops globally.

 

Negotiation Tip #11 and #12: Get Alignment Between Ownership, Advisor, & Attorney and Get Everyone on the Phone Together

Tim Goddard

Very important information, Nina. Thanks. Jim Perkins, why don't you wrap up our list with the final two points?

Jim Perkins

Number 11, once you receive a letter of intent to purchase your company, you'll enter one of the most important phases of the M&A process. This is the point when you may have the most leverage. Your M&A team must be aligned to successfully negotiate the letter of intent to move forward. Do not underestimate the importance of having an aligned team, including your banker, attorney and accountant. Carefully assemble your M&A team with a balance of experience and pragmatism. Every word of the letter of intent matters and critical issues will come up between you and the buyer. An aligned M&A team is your best offense and defense to achieve an acceptable letter of intent that meets your goals and the goals of your buyer.

And finally, number 12, completing a transaction is a complex, emotional and long process. Gridlock is commonplace and often leads to the buyer and the seller walking away with a sour taste in their mouth. Email conversations are often impersonal, can sound strident, and in certain cases can exasperate an already tense situation. You know both the seller and the buyer want to do the deal. There's just a few issues blocking, so get everyone on the phone and work through the remaining problems. Hearing your voice and your intent to work through the issues will automatically dispel 90% of the tension. Just get on the phone and get it done.

Tim Goddard

Thank you, Jim. Negotiations are a very interesting dance. There are times when the principles have to stay apart in order to properly work together when there's a lot of stress and a lot of details. Then there are the times, it's just time to wrap it up. Cover the last few issues, get it across the finish line, when you need to get everyone in the same room.

Back to you, Heidi.

Heidi Owen

Thanks, Tim for that special report. Some great points and also important for a successful tech M&A exit. That's it for our broadcast. Thanks for joining us. We look forward to seeing you again next month. Now let's go to our close.