Robin A. Graham Needham - PowerPoint PPT Presentation

1 / 34
About This Presentation
Title:

Robin A. Graham Needham

Description:

Robin A. Graham Needham & Company, Inc. – PowerPoint PPT presentation

Number of Views:107
Avg rating:3.0/5.0
Slides: 35
Provided by: Yong50
Category:

less

Transcript and Presenter's Notes

Title: Robin A. Graham Needham


1
Robin A. GrahamNeedham Company, Inc.
2
The Emerging Growth Investment Bank for
Technology Leaders
3
Todays MA discussion
  • Understand the MA environment that you are in
  • How to find and engage the right investment bank
    for MA advice
  • Working with an investment banker to prepare for
    a negotiation/sale
  • The range of services provided by bankers in the
    MA process
  • Issues in selecting the best merger or
    acquisition partner
  • Where MA bankers are focused today and why

4
The Mergers and Acquisitions Environment
5
Market Capitalization Over Time
Valuation corrections in 2001 altered the Market
Cap landscape dramatically
  • More than half of large-cap companies (1bn)
    reassigned to the middle market (500M - 1bn)
  • Only 93 companies went public in 2001, yet the
    small-cap sector continued its growth trend grow
    due to devaluation of large and mid-cap stocks

6
Macro Trends in MA
  • An extended period of high valuations followed by
    tight credit markets have caused financial buyers
    to be an insignificant factor in the overall MA
    market as compared to earlier periods.
  • Overall MA volume has retreated dramatically
    from the past few years all-time highs
  • MA activity is still driven by corporate buyers
    fulfilling strategic imperatives

7
The Impact on Technology MA
Technology MA volume was most significantly
impacted
  • 2001 tech MA volume was down more than 60 from
    2000 levels after an unprecedented run that began
    in 1994.
  • Broken deals were prevalent as business
    fundamentals and expectations eroded.
  • 2002 YTD MA volume is even more depressed

8
Mergers Acquisitions Environment
MA Currency - what is different now?
  • Cash is King - reversing the accelerating use of
    high p/e stock seen 1995-2000
  • New FASB rules no longer penalize creative
    structures using stock and cash
  • Cash is an increasingly attractive currency to
    sellers and low P/E buyers.

9
The Public/Public MA Story
MA dollar volume between public companies fell
dramatically after Q1 2001
  • Most of Q1s dollar volume were CY 2000
    transactions that closed in early 2001
  • Public companies froze merger discussions due to
    valuation uncertainty and eroding business
    performance at both buyers and sellers.
  • The number of transactions consummated declined
    gt6x Q1/Q1

10
The Private Company Liquidity Path
Private companies found liquidity paths scarce in
2001
  • Of the 93 IPOs in 2001, just 19 were technology
    companies
  • This compared to 308 tech IPOs in 1999 and 221
    tech IPOs in 2000
  • The period 1980 1998 averaged just 61 IPOs per
    year
  • MA continually reinforced as the most likely
    liquidity path for private companies

11
The Good Old Days
The BOOM Economy
Unprecedented wealth creation and high consumer
confidence
Low cost and easy access to capital
Investors seeking abnormal returns increasingly
turned to private equity
Public Venture Capital Phenomenon
Proliferation of venture funds
MA outpaces IPOs 11-1
Explosion of young VC-backed tech and Internet
companies
12
Mergers Acquisitions Environment
  • Significantly reduced MA activity seen in 2001
    will continue
  • Classic Buyers Market, yet the universe of
    buyers contracted dramatically
  • The number of sellers remain high as the
    valuation-sensitive sellers are more than
    outnumbered by the illiquid desperate sellers
  • Distressed public companies and stranded /
    capital-starved private companies
  • Industry leaders that had built their businesses
    through aggressive acquisition were on the MA
    sidelines -- until very recently
  • In 2001, corporate buyers were waiting for
    valuations and their businesses to stabilize.
    Examples Cisco, Lucent, Nortel, Broadcom
  • However, Gorilla acquisition appetites are
    renewed in 2002
  • Cisco just announced two spin-in acquisitions
    and 2002 MA intentions
  • Broadcom just re-entered with acquisition of
    Mobilink (258M)

13
Mergers Acquisitions Environment
  • The results are
  • Fewer MA transactions and lower valuations for
    MA transactions
  • Longer cycle times for transactions
  • Much greater emphasis on detailed
    financial/business due diligence
  • Management cautious throughout process
  • Greater degree of Board involvement in
    acquisitions
  • Slow, difficult negotiations every point counts
  • More carefully structured MA transactions
  • the return proliferation of earn-outs for
    acquired companies
  • Passing EPS accretion/dilution acid test is
    critical

14
Mergers Acquisitions Environment
  • MA Market Outlook for 2002
  • Significant transition made in 2001 from Sellers
    market to Buyers market
  • Companies with strong balance sheets, experienced
    management teams and profitable business models
    are now the drivers of the MA market.
  • MA transactions will continue to suffer higher
    attrition rates and lower net valuations
  • An increasing percentage of transactions will
    bedistressed sales or bankruptcies
  • Leveraged companies and undercapitalized
    companies will be at a tremendous negotiating
    disadvantage
  • Choosing and using the right MA advisor and
    experienced legal counsel will be all the more
    critical to a successful outcome

15
The MA transaction
16
Assembling the Transaction Team
  • The Core Working Group
  • Senior management team, legal counsel, Investment
    Banker their MA team
  • Getting to know investment bankers
  • Who can make the right introductions
  • Directors
  • Venture Capitalists
  • Legal counsel
  • If your company is an attractive acquisition
    candidate, bankers have probably been beating
    down your door
  • Take the time to get to know bankers well before
    a transaction is imminent a long-standing
    relationship benefits everyone involved

17
Selecting the Right Banker
  • Bankers who know your industry sector and its
    competitive dynamics
  • Active MA team with current recent experience
    on transactions
  • An investment bank with a tradition of
    representing companies that are your size and
    profile
  • Research analysts who cover your industry sector
    and follow its public companies
  • Leverage the relationship with your banker
  • Hire a full service investment who can advise you
    on a multitude of possible alternatives to MA
    (alternatives negotiating leverage)

18
Current Structure of the Investment Banking
Industry
Independent National Emerging Growth
Firms Needham Company Thomas Weisel Partners
Wit Soundview Emerging Growth Firms NowOwned by
Major Commercial Banks ABN Amro / ING Barings /
Furman Selz Bank of America Securities /
Montgomery JP. Morgan / Chase / HQ CIBC World
Markets / Oppenheimer Deutsche Bank / Bankers
Trust / Alex. Brown Firstar / US Bancorp / Piper
Jaffray Fleet / BancBoston / Robertson
Stephens Royal Bank of Canada / Dain Rauscher /
Wessels SG / Cowen Major Bracket Institutional
Firms Bear Stearns UBS Warburg / Paine Webber
Special Bracket Firms Citigroup / Salomon Smith
Barney CS First Boston / DLJ Goldman Sachs Lehman
Brothers Merrill Lynch Morgan Stanley Dean
Witter Regional Retail, Institutional or
Emerging Growth Firms A.G. Edwards (St.
Louis) Adams Harkness Hill (Boston) Janney
Montgomery Scott (Philadelphia) KeyCorp /
McDonald Company (Cleveland) Morgan Keegan
(Memphis) Raymond James Financial (St.
Petersburg) SunTrust Equity Securities
(Atlanta) Stephens Inc. (Little Rock) Robert W.
Baird (Milwaukee) Wachovia (Richmond) Wells
Fargo/FSVK (San Francisco) William Blair
(Chicago)
19
The Role of an Advisor
  • extracts from a standard engagement letter
  • Reviewing with the Board of Directors and
    management the Company's financial plans,
    strategic plans and business alternatives
  • Reviewing and analyzing the historical and
    projected financial information of the Company
    and the Other Party provided by the respective
    managements of the Company and the Other Party
  • Assisting the Company's Board of Directors and
    management in the valuation of the business(es)
    involved in the Transaction
  • Assisting the financial due diligence efforts of
    the Company with respect to the Other Party
  • Advising the Company with regard to the financial
    structure and terms of any Transaction that might
    be realized in the current market environment and
    assisting the Company in structuring and
    negotiating the financial aspects of the
    Transaction

20
Preparation is Key
  • Discuss your business history and prospects with
    MA advisors in detail
  • Realistic assessment of financing/MA options
    with advisors
  • Avoids death-march or firesale scenarios
  • Prepare realizable, bottoms-up, detailed
    financial forecasts
  • Outline non-financial concerns to your advisors
  • Employee treatment, cultural and strategic fit
    with each potential buyer
  • Establish reasonable valuation expectations up
    front
  • Determine initial preference for cash, stock or
    combination thereof
  • Help your advisors build a Negotiating Plan

21
Assessing Negotiating Leverage
Multiple Elements Drive Negotiating Leverage
  • Competition
  • Strategic Alternatives
  • Necessity/Desire
  • Resources
  • Time

Negotiating Leverage (5 key elements)
22
Building the Negotiating Plan
Planning is an Important Component of Successful
Negotiations
Collecting Information
Assessing Leverage
Negotiating Plan
Achieving Resolution
Establishing Expectations
Determining Response
23
Critical Transaction Parameters
Successful Negotiation Can Usually Result in
a Broad Range of Outcomes
Valuation Structure Liquidity
Buyers Minimum Terms
Financial Terms
Sellers Minimum Terms
Strategic Fit Culture Timing
Non - Financial Terms
24
Structure of MA Advisor Fees
  • Sellers pay advisory fees as a of Total
    Transaction Value
  • Sometimes staggered for additional incentive 1
    plus 2 over 100M
  • Advisors minimum fee common in this business
    environment
  • Example Fee is the greater of 1.5 or 750,000
  • Interim fees sometimes charged and credited
    against total fees due on closing
  • Retainer fee on signing engagement letter
  • Milestone Fees on signing of Letter of
    Intent/Agreement or Announcement
  • Fairness Opinion fees (Only necessary for public
    companies)
  • Set amount charged is independent of
    transaction completion

25
Where Advisors are Focused Today
  • The Investment Banking industry is itself
    retrenching
  • Many firms are pre-occupied with their own MA
    and restructuring
  • MA professionals spending more time advising
    Acquirers in a buyers market
  • In 2000, Needham represented Buyers in just 27
    of transactions
  • In 2001 2002, Needham represented Buyers in 47
    of transactions
  • Public companies who are building market
    leadership through MA
  • Still very active in representing sellers, but
    Very cautious in assessing valuation and
    probability of transaction completion prior to
    committing resources
  • Sellers business stability and negotiating
    leverage, strategic drivers of transaction are
    critical
  • Acquisitions of stand-alone private companies by
    public companies are difficult in todays MA
    market

26
Where Advisors are Focused Today
  • Needham Company remains committed to Emerging
    Growth companies
  • Supporting client-base through the downturn
  • Follow-on equity offerings
  • Private Placements
  • PIPEs
  • Grew headcount in 2001 and YTD 2002 while
    maintaining profitability every quarter
  • Strong Q1 2002 -- our second best Q1 in 15 years
  • Taking market share in Emerging Growth MA
  • Ten MA transactions announced YTD
  • Including four public/public MA transactions

27
Appendices
28
The MA Transaction
A Typical Sale / Divestiture Process
Preparation Weeks 1 - 4
Canvas Buyers Weeks 5 - 8/10
  • Engagement of Needham
  • Review Co. Financial and
  • Operational Information
  • Needham Values Co.
  • Prepare Memorandum,
  • Executive Summary and
  • NDA with co. counsel
  • Prepare List of Likely Buyers

Due Diligence Weeks 8/10 - 12/14
Final Negotiation Weeks 12/14 - 16/18
  • Contact Buyers
  • Send Executive summary
  • Sign NDAs
  • Distribute informational
  • memorandum / materials
  • Prepare management team
  • for diligence presentations
  • Request and receive initial
  • non-binding bids in writing.
  • Setup Data Room
  • Select Qualified Bidders
  • for D.D.
  • Schedule and Conduct
  • Visits
  • Provide Draft Definitive
  • Agreement
  • Receive Final Bids

Closing (TBA)
Phase/Action Items
  • Select Winning Bidder
  • Negotiate Execute
  • Definitive Agreement
  • Press Release
  • Submit HSR Filing
  • (50 million threshold)
  • Shareholder Approval
  • Process

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Week
The length depends on such factors as the size
of canvas, the overall market and the geographic
location of contacts.
29
The MA Transaction
Acquisitions Transactional Issues
Financial Positioning
  • Press release announcing transaction
  • Backgrounder on the acquisition
  • Guidance for analysts forecasts
  • Prepare and conduct conference call
  • Plan and execute roadshow to sell the deal, if
    necessary

Due Diligence
Steps to successful transactions
  • Interview key management
  • Financial due diligence
  • including analysis of historical
  • and projected financial statements interview
    independent auditors
  • Third-party interviews and
  • reference checks
  • Facility visits
  • Legal due diligence

Negotiations
  • Financial advisor or principal
  • Cash or stock preferable
  • Understand potential synergies
  • Employee issues such as
  • Acceleration of options
  • Employment agreements
  • Non-compete agreements
  • Key issues to be negotiated
  • Condition of closing
  • Financing outs
  • Reps warranties
  • Break-up fees
  • Shopping restrictions
  • Topping offers
  • Material adverse change
  • Shareholders vote
  • required (either company)

Structuring
  • Determine ability to use either
  • cash or stock
  • Analyze respective proforma
  • effects of a stock or cash
  • acquisition
  • Balance sheet
  • PL
  • Goodwill (write-off upon impairment)

Valuation
  • Analyze financial statements
  • Discuss business history and
  • prospects with management
  • Analyze comparable public companies trading
    multiples
  • Analyze comparable transactions

30
Representative Financial Advisory Assignments
160,000,000
Acquiring Innoveda Inc. Pending
31
Representative Public Equity Offerings
32
Representative Public Equity Offerings
33
Representative Private Placements
CurrentStatus
CurrentStatus
CurrentStatus
34
Representative Corporate Investment Transactions
Write a Comment
User Comments (0)
About PowerShow.com