A Founder's Guide to M&A
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A Founder's Guide to M&A, covering what issues to consider in deciding whether to sell your company and if so, what are the important considerations and value drivers. Created by Chip Hazard of Flybridge Capital Partners
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A Founder's Guide to M&A
- 1. CONFIDENTIAL PRESENTATION | PAGE 1 A Founder’s Guide to M&A Chip Hazard chip@flybridge.com
- 2. CONFIDENTIAL PRESENTATION | PAGE 2 MOST VC-BACKED COMPANIES WILL BE ACQUIRED, ESPECIALLY IN TECH 0 100 200 300 400 500 600 700 2010 2011 2012 2013 2014 Venture-Backed Exits: 2010 – 2014 (All Sectors) IPO M&A 0 100 200 300 400 500 600 700 2010 2011 2012 2013 2014 Venture-Backed Exits: 2010 – 2014 (Tech Only) IPO M&A What are the important considerations for a Founder thinking about selling their company?Source: NVCA
- 3. CONFIDENTIAL PRESENTATION | PAGE 3 KNOW WHERE YOU ARE ON THE JOURNEY
- 4. CONFIDENTIAL PRESENTATION | PAGE 4 KNOW WHERE YOU ARE ON THE JOURNEY: DIMENSIONS THAT MATTER • How well defined is business model • Evidence of operating leverage • LTV/CAC, or equivalent, calculus • Concentration risks • Profitability • Depth of team Company Maturity • Market Potential • Fit with important industry trends • How disruptive to incumbents • How strongly fit into acquirers go- to-market channels • Drag-along revenues created for acquirer Strategic Importance • Hyper growth (>100% Y/Y) versus strong growth (20-100% Y/Y) versus limited growth (<20% Y/Y) Growth Rate
- 5. CONFIDENTIAL PRESENTATION | PAGE 5 KNOW WHERE YOU ARE ON THE JOURNEY: DIMENSIONS THAT MATTER Company Maturity StrategicImportance*GrowthRate Hyper Potential Options Abound Figuring it Out Steady as She Goes Immature Mature HighLow
- 6. CONFIDENTIAL PRESENTATION | PAGE 6 WE KNOW WHERE WE ARE, NOW WHAT?
- 7. CONFIDENTIAL PRESENTATION | PAGE 7 FIGURING IT OUT • How much runway do we have to get growth going? • What is the likelihood we can raise more capital on reasonable terms? • Are impediments to growth structural to the market or more related to our company? • Are impediments to success solved by being part of a larger company? • If we figure things out, does our company have attractive business model characteristics? • Team motivations • Risk of departures • Desire to stick together • Interest in working at a bigger company M&A ConsiderationsCritical Questions Buyer Universe • Broad. Large to small cap public companies, other private companies Process • Company led, relationship driven • Product vision and cultural fit most important • Small bank or consultant could help with introductions Valuation • All over the map, from modest “kick- saves” to acqui-hires to decent multiples on limited revenue Valuation drivers • Strength of team, willingness to stay • Product fills critical gap or creates drag- along revenue opportunities for acquirer
- 8. CONFIDENTIAL PRESENTATION | PAGE 8 HYPER POTENTIAL • How realistic is it that we can move the company up the maturity scale on our own on all dimensions? • Is the capital to drive growth readily available on attractive terms? What do we own now versus later? How far far forward in time is the company being valued? • How large is my likely buyer universe relative to my competitive sphere? Is it a game of musical chairs? • What is the likelihood the acquirer screws things up? • Team motivations • Desire to make money versus desire to have a massive impact. Risk tolerance • As we scale on our own, do we lose control? Do we care? M&A ConsiderationsCritical Questions Buyer Universe • Narrow. Only the largest cap companies can acquire at super high multiples Process • Company led, relationship driven • All about vision and growth • A banker more likely to interfere than add value Valuation • Super high to infinite revenue multiples Valuation drivers • Willingness to walk away • Fill CEO level priority strategic gaps for acquirer • Multiple bidders that view company as critical can drive value up by 2x or more
- 9. CONFIDENTIAL PRESENTATION | PAGE 9 STEADY AS SHE GOES • Does the broader market environment make now the right time to sell? • Does our business have significant risks that are largely outside of our control? • What opportunities exist to bend the growth rate upward? Should we be buyers instead of sellers? • How patient are my investors? • Team motivations • Is the team still motivated or getting tired? • What opportunities exist for us at the acquirer? M&A ConsiderationsCritical Questions Buyer Universe • Broad. Large to small cap public companies plus PE firms and roll-ups Process • Broad outreach • Banker can add value with introductions, positioning and process Valuation • Likely to be driven by traditional metrics and comparable multiples Valuation drivers • Willingness to walk away • Significant and agreed to synergies with buyer • Well run process, auction dynamics to keep buyers honest
- 10. CONFIDENTIAL PRESENTATION | PAGE 10 OPTIONS ABOUND • Do we want to go public or sell? Now versus later? • Gut check on the business on all dimensions: • Is the market potential still largely unbounded? • Do we have strong revenue visibility? • Is the business getting easier or harder as we scale? Metrics improving or showing signs if deterioration? • Does our business have significant risks that are largely outside of our control? • Are the opportunities we can access if we are public that we can’t privately? • Team motivations • Do we want to be public with all that entails, both good and bad? • Risk tolerance? M&A ConsiderationsCritical Questions Buyer Universe • Medium. Large to mid-cap public companies plus larger PE firms Process • Targeted outreach • Potential to dual track, or shop the S-1 • Banker can add value and credibility to IPO threat Valuation • Likely to be driven by revenue multiples for similar high-growth public comparable companies Valuation drivers • Willingness to go public or wait • Open up strategically important new markets for buyer • Significant and agreed to synergies • Well run process
- 11. CONFIDENTIAL PRESENTATION | PAGE 11 DON’T FORGET: KEEP CLIMBING AND BUILDING ALONG THE WAY!
- 12. CONFIDENTIAL PRESENTATION | PAGE 12 ABOUT ME General Partner, Flybridge Capital Partners • Focus on enterprise technology, with a particular emphasis on developer-driven companies and cloud infrastructure • On the Board of companies such as MongoDB, Digital Lumens, nasuni and FirstBest Systems Involved with four M&A transactions in 2014 Contact information • Blog: http://www.hazardlights.net • http://www.linkedin.com/in/chiphazard • Email: chip@flybridge.com Google Google Hospital Corporation of America Envestnet