Posts filed under ‘Financial Advisory’
Hidden In Plain Sight – How Differences in Preferred Equity Rights Impact the Value of a Company and its Common Shares
Part One – The Impact on Amounts Distributed Upon Exit
Many venture-capital backed technology companies raise capital in multiple rounds of preferred equity financings (Series A, Series B, Series C, etc). At each round, the lead investor estimates the value of the company and submits a term sheet that sets forth the proposed size, pricing, and terms of the new series of preferred stock.
Clearly, the company’s board of directors must evaluate whether the proposed transaction provides sufficient capital to fund the company’s business plan. The board will also consider the adequacy of the proposed price and the other terms and conditions.
Typically, the new investor quotes a post-money valuation (or pre-money valuation) which assumes that every share of equity is equal in value to the proposed price of the new preferred shares. However, as I have blogged before, this “VC valuation” may be very different than the “fair market value” estimated for 409A compliance purposes (or “fair value” as that term is used by the accounting profession). In particular, the VC valuation does not reflect the impact of differences in liquidation preferences and participation rights. (more…)
The Case for Being Either the Pursuer or the Pursued
Earlier this year I wrote two pieces on expectations and thoughts related to why being a business buyer or a business seller were again beginning to make sense. I also discussed some general wisdom as to how to be either a good buyer or a good seller. As referenced in those pieces, an early year survey of more than 800 senior corporate executives worldwide conducted by Ernst & Young Transaction Advisory Services and the Economist Intelligence Unit provided a strongly optimistic view of expected corporate merger and acquisition activity through the 2010 year. (more…)
M&A Agony and Ecstasy for Early Stage Technology Companies: Purchase Price Allocation
When I speak with the CFOs of our clients about the acquisitions they are making, it reminds me of the title of that old 1965 Charlton Heston flick, The Agony and the Ecstasy .
Many of our clients are venture capital backed technology companies that have been growing successfully and have commenced making acquisitions. On the one hand, they feel the ecstasy of getting their deals done. On the other hand, they must confront the agony of fair value accounting. (more…)
Palm Reading: HP Extends the Life Line
On April 28, HP announced the $1.2 billion acquisition of Palm for $5.70 per share.
The acquisition will provide discussion fodder for months if not years to come, and we will see if HP can turn Palm into a serious competitor for the iPhones, Androids and Blackberries of the world.
In this post, I will stay clear of any strategic speculation, but rather focus on the process of the transaction. (more…)
The Purchaser Representative – the Shortcut to “Sophistication”
It is good to be sophisticated!
This is true in general, but can become a prerequisite in connection with securities laws[i].
Many of our clients are venture-backed technology companies. Most of the capital that they raise comes from accredited investors, if not institutional venture capital funds. Some of their money may come from unaccredited investors, and virtually all venture-backed companies issue stock options to employees that are sooner or later exercised. Most of the employees of course are not accredited investors. An annual income of at least $200 thousand or net worth of at least $1.0 million renders you an accredited investor[ii] . (more…)
The Case for Being Pursued—Sell-Side Mergers & Acquisitions
There are nearly as many reasons for the owners of a business to sell their business to another entity as there are unique businesses out there. Typically, the reason for considering a sale or a merger relates to harvesting the value of many years of hard work and personal sacrifice. Somewhat related reasons may involve either the unwillingness or the inability to effect management or family succession. Or, in today’s ever more volatile business environment, an owner may want to sell a business prior to the realization of future capital gains tax increases. It is important to understand that it may never be an optimal time to seek a sale if your business or the industry is struggling. As is the case in so many elements of life, “the cream rises to the top” and today’s acquirers are seeking the “cream,” not the spoiled milk. (more…)
The Case for Being a Pursuer — Buy-Side Mergers & Acquisitions
As spring actually starts to turn to summer after a wet and cold winter, signs of confidence are popping up everywhere for renewed growth, development and expansion opportunities by companies in many different business sectors. A recently reported 2010 survey of more than 800 senior corporate executives worldwide, the Capital Confidence Barometer conducted by Ernst & Young and the Economist Intelligence Unit, found that 57 percent (57% versus 33% six months earlier) of businesses say they are likely or highly likely to acquire a rival in the next 12 months. Fully 47 percent (47% versus 25% six months earlier) of businesses indicate they expect to reach an acquisition or merger deal within the next 6 months. That appears to be a lot of renewed business opportunity and strategic development thinking at work. (more…)
Are You Obese Or Anorexic, And Does It Matter?
In his blog post The Case For The Fat Startup, Ben Horowitz of Andreessen Horowitz argues against the conventional, post-bubble wisdom that you have to be lean and mean to survive and prosper in the start-up race. Citing his credentials as CEO of Loudcloud/Opsware, he makes the case for outspending your competitors during the downturn.
My favorite quote: “But in a bust, having a lot of cash can be a huge competitive advantage because you can use that cash to put enormous pressure on your underfunded competitors.” Amen to that. (more…)
Selling Patents and Intellectual Property Part Two
In the last post, I discussed the different types of non-operating entities that may acquire intellectual property. In this post, I will talk more about the different strategies these entities pursue and what implications that may have for a technology start-up. (more…)
Selling Patents and Intellectual Property Part 1
In connection with our restructuring services, our firm recently sold certain assets of a fabless semiconductor company. The sale included physical assets as well as intellectual property (“IP”). As can be expected from technology companies with significant expenditures on research and development, the majority of the value was embedded in the intellectual property: the design database and the patents.
The project reminded me of how much the landscape of acquirers of IP has changed in recent years as the market for buying, selling, and licensing IP becomes more mature. There are a host of different players with very distinct interests and operating models. (more…)
February 24, 2010 at 9:17 am Gunther Hofmann Leave a comment
