Size ≠ Value.

Size ≠ Value.

I often speak with acquirers that think they are getting a great deal on a target company when really they are giving struggling business owners a way out. Often these buyers equate value to revenue or “adjusted EBITDA” rather than looking at the full picture of a business’s value.

Last week, two Spain Banking giants proved that size does not equal value.  Banco Santander SA announced it would acquire Banco Popular Espanol SA for 1 euro.

As Spain’s fourth largest lender, Banco Popular Espanol (OTCPK:BPESY) saw a €137 million loss in the most recent quarter of 2017. Santander will need to raise around €7 billion ($7.88 billion) in fresh capital to steady the group’s combined balance sheets.

While the size of these companies are much (much, much, much) larger than the businesses I work with, this situation is all too familiar. Unfortunately, the buyers I work with don’t realize they are trying to acquire a dying giant until someone (like me) tells them!

My advice to buyers is to understand the market and remember that size does not equal value. If a target needs the buyer to pay significant past due debts, provide significant working capital, and/or turn around declining sales; buyers should consider that they might be saving the seller from a mess.

How much should you pay to clean up someone else’s mess? Santander is paying 1 euro! 


 

About Ben Kotch:

Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisitions. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.

For more, please follow on Twitter.


NOTE: THIS BLOG AND ALL OF ITS CONTENTS (THE “SITE”) ARE FOR GENERAL INFORMATION PURPOSES ONLY. THE VIEWS EXPRESSED ARE SOLELY THOSE OF THE AUTHOR. THIS SITE SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL ANY SECURITIES OR AS AN OFFER TO TRANSACT. NOTHING ON THIS SITE SHOULD BE CONSIDERED FINANCIAL, LEGAL, OR TAX ADVICE.
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What Size Returns Do Investors Want?

What Size Returns Do Investors Want?

Management teams, advisors, and bankers often ask me, “what size returns do investors want?”

I always find this to be a strange question because, like most investors, I want the highest return possible with the least risk. Finding that balance is more of an art than a science. To help answer this question, I thought I would share some stats from the Pepperdine University’s 2017 Private Capital Markets Report.

The chart below shows required annual Internal Rate of Return (IRR) by investment type and size (or risk). As you can see below, bank loans usually require the smallest IRR (4-6%) and that is because they are very selective in their underwriting and thus (relatively) low risk. On the other end of the spectrum, seed stage angels require a 60% IRR because their investments are much, much riskier.

Returns.PNG

Remember, investors have a cost of capital too! Investors can have real costs (a return the investor’s investors are expecting), opportunity costs (the cost of having money locked into a deal that can’t be used for other higher return opportunities), and, usually, both.

So, depending on the risk profile of the deal (and thus the type of investor you are speaking with), the required IRR will vary. My advice to those seeking funding is to put yourself in the shoes of an investor and ask: “How likely is it that an investor will meet their required IRR with an investment in my company (under a conservative success scenario)?”

For 127 pages of amazing information on M&A and private direct investing check out Pepperdine University’s 2017 Private Capital Markets Report.

 


About Ben Kotch:

Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisitions. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.

For more, please follow on Twitter.


NOTE: THIS BLOG AND ALL OF ITS CONTENTS (THE “SITE”) ARE FOR GENERAL INFORMATION PURPOSES ONLY. THE VIEWS EXPRESSED ARE SOLELY THOSE OF THE AUTHOR. THIS SITE SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL ANY SECURITIES OR AS AN OFFER TO TRANSACT. NOTHING ON THIS SITE SHOULD BE CONSIDERED FINANCIAL, LEGAL, OR TAX ADVICE.
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The Journey From Public “Shell” to World’s Largest Ad Agency – 8 Business Lessons.

One of my favorite microcap success stories is that of WPP – a British multinational advertising and PR company that grew from public shell to the world’s largest advertising agency through an aggressive acquisition strategy. 

WPP stands for “Wire and Plastic Products”, a public company founded in 1971 as a manufacturer of wire shopping baskets.

In 1985, “With help from a stockbroker“, Martin Sorrell (founder and current CEO of WPP) “looked for a small, publicly traded business that [he] could take over as a shell company and grow by acquisitions into a major global marketing organization.” The company they decided on was Wire and Plastic Products and “It was worth about $1.3 million at the time.

Sir Martin Sorrell
Sir Martin Sorrell

In 1986, Sorrell took over WPP and made 18 acquisitions in his first 2 years as CEO. Sorrell’s acquisition strategy focused on firms specializing in, what are known in the industry as, “below the line” marketing functions.

After the first 18 acquisitions, WPP went on to make more acquisitions including the acquisitions of  J. Walter Thompson (for $566m in 1987), Ogilvy Group (for $864m in 1989), Young & Rubicam (for $5.7 billion in 2000), and  AKQA (for $540 million in 2012).

Today, WPP is worth about $30 billion and does over $10 billion in annual revenues. Sorrell continues to serve as CEO of the company. He was also knighted in 2000 and, in 2007, Sorrell was awarded the Harvard Business School’s highest honor, the Alumni Achievement Award.

The Sorrell and WPP story provides a lot of great insights for entrepreneurs and especially for microcap management teams. Below are 8 business lessons I learned from studying WPP and Martin Sorrell. 

1. Build Your Reputation – Sorrell says “My father had always told me that I needed to build a reputation in an industry before going out on my own. By 1985 I was 40 years old, I had a $2 million stake in Saatchi & Saatchi, and I had built the reputation I needed.” When Sorrell was Saatchi’s group finance director (from 1977 to 1984) he designed and carried out many of Saatchi’s agency acquisitions.

2. Put Your Money Where Your Mouth Is –  Sorrell leveraged his stake in Saatchi to get a loan to purchase his initial stake in Wire and Plastic Products. Sorrell says in his HBR pieceWhen I first invested in this company, I took a gamble with my $325,000… The only time I ever sold shares was to fund my divorce, so all my wealth is tied up in WPP. That’s the way I like it.

3. Boring Can Be Profitable – In Sorrell’s first two years as CEO, WPP made 18 acquisitions. These first acquisitions focused on firms specializing in what are called ‘below the line’ marketing functions. Sorrell describes ‘below the line’ as “the unfancy, unsexy stuff—packaging, design, promotions. Below-the-line agencies never get much attention, but they can be good businesses.” Not only did WPP’s revenues and market share grow but its market cap did too. Sorrell says, “The stock market liked our strategy, and our market cap kept growing.

4. Use Stock For Acquisitions – WPP’s first 18 acquisitions included 15 UK and 3 US companies to become the largest ‘below the line’ business on either side of the Atlantic. Sorrell says they completed those first 18 acquisitions “using mostly our shares as financing“. After the first 18 acquisitions, WPP was worth about $250 million. They then purchased  JWT for $566M (half cash, half stock) and two years later they acquired Ogilvy & Mather in adeal worth $850 million (half in cash, half in convertible preferred stock).

5. It’s Better To Have a Small Piece of a Big Pie – Today, WPP is worth $30 billion and Sorrell owns 2% of it. Sorrell’s use of stock to complete acquisitions often diluted his ownership but increased the value of his smaller stake. For example, when WPP was worth about $250 million, he acquired JWT for $566M, half cash, half stock – in this instance Sorrell gave up nearly half of his company but increase the value of the company by more than 3x. 2% of a $30 billion company ($600M) is worth a lot more than 100% of the $1.3M shell!   

6. Invest In Your People – As the parent company of all of these acquired businesses, WPP was always looking to add value as a parent. One of the top ways WPP does this is by investing in their people.  WPP invests in their people a number of ways including; a fellowship program that “is regarded as the industry’s gold standard and is harder to get into than Harvard Business School“, the Leadership Equity Acquisition Plan (“LEAP”) in which top operating and parent company executives are offered an opportunity to invest their own money in WPP shares and are “paid out a multiple of that investment over a number of years—if WPP’s share price outperforms its peer group“, and more!

7. Embrace Change – As a result of a recession immediately following the Ogilvy & Mather acquisitions, Sorrell had what he calls his “come-to-Jesus moment” that forced him to reconsider what WPP needed to do to fuel growth. Some of those changes WPP made to fuel growth include early entrance into BRIC countries a focus on digital earlier than their competitors. In 2000 about 12% of WPP revenue was coming from Brazil, Russia, India, and China and today nearly 1/3 comes from ‘fast-growth economies’. Digital accounts for as much as 40% of WPP revenue today and Sorrell says that “someday that will probably be 100%.

8. Dream Big – When Sorrell took control of a public shell worth  $1.3M he had no clear idea how big the firm would become, he says, but knew he wanted to do something of size. “I didn’t want, forgive the phrase, a Mickey Mouse kind of thing: I wanted to do something of scale. Putting it grandly, from an intellectual point of view, I thought it interesting.

 

If you want to learn more about WPP/Sorrell’journey from public shell to world’s largest marketing agency, Sorrell penned his own piece in the Harvard Business Review titled; “WPP’s CEO on Turning a Portfolio of Companies Into a Growth Machine” and The Guardian has a great piece titled; “Sir Martin Sorrell: advertising man who made the industry’s biggest pitch“.


About Ben Kotch:

Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisitions. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.

For more, please follow on Twitter.


NOTE: THIS BLOG AND ALL OF ITS CONTENTS (THE “SITE”) ARE FOR GENERAL INFORMATION PURPOSES ONLY. THE VIEWS EXPRESSED ARE SOLELY THOSE OF THE AUTHOR. THIS SITE SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL ANY SECURITIES OR AS AN OFFER TO TRANSACT. NOTHING ON THIS SITE SHOULD BE CONSIDERED FINANCIAL, LEGAL, OR TAX ADVICE.

8 Entrepreneurial Lessons From Morningstar’s Acquisition of PitchBook.

8 Entrepreneurial Lessons From Morningstar's Acquisition of PitchBook.
PitchBook founder CEO John Gabbert

A few weeks ago, I read an article on Business Insider titled “How a cold call to a billionaire led this founder to sell his company for $225 million“. While the title intrigued me and I was a familiar with the subject, this post was different than others I’ve read regarding Morningstar’s PitchBook acquisition.

The piece, by Julie Bort, discussed what it really means to be an entrepreneur. Unlike other pieces, that focused on PitchBook’s great success, Bort discusses how PitchBook founder John Gabbert built PitchBook from a $100,000 family and friends investment to a $225 million acquisition by Morningstar.  While reading, I found myself less intrigued by the cold call and instead felt inspired by the entrepreneurial hustle of Gabbert.

Below, I list 8 Entrepreneurial Lessons From Morningstar’s Acquisition of PitchBook.

1. Don’t Be Afraid to “Cold” Contact Strangers – The most obvious advice from the piece but something many entrepreneurs just don’t do! You can’t grow a business without connecting with new people. Some entrepreneurs spend years building a product and planning but never actually pick up the phone and ask for; a sale, an investment, or whatever else it is they need to grow their business. Entrepreneurs that don’t make cold contacts when they are trying to build their business usually make cold contacts when they are looking for a new job.

2. Investor’s Money Is Sacred – In my opinion, venture capital/Silicon Valley press has brainwashed many entrepreneurs into thinking money grows on trees. Many microcap management teams are even worse. Gabbert says that “For the first two and half years we worked in a 200 square foot internal office with no windows, and we got up to 7 people in there.” Treat your investor capital with respect and spend it wisely. You will find that, when you respect every penny of investor money, you will be able to raise more capital, stay nimble, and increase your chance of business success.

3. Don’t Be Intimidated By “Important People” – In mot cases, rich, famous, and powerful people weren’t always rich, famous, and powerful. Sometimes we all forget that, no matter how much money or power someone has, at the end of the day we are all just people. If you are prepared and have a good opportunity for someone, you shouldn’t be intimidated – you should be excited.

4. It Takes A lot of “Noes” To Get to “Yes” – If you have sales experience, you probably know all about this (and some of the other lessons here). For those without sales experience, Gabbert “pitched over 200 that said no” and 17 said yes. Don’t be discouraged by the “noes”!

5. Don’t Raise (Much) More Than You NeedGabbert only wanted $500,000 to “tide him over” when he began investment conversations with Morningstar. Morningstar wanted him to take more. He ended up taking $1.2 million for 14% of PitchBook. That’s about an $8.6 million valuation in 2009. This year Morningstar acquired PitchBook for $225 million. Gabbert is probably glad he didn’t take more in 2009.

6. Put Your Money Where Your Mouth Is Gabbert invested everything he had and raised his first $100,000 from friends and family. Having skin in the game is not only an important motivator but it is also important to outside investors. While some microcap management teams understand this concept, many don’t! First-hand experience has taught me that entrepreneurs that don’t have their own “balls on the line” (sorry for the graphic image) usually don’t succeed. If you’re an entrepreneur playing with house money, ask yourself “why would an investor risk their capital with me if I haven’t even risked my own?

7. Building A Succesful Business Takes Sacrifice – All entrepreneurs “know” that building a business takes sacrifice but few actually sacrifice. Gabbert spent the “first 20 months of the startup living away from his wife and two young kids to save money – they moved home to Seattle while he camped out at a friend’s house in San Francisco and worked 80 to 100-hours a week. He kept tabs of his hours on a sticky note.” I know… you know… but ask yourself “am I doing whatever it takes to make by business a success?” 

8. Rome Wasn’t Built In A Day – One of my favorite Steve Jobs quotes is “if you really look closely, most overnight successes took a long time.” That holds true for almost every entrepreneurial venture. Persistence and hard work are at the foundation of virtually every success story. Sometimes, entrepreneurs let the outside world make them forget that Rome truly wasn’t built in a day!

You can read the full post on BI HERE.

Do you agree with my 8 Entrepreneurial Lessons From Morningstar’s Acquisition of PitchBook? Did you find any other hidden lessons in Gabbert’s story?


About Ben Kotch:

Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisitions. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.

For more, please follow on Twitter.


NOTE: THIS BLOG AND ALL OF ITS CONTENTS (THE “SITE”) ARE FOR GENERAL INFORMATION PURPOSES ONLY. THE VIEWS EXPRESSED ARE SOLELY THOSE OF THE AUTHOR. THIS SITE SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL ANY SECURITIES OR AS AN OFFER TO TRANSACT. NOTHING ON THIS SITE SHOULD BE CONSIDERED FINANCIAL, LEGAL, OR TAX ADVICE.

 

Using M&A To Build A New Product.

Using M&A To Build A New Product.

Many view mergers & acquisitions as a strategy intended to expands companies existing footprint/product lines, diversify, or realize costs synergies. M&A is less frequently viewed as  a method to build entirely new products.

Google’s new Pixel smartphone is an excellent example of a company using M&A to develop a new product. In a mid-October blog post, PitchBook.com highlights “8 strategic acquisitions behind Google’s Pixel“.

Starting in February 2015 Google (Alphabet) made at least 8 strategic acquisitions/investments in companies with smartphone-related technology. 

The acquisitions include NimbuzCloud a provider of cloud-based storage for consumer photos and videos, Skillman & Hackett a company that developed virtual reality painting studio and other art applications, Lumedyne Technologies which designs and develops sensors used in consumer electronics, Speaktoit (also known as Api.ai) which developed a platform offering natural language interactions for devices, and more.

While initially, it may have been hard to understand how some of these acquisitions helped Google’s existing business, the acquisitions now make a lot of sense knowing Google was developing its own smart device.

The resources Google acquired in these acquisitions likely cost less than in-house development. These acquisitions were also all made in the last 2 years thus accelerating Google’s development of its own smart device.

If you are developing a new product, have you ever thought of acquisitions that could get you there faster for less capital? Did you make an acquisition? What were the results?

 


About Ben Kotch:

Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisitions. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.

For more, please follow on Twitter.


NOTE: THIS BLOG AND ALL OF ITS CONTENTS (THE “SITE”) ARE FOR GENERAL INFORMATION PURPOSES ONLY. THE VIEWS EXPRESSED ARE SOLELY THOSE OF THE AUTHOR. THIS SITE SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL ANY SECURITIES OR AS AN OFFER TO TRANSACT. NOTHING ON THIS SITE SHOULD BE CONSIDERED FINANCIAL, LEGAL, OR TAX ADVICE.

 

MBAs Figured Out The Secret To Entrepreneurship (hint: acquisitions).

MBAs Figured Out The Secret To Entrepreneurship (hint: acquisitions).

When most people think of entrepreneurs they envision young techies with game-changing business ideas and plans to go from zero to $1 billion overnight. What most people don’t think of is the hard work, long hours, stress, and failure rates.

Well, leave it to the MBAs to figure out a way to achieve entrepreneurial success faster, easier, with less stress and higher success rates. What’s their secret? Search funds!

Search funds have been around since the 80s but really started to grow in popularity after 2010. Aa search fund is basically a mini private equity fund whose goal is to acquire a small operating business and accelerate its growth.

I recently saw an article in the Harvard Business Review discussing how, for new MBAs, search funds have become increasingly popular. Rather than take the traditional consulting or investment firm route, MBAs from top schools see search funds as a fast track to being the CEO of a small, profitable business.

While HBR focuses on search funds vs. traditional careers, I think there is also a similar comparison to be made for traditional entrepreneurship vs. growth through acquisitions.

The biggest hurdle of a search fund is the upfront work/stress required to raise a fund, identify and then close a quality acquisition. After that, it’s basically just like most high-level jobs except you get to make your own business decisions and directly benefit from the improvements you make to the business. The same goes for most small businesses growing through M&A — financing and sourcing quality deals is usually the most difficult part.

While high early stage obstacles, with long-term rewards, is the idea of growth through acquisitions, HBR points out that, with the traditional MBA path, getting the job is easy and thriving at a chosen career is the difficult part. (see chart below)

w160318_ruback_angstover1-850x607

In my opinion, a chart similar to the one above can be made to compare traditional entrepreneurship to growth through acquisition. As many of the entrepreneurs reading this know, gaining initial traction usually takes longer, cost more, and is much more stressful than initially anticipated (while starting a business is relatively easy).

In the last few years, I’ve seen an increasing number of entrepreneurs attempting to replicate the search fund model but there are still far more entrepreneurs going at it the old fashion way. Maybe MBAs actually do learn something in business school 😉

 

Acquisitions By MicroCaps Aren’t The Problem…

Acquisitions By MicroCaps Aren't The Problem...

I recently read a blog post titled “Why Do Most Acquisitions by Microcaps Destroy Shareholder Value?“. The author points out that “50-90% of all mergers and acquisitions fail to meet financial expectations” (a statistic some considered to be skewed by unrealistic expectations, billion dollar M&A blunders, and a lack of data on lower market M&A).While it’s very true that many M&A transactions fall short, I disagree with the author’s implication that most microcap acquisitions directly destroy shareholder value.  

I would argue that M&A actually increases a microcap’s chance of success. In fact, the author writes “Even though M&A is rarely successful, the irony is that some of the biggest microcap success stories had disciplined acquisition strategies“.

A few examples of successful microcap acquirers include; 1. Middleby Corporation, 2. MTY Food Group, 3. WPP plc, and 4. Cisco Systems. While the list goes on, and I don’t know the exact statistic, I would guess that over 50% of public companies that grew from a valuation of less than $50M to over $1bn grew through M&A. 

Those familiar with microcaps, or small businesses/startups in general, know success is extremely rare. While M&A failure is pegged at 50-90%, we can’t forget that the rate of failure for startups is very high and it’s even higher for microcaps!

There is no absolute formula for value creation (or destruction). Saying most acquisitions by microcaps destroy shareholder value is akin to saying most microcaps in a specific industry or with management teams of a certain pedigree destroy shareholder value. 

So what reason does the author give for his statement that “Most Acquisitions by Microcaps Destroy Shareholder Value”? Well, he lists 5; 1. Quality, 2. Equity Dilution, 3. Acquisitive Management Teams Using Equity, 4. Large “Transformational” Acquisitions Using Equity, and 5. Too many Too Fast Using Equity. 

In short, the author is saying that most acquisitions made by microcaps fail because most microcap management teams are unqualified and lack the discipline required to execute an M&A strategy (or any strategy). And on that point, I couldn’t agree more! 

What do you think? Is “Most Acquisitions by Microcaps Destroy Shareholder Value” a fair statement? Are there better ways to grow a microcap than M&A? 

Keep an eye out for my next post on this topic where I will discuss ways to overcome the 5 reasons most acquisitions by microcaps destroy shareholder value.  


About Ben Kotch:

Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisitions. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.

For more, please follow on Twitter.


NOTE: THIS BLOG AND ALL OF ITS CONTENTS (THE “SITE”) ARE FOR GENERAL INFORMATION PURPOSES ONLY. THE VIEWS EXPRESSED ARE SOLELY THOSE OF THE AUTHOR. THIS SITE SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL ANY SECURITIES OR AS AN OFFER TO TRANSACT. NOTHING ON THIS SITE SHOULD BE CONSIDERED FINANCIAL, LEGAL, OR TAX ADVICE.

Where Do M&A Valuations Come From?

Where Do M&A Valuations Come From?

When speaking with acquirers I often ask, “how did you determine the purchase price?” Answers range from “that’s what the seller was asking” to complex valuation models and analysis.

I see a lot of M&A transactions. More often than you might think, I come across very similar deals with very different valuations. For example, two acquirers can be looking at manufacturing companies with nearly identical financials and business models but one buyer is valuing a target at 10 times the other. How is it that two nearly identical companies can have extremely different valuations?

Sometimes the higher valuation is derived from the value of future synergies or growth potential but more often the higher valuation is a result of an underqualified buyer.

In previous posts, I have discussed how to properly value acquisitions with a focus on smaller M&A transactions. For those of you working on larger acquisitions (or looking for more detail), I want to share the Pepperdine University Private Capital Markets Project.

“The Pepperdine private cost of capital (PCOC) survey was originally launched in 2007 and is the first comprehensive and simultaneous investigation of the major private capital market segments. This year’s survey deployed in January 2016, specifically examined the behavior of senior lenders, asset-based lenders, mezzanine funds, private equity groups, venture capital firms, angel investors, privately-held businesses, investment bankers, business brokers, limited partners, and business appraisers.”

While the 2016 report has a lot of great information, the parts I find most interesting are the sections where industry professionals are surveyed about valuation. Private equity firms and public companies usually acquire private companies and do so with the help of investment bankers, lenders, business brokers, and others, all of whom were surveyed.

So, according to the dealmakers of 2016, where do M&A valuations come from?

Well, investment bankers say the average EBITDA multiple for companies with $1MM to $4.9 MM in EBITDA is 5.3X,

Average M&A EBITDA multiples.

adjusted EBITDA is the preferred multiple for private equity buyers when valuing targets,

Private Equity Acquisition Multiples.

and revenue multiple is the preferred multiple valuation method of venture capitalists.

Venture Capital Valuation Methods

That’s just a quick glimpse of the treasure trove of information included in the 125-page report. With all kinds of great information for companies growing through M&A or raising capital, I suggest most of my readers check it out.

You can download the full report HERE.

 


About Ben Kotch:

Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisitions. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.

For more, please follow on Twitter.


NOTE: THIS BLOG AND ALL OF ITS CONTENTS (THE “SITE”) ARE FOR GENERAL INFORMATION PURPOSES ONLY. THE VIEWS EXPRESSED ARE SOLELY THOSE OF THE AUTHOR. THIS SITE SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL ANY SECURITIES OR AS AN OFFER TO TRANSACT. NOTHING ON THIS SITE SHOULD BE CONSIDERED FINANCIAL, LEGAL, OR TAX ADVICE.

Tech M&A Mania Hits Waltham.

Tech M&A Mania Hits Waltham.

Yesterday, Cisco announced it would acquire Waltham-based CloudLock Inc. for $293 million. Having graduated from  Bentley University, I have a special connection with Waltham. Waltham has become a hub outside “the hub” for tech companies. Home to companies like Constant Contact, Actifico, Carbon Black, Cryptzone, and Boston Dynamics watch city could consider tech city as its new nickname.

Since 2008 CloudLock has raised $35 million, the latest round being $6.7 million in Nov. 2014. With $35 million raised and a $293 million sale price, this acquisition should provide great returns to investors.

When compared to Microsoft’s  $26 billion LinkedIn acquisition and SalesForce acquiring Demandware for $2.8 billion, Cisco’s acquisition of Cloudlock is just a blip on the radar for recent tech M&A.

With tech M&A heating up and big ticket prices being paid for tech companies, many in Silicon Valley are beginning to feel better about their unicorn bets. I still see it being a difficult road out of Silicon Valley for unicorns but, at least, the recent tech M&A frenzy proves there are plenty of buyers looking for tech companies with “reasonable” valuations and modest financing histories.


About Ben Kotch:

Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisitions. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.

For more, please follow on Twitter.


NOTE: THIS BLOG AND ALL OF ITS CONTENTS (THE “SITE”) ARE FOR GENERAL INFORMATION PURPOSES ONLY. THE VIEWS EXPRESSED ARE SOLELY THOSE OF THE AUTHOR. THIS SITE SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL ANY SECURITIES OR AS AN OFFER TO TRANSACT. NOTHING ON THIS SITE SHOULD BE CONSIDERED FINANCIAL, LEGAL, OR TAX ADVICE.

Start-Up Acquires Start-Up.

Start-Up Acquires Start-Up.

With LinkedIn getting most of the social media attention from the tech/finance people lately, I have an interesting story about Twitter to share.

An article on BostInno discusses “How 1 Tweet Turned into Dave Balter’s 1st Startup Acquisition“.  Dave Balter, founder of Mylestoned – a startup that is “reframing death through the transformation and discovery of dynamic, meaningful, digital memories” (think Facebook style memorial pages for deceased loved ones) tweeted at Eric Owski to set up a meeting in San Fransisco.

Start-Up Acquires Start-Up.

Owski founded a start-up called Heirloom that allows users to “easily and beautifully digitize your paper photos”. With over 100,000 users, Heirloom has significantly more users than Balter’s newly unveiled company. Not only did Heirloom have a lot of users but those users were the exact kinds of users Mylestoned was trying to attract. Both companies purpose was to preserve the memories of loved ones.

Fresh off a $1.5 million raise, Mylestoned closed its acquisition of Heirloom on June 1st (terms were not disclosed).  While we don’t know the terms of the deal, I have a feeling it was far less expensive to acquire Heirloom (and its 100,000 targeted users) than it would have been to acquire those users from scratch (not to mention the very cool and synergistic Heirloom technology) .

In my experience, synergistic start-up M&A transactions like this aren’t considered enough by founders. I often encounter management teams that are focused on building their business from the ground up and underestimate the value that can be created by acquiring other start-ups or small businesses.

Are you a start-up considering growing through acquisitions? What kind of value can a start-up or small business bring to you company? Please feel free to comment and share!


 

About Ben Kotch:

Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisitions. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.

For more, please follow on Twitter.


NOTE: THIS BLOG AND ALL OF ITS CONTENTS (THE “SITE”) ARE FOR GENERAL INFORMATION PURPOSES ONLY. THE VIEWS EXPRESSED ARE SOLELY THOSE OF THE AUTHOR. THIS SITE SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL ANY SECURITIES OR AS AN OFFER TO TRANSACT. NOTHING ON THIS SITE SHOULD BE CONSIDERED FINANCIAL, LEGAL, OR TAX ADVICE.