PRESENTATION TO THE ANGEL ASSOCIATION August 2017 EXITS – WHY, WHEN, HOW PRESENTATION TO THE ANGEL ASSOCIATION August 2017

Armillary Private Capital Our purpose – Enabling Success Strong track record in achieving trade sales and raising capital Combined team of 13 in Auckland and Wellington servicing New Zealand Financially independent - no referral fees or the like Working closely with all capital providers

Armillary Private Capital - cont Investment Banking Capital raising – debt, equity, trade finance Mergers, acquisitions and divestments Due diligence & valuations Advisory Capital planning Strategic planning Financial modelling Financial training Asset & Markets management Unlisted Crowdsphere Residential Property Ventures Armillary Mezzanine Capital

Do you know who your likely buyer is Exit Options First question is always why are we looking to exit? Only once answered can the right exit option be considered Trade Sale/Merger Capital Raise/Partial Sale to Strategic Partner MBO / MBI / Inter-shareholder trade Compliance Listing IPO & Listing Do you know who your likely buyer is

Goal: both Seller and Buyer benefit from the deal Why Sell Reasons to be acquired Access to new markets Access to capital Avoid dilution although not necessarily bad Good liquidity option for founders and early investors Quick return on investment Rapid expansion of customers Reasons to acquire Access to IP Access to talent Acquire a channel for product Eliminate a competitor Entry to new market Defend an existing product Goal: both Seller and Buyer benefit from the deal

We do not agree with the lack of liquidity argument Why List Reasons to list Access to capital Liquidity for all shareholders Transparent pricing Branding and marketing Credibility Scrip becomes currency to acquire Access to human talent – new management Reasons not to list Additional compliance – market dependent Disclosure of information Pricing might not be as good in the near term – could be better over the long run We do not agree with the lack of liquidity argument

No matter what, always be ready for the surprise offer When to Exit Best time is when you can show deliverable high growth expectations Hold a strong IP position Consider existing owners objectives Aim is to sell the sizzle not the sausage When the company is on its knees it doesn’t even have a bar-b-que No matter what, always be ready for the surprise offer

Allow plenty of time – just like capital raising What Are You Selling Assets, undertakings and trading ephemera Shares IP Allow plenty of time – just like capital raising

Preparation Plan early and often Sale process takes up to 12 months – plan for it Constantly review alternatives Begin work with advisers early – IB, Legal, Accounting Establish good budgeting/planning practices – manage to plan Missing last years budget is a negative Having positive surprises during the process Establish good governance Strong/relevant board Professional legal and accounting Develop valuable IP Is it well documented Is it protectable and protected Have a solid pipeline Build a customer pipeline that can be validated

Positioning Strategic vs tactical Define your business Strategy – long before a transaction position the company for a high value exit Tactics – in the year of transaction clean up loose ends, maximise key metrics Define your business Clear strategy & plan One or more business models Clear channel to market Understand pricing for similar businesses Know the value of your IP Can you reposition the business to improve sale pricing

Deal Team When you feel the time is right to look at options get good advice & work through the options Investment Banker allows management not to become distracted from the business Has transactional expertise, market knowledge, industry relationships and can create competitive tension Typical engagements include retainers, success fee, tail period Legal Lots of documents IP Accountant Financial reports Other Technical experts

Phase II – Marketing the Offer Phase III – Indicative Offers Process Indicative transaction timeline Trade sale process is approximately 6 – 9 months. Months 2 – 3 Months 3 -X Months X to X+3 Initial Phase Process preparation Prospect analysis Prepare materials Phase II – Marketing the Offer Contact strategic buyers Refine positioning Preliminary due diligence Phase III – Indicative Offers Negotiations Term Sheet Due diligence Negotiation & close Documentation Definitive Agreement Closing Consider options Agree process, timetable and suitable strategy Collect and analyse company data Vendor DD Agree and assess counterparty list Finalise IM Early positioning of the opportunity with buyers Refine views on potential value including valuation and pricing assessment Initial approaches to interested buyers Address confidentiality Issue IM to potential buyers under confidentiality Preparation of legal and financial data room Receive indicative offers, compare and negotiate Reassess buyers ability to close Shortlist bidders: Site visits conducted Project manage other professional advisors Provide support through due diligence and SPA process Receive final offers from short listed bidders – aim to be executable Grant exclusivity on a short timeframe if necessary Final due diligence Final commercial and legal negotiations

Counterparties Strategic buyers looking for Technology & IP Teams Customers Complimentary businesses Financial buyers looking for Predictable businesses Growth Steady revenues and cash flow What value will you provide to the buyer Identify regulatory and approval issues that could arise

Pricing 3 traditional methods – value to the buyer Similar public company comparables Similar transaction metric DCF or capitalisation of earnings Technology companies – how do you value a company with no earnings People Technology & IP Customers Investment in development – often not visible because of tax accounting Competitive process vs exclusivity vs costs

Vendor Due Diligence Benefits Level playing field when soliciting bids Minimize surprises Be proactive by taking corrective measures Expedite the close Helps prepare offer documents Identify any ghosts in a closet that can undo a deal

Risks Confidentiality IP Protection Loss of focus on the business during the process Deal fatigue Deal failure

Navigating DD Crucial part of the transaction as buyer wants to understand the business, risks, and squeeze on price Buyer will examine the business from all angles – know your dirty laundry before they find it Ensuring your technology is defensible and not infringing on others rights Buyer does not want to acquire unwanted liabilities Managing DD is a key element in keeping the transaction on track and on time

Hurdles Valuation Change of control provisions IP rights Lease commitments Key employee issues Government regulations Accounting policies Notification clauses Pending litigation Warranties and Indemnities Change of control provisions Poor documentation Customer and supplier relationships Disclosure issues Transferability of permits and contracts Tax issues

Why Deals Fail Valuation mis-match IP Issues Declining performance during process Employee problems Poor accounting and financial errors Transferability on contracts Acquirer issues, externalities, people, re-org, financial

Maximising Value Focus on future value not historical earnings Recognise where the value lies Products IP People Relationships Understand where the counterparty sees value Revenue Product, technology, IP Create and tell the right story to the right audience Competitive process vs exclusivity vs costs