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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

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

17. 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

18. 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

19. 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

20. 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