Challenging Transactions

CHALLENGING  TRANSACTIONS

Vissant specializes in challenging client assignments.  By definition, those assignments require the creative thinking and confidence in execution that can only come with seasoned and experienced investment banking professionals.

The following is an outline of some of those transactions, starting with a summary description of the challenges of the situations.

 

Client A – Long on Intellectual Property, Short on Sales

Client

  • Applied Technology Company  (ATC)
  • Videoconferencing Services Company (VSC)

Transaction

  • ATC – Sell side mandate for this closely-held company with extensive IP in the sphere of full-room, immersive teleconferencing, called telepresence
  • VSC – Carveout of this ATC affiliate that provides network services to the teleconferencing industry

Description

  • ATC was founded around a series of technologies developed by the Company to address the challenges of bandwidth, video drivers and encoding and decoding for the telepresence
  • The technology was significant enough that there is a whole industry built around it now
  • The founding family did not have unlimited resources, and was considering a sale of the Company, which amounted to a sale of the intellectual property

Challenge

  • As an operating company, ATC was nascent
    • Telepresence units at the time were $250,000 each, and it was a difficult sale
    • Sales for ATC (aggregate sales since its founding) were less than $5 million
  • With little operating history to go on, the sell-side challenge was to identify buyers that
    • Had existing markets that could capitalize on the technology and the products it could spawn
    • Had an incentive to keep the technology out of the hands of competitors
  • Target prospective buyers included four large players in the videoconferencing market

Solution

  • The list of prospective buyers was pretty short
  • We were able to customize a pitch for each to show
    • How the ATC products and technology would fit in their product lines
    • The financial impact of that new product line
    • The defensive value of keeping the technology away from competitors
  • Big Company X was the most aggressive prospective purchaser
    • Total consideration – $60 million
      • Cash at closing – $45 million
      • Earnout – $15 million
  • VSC – The family was able to carve out this videoconferencing/telepresence service provider and continue to operate it
    • VSC sold for an additional $15 million four years later

 

Client B – Privately-Held Acquirer of a Public Company

Client

  • Enterprise Software Company  (ESC)

Description

  • ESC is a closely-held enterprise software company focused on data center applications, many of which run on mainframe computers

Transaction

  • Buy-side acquisition of Public Company A (PCA), a $200 million market capitalization public company
  • PCA was IP-rich, but was suboptimal as a public company
  • ESCB’s IP portfolio, much of which had been acquired with the series of buy-side transactions that were already completed, was complicated
  • The two IP portfolios needed to be integrated for the best advantage in the market

Challenge

  • Data center-based enterprise software is a zero-growth business; the only way to grow is through acquisition
  • Since 1998, ESC has completed more than 50 acquisitions, mostly of other private companies
  • Most of those acquisitions are handled by an in-house team
  • Three of the acquisitions that ESC has completed have been of publicly held companies, for which they have always exclusively engaged Vissant principals as advisors
  • The CEO of ESC owns 100% of the stock of the Company, and avoids ownership dilution through the acquisition process
  • Acquiring PCA required a full recapitalization of ESC’s balance sheet, including the provision of more than $200 million of acquisition funding

Solution

  • Vissant principals were engaged and secured a $325 million financing commitment for these transactions within three weeks
  • Vissant principals were ESC’s M&A advisor and worked closely with the Company on valuation, IP integration with the ESC model, structure and the operating and financial implications of the debt funding

 

Client C – Intellectual Property as a Leveragable Asset

Client

  • Pharma Company  (PC)

Description

  • PC is a privately-held development-stage pharmaceutical company based in the Midwest
  • As such, it is frequently in need of financing and funding, but is sensitive to ownership dilution at suboptimal valuations
  • PC has developed a good sized portfolio of IP, the valuation of which is a function of the end markets to which the pharmaceutical applications will be introduced

Transaction

  • $12 million of funding, secured by the value of the IP

Challenge

  • Secure funding that would be adequate for the Company’s needs, but wouldn’t be too costly from the standpoint of ownership dilution
  • Existing creditors (both senior and subordinated) made for a significant negotiating challenge for the intercreditor agreement
  • Evaluating and valuing the portfolio of IP so that it could be used as a vehicle for operating funding

Solution

  • Vissant principals were able to close a transaction that provided PCA with the funding it needed
  • It did not compromise its asset position
  • It utilized the Company’s portfolio of intellectual property as a leveragable asset

 

Client D – Recapitalizing an Asset-Thin Company While Minimizing Ownership Dilution

Client

  • Business Services Company  (BSC)

Description

  • BSC is a St. Louis-based business services company that specializes in accelerating its clients’ advertising and marketing into new media, social media and other evolutionary channels

Transaction

  • The Company needed to be financially recapitalized and funded with growth capital
  • Simultaneously, the Company wanted to sell its Chicago-based practice that had clients and strategies that no longer fit the overall corporate model

Challenge

  • In the recapitalization process, management was highly sensitive to ownership dilution
  • On the sell side, management wanted assurance that its former office wouldn’t become a competitor, using the unique business practices and strategies that BSC had crafted

Solution

  • Vissant principals placed $8 million in subordinated debt that had a market interest rate coupon, but did not have typical warrant coverage (that would have caused the ownership dilution about which management was so concerned)
  • Vissant principals also sold the Chicago practice for an above-market earnings multiple, and was successful at negotiating a non-compete contract

 

Client E – Funding a Start-Up Services Company

 Client

  • Business Services Company  (BSC)

Description

  • BSC was a California-based, early entrant into the market of in-store digital media providers

Transaction

  • BSC sought to raise $20 million in equity to fund its contract to provide digital signage within 6,000 convenience stores in North America

Challenge

  • BSC was not really in business, but had a strong business plan and the c-store contract

Solution

  • Vissant principals placed early funding for the Company
  • BSC accepted an acquisition offer from the acquisition arm of an industrial company, which is now executing the c-store contract

 

Client F – Funding an Industrial Leveraged Buy-Out

 Client

  • Industrial Company  (IC)

Description

  • IC is an acquirer of turnaround opportunities in the building products industry, specifically including sawmills and lumber yards

Transaction

  • Vissant principals were able to work with IC to submit a bid to Forest Products Company (FPC) for the divestiture of its hardwoods business, that was a network of specialty sawmills and distribution facilities
  • FPC accepted the bid of $125 million

Challenge

  • Finding adequate funding, and with the right funding partner, so that IC could complete the acquisition
  • Building products, and the lumber market in particular, were at a low point in the business cycle

Solution

  • Vissant principals were able to find two separate funding sources, and did so in three weeks
  • One of those sources was successful in funding acquisition of the hardwoods business

 

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>