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© 2012 1 Selling Out! Ottawa University June 2012.

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Presentation on theme: "© 2012 1 Selling Out! Ottawa University June 2012."— Presentation transcript:

1 © 2012 1 Selling Out! Ottawa University June 2012

2 Introduction Who am I? Why, When, How Preparing Finding a Buyer Confidentiality, Evaluating, Negotiating Earn Out Reps and Warranties Deal or No Deal

3 Who am I? - Entrepreneur most of my life - Fixed broken TVs and sold them in high school - Have an EE PhD (3D Optics and Image Processing) - Have owned and part owned a variety of businesses, closed some of them - Had the ultimate success in my last one (sold to a US multinational) - Had to remain with the purchaser for 3 years - And then took a vacation and started a new business I have done what I'm talking about

4 Academia vs Business AcademiaBusiness Funding/GrantsSales/Profits Less constrained R&d Product focused r&D PublicationsProducts Keep the university happyKeep the shareholders happy People are part of the valuePeople create the value Academia and Business are different but should be complementary. (At least in engineering!)

5 Setting the Stage - You have built your business into something valuable - It is running and generating a profit - It shows real future potential that can be calculated/demonstrated - It is not a one person shop - It has IP and other items of value (large, profitable customer base) You could keep running it if you wanted to. Can you do EVEN BETTER if you sell out?

6 Why sell? - Purchaser can make (and pay you) much more $ than you could make (worldwide sales offices, huge customer base, known...) - Reduce risk (trade future potential for guaranteed $ now) - You want to do something else - The owner(s) are not well suited/interested in managing a larger business. - You have been made an offer you cant refuse (I wish!) - More viable for small business than an IPO Money!

7 Preparing from Day 1 - Have all your IP well documented. - Guard/retain ownership of all IP in contracts, licenses. - Don't contaminate by using GPL code in your code (or hardware!). - Implementation is king! A great idea not implemented is worthless in business. (There are a million people who have a “great idea”. I have a few too) - You must have a business plan backed up by sales and profits. - Accounting, legal issues, sales and marketing all in order. You don't get bought because you are or have a brilliant team. You get bought because of “predictable” sales and future profits.

8 Finding a buyer - Often a buyer is a customer (or some other long standing contact) - Competitor (they approach you) - You are in a weaker position if you have to actively find a buyer - Use networking to the fullest - Avoid consultants who haven’t actually done it At some point there will be an casual question asking if you you might be interested in selling: “Every business is always for sale!”

9 And the roller coaster ride begins ….. - Non-disclosure agreement, Exclusivity Period (must be well defined and limited in time and extent – need a good lawyer!) - Evaluation - Sales and profit record - Market analysis (your marking person must know data inside-out!) - Don't make crazy exaggerated projections. - You must argue a credible case on the value of future profits - Try and get the other party to reveal their projections first - Its not the “the quality of the people” - Due diligence - Legal types to evaluate all your legal documents, patents - Accountants to evaluate your financial documents - Technical types to evaluate all your code, designs, patents etc - Limit what they can make copies of (no source code etc)

10 Negotiating - Both the with the purchaser and your shareholders. - Information is key (verify claims, know what they want, will give up, lies?) - Understand their needs (both the company and the negotiator) - Have a backchannel(s) - Look at the whole package (including tax implications) - Need overlapping bands of offer/accept values - Put aside any issues on which there is an impasse till the end - Longer can be better – and be prepared to walk away!!!!!!!!!!!!!

11 Earn Out / Escrow / Reps and Warranties - Without control, be VERY wary of an earn out – unless you already have all you want. - Large earn out shifts risk back to you – whats the point of selling? - Many takeovers fail in some way, more likely if the buyer is huge - Assume no synergy even if synergy is obvious - Escrow during the warranty period more acceptable, hard to avoid (be wary of US or foreign banks) - Limit Reps and Warranties to the escrow or some other period and to very specific items that you can live with (ie any patent infringement claims limited to n years) MAKE SURE YOU CAN LIVE WITH THE DEAL!!!!!!!

12 Deal or No Deal? - Offers and counter offers, even before negotiating. - A series of tests – sort of like border skirmishes on the cold war - Turn down an offer, you may not get another - You generally get stronger if they are still interested (unless something bad happens in the meantime e.g. recession) - Keep your cool, behave professionally till (and after) it is signed. (Dragons Den video)

13 Sale is complete! - Celebrate! - Accept that someone else is now making the decisions - Prepare for a lot of stupidity (proportional to size of purchaser) - Read Dilbert - Figure out a way to make the next n years tolerable! - Repeat!!!!!!!!!!!!!!!!!

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