Telecom Mergers and Acquisitions: The VC angle Oren Zeev Apax Partners January 18th, 2001

Agenda About Apax Partners Why M&A? What are buyers looking for? Prepare your business Strategic Investor as a step to an M&A During the transaction

Apax Partners: Telecom Activities 25 years, $7B, 150 investment professionals, 3 continents Butterfly (TI) Ceragon Networks Coreteck (Nortell) EZChip tdSoft Jazztel Esprit Telecom (GTS) IPG Photonics Dialog Semiconductor Webraska Fore Systems (Marconi) TelDaFax Apax Partners Israel is part of the international Apax Partners Group, founded in 1972 by Ronald Cohen in the UK, Maurice Tchenio in France, and Alan Patricof in the USA (Patricof & Co. Ventures). The group is comprised of regional and country funds in the Europe, the US, Israel and most recently also in Japan totaling about $6B. These funds are managed From the respective locations in each of the countries. The group shares a common balanced portfolio strategy, investing in all stages of companies’ development, From seed and early stage, through development capital to management buyouts. and focuses on 5 industry groups.

Why M&A? Buyer’s perspective: Buying a business Integral part of R&D strategy Seller’s perspective: Exit Liquidity – easier to lock in value Selling products to telecom operators is extremely challenging Leverage marketing, distribution, financial power, manufacturing and reputation

Erosion In Value Of Tech IPOs Source: Broadview

What Are The Buyers Looking For Technology lead Management and technical team Market opportunity Competitive opportunity/threat Fit with buyer’s business/channels Customer validation/momentum Strategic Partners – could be a plus, could be a liability

Prepare Your Business Build it and manage it like a sustainable business Fit with potential buyers’ customers and channels Avoid aggressive vesting accelerations Avoid problematic commercial agreements - use assignment/termination clauses Capital structure – take into account taxation and accounting considerations Chief scientist – limit/avoid Play hard to get – but don’t overdo it Timing is everything!

Strategic Investor As A Step To M&A Try to get a supportive, but not too dominant strategic investor: Let a VC lead the round Be ware of valuation “kiss of death” Be extra careful in the commercial deal Preferably 5%-15% Option/ROFR/ROFN/ROFO Observer/Director Get 2-3 if you can  

During The Transaction Manage your shareholders consensus Take care of your employees Manage the process – don’t let your lawyers/accountants manage it Get interest/offers from more than one – create a sense of urgency and competition Keep your alternatives even after you have a term sheet Focus only on the important issues In stock deals registration rights are very important Leave your ego at home

Oren Zeev Apax Partners Oren.zeev@apax.co.il