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Archive for the ‘Distressed IP’ Category

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San Francisco, February, 2014
Identifying Early Warning Signs & Maximizing Value of Distressed Portfolio Companies – Presentation at Stanford University by Mr. Steven Gerbsman
In, October, 2013, I video taped a presentation on “Corporate Governance”, “Early Warning Signs” and “Maximizing Value” for under-performing/distressed venture backed Intellectual Property companies at Stanford University. This video will be for used in the Stanford Engineering School via STVP (Stanford Technology Ventures Program) and SCPD (Stanford Center for Professional Devlopment).

Please visit the attached link to view the program.  Click here

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I also was the moderator for a panel on the same subject that consisted of Marc Cadieux, Chief Credit Officer of Silicon Valley Bank, Peter Gilhuly, Esq., Partner at Latham & Watkins, Michael Lyons, Venture Investor and Michael Scissions, Entrepreneur/CEO and former head of Facebook Canada.

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Please click here for video

Please review and hopefully the information will assist in “Identifying the Early Warning Signs” and provide “food for thought”.

About Gerbsman Partners

Gerbsman Partners focuses on maximizing enterprise value for stakeholders and shareholders in under-performing, under-capitalized and under-valued companies and their Intellectual Property. Since 2001, Gerbsman Partners has been involved in maximizing value for 82 technology, medical device, life science, digital marketing/social commerce and solar companies and their Intellectual Property and has restructured/terminated over $810 million of real estate executory contracts and equipment lease/sub-debt obligations. Since inception, Gerbsman Partners has been involved in over $ 2.3 billion of financings, restructurings and M&A transactions.

Gerbsman Partners has offices and strategic alliances in San Francisco, New York, Boston, Orange County, VA/DC, Europe and Israel.

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San Francisco, October, 2013
Successful “Date Certain M&A” of a Software-as-a-Service (SaaS) provider of digital marketing suites company, its Assets and Intellectual Property.
Steven R. Gerbsman, Principal of Gerbsman Partners, Kenneth Hardesty and James Skelton, members of Gerbsman Partners Board of Intellectual Capital, announced today their success in maximizing stakeholder value for a venture capital backed, Software-as-a-Service (SaaS) provider of digital marketing suites company, its Assets and Intellectual Property.

Gerbsman Partners provided Crisis Management and Investment Banking leadership, facilitated the sale of the business unit’s assets and its associated Intellectual Property. Due to market conditions, the board of directors made the strategic decision to maximize the value of the business unit and Intellectual Property. Gerbsman Partners provided leadership to the company with:

1.  Crisis Management and technology/digital marketing domain expertise in developing the strategic action plans for maximizing value of the business unit, Intellectual Property and assets;
2.  Proven domain expertise in maximizing the value of the business unit and Intellectual Property through a Gerbsman Partners targeted and proprietary “Date Certain M&A Process”;
3.  The ability to “Manage the Process” among potential Acquirers, Lawyers, Creditors Management, Advisors and the Receiver;
4.  Communicate with the Board of Directors, senior management, senior lender, creditors, vendors and all stakeholders in interest.
About Gerbsman Partners

Gerbsman Partners focuses on maximizing enterprise value for stakeholders and shareholders in under-performing, under-capitalized and under-valued companies and their Intellectual Property. Since 2001, Gerbsman Partners has been involved in maximizing value for 79 Technology, Life Science, Medical Device, Solar and Digital Marketing companies and their Intellectual Property and has restructured/terminated over $810 million of real estate executory contracts and equipment lease/sub-debt obligations. Since inception in 1980, Gerbsman Partners has been involved in over $2.3 billion of financings, restructurings and M&A transactions.

Gerbsman Partners has offices and strategic alliances in San Francisco, Boston, New York, Washington, DC, McLean, VA, Europe and Israel.

GERBSMAN PARTNERS
Phone: +1.415.456.0628, Cell: +1 415 505 4991
Email: steve@gerbsmanpartners.com
Web: www.gerbsmanpartners.com
BLOG of Intellectual Capital: blog.gerbsmanpartners.com

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SALE OF ASSETS OF OPTIFY INC.

Gerbsman Partners (http://gerbsmanpartners.com ) has been retained by Optify, Inc (“Optify”), (http://optify.net) to solicit interest for the acquisition of all or substantially all of Optify’s assets, including its Intellectual Property (“IP”), in whole or in part (collectively, the “Optify Assets”).

Headquartered in Seattle, Washington, Optify is a provider of a SaaS digital marketing suite, inclusive of both inbound marketing and marketing automation functionality, targeted at small to medium businesses and digital marketing agencies.

Optify Inc. is a privately held company.  Optify, founded in 2008, is headquartered in Seattle, Washington.  To date, Optify has secured $10.8 million in equity financing.  The company’s Series A round was led by Madrona Venture Group, with Triangle Peak Partners leading the Series B round.  The company also raised $1.5 million in venture debt from Silicon Valley Bank and an additional $2.0m in a convertible note from its two institutional investors.

IMPORTANT LEGAL NOTICE:

The information in this memorandum does not constitute the whole or any part of an offer or a contract.

The information contained in this memorandum relating to the Optify Assets has been supplied by Optify and has not been independently investigated or verified by Gerbsman Partners or their respective agents.

Potential purchasers should not rely on any information contained in this memorandum or provided by Gerbsman Partners (or their respective staff, agents, and attorneys) in connection herewith, whether transmitted orally or in writing (the “information”), as a statement, opinion, or representation of fact.  Please further note that all information provided herein relating to the operations of Optify’s business and its market positions relates to periods on or prior to August 31, 2013.  Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit.

Gerbsman Partners, and their respective staff, agents, and attorneys, (i) disclaim any and all implied warranties concerning the truth, accuracy, and completeness of any information provided in connection herewith and (ii) do not accept liability for the information, including that contained in this memorandum, whether that liability arises by reasons of Gerbsman Partners’ negligence or otherwise.

Any sale of the Optify Assets will be made on an “as-is,” “where-is,” and “with all faults” basis, without any warranties, representations, or guarantees, either express or implied, of any kind, nature, or type whatsoever from, or on behalf of, Gerbsman Partners.  Without limiting the generality of the foregoing, Gerbsman Partners, and their respective staff, agents, and attorneys, hereby expressly disclaim any and all implied warranties concerning the condition of the Optify Assets and any portions thereof, including, but not limited to, environmental conditions, compliance with any government regulations or requirements, the implied warranties of habitability, merchantability, or fitness for a particular purpose.

This memorandum contains confidential information and is not to be supplied to any person without Gerbsman Partners’ prior consent.  This memorandum and the information contained herein are subject to the non-disclosure agreement attached hereto in Exhibit A.

SUMMARY OF HISTORICAL INFORMATION[1]

Optify Inc. is a Software-as-a-Service (SaaS) provider of a digital marketing suite for small to mid-size enterprises and digital marketing agencies.  Optify’s suite is very simple to use and thus accessible by a broad swath of less sophisticated marketers in smaller organizations.

In 2012, coinciding with the launch of its email marketing offering, the company shifted the business from primarily services-led SEO contracts with large enterprises (80% of the revenue in January 2012) to a transactional SaaS subscription revenue business with no attached services except training.  A new CEO started in May 2012 to drive the shift in go-to-market strategy.

For the 12 months beginning August 2012, the transactional SaaS subscription revenue has grown 141% to $160,000 of monthly recurring revenue (MRR).

The transactional SaaS distribution channel has been a direct telesales channel, which can be quickly replicated.  The company grew SaaS subscription revenue to agencies and businesses aggressively with a relatively young group of five telesales reps (average experience 2-4 years from college) at an average sales price of $650 MRR and a 25-day sales cycle via online demos and facilitated free trials.

The product strategy focused on a “simple and integrated” digital marketing suite to combine cross-channel marketing data in a single system without needing to log into multiple point solutions and/or merge spreadsheets constantly.

Optify’s digital marketing suite encompasses both “top-of-the-funnel” (inbound) and “mid-funnel” (marketing automation) functionality.
·       Inbound Marketing: The “top-of-the-funnel” areas of the product suite includes website tracking, persistence, and reporting of all website visitors and their historical behavior discretely for both anonymous and known visitors.  The inbound suite also includes Search Engine Optimization (SEO) tools and an integrated Twitter workflow interface.
·       Marketing Automation: The company’s suite also includes a robust “mid-funnel” set of marketing automation tools including landing pages & forms; email marketing; simple marketing automation & automated form-fill response; and a best-in-class contact manager showing all historical interactions with a contact including website visits, form-fills, and emails.

The company is positioned to capitalize on several industry trends – the migration of direct marketers from offline to online; the increased emphasis on accountability and ROI which has fueled the growth of the digital marketing space; and the increased focus on targeting and segmentation.

Optify Inc. is a privately held company.  Optify, founded in 2008, is headquartered in Seattle, Washington.  To date, Optify has secured $10.8 million in equity financing.  It’s Series A round was led by Madrona Venture Group, with Triangle Peak Partners leading the Series B round.  The company also raised $1.5 million in venture debt from Silicon Valley Bank and an additional $2.0m in a convertible note from its two institutional investors.

Target Market:

The product is applicable to any “generalist marketer” who works across channels each week (blog posts optimized for search, customer emails, social, reporting, etc.  This marketer is typically found in a 1-5 person marketing department of a small to mid-size business.

Given limited marketing resources and an ability to differentiate the brand in a tighter and higher leverage segment, Optify further narrowed it’s primary segment of focus to digital marketing agencies.  Every employee in a digital agency besides the controller fits the “generalist marketer” target user description.  According to Adobe publically available information, there are roughly 120,000 smaller digital marketing agencies in North America with that many again in Europe.

Optify’s product continues to be well suited to small to mid-size marketing departments of operating companies.  According to a 2012 Infotrends study, marketing automation for sub-500 person companies represents a $21 billion market opportunity.

Customers:

Optify has over 350 customers.  The customer base breaks down into two categories:
1.  Roughly 190 are digital marketing agencies utilizing the Optify suite to provide retainer-based services for its clients.
2.  The rest are small to mid-sized marketing departments of companies.

Optify’s customer base beyond digital marketing agencies represents a broad set of industries. The monthly MRR billing base of Optify is diverse, as no client represents over 10% of its accounts receivable balance.

Proprietary Digital Marketing Suite and Website Tracking – Intellectual Property:

Optify’s internally developed technology platform currently monitors traffic across more than 1750 websites.  Each visitor, either known or anonymous, is being persisted in a database with their respective visit histories.  The system is architected in a horizontally scalable manner so that additional virtual servers can be added as needed to support additional customers.

Optify vs. Google Analytics: Optify’s site tracking and analytics is well differentiated from industry standard Google Analytics (GA) due to the ability to track and record behavior of discrete visitors, where as GA only provides data in aggregate (how many visits to a page, total visitors, average time on site, etc).

Importantly, Optify’s site tracking is as easy to deploy GA, and therefore much simpler than other website monitoring/analytics solutions like Webtrends or Omniture.  Just like GA, a single java script snippet is required on each web page.  Most Optify customers have both Optify and GA java script snippets on their site.  Optify has also made it increasingly simple to deploy by creating single click installers of the java script for the most common industry content management systems – WordPress and Drupal.

SEO tools and backend: Optify’s backend systems are also running 150,000 – 200,000 keyword analyses per week, effectively imitating searches and scraping resulting search ranks. This large scale search imitation is accomplished via a 3rd party system called Anonymizer to spread the searches across thousands of IP addresses.  The results provide search ranks that are directionally accurate for businesses needing SEO trends and competitor information. Google is making a specific rank nearly impossible to nail down due to local search preferences, search history biasing, etc.

Optify’s email marketing is built on top of Exact Target (now Salesforce.com) plumbing for actually sending the emails.  The entire email marketing interface and user experience is within Optify, however, and the user never knows what plumbing is being used to actually send the email. Since Exact Target is the global standard for high delivery rates, having Exact Target as the Optify OEM email infrastructure provider has proven to be a positive differentiator in the market.

Cross channel data: Optify provides a suite to minimize the number of point solutions, multiple logins, and multiple data sources required to be used today by a generalist marketer.  Because the different feature groups are simple and integrated, the user can seamlessly filter, create lists, execute email campaigns, and run reports with cross-channel data.

An example of utilizing cross-channel data for a segmented list would be a saved list of all known visitors who filled out a certain website form, have opened a certain email, and whose company is in a given state.  This simple filtering would normally require data from 3 different systems (form tracking system, email system, contact management or D&B lookup) and would be far beyond the ability for a typical marketer to merge and execute on any routine basis.

Optify’s product suite contains the following feature groups segmented as either “top-of-the-funnel”  (inbound marketing) and “mid-funnel” (marketing automation) areas of the suite.

Top-of-the-funnel Inbound Marketing feature groups:

1.  Keywords: A tool for analyzing search keywords, checking existing ranks and rank trends over time, selecting competitor websites to compare ranks vs. competitors.
2.  Pages: A tool that can be pointed at any particular page, or many pages, on a site and check SEO rules for a specific keyword(s), what search engine optimization (SEO) opportunities exist for a given page, and an associated task list (H1 tag does not contain keyword, etc) to better optimize the page for SEO characteristics.  Pages uses an Optify-built site crawler which can crawl very complex or simple sites.
3.  Links: A listing of backlinks to a given website.
4.  Twitter for Business: A Twitter interface for sending out tweets and tracking them consistently for reporting purposes and comparison with other cross-channel data inside Optify.
5.  Reporting: A reporting tool with the ability to customize and save reports integrating cross-channel marketing data.
 
Mid-funnel Marketing Automation feature groups:

1.  Lead Intelligence: A summary of all website activity, including both known and anonymous visitors.
2.  Lead Scoring: A user-created score for leads in order to prioritize website traffic. Lead Scoring also sends a daily email of website visitor traffic prioritized or filtered by lead score. The “Daily Lead Mail” is opened by more than 25,000 unique users, many of them sales people, each month.
3.  Landing Pages: A landing page creation and deployment application containing 5 preset landing page templates with many configuration options as well as an iFrame form choice to embed in an existing landing page.
4.  Email: An email marketing section of the app to create emails from existing templates or by pasting in HTML directly.  All key email statistics are provided including opens, click-thrus, hard and soft bounces, etc.  Email can be sent to filtered lists using the same cross-channel filter data available in Contact Manager (see below).
5.  Marketing Automation: Automated response functionality is integrated directly into the “Email” module above. Dynamic, or automated, lists for immediate email responses are integrated into the Contact Manager’s filtering and segmentation tools (see below).
6.  Contact Manager: A best-in-class contact database with automated lookups to D&B and LinkedIn for additional information on each contact along with all historical cross-channel interactions with a contact across website visit history, email history, and previous form fills.
7.  Alerts: The ability to set alerts to individual users (often sales people) based on certain criteria such as company name, specific form completed, etc.

Admin tools: Optify’s administrative tools allow a system admin to move seamlessly between multiple sites with a single login.  This functionality is especially important for digital marketing agencies which manage many clients. These admin tools are highly differentiated against Hubspot and Infusionsoft, both of which were architected from the start to run in single instances against single sites.

FINANCIAL DATA IS PRESENTED FOR INFORMATIONAL PURPOSES ONLY.  PAST PERFORMANCE MAY NOT BE INDICATIVE OF FUTURE RESULTS.  THIS INFORMATION SHOULD NOT BE RELIED UPON TO MAKE FUTURE PERFORMANCE PROJECTIONS OF ANY KIND.  THE COMPANY DOES HAVE AUDITED FINANCIAL STATEMENTS THROUGH CALENDAR YEAR 2012 BASED ON AN AUDIT COMPLETED APRIL 2013. THESE FINANCIAL STATEMENTS ARE AVAILABLE DURING DUE DILIGENCE AND SUBJECT TO AN NDA. (1)

Summary

1.  Strong SaaS Subscription Growth, High Gross Margins

2.  High Growth Industry – Fast growing segment of digital marketing, well-positioned to capitalize on major shifts in marketing strategies and media budget

3.  Mature and Award-winning SaaS Product Suite – Optify’s SaaS digital marketing suite provides a turn key lead generation and cross channel marketing suite, which broadly fits the needs of agencies as well as small to mid-size companies.

4.  Digital Marketing Agency Channel – More than 50% of Optify’s customer base is digital marketing agencies. They are a natural channel into the SMB segment for additional products or services.

5.  Diversified Customer Base with Low Concentration – Optify’s 350 SaaS subscription customers average $450 MRR.

6.  High Traffic B2B Website in Marketing Automation & Digital Marketing: Optify’s website received more than 15,000 unique visitors in July 2013.  Traffic grew more than 10% monthly in the past 2 quarters.

7.  Excellent Brand and Marketing Content within the digital agency space especially.  More than 50 proprietary white papers and other marketing content for lead generation and brand awareness.  Optify’s opted-in house list contains over 40,000 unique email addresses.                  The company twitter handle @optify has over 60,000 followers.

8.  Opportunity for Future Growth and Margin Improvement – The product can be sold through an alternate channel or into an existing customer base at scale.

9.  High Margin SaaS: Optify has been operating with SaaS gross margins in the 80-83% range the past 2 quarters.

The reasons why Optify’s assets are attractive are:

Optify has experienced strong growth of 141% during the past 12 months in its transactional SaaS subscription business.  This growth has been masked on the topline revenue due to a concurrent reduction in SEO services revenue since 2011 as that business become secondary in priority and the key consultants supporting those clients left the business.

Despite large SaaS subscription growth, recent working capital constraints and an overly leveraged balance sheet have created the opportunity for all or a portion of Optify’s assets to be sold.  The acquisition of these assets can enable the purchaser to realize significant short and long term value from the Optify assets as Optify maintains the ability to quickly scale within the context of sufficient working capital and a stronger balance sheet.

Robust SaaS Subscription Growth: Optify’s SaaS subscription revenue has increased 141% in the past 12 months with only 5 sales reps and a tight 25-day transactional sales cycle.  This success is due primarily to having an integrated product strategy in fast growing marketing with far too many point software solutions.

Market Position: The Company has a known brand and competes well with market leader Hubspot in providing a cross channel digital marketing suite for small and mid-sized businesses.  Optify established this position despite a small marketing team and very light marketing budget.  Optify’s position could very quickly be exploited via an existing go-to-market channel or larger installed base and moderate attach rate.

Proprietary Technology Platform and Simple, Proven Suite: Optify’s digital marketing suite is proven, and easy to use.  SaaS adoption has grown rapidly, with unique users logging in per week more than doubling in the past year, and the number of websites being tracked by Optify’s platform growing 164% during that same period.

Known Brand and Website Assets: Optify is a recognized brand name in digital marketing software.  The http://www.optify.net website receives more than 15,000 unique visitors per month.  Optify is known for high quality digital marketing content and studies, all of which are assets of ongoing value in terms of downloads, lead generation, and brand awareness.  Optify’s house list of marketers contains more than 40,000 opt-in names which recognize the Optify brand, as well as a Twitter handle with 60,000 digital marketing followers.

Diversified Customer Base: The Company has over 350 SaaS customers. More than half of these are digital marketing agencies, which provide a high leverage channel into the SMB market.  Optify’s other customers are engaged in a wide variety of primarily B2B industries. By establishing a broad customer base, the Company’s SaaS revenue is broadly diversified and not subject to large fluctuations based on changes at a few customers.

Digital Marketing Agency Channel: Optify possesses a critical mass of more than 180 digital marketing agencies in its customer base.  These agencies are a natural channel and point of leverage into the broad small to mid-sized business segment.  Nearly all paid media companies (search, retargeting, image advertising) are desiring access to this segment as either or both of an influencer channel or reseller.  Other software vendors also want access to this segment or an established brand like Optify in this channel.
 
Management Team at Optify (for information purposes only)[2]:

Rob Eleveld, CEO: Over 23 years of software sales, go-to-market, and management experience with proven success.  Previously, CEO of Shiftboard, a SaaS online scheduling business, and founder/CEO of Vykor, Inc, a provider of supply chain analytics and design-for-cost SaaS plus services solutions for heavy manufacturing.  Enterprise sales at Onyx Software (client-server CRM) and former submarine officer in the US Navy. MBA/MSE from Stanford and BA Engineering Sciences from Dartmouth.

Doug Wheeler, Chief Marketing Officer:  Over 25 years of experience in marketing from large public companies to startups. Previously CMO at Tappin (acquired by Globalscape), EVP Global Marketing for 3 years at DocuSign, EVP Marketing at Biopassword and Lockdown Networks.  Doug was the co-founder and CEO at ScriptRx.  He also held EVP of Corporate Marketing positions at both Citrix and Compaq. BS Computer Information Services from Purdue University and Executive Leadership program at Harvard Business School.

Chris Hundley, CTO: Started as VP Engineering in 2010, promoted to CTO overseeing engineering, product management, and customer support in 2012. Mr. Hundley was previously in Director of Engineering at Visible Technologies, also in the digital marketing space. He was a managing consultant at K2 Information Services and founder/president of Premiere, a development and system integration firm.  BS Computer Science from Minot State University.

Seeking a buyer of Optify’s assets
Optify’s Board of Directors is seeking a buyer of the Optify’s assets, in whole or in part.  Interested parties may bid on all or any part of Optify’s core technology, digital marketing content, pending patents, and customer contracts, enabling the purchaser to leverage Optify’s core technology, content, and customers and to obtain new sales, enhance revenue streams or accentuate or augment other software products.

The Bidding Process for Interested Buyers

Interested and qualified parties will be expected to sign a Confidential Disclosure Agreement (attached hereto as Appendix A) to have access to key members of management and intellectual capital teams and the due diligence “war room” documentation (“Due Diligence Access”). Each interested party, as a consequence of the Due Diligence Access granted to it, shall be deemed to acknowledge and represent (i) that it is bound by the bidding procedures described herein; (ii) that it has had an opportunity to inspect and examine the Optify, Inc. assets and to review all pertinent documents and information with respect thereto; (iii) that it is not relying upon any written or oral statements, representations, or warranties of Gerbsman Partners, or their respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of the interested party, and Gerbsman Partners (and their respective staff, agents, or attorneys) do not make any representations as to the accuracy or completeness of the same.

Following an initial round of due diligence, interested parties will be invited to participate with a sealed bid, for the acquisition of the Optify, Inc. assets. Each sealed bid must be submitted so that it is received by Gerbsman Partners no later than Friday, October 4, 2013 at 3:00pm Pacific Time (the “Bid Deadline”) at Opitfy, Inc.’s office, located at 712 2nd Avenue, Seattle, Washington 98104.  Please also email steve@gerbsmanpartners.com with any bid.

Bids should identify those assets being tendered for in a specific and identifiable way. In particular, please identify separately certain equipment or other fixed assets.

Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase.  All bids must be accompanied by a refundable deposit in the amount of $200,000 (payable to Optify, Inc.).  The deposit should be wired to Optify, Inc.’s attorneys Murray & Murray, A Professional Corporation.  The winning bidder will be notified within 3 business days of the Bid Deadline. The deposit will be held in trust by Optify’s counsel.  Unsuccessful bidders will have their deposit returned to them within 3 business days of notification that they are an unsuccessful bidder.

Optify, Inc. reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all assets from sale.  Interested parties should understand that it is expected that the highest and best bid submitted will be chosen as the winning bidder and bidders may not have the opportunity to improve their bids after submission.

Optify Inc. will require the successful bidder to close within a 7 day period. Any or all of the assets of Optify, Inc. will be sold on an “as is, where is” basis, with no representation or warranties whatsoever.

All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the Optify, Inc. assets shall be the sole responsibility of the successful bidder and shall be paid to Optify, Inc. at the closing of each transaction.

For additional information, please see below and/or contact:

Steven R. Gerbsman
steve@gerbsmanpartners.com 

James Skelton
jim@gerbsmanpartners.com

Kenneth Hardesty
ken@gerbsmanpartners.com

[2] THE BIOGRAPHICAL INFORMATION CONCERNING THE CURRENT MANAGEMENT OF OPTIFY IS INCLUDED FOR INFORMATION PURPOSES ONLY.  ALTHOUGH THIS SALE IS BEING CONDUCTED WITH OPTIFY’S COOPERATION, THIS SALE IS STRICTLY AN ASSET SALE OFFERED BY OPTIFY’S BOARD OF DIRECTORS.  OPTIFY INC. HAS NO ARRANGEMENT PURSUANT TO WHICH BUYER OF THE OPTIFY ASSETS COULD BE ASSURED OF THE FUTURE SERVICES OF ANY OPTIFY OFFICERS OR EMPLOYEES.

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Update to the Bidding Process – Procedures for the Sale of Syncapse Corp.- its Assets and Intellectual Property

Further to Gerbsman Partners e-mail of August 5, 2013 and July, 25, 2013 regarding the sale of Syncapse Corp.’s assets and intellectual property (the “Syncapse Assets”), I attach the draft legal documents, draft fixed asset list and the Receiver’s (defined below) wire transfer information in order to send in your refundable deposit for the Receiver to consider your bid.  Gerbsman Partners – http://gerbsmanpartners.com/ has been retained by MNP Ltd., in its capacity as Court-appointed receiver (the “Receiver”) of the property, assets and undertakings of Syncapse Corp. (“Syncapse”, or the “Company”) (http://syncapse.com/), to solicit interest for the acquisition of the Syncapse Assets.  All parties bidding on the assets are encouraged, to the greatest extent possible, to conform the terms of their bids to the terms and form of the attached agreements.  I would also encourage all interested parties to have their counsel speak with Harvey Chaiton, of Chaitons LLP, counsel to the Receiver, who can be reached at 416 218 1129 or at harvey@chaitons.com

Following an initial round of due diligence, interested parties will be invited to participate with a sealed bid, for the acquisition of the Syncapse Assets. Sealed bids must be submitted so that the bid is actually received by the Receiver no later than August 16, 2013 by 12:00 p.m.Toronto Time (the “Bid Deadline”) at the Receiver’s office, located at 300-111 Richmond Street West , Toronto, ON CANADA M5H 2G4 to the attention of Arif Dhanani.  Please also email steve@gerbsmanpartners.com with any bid.  For additional information regarding bid requirements and considerations, please contact Steve Gerbsman at steve@gerbsmanpartners.com.

1.  All bids must be accompanies by a deposit of 15%, payable to MNP, Ltd, in trust, which is refundable if a potential purchaser is unsuccessful.  The deposit must be in US dollars and wired to the Receiver’s account in advance or paid by certified cheque, money order or bank draft drawn on a Canadian bank.  The winning bidder will be notified within 3 business days of the Bid Deadline. The deposit will be held in trust by the Receiver.  Unsuccessful bidders will have their deposit returned to them within 3 business days of notification that they are an unsuccessful bidder.

Bank Name:  TD Canada Trust

SWIFT address for TD: TDOMCATTTOR
Correspondent bank is Bank of America, NY, NY
SWIFT address for Bank of America: BOFAUS3NXXX
Fedwire ABA # 026009593
Address: 100 33rd Street West, New York, NY  10001

US dollar account:

Account name: MNP Ltd.
IBAN (institution #) 004, transit #10852, account # 7328451
Branch address: 100 – 220 Commerce Valley Dr. West, Markham ON  L3T 0A8

2.  The winning bidder’s offer with be for “Cash”, payable in US dollars either by wire transfer or certified cheque, money order or bank draft drawn on a Canadian bank.

3.  If any potential interested party is interested in the Toronto Syncapse office space, please let me know as soon as possible.

4.  After a successful bidder is identified for the sale of the intellectual property, the Receiver may consider selling the balance of the uncollected accounts receivable at that time.  Please do not include amounts for the purchase of accounts receivable in your bid.

 5.  Please specify all assets and intellectual property that you will be bidding on.  Assets and intellectual property may include the Syncapse platform, source code, historical financial information, customer agreements (may or may not be assignable), trademarks, brand, patent, marketing and strategy information, India operation and/or other designated assets.

For your convenience, I have restated the description of the Updated Bidding Process.

The key dates and terms include:

The Bidding Process for Interested Buyers

Interested and qualified parties will be required to sign a Non-Disclosure Agreement (attached hereto as Attachment A) to have access to certain members of management and intellectual capital teams and the due diligence “war room” documentation (“Due Diligence Access”). Each interested party, as a consequence of the Due Diligence Access granted to it, shall be deemed to acknowledge and represent (i) that it acknowledges and agrees to the bidding procedures described herein; (ii) that it has had an opportunity to inspect and examine the Syncapse Assets and to review all pertinent documents and information with respect thereto; (iii) that it is not relying upon any written or oral statements, representations, or warranties of the Receiver, Syncapse or Gerbsman Partners, or their respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of the interested party, and the Receiver, Syncapse and Gerbsman Partners (and their respective staff, agents, or attorneys) do not make any representations and warranties whatsoever as to the accuracy or completeness of the same.

Following an initial round of due diligence, interested parties will be invited to participate with a sealed bid, for the acquisition of all or part of the Syncapse Assets. Each sealed bid must be submitted so that it is received by the Receiver no later than Friday, August 16, 2013 at 12:00pm Toronto Time (the “Bid Deadline”) at the Receiver’s office, located at 300-111 Richmond Street West , Toronto, ON CANADA M5H 2G4 to the attention of Arif Dhanani.  Please also email steve@gerbsmanpartners.com with any bid.  For additional information regarding bid requirements and considerations, please contact Steve Gerbsman at steve@gerbsmanpartners.com.

Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase.  All bids must be accompanied by a refundable deposit in the amount of 15% of the offer amount (payable to the Receiver, in trust).  The deposit must be wired to the Receiver’s account in advance (information will be provided), or paid by certified cheque, money order or bank draft drawn on a Canadian bank.  The winning bidder will be notified within 3 business days of the Bid Deadline. The deposit will be held in trust by the Receiver.  Unsuccessful bidders will have their deposit returned to them within 3 business days of notification that they are an unsuccessful bidder.

The Receiver is free to conduct the sale process as it determines in its sole discretion (including, without limitation, terminating further participation in the process by any party, negotiating with prospective purchasers and entering into an agreement with respect to a sale transaction without prior notice to you or any other person) and any procedures relating to such transaction may be changed at any time without prior notice to you or any other person.  For greater certainty, the Receiver reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all assets from sale.  Interested parties should understand that it is expected that the highest and best bid submitted will likely be chosen as the winning bidder and bidders may not have the opportunity to improve their bids after submission.

The Receiver will require the successful bidder to close within 5 days after Court approval of the transaction. The Syncapse Assets will be sold on an “as is, where is” basis, with no representation or warranties whatsoever.

All sales, transfer, and recording taxes, stamp taxes, or other taxes, if any, relating to the sale of the Syncapse Assets shall be the sole responsibility of the successful bidder and shall be paid to the Receiver at the closing of any transaction.

For additional information, please see below and/or contact:

Steven R. Gerbsman
steve@gerbsmanpartners.com

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The Advantages of a “Date-Certain” Mergers and Acquisition Process Over a “Standard Mergers and Acquisitions Process”
Every venture capital investor hopes that all of his investments will succeed. The reality is that a large percentage of all venture investments must be shut down. In extreme cases, such a shut down will take the form of a formal bankruptcy or an assignment for the benefit of creditors. In most cases, however, the investment falls into the category of “living dead”, i.e. companies that are not complete failures but that are not self-sustaining and whose prospects do not justify continued investment. Almost never do investors shut down such a “living dead” company quickly.

Most hope against hope that things will change. Once reality sets in, most investors hire an investment banker to sell such a company through a standard mergers and acquisition process – seldom with good results. Often, such a process requires some four to six months, burns up all the remaining cash in the company and leads to a formal bankruptcy or assignment for the benefit of creditors. In many instances, there are a complete lack of bidders, despite the existence of real value in the company being sold.

The first reason for this sad result is a fundamental misunderstanding of buyer psychology. In general, buyers act quickly and pay the highest price only when forced to by competitive pressure. The highest probability buyers are those who are already familiar with the company being sold, i.e. competitors, existing investors, customers and vendors. Such buyers either already know of the company’s weakness or quickly understand it as soon as they see the seller¥s financials. Once the sales process starts, the seller is very much a wasting asset both financially and organizationally. Potential buyers quickly divide the company’s burn rate into its existing cash balance to see how much time it has left. Employees, customers and vendors grow nervous and begin to disengage. Unless compelled to act, potential buyers simply draw out the process and either submit a low-ball offer when the company is out of cash or try to pick up key employees and customers at no cost when the company shuts down.

The second reason for this sad result is a misunderstanding of the psychology and methods of investment bankers. Most investment bankers do best at selling “hot” companies, i.e. where the company’s value is perceived by buyers to be increasing quickly over time and where there are multiple bidders. They tend to be most motivated and work hardest in such situations because the transaction sizes (i.e. commissions) tend to be large, because the publicity brings in more assignments and because such situations are more simply more fun. They also tend to be most effective in maximizing value in such situations, as they are good at using time to their advantage, pitting multiple buyers against each other and setting very high expectations. In a situation where “time is not your friend”, the actions of a standard investment banker frequently make a bad situation far worse. First, since transaction sizes tend to be much smaller, an investment banker will assign his “B” team to the deal and will only have such team spend enough time on the deal to see if it can be closed easily. Second, playing out the process works against the seller. Third, trying to pit multiple buyers against each other and setting unrealistically high valuation expectations tends to drive away potential buyers, who often know far more about the real situation of the seller than does the investment banker.

“Date Certain” M&A Process” -The solution in a situation where “time is not your friend” is a “date-certain” mergers and acquisitions process. With a date-certain M&A process, the company’s board of directors hires a crisis management/ private investment banking firm (“advisor”) to wind down business operations in an orderly fashion and maximize value of the IP and tangible assets. The advisor works with the board and corporate management to:

1. Focus on the control, preservation and forecasting of CASH.
2. Develop a strategy/action plan and presentation to maximize value of the assets. Including drafting sales materials, preparing information Ïdue diligence war-room, assembling a list of all possible interested buyers for the IP and assets of the company and identifying and retaining key employees on a go-forward basis.
3. Stabilize and provide leadership, motivation and morale to all employees.
4. Communicate with the Board of Directors, senior management, senior lender, creditors, vendors and all stakeholders in interest.
The company’s attorney prepares very simple “as is, where is” asset-sale documents. (“as is, where is- no reps or warranties” agreements is very important as the board of directors, officers and investors typically do not want any additional exposure on the deal). The advisor then contacts and follows-up systematically with all potentially interested parties (to include customers, competitors, strategic partners, vendors and a proprietary distribution list of equity investors) and coordinates their interactions with company personnel, including arranging on-site visits. Typical terms for a date certain M&A asset sale include no representations and warranties, a sales date typically two to four weeks from the point that sale materials are ready for distribution (based on available CASH), a significant cash deposit in the $200,000 range to bid and a strong preference for cash consideration and the ability to close the deal in 7 business days.

Date certain M&A terms can be varied to suit needs unique to a given situation or corporation. For example, the board of directors may choose not to accept any bid or to allow parties to re-bid if there are multiple competitive bids and/or to accept an early bid. The typical workflow timeline, from hiring an advisor to transaction close and receipt of consideration is four to six weeks, although such timing may be extended if circumstances warrant. Once the consideration is received, the restructuring/insolvency attorney then distributes the consideration to creditors and shareholders (if there is sufficient consideration to satisfy creditors) and takes all necessary steps to wind down the remaining corporate shell, typically with the CFO, including issuing W-2 and 1099 forms, filing final tax returns, shutting down a 401K program and dissolving the corporation etc.

The advantages of this approach include the following:

Speed – The entire process for a date certain M&A process can be concluded in 4 to 6 weeks. Creditors and investors receive their money quickly. The negative public relations impact on investors and board members of a drawn-out process is eliminated. If circumstances require, this timeline can be reduced to as little as two weeks, although a highly abbreviated response time will often impact the final value received during the asset auction.

Reduced Cash Requirements – Given the date certain M&A process compressed turnaround time, there is a significantly reduced requirement for investors to provide cash to support the company during such a process.

Value Maximized – A company in wind-down mode is a rapidly depreciating asset, with management, technical team, customer and creditor relations increasingly strained by fear, uncertainty and doubt. A quick process minimizes this strain and preserves enterprise value. In addition, the fact that an auction will occur on a specified date usually brings all truly interested and qualified parties to the table and quickly flushes out the tire-kickers. In our experience, this process tends to maximize the final value received.

Cost – Advisor fees consist of a retainer plus 10% or an agreed percentage of the sale proceeds. Legal fees are also minimized by the extremely simple deal terms. Fees, therefore, do not consume the entire value received for corporate assets.

Control – At all times, the board of directors retains complete control over the process. For example, the board of directors can modify the auction terms or even discontinue the auction at any point, thus preserving all options for as long as possible.

Public Relations – As the sale process is private, there is no public disclosure. Once closed, the transaction can be portrayed as a sale of the company with all sales terms kept confidential. Thus, for investors, the company can be listed in their portfolio as sold, not as having gone out of business.

Clean Exit – Once the auction is closed and the consideration is received and distributed, the advisor takes all remaining steps to effect an orderly shut-down of the remaining corporate entity. To this end the insolvency counsel then takes the lead on all orderly shutdown items.

Gerbsman Partners focuses on maximizing enterprise value for stakeholders and shareholders in under-performing, under-capitalized and under-valued companies and their Intellectual Property. Since 2001, Gerbsman Partners has been involved in maximizing value for 76 Technology, Medical Device, Solar and Life Science companies and their Intellectual Property and has restructured/terminated over $810 million of real estate executory contracts and equipment lease/sub-debt obligations. Since inception, Gerbsman Partners has been involved in over $2.3 billion of financings, restructurings and M&A transactions.

Gerbsman Partners has offices and strategic alliances in Boston, New York, Washington, DC, McLean, VA, San Francisco, Europe and Israel.

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Email: Steve@GerbsmanPartners.com
Web: www.gerbsmanpartners.com
BLOG: http://blog.gerbsmanpartners.com

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