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MyWire, Inc.- Date Certain M&A of its Assets and Intellectual Property

Posted in Board Of Intellectual Capital, Distressed IP, Gerbsman Partners, Intellectual capital, Investments, Strategy, Technology, Venture Capital, tagged , , , , on November 4, 2010| Leave a Comment »

Sale of MyWire, Inc.

Gerbsman Partners (www.gerbsmanpartners.com) has been retained by MyWire, Inc. (www.mywire.com) to solicit interest for the acquisition of all, or substantially all, of MyWire’s assets.

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 MyWire’s Assets has been supplied by MyWire. It 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 as a statement, opinion, or representation of fact.  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 MyWire’s or Gerbsman Partners’ negligence or otherwise.

Any sale of the MyWire 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 MyWire and Gerbsman Partners.  Without limiting the generality of the foregoing, MyWire and Gerbsman Partners and their respective staff, agents, and attorneys, hereby expressly disclaim any and all implied warranties concerning the condition of the MyWire 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 is not to be supplied to any other person without Gerbsman Partners’ prior consent.  The information contained herein is not subject to the Confidential Disclosure Agreement, however any additional requested information would require execution of the attached CDA attached hereto as Exhibit A.

Overview

MyWire is poised to ignite a paid content revolution that will redefine the economics of online content for publishers and consumers.
MyWire’s publisher program includes:

·     MyWire Publisher Network, a market-based platform that links publishers together, creating a pinball effect that keeps users on publisher sites longer.

·     MyWire-branded multi-publication subscriptions comprised of paid content from hundreds of publishers. Content is viewed on originating publishers’ websites, and subscriptions are sold by publishers on their own sites.

·     A single MyWire user account for organizing, interacting with, and purchasing content as the user traverses the Publisher Network.

The transition to digital presents publishers with both a formidable challenge and an enormous opportunity to achieve outcomes similar to those achieved centuries ago with the invention of the printing press – an explosion in knowledge, a better way of life for consumers, and long-term publishing industry expansion.

A privately held company, MyWire (founded in 2002 as KeepMedia, Inc.) is headquartered in Redwood Shores, California.  Over $30 million has been invested to date in MyWire by Mercury Capital Management, an investment group headed by Louis H. Borders.

Publisher Network

·              Publishers have traditionally been focused on content creation.  To be relevant in the digital age, publishers must add curation to their repertoire – being connected to other content has proven to be the key service of the winning digital-only publishers.

·              MyWire’s Publisher Network provides a menu of web-based services that enables connectivity to other content.  The services are easy to implement, and operate independently of publishers’ own content management systems.  As a result, publishers improve their site metrics with new pages, better ad-targeting, and a network effect that recaptures traffic from search engines.  And unlike aggregators and hubs, the MyWire Publisher Network does not draw traffic from publishers’ sites; instead, it supports each publisher’s own retail presence.

Consumers experience the Publisher Network as enhancements to their favorite publisher sites which provide instant access to content from across the web – curated lists of content, high quality related abstracts, and new topic pages.

Multi-Publication Subscriptions

MyWire multi-publication subscriptions make available, for one modest price, paid content from hundreds of publishers.  Packages are designed to fill distinct and universal consumer needs such as news, business, and knowledge (referred to as Universal Packages).  MyWire has launched or is ready to launch three such packages (see drawing) and has designed a collection of packages that would comprise a “basic digital” service similar to a cable offering.

Packages are sold by publishers as co-branded offerings on their own sites.  As has been proven in the cable industry, the simplicity and variety of a package enables each publisher to earn more revenue than it would by selling single publisher subscriptions.  Unlike cable, MyWire packages are easily understood by consumers, and the marketing of the packages leverages existing publisher traffic.
The MyWire subscription program gives publishers complete flexibility to set the pricing of their own content.  Because packages have a higher sell-thru rate than a go-it-alone offer and because of crowd-selling (many publishers selling the same package), MyWire packages are capable of achieving broad adoption and an effective paid content revenue stream for publishers.

Market Opportunity

·     Size According to PWC, $558 billion in non-internet paid content revenue is currently subject to internet competition.  The pace of the transition has been steady and gaining momentum.  With the estimated delivery of 100 million mobile tablet devices in the next three years, the pace of transition is expected to increase dramatically.

·     Need for paid content Many sectors of the publishing industry, such as news, B2B and music, are struggling to successfully transition to a paid digital model.  While they strive to capitalize on a direct retail presence via the internet, they are unable to adequately monetize their content.  For many publishers, an effective paid model is their number one priority.

MyWire Technology Platform – Intellectual Property Assets

MyWire’s end-to-end solution consists of web-based offerings that are easy for publishers to implement, can be used as a menu of services, and work independently of publishers’ content management systems.  The Publisher Network infrastructure has a content engine that ingests and processes content feeds, a set of self-contained web flows to provide end-user services such as subscription forms, and web services invoked by publishers for access control and content delivery.

The main architectural components, focusing on capabilities for publishers, consist of:

·     Content Engine Responsible for ingesting content feeds from publishers and performing the processing necessary to deliver relevant content to users.

·     Loader/Feeder Multi-threaded processes that monitor incoming feeds, preprocess these feeds into a standard format, queue up the feeds for processing, extracting and persisting metadata, write content to the file system, and execute business rules such as price type calculation and duplicate detection.

·     Search Indexer Responsible for adding new and updated items to a scalable pool of search servers.

·     Relatedness algorithms MyWire performs semantic analysis and metadata extraction using a combination of licensed commercial text mining engines and its own proprietary algorithms.  The resulting calculations are used to determine relatedness between content objects and to generate recommendations.

·     Search MyWire implements full-text search on top of open source systems extended with proprietary business logic to support time slicing, boosting and filtering based on price type, package assignments and other metadata.

·     Page delivery Web pages are built using a standard J2EE MVC model and delivered via caching layers to ensure scale and high performance.

·     Service Calls MyWire uses REST-based APIs, all based on the same Spring/Hibernate infrastructure, to deliver its:

·     Access control service to determine if a specific paid item is available for consumption to a specific user.

·     Paywall service to deliver embedded HTML containing a subscription offer around a specific item or package.

·     Widget-based blocks of relevant content, based on curation, related item calculations, or search results.

·     Data Warehouse A separate data warehouse is populated via daily and weekly ETL jobs and stored procedure-based summarization logic.

·     Performance measurement tools Frameworks to enable MyWire and publishers to effectively measure a system’s performance characteristics, identify bottlenecks under load, and verify successful tuning.

MyWire’s architecture uses a mix of traditional, Java-based enterprise open source frameworks, proprietary modules, and when necessary, enterprise systems, such as Oracle databases for transactional customer information.  Designed as a modular system with efficient schema, carefully tuned queries, and appropriate in-memory data caching, the MyWire platform performs well under heavy load and is horizontally scalable.

Intellectual Property Assets

MyWire product development to date consists of:

·     Almost 100 product releases delivered on an Agile basis in a mix of two-week and three-week product cycles.

·     Over 275K lines of Java code, 9K lines of PL/SQL code, and 200 JSP files.

·     All code delivered since 2008 conforms to a documented set of coding standards and code review checklists.  All existing consumer-facing functionality has been redesigned to meet the coding standards.

·     Over 1,500 unit tests covering 50% of the code base.  The covered code has 78% method level coverage.

·     Over 1,800 documented user stories.

·     190 automated test cases.

·     Automated continuous and daily build systems to apply Java, JSP, CSS, JavaScript, and xHTML linting and perform unit tests, performance regressions, code coverage, documentation generation, and deployable packaging.

·     Modular J2EE deployables for:

·     Consumer and Publisher web experience

·     Partner Network services

·     Content Engine services

·     Content Engine processing

·     Batch processes for search-index updates, related-item calculations, near-duplicate calculation, analytics data capture, and expired-item purging

·     Back-end financial reporting and review

·     Batch messaging services

·     Search engine

·     Executive metrics dashboard

MyWire product architecture:

·     Database schema for content targeted to MySQL 5.0.  Master database is replicated to a read-only cluster and a back-up server.

·     Database schema for customer accounts targeted to Oracle 11g.  Deployed to an active/active two-node configuration.

·     Database schema and stored procedures for data warehouse targeted to Oracle 10g.

·     J2EE deployables for middle-tier business logic and UI client code targeted to Resin 3.0 and JDK 1.5.  Deployed to a cluster of web servers and a cluster of search servers.

·     Frameworks for metric calculation, performance monitoring, reporting, logging and caching.

Supporting development resources:
·     Subversion repository containing version history of code base.

·     Automated continuous and daily build infrastructure using Ant and CruiseControl.

·     Jira database recording release history, use cases, and open and closed issues.

·     Company wiki containing coding standards, requirements, UI and technical design documents, and test cases.

Competitive Advantage

MyWire’s platform uniquely empowers publishers.  Several large-scale, high-profile efforts (Project Alesia, Next Issue and Skiff) have attempted to provide publishers an effective paid model. However, their business models weakened publishers by drawing off their traffic.  Existing services in the digital marketplace similarly weaken publishers (see chart below).  MyWire’s platform connects publishers as a network of equals, provides services to publishers to enhance their sites, and enables their users to conduct media commerce directly on publisher sites.  In addition, MyWire has no advertiser relationships, avoiding disintermediation of publishers from their advertisers.

Why MyWire’s assets are attractive

MyWire’s platform has been tested on a modest scale and is ready to deploy on a large scale.  An acquisition of MyWire’s assets can enable the purchaser to realize significant short and long-term value.

·     End-to-end built platform The MyWire team has proven development expertise with visionary, high performance, large-scale deployments.  The MyWire platform is comprehensive, PCI-compliant and designed for scale, speed and high service levels.

·     Market Position that empowers publishers The MyWire Publisher Network harnesses the power of publishers to shift the momentum to paid content, recapture traffic from search engines and even extract fees from them.        MyWire has conducted hundreds of review meetings with senior executives at leading publishing companies, primarily in the news and B2B sectors (the sectors most amenable and in need of a paid model).  The result is a platform that fits publisher needs and supports their direct consumer relationships.

·     Ease of use for publishers The MyWire platform is designed to operate independently of publishers’ content-management systems.  Publisher participation in the menu-based Network services is as simple as placing widgets (similar to ad widgets) on their sites.  Paid content services are handled by MyWire as embedded services on publishers’ sites (again avoiding integration issues with publishers’ content-management systems).

·     Usability for users Consumers experience the Publisher Network as a variety of unbranded enhancements to their favorite publisher sites, such as curated lists of content, instant access to quality related abstracts, and new topic pages. As a result, consumers will use their favorite publisher sites more frequently.

·     Efficient marketing model MyWire’s Publisher Network leverages publishers’ existing traffic by using related links to broadly market publisher content (free and paid).  MyWire pays a “seller bounty” to publishers that sell a subscription package to which they are contributing paid content.  The bounty is paid as a share of subscription revenue and has the dual benefit of attracting publishers to the MyWire program and eliminating front-end marketing expenses for MyWire.

·     Market dynamics MyWire pays out the largest portion of subscription revenue to publishers based on usage.  Since, in the initial stages of a package launch, a subscriber will likely view mostly free items, paid items earn extraordinarily high revenue per view.  This market-driven dynamic will induce publishers to add paid content to MyWire Universal Packages, initiating a virtuous cycle.

·     Antitrust protection MyWire requested and received a business review letter from the Department of Justice regarding its subscription package program which provides a high degree of comfort that the MyWire program will be compliant with US antitrust law.

·     New Category MyWire defines a new category – the organization of publisher-only content (and high-quality, focused search results) for digital delivery,  distributed on participating publisher sites.

·     Scale of business opportunity Cable has 95 million subscribers in the US alone with an average subscription rate of $70 per month.  Digital subscriptions can expect US revenues comparable to this $80 billion annual rate.  Even in the nascent digital subscription market, the leading digital multi-publication subscription, Netflix, has already garnered over 15 million subscribers for its movies package.  The MyWire platform is architected for multiple packages that can roll out quickly, and with minimal development effort once the first package reaches scale.  The Publisher Network is also well suited for extensions that support additional publisher monetization efforts, such as mobile delivery, lead generation and their existing commerce.

·     Location MyWire’s location is ideal to build a major internet consumer-branded platform company.  MyWire is located within 30 miles of Google, Facebook, Twitter, Yahoo and eBay.

Executive Development Team

·     Louis H. Borders – Founder and CEO Founder/co-founder of Borders Books & Music, Webvan and Synergy Software.  B.A. in Mathematics from the University of Michigan, graduate studies in mathematics at MIT.

·     Dan Climan – Vice President, Software Engineering 18 years of engineering, media, and retailing experience; Principal at Booz Allen & Hamilton; Webvan.  B.S. in Computer Science from Yale University, M.B.A from Wharton.

·     Daniel Lipkin – Vice President, Architecture 18 years of software architecture and engineering experience; Director of Development at Visible Path; Chief Architect & Director of Development at Saba Software; Oracle.  B.S. in Computer Science from Stanford University.

·     San Mai – Vice President, Product Management 20 years of product management experience; Vice President, Product Management at WorkingPoint, MarketLive and Inktomi Corporation; Netscape.  B.S. in Computer Engineering and M.B.A. from Santa Clara University.

The Bidding Process for Interested Buyers

Interested and qualified parties will be expected to sign a nondisclosure agreement (attached hereto as Exhibit A) to have access to key members of the management and intellectual capital teams and the due diligence “war room” documentation (the “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 an opportunity to inspect and examine the MyWire 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) that 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 MyWire Assets.  Sealed bids must be submitted so that they are actually received by Gerbsman Partners no later than Friday, December 17, 2010 at 3:00 p.m. Pacific Time (the “Bid Deadline”) at MyWire’s office, located at 275 Shoreline Drive, Suite 100, Redwood Shores, California 94065.  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.  The MyWire fixed asset list (attached hereto as Exhibit B) may not be complete and bidders interested in the MyWire equipment must submit a separate bid for such 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 where applicable.  All bids must be accompanied by a refundable deposit check in the amount of $250,000 (payable to MyWire, Inc.).  The winning bidder will be notified within 3 business days of the Bid Deadline.  Unsuccessful bidders will have their deposits returned to them within 3 business days of notification that they are an unsuccessful bidder.

MyWire reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all of the 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.

MyWire will require the successful bidder to close within a 7 day period.  Any or all of the assets of MyWire 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 MyWire Assets shall be the sole responsibility of the successful bidder and shall be paid to MyWire at the closing of each transaction.
For additional information, please see below and/or contact:

Steven R. Gerbsman
Gerbsman Partners
(415) 456-0628
steve@gerbsmanpartners.com

Kenneth Hardesty
Gerbsman Partners
(408) 591-7528
ken@gerbsmanpartners.com

Dennis Sholl
Gerbsman Partners
(415) 457-9596
dennis@gerbsmanpartners.com

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Venture fund to help social-networking startups

Posted in Board Of Intellectual Capital, Community, Economy, FaceBook, Gerbsman Partners, Intellectual capital, internet, Investments, Market research, Mobile, Social Networks, Strategy, Uncategorized, Venture Capital, Web 2.0 on October 22, 2010| Leave a Comment »

Article from SF Gate.

A partnership backed by Facebook, Amazon.com, Comcast and other major technology firms on Thursday established a $250 million fund to invest in startups that hope to capitalize on the growing reach of social networking.

The “S Fund” will be led by powerhouse Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers, an early investor in Internet companies such as Amazon, AOL and Google.

The fund’s backers are betting that the success of Facebook, which has more than 500 million members worldwide, is only the start of the next wave of “incredible and disruptive innovation,” Kleiner Perkins partner John Doerr said.

So the investors want “to find and fund and accelerate the success of these new kinds of social entrepreneurs,” Doerr said during a news conference hosted by Facebook.

The six initial investors are Facebook; e-commerce giant Amazon; cable TV and broadband service provider Comcast Corp.; social games leader Zynga Games Network Inc.; communications and entertainment giant Liberty Media Corp.; and investment bank Allen & Co. LLC.

Joining Doerr on stage at the event were Facebook chief executive Mark Zuckerberg, Amazon chief executive Jeff Bezos, Zynga chief executive Mark Pincus and Bing Gordon, former chief creative officer of video game publisher Electronic Arts. Gordon, now a partner at Kleiner Perkins, will lead the fund.

“Social is going to be a breeding ground for great CEOs,” Bezos said.

Bezos also said he wants to find startups that will use his company’s platform of cloud computing services, called Amazon Web Services.

“These social apps do tend to be very viral, and when they hit, they hit fast and they can grow violently,” Bezos said. “That really does play to the strengths of Amazon Web Services.”

Zuckerberg said the fund will help entrepreneurs who are trying to build social applications and services “from the ground up.”

“The opportunity is there in the next five years or so to pick any industry and reimagine it in the social Web,” he said.

The fund’s first $5 million investment went to CafeBots Inc., a Palo Alto startup that is working on a “friend relationship management” platform to help consumers make better use of their social network.

The startup, the brainchild of three Stanford University graduates, hasn’t released its product and is still in stealth mode.

CafeBots co-founder Michael Munie, 28, said that in addition to the money, inclusion in the fund gives his startup access to the entrepreneurial expertise of Kleiner Perkins, Facebook and the other investing companies.

As examples of the kind of “social Web” firms that could be funded, Kleiner Perkins trotted out representatives of several companies it previously invested in, including Flipboard Inc., which earlier this year launched a popular iPad app that creates a personalized magazine-style display of Facebook, Twitter and other news media feeds.

Read more here.

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The Big 11 Tech Acquirers

Posted in Board Of Intellectual Capital, Distressed IP, Economy, Gerbsman Partners, Intellectual capital, Investments, Market research, Strategy, Technology, Venture Capital, tagged , , , , , , , , , , , , , , , , , , , , , , , , , , on October 19, 2010| Leave a Comment »

Article from GigaOm.

Fundamental changes in networking and computing are shaking things up in the enterprise IT world. These changes, combined with ubiquitous broadband and new devices like smart phones and tablets, are leading to new business models, new services and shifts in corporate behavior. It’s also leading to a lot of M&A activity as companies jockey for position before the ongoing technology shift settles into the new status quo.

A report out today from Deutsche Bank lays out some of the shifts and names what it believes are the 11 most likely acquirers, calling those companies the Big 11. The bank’s Big 11 are: Apple, Cisco, Dell, EMC, Google, HP, IBM, Intel, Microsoft, Oracle and Qualcomm. They were selected because of their size, their cash balance and their willingness to make strategic acquisitions. The report talks about which companies each might acquire, but it also gives a wealth of data on the companies which comprise the Big 11 that any startup looking for a buyer on the software and infrastructure side might find worthwhile.

In addition to the information on buyers, the report goes on to explain why many deals today are valued at multiples that are so much higher than the potential revenue of the company (HP’s buy of 3PAR is a prime example of this trend):

On the other hand, the multiples paid for these companies go counter to typical expectations for valuations. All of these deals were priced at considerable premiums to forward estimates. The implication is that the larger companies believed that there were strategic benefits far in excess of the smaller companies’ near-term prospects. A common criticism of acquisitions holds that management teams of large companies try to buy revenue and earnings to offset far lower growth rates in their core businesses. This does not appear to be the case with these deals. We see this as confirming our thesis that large companies are looking to buy technology and product synergies. In all of these deals, we see larger companies either significantly building up weak product lines or looking for the ability to bundle new features into existing equipment.

Some of the 50 targets mentioned are:

  • Salesforce.com (s crm )
  • VMware
  • Adobe
  • Citrix
  • Research In Motion
  • Riverbed Technology
  • SAP
  • Atheros
  • Skyworks
  • f5 (sffiv)
  • Juniper

Each are on the list of potential candidates for different reasons associated with improving the quality and speed of delivering web-based applications and services from a cloud-based infrastructure to a multitude of devices. However, there are plenty of startups and private companies that are pioneering new technologies in these areas which are also fair game. The report doesn’t go into the content side of the business where companies like Google, Facebook, Apple, Disney, etc. are fighting for features and services to expand their reach and platforms.

Since we’re living through an enormous period of potential disruption thanks to technology, the giants in the industry find themselves playing a game of musical chairs as they seek the best seat at the table for the future. Startups and larger public companies that will help those giants fill out their offerings before the music stops are under the microscope and perhaps at the top of their valuations.”

Read the original post here.

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The Advantages of a “Date-Certain M&A Process” over an “Assignment for the Benefit of Creditors – ABC”

Posted in Board Of Intellectual Capital, boic, Distressed IP, Gerbsman Partners, Intellectual capital, Investments, Strategy, tagged , , , on October 4, 2010| Leave a Comment »

Apart from a formal bankruptcy (Chapter 7 or Chapter 11) there are two basic approaches to maximizing enterprise value for under-performing and/or under-capitalized technology, life science and medical device companies and their Intellectual Property: a “date-certain” M&A process and an assignment for the benefit of creditors (ABC).

Both of these processes have significant advantages over a formal bankruptcy in terms of speed, cost and flexibility. Gerbsman Partners’ experience in utilizing a “date certain” M&A process has resulted in numerous transactions that have maximized value anywhere from 2-4 times what a normal M&A process would have generated for distressed asset(s). 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 “due 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 three to four weeks from the point that sale materials are ready for distribution (based on available CASH), a significant cash deposit in the $100,000 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 3 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 – 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.

To this end the insolvency counsel then takes the lead on all orderly shutdown items. In an assignment for the benefit of creditors (ABC), the company (assignor) enters into a contract whereby it transfers all rights, titles, interests, custody and control of all assets to an independent third-party trustee (assignee). The Assignee acts as a fiduciary for the creditors by liquidating all assets and then distributing the proceeds to the creditors. We feel that an ABC is most appropriate in a situation with one or more highly contentious creditors, as it tends to insulate a board of directors from the process. Nevertheless, we have found that most creditors are rational and will support a quick process designed to maximize the value that they receive. A good advisor will manage relationships with creditors and can often successfully convince them that a non-ABC process is more to their advantage. Apart from its one advantage of insulating the board of directors from the process, an ABC has a number of significant disadvantages, including:

Longer Time to Cash – Creditors and investors will not receive proceeds for at least 7 months (more quickly than in a bankruptcy but far slower than with a “date-certain” auction).

Higher Cost – Ultimately, ABCs tend to be more expensive than a date-certain© auction. It is not uncommon for the entire value received from the sale of company assets to be consumed by fees and/or a transaction for maximizing value may not be consummated in a timely fashion.

Loss of Control – Once the assets are assigned to the independent third-party trustee, the board of directors has no further control over the process. It cannot modify the process in any way or discontinue the process. Thus, it is not possible to explore multiple options in parallel.

Higher Public Relations Profile – The longer time frame for the ABC process and the more formal (and public) legal nature of an ABC make it more difficult to put a positive spin on the final outcome.

Messy Exit – Most independent third-party trustees do not perform the services of cleanly shutting down the remaining corporate shell. Thus, investors must either pay another party to do this job or leave it undone, resulting in increased liability.

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. In the past 84 months, Gerbsman Partners has been involved in maximizing value for 62 technology, life science and medical device companies and their Intellectual Property and has restructured/terminated over $795 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, Virginia/Washington DC, Boston, Europe and Israel.

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