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Gerbsman Partners – Advantages of ‘Date-Certain M&A Process over Standard M&A’

Posted in Uncategorized, tagged , , on May 19, 2019| Leave a Comment »

Advantages of ‘Date-Certain M&A Process over Standard M&A’ – Gerbsman Partners

Every venture capital investor hopes that all his investment will succeed. The reality is, however, that a large percentage of venture investments eventually are shut down.

In the extreme they end in bankruptcy or assignment to creditors. The majority falls into the category of the “living dead.” Such companies are not complete failures, but their prospects do not justify continued investment, yet they are rarely shut down quickly.

Once reality has been recognized, most investors engage investment bankers to sell their investment off through prevailing M&A processes. Unfortunately, seldom with good results.

REASON #1

The main reason for that sad result is a fundamental misunderstanding of buyer psychology. In general, buyers act quickly and pay the highest price only by force of competitive pressure.

Potential buyers of the highest probability are those already familiar with the company for sale, such as competitors, existing investors customers and vendors. Once a sales process starts the seller is very much a diminishing asset. Both financially and organizationally.  Unless compelled to act, potential buyers simply start to draw out the process, submit a low-ball offer when the seller runs out of cash, or try to pick up key employees and customers at no cost.

REASON #2

The second reason is usually a misunderstanding of the psychology and methods of investment bankers.

Most investment bankers do best at selling “hot” companies. Companies whose value is perceived by buyers to be increasing quickly over time, and where there are multiple bidders.

They tend to be more motivated and work harder on such cases because transaction sizes –and resulting commissions– are larger and surrounding publicity can bring in new assignments, among others. They also tend to be more effective in maximizing value in such situations by using time to their advantage, pitting buyers against each other and setting very high expectations.

In a situation where time is not your friend, the actions of standard investment banking practices often make a bad situation much worse. Such actions include assigning less experience B-Teams to smaller transaction size cases, “playing out the process” which works against the seller, and pitting multiple players against each other which can drive away potential buyers who often know far more about the seller than does the banker.

 

THE GERBSMAN PARTNERS Proprietary ‘DATE-CERTAIN’ M&A PROCESS

The most effective solution in situations where time is not on your side is a Date-Certain Merger and Acquisition Process.

Under this proprietary 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 to maximize the value of their intellectual properties and tangible assets. The Advisor works closely with board and corporate management to:

  • Focus on Control, Preservation and Forecasting of CASH
  • Develop a Strategy/Action Plan and Presentation to Maximize Value of Assets.
  • Plans to include Sales Materials, Due Diligence access. a list of all possible Interested Buyers for Intellectual Properties and Assets and Identify and Retain Key Employees on a go-forward basis.
  • Stabilize and provide Leadership, Motivation and Moral to all Employees.
  • Communicate with the Board of Directors, Senior Management, Senior Lender, Creditors, Vendors and all other Stakeholders in Interest.

THE PROCESS:

The company attorney prepares a simple “As-Is/Where –Is” asset sale documents. This document is very important and includes a “No-Reps or Warrantee” Agreement, as the board, officers and invertors typically do not want any additional exposure on a deal.

The advisor then follows up systematically with ALL potentially interested parties and coordinates their interactions with company personnel, including on-site visits.

Typical terms for a Date-Certain M&A asset sale exclude representations and warranties and include a sales date –typically four to six weeks – from the point of readying sales materials for distribution, a refundable CASH deposit in the range of $200,000, a strong preference for cash consideration and with the ability to close a deal in seven business days.

Date-Certain M&A terms can be varied to suit needs unique to given situations. For instance, the board may choose not to accept any bids, or to allow re-bids if there are multiple competitive bids, and/or allow early bids.

The typical workflow timeline from advisor hiring to transaction close and receipt of consideration is four to six weeks. Such timelines may be extended as circumstances warrant. Upon receipt of considerations, the restructuring/insolvency attorney then distributes funds to creditors and shareholders (if there is sufficient consideration to satisfy creditors), and takes all needed steps to wind down the remaining corporate shell. Typically in coordination with the CFO.

PROCESS ADVANTAGES:

Speed:   – The entire Date-Certain M&A Process can typically be concluded in 4 to 6 Weeks. Creditors and investors receive their money quickly. A negative PR impact on investors and board members related to a drawn out process is eliminated. Where required, such timelines can be reduced to as little as two to three weeks, however severely compressing the process often impacts the final value received during asset auction.

Reduced Cash Requirements:  – Owing to the Date-Certain M&A process’ compressed turn-around time, there is a significantly reduced need for any additional investor cash to support the company during the process.

Maximized Value:  – A quick and effective process during wind-down mode minimizes strain and rapid asset depreciation and thereby preserves enterprise value. The fact that an auction will occur on a certain date typically brings truly interested and qualified parties to the table. In our considerable experience, this process strongly aids in maximizing the final value received.

Cost:  – Advisory fees consist of a retainer and a performance fee, which is a percentage of the sales proceeds.

Control:  – At all time during the process, the board of directors retains complete control. For instance, it can modify the auction terms, or discontinue the auction at any point, thereby preserving all options for as long as possible.

Public Relations:  – As the entire sales process is private, there is no public disclosure. Once closed, the transaction can be portrayed as a sale of the company with all terms kept confidential. Accordingly investors can list the company in their portfolios as sold vs. having gone out of business.

A Clean Exit:  – Upon closing of the auction, considerations received are distributed and the advisor, under the leadership of the insolvency counsel, then takes all remaining steps to effect an orderly shut-down of the remaining corporate entity.

About Gerbsman Partners

Gerbsman Partners focuses on maximizing enterprise value for stakeholders and shareholders in underperforming, undercapitalized and undervalued companies and their intellectual properties. Since 2001, Gerbsman Partners has successfully maximized the values of 107 companies in a wide and diverse spectrum of industries, ranging from technology, life science, medical device, digital marketing, consumer to cyber security, to name only a few.

Since inception in 1980, Gerbsman Partners has successfully restructured/terminated over $810 million of real estate executory contracts and equipment lease/sub-debt obligations, and has been involved in over $2.3 billion of financings, restructuring and M&A transactions.

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

 

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Gerbsman Partners – February 11, 2019 Update to the Update Bidding Process — Date Certain M&A of Neograft Technologies, Inc., its Assets and Intellectual Property

Posted in Uncategorized, tagged , , , , , on February 11, 2019| Leave a Comment »

The Bidding Process, Procedures for the Sale of certain Assets and Intellectual Property of Neograft Technologies, Inc.

Further to Gerbsman Partners sales letter of January 29, 2019 and update of February 4, 2019 regarding the sale of certain assets of Neograft Technologies, Inc. (“Neograft”), I am attaching updated information regarding the Assets and Intellectual Property of Neograft for interested parties bidding on the assets and IP of Neograft;  Neograft’s Data Room due diligence information list and the Neograft Asset Purchase Agreement (“APA”) with detailed Asset List.

Prior to the bid date of February 28, 2019, I would encourage and recommend that all interested parties have their counsel speak with Jeff Quillen, Esq. or Erin Klein, Esq. of Foley Hoag, counsel to Neograft, to discuss any questions or comments of a legal nature relating to the transaction.   Jeff is available at 617 832 1205 jquillen@foleyhoag.com.  Erin is available at 617 832 1288 eklein@foleyhoag.com 

Please review the “Important Legal Notice” below in that potential purchasers should not rely on any information contained 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. 

Ken, Dennis and I will be following up to review the updated Bidding Process, schedule due diligence meetings and answer any questions regarding the “Date Certain M&A Process”.

I will be sending out a draft Asset Purchase Agreement “APA” in a couple of weeks prior to the bid date of February 28, 2019.

Any and all the assets of Neograft will be sold on an “as is, where is” basis and will be subject to “The Bidding Process for Interested Buyers”, outlined below.

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

Neograft, 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 Neograft’s or Gerbsman Partners’ negligence or otherwise. 

Any sale of the Neograft 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 Neograft and Gerbsman Partners. Without limiting the generality of the foregoing, Neograft and Gerbsman Partners and their respective staff, agents, and attorneys, hereby expressly disclaim any and all implied warranties concerning the condition of the Neograft 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 as Exhibit A.

 

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 Neograft 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 Neograft, 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 Neograft Assets. Each sealed bid must be submitted so that it is received by Gerbsman Partners no later than February 28, 2019 at 6pm Eastern Standard Time (the “Bid Deadline”) at Neograft’s offices, located at 470 Constitution Drive, Taunton, MA 02780.  Please also email steve@gerbsmanpartners.com with any bid.

Bids should identify those assets being tendered for in an identifiable way. 

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.  The deposit should be wired to an escrow agent who will be outlined in a future update.  The winning bidder will be notified within 3 business days of the Bid Deadline.  Unsuccessful bidders will have their deposit returned to them within 3 business days of notification that they are an unsuccessful bidder.  

Neograft 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.  

Neograft will require the successful bidder to close within a 7 day period. Any or all of the assets of Neograft 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 Neograft Assets shall be the sole responsibility of the successful bidder and shall be paid to Neograft at the closing of each transaction.

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

Steven R. Gerbsman                                                                                                     

steve@gerbsmanpartners.com                  

Kenneth Hardesty

ken@gerbsmanpartners.com

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Gerbsman Partners – “Date Certain M&A of the Assets and Intellectual Property of Neograft Technologies, Inc.”

Posted in Uncategorized, tagged , , , , , , on January 28, 2019| Leave a Comment »

SALE OF NEOGRAFT TECHNOLOGIES, INC.

Gerbsman Partners (www.gerbsmanpartners.com) has been retained by Neograft Technologies, Inc. (www.neograftinc.com) to solicit interest for the acquisition of all, or substantially all, the assets of Neograft Technologies, Inc.

Neograft is a privately held medical device company located in Taunton, MA, founded in April 2009.  Neograft is developing a novel, regenerative vascular graft based on its core electrospinning technology. The acquisition of Neograft Technologies will secure critical intellectual property and a substantial database characterizing safety and performance for its products that address a $2 Billion worldwide market opportunity. Neograft Technologies has raised three rounds (some with multiple tranches) of private financing to date totaling $40 million from private investors, a large majority from a single family fund together with other high net-worth individuals.

Neograft Technologies is developing a proprietary vascular graft that promises to improve clinical outcomes, especially in smaller vessels.  Its product is designed to become incorporated in the patient’s own tissue and then remodels over time to resemble and function as a native artery. Neograft Technologies has 25 issued US patents, 4 “Notices of Allowance”, 29 pending patent applications worldwide, and two pending trademarks.

Our core technology was first investigated as a reinforcement for saphenous vein CABG grafts, and is based partly on patents licensed from the University of Pittsburgh.  This product was evaluated in two clinical feasibility studies in 42 subjects. The results showed encouraging signs of diminished midgraft stenosis and distal anastomotic hyperplasia, but there was a limiting response at the proximal anastomosis.

The regenerative graft is based on the same core technology and has been evaluated in several animal studies.  The latest data shows encouraging signs that a similar remodeling behavior can occur using a synthetic implant.

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 Neograft Technologies’s Assets has been supplied by Neograft Technologies. It has not been independently investigated or verified by Gerbsman Partners or its agents.

Potential purchasers should not rely on any information contained in this memorandum or provided by Neograft Technologies, or 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.

Neograft Technologies, 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 Neograft Technologies’s or Gerbsman Partners’ negligence or otherwise.

Any sale of the Neograft Technologies 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 Neograft Technologies or Gerbsman Partners. Without limiting the generality of the foregoing, Neograft Technologies and Gerbsman Partners and their respective staff, agents, and attorneys, hereby expressly disclaim any and all implied warranties concerning the condition of the Neograft Technologies 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 as Exhibit A.

Historical Company Information

Neograft Technologies was established in 2009 to focus on core technology developed at and licensed from The University of Pittsburgh that focused on saphenous vein reinforcement. The company was located in Pittsburgh for the first two years before relocating to Taunton, MA.

For the first five years, the company focused exclusively on applying its core electrospinning technology on developing an intraoperative system to coat the outside surface of saphenous vein grafts to improve CABG outcomes.

In parallel, the company established an aggressive patent strategy and has created broad patent protection around this concept.  In 2015, the company acquired the intellectual property assets of Kips Bay Medical, Inc., a public, Minnesota based company that developed a product for the same CABG indication.  Together, the IP of both companies establishes a significant barrier to competition in this market.

Two clinical feasibility studies were conducted in Eastern Europe to evaluate the CABG indication with encouraging signs of attenuated mid-graft and distal disease.  However, there was a significant incidence of stenosis at the proximal connection to the aorta.

During the course of extensive experiments in animals (over 200 implants for as long as two years) Neograft discovered that its product facilitated transformation of developing tissue surrounding the product into a structure that resembles a native blood vessel.  Based on this discovery, the company decided to refocus its attention on applying the technology as a stand-alone synthetic graft.  Much of the core IP developed for the CABG indication overlaps this indication and the company has filed new patent applications that directly cover any new inventions.

Significant progress has occurred toward a clinically usable product and recent animal testing shows encouraging signs that similar remodeling of the polymer structure is feasible.

Neograft Technologies believes this technology provides a potential and sustainable commercial asset in the vascular graft market for the following reasons:

  1. The US market for peripheral, hemodialysis and coronary bypass grafts is very large and growing. Market growth via displacement of native grafts will occur with a clinically superior product. Surgeons will rapidly adopt as it eliminates the need to harvest pains.
  2. Peripheral graft failures are as high as 60% at one to three years and outcomes haven’t improved significantly over the past forty years, despite many attempts at a solution to this problem.
  3. The mechanism of action of this product is similar to several, more-complex bioengineered approaches but can be achieved through simpler and lower-costmanufacturing.
  4. Currently available heparin coated grafts are priced at 4X uncoated grafts in the US, though there is no significant difference in outcomes. A truly better product will create significant opportunity to grow revenue through increased value.
  5. The mechanism of action for the product has been demonstrated in animals, with over 200 implants followed as long as two years. The safety of the material and technology has also been demonstrated in humans, in two separate studies enrolling 42 subjects.
  6. The company has established a vertically integrated, very efficient operation, that is ISO 13485-2016 certified for producing the product.
  7. The company has established a reliable, working animal model for verifying performance of the product and also a very efficient pathway for verifying clinical performance in humans so final development steps are far more economical than typical products of this type.
  8. 25 issued US patents, 33 issued patents outside of US, 4 Notices of Allowance received, 12 US applications pending, and 17 applications pending outside of US.

Neograft Technologies Company Profile- Assets of the Company

Neograft Technologies was founded by an expert group of scientists and experienced industry executives to develop and commercialize its novel technology to improve CABG outcomes.

The company has assembled a world-class clinical and scientific advisory board and has created a compact but fully vertical operational capability to develop, test and manufacture its products.  It has also established clinical relationships within and outside of the US to effeciently evaluate its products.

Neograft opportunistically acquired the intellectual property assets and data of Kips Bay Medical, a public Minnesota based company that developed a different external reinforcement device for improving CABG outcomes that was incubated at Medtronic until its spin-off in 2007.

 

Product development and testing has all been conducted within the scope of ISO-13485 and the company is currently certified to ISO-13485 2016.

 

An extensive database exists characterizing safety and performance in-vitro, in animals and in humans.

Impact of Technology on the Market

This technology enables a novel approach to one of the remaining ‘holy grails’ in the medical world of a durable, small-diameter vascular graft. This is enabled by a surprising discovery that the company’s material provides temporary support, to allow tissue to penetrate and develop within a porous polymer matrix, but then disrupts without significant inflammation to allow environmental conditioning.

It has been shown that pulsatile pressure triggers constructive remodeling, which results in transformation of developing tissues into structures that resemble natural blood vessels. This transformation will lead to a stable, self-supportive structure that will behave like a native blood vessel.

Other tissue-engineered approaches to this problem show promise in clinical tests but are produced using very complex and inherently expensive processes.  Neograft’s technology functions via a similar mechanism of action but is much simpler and more economical to produce, so it will have comparable outcomes to these more complex product but capable to outpace them economically.

Neograft Technology’s Assets

Neograft has developed a portfolio of assets that are critical to developing, producing or marketing its proprietary regenerative vascular graft or similar constructs. In addition, our intellectual property related to venous reinforcement has significant potential as a barrier to competitive activity in this area. Our assets comprise:

  1. Patents, Patent Applications and Trademarks
  2.  Significant intellectual capital, know-how and expertise in the development and testing of vascularimplants.
  3. An extensive database of in vitro and in vivo testing, including over thirty animal implantexperiments, on over 200 implants for up to 2 years.
  4. Clinical data from two clinical feasibility studies, one publication, and two manuscripts.
  5. Fixed assets of approximately $200,000 including a 500 square foot portable cleanroom, multiple chemical fume hoods, two viscometers, two tensile testers, a portable SEM with vapor and sputter coating system, GPC system, UV and IR spectrophotometer, numerous vacuum and environmental ovens, multiple autoclave systems, large variety of standard and specialty chemical glassware, a high density slide scanner, a variety of optical microscopes and camera systems, a specialty machine shop, a large number of handheld measurement tools and instruments.

The assets of Neograft Technologies will be sold in whole or in part (collectively, the “Neograft Technologies Assets”). The sale of these assets is being conducted with the cooperation of Neograft Technologies. Neograft Technologies and its consultants will be available to assist purchasers with due diligence and a prompt, efficient transition to new ownership.

Neograft Technologies, Inc. Key Personnel

Jon McGrath — President and CEO/Board Member: Jon has led the company since 2011. Prior to Neograft, Jon was CEO of LumeRx, a venture-backed gastroenterology startup,VP of R&D and Operations at Biosphere Medical(acquired by Merrit Medical);VP of R&D and Operations at Urologix (ULGX), and VP of R&D at Pfizer/Schneider (acquired by Boston Scientific). He cofounded Harbor Medical (acquired by Teleflex) and held several positions of increasing responsibility at Medi Tech (now BostonScientific).

Mohammed El-Kurdi— Chief Technology Officer: Dr. El-Kurdi co-founded the company in 2009. He has been focused on bioengineering arterial vein grafts since 2000, beginning shortly after he joined a cardiovascular research team at the University of Pittsburgh’s McGowan Institute for Regenerative Medicine. His PhD work focused on Neograft’s core technology that formed the foundation of the company and  its central intellectual property. This work also resulted in the first peer reviewed publication of the product. Several generations later, the company has evolved a product that delivers on the promise of his early research to produce a stable and self-supporting arterial veingraft

Neograft Technologies, Inc. Board of Directors

Christopher S. Petersen, Chairman of the Board– Chris is president of RePetersen Enterprises, LLC., is Board Chairman at WeSpeke, Inc, and also serves on the Board of Directors for Medrobotics and Rinovum.  Earlier professional experience includes KPMG, LLP and ThyssenKrupp, where he was Assistant Corporate Controller.

Jon McGrath, President and Chief Executive Officer- Earlier, Jon was CEO of LumeRx, VP of R&D and Operations at Biosphere Medical; VP of R&D and Operations at Urologix, and VP of R&D at Pfizer/Schneider. He cofounded Harbor Medical (acquired by Teleflex) and held several positions of increasing responsibility at Medi Tech (now Boston Scientific).

Thomas M. Dugan, MD- Tom is a retired cardiologist and a former president of a large cardiology and cardiovascular surgery private practice group in Erie, PA.  He trained at Duke University, Georgetown University and the University of Pittsburgh.  He is currently on the Board of Medrobotics.

Brad R. Petersen, PhD- Brad is currently a Pharmacy Operations Manager at Ohio Health’s Grant Medical Center. He is also on the Board of WeSpeke, Rinovum and Medrobotics.

Richard C. Petersen Jr.- Mr. Petersen is founder and President of Petersen Jr. Enterprises. He spent 32 years with GM/DELPHI, retiring as General Director of Corporate Planning for Delphi-Steering.  He is also the Chairman of the Board for Rinovum Women’s Health LLC, and WeSpeke. He is a Director for a number of other entities that vary based on investments from time to time.

Michael Tovian- Michael (“Mike”) Tovian is Executive Consultant of Dosepoint LLC. Previously, he was President and CEO of Harmony Pharmacy and Health Center, served as Managing Director of Healthios Global, Inc., and spent 28-years prior to that with Walgreen Drug Stores, Inc, including as Vice President of Managed Care Sales and Contracting.

The Bidding Process for Interested Buyers

Interested and qualified parties will be expected to sign a non disclosure 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 Neograft Technologies 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 Neograft Technologies, Inc., 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 neither Neograft Technologies nor Gerbsman Partners (or their respective, staff, agents, or attorneys) makes 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 Neograft Technologies Assets. Sealed bids must be submitted so that the bid is actually received by Gerbsman Partners no later than February 28 at 6:00 pm Eastern Standard Time (the “Bid Deadline”) at Neograft Technologies’s office, located at 470 Constitution Dr., Taunton, MA 02780. Please also email steve@gerbsmanpartners.com with any bid.

Bids should identify those assets being tendered for in a specific and identifiable way. The attached Neograft Technologies fixed asset list may not be complete and Bidders interested in the Neograft Technologies’s Assets must submit a separate bid for such assets. Be specific as to the assetsdesired.

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 $200,000 (payable to Neograft Technologies, Inc.).  The winning bidder will be notified within 3 business days after the Bid Deadline.  Non-successful bidder will have their deposit returned to them.

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

Neograft Technologies will require the successful bidder to close within 7 business days. Any or all of the assets of Neograft Technologies 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 Neograft Technology Assets shall be the sole responsibility of the successful bidder and shall be paid to Neograft Technologies at the closing of each transaction.

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

 

Steven R. Gerbsman

steve@gerbsmanpartners.com

Kenneth Hardesty

ken@gerbsmanpartners.com

 

 

 

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Gerbsman Partners – Date Certain M&A of Precision AgriTech, Inc. dba Local Roots Farms, its Assets and Intellectual Property

Posted in Uncategorized, tagged , , , , , , , on September 6, 2018| Leave a Comment »

 

SALE OF Precision AgriTech, Inc. dba Local Roots Farms (LRF) 

On September 4, 2018, Precision AgriTech Inc. dba Local Roots Farms (“LRF”) and one of its subsidiaries commenced a “Date Certain M&A Process” with Gerbsman Partners.

Gerbsman Partners has been retained by Local Roots Farms to solicit interest for the acquisition of all or substantially all of LRF’s assets, including its Intellectual Property (“IP”), in whole or in part (collectively, the “LRF Assets”).

LRF is a privately held company formed in Q4 2013, has raised $12.8M to date from various private investors, and has filed 4 patents with the USPTO and 1 international PCT application and has proprietary Intellectual Property in the full varietal specific growing algorithm.

LRF solves produce supply-chain challenges for retailers and foodservice companies through its proprietary Intellectual Property growing process and controlled-environment farming platform called Terra Farms.  Among LRF”s customers are Walmart and Sysco.  Please see attached Executive Summary, Patent Summary, Fixed Asset List and NDA.


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 LRF’s Assets has been supplied by LRF.  It has not been independently investigated or verified by Gerbsman Partners or its agents.Potential purchasers should not rely on any information contained in this memorandum or provided by LRF, or 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.LRF, 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 LRF’s or Gerbsman Partners’ negligence or otherwise.

Any sale of the LRF 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 LRF or Gerbsman Partners.  Without limiting the generality of the foregoing, LRF and Gerbsman Partners and their respective staff, agents, and attorneys, hereby expressly disclaim any and all implied warranties concerning the condition of the LRF 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 as Exhibit A.

Business Description: Local Roots solves produce supply-chain challenges for retailers and foodservice companies through its proprietary growing process and controlled-environment farming platform called the TerraFarm. The company delivers exceptional value to the end consumer by providing:

  1. Fresh, nutrient dense, pesticide free, sustainably grown, locally grown produce to the mass market at affordable prices
  2. A scalable solution to institutional produce buyers who struggle with spoilage, inconsistent supply, poor quality, and severe exposure to food safety risks;
  3. The company has contracts and commitments with the largest retailer and foodservice company in the world, Walmart and Sysco. Both customers are pushing Local Roots to expand production as well as product mix and have expressed interest in scaling the solution across their North American distribution networks.

By collocating clusters of its TerraFarms with the supply chain infrastructure of its customers, Local Roots not only grows best-in-class produce, but can deliver it to the market in a fraction of the time it takes for the conventional supply chain to harvest, process, pack, ship, and distribute. This leads to:

  1. Higher quality,
  2. 2.   Reduced transportation costs,
  3. 3.Increased customer shelf-life, and
  4. A more resilient & sustainable solution.

LRF customers purchase company produce through long-term off take contracts, which enable the company to raise low cost capital to develop the operating assets.

Company Background: Formed in Q4 2013, Local Roots spent its early years designing, testing, and iterating through improvements in its integrated farming system, focusing on driving innovation in the critical components and subsystems: lighting, integrated control system, environmental and fertigation management, and the application of data science to yield and quality optimization. The company also invested heavily in plant science and cutting-edge horticultural practices to drive unprecedented yields, growth rates, and consumer benefits.

Local Roots began customer deliveries in Q1 2015 and quickly found demand from numerous fast casual restaurant chains in Southern California who struggled to source locally grown high quality produce. After the company’s initial outside seed round in 2015, it began recruiting additional engineers and plant scientists to drive further improvements in yields, CapEx, and OpEx as the company began engaging with the produce buyers of the largest retail and foodservice companies in the world.

As Local Roots expanded its R&D and crop trials:

  1. It demonstrated viability of hundreds of varietals of leafy greens, lettuces, mustards, and herbs;
  2. 2.Validated product-market fit with chefs and retailers;
  3. Established Local Roots as a premium quality supplier of challenging to source produce categories; and
  4. Began solidifying interest in its products and business model from corporate buyers such as Walmart, Whole Foods, Target, Kroger, Safeway, Food Lion, Sysco & US Foods.

Industry Background/Market: Retailers & distributors lose billions per year due to produce spoilage.  As such, they must manage a complex network of suppliers which inevitably results in inconsistent volumes and quality of product.  Retailers that are able to manage these issues have substantial competitive advantages.  Local Roots launched in 2013 to become the solution to this multi-billion dollar problem.

Since then, the company has developed proprietary, modular growing systems and the operational expertise to optimize them.  Through this, they have produced and delivered multiple types of produce exhibiting the highest standards of quality, with flawless customer service to food service, wholesale, and retail customers.

By doing this, Local Roots created a consumer facing brand reflective of the impacts that addressing these issues have on consumers:

  1. Higher quality
  2. Consistent & Predictable Supply
  3. More nutritious.

This is what Local Roots stands for, our produce partners benefit from that messaging

Products & Services: Local Roots currently sells three proprietary salad mixes in Walmart stores: Mars Mix, Royal Gems Mix, and Baby Butter Blend. Additionally, the company has launched a basil program with Sysco. All products are certified Pesticide Free, Sustainably Grown, and Non-GMO, grown in a TerraFarm, our proprietary modular farming system which require 99% less water than traditional farming.  

Distribution: In addition to their Walmart and Sysco partnerships, our other customers include restaurants and foodservice companies such as Tender Greens, Medocino Farms, West Central Produce, LA Specialty and SpaceX. All produce is sold under the Local Roots brand, which represents a mission-driven return to local responsible farming that speaks to the increasing global population. Local Roots successfully demonstrated daily, on time and in full (OTIF), deliveries to Walmart’s distribution center in Riverside, CA.

Food Safety: Local Roots has integrated best-in-class food safety practices into its growing, harvesting, and processing operations. PrimusGFS is a Global Food Safety Initiative (GFSI) benchmarked and fully recognized audit scheme covering both Good Agricultural Practices (GAP) and Good Manufacturing Practices (GMP), as well as Food Safety Management Systems (FSMS). The GFSI recognition of the PrimusGFS scheme helps move the produce industry one step closer to the desired goal of global food safety harmonization. From the very beginning, every single Local Roots TerraFarm has been PrimusGFS certified. Their PrimusGFS scheme covers the scope of the supply chain from pre- to post- farm production and provides an integrated supply chain approach.

Technology & Intellectual Property: Local Roots develops and integrates its technologies into automated modular TerraFarms that efficiently grow produce in a responsible way. Key areas of technological development include:

  1. solid state lighting, automation,
  2. robotics, computer vision,
  3. machine learning, plant science,
  4. breeding, growing recipes tailored for optimal yields,
  5. nutrient content, and unique flavor profiles.

Each crop grown in a TerraFarm uses precise growing proprietary algorithms that have been developed through repeated trials and advanced data analytics. Crops are monitored automatically and the TerraFarm is adjustable via mobile device. This allows TerraFarms to adaptively modify growing environments and ensure crop health at all times. New growing algorithms and standard growing procedures are continually developed by our R&D team. Updates are released in real time through our proprietary LocalX software platform.

Potential Backlog and Pipeline: Prior to ceasing company operations the Company had a strong sales pipeline for significant volume.  This information is available in the Due Diligence Data Room, and is subject to an NDA.

Reasons why LRF’s assets are attractive: 

  • Attractive Growth Industry with clear, unmet customer demand:
  • 4 patents filed with the USPTO and 1 international PCT application
  • Pioneer of “Produce Purchase Agreements,” which could revolutionize the way produce is purchased, and enabling established project equity and project finance to enter the sector.
  • Clear path to attractive margins
  • Market Position: LRF is the first modular indoor farming company to commercialize products in the mass market.
  • Best in Class Technology: LRF’s proprietary TerraFarm technology is the proven leader in the modular indoor farming industry.
  • Excellent Relationships: LRF’s strength has always been predicated on strong relationships, especially with its well respected investment grade customers, Walmart & Sysco.
  • Diversified Base of Customers: LRF works with the world’s largest produce buyers in two diverse market segments; mass market CPG retail (Walmart) and large scale food service distribution (Sysco).
  • Opportunity for Future Growth:Opportunities for growth can be realized by fully exploiting the market need for resilient and co-located food production


Local Roots Farms’s Assets

The company’s assets are contained in the following:

  1.  Patents, Processes, Patent Applications and Trademarks.
  2.  Significant intellectual capital, know-how and trade secret growing algorithms.
  3.  Significant know-how and expertise of botany & agronomy.
  4.  Experience from engineering to technology development to plant science to consumer-packaged goods delivered to mass market retail.
  5. Proof of concept with validation from Walmart & Sysco.
  6.  Fixed assets which includes the company’s proprietary TerraFarm technology modular farming systems (refer to fixed asset document attached

The assets of LRF will be sold in whole or in part (collectively, the “ LRF Assets”). The sale of these assets is being conducted with the cooperation of LRF.  LRF and its consultants will be available to assist purchasers with due diligence and a prompt, efficient transition to new ownership. 

Management:

Eric Ellestad, Founder and CEO: Entrepreneur, investor, and technology commercialization specialist in food, water, energy, perishable logistics, and supply-chain innovation.

Brandon Martin, VP Business Development: Entrepreneur, tenured executive leader and business development strategist with over 15 years of experience building teams, developing strategic partnerships and driving revenue growth.

Christ Holtam, Director of Horticulture: Chris leads R&D within our TerraFarms: including plant propagation, crop production, breeding, and genetic engineering. Prior to Local Roots, Chris was the head grower at Hollandia Produce, LP.

 

The Bidding Process for Interested Buyers

Interested and qualified parties will be expected to sign a nondisclosure agreeent (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 LRF 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 LRF, 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 neither LRF nor Gerbsman Partners (or their respective, staff, agents, or attorneys) makes 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 LRF Assets.  Sealed bids must be submitted so that the bid is actually received by Gerbsman Partners no later than Friday, October 12, 2018 at 3:00 p.m. Pacific Time (the “Bid Deadline”) at Gerbsman Partners office, located at 211 Laurel Grove Avenue, Kentfield, CA 94904.  Please also email steve@gerbsmanpartners.com with any bid.

Bids should identify those assets being tendered for in a specific and identifiable way.  The attached LRF fixed asset list may not be complete and Bidders interested in the LRF’s Assets must submit a separate bid for such assets.  Be specific as to the assets desired.

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 $200,000 (wire transfer information will be supplied at a later date).  The winning bidder will be notified within 3 business days after the Bid Deadline.  Non-successful bidders will have their deposit returned to them.

LRF 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 bid will be chosen as the winning bidder and bidders may not have the opportunity to improve their bids after submission.

LRF will require the successful bidder to close within 7 business days.  Any or all of the assets of LRF 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 LRF Assets shall be the sole responsibility of the successful bidder and shall be paid to LRF at the closing of each transaction.

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

 

Steven R. Gerbsman

steve@gerbsmanpartners.com

 

Kenneth Hardesty

ken@gerbsmanpartners.com

 

Dennis Sholl

dennis@gerbsmanpartners.com

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Advantages of ‘Date-Certain M&A Process over Standard M&A’ – Gerbsman Partners

Posted in Uncategorized, tagged , , on May 1, 2018| Leave a Comment »

 

 

Advantages of ‘Date-Certain M&A Process over Standard M&A’

Every venture capital investor hopes that all his investment will succeed. The reality is, however, that a large percentage of venture investments eventually are shut down.

In the extreme they end in bankruptcy or assignment to creditors. The majority falls into the category of the “living dead.” Such companies are not complete failures, but their prospects do not justify continued investment, yet they are rarely shut down quickly.

Once reality has been recognized, most investors engage investment bankers to sell their investment off through prevailing M&A processes. Unfortunately, seldom with good results.

REASON #1

The main reason for that sad result is a fundamental misunderstanding of buyer psychology. In general, buyers act quickly and pay the highest price only by force of competitive pressure.

Potential buyers of the highest probability are those already familiar with the company for sale, such as competitors, existing investors customers and vendors. Once a sales process starts the seller is very much a diminishing asset. Both financially and organizationally.  Unless compelled to act, potential buyers simply start to draw out the process, submit a low-ball offer when the seller runs out of cash, or try to pick up key employees and customers at no cost.

REASON #2

The second reason is usually a misunderstanding of the psychology and methods of investment bankers.

Most investment bankers do best at selling “hot” companies. Companies whose value is perceived by buyers to be increasing quickly over time, and where there are multiple bidders.

They tend to be more motivated and work harder on such cases because transaction sizes –and resulting commissions– are larger and surrounding publicity can bring in new assignments, among others. They also tend to be more effective in maximizing value in such situations by using time to their advantage, pitting buyers against each other and setting very high expectations.

In a situation where time is not your friend, the actions of standard investment banking practices often make a bad situation much worse. Such actions include assigning less experience B-Teams to smaller transaction size cases, “playing out the process” which works against the seller, and pitting multiple players against each other which can drive away potential buyers who often know far more about the seller than does the banker.

 

THE GERBSMAN PARTNERS ‘DATE-CERTAIN’ M&A PROCESS

The most effective solution in situations where time is not on your side is a Date-Certain Merger and Acquisition Process.

Under this proprietary 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 to maximize the value of their intellectual properties and tangible assets. The Advisor works closely with board and corporate management to:

  • Focus on Control, Preservation and Forecasting of CASH
  • Develop a Strategy/Action Plan and Presentation to Maximize Value of Assets.
  • Plans to include Sales Materials, Due Diligence access. a list of all possible Interested Buyers for Intellectual Properties and Assets and Identify and Retain Key Employees on a go-forward basis.
  • Stabilize and provide Leadership, Motivation and Moral to all Employees.
  • Communicate with the Board of Directors, Senior Management, Senior Lender, Creditors, Vendors and all other Stakeholders in Interest.

THE PROCESS:

The company attorney prepares a simple “As-Is/Where –Is” asset sale documents. This document is very important and includes a “No-Reps or Warrantee” Agreement, as the board, officers and invertors typically do not want any additional exposure on a deal.

The advisor then follows up systematically with ALL potentially interested parties and coordinates their interactions with company personnel, including on-site visits.

Typical terms for a Date-Certain M&A asset sale exclude representations and warranties and include a sales date –typically four to six weeks – from the point of readying sales materials for distribution, a refundable CASH deposit in the range of $200,000, a strong preference for cash consideration and with the ability to close a deal in seven business days.

Date-Certain M&A terms can be varied to suit needs unique to given situations. For instance, the board may choose not to accept any bids, or to allow re-bids if there are multiple competitive bids, and/or allow early bids.

The typical workflow timeline from advisor hiring to transaction close and receipt of consideration is four to six weeks. Such timelines may be extended as circumstances warrant. Upon receipt of considerations, the restructuring/insolvency attorney then distributes funds to creditors and shareholders (if there is sufficient consideration to satisfy creditors), and takes all needed steps to wind down the remaining corporate shell. Typically in coordination with the CFO.

PROCESS ADVANTAGES:

Speed:   – The entire Date-Certain M&A Process can typically be concluded in 4 to 6 Weeks. Creditors and investors receive their money quickly. A negative PR impact on investors and board members related to a drawn out process is eliminated. Where required, such timelines can be reduced to as little as two to three weeks, however severely compressing the process often impacts the final value received during asset auction.

Reduced Cash Requirements:  – Owing to the Date-Certain M&A process’ compressed turn-around time, there is a significantly reduced need for any additional investor cash to support the company during the process.

Maximized Value:  – A quick and effective process during wind-down mode minimizes strain and rapid asset depreciation and thereby preserves enterprise value. The fact that an auction will occur on a certain date typically brings truly interested and qualified parties to the table. In our considerable experience, this process strongly aids in maximizing the final value received.

Cost:  – Advisory fees consist of a retainer and a performance fee, which is a percentage of the sales proceeds.

Control:  – At all time during the process, the board of directors retains complete control. For instance, it can modify the auction terms, or discontinue the auction at any point, thereby preserving all options for as long as possible.

Public Relations:  – As the entire sales process is private, there is no public disclosure. Once closed, the transaction can be portrayed as a sale of the company with all terms kept confidential. Accordingly investors can list the company in their portfolios as sold vs. having gone out of business.

A Clean Exit:  – Upon closing of the auction, considerations received are distributed and the advisor, under the leadership of the insolvency counsel, then takes all remaining steps to effect an orderly shut-down of the remaining corporate entity.

 

About Gerbsman Partners

Gerbsman Partners focuses on maximizing enterprise value for stakeholders and shareholders in underperforming, undercapitalized and undervalued companies and their intellectual properties. Since 2001, Gerbsman Partners has successfully maximized the values of 103 companies in a wide and diverse spectrum of industries, ranging from technology, life science, medical device, digital marketing, consumer to cyber security, to name only a few.

Since inception in 1980, Gerbsman Partners has successfully restructured/terminated over $810 million of real estate executory contracts and equipment lease/sub-debt obligations, and has been involved in over $2.3 billion of financings, restructuring and M&A transactions.

 

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

 

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