Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The...
Transcript of Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The...
![Page 1: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/1.jpg)
Section 1
Exits Have Changed
Nyenrode Business UniversiteitThe Netherlands
September 26, 2013
Basil Peters
![Page 2: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/2.jpg)
Most Important Message Today
• Only 25% of all companies that could have been sold, actually end up exiting.
• Yes, the probabilities are 75% that if a startup succeeds, and becomes valuable,
• It will still fail to exit.
• This seminar will help you become one of the 25% that succeed.
![Page 3: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/3.jpg)
Everything is Changing
• We are living through an interesting time
• The economy is changing
• The whole world is changing
![Page 4: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/4.jpg)
Entire Countries are Bankrupt
Other countries will certainly follow
![Page 5: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/5.jpg)
The World is Now a Small Place
![Page 6: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/6.jpg)
The World Has Changed
• Many big parts of the financial ecosystem
• That worked for a hundred years
• Don’t work at all anymore
• The economy has changed
• The whole world is changing
• Faster than ever before
![Page 7: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/7.jpg)
Canada’s Most Valuable Corp
• Nortel was founded in 1882
• In 2000, Nortel’s value was a third of the entire TSX index – Canada’s most valuable
• Market cap was $398 Billion
• Employed 94,500 people
• Bankrupt in 2009
• Assets sold to companies around the world
![Page 8: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/8.jpg)
Other Big Tech Companies
• Was Nortel just a single example?
• Or a made in Canada failure?
• What about the other big, great tech companies?
![Page 9: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/9.jpg)
Intel – 15 years
Bubble
![Page 10: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/10.jpg)
Microsoft – 15 years
Bubble
![Page 11: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/11.jpg)
Cisco – 15 years
Bubble
![Page 12: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/12.jpg)
None Are Creating Wealth• For their investors,
• And more importantly for their employees
• For decades, these greats were all built on the increasing value of their stock options
• That’s what used to bring, and retain, the best and the brightest
• To these big companies
![Page 13: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/13.jpg)
Innovation in Smaller Companies• The best and the brightest now work in startups
• Small companies create opportunities
• Where the smart people create the innovations
• That’s why all the economic and employment growth is created by startups
• It wasn’t like this 10 or 20 years ago
• New research is helping us understand why this change has occurred
![Page 14: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/14.jpg)
Startups Create All the Growth
• In the old economy big was an advantage
• Today being big seems to be the opposite
• All of the economic growth now is happening in small companies
• In fact, startups have created ALL of the new jobs for the past three decades
![Page 15: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/15.jpg)
Startups Create ALL The Jobs
![Page 16: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/16.jpg)
The New Big Story
• The media always reports the really big exits
• Like YouTube selling for $1.6 billion,
• Club Penguin selling for $350 million, or
• AdMob selling for $750 million
• Those exits are very rare occurrences
• The ‘new’ big story is the much larger number of small exits
![Page 17: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/17.jpg)
Most Exits Are Under $15 Million• Mergerstat database shows the median price
of private company acquisitions is under $25 million, when price is disclosed
• But the price is not disclosed in most smaller transactions
• Today, I estimate the median price to be wellunder $20 million
• And probably below $15 million
• That was a surprise to me just a few years ago
![Page 18: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/18.jpg)
Our 21st Century Economy• What works today:
1. Small companies innovate2. Angels, Friends, Family and possibly VCs,
finance them3. Big companies, and others, buy them early4. The buyers then grow the business5. Entrepreneurs and investors recycle the
gains
![Page 19: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/19.jpg)
Exits are the Best Part• I believe exits are the best part of being an
entrepreneur or investor
• It’s when we get paid for all of our hard work and risk capital
• But it’s also the least well understood part of being an entrepreneur or private investor
• Simply because it doesn’t happen very often
![Page 20: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/20.jpg)
Exits Today - Summary• Selling a business is usually the biggest
financial transaction of your career
• It’s exciting – and will certainly change your life
• Much of what we thought we knew about exits has changed in the past 5 to 10 years
• The good news is that,
• If you are thinking about selling anytime soon, your timing is excellent
![Page 21: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/21.jpg)
Section 2
Every Company Should Have an Exit Strategy
Nyenrode Business UniversiteitThe Netherlands
September 26, 2013
Basil Peters
![Page 22: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/22.jpg)
Much of What You Hear is Wrong• It’s surprising how much of what you hear about
exits is wrong – dangerously wrong
• There are so many myths and misperceptions
• And so many ‘experts’
• And quite a few dirty secrets
![Page 23: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/23.jpg)
The Exit Is Just Another Process
• Whether it’s a financing, product development, marketing or sales goal
• The chances of success increase dramatically if you have a good plan
• The exit strategy is the plan for the business –the entire business
• The plan should start at the end (the goal)
![Page 24: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/24.jpg)
Companies Are Sold, Not Bought
• I often hear ‘companies are bought, not sold’
• People think that when ‘it’s time’ someone will knock on their door asking to buy their company
• While that has happened, it’s almost never a good thing for the shareholders
• It’s not just that the price will be much lower
• More importantly, the probability of success decreases because there is usually one bidder
• Optimum exits require strategy and planning
![Page 25: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/25.jpg)
Focusing on Exits is Healthy• Another misperception you often hear
repeated is that entrepreneurs should focus on the business and not worry about the exit
• In my opinion, that is just plain wrong
• A focus on exits is healthy – and does not distract the team from their primary function of maximizing shareholder value
• In fact, I believe it does just the opposite
![Page 26: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/26.jpg)
Planning for Successful Exits
• I believe entrepreneurs and angel investors would have better returns and more fun
• If we designed and built more companies with a focus on the exit
• Works particularly well in today’s economy
• What are the steps?
• Where do we start?
![Page 27: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/27.jpg)
The Exit Strategy • An Exit Strategy can be as simple as:
• “Our exit strategy is to [sell the company] in about __ years for around $ __ million.
• We plan to execute the exit by engaging a [mid market M&A advisor] by _[date]_.”
• The optimum exit strategy depends on the type of company
• Entrepreneurs usually need some help determining their optimum exit strategy
![Page 28: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/28.jpg)
Check The Alignment• It’s surprising how often there is a serious
mis-alignment between key stakeholders on the exit strategy
• The only way to check is to get a ‘signoff’ on a written exit strategy
• Usually takes at least one offsite planning retreat to build full alignment
• Even after, check alignment annually
![Page 29: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/29.jpg)
First: Exit Strategy, Then Finance
• This doesn’t happen most of the time
• But the right way to build a company is
• Determine the type of business
• Build alignment on the exit strategy
• THEN develop the financing plan
• And then start to contact investors
![Page 30: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/30.jpg)
Why the Exit Strategy Comes First
• Different types of investors are compatible with different types of exit strategies!
• Making a mistake about this early on can easily cost you your entire company
• It almost cost me my first company
• A video of my war story is online at: http://www.exits.com/blog/how-not-to-sell-a-business/
![Page 31: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/31.jpg)
Check Financial DNA Before
EntrepreneurialDNA
Investors’DNA
Resulting CorporateDNA is a Hybrid ofEntrepreneurs’ and Investors’ DNA
Check the compatibility first
Combined with
![Page 32: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/32.jpg)
A Common Misunderstanding• A common misunderstanding about M&A exits
is that you have to grow the company to be profitable
• Or grow it to be larger than $X millions of revenue
• The real threshold is to ‘prove the business model’
![Page 33: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/33.jpg)
What it Means to Prove the Model
• In a recurring revenue business, for example, you have a spreadsheet that clearly shows actual results for:1. Gross margin per customer2. Customer lifetime (or churn)3. Cost of customer acquisition
• In other words, how much is a customer worth and what do they cost to acquire?
![Page 34: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/34.jpg)
Proven Model and Value• Some businesses have slightly different
metrics to prove the model
• But when you prove the model you can build a credible projection that shows:1. If new owners added $X millions of capital,2. The business would have Y customers 3. And be worth $Z millions
![Page 35: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/35.jpg)
That’s When You Can Sell• There are often additional factors like
competitors and market changes
• But the important threshold to determine when you can sell is when you have proven the model
• This is when you can have a reasonable negotiation on value and sell the company
• You do not have to be profitable
• Today, even pre-revenue exits are possible
![Page 36: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/36.jpg)
It’s Often the Optimum Time• As soon as you prove the model is often the
best time to sell
• Always best to sell on an upward trend
• Sell on the promise not the reality
• Often when you can get the best price
• Very often ‘stuff happens’
• Most entrepreneurs ‘ride it over the top’
![Page 37: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/37.jpg)
The Exit Strategy Effects• A clear exit strategy has many operational
benefits
• It maximizes the overall generation of shareholder value through focus and alignment
• Also affects daily management decisions
• Is also beneficial in recruitment and retainment - especially of the best and brightest
• Which is increasingly important today
![Page 38: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/38.jpg)
Exit Strategy Summary• The exit strategy is the highest level strategy
in the organization
• It’s the foundation for the entire company plan
• It aligns the team on the most important goal*:
• The maximization of shareholder value, and
• The optimum timing of it’s monetization
• *Assuming it’s a company with investors
![Page 39: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/39.jpg)
Videos on Exit Strategy• Videos of some of my talks on exit strategy
• http://www.exits.com/blog/start-at-the-end-your-exit-strategy
• http://www.exits.com/blog/exit-strategies-for-angel-investors
• And what not to do:• http://www.exits.com/blog/
how-not-to-sell-a-business/
![Page 40: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/40.jpg)
Section 3
Don’t Ride It Over the Top
Nyenrode Business UniversiteitThe Netherlands
September 26, 2013
Basil Peters
![Page 41: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/41.jpg)
Exiting in Internet Time• The internet has accelerated everything
• It allows entrepreneurs to market and sell to hundreds of millions of prospects in just days
• The internet has also accelerated almost every other aspect of the startup lifecycle
• Entrepreneurs now have “Weekenders” where they build entire companies in a weekend
![Page 42: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/42.jpg)
Weekender Sold in 10 Days• In 2009 when I wrote “Early Exits”
• I speculated that one day: “They’ll probably define an early exit as selling the company before the end of the weekender”
• That almost happened in November 2009
• A team of entrepreneurs in London built a business in one day and sold it online in ten days: www.24hour-startup.com <– great video
• Not an isolated example, see www.Flippa.com
![Page 43: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/43.jpg)
More Exits In Just 2 – 3 Years
• Flickr sold for $30 million at 1.5 years old
• Delicious sold for $30+million 2 years from startup
• Club Penguin for $350 million at 2 years old
• YouTube sold for $1.6 billion at 2 years old
• Playfish sold for $275 million at 2 years old
• Mint sold for $170 million at 3 years old
• AdMob sold for $750 million at 3.5 years old
![Page 44: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/44.jpg)
A B.C. Really Early Exit• This Vancouver company asked me to keep
their details confidential – for now
• They wanted to test the idea for their first product, so called on a medium-sized US corp
• The prospect soon asked to buy the company
• The CEO called me for help
• Three months later the money was in the bank
• Company was less than 12 months from startup and still hadn’t launched the first product
![Page 45: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/45.jpg)
A New Really Early Exit• Anyone heard of the company PumkinHead?
• How about their product - About.me?
• About.me was acquired by AOL
• Just four days after its public launch
• That may be a new record
• Better way to measure is from startup (= 1 year)
• This illustrates what experienced entrepreneurs and investors can accomplish in this market
![Page 46: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/46.jpg)
How Long It Takes to Exit• The short answer is usually 6 to 18 months
• From the time you engage the M&A professionals
• Until the cash is in the bank
• But it can often take longer if the company isn’t ready, or if the structure needs to be cleaned up, or if the financials need improvement
![Page 47: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/47.jpg)
Ideal Exit Timing• In an ideal situation, the company board would
incorporate this 6 to 18 month delay
• Into the company strategic and operating plans
• Look forward in time and then start the exit
• 12 to 18 months before the peak in the company’s exit value
![Page 48: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/48.jpg)
Ideal Exit Timing
0
1
2
3
4
5
6
0 1 2 3
Inve
stm
ent R
etur
n (ti
mes
)
Years from Investment
Optimum time to start the exit
Complete the sale near the peak in value
Fastest Growth Phase
![Page 49: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/49.jpg)
“Riding It Over the Top”
0
1
2
3
4
5
6
0 1 2 3 4 5 6 7
Inve
stm
ent R
etur
n (ti
mes
)
Years from Investment
Optimum time to start the exit
Optimum exit time
IRR = 124%
More typical exit time
IRR = 15%
Fastest Growth Phase
More typical time to start the exit
![Page 50: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/50.jpg)
The Financial Loss
0
1
2
3
4
5
6
0 1 2 3 4 5 6 7
Inve
stm
ent R
etur
n (ti
mes
)
Years from Investment
Optimumtimeto start the exit
More typical exit time
IRR = 15%
Fastest Growth Phase
More typical time to start the exit
Financial Loss
Optimum exit time
IRR = 124%
![Page 51: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/51.jpg)
Part of Your Life You Never Get Back
0
1
2
3
4
5
6
0 1 2 3 4 5 6 7
Inve
stm
ent R
etur
n (ti
mes
)
Years from Investment
Optimum time to start the exit
More typical exit time
IRR = 15%
Fastest Growth Phase
More typical time to start the exit
Optimum exit time
IRR = 124%
Part of Your LifeYou Never Get Back
![Page 52: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/52.jpg)
This is Actually Optimistic
0
1
2
3
4
5
6
0 1 2 3 4 5 6 7
Inve
stm
ent R
etur
n (ti
mes
)
Years from Investment
Optimum time to start the exit
Optimum exit time
IRR = 124%
More typical exit time
IRR = 15%
Fastest Growth Phase
More typical time to start the exit
![Page 53: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/53.jpg)
What Often Happens
0
1
2
3
4
5
6
0 1 2 3 4 5 6 7
Inve
stm
ent R
etur
n (ti
mes
)
Years from Investment
Optimum time to start the exit
Optimum exit time
IRR = 124%
Common Result
IRR = 0%
Fastest Growth Phase
More typical time to start the exit
![Page 54: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/54.jpg)
Why ?• After seeing this happen over and over again
• I started to recognize a few patterns
• And realized there were logical reasons
• Why, if a company misses the ideal time to exit
• There’s a significant probability it won’t just exit for less,
• But will never exit at all
![Page 55: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/55.jpg)
Reasons This Happens1. Over-investment by VCs
2. Competition
3. Negative momentum
4. Waves of Consolidation
![Page 56: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/56.jpg)
Over Investment• When a sector becomes “hot” many Venture
Capital funds will invest simultaneously
• All hoping to fund on of the few winners capitalizing on the new technology or trend
• Most VCs have much more money than they can deploy well
• When they find a new opportunity, they typically invest very aggressively - $10s millions
• Often driving early innovators out of business
![Page 57: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/57.jpg)
Competition• Competition is a surprisingly common reason
promising companies end up never exiting
• Startups often succeed early because they apply a new technology,
• Or recognize a trend or new market opportunity
• Often their own success generates awareness and attracts new entrants into the market
• Just as the market is maturing and becoming more expensive to operate in
![Page 58: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/58.jpg)
Negative Momentum• It’s not easy to see the stock price graph in a
private company
• But after a while, the team gets a sense that value has peaked and is decreasing
• The fun and excitement are gone
• The best and brightest leave first
• Followed by the other most valuable people
• Ultimately causing the company to lose even more momentum
![Page 59: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/59.jpg)
Waves of Consolidation• A more devastating reason that companies that
miss the ideal time often end up never exiting is
• “Waves of Consolidation”
• This is a relatively new phenomena driven by early exits and internet acceleration
• Unlike the earlier threats, missing this effect is
• Virtually impossible to fix after the fact, and
• Almost always fatal – even if it takes years
![Page 60: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/60.jpg)
The Beginnings of a Wave• Today, we are all connected by
• The internet and especially social media
• Lets us see what’s happening in the world and our businesses better and faster than ever
• In business today, most competitors have immediate access to the same information
• And make similar decisions at almost the same times
![Page 61: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/61.jpg)
Large Company Growth• Medium and large companies grow primarily
through acquisition
• Many have more cash than they can deploy
• And are under pressure to acquire companies
• Partly to grow but also to keep new innovations from being acquired by their competitors
• And because the buyers are all connected
• They often make decisions at the same time
![Page 62: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/62.jpg)
Hypothetical Example• For simplicity, let’s imagine an industry where
there are three large competitors
• All run by smart executives
• And all with lots of cash
• When technology or markets create a new opportunity to grow their businesses
• They usually all see it at about the same time
• Sometimes triggered by an external event
![Page 63: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/63.jpg)
They All Decide to Acquire• Often they all decide at the same time
• to acquire a company in a specific space
• In many situations, the impetus is external
• For example, created by an M&A advisor
• Who shows a specific company to all of the potential acquirers in the world
• And describes the strategic opportunity
![Page 64: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/64.jpg)
They All Get Interested • The buyers all work in the same global market
• If an acquisition makes sense for one of them
• It usually does for others too
• And what M&A advisors all hope for is that several buyers will get interested
• And a competitive bidding situation will develop
• Which is good from the seller’s perspective
![Page 65: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/65.jpg)
But From the Buyers’ Side• Buyers are smart too
• Regardless of whether they got the idea from an M&A advisor, or some other way
• Once they decide they want to acquire a business in a certain area, they
• Look at most of the companies in the field
• Let M&A advisors know they are looking
• And make direct, unsolicited offers to acquire
![Page 66: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/66.jpg)
Why The Buyers Do This• Buyers have several motivations:
• To determine which company is most attractive for them to acquire – i.e. price
• To give them more choices and therefore more negotiating leverage
• To ensure that if they don’t win the auction on their first choice,
• They have a backup acquisition opportunity
![Page 67: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/67.jpg)
And People Start to Notice• This starts a cascade of events
• The big company’s competitors hear they are interested in acquiring a certain type of company
• They don’t want to be late, so they also start
• And get their corporate development teams and M&A advisors looking
• Soon every company in the industry has received some unsolicited interest
![Page 68: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/68.jpg)
The Wave• Which creates the beginning of the wave
• Buyer interest brings in more buyers
• And more M&A advisors
• Which flushes out more companies that could be acquired
• Starting them on their own exit process
• All building to a flurry of acquisitions in the niche or sector
![Page 69: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/69.jpg)
It’s Too Late When You See It• From the outside, it looks like this happened very
quickly
• Often just within a quarter or two
• But it had actually been going on for much longer
• But because public companies, and NDAs, are involved it’s not easy to see from the outside
• Once a company sees the wave it’s often too late to react
![Page 70: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/70.jpg)
What Happens After the Wave• The wave results in most companies who want
to buy finding a company to acquire
• Almost overnight the buyer interest stops
• If a company did not get acquired during the wave, it is virtually impossible after
• And that’s not the worst news
![Page 71: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/71.jpg)
The Market After the Wave• After the buying crescendo
• Each of the successful buying companies have just paid a lot to enter this new sector
• Usually $10 – 20 million
• Most of the buyers will plan to invest a similar amount in growing their new acquisition
• And competing for market share against their traditional competitors
![Page 72: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/72.jpg)
Killing the Small Companies• The companies that were not acquired are now
in a very difficult situation
• Their market has become much more competitive
• Instead of fighting with other small, underfunded companies, they are up against giants
• With enormous investment capability and highly effective brands
![Page 73: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/73.jpg)
Killing the Small Companies• The small companies cannot afford to compete
• Or to operate in an industry where everyone is willing to lose money – possibly for years
• Often small businesses that were very profitable become unprofitable almost overnight
• And at the same time, their ability to raise capital disappears because the investors saw the wave
• And don’t want to fund a fight with the big guys
• And know a future exit is very unlikely
![Page 74: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/74.jpg)
Missing the Wave• Missing the Wave of Consolidation is a
particularly heartbreaking error
• Many of the companies that missed were very valuable and often extremely profitable
• The wave destroys both
• For CEOs that have built valuable businesses,
• Not missing the wave might be their most important job
![Page 75: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/75.jpg)
The Right Side of the Wave• Most CEOs are so busy operating the business
it’s almost impossible to watch closely enough
• And the early signs are not easy to see even if you are looking
• The best way to get an early indication is to watch the trends that start the wave process
• The other is to speak to a lot of M&A advisors
• Almost all CEOs need help with this
![Page 76: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/76.jpg)
An Unsolicited Offer• One of the saddest parts of my job is to explain
this to CEOs
• They often contact me all excited about a big company talking about an unsolicited offer
• I start by saying that’s rarely good news for the shareholders
• But after learning more, see the signs of a wave of consolidation
• At that point they are dangerously late
![Page 77: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/77.jpg)
Summary on Exit Timing• Like many parts of life, and business, “timing is
everything” with exits
• Timing our exits better can significantly improve angel investor portfolio returns
• And for entrepreneurs can literally change their lives
• Recommendations:
• Have someone watching the M&A market
• Drive your exit process – don’t wait for an offer
![Page 78: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/78.jpg)
Section 4
Buyers Today and Why They Have So Much Money
Nyenrode Business UniversiteitThe Netherlands
September 26, 2013
Basil Peters
![Page 79: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/79.jpg)
Financial Markets are Changing
• As we recover from the ‘mortgage crisis’
• And worry about the European debt problem
• All investors are all trying to adapt to:1. Poor equity returns for over a decade now2. The lowest interest rates of our lifetimes3. Concern about the future value of money
• The result is an enormous amount of capital looking for better returns and reasonable safety
![Page 80: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/80.jpg)
Types of M&A Buyers
• Active M&A buyers today include:1. Big Companies 2. Medium Sized Companies3. Private Equity Funds4. Boomers (individuals, or small groups)5. Family offices6. VCs operating like P-E Funds – very new7. International Buyers – small but growing
![Page 81: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/81.jpg)
Big Companies• Very visible but not the most likely acquirers
for most of your companies
• Spending more on M&A than R&D
• Best way for them to increase shareholder value
• Have teams of people dedicated entirely to buying companies
• Compensation plans are designed to motivate executives to acquire companies
![Page 82: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/82.jpg)
Big Company Thinking Today• Many have so much cash it’s a problem
• And more pressure than ever to deliver a better return to their shareholders
• Noticing increased competition for acquisitions in their ‘sweet spot’
• Generally feel this is a good time to buy
• And that prices and competition will increase
![Page 83: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/83.jpg)
How Big Companies Think• One of my friends from a Fortune 500
company explained it this way:– We (big companies) know we aren’t good at
new ideas or startups– We basically suck at building a business
from zero to $20 million in value – But we think of ourselves as really good at
growing values from $20 million to $200 million or more
![Page 84: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/84.jpg)
“Under $20 Million Is Easy”– A company priced at $100 million is already out
of our sweet spot to buy– $100 million also requires board approval– But at $20 million, it’s really easy for me to get it
approved just inside my division
• Many big companies are spending more on M&A than internal R&D
• Today, it’s the best way for them to grow
![Page 85: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/85.jpg)
Google Wants Even Earlier Exits• I was surprised recently to learn just how early
Google wants to do acquisitions
• Charles Rim one of the top Google M&A guys:
• “90% plus of our transactions are small transactions. … less than 20 people, less than $20 million and that is truly the sweet spot”
• “we do prefer companies that are pre-revenue”• http://www.exits.com/blog/
google-wants-even-earlier-exits-than-in-early-exits
![Page 86: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/86.jpg)
Medium Sized Companies• For every Fortune 500 company that might
acquire a company,
• In the $10 to $30 million range
• There are probably ten times as many medium-sized companies
• That might be interested and can afford to buy
• Selling CEOs are surprised to see how many companies they hadn’t thought of, or even heard of, end up bidding to buy their company
![Page 87: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/87.jpg)
P-E Funds are Back• P-E funds are like VCs but want to own 100%
• They use a combination of equity and debt
• Before the mortgage crisis, almost 40% of M&A volume was related to P-E funds
• Two years ago it was only 13%
• Today’s fiscal stimulus has pushed the cost of debt lower than it has been in our lifetimes
• In the past year, the P-E funds are back
![Page 88: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/88.jpg)
Boomer Buyers• A relatively new category of buyers that I call
the Boomer buyers – much like Angels
• This group is showing up more and more often
• Haven’t been getting good returns on either their debt or equity portfolios
• Worried about the future value of their cash
• Like many of us, have been eating well and working out for decades now
• Many thought they had retired
![Page 89: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/89.jpg)
Boomer Buyer Thinking• After a few years of retirement, they realized
they could only play so much golf and drive so many expensive sports cars
• They were bored and realized all that clean living could mean they could be active for several more decades
• These boomers have capital and have friends with more (money is not usually a problem)
• Many remember how much fun they had operating companies
![Page 90: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/90.jpg)
Boomers are Dark Horses• The fascinating thing about the boomer buyers
is that they can be the most aggressive and fastest moving of all
• Most of these buyers made their money successfully running companies
• They are often the ‘smartest guys in the room’
• They usually operate locally and are most interested in transactions under $20 million
![Page 91: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/91.jpg)
Family Offices• Common in Europe, but until recently, was not
a term we heard much in the North America
• Refers to very wealthy families, or groups of families, that hire captive investment teams
• Some ‘high power Wall Street’ people are moving to family offices
• Build diversified classes of investment portfolios
• Allocating more assets to acquiring companies
• Just like P-E funds
![Page 92: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/92.jpg)
Family Office Thinking• Like everyone else, feeling pressure to deliver
returns and worried about the value of money
• Traditional debt and equity looking less and less attractive
• Operating businesses look like an asset class
• That should be more resilient to macro economic changes like inflation and deflation
• Only challenge is finding enough to buy
![Page 93: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/93.jpg)
VCs Operating Like P-E Funds• New, very interesting and happening quietly
• VC funds that ‘appear’ to be investing
• Are actually acquiring all - or close to all
• Mostly anecdotal reports so far
• A few described in detail under confidentiality
• Cashing founders and angels completely out
• And not requiring the founders to come to work
• Clearly betting on the horse…not the jockey
![Page 94: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/94.jpg)
Speculation on VC Thinking • Working hard to stay in stealth mode
• Not sure if their investors will approve
• Can only speculate on what they are thinking
• Likely the old VC model is permanently broken
• Have more cash than they can invest
• Corps and P-E funds increasingly competitive
• If we can’t fight them, maybe we should join them
![Page 95: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/95.jpg)
International Buyers• Still a small, but growing group of buyers
• Very strategic
• Do not usually move quickly
• Balance of payments has created huge dollar surpluses in most of Asia
• Europeans would like to move money to the US
• Dollar holders are increasingly nervous
• So are moving to buying active businesses
![Page 96: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/96.jpg)
Big Corps Have So Much Cash• Many big companies have so much cash that
it’s a problem – shareholders complain
• Google has $20 billion
• eBay has $5 billion
• Amazon has $3 billion
• Microsoft has $35 billion
• Cisco has $43 million
• Apple has $97 billion cash and investments
![Page 97: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/97.jpg)
Cash for AcquisitionsCash Available for
M&AUS Companies $ 2 Trillion Most
Global Companies $ 8 Trillion Most
P-E Funds $0.4 Trillion All
Boomers (US only) $ 8 Trillion Small but Growing
Family Offices (US) $ 1 Trillion Small but Growing
![Page 98: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/98.jpg)
How Many is $1 Trillion?• It’s difficult to put $1 trillion in perspective
• Most acquirers consider their ‘sweet spot’
• As somewhere around $20 million
• The median price is closer to $15 million
• Just one of these $1 trillion buys
• 50,000 acquisitions (at $20 million each)
• There are many times more buyers than sellers
![Page 99: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/99.jpg)
Buyers Practically Unlimited• For many exits under $50 million
• The number of buyers is, for practical purposes, almost unlimited
• Often see three or four types of buyers
• Simultaneously bidding to buy the company
• Each type of buyer thinks and acts differently
• They all have lots of cash
• And there can only be one successful bidder
![Page 100: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/100.jpg)
A Sellers’ Market• The number of buyers and amount of cash
available makes the current M&A environment:
1. A sellers’ market
2. Fast moving and diverse
3. Talk is that prices are up 20% in a year
![Page 101: Exits Have Changed - basilpeters.com€¦ · Exits Have Changed. Nyenrode Business Universiteit The Netherlands. September 26, 2013. Basil Peters. Most Important Message Today ...](https://reader036.fdocuments.us/reader036/viewer/2022071215/604575439af4e17eee52fe24/html5/thumbnails/101.jpg)
A Golden Era for Entrepreneurs• I believe history will call this a golden era
for technology entrepreneurs.
• Never before has it been so easy to
• Create such valuable companies
• On so little capital
• And sell them so early for so much money