In the December 2014 issue of Mergers & Acquisitions, we profiled five companies providing new dealmaking services, from social networking tools to customer satisfaction surveys: Axial Networks, GF Data Resources, Rkon Technologies, Sutton Place Strategies and Walker Information. The level of interest in the article was so high that we decided to follow up with five more modern services, focused on such timely topics as cyber security and customized portals.
Founded in 2010 by Eric Jackson (pictured), a former PayPal executive, and backed by venture capitalists including Peter Thiel and Dave McClure, CapLinked develops a secure, cloud-based deal-facilitating system. The company’s products are used by strategic acquirers, bankers, lawyers and other parties who work on deals and litigation involving cross-enterprise sharing of data.
CapLinked’s services come at a time when private equity firms and other companies are looking to beef up cyber security after well-publicized breaches, such as the attack on Sony Pictures. CapLinked’s latest product, FileProtect, lets companies control documents and how they are shared with other parties. Users can select a date after which CapLinked will block opening, copying and printing of the document, even if it’s been shared.
When a deal falls apart, there aren’t just two parties working on it; the M&A process includes many sets of eyes. FileProtect allows its users to retract access to those files that were shared previously in the pre-transaction stage. If a banker provides documents to counterparts expressing interest in acquiring the company that’s up for sale, but the potential bidder doesn’t want to make a commitment, that adviser has the ability to place a time limit on the files or “sunset that access with a self-destruct date,” explains Jackson.
When the Carlyle Group LP (Nasdaq: CG) looked to connect its general partners (GPs) with limited partners (LPs) and potential investors through a customized portal, the Washington, D.C., firm turned to EFront, a Paris-based software provider that caters to financial sponsors. Founded in 1999, EFront caught the eye of Francisco Partners, which bought a majority stake in the company, in September 2011. At the time, EFront was valued at $88 million. Since then, the company has grown to include offices in Boston, Chicago, Dallas, New York, San Francisco and Tampa, Florida.
Efront also wielded M&A in its own right, growing with add-on acquisitions. In October 2012, EFront bought DMLT, a Tampa, Florida-based provider of investor reporting and portal services for the alternative asset community. In October 2013, EFront picked up AnalytX, an alternative investment software company known for handling back-office services within small and medium-sized companies.
In January, EFront sold to private equity firm Bridgepoint Capital for $338.7 million, concluding a Barclays-run sale process. EFront chief Eric Bernstein (pictured) credits the company’s expansion to the growing middle market, and the evolving relationships between GPs at PE firms and the LPs that invest in funds.
Branding, he says, is the reason why many private equity firms began tapping the company’s services. But that doesn’t just mean having the firm’s logo, signature colors and intellectual property splashed onto a webpage, Bernstein explains. It’s about grabbing the attention of limited partners.
“The way most general partners communicate is through capital calls, notices and sending PDF documents. The folks receiving them are accountants and analyst groups who download it and key it into a system. With that process, you’re never going to get a portfolio manager to look at it,” Bernstein says.
“Customized portals are designed to bring GPs and LPs together with a better communication tool,” he says. Following Carlyle’s lead, middle-market firms are purchasing portals to provide an easier method to transfer important documents, in addition to data and records on previous investments.
EFront served 120 new clients last year, representing growth of 30 percent, according to Bernstein.
“The growth is mostly in the middle market.”
Dealmakers have a new tool for seeing a transaction through. Midaxo is the latest hub for conducting all deal activities, from preliminary stages to closing. The company was launched in 2014 in Helsinki, Finland, and has also opened a Boston office. Midaxo has honed its system to support the full spectrum of M&A activities, including divestitures, restructuring plans, carve-outs, contracts, legal cases, and research and development efforts.
Midaxo’s menu of services has helped the company secure some big-name customers, including Hewlett-Packard Co. (NYSE: HPQ). The 2011 acquisition of U.K. software company Autonomy forced Palo Alto, California-based Hewlett-Packard to take an $8.8 billion writedown, and it mired the company in lawsuits that continue to this day.
“After that, HP started to revamp their whole M&A process, looked at all these tools that could be available to their team, and they picked Midaxo,” says Ari Salonen, head of U.S. operations for Midaxo.
In addition to HP, Midaxo has more than a dozen clients, including Envision Healthcare Holdings Inc. (NYSE: EVHC), a Greenwood Village, Colorado-based medical services company; AvidXchange Inc., a Charlotte, North Carolina, software company in the payments industry; and Supreme Group, a Dubai-based defense logistics contractor working with the U.S. military. Other companies include Nordborg, Denmark-based industrial company Danfoss and Fonecta, a Finland-based directories and yellow pages operator.
4. Mind Over Machines
Mind Over Machines is like a doctor on house call for faulty IT systems. The Baltimore, Maryland-based service provider recently worked with a client that completed a deal. “They thought they were going to use the new company’s software to expand into a new market and wanted us to look at the system to assess what it needed to get to the finish line,” says founder Tom Loveland (pictured). “I wish they had talked to us before the acquisition.” The sweet spot for these types of situations is the middle market. These days, many companies need to leverage technology to grow their businesses. If private equity firms or strategic buyers find themselves in a deal in which the target’s software works well in one location but can’t scale, Loveland’s team can help.
Inter IKEA Systems BV, a long-time client of Mind Over Machines, attempted to streamline a loss-prevention system over the years. But the program didn’t quite function as well in U.S. locations as it did in Sweden, where Ikea is based.
“The problem was they wanted this system to work in Baltimore, Philadelphia and other American stores,” Loveland says. But the system crashed. Loveland and his team of IT forensic specialists came in and helped the Netherlands-based retailer grow with the resources available.
That includes providing consultation to buyers during the course of due diligence, he says. “They say, I’m thinking of acquiring a company.’ Well, is the IT system better or worse?”
A large portion of the lower middle market is filled with small privately-owned companies. At the helm of these businesses are a large generation of baby boomers looking forward to retirement, or perhaps an exit
While some small business owners simply pass their company down to a family member when they’re ready to leave, others opt for a sale, figuring the price their business could fetch on the auction block could be a daunting task, especially without the experience of a broker or investment adviser.
However, three entrepreneurs say that’s no longer the case. Valuations.com was launched in November by co-founders Mike Prince, Mike Ward (pictured) and Tom Hurley. The Orlando, Florida-based startup aims to help business owners receive free valuations of their companies in a matter of seconds.
Here’s what you do: punch in your annual revenue, and select an industry, along with the type of business and whether revenue is growing. After sifting through data — supported by the Internal Revenue Service and U.S. Securities and Exchange Commission —the user gets a value based on average profit margins.Valuations.com provides a graphic-rich report with interactive charts about a company’s potential price tag under a
Ward acknowledges there are other valuation sites. BizEquity Inc., a Wayne, Pennsylvania-based company, was founded by venture capitalist Michael Carter and has been backed by private equity firm Frost Brooks since October. BizEquity touts 27 million users, but charges a fee for its services.
“We’re different in that we require the last 12 months in sales records, what your company does, what its expected growth is, whether it’s negative or high, and with those pieces of information we can give a valuation in 30 seconds,” Ward says.
Also, Valuations.com is free. Once the initial report is complete, users can receive no-cost recommendations for service providers, such as M&A lawyers, business brokers, investment advisers or lenders and equity investors, should they continue to shop their company around to buyers.
“Revenue comes from referral fees from the service providers,” says Hurley. Any deal pro who is interested will essentially benefit from the user who found them through the site. “A broker, for example, would pay Valuations.com for getting the lead,” Hurley adds.
Ward, a financial analyst, says the site is crafted specifically for the middle market. The finances of larger companies, however, may be too complex for the website’s simple model which pulls data from CapitalIQ. When all the necessary steps are complete, these companies can pick from a list of advisers, should they continue with a sale.
“Currently, it’s an inefficient market,” Ward says, citing how business brokers only give valuations when you sign with them.
“With us, the client gets a valuation and then has the option to accept an offer or not,” he adds. “We’re matchmakers for service providers.”