HRC CASE STUDY

Sale of Blackmesh to Contegix

BUY-SIDE ADVISORY

Background

BlackMesh (“BM”) was seeking to explore their strategic options, as both owner operators had been in the business, working day-to-day since 2003, and were looking to diversify their holdings by realizing liquidity for what they’ve built. They also recognized the challenges faced with continuing to grow a business to the next level of scale, and we’re open to exploring the market for the right strategic acquirer, who would value the business properly, while being able to further monetize what they’ve built to such point.

BM engaged HRC knowing our deep network and expertise within the cloud and technology services verticals, as well as feeling comfortable due to a relationship which was established years prior, where BM and HRC would regularly discuss the market, value drivers, and other opportunities within the space. HRC was excited to take on the mandate knowing the quality of the asset, due to the high-touch nature of the services BM was providing, the differentiated offering and expertise around open-source applications, and compliance. Further, BM had reached a meaningful enough level of revenue and profit to get the proper attention from the strategic buyer community.

Objective

Sell majority control to a strategic acquirer who would be open to taking over day-to-day management of the operations, allowing the two owners to ultimately transition out of the business. Find an acquirer who understands the current and near-term value of the business, factoring in current year growth, and the increase in profitability. Also one who has clear, tangible synergies which would translate to incremental value beyond the standard financial drivers. Position the company appropriately so the strategic buyers can see the potential synergies on the surface, hooking them into the process. Run a tight, organized process, with acquirers who are already from the space, who are much larger in size, ideally have financial backing, and ones which are actively making acquisitions.

Transaction Process

HRC ran a targeted yet thorough process, getting the opportunity in front of the right audience, while properly telling the story, supported by comprehensive materials. After receiving significant preliminary interest, it came down to two final bidders which presented a challenging decision for the sellers. Both bidders had reached the sellers’ valuation expectations, were larger private equity-backed strategics, with a strong ability to close. Ultimately, we chose the party that had a higher portion of the consideration in cash, as well as didn’t mind the owners transitioning out of the company after a brief integration period. Therefore within six weeks of the process starting, a term sheet was signed, and the due diligence period began. During the exclusive due diligence period, the process was quite ordinary and smooth, as BM continued to perform as projected and there was no re-trading by the buyer. HRC was mindful in the planning phase of the process, to be realistic and conservative with the company projections, to ensure expectations were managed on the buyer side for what they were getting at the time of the deal closing.

Outcome

In the end, the deal closed 75 days after signing of the term sheet, which is quite common, with all sides being very pleased with the results. HRC is grateful for the opportunity to work with such a great company, run by two exceptional founders, as well as with the buyer, who displayed the utmost professionalism, and straight-forward behavior from start to finish.

HRC CASE STUDY

Cloud9 Realtime Acquisition by Abacus Data Systems

SELL-SIDE M&A

Background

Cloud9 Realtime (“C9”) was seeking to explore their strategic options, as the main shareholder and operator had transitioned himself out of the day-to-day, and was seeking diversification of his net worth. C9 had been approached by a potential acquirer which seemed to make strategic sense.

Objective

C9 was seeking support in moving forward with a transaction, either with the incumbent party, or with another buyer. C9 recognized while it’s possible to do on their own, they felt it was worthwhile to bring on an experienced advisor to guide them through the process, who also focuses in their respective vertical, with a deep network of acquirers and investors.

Transaction Process

C9 engaged HRC to explore their strategic objectives, which immediately thereafter, HRC picked up the discussions with the incumbent acquirer, only to realize this party wasn’t willing to proceed with a market transaction structure. HRC and C9 decided to put such discussions on hold and test the market for a more compelling valuation and deal structure. HRC created comprehensive marketing materials highlighting the company’s operational and financial capabilities, and went to market, reaching out on a no-name basis, sharing an outline of the opportunity, to the investors and buyers in its network, which fit on the surface strategically

Outcome

After running such process and speaking to several parties, HRC secured a much more compelling offer from a party which had more synergies due to the competitive nature of the businesses, however C9 still felt more interested in working out a deal with the incumbent, thus we reverted back with such news of a better “market” offer, and the incumbent obliged by matching their offer to the new offer. C9 signed a term sheet and went into exclusivity with the incumbent. HRC closely advised C9 through due diligence and the various complexities and nuances, en route to the closing. Having HRC proved valuable on multiple fronts, tangibly by increasing the existing acquisition offer, and thus comfortably paying for the success fees.

HRC CASE STUDY

RookMedia Acquisition of DomainSponsor

BUY-SIDE ADVISORY

Background

RookMedia (“Rook”), a Swiss-based company was seeking to acquire it’s largest competitor, DomainSponsor (“DS”), to create the leader in the domain name monetization space.

Objective

Rook was seeking support and guidance on how to best acquire DS from a valuation and structural perspective, as well as how and where to raise the capital from. Rook engaged Harbor Ridge Capital (“HRC”) to advise on the transaction and fundraising; Also important to note, HRC founder had previously completed a transaction in the same space, thus fully understanding the business and value drivers.

Transaction Process

After running financial analysis on what kind of capital was likely available from the debt markets for the acquisition, HRC firmed up the acquisition valuation and deal structure, which proved highly accretive to the acquirer. A term sheet was signed, and HRC began its fundraising process for what was expected to be a challenging process, given a Swiss company would be acquiring a US company, and we were seeking a US-based investor. Also, Rook was quite a bit smaller than DS, and in an internet marketing industry which is relatively volatile, not conducive to institutional investors. However, the combined businesses had tremendous expected revenue and profit synergies, creating a highly compelling acquisition story, and ideal financing opportunity, yet the positioning and material preparation was critical in the presentation. This included illustrating detail around the combination, and specifically, the near term expected cash flow, along with the Pro-forma cash flow from synergies, used by lenders. This detailed merger model contained many answers to the lender’s questions and essentially tied up the opportunity for their review.

Outcome

After a thorough outreach to a wide pool of target alternative lenders (unitranche and mezzanine), HRC identified a handful highly interested in the opportunity. A term sheet was signed with two different lenders, one senior and one junior. The acquisition closed where the acquirer expanded their business by 4x, and only took on minimal dilution creating significant shareholder value.