Sale of Blackmesh to Contegix
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.