ICON66 – Volume 7
Selling Your Business: Are You Ready?
Name: Jo Walker, CEO and co-founder
Company: Practique
URL: www.practique.co.uk
ICONs: My Dad and Richard Branson
ICON’s Eddie Harding talks about the sale of Practique to Silicon Valley based Merced Systems.
The Objective
It’s one thing to sell a business when you’re ready to cash in and move on. It’s quite another to sell a business when you want to stay with it and help it continue to grow and achieve its greater potential. If you’re selling you’re unlikely to be too bothered about who you sell to, providing you secure the best possible price. If you're planning to stay, however, you will need more from your acquirer. In this case, a shared culture, core goals and belief are key pre-requisites of a successful deal.
The Vendor
Jo Walker and Steve Bowe spent 11 years building Practique from scratch, eventually becoming the European market leader for enterprise Incentive Compensation Management (ICM) software. Their product automates the increasingly complex job of calculating commission and bonus packages for organisations with large, performance driven sales teams, and its blue-chip client base included major banks and telecoms operators such as Royal Bank of Scotland, Orange and The Carphone Warehouse. In taking the company forward, however, Jo and Steve felt they were approaching the edge of their comfort zone. Far from wanting to take the money and run, they were ideally looking for a “friendly” strategic acquirer that would help take the company’s product, INCA, to the next level (i.e. global) whilst also taking on some of the increasing pressure of managing a fast expanding business.
Valuation Expectations
Jo and Steve knew there was a strong inherent value to the business they had created but they were keen to understand what price a potential acquirer might place on the company. They were also keen to understand how they might extract value out of the longer-term potential of the business. In our initial discussions, ICON highlighted that a direct competitor looking to take Practique out of the market might only see value in potential cost cutting opportunities, the size of their existing customer base, and obviously the benefit of removing a major competitor. However, Practique’s actual product might have little or no value to them. On the other hand, an acquirer from a complementary sector would value the company’s intellectual property, as well as the prospect of cross-selling their products to Practique’s client and prospect base.
The Mandate
Jo and Steve decided to appoint ICON because of its experience in selling technology companies within the global Tech M&A market. As they wanted a friendly buyer, we agreed not to approach close competitors in the first instance. Instead, ICON approached targets in complementary sectors, such as Customer Relationship Management (CRM) and Human Resource Software who would be looking to achieve cross-selling synergies and economies of scale. We identified strong interest from major enterprises who wanted to acquire an offering in this relatively new and fast growing ICM sector. We also approached a number of companies already in the ICM space but without operations in Europe. We
received interest from several parties based in the US and Canada who were looking to
establish a foothold in Europe. What was really exciting was that as a result of this wider,
international search we identified a preferred bidder who matched both these criteria.
The Acquirer
After several months of contact with prospective targets and advanced discussions with interested parties we entered into negotiations with Merced Systems to agree terms. Merced Systems is a Silicon Valley based Sales Performance Software business that has established itself as a leader in the US market. They had also recently recruited a small UK team to identify new sales prospects and so saw the acquisition of Practique as an opportunity on three counts: namely to accelerate Merced’s expansion into Europe through the acquisition of a strong established team; to gain a highly complementary product
offering to sell into its existing customer base; and the chance to fast track its own SPM suite to Practique’s client base.
The Deal
Creating a competitive environment during the sale process and identifying a strategic acquirer can have a significant impact on the success of a deal. Given the management
team’s willingness to stay on with the business post-sale, we agreed to a mix of cash up-front, earn out and equity in the consideration, potentially achieving a much higher valuation
for the business. By retaining an equity stake in the combined business, Jo and Steve have
a vested interest in its long term performance and the opportunity to benefit from further upside in the future. The benefit for Merced of deferring part of the consideration was
to create a strong incentive for the management to meet their future targets and work for the good of the combined entity going forward. This helped to minimise risk for both parties and created a cracking deal for all.
The Results
Jo and Steve achieved their ambitionof going global.
Jo Walker Says...
“The acquisition process is daunting and at times, emotionally challenging. Eddie Harding was supportive throughout the entire process, from construction of the memorandum of sale through due diligence and final negotiations. This is a tough process and demands experienced and sympathetic support. We found these qualities in ICON, who guided us professionally and personally through each stage of the process”.
