My supplier of 5 years (which owns a portfolio of patents) is in distress.
They float on a large US exchange that I will not mention. They have hardware patents which work for Macbooks, PC Laptops, Android, Smart TVs and cars. They abandoned new production because of internal financial mismanagement.
This product has received rave reviews in the Wall Street Journal, CNET, Time, et al
It was sold through Best Buy, Dell, Amazon, Virgin Superstore and all the big retailers.
About 5 yrs ago I bought their remaining inventory but Dell was also offering to buy it.
The TAM for NEW products using this patent is in the hundreds of millions.
Historical gross margins were around 44-50%. - I believe it could be >70% if made at a better factory in large quantities.
Current Market Cap is around $20M-$25M (Fallen from $100+M in the last 24 months)
Approx $1.3m (NOL)
18 months of runway
20+ year old company
I have spoken with the main activist investor a few years ago... (he was extremely upset) he got diluted in their PIPE deal
The rest of the shareholders are also upset.
I believe they are overstaffed and can be made more efficient.
They have patents which could be making tens of millions per year.
(I am speaking with a retired former director from the company about some of the details).
My UHNWI mentor suggested trying to acquire 51% of the voting shares, taking it private, "trim the fat", "stop the bleeding" and make the new products with the patents > Merge it into a larger tech company or do a Reverse Merger.
Worst case scenario, sell off the assets to the other big tech companies. It may be worth more "dead than alive". I was told...
Before going too deep into D.D., does anyone have experience or suggestions?
Back of Napkin Basics?
Financials...
Legal: Unique Employment Laws and Unions
Deal Team assembly? deferred or contingent fees, etc
Has anyone here ever taken a company Private?
by a searcher from SDA Bocconi - School of Management
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I will reach out to you soon.
But I'm curious;
Why didn't your client just buy the failing competitor's Fulcrum (Ex: Senior Secured) to be converted to the equity after a restructuring? Maybe provide some of the DIP funding as well.
Was there no secured debt?
Anyway, things to think about (at a very, very high level):
1. Deal structure - obviously these deals are always mergers (in PE take privates, it's usually a classic one-step merger; but sometimes a tender offer followed by a squeeze out merger) - choice on structure is based on tax implications, but more importantly timing and SEC involvement. One-step mergers are often a slower process (despite the simpler structure) because they are often subject to SEC review prior to stockholder solicitation/voting on the deal. In a two-step, SEC review is conducted simultaneously during the tender offer period, where stockholders are mulling over the deal.
2. No purchase price adjustments - a public company merger agreement doesn't typically contain purchase price adjustment mechanisms (such as for cash, working capital, indebtedness, transaction expenses, or similar items) that are often used in the private company context. Make sure you're air tight in DD and seek to include covenants in the merger agreement limiting the target’s ability to alter or incur such items between signing and closing (taking into account the expected length of the period between signing and closing).
3. No "No-Shops" and Fiduciary Duties - When negotiating the deal, just remember that the public target has a board with fiduciary duties and they are bound to get the "best price" for the deal. This makes adding "no-shops" and other similar provisions in the LOI/term sheet a non-starter/not enforceable in most cases.
4.Regulatory Approvals and Anti-Trust - The regulatory approvals/filings list for deals involving public companies are long. HSR for deals over $120M, DOJ/FTC anti-trust oversight, FCC, FERC and other federal agency oversight depending on industry. Just keep in mind all the approvals you'll need and bake them into the deal timeline.
5. Labor Force - Going to be a huge mix of issues here ranging from (i) rollover equity of management; (ii) employee incentive plan issues and how they factor into the stock for stock swap inherent in a merger; (iii) whether the labor force is unionized and whether there is anything in their collective bargaining agreements that could be triggered to renegotiate the CBA upon a change of control/MAE/etc.; (iv) employee and DOL issues that come with having a large public company workforce.
6. Customer contracts - in diligence, make sure important customer contracts don't have "outs" for change of control or contract assignment, especially if the customer base in largely concentrated. This is especially important because purchase price adjustments are rare in this space, so diligence needs to be air tight.
This is really just scratching the surface - take privates are complex (and expensive) transactions. The smaller firms who do contingent fees don't have the bench to do these type of deals (you need a ton of bodies for a take-private - it's a lot of paper pushing). Some firms (including mine) would defer fees until close and offer some type of "kill fee" arrangement if the deal doesn't close. Happy to have a deeper discussion on the topic - email me at --@----.com or DM me.