Alex Stapleton’s deal
Updated: Nov 16, 2020
This is part one of a three part blog on how Vision Capital transformed its M&A processes. The story and characters in this three part blog are fictitious.
Alex was Vision Capital’s youngest Investment Director. Having joined the firm 4 years ago, after a stint in investment banking, Alex had quickly built a reputation as a safe pair of hands. The senior team trusted his execution. But Alex didn’t just want to be a safe pair of hands, he craved to be recognised as a great investor. One of Alex’s first investments at Vision was Deep Tech Limited. He was on Deep Tech’s board. The business had grown strongly under Vision’s ownership, both organically and with a few strategic add-on acquisitions. Alex had been instrumental throughout. Deep Tech was now being lined up for exit and Alex was confident of notching up a 3X return for Vision. It was his opportunity to get noticed as more than just a safe pair of hands.
Ted Gordon was Vision Capital’s CFO and Peggy Moyles the General Counsel. Ted and Peggy were the unsung hero’s of Vision. They quietly went about their business - which largely consisted of putting off fires. Ted and Peggy both wore multiple hats, being pulled into deal execution, investor relations and having to deal with portfolio issues. They both wished their lives were a lot easier, but didn’t know how to make it happen. Given their busy schedules, there was hardly any time to think beyond a day. So when Alex informed them that Vision Capital was commencing the exit process for Deep Tech, they didn’t share in Alex’s enthusiasm. Their minds were immediately drawn to the additional fires they were going to have to put off.
Ted did not have fond memories of Deep Tech. He remembered the many painful months it took to help Deep Tech’s CFO figure out Vision’s acquisition structure and steps in order to help Deep Tech’s finance team onboard the new structure into their accounting systems. He expected the exit process to be painful. Peggy’s mind was immediately drawn to the Management Incentive Plan at Deep Tech and the fact that she was still waiting on the lawyers to reconcile the cap table to the legal docs.
Advisors were appointed and the formal process kicked-off. As expected, it took a lot longer to line up the information required for exit. This had a knock on effect on the deal time-table, and what Alex expected to be a 3-4 week process took twice the time. But Alex was happy with the bids they had received. A Letter of Intent and a 30 day exclusivity was agreed with a preferred bidder. If all went well, it was going to be a 3X multiple for Vision.
On the final day of exclusivity, Alex received the revised bid and wasn’t too pleased. Following their due diligence, the bidder had inserted five new items in the EV to equity bridge as a price reduction. In addition, there was a request for two extra weeks to firm up their diligence due to lack of detail on a few issues. Having checked in with Ted and Peggy, Alex learnt that at least 3 of the 5 issues identified by the bidder arose from procedural lapses that could have been mitigated had it been identified in time.
The deal finally closed with Vision recording a 2.8X multiple.
Peggy sent the email she had been waiting to send until after the deal closed.
Subject: There has got to be a better way
We need to catch up for a postmortem following the Deep Tech exit. As you know, it wasn’t the easiest of processes; but more importantly, this wasn’t an odd one out. We keep facing similar issues and need to find a better way. Nicola will put some time in the diary. In advance of the meeting, please can you reflect on the following:
Vision’s deal execution processes
How we manage our portfolio’s during the holding period
Your pain points and suggested solution