From someone who's been there, here's some perspective on M&A. I have some time this morning and I think this would be helpful for many of you who seem to have a limited view of the acquisition process. Enjoy.
VALUATION
Everything begins here for both sides. This is where strengths and weaknesses are determined. Many of each are clear, with some uncertain middle ground. Here's my take (corrections/alternate views that some of you will give actually mirror how this process works in real time between sides). So...
STRENGTHS: Patents, proprietary tech, license agreement(s) (MSFT for certain), successful development and placement in HoloLens, HoloLens pipeline and projected revenue stream, experience and expertise, R&D investment, solid supply chain and ability to deliver, tax benefits (based on ability to apply), ability for a competitor to pressure MSFT by 'owning' the license, status of upcoming deals (if they exist), industry projections we're not aware of in AR, Auto, LiDar and other verticals by acquiring companies (history shows this to be meaningful - some sectors are taking off now), component comparisons vs competitors, IDM heat (who believes in it), continued funding has been easily raised, and a high likelihood of multiple bidders for whom MVIS would have a synergistic, strategic fit. These are a few basics with meaning, I'm sure I'll miss a few here so please chime in.
FYI: past failures are often strengths in M&A valuation if they resulted in successful pivots.
WEAKNESSES: Current overall revenue, PPS (changing rapidly?), past performance to a degree, EBITDA, business/financial/legal risks (see prospectus). These are the glaring big ones.
NEUTRAL: Relevance of 409A valuation in current conditions, projected financial growth (tough to nail with emerging markets), market comparables (neutral for most right now), comparative EBITDA vs component competitors, prices paid by management for recent share purchases, prospects and opportunities we don't know.
Both sides are going to come to the table with different versions of these and various precedent buy out examples. Bottom line: valuation benchmarks are very tricky here with a lot of room for interpretation. I see no possibility of an earn out here.
TIMELINE
With the hiring of CH on April 6, the clock began running. Hiring of an investment banker (unless you have an in house team) is always step one in M&A negotiation hopefully leading up to a successful close. Things that effect time line...
CH is running the show here. A tightly controlled sale process does a number of key things...
- Organize/centralize all financials, patents, records, contracts, etc.
- Create presentations and narratives that demonstrate the 'value add' in particular.
- Set in stone a draft disclosure schedule - forces buyers to make decisions with short time frames
A 'Data Room' is set up in this process. There's a lot of moving parts. Centralizing the flow of agreements, amendments, documents, signings, etc is critical keeping the process flowing. A Data Room is 'online' in modern times and they're usually created with a template in short order. This is no one's first rodeo.
COMPETITIVE BIDDING
If CH is worth a damn, identifying potential competitive bidders started on Day 1. Any presentations that get created probably have buyer specific versions. Depending on how many potential buyers are in the mix, this can take some time. MVIS's existing relationships with some companies can speed up this process. Existing operational presentations can be modified here.
DUE DILIGENCE
This is usually what slows things down the most. If MVIS is organized, given the size of the company, this should not be too complex. From a financial standpoint, it's straight forward. The complexities include things like any problematic contracts or conflicts, all things IP, contingent liability, analyzing litigation risks, etc. The fact MVIS is relatively small is helpful for getting DD done quickly and efficiently.
THE BUYER IS VETTED BY MVIS
Yes, this is a two way process. Most of the potential buyers here are big companies with M&A departments. While that streamlines, MVIS still has a lot of work to do in its own research of any buyer... there are elements here that can create more value for MVIS in negotiations.
LETTER OF INTENT
After you've done much of the above, there's an ungodly amount of negotiating and lawyering to iron out terms. How long does this take? It depends on things like motivation of the buyer, how competitive the bidding environment is, external factors beneficial to either side that need to play out (and the RS vote in the ASM is a perfect example here). A smart buyer waits for that to happen. If the vote is no, the buyer has added leverage to string this out and get a better price. NOTE: I expect a bunch of you to jump down my throat here. Have at it.
MVIS has to be very careful when executing a letter of intent. The devil is in the details here. Big companies usually have an advantage as they know how to frame things here that seem specific but are actually obtuse. Once an acquiring company comes to an agreement that is acceptable to both parties, they'll probably want a no-shop clause to stop any further bidding. This immediately swings leverage to the buyer - so if anything wasn't clear - it can be problematic.
DISCLOSURE TIME
This probably happens with a firm letter of intent. All the above should give you a sense of what it takes to get there. Those of your shouting "the company needs to sell now!" need to be aware of what actually goes into it.
DEFINITIVE ACQUISITION
This also has its own structure separate from everything else. This is getting long so I won't bore you further with details, but if you google definitive acquisition agreements you can probably find a solid checklist. There can still be adjustments to the price here though. In the words of the immortal Berra, 'it ain't over til it's over.'
Summary: there's complexity beyond this obviously so I'm sure I've missed quite a few things but this gets you in the ballpark. I've been told some of you think I am a 'plant.' Not the case. But I have about 17 years into investing in MVIS. It took a shit ton of work to build my position at a low cost basis. I'd like to see it pay off this year as would many of you. So at this critical juncture, I feel its important to finally add my voice to the reddit playground. That's how strongly I feel about it. While I can't erase the anger some of you have, and I think a lot of it is justified, I can add my seasoned perspective for you to consider. Wishing everyone the best.
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