PREPARING FOR A LUCRATIVE EXIT
Next Step, Beringer Finans and Wiersholm
Oslo, 25. april 2017
01
BUILDING
BUSINESS VALUE
Next Step to Growth
250%
300%
Market Value Growth
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Revenue
Growth
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Achieving the Dream
1. Long Term Growth or Lifestyle Business ?
2. Global Scalability and Market Value? 3. Cash Out and Move On? © Next Step 2017 . All Rights Reserved.
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Plan for Value
Vision
Market
Customers
Sales Channels
Success Team
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Gaining Market Adoption
Your solution uniquely solves buyer needs
Customer Need
Your Solution
Your
Solution
Alternative Solutions
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Eco-System for Growth
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"LIFE CYCLE" OF A GROWTH COMPANY
MATURE
BUSINESS
GROWTH
IDEA
PRODUCT
TESTING
COMMERCIALISATION
Know thy macro-trends…
Asian Growth Markets
National regulation
Globalization of information
Technology development
Understand your value creation model…
Ensure alignment between the shareholders, board and management…
“We are going to build a world leading company within X and need NOK 50 million in growth capital…”
“We have already taken NOK 5 million in seed capital and loans, but our first customer is now cancelling the contract …”
“We are going to buy two companies in the Nordics to double our revenues before developing new services...”
“The company I invested in is still loosing money and they definitely need assistance in restructuring the business but with my 5% equity share I am not on the board and I want my money back…”
“The X market is so hot right now, so we are launching a new Y, but with better technology and at a fraction of the cost…”
CONTRACTING STRATEGY
Why develope a contracting strategy?
- Your business model in practice
- Risk management
Contract in short:
What is being sold?
How is it priced?
Are there any guarantees?
Relevant factors:
Goal = maximum value
Implementation:
- Highest possible profit
- Lowest possible risk
What do you produce/add?
Where are you in the value chain?
Customers
Suppliers
Competitors
IP STRATEGY
IDENTIFY
What is your key IPR?
Patents – protects the idea. Gives monopoly on qualifying invention. Registration required
Copyrights – protects the form an idea is expressed in. Source code, object code or unique
interface
Trade secrets – protects the idea, such as a pattern, s process or a formula.
Trademarks – names, brands and domains
PROTECT
What can be registered?
Where do we want to register?
Transfer of IPR through customer or partner contracts?
Employees' entitlement to IPR
MONITOR
Follow-up of registrations (patents and trademarks)
Monitor adjacent registrations?
Monitor infringements?
CORPORATE GOVERNANCE
Decision making
Information / communication
Related party transactions
Employee strategy
Consultancy vs.
employee?
Employment
contracts
Flexibility vs. security?
Price?
Compliance aspects
Tax differences
Tailored templates
Non-compete restrictions
EMPLOYEE INCENTIVES STRATEGY
BONUS
SHARES
OPTIONS
PROS
Flexible
Simple
Implemented by
board/management
No cash cost for
employee
Full alignment with
shareholders – "skin in the
game"
Provides cash to the company
Low risk for employer
Aligns interest with
shareholders, but no risk of
loss
No cash cost for employee
Low risk for employer
CONS
Cash cost for employer
Sufficiently long term?
Holiday and pension
costs?
Complex shareholder structure
Procedures to implement
Direct cash cost for employee
Procedures to implement
More complex shareholder
structure
TAX
Taxed as salary when
paid
Tax deductable for
employer
Gains taxed at 29.76 %
No tax effect for the employer
Taxed as salary (46.7%) if
market price exceeds employee
price
No tax when option granted
Taxed as salary when the
option is exercised
No tax deduction for
employer
BUSINESS STRUCTURE AND SALE OF BUSINESS – TAX ISSUES
1. Ownership structure?
Shareholder; natural person or company?
Norwegian tax method (fritaksmetode)
Holding companies
2. Sale of whole or part of business?
Demerger or sale of assets?
Tax-free demerger
3. Sale of shares vs sale of assets?
Shares owned by company exempt from tax
Sale of assets
•
Tax (24%)
•
Consequences for Buyers book value/tax input value – impact on sales price
•
Issues related to VAT/adjustment obligations (justeringsforpliktelser)
02
ACHIEVING
LUCRATIVE EXIT
One Year to Exit
Vision
Market
Customers
Sales Channels
Success Team
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Delivering Value to Acquirer
Potential Acquirer's Position
Market Opportunity
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Delivering Value to Acquirer
Your company brings added value
Market Opportunity
Acquirer Position Your Value
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Value to Acquirer
Intellectual Property
Processes
Value is more than product
Customers / Market Access
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Team / Skills
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Value is in Eyes of Buyer
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Introduction to the Nordics
One of the most attractive business regions in the world
Best countries for business
Global innovation index
Denmark #1,
Sweden and Norway top 5, all Nordic top 15
Sweden #3, Finland #6, all Nordic countries top 20
(Forbes)
(INSEAD)
R&D as % share of GDP
Researchers per million people
Finland, Sweden and
Denmark top 10
Denmark, Finland, Sweden and Norway top 5
(World bank)
(World bank)
Global competitiveness
Corruption perceptions index
Finland, Sweden, Norway and Denmark top 12
Denmark, Finland, Sweden and Norway top 5, Iceland #12
(Global Competitiveness Index)
(Transparency International)
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CONFIDENTIAL
The Nordic technology sector
A technology sector in the absolute forefront
Excellent infrastructure and tech savvy community
Strong positions within multiple tech niches
Fintech
Technology
infrastructure
High digitization
across public and
private sectors
Ed
Tech
Clean
Tech
Easily accessible
and accurate
data
Green
Tech
Virtual
Reality
Passion for tech
Tech savvy
community and
early adopters
Stockholm #2
tech capital in
the world
Oil &
Gas
Travel
Tech
Health
Tech
Entrepreneurship
Highly developed
start-up
ecosystem
Food
Tech
Above average
concentration of
Unicorns
SaaS
Software
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iGaming
CONFIDENTIAL
The Nordic technology sector – by country
The Nordics – overview tech landscape
Country
Example sectors
Comments
Example companies
Sweden




Fintech
Music
Gaming
Industrial
 Stockholm is ranked as the #2 tech capital in the world and Sweden has fostered several
prominent tech companies in the last few years
 Active sectors include fintech (Klarna, iZettle), music (Spotify, Soundcloud) and gaming
(King, Mojang, NetEnt, Betsson, DICE)
Norway




Oil & gas
IoT
Clean tech
Aquaculture
 Decades of oil & gas activities in Norway has given rise to a large cluster of high-tech
companies within the sector. Also significant innovations in process automation, sensory
systems, big data analytics, seafood and clean-tech
 Examples include Origo Solutions (safety solution for O&G facilities), Unacast (sensor &
beacon network), Abalonyx (leading graphene oxide producer) etc
Denmark




Sound tech
Health/medtech
Fintech
SaaS (B2B)
 Vibrant and diverse start-up scene with international success stories within multiple
sectors. A start-up ecosystem growing stronger and stronger
 Examples include Bang & Olufsen (audio system) Momondo (travel search engine),
Trustpilot (online reviews), Clearhaus (Fintech), Zendesk & Peakon (SaaS) and IO
Biotech (health/medtech)
Finland
 Gaming
 Clean tech
 Business
services/SaaS
 Most known for its global mobile games companies Rovio and Supercell, but more than
just gaming
 Start-ups in various tech verticals have raised significant funding from international
investors, including companies such as Kiosked (advertising automation platform) and
Enevo (waste management optimization) etc
Iceland




 A promising ecosystem for VR with CCP Games (Valkyrie for Oculus Rift) and Sólfar
Studios (Everest VR) leading the way
 The most active sectors are Fintech (Meniga, Valitor), Gaming (CCP), Ed tech
(InfoMentor) and Green tech (www.greenmarinetechnology.is)
Green tech
Fintech
Edtech
VR/Gaming
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CONFIDENTIAL
Your strategic positioning
Understand what sort of company you are…
TMT
Converging industries
Industry
Industry sector
Subsector 1
Subsector 2
Telecom
Media
Technology
Networks and
Communications
Hardware
Software
IT Services
IT Distribution
Basis
Technology
Administrative
Systems
Sector-specific
Software
Mobile
Software
Consumer
Internet
Other #1
Other #2
Other #3
Other #4
AR/VR
Individual companies
CONFIDENTIAL
Your market segments
VR is transforming the way we live, entertain, study and work
ENTERTAINMENT
GAMING
VR streaming of live
events offer
audience a highly
immersive, firstperson experience
Immersive and
more interactive
gaming
environment
RETAIL
TOURISM
Better product
presentation, more
personalized and
engaging buying
experience
Viewers can visit
and get the feel of
the destinations
without having to be
present in reality
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CONFIDENTIAL
Your market segments
VR is transforming the way we live, entertain, study and work
HEALTHCARE
FINANCIAL SERVICES
Training &
Simulation/diagnostics
etc: interactive,
immersive
Virtual Banking/ Wealth
Management Solutions
/Trading Platforms: offer
visualized, personalized,
immersive banking
experience
MEDIA AND DOCUMENTARY
EDUCATION
Visualized lessons
and immersive
learning
experience
Offer a walk-intoscene, personal and
immersive
experience
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CONFIDENTIAL
11 Entrepreneurial Activities in VR
Soaring entrepreneurial activities in VR
NUMBER OF COMPANIES FOUNDED YOY 20102015
KEY FIGURES IN VR
1,000+
Companies founded in the sector USD 1.85B
Matterport
Invested since 2010
Baofeng Moji
221
Companies funded in last 5 years
USD 1.4B
Invested in 2015‐16
350
293
Number of companies
300
226
250
KEY FIGURES IN AR
200
570+
150
94
Companies founded in the sector 100
50
35
Companies funded in last 5 years
47
27
USD 2.50B
Invested since 2010
0
2010
146
2011
2012
2013
2014
2015
USD 1.5b
Invested in 2015‐16
* Current year as of July 2016: 23 companies
* Source: Traxcn Report July 2016
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CONFIDENTIAL
11 Entrepreneurial Activities in VR
Soaring entrepreneurial activities in VR
NUMBER OF COMPANIES FOUNDED YOY 20102015
Matterport
Baofeng Moji
350
293
Number of companies
300
226
250
200
150
94
100
50
47
35
27
2010
2011
0
2012
2013
2014
2015
2016
* Current year as of July 2016: 23 companies
* Source: Traxcn Report July 2016
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CONFIDENTIAL
11 Entrepreneurial Activities in VR
Soaring entrepreneurial activities in VR
THE # OF VR COMPANIES GREW 40 PERCENT IN 2016
NUMBER OF COMPANIES FOUNDED YOY 20102015
Matterport
Baofeng Moji
350
293
Number of companies
300
226
250
200
150
94
100
50
47
35
27
2010
2011
0
2012
2013
2014
2015
2016
* 1H2016: 23 companies, 2H2016: 94 companies
* Source: Traxcn Report July 2016, The VR fund.com
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CONFIDENTIAL
13 Tech giants in VR
The tech giants have already made the moves and are well
positioned to capture the huge market potential
•
On Facebook's planet of 2026, the entire world has internet access
•
Mark Zuckerberg promises that we will be wearing VR headsets that are like normal everyday glasses by 2026
•
AI will be good enough, we can talk to computers like humans
•
Google introduced Cardboard in 2014 and is launching its Daydream platform, “Android” for VR
•
HTC set up an alliance with 28 global leading VC firms pooling USD 10bn to invest in VR and set the direction
•
Alibaba is adding VR to its online stores and lead several recent VR funding deals
* Source: Charles Mclellan/ZDnet
* Image from the presentation by Mark Zuckerberg at F8 developer conference 2016
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CONFIDENTIAL
OVERVIEW OF THE TRANSACTION PROCESS
Letter of intent
Due diligence
Signing
.
Indicative offer
from potential
buyer
Building of
data room
Board decision
Closing deliverables
Negotiations between buyer
and seller
Closing
DUE DILIGENCE
- Verification of the business
- Financial
- Technical
- Commercial
- Legal
- What are we looking for:
- Verification of rational for the transaction
- Changes caused by completion of the transaction – "change of control"
- (Substantial) Deviations from what is normal market practice
- Findings:
- Deviations are normal
- Lack of systems, control and systematical approach is what worries investors
TRANSACTION AGREEMENT –
THE THREE MAIN COMMERCIAL ISSUES
After signing, neither the seller nor the buyer would like to
risk that the deal is aborted for reasons beyond their control
Mainly a question about the
agreed enterprise value but
purchase mechanisms and
covenants may have an
effect
Deal certainty
Price
Risk allocation
Who has the responsibility
for known and unknown
issues?
CONTENT AND TYPICAL STRUCTURE OF AN SPA
Background and definitions
Sale and purchase
Obligations prior to
closing
Consideration
Conditions to
closing
Closing
Warranties, limitations and indemnities
Post-closing matters
Termination
Miscellaneous
"CLOSING"
Closing = completion of the transactions
The transaction is not complete when the agreement is signed:
Conditions precedent
Corporate resolutions
Payments
Registrations
Documentation
Related changes
MAINTAINING THE BUSINESS THROUGH THE EXIT
Customers
Products
Employees
RETAINING KEY COMPETENCE – TAX CONSEQUENCES
1. Key employees – not owners
Income tax
Incentive programs?
2. Key employee – previous owner
Earn out issues?
•
Work obligation for a certain time period? (bindingstid)
•
Competition ban? (Konkurranseforbud)
Reclassification of sale compensation from sale of shares (tax exempt if
fritaksmetode) to salary (46.7%)
3. Consultant – previous employee and owner
Risk of tax-reclassification from consultant-fee to salary (employee)
Cost / obligations for the Company and the consultant
Timing is Everything
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Kristian Martin Lind
Jennifer Vessels
Steinar Svalesen
Advokatfirmaet Wiersholm
Next Step
Beringer Finance
[email protected]
[email protected]
[email protected]