The Client:

Leading global manufacturer of additive products for animal nutrition markets

// FINDING NEW MARKETS

Situation
Our Client had consistently grown its business at above the industry average but it’s core markets were close to being saturated.  The Company’s Board had set aggressive 5 and 10 year goals for the business which required that our Client consider expansion into related markets to meet growth expectations.

The Avalon Approach
Avalon worked collaboratively with this Client to identify and to characterize over 30 attractive opportunities to achieve the desired growth. Each market was analyzed  to understand:

• Market size, growth and profitability;

• Key competitors and ease of entry;

• Key success factors, and the fit with our client’s capabilities;

• Key trends;

• Potential niches to pursue, and,

•  Entry options.

Unique Challenges

Our Client was owned by a private holding company and, although operated in a “hands off” fashion, all potential investments required passing a gauntlet of a complicated decision process.  Avalon created a well-understood and easily implemented process and established communication channels with all key stakeholders.

Outcomes

Working collaboratively with our Client, Avalon developed a short list of approximately five markets with entry options that best fit their short and long term growth objectives.  These markets were in areas such as food additives, testing products and laboratory services that were all related to our Client’s existing markets, products, customers and competencies.  The results were accepted by the Company Board. Avalon subsequently helped them enter the highest priority market via acquisition and two other markets via partnership.

The Client:

Leading manufacturer of intrinsically safe electronic subsystems and displays

// ACQUISITIONS

Situation
Our Client had successfully achieved a leading position in the oil and gas industry in its intrinsically safe electronics products segment but was concerned about its exposure to this industry’s cyclicality.  The client established a military advisory board and determined that its core competencies resonated well with niches in the military market.  Having no existing footprint in the military market, our client asked if we could help identify acquisition candidates that would best fit its strategic and financial objectives.

The Avalon Approach
Avalon worked collaboratively with this Client to identify what key performance and synergy (“soft”) factors were most important in an acquisition candidate, and then weighted and force-ranked all of the factors to establish quantitative rankings for candidates.  Over 300 candidates were ranked and prioritized, with the focus being on the top 10-20 highest ranked candidates.  Avalon initiated contact with the top candidates, successfully entering exploratory discussions with over half of the companies contacted.

Unique Challenges
Our Client was owned by a $2 billion publicly-traded company with an in-house corporate development department, which typically would handle any transaction involving acquisitions.  We met early on with the senior executives in this group and informed them of our process and criteria.

Outcomes
After screening down to a short list of under 10 candidates and entering discussions with companies, one particular company was identified that not only met the key performance and synergy dimensions but also was ready to make a transition.  A transition plan was worked out and, in conjuction with the corporate development group at our client’s parent company, a purchase agreement was negotiated and executed.  The acquisition was timely in that the oil and gas market did enter a down cycle, and it enabled our client to maintain its same financial performance and growth trajectory.

The Client:

Niche software company specializing in content management systems

// ACQUISITIONS

Situation
Our client was a successful entrepreneur that had built a solid and valuable software company over the prior decade, but was at an inflection point where he needed to make some critical decisions on investments needed to bring the company to the next level.  In addition, a potentially attractive alternative had emerged; an unsolicited offer had been made for the company that would allow our client to realize liquidity for his equity and do so ahead of anticipated tax law changes.  Our client was excited about the liquidity prospects but had many questions, including:

• Is the offer fair relative to other comparable software company sales?

• Is the buyer the best fit for your company?

• What other companies might be interested, and how might they value the company?

• What process will a sale of the company involve, and what risks are associated with this process?

• What other options should be considered to invest in, or sell, the company?  What are the tradeoffs between options?

The Avalon Approach
Avalon structured a work effort for this client in two phases, the first in which the current offer was assessed along with alternative options and the second in which a broader effort to find other buyers would be completed if the results of the first phase suggested it was in our client’s best interest to do so.  We conducted a fast track effort to find comparables to our client from recent related software company transactions, and advised our client on several key issues and options to consider, including:

• Types of buyers – strategic, financial, search funds, individuals;

• Sale vs. partnership or joint venture

• Timing – optimizing value

• Investment vs. sale

• Deal considerations such as consulting agreements, earn outs, buyback options, and non-competes;

• Personal considerations – what to do next, tax issues; and,

• Legal considerations.

Unique Challenges
This particular client was a small company (under $10 million), and the breadth and quality of data on comparable transactions for this size company is generally poor.  The client was also transitioning from one predominant business model (perpetual license) to another (software-as-a-service, or SAAS), which had implications on valuation.  We tapped into “conventional” sources of data as much as possible but, more importantly, leveraged our extensive rolodexes to get higher quality, recent comparable transaction data that mitigated issues raised by these challenges.

Outcomes
We quickly determined that there were major differences in valuation of acquisitions in our client’s industry depending on the type of buyer (e.g., strategic, private equity, individual buyer) and that the offer our client had received was low but within the expected range of the type of buyer involved.  We advised our client of the benefits and trade offs of three different options 1) taking the company through a sale process immediately 2) working with the existing buyer or 3) continuing to work on the business model and taking the company through a sale process at a later date.  Given the client’s objectives and impending tax law changes, we decided to work with the existing buyer and successfully negotiated an improved with 30% more value and better terms for our client.

The Client:

A midsize ($50 M) aerospace and defense contractor in the Northeast

// ACQUISITIONS

Situation
Our Client had incubated a development initiative within the company with leverage from Phase 1 and 2 SBIR grants and NIST funding to build a man-portable satellite communications product platform.  Our client successfully built two initial products and generated $2 million of orders from the military, but was at a point where they needed to make major investments in manufacturing, marketing, sales and inventory.  As the rest of our client’s business was organized around a services business model, they decided that the best course of action would be to spin off the product line to a bigger defense contractor with strategic interests in the market.

The Avalon Approach
Avalon managed a selective divestiture process for the client, targeting a focused group of strategic acquirers in the defense industry.  Avalon developed all of the marketing materials, organized all company and intellectual property (IP) information in a data room, managed communications and the meeting/diligence process.

Unique Challenges
The top several potential acquirers for the product line read like a “who’s who” of major U.S. defense contractors, including the company that currently maintained the program of record with which our client’s platform competed, creating the need for a high level of secrecy and sensitivity about disclosing information.  Moreover, it was disclosed partway through the process that another entity shared an IP interest in one of the core technologies behind the product platform.

Outcomes
We carefully managed the communications and information disclosure process and were able to generate multiple letters of intent for our client at or above the anticipated asking price for the product line.  Further, we negotiated successfully with the other entity that shared an IP interest in the technology to a licensing arrangement that was acceptable to any and all of the interested buyers.

The Client:

A niche ($25 million) provider of testing services to the insurance industry

// FINDING NEW MARKETS

Situation
Our Client had developed a dominant position in its market niche but was challenged to meet the growth expectations of its private equity owners due to the small size of it’s targeted market.  Our client has started to explore adjacent market opportunities and asked Avalon to expand and accelerate its efforts.

The Avalon Approach
Working collaboratively with our client, we assessed and prioritized markets where our client was best positioned to achieve its growth and profitability objectives, with an emphasis on answering the following fundamental questions:

• What are the key characteristics of each potential market (e.g., size, growth, profitability, competitive dynamics, barriers to entry etc.)?

• Does the potential market value our client’s competencies?

• What is the cost of entry/investment required to enter the market, and potential return expectations?

A combination of primary and secondary research was completed to develop a fact base on the attractiveness, timeliness, ease of entry and key success factors associated with each market, and to place appropriate parameters around each market so as to be able to do apples-to-apples comparisons between opportunities

Unique Challenges
Our Client had a wide range of opportunities to review but was constrained in that they were unusually (i.e., 35%+ operating margins) profitable and could not consider opportunities with good (i.e., 10-15% operating margins) but not great profitability for dilution reasons.  Moreover, most of the highest potential opportunities appeared to be in small niches also.

Outcomes
Avalon evaluated between 30 and 40 market opportunities for this client, expanding the potential list of markets well beyond the collective opportunities identified by the management team.  We narrowed the list down to an attractive short list of opportunities, which we further organized into three different platforms, with a platform being a collection of market niches that fit together into a cohesive strategic direction.  Working with our client to understand the trade offs between platforms, one platform was selected as the basis for the company’s future growth.

The Client:

Leading global manufacturer of energetic and explosive products for the defense and aerospace markets

// FINDING NEW MARKETS

Situation
Our Client had enjoyed healthy growth as the defense industry expanded to support the war efforts post-2001, but had seen many signs that the bubble was about to burst.  In anticipation of this our client asked if we could help them evaluate and prioritize industrial market opportunities centered around energetic products that they could enter.

The Avalon Approach
Avalon worked with this client to develop a high potential list of industrial markets in which energetic products are used, and then established five different internal client teams to evaluate each market.  An Avalon partner led each team and provided a framework within which to evaluate each market with specific deliverable targets.  In addition Avalon took the input on each individual market and developed a quantitative, force-ranking system to compare the different market opportunities against each other.

Unique Challenges
Our Client was a technical leader in the energetic field and had been very successful in developing proposals to win Department of Defense business, but had limited experience in the commercial business practices required for success in most industrial markets.   In addition many of the opportunities evaluated required that our client develop systems integration capabilities; our client traditionally had developed components and subsystems but had strategic intent to move into systems.

Outcomes
Through our hands on approach and frequent collaboration, several highly attractive industrial markets were identified for our client in the oil and gas, utility and fire suppression markets.  These markets met our client’s revenue and growth expectations and were open to new entrants with improved technical solutions.   We recommended that our client establish a new division or subsidiary with different management and business processes that could draw upon the technical expertise of the company but be attune to commercial market expectations.