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Selling The Sourcing Business

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Why Did We Buy It?• Acquired ABC in March 2000• Strategic Rationale

– Foothold into enterprise software apps – Key strategic customers (e.g. WalMart, Macys, GAP, Dillards,

Timberland, etc)– Believed sourcing was an attractive growth opportunity– Got an instant development & PSO organization

• Purchase Parameters– Number of Enterprise Customers: ~30– Purchase Price: $100M+– Financing Terms: 5% cash; 95% stock at over $100 per share

Deal Done During The Go-go Days of The Tech Bubble!2

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What Happened After We Bought It?• Discovered software was poorly constructed

– No APIs, No web interface, etc– Poor due diligence prior to purchase

• Market opportunity was smaller than expected– Application features/functions addressed a narrow market– Longer than expected sales cycles– High tech spending bust during the past 3 years

• Poor post merger integration– Some of the key people left relatively quickly (Mary Jane, etc)– Cultural conflicts and missteps as XYZ tried to transition to an enterprise

software driven business model• Financial incentives evaporated

– XYZ stock price plummeted in tech spending dive– ABC shareholders couldn’t sell because they were in a lockout period

• Operating performance issues– ABC sold 30 licenses prior to the acquisition and we have only sold 4 since

then– XYZ inherited a lot of customer complaints and anger about the software

performance

Classic Post Merger Deal Execution Problems Followed! 3

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Anatomy of LOI - Ver1

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Asset vs. Stock Purchase

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Structuring Effective Earnouts

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What is a Reverse Merger?

LOI Tools and Templates Full Buyout

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Stock For Cash

Stock For Stock

Stock For Cash & Stock

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