Customer concentrations vs. Intellectual property
Overview
Exodus was retained as the sell-side advisor to a manufacturer of electronic components being used for defense applications.
The Seller, a PhD and well known engineer was seeking retirement and divestiture of his significant intellectual property. Due to the complexity of his work, most qualified buyers were public companies and/or tier 1 defense contractors.
Exodus Business Solutions prepared the Seller’s company for market with a focus towards an acute buyer pool likely interested in the technology the Seller had created and patented.
The Seller had a 90% customer concentration which created a risk problem for financial buyers.
Typically when a business relies on one or two customers for the majority of revenue, the business either sells for a discounted valuation or does not sell at all. Neither was acceptable to the Seller.
With buyers focused on financials seemingly out of the race, a list of potential strategic buyers that would be able to capitalize on the significant IP was prepared.
Confidential phone calls were made to CFO’s and in-house M&A teams on the buyer list with Seller approval and “teaser” level information.
This process yielded 3 potential candidates who eventually ended up in an auction-type environment for the business.
The company was ultimately purchased for 20 million by a public Buyer. By leveraging the Seller’s technology with its channels of distribution, capital, and customer list the Buyer was more than happy to pay a premium for the Seller’s offering.
The success of this transaction was heavily influenced by proper buyer identification and understanding the competitive edge available to the correct purchaser.