May 19, 2001 Soup to Nuts Seminar Series
Dec 24, 2015
May 19, 2001
Soup to Nuts Seminar Series
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Presenter: Brian Kasser, Principal, Software Investment Banking Practice
Founded in Q4 1998 by Thom Weisel, former CEO of Montgomery Securities for 27 years, and officially opened doors for business February 1999
Capital raised: 1999: $16B 2000: $28B
$ in M&A advisory transactions: 1999: $ 7B 2000: $ 76B
Annual revenue: 1999: $186MM 2000: $492MM
810 employees at 5/19/01
Offices in San Francisco, Menlo Park, New York, Boston and London
Focused exclusively on investment themes transforming the economy & targeting the high quality growth companies
Merchant banking approach combining research, underwriting, M&A advisory and private equity investment activities
Combines deep domain expertise with bulge bracket execution capabilities
Thomas Weisel Partners is the Leading Investment BankExclusively Focused on Emerging Growth
3
Table of Contents
I. IPO Process Overview
II. IPO Market Overview
III. Overview of Thomas Weisel Partners
IPO Process Overview
5
IPO Process Overview
Select the Team
Draft a Document / Conduct Due Diligence (Bankers & Research)
File Registration Statement with the SEC
Marketing (Roadshow)
Pricing / Trading
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Quarterly revenue run rate greater than $10 million and attractive sequential growth
Visibility (2 quarters out)
Profitability (≤ 2 quarters after filing)
Market position (first mover advantage – market leaders)
Stable customers (Global 1000)
Solution sold at sizable average selling prices (“ASP”)
Proven business model
Strong strategic channel partners
Reasonable mix between license / service revenue
Reasonable mix between direct / indirect sales channels
Strong board representation
Well-recognized investors
Management (seasoned / experienced)
Today Institutional Investors are evaluating potential technology IPOs based on the following metrics / attributes:
Characteristics of Companies that are Ready for an IPO
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Identifying and Selecting Investment Banks for an IPO
Full-Service Investment Bank
Strong Research Capability with Domain Expertise and “Active” Approach Names (Publishing) Dialogue with both Sales Force and Institutions
Focused and Active Sales and Trading within the Company’s Sector
Experienced Investment Banking Professionals with Sector Wide Knowledge and Advisory Capabilities
Reputation and Strength of Firm
“Fit” and Comfort with the Firm
8
Landscape of the Leading Investment Banks (Unbiased)
StrongExecution
LimitedExecution
Emerging GrowthFocus
Broad/DilutedFocus
Goldman Sachs
Morgan StanleyMerrill Lynch
CS First Boston DLJ
Salomon Smith Barney
First Union
SG Cowen
Deutsche Bank Alex. Brown
Banc of America
Fleet Robertson
J.P. Morgan Chase
Piper Jaffray
Wit Soundview
RBC DRW
UBS
William Blair
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Timing, Participants and Tasks of the IPO Process
Weeks 1-4 Weeks 5 – 10 Weeks 11 – 12 Week 12 Beyond
ManagementBankersResearchAttorneys
Accountants
ManagementBankers
AttorneysSyndicate
ManagementInst. Investors
BankersSyndicate
SalesResearch
Inst. InvestorsSyndicateAttorneys
ManagementInst. Investors
BankersResearch
SalesTrading
OrganizationalMeeting
Draft RegistrationStatement
Market PositioningEstablished
Financial/Customer Due
Diligence
CommitmentCommitteeApproval
File RegistrationStatement
PrepareRoadshow
Presentation
Respond to SECComments
PrintPreliminary
Prospectuses
Presentation toUnderwriters’Salesforces
One-on-oneswith Institutions
GroupPresentations
Bring Down DueDiligence
Price and Close
ThoroughResearchCoverage
Strong SalesSupport
Strong TradingSupport
Formulate M&AStrategy
InvestorRelations
Mini-Roadshows
Core Tasks
Key Participants
Time Frame
Drafting / Due Diligence
SEC Review Period
Marketing / (Roadshow)
PricingAfter Market
Support
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Proceeds of the Offering
Gross Proceeds: The total offering size. Shares Offered * Expected Price
Gross Spread: The percentage of the gross proceeds paid to underwriters to cover management fees,selling commissions and underwriting concessions. Almost always 7% on IPO’s; less on follow-ons (usually negotiable)
Offering Expenses: Expenses of the offering borne by the company. Typically accounting and legal fees, filing fees and printing costs.
Net Proceeds: Gross Proceeds - Gross Spread - Offering Expenses
Example:
Gross Proceeds -- 5.0 million shares issued X $10.00/share expected price $50.0 million
Less: Gross Spread @ 7% --$10.00 X .07 = $0.70 X 5.0 million shares $ 3.5 million
Less: Offering Expenses ---$700,000 $ .7 million
Equals: Net Proceeds $45.8 million
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Mechanics of an IPO Valuation
Some Form of Public Comparable Company Analysis: Price-to-Revenue, Price-to-Earnings, Combined with a Discounted Cash Flow
Pricing an “Art” Not a “Science” (Within Accepted Metrics)
Aftermarket Demand and Performance
Majority of Shares Still Held by Founders and Existing Investors
Market Ultimately Prices the Deal Based Upon Demand Characteristics
Post Offering, Valuation Fluctuates Based on:
Operational Progress and Announcements
Meeting “Street” Expectations Quarter After Quarter
Research Coverage and Visibility
Trading Volume and Liquidity
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Variables of an IPO Valuation
Trading Multiple: Based on comparable analysis, the multiple at which the investment banks believe a company will trade in the public markets.
IPO Discount: The amount by which the investment bank discount the trading multiple to calculate the IPO Multiple. Typically, IPOs
are priced such that the stock price is expected to appreciate 15%.
IPO Multiple: The multiple at which a company is taken public. Trading Multiple/ (1 + IPO Discount)
Post Money Equity Value: The equity value of the company at an assumed IPO price. Post Deal Shares Outstanding * IPO Price
Pre-Money Equity Value: Post-Money Equity Value - Offering Size
Primary Shares: New Shares sold by the company
Secondary Shares: Existing Shares Sold by Insiders (Typically Not Applicable for an IPO)
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Typical Stock Splits Prior to an IPO
Prior to going public, companies will usually effect a stock split or reverse stock split.
This is done to manipulate the price range of the common stock. To get it into a reasonable “filing range” (Typically low to mid teens)
A stock split does not change the company’s capitalization just the number of shares outstanding and consequently the earnings per share and per share price.
IPO Market Overview
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Overview of the Current Economy
The slowing U.S. economy has resulted in a reduction of capital spending by enterprises, especially on IT equipment and software
The reduction in IT equipment and software spending has resulted in weak financial performance for technology companies and significant stock price declines
The combination of a slowing U.S. economy and significant valuation adjustments has all but dried up the IPO market for early-stage emerging growth companies
Investors have returned to historical less aggressive metrics to evaluate public technology companies and initial public offerings
Companies architected for the investor environment of 1999 and 2000 must be restructured
No more “top line growth at any cost” mentality Earnings matter!!!
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Return to Historical Valuations
Siebel Historical P/E Multiple
0
50
100
150
200
250
Mar
-97
Jul-9
7
Nov
-97
Mar
-98
Jul-9
8
Nov
-98
Mar
-99
Jul-9
9
Nov
-99
Mar
-00
Jul-0
0
Nov
-00
Mar
-01
Oracle Historical P/E Multiple
0
20
40
60
80
100
120
Apr
-91
Apr
-92
Apr
-93
Apr
-94
Apr
-95
Apr
-96
Apr
-97
Apr
-98
Apr
-99
Apr
-00
Apr
-01
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IPO Market Overview
Monthly Initial Public Offerings: 1996 to Present
$ Amount Raised ($ in Billions)
1996 1997 1998 1999 2000 2001 (a)
January $1.3 $1.3 $0.8 $0.9 $4.0 $0.2February 2.7 2.7 2.5 4.6 8.5 3.8March 4.0 1.6 2.7 4.4 14.4 4.2April 6.8 1.3 3.9 1.9 15.9 2.2May 6.2 3.5 3.9 7.9 2.3 0.1June 5.4 5.5 4.8 5.4 10.9July 2.5 3.8 3.8 11.2 10.8August 2.4 2.8 1.3 2.6 6.4September 2.8 3.6 0.1 3.4 5.1October 6.8 6.1 5.1 7.1 8.7November 5.3 8.2 3.7 17.1 6.5December 2.0 2.0 3.1 4.5 2.8
Total $48.1 $42.3 $35.8 $71.1 $96.4 $10.4Average/month 4.0 3.5 3.0 5.9 8.0 2.1
Number of Transactions
1996 1997 1998 1999 2000 2001 (a)
January 21 23 11 10 18 3February 54 41 37 31 48 7March 56 31 33 20 53 8April 47 18 35 26 35 4May 71 30 40 45 24 2June 77 54 49 54 35July 44 47 39 53 48August 46 38 16 27 63September 45 41 1 41 27October 82 64 3 52 26November 65 77 11 54 20December 38 32 14 38 9
Total 646 496 289 451 406 24Average/month 54 41 24 38 34 5
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IPO Market Overview
Initial Public Offerings
% Priced Below Filing Range
% Priced Within Filing Range (a)
% Priced Above Filing Range
0%
20%
40%
60%
80%
100%
May
-98
Jul-
98
Sep
-98
No
v-98
Jan
-99
Mar
-99
May
-99
Jul-
99
Sep
-99
No
v-99
Jan
-00
Mar
-00
May
-00
Jul-
00
Sep
-00
No
v-00
Jan
-01
Mar
-01
May
-01
Pricing Trends in IPOs
The Big IPO Party…...
……..And The Morning Hangover
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IPO Market Overview
1999 IPOs: After-Market Performance
222.0%
281.6%
51.7%
184.2%195.4%
292.6%305.7%
354.8%
317.1%
224.3%
153.2%
128.9%
234.8%
8.2%
79.0%
(42.3%)
31.9%
98.2%82.7%
10.0% 11.7% 8.7%
(21.2%)(9.9%)
(46.2%)
19.1%
108.5%
38.1%
(42.9%)
26.3% 21.2% 22.0%
(31.2%)
(2.8%)(21.7%)
(34.5%)(21.0%)
(53.8%)
(8.7%)
(100.0%)
(50.0%)
0.0%
50.0%
100.0%
150.0%
200.0%
250.0%
300.0%
350.0%
400.0%
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec YTD
2000 IPOs: After-Market Performance
(3.6%)
(56.8%)
(47.4%)
13.5%
38.2%
0.2%
(24.6%)
(14.7%) (17.3%)
(3.0%)
2.1%
37.8%
(15.5%)
(1.6%)
(62.1%)(57.5%)
(1.9%)
13.0%
(11.7%)
(49.5%)
(37.1%)(30.3%)
(15.0%)(10.7%)
36.4%
(30.5%)
(80.0%)
(60.0%)
(40.0%)
(20.0%)
0.0%
20.0%
40.0%
60.0%
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec YTD
2001 IPOs: After-Market Performance
(23.1%)
16.3%
42.4%
25.0%
32.6%
22.9%
(30.0%)
(20.0%)
(10.0%)
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Jan Feb Mar Apr May YTD
After Market Performance of IPOs that priced in 2001, 2000, and 1999
Overview of Thomas Weisel Partners
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Focused exclusively on investment themes transforming the economy Target selected growth industries and highest quality companies Merchant banking approach combining traditional institutional brokerage with significant
private equity investment activities Comprehensive banking services for growth companies including equity underwriting,
convertible debt, private placements, M&A advisory and private client services
Founded in Q4 1998, officially opened doors for business February 1999 810 employees, expected to increase to over 900 by end of 2001 $40.4 billion in equity capital raised $85.7 billion in M&A advisory transaction volume announced/completed
Thom Weisel, CEO of Montgomery Securities for 27 years At Montgomery, Thom and other founders supervised an organization that in the 1990s
raised $100 billion in 988 equity offerings and executed 385 M&A transactions representing $100 billion in value
Other senior executives with 20+ years experience at Merrill Lynch, Credit Suisse First Boston, Salomon Smith Barney, Alex. Brown and others
San Francisco: Institutional Brokerage, Research, Corporate Finance, Private Client Dept. & Private Equity
New York: Research, Private Client Dept. & Corporate Finance Boston: Institutional Brokerage & Corporate Finance London: Institutional Brokerage & Corporate Finance
Overview of Thomas Weisel Partners
Strategic Positioning
Business Momentum
Management Team
Global Reach
Thomas Weisel Partners is the Leading Investment BankExclusively Focused on Emerging Growth
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$134.0
$80.9
$136.3$132.1
$97.6
$48.5
$31.5
$8.5
$126.5
0
20
40
60
80
100
120
140
160
Q1 1999 Q2 Q3 Q4 Q1 2000 Q2 Q3 Q4 Q1 2001
Brokerage
Investment Banking
Thomas Weisel Partners Status Report
IPOs and Follow-ons Completed 156 transactions $40.4 billion raised 18 lead managed offerings
IPOs and Follow-ons Pending 14 transactions filed/announced $1.4 billion filed/announced 2 lead-managed offerings
Mergers and Acquisitions 68 transactions completed/announced 42 transactions in backlog $85.5 billion in completed transactions $178 million announced
Private Placements 25 transactions completed 15 transactions in process $1.4 billion raised
Convertibles 8 transactions completed $3.1 billion raised
Overview of Thomas Weisel Partners
Dollars ($mm)
As of April 9, 2001IPOs and follow-ons completed include over-allotment and convertibles do not include over-allotment
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Company Life Span
Sta
ge
of
Dev
elo
pm
ent
M&A Advisory
Research, Sales & Trading
Capital RaisingsIPO
Private Client Services
Private Placements
Late Stage Private Equity (TWCP)
Venture Capital (TWVP)
Private Public
Overview of Thomas Weisel Partners
Comprehensive Services Across the Entire Lifecycle of Today’s Emerging Growth Companies
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20+ years experience in investment banking Completed over 156 financings in Thomas Weisel Partners short history Focused exclusively on emerging growth companies Raised over $40 billion in equity financing since inception
Deep relationships with strategic and institutional investors Understanding of the strategic investor landscape Highly integrated with M&A and Equity Research teams
Experience in managing and completing IPOs and secondary offerings 18 lead managed offerings completed Deliver size and valuation objectives for clients
Thomas Weisel Partners Equity Underwriting Expertise
Overview of Thomas Weisel Partners
Experience
Dedicated & Integrated Team
Track Record of Success
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Overview of Thomas Weisel Partners
Thomas Weisel Partners Equity Expertise
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Average of 15 years experience in mergers and acquisitions advisory Blend of bulge bracket, boutique and growth-oriented M&A experience Led by two of the industry’s most respected M&A professionals
Mark Shafir -- former Head of Global Technology Investment Banking at Merrill Lynch
-- advised Cisco on more than 10 transactions
-- advised SDL on its $41 billion sale to JDS Uniphase Bob Kitts -- former Managing Director in the M&A Group at Morgan Stanley
Deep understanding of the growth sector M&A landscape Highly integrated with Investment Banking and Equity Research teams
Experience in managing and completing M&A transactions 68 transactions completed/announced
Overview of Thomas Weisel Partners
Thomas Weisel Partners M&A Advisory Expertise
Experience
Dedicated & Integrated Team
Track Record of Success
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M&A Environment & TWP Capabilities
M&A All Sectors M&A Technology Sectors (1)
(1) Technology Includes SDC Tech Industries (e.g. Biotechnology, Computer Equipment, Communications, Electronics, Robotics, etc…Transactions counted in the period in which they are announced. Excludes spinoffs, buybacks & withdrawn dealsTransactions with undisclosed values are included in the deal count but do not contribute to the Txn Value TotalSource: Securities Data Corp. 4/4/01 - Transaction Values are equivalent to SDC’s rank values.
Strategic US Advisory Rankings: 2001 YTD Ranked by Dollar Volume
# of Trans. Val.Rank Advisor Deals ($MM)
1 Goldman Sachs & Co 20 $18,9642 JP Morgan 21 15,8073 Merrill Lynch & Co Inc 8 13,7244 Credit Suisse First Boston 33 9,8165 Morgan Stanley 16 7,8146 Salomon Smith Barney 18 6,2207 Daniels & Associates Inc 7 4,0618 Waller Capital 1 2,2159 FleetBoston Financial Corp 7 2,092
10 Thomas Weisel Partners LLC 3 1,68211 Societe Generale 6 1,57312 Broadview 9 1,39013 Lehman Brothers 15 1,31614 Wit Soundview Group Inc 3 1,06215 RBC Dominion Securities 1 1,02316 Dresdner Kleinwort Wasserstein 2 1,01817 Deutsche Bank AG 10 92218 Bear Stearns & Co Inc 9 91819 US Bancorp 5 71020 Updata Capital Inc 6 69121 UBS Warburg 7 57422 CIBC World Markets 7 35623 Houlihan Lokey Howard & Zukin 5 18424 Banc of America Securities LLC 4 15125 Alliant Partners 3 133
# of Trans. Val.Rank Advisor Deals ($MM)
1 Goldman Sachs & Co 55 $85,0342 Credit Suisse First Boston 76 76,1473 Morgan Stanley 43 72,7204 Merrill Lynch & Co Inc 29 60,3595 UBS Warburg 17 28,9936 JP Morgan 42 26,4987 Salomon Smith Barney 46 25,3728 Lehman Brothers 33 19,5749 Dresdner Kleinwort Wasserstein 7 18,608
10 Greenhill & Co, LLC 4 13,33311 Bear Stearns & Co Inc 26 9,46712 Deutsche Bank AG 20 7,80913 Touchstone Securities Ltd 1 4,92914 Daniels & Associates Inc 9 4,06115 Keefe Bruyette & Woods Inc 15 4,04316 Petrie Parkman & Co Inc 2 2,64817 FleetBoston Financial Corp 11 2,48818 ABN AMRO 2 2,22519 Waller Capital 1 2,21520 Rothschild 2 2,03321 Georgeson Shareholder 1 2,01522 BMO Nesbitt Burns Inc 2 1,90923 Lazard 7 1,70724 Thomas Weisel Partners LLC 4 1,68225 Societe Generale 7 1,573
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Thomas Weisel Partners Private Placement Expertise
Overview of Thomas Weisel Partners
17 years experience in dedicated private equity effort Completed over 100 financings at Montgomery Securities during the 1990s Focus on a broad set of growth company industry groups Raised over $3 billion in private equity in the 1990s
Private equity team focused solely on the private equity placement market Deep relationships with private equity investors Understanding of the strategic investor landscape Highly integrated with Investment Banking, M&A and Equity Research teams
Experience in managing and completing private placements Completion in 8 to 14 weeks Deliver size and valuation objectives for clients Realize liquidity objectives through public offering or sale within 24 months
Experience
Dedicated & Integrated Team
Track Record of Success
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Thomas Weisel Partners Private Placement Transactions
Overview of Thomas Weisel Partners
30
Overview of Thomas Weisel PartnersThomas Weisel Partners Private Placement Transactions
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Fund Size Close Date Fund Description Manager
Thomas Weisel Capital Partners (“TWCP”)
$1.3B December 1999 Mid- to late-stage private equity fund focusing on New Economy Companies
Alan Menkes Former Partner – Hicks, Muse, Tate, &
Furst
Tailwind Capital Partners
$50mm July 1999 & March 2000
Venture fund capitalized by TWP employees
Andy Sessions Former General Partner – Technology
Crossover Ventures Former Senior Managing Director –
Montgomery Securities
TWP Global Growth Partners (“GGP”)
$500mm Q4 2000
“Fund of funds” - investing in a portfolio of premier venture and private equity funds focused on growth company investing
Derek Lemke Former Head of Private Equity –
Montgomery Securities
Thomas Weisel Venture Partners (“TWVP”)
$260mm Q4 2000 Early stage venture funding
Andy Sessions Former General Partner – Technology
Crossover Ventures, and Former Senior Managing Director –
Montgomery Securities David Crowder Former Senior Managing Director –
Montgomery Securities
TWCP – Europe $500mm 2001 Growth company investing in Europe
Thomas Nilsson Previously with Investor AB
Overview of Thomas Weisel PartnersThomas Weisel Partners Private Equity Funds
32
Over $700 million committed to 28 leading companies on the cutting edge of change in software and internet infrastructure, technology services, media & communications, communications equipment and healthcare technology.
Thomas Weisel Capital Partners, L.P.$1,311,503,386
Overview of Thomas Weisel Partners
TechnologyServices Media & Communications Software & Internet Infrastructure
Healthcare Technology
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Private Client Services
Corporate Cash Management
Corporate Services
Investment Management Consulting
Tax & Estate Planning
Brokerage Services
Management of cash flow and
other short-term capital needs
Identification of tax efficient investment
strategies
Comprehensive asset allocation and
diversification
Brokerage services provided to
“friends” of the deal; execution of restricted security
transactions
Competitive execution and agent
approach to fixed income
Thomas Weisel Partners Private Client Services strives to preserve the capital base of clients through wealth diversification and asset allocation
Overview of Thomas Weisel Partners