Background

A publicly traded company (the Client) offering identity protection to individuals received an offer to acquire it from a larger company (the Buyer) in a related industry. The offer represented a 100% premium on the previous day’s closing stock price, but the stock was thinly traded and very volatile.

The Client signed the Letter of Intent, and both sides began their diligence processes. However, the Client’s management and Board of Directors (the Board) were uncertain about whether to accept the offer. From one perspective, they saw the offer as attractive given the premium to the share price. However, they also saw substantial growth possibilities for the company and recognized shareholders could miss out on future upside by selling now.

The Client approached Teknos with a desire to estimate the company’s value to better inform their decision, strengthen their negotiating position, and provide a Fairness Opinion if the acquisition did take place.

Analysis and Recommendations

As part of our diligence process, we held multiple discussions with management and the Board to better understand its operations, the offer, and the industry dynamics. This required a complex understanding of the Client’s current and future product offerings in addition to the risks inherent in the Client’s forecast.

We used several methodologies in our analysis, including discounting future cash flows, applying multiples from comparable publicly traded companies, and identifying similar acquisitions. Furthermore, we prepared sensitivity analyses and ran Monte Carlo simulations to quantify the potential upside and downside of the equity value.

Results

Based on this analysis, we presented to the Client a summary of our findings of the contributing factors for either accepting or rejecting the offer. Through an iterative process, we helped our Client understand the key drivers of value on a stand-alone basis and explored likely synergies the Buyer could realize.

Shortly after providing this information to the Client, the analysis was utilized to successfully negotiate a 20% increase in the offer price. After accepting the offer, we quickly prepared the supporting Fairness Opinion for the Board and Special Committee.


Teknos Associates provides valuation and advisory services for emerging growth companies and their venture capital backers. Clients rely on our financial expertise, knowledge of technology markets, and high standards to deliver relevant and timely valuation reports, opinions, and analyses.