NYC Startup Exit Masterclass by HAX, June 2018

1. June 2018
HAX: Startup Exit Masterclass
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2. 2
Agenda
• Introduction
• A Universal Truth
• 3 Undertakings
• The Answer
• Other, including Q&A
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3. 3
Introduction to HSBC
HSBC is one the world’s largest banking and financial services organizations
– 45% Asia
– 35% EMEA
– 20% Americas
Total Assets ($bn)Total Assets ($bn)
Selected Firm StrategiesSelected Firm Strategies
Contextualizing the FirmContextualizing the Firm
Valuation (Price / Book Value)Valuation (Price / Book Value)
Market Capitalization ($bn)Market Capitalization ($bn)
Key FactsKey Facts
• Optimize our international network
– Our presence covers 90% of global GDP and the 30 largest
trade corridors
• Maintain and capitalize on the diversity of our business
– By business model and geography
• Simplify and innovate
– Transform operations by modernizing systems and processes
• 150 year-old institution; established in Hong Kong and Shanghai
• ~$190B of market capitalization
• ~$50B of revenue, well balanced by division and geography:
– 40% retail banking
– 30% investment banking
– 30% commercial banking & other
• ~$20B of PBT
• 230K people in 67 countries
• Chairman: Mark Tucker / CEO: John Flint
366
296
265
192 172
78 59 44 39 23
86 88
JPM BAML WF HSBC CITI BNP UBS BARC CS DB GS MS
2,542 2,522
2,354 2,288
1,959 1,847 1,780
1,533
940 817 917 853
JPM HSBC BNP BAML WF CITI DB BARC UBS CS GS MS
1.5
1.4
1.2 1.1 1.1
0.9 0.9
0.7 0.6
0.3
1.2
1.3
JPM WF BAML HSBC UBS CITI CS BNP BARC DB GS MS
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4. 4
Introduction to HSBC’s Global Technology Group
We offer full-service investment and corporate banking capabilities to Technology
companies, globally
• The Global Technology Group is supported by colleagues from multiple areas of the firm
– ~25 coverage bankers who call on global Technology companies as their primary function
– Front-office investment banking product partners within ECM, DCM, Acquisition Finance, Leveraged Finance, M&A and Risk solutions
– Commercial banking coverage and product partners
– Functional partners from Innovation, Operations (IT and Procurement), Credit, Portfolio, Legal, Compliance, etc.
– Senior management of the firm and of our major businesses
George Patterson (Americas)George Patterson (Americas) Chi Tsang (Asia-Pacific)Chi Tsang (Asia-Pacific)Pierre-Emmanuel Houillier (EMEA)Pierre-Emmanuel Houillier (EMEA)
• Managing Director, Paris
• Joined HSBC in 2000
• 18 years of banking experience,
including 10 years focused solely
on TMT investment banking
– Previously acted as Head of the French
M&A practice
• Graduate of Ecole Polytechnique, ENSAE and
holds a degree in law
• Managing Director, Hong Kong
• Joined HSBC in 2012
• 18 years of professional
experience
• Most recently acted as global head of
internet and e-commerce equity research
• Prior to HSBC:
– Buyside analyst at Neuberger Berman
• MBA from Fordham and BA from Cornell
• Managing Director, New York
• Joined HSBC in 2018
• 20 years of Tech IB experience
• Prior to HSBC:
– Partner at CODE Advisors (2015-2017)
– Barclays (2008-2015) / Lehman (2000-2008)
 Head of Software, Systems & Solutions
 Head of Technology Banking, EMEA
• AB from Brown University
• Our Global Technology investment banking group is led by Managing Directors in each region
– Significant experience across products (equity, debt and M&A) and technology sectors (enterprise, supply chain and consumer)
Institutional Support of the Global Technology GroupInstitutional Support of the Global Technology Group
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5. 5
Let’s Start with a Universal Truth…
Ok, fine. So how does a Good Tech Company get Bought?
Good Technology Companies get Bought, not Sold
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6. 6
To Contextualize the Answer, CEOs / Founders should Undertake the
Following:
1. Understand how M&A works
2. Get the house in order
3. Develop a feel for “market”
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7. 7
1. How does M&A Work?
There are multiple sellside M&A process formats
• Narrow, “bespoke” processes can balance…
– Achieving best price and terms
– Probability of success
– Finding the “right home”
• …with giving strategics the right amount of time to
actively participate in a process
NarrowNarrowBroadBroad
• Negotiated formats in which a seller engages with a single counterparty
• Auction formats in which a seller engages with multiple counterparties
– Broad: 10 - 20+ counterparties
– Narrow: ~5 - 7 counterparties
• Typically structured as “cookie-cutter two-steps”…
• …which are sub-optimal for many strategic buyers
– Who require P&L owners to “advocate” and “sign
off”…
– …Which typically takes more time than is allowed
for in a cookie-cutter two-step
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8. 8
1. How does M&A Work?
A typical process takes 3-4 months, but can be shorter (or longer)
ExecutionExecution
PreparationPreparation
MarketingMarketing
4 – 6
Weeks
4 – 6
Weeks
4 – 6
Weeks
4 – 6
Weeks
4 – 6
Weeks
4 – 6
Weeks
• Provide a sufficient / appropriate level of
information to allow parties to get smart on the
business
• Receive proposal(s) from interested parties
• Finalize company overview, buyer specific
scripts, financial model + narrative and
data room
• Conduct meetings with potential
counterparties
• Ongoing Q&A with management
• Final negotiation, signing and
completion of legal documentation
• Negotiate and sign term sheet with
preferred counterparty
• Provide data room access
• Conduct diligence / management
meetings / expert sessions
• Compile, collaborate and finalize buyers list
– Identify most likely buyers
• Prepare data room
• Contact potential buyers and schedule
introductory meetings with interested parties
• Agree on process format
• Conduct due diligence
• Prepare key documents
– Company overview
– Buyer-specific scripts
– Financial model + narrative
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9. 9
2 & 3. Get the House in Order and Develop a Feel for Market
Develop a Feel for MarketDevelop a Feel for MarketGet the House in OrderGet the House in Order
• Talk to entrepreneurs who have experienced exits
– Homeruns
– So-so exits
– Acqui-hires
• Ask what worked. But arguably more importantly,
find out what didn’t work
• Assemble a data room of key documents
• Think about the value of your company…
– Returns to investors
– Market benchmarks
• …and what you would sell it for!
• Determine a short list of the most likely potential
buyers and be able to explain why what you’re doing
is so strategic to each of them
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10. 10
So, how does a Good Technology Company get Bought?
“Business Development” vs “Corporate Development”
• If you buy the “universal truth,” there are [four] things you can do to facilitate it
1. Identify the most likely buyers of your company
2. Develop commercial dialog with those buyers in the ordinary course
3. Put buyer Corp Dev teams in a position to do their jobs
4. Be flexible with respect to deal formats
• Executing #1 and #2 allows potential buyers to get to know you without posting a “for-sale” sign
• If #s 1 & 2 are done well, Corp Dev will learn about you very quickly. The trick is to then provide sufficient
information to allow a buyer to make a proposal
• When a buyer makes a proposal, that becomes a catalyst to contact other parties
– This is how a seller can arrive at the enviable position of having multiple parties interested in buying their asset
• In the event a transaction isn’t consummated, you won’t be tainted as having run a “failed” process
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11. 11
Other
• Banks can help you…
– But you need to pick the one right for you
• …& Lawyers can really help you also…
– But you need to pick the one right for you
• A Term Sheet is rarely just a Term Sheet
– This is where bankers and lawyers can help
• Buyers generally try to arbitrage their deal expertise vs yours
– This too is where bankers and lawyers can help!
• Q&A?
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12. 12
Disclaimer
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