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Case Study – the Sunaptic Sale

by Basil Peters on January 1, 2009 · 0 comments

The acquisition of Sunaptic by Visiphor is another good example of how multiple bidders can increase the final price by 50% or more.

Sunaptic  was run by two equal partners, Mike Hilton and Jame Healy.  They’d worked in an earlier company I’d invested in and I had a high regard for both of them. They offered to buy me lunch in return for some advice on an unsolicited offer they had received to buy their company.

Mike and Jame grew Sunaptic from a startup to about $3 million per year after about four years.  They focused on .NET and BizTalk server application development and their biggest verticals were healthcare and financial services.

The Unsolicited Offer

They won several significant healthcare contracts beating out some of the much larger  national firms.  These wins got the attention of a large acquisition-oriented software services company in Toronto – about 3,000 miles away.

The Toronto company purchased companies like Sunaptic on a regular basis.  They had a very good idea of what the company was worth, and what they are willing to pay for it. The company approached Mike and Jame with an unsolicited offer to buy Sunaptic.

They invest in a lunch

Over lunch, Mike and Jame said they were open to an early exit but wanted my thoughts on ways to improve their negotiating position and valuation.  Another factor was neither of them wanted to be part of a company whose headquarters was 3,000 miles away.  They knew that would mean a rapid accumulation of frequent flyer points.

Sunaptic was in a hot space and it wasn’t difficult to think of several other companies who would see strategic value and possibly pay a premium for Sunaptic.  I said I could get a competitive bidding process  going in a relatively very short period of time.  While I didn’t make any promises, it was clear to Mike and Jame that this strategy could significantly increase the final value they’d receive for their company.

Strategic Value

My first idea was a company that I’d invested in – Visiphor.  This company was focusing on similar web services technologies but had put all of their efforts behind a couple of early wins at the Department of Homeland Security.  Unfortunately, after significant technical success with their first two DHS installations, things had gotten bogged down in internal changes and politics at DHS.  Every quarter, the big projects dragged farther and farther out into the future. The Visiphor board was eager to diversify and their first choice was healthcare.

A Competing Offer

It didn’t take long for Visiphor CEO, Roy Trivett, to appreciate the strategic value in acquiring Sunaptic.  He knew he Visiphor in a competitive situation against a larger, eastern-based company, but weren’t sure who it was.

Roy moved quickly to make an offer to acquire Sunaptic. After a short round of negotiations the transaction closed at a final purchased price of $3,200,000, consisting of $2,720,000 in cash and 1,066,666 shares of Visiphor. This was approximately one times current annualized revenue.

It was interesting to see how much more aggressively Mike and Jame negotiated once they knew they had multiple bidders.

The acquisition was completed less than four months after Mike, Jame and I had lunch.

More Than a 50% Price Increase

It wasn’t until months later that I learned that the Toronto company had offered significantly less for Sunaptic.  Mike and Jame almost accepted that first unsolicited offer. Calling me to get my advice was almost an afterthought.

This is another situation where the difference between an unsolicited offer and a competitive bidding situation meant a difference of over 50% in the final selling price.  The difference to Mike and Jame, because they still owned most of the stock, was a significant amount of money.

Mike, Jame and Roy were all very happy with the transaction and nobody accumulated more frequent flyer points.

Testimonial From Mike Hilton, President of Sunaptic

Mike was kind enough to send me this testimonial a few months after the big check cleared his bank.

“Basil has shown himself to be an incredible matchmaker and judge of what makes a good acquisition.

Within less than a week of discussing with him the concept of selling our business, he had found a potential buyer.  More importantly, he found a buyer that was a great cultural fit for the company and for senior management.

He then worked tirelessly to ensure that the entire process went smoothly for both parties, brokering discussions, suggesting solutions to impasses, and generally supporting the process.

Having been through the merger/acquisition process three times before, this was the most painless.  That ease of transition can be predominately attributed to Basil’s ability to find and judge a good match and support it to the end.”

Mike Hilton
President, Sunaptic Solutions

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