Background We were approached by a CRM company that had a fully developed product, a good reputation in the market but a very poor financial position. The company had entered into a CVA two and a half years previously and given that the proposal was a 100p in the pound had struggled to make the payments. Whilst variations had been proposed and accepted by the CRS, it was only to the timescale and not the quantum. As the contributions were ratcheted to the end of the period the cash implications were going to get tighter. At the time of the approach the company was also facing trading difficulties: The year 2000 issue had put a halt on the customer base placing IT orders The same problem was endemic in the market place Crown debts were again behind The company was way behind budget at the top and bottom lines. Proposal We were asked to consider what options were available to the business to overcome its financial difficulties and/or sell the business. The result in a period when IT companies were concerned with Y2K matters as opposed to strategic purchasing issues. The CRM market is one of the fasted growing in Europe and this factor was perceived to be a considerable strength of the company alongside the quality and commitment of its management team. Because there was a fully developed product with clearly defined development costs it was possible to set a benchmark for the minimum value that could be ascribed for the company. Whilst some deals on CRM companies were being done based on multiples of turnover it was accepted that the need to keep the team and product together would preclude astronomical valuations but may allow a premium over the basic development costs to be obtained together with ongoing employment for the team. The alternative at this stage was to consider liquidation and a phoenix of the business. At this stage given the trials of the cash flow and the huge loyalty of the team to the managing director to place another 'failure' in the way was seen as bridge too far. It was accepted that this was a longstop position. Strategy It was agreed that our firm would place an advertisement for sale of the business/company in the FT in such a way as to attract either an outright purchase or possibly a strategic investment with limited information to draw respondees into a vendor led due diligence. With the history of the company being a public record there was a high risk that should the name of the company be known too soon in any negotiations the exercise would not draw any real commercial interest. Running in parallel to this: A search agent was retained to consider direct contacts with other companies and an industry consultant prepared an independent report on the product. The initial Sales Memorandum furnished limited particulars, made no mention of the CVA and withheld the company's name. Christmas and the New Year as well as the industry consultant insisted that all contacts he introduced had full disclosure at the outset which hampered initial interest. Progress The search consultant found a value added reseller of US products that was seeking to expand. They were looking to form a public company acquire intellectual property and go for growth enabling a float later in the year. It was decided to introduce the difficulties of the company to the prospective purchaser at the outset without disclosing the name. Having obtained continuing interest to move forward the company and MD were introduced to the prospective purchaser. Negotiations moved forward and an offer obtained that would value the company at around £1million based on a very conservative multiple of estimated earnings. With an IPO In the offing this was potentially a good offer but, because of the structure (all paper consideration), it was not particularly attractive for the vendors/ Update By this stage the company was behind on PAYE and VAT as well as missing the next instalments on the CVA. The Supervisor balloted the creditors on the basis of a conversation on whether they would accept a settlement based on the offer. This bought time, as the creditors were then aware of the sales process and were willing to accept the settlement. Stage 2 The company continued to attract new business and the IT sector in general saw the start of 2000 catch up on delayed orders from the last quarter of 1999. One prospective customer was very interested in the dimension that the product could give to their business and when the financial information was reviewed, suggested that they should meet to discuss a way forward. As a result of negotiations an offer was formulated for the purchase of the company. With a price higher than previously offered A proportion of consideration in cash The same working capital injections This offer was more attractive to the vendors and was accepted. There had been no exclusivity period agreed with the first offer. Difficulties The Supervisor wanted the cash element of the purchase price to be applied to creditors Crown debts were very high (£130k+) Due diligence by the purchase flagged all the underlying concerns that would be expected End solution Total value obtained £1.85 million CVA settled in full Vendors received £540k in cash and £810k in shares Potential for deferral for any amounts was limited to £100k in shares Total timescale from appointment to sale was less than eight months including Christmas and New Year period. .