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CenterWatch is the leading "watchdog" and information clearinghouse for the clinical trials industry in the U.S. Initially Atlantic Accord was retained by Centerwatch to develop an exit strategy that would be beneficial to both owners. The exit strategy we developed consisted of a buy-out of the shareholder who wanted out. However, after a thorough analysis of the business, we concluded that a lot of potential value was lost because the company's web site (which lists clinical trials conducted nationwide,) was still embryonic. At the time we became involved the company generated most of its revenue from its traditional newsletters, publications, books, and from consulting, and its financials were organized following traditional publishing conventions. We convinced our client that the shares would command a much higher value if the business and its presentation were reoriented to an Internet-based model. In contacts with a select group of prospective buyers our thoughts were confirmed. These discussions also yielded valuable insight that helped fine-tune the company's model and presentation. Together with our client we decided to hold off another six months before re-engaging prospective partners to help us show the viability of the web site and to prove the revenue metrics underlying the model. The critical metric consisted of clinical trial listings paid for by pharmaceutical companies and clinical research organizations, which in turn depended on the site's ability to attract patient candidates for participation in trials. In the six months leading up to the sale of the business, we worked with our client in revising their business plan and preparing presentations to follow a dot.com business model. In subsequent negotiations, the field was narrowed to two prospective buyers. The discussion focussed in particular on ways to create superior shareholder value for the active founder based on business performance benchmarks that essentially should remain under his control. The winning bidder for CenterWatch was Medical Economics, an International Thomson medical communications company. The deciding factor was the buyer's flexibility to provide unlimited upside to the active founder under an earn-out arrangement with built-in assurances for marketing, human resource, working capital and other support from Medical Economics. In addition, a significant amount of cash was paid up front to purchase the other owner's remaining shares. We negotiated various guarantees to protect the active founder from unforeseen developments. Now, more than a year after the transaction, CenterWatch is the fastest growing unit in the Medical Economics family and the active founder is on his way to achieving an earn-out that represents a considerable multiple of what he would have achieved in an outright sale.
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Mergers & Acquisitions | Strategy
Consulting | External Corporate Development
| © 2003 Atlantic Accord |
Sometimes shareholders or founders
have conflicting goals. In the case of CenterWatch, the two owners decided to part ways,
yet the company was not ready to be sold. Our challenge was to come up with an exit
strategy that was beneficial to both partners. While one of our core strategies was to
create significant value with an Internet site, the site still needed to be built out. We
were successful in convincing the partners to put off the sale and focus for a defined
time period, on re-orienting the business with our help, to a more aggressive, exit-driven
Internet business model. Six months later, a creative deal was struck that provided cash
for one shareholder, and phantom stock for the active founder.