Introduction
•
Gores Technology Group formed in 1987
– founded software business in 1979
– sold business and began acquiring under-performing businesses
•
Unique investment strategy and approach
– 15 year evolution from operators to buyout specialists
– talented finance professionals combined with experienced operators
– refined transaction negotiation and execution capabilities
•
Significant personal capital commitment alongside limited partners
– highly disciplined approach
– conviction in investment strategy and business model
– alignment of interests with limited partners
1
Tech/Telecom Focus (cont’d)
Limited strategic and financial buyer competition
Competitive Landscape for Technology and Telecom Deals
Mature Business
(Substantial Revenues)
Traditional Private Equity Firms
Limited Buyer Interest
Significant Strategic Buyer Interest
Stage of
Development
Venture Capital
(Limited Revenues)
Underperforming
(Typically Unprofitable)
Operating
Performance
2
Performing
(Typically Profitable)
Track Record
Proven track record of superior returns and capital preservation
• Realized 12 of 22 investments since 1995
– 145% IRR
– 6.1x multiple of invested capital
– average holding period of 23 months
• 21 of 22 investments have generated positive returns
• Investment philosophy geared towards downside protection and capital
preservation
3
History of Gores Technology Group
Alec Gores sells EBS to CONTEL
and forms Gores Technology Group
Manac
CPT
1978 1986 19881992
1993 1994 1995
1996
1997
1998
1999 2000
Infinium Financials
Alec Gores founds
Executive Business Systems
(EBS)
4
2001
2002
Investment Process
Deal
Sourcing
• Business Development Group focused solely on new opportunities
Due
Diligence
Process
• Consistent, rigorous approach to investment selection
Transaction
Negotiation &
Execution
Portfolio
Company
Management
Exit
• Extensive relationship network
• Development of detailed pro forma operating plan
• Creative approach to negotiating and structuring transactions
• Use of seller financing, asset-based lending, royalties, guarantees
• “Hands-on” approach to portfolio company management
• Operating group provides ongoing strategic guidance
• GTG employs multiple exit strategies, including sales, cash sweeps,
recapitalizations and other creative strategies
5
Investment Strategy
Characteristics of target companies
• Defensible core business
– established customer base with substantial recurring revenues
– mature products and services with high switching costs
• Operationally challenged
– unfocused business strategies
– bloated expense structures
– deteriorating employee and customer relationships
• Under-utilized assets
– working capital
– real estate
– intellectual property
6
Case Study:
Company Description
– Developer and marketer of consumer software
Investment Thesis
– Strong brands with leading market position
– 63 separate acquisitions had not been assimilated
– Detailed operating plan developed by GTG team
– integrate 63 previous acquisitions and realign
organization into five business units
– redirect product development investments to
profitable product lines
– streamline excess cost structure
Background
– Mattel acquired TLC in May 1999 for $3.5 billion
– Highly problematic acquisition for Mattel
– Revenues and operating losses of $478 million and
$(365) million, respectively
GTG Acquisition
– GTG acquired The Learning Co. in October 2000
– No upfront consideration
– Mattel would share in up to 50% of sale proceeds
– GTG committed up to $80 million of capital to fund
TLC’s operating losses
– $5 million ultimately invested by GTG
7
Transaction Outcome
– GTG completed necessary operating restructuring
– Positive operating profit generated within 75 days
– GTG sold 5 business units separately for collective
consideration of approximately $151 million
– GTG, Mattel and Foothill Capital shared in sale
proceeds
Case Study:
Company Description
– Provider of transaction systems for debt, credit,
check and smart cards
Transaction Outcome
– Total value generated of approx. $227 million
– GTG recouped $40 million investment within
five months
– sold 85% stake to GTCR for $155 million in June
2002
– retained leasing business and significant future
cash flow
Background
– Hewlett-Packard acquired VeriFone in 1997 for
approximately $1.3 billion
– In FY 2000, VeriFone generated revenues and
operating losses of $355 and $(101) million,
respectively
Operating Profit
50
GTG Acquisition
– GTG acquired VeriFone from HP in July 2001
– $50 million purchase price
–$40 million in cash
–$10 million in seller note
24.0
($mm)
0
Investment Thesis
– Detailed operating plan developed by GTG team
– refocus VeriFone on core business
– streamline excess cost structure
– spin-out leasing business into separate entity
(50)
(100)
(101.0)
(150)
Pre-Acquisition
8
Post-Acquisition
Case Study:
9
Transaction Outcome
– Implemented turnaround
– Positive operating profit generated within 4 months
– GTG has received >$20 million in cash distributions
through October 2002
– MicronPC remains a GTG portfolio company
Operating Profit
50
8
0
($mm)
Company Description
– Markets personal computers and related accessories
Background
– Subsidiary of Micron Electronics
– Micron aimed to divest or shut down its PC
division as part of broader restructuring effort
– Revenues and operating losses of approximately
$1.0 billion and $(109) million, respectively
GTG Acquisition
– GTG acquired MicronPC in June 2001
– GTG guaranteed $70 million in capital to fund losses
– $5 million ultimately invested by GTG
Investment Thesis
– Detailed operating plan developed to rapidly drive
MicronPC to profitability
– refocus on low cost customer sales
(particularly, government and large
corporate clients)
– exit retail channel
– reduction in headcount by >830 employees
(50)
(100)
(109)
(150)
Pre-Acquisition
2002