Kim Hawley

Dealmaking in the technology world has slowed to a trickle since the economy went into a tailspin last fall. Venture investing is down sharply, the IPO market remains essentially closed, and acquisitions are few and far between. But as the economic clouds were gathering last year, a number of Seattle area CEOs managed to seal deals – selling their company, pulling off a merger or landing a big investment – before things went south.

We caught up with six of those technology execs -- Jeff Erwin of Pure Networks; Hugh Crean of Farecast; Kim Hawley of Attenex; Todd Humphrey of CleverSet; Jeremy Lewis of Big Fish Games and Steve Sliwa of Insitu Group -- to ask if they were just lucky or good. And we polled them to see if they could offer any wisdom for entrepreneurs trying to navigate the current storm.

Jeff Erwin: Sold Pure Networks to Cisco for $120 million last July.
 

1. You closed a big deal before the economy turned ugly ­was it good timing, luck, or both?

Neither I think. The relationship Pure Networks had with Cisco started more than a year before the acquisition and involved technology licensing. The acquisition discussions started about 9 months before we closed in August of 2008. The only real affect the economic situation might have had was helping us resolve the question of selling or pressing on as a stand-alone company. Pure Networks was growing nicely, but the economic headwinds starting to form helped us decide to sell.

2. Did your deal involve cash, stock or a combination?

Both. The deal was structured to pay out to the investors and vested participants while retaining the Pure Networks employees and encouraging them to stick around for a few years.

3. Did Cisco come to you, or the other way around?

We had a technology licensing deal with a Cisco division, Linksys. They were shipping a lot of product that was depending on our technology and we were starting to license it to all of the other players in the home networking space. Cisco determined that our providing our technology to everyone wasn't really in their best interest, so they approached me with the idea of acquiring Pure Networks.

4. What was your reaction when the stock markets started crashing in October?

Well, it certainly re-enforced our decision to sell the company. I think the Pure Networks employees feel a certain amount of relief that they are in a more stable business environment than in a startup right now.

5. What advice would you offer other entrepreneurs contemplating a sale during this downturn?

First, if you are not strategic to someone, you probably aren't going to get acquired. There isn't much in the way of speculative acquisitions taking place these days. Second, realize that this is now a buyers market and the valuations are probably not going to be what they were a year ago. Third, if you are looking at a sale, you have to weigh the lower valuation against your ability to raise additional capital in this economy. Venture money is very hard to get right now, and the rule of 'live to fight another day' starts to become important.

Kim Hawley: Sold Attenex to FTI Consulting for $91 million last June.
 

1. Was it good timing, luck, or both?

The timing of our deal was independent of what was happening in the overall economy; it was the result of a process that works really well.... The innovation process worked and the time was right. It just so happened that the economy tanked right afterwards.

2. Did your deal involve cash, stock or a combination?

It was just over $91 million in cash. We did it that way because that’s what our investors wanted. The buzz phrase on everyone’s tongues right now is “cash is king”, but I think that’s true most of the time.

3. Did FTI come to you, or the other way around?

We’d had a very successful business partnership with FTI for many years. They approached us, as did a number of other potential buyers. It got pretty exciting and the folks at Voyager Capital were really helpful in steering us through the acquisition process.

4. What was your reaction when the stock markets started crashing in October?

Like lots of other folks, my net worth has taken a sizable hit. But, these things run in cycles and it’s important not to over-react. Easy to say, harder to do!

5. What advice would you offer other entrepreneurs contemplating a sale during this downturn?

Good times don’t last forever, but bad times don’t either.

Hugh Crean: Sold Farecast to Microsoft for $115 million last April

1. Was it good timing, luck, or both?

We were lucky to have good timing.

2. Did Microsoft come to you, or the other way around?

We’ve always been a bridge away from each other. The teams at Microsoft and Farecast have stayed in touch since well before the launch of Farecast. In July 2006, MSN Travel and Farecast launched a distribution deal together. So when Live Search was looking for the right travel company that fits with its goal of delivering the best search results faster and improving commercial intent queries, Farecast was the logical acquisition. Fortunately, we were able to strike the right deal. Now the Farecast team is excited to be using that bridge much more often.

3. What was your reaction when the stock markets started crashing in October?

Tough times. I know I speak for the whole team when I say we’re fortunate to be part of a great company.

4. What advice would you offer other entrepreneurs contemplating a sale during this downturn?

My advice would be the same in any economic environment: Don’t count on it – stay focused on making good decisions for your business right up to signing the dotted line. Be realistic – everything has changed; work with your board and advisers to establish clear boundaries on value and key terms upfront so you’re as efficient as possible with your most valuable asset – the time/energy of you and your great team.

Work fast – either a buyer is serious or not...avoid drawn out processes, preparing and sharing too many details, unnecessary due diligence, etc. Reassess the likelihood of a deal getting done every single day, and if the deal goes sideways, shut it down and keep moving. Every day and every dollar matters. Do what’s right – if you’re at a point where someone would consider acquiring your business in this economic environment, you’re there because of a great team and possibly investors/advisors who have supported you. Try to keep their interests at the forefront. Caffeinate – but switch to drip….2 bucks a day adds up.

Todd Humphrey: Sold CleverSet to ATG for $10 million in January 2008.
 

1. Was it good timing, luck, or both?

It was both, good timing and good luck. While we obviously didn’t know the economy would turn the way it has, we are thankful that we sold when we did.

2. Did your deal involve cash, stock or a combination?

Our deal was 100 percent cash, which given the stock market slide was a blessing. There wasn’t any rocket science behind the structure, our acquirer offered cash and we said ‘YES.’

3. Did Art Technology come to you, or the other way around?

Our buyer, ATG, approached us. It has turned out to be a great fit for both companies.
 

4. What was your reaction when the stock markets started crashing in October? 

That this downturn is serious and is going to have a dramatic impact on many businesses and people.

5. What advice would you offer other entrepreneurs contemplating a sale during this downturn?

My advice is the same as it was a year ago. Any acquisition that provides a good return for founders, employees and investors is a very good thing; however, in this economy don’t be greedy and listen to anyone that is talking.

Jeremy Lewis: Raised $83 million for Big Fish Games last August.

1. Was it good timing, luck, or both?

A bit of both. Our focus was on finding good long term partners. We started our search in the summer of 2007 and closed our financing on August 15th 2008.

2. Did your deal involve cash, stock or a combination?

Our transaction involved cash and common stock. We structured our transaction to align the interests of all shareholders.

3. Did investors come to you, or the other way around?

We interacted on some level with roughly 20 investment firms over a 13 month period. We approached some, others approached us.

4. What was your reaction when the stock markets started crashing in October?

Focus on performance

5. What advice would you offer other entrepreneurs contemplating a sale during this downturn?

There are so many variables that go into each situation it is difficult to give more than high level advice. In general, though, it never hurts to be humble, do your very best to stay positive, embrace and associate change with gain, not loss, and, in the words of Winston Churchill, "Never, never, never give up."

Steve Sliwa: Sold Insitu Group to Boeing for a reported $400 million last July.
 

1. Was it good timing, luck, or both?

Both. We were contacted early in 2008 about a possible combination. We truly thought it was too early but decided to be open to the possibility since we detected change was on the horizon. Truthfully, we were more concerned about our specific markets rather than the global economy at the time.

2. Did your deal involve cash, stock or a combination?

Our deal was cash. We had venture capital investors and they really only wanted cash and minimal future execution risk.

3. Did Boeing come to you, or the other way around?

The buyer initiated the conversation in early 2008. As part of the process, though, we had conversations with a dozen companies.

4. What was your reaction when the stock markets started crashing in October?

I guess it’s always better to be lucky. Some of my investors told that they couldn’t believe the good fortune of being in cash during the swift retreat.

5. What advice would you offer other entrepreneurs contemplating a sale during this downturn?

We beat the severe downturn in our industry, so I don’t really have experience in the current environment. I suspect a good argument would be creating counter-cyclical balance for the acquiring company.