GLG News by Bradley Townsend

Implications: This is the first article I’ve read in almost a year that actually mentions a positive outlook for US based IPO traffic. Besides using a limited number of references, where does this article fall short defending this idea?

Analysis:

In order to see a clear picture of the IPO market, just as in the view of M&A’s, analysts should throw out the outliers. For example, YouTube should not be used in year-over-year comparisons, unless a YouTube-sized deal is typical in annual figures. In this article, however, the author compares transaction data from ’06 to ’05 and the volume of deals still slipped 5%. Further, the author mentions several counter arguments against IPO and for acquisition exit strategies- equity firms with large cash balances, ability to raise +$100M with VC firms, and company valuations that are similar between IPO and M&A models. One point the author mentions about US regulation not being a factor is not the sentiment I’ve come across. Two statistics come to mind when considering the cost of US regulations- 1. more companies went private in FY06 than the past 10 years combined, and 2. for the first time, the 2006 IPO market in EMEA was larger than that of the US.

The IPO market is a viable exit strategy to consider. It has been more attractive in the past and could return to its glory days if the right environment were to return. Still, for some companies this is the best strategy to pursue, and has been proven by some very reputable companies going public in the past couple of years.

Implications:

Many factors contribute to market adjustments; inflation, FX rates, economic news. But in this case, specific items are pointed out that could be the cause of the correction. Investors are skeptical of acquisitions where the acquirer is smaller than the acquiree. When several such acquisitions take place, the market will sit-up and take notice. This article attempts to explain why this occurs, but fails to go deep into the potential pitfalls of oversized acquisitions.

Analysis: Anytime a company acquires another, investors need to take a hard look at the valuation and the means the acquiree is paying for the acquisition. This holds true with small companies acquiring larger companies. When debt is the primary vehicle, the balance sheet is brought into question as to whether this is a healthy financial structure. Again, this is true no matter the size of the acquisition.

The primary reason for the uncertainty is the smaller company’s ability to digest the larger company. Integration processes must be carefully planned out in any acquisition. This is magnified in oversized acquisitions because any degree of failure could cause detrimental harm to the acquiree. There’s a matter of IT systems, retaining key employees, company culture, smooth integration of financial statements, educating sales forces of the new product lines, overcoming the fear of job security that all play key roles in the success of an acquisition. Smaller acquirees have a greater hurdle to overcome in the integration process.  Growth is good, whether through organic growth or through acquired growth.  You shouldn’t, however, try to swallow the elephant in one bite.

Implications: As this article accurately portrays the life of a small startup, many missteps are pointed out in the text as classic mistakes most companies make during their lifetime.  The problem is that startup companies have little room for error.

Analysis: Compared to the high-flying days before the dot-com collapse, venture capitalists these days are keenly looking for a less risky investment.  Companies with a history of revenue stream, positive cash flow, solid senior management, a track record of hiring talent, a strong balance sheet, and tight reigns on spending to name a few characteristics funding firms are attracted to.  Some pitfalls young companies could fall into include hiring high priced senior management, not having a willingness to sell a solid equity stake in the company, a reluctance by the founder to step aside to a lesser role, and of course, timing of the market.

Over the past several weeks, I've spoken to several VC firms that have approached companies about possible investments, only to find a lack of solid performance or one of the former characteristics listed above.  Company owners looking for B or C round funding need to realize potential investors' appetites have become more refined in the past decade.  These firms are well versed in growing companies and know the actions that need to be taken before a successful exit strategy can be carried out.  And hopefully the investment firms are not willing to compromise on this criteria.

Implications: Symantec, like so many fast moving technology companies, is hungry for growth.  To keep the top line moving up while the cash balance is plentiful, more companies are turning to acquiring competitive and/or complementary companies.  With over 80% of all acquisitions failing, its a wonder why these acquiring companies don't properly plan out their integration process better.

Analysis: It's widely assumed that the acquisition of Veritas by Symantec was a large purchase, and an even large task of integrating the business and employees into SYMC's fold.  So why did the company announce on Monday that it was purchasing Altiris for $830M?

Most technology companies that go on the acquisition hunt do so by purchasing smaller companies whose products or client list complement the acquirer's portfolio.  Pricing is reasonable, synergies can be realized, and integration processes are fairly simple.  (It's much easier to integrate a 50 employee company using simple accounting systems than a 1,000 employee company using a large, competitive system.)  On the occasion a large acquisition is made, the integration strategy must be completely detailed and time taken to correctly integrate the two companies.  When this does not happen, many different consequences could arise- sloppy accounting, poor system integration, lost clients, missed market opportunities, forgotten/discontinued product development, to name a few.

While it appears SYMC's pricing has come down to earth a bit, from 10X forward revenue to 3.5X, their pace for big acquisitions has not.  By taking on another large purchase before completely integrating the last, Symantec is risking significant opportunity loss with Veritas (and possible throwing away cash).  It will be interesting to watch Symantec's future acquisition strategy unfold.  Even after a second helping at Thanksgiving dinner, you need to push away from the table before making a turkey sandwich.

Implications:  As this article highlights, global economic indicators point towards a slowing trend for international companies. Specifically, this articles points towards a GDP growth of 4.9% in the coming year. Domestically, the US, however, appears to be aimed at a 2.9% year-over-year trend. What this article fails to point out is that few companies are expanding globally in a blanketed approach.

Analysis:  A detailed view of IMF’s projection show the APAC region is expected to grow at a healthy rate, while most of EMEA could be pulling down the global average. As companies look abroad, specific regions are targeted. Further still, companies dig further into the statistics and analyze specific markets. Recent articles point towards biomedical, technology, and some areas of telecommunications as industries geared towards strong growth and private investment. Alternative fuel has also been getting a great deal of attention in the press, and with a few success stories, could prove to be a strong industry (the demand is there, but slow product development and acceptance has kept this industry in check). Don’t gloss over this article’s statistics and believe ’07 is going to be a bad year for expansion. Dig deeper into recent projections, and determine their relevance to companies wanting to expand.

Implications: Eliminating the first-time/switching NYSE fees is a good gesture for companies looking to make the Big Step. Many companies wanting added stability and recognition may be enticed with this incentive. For the private companies, however, these fees are just the tip of the iceberg.

Analysis: In the late 1990’s, approximately 200 companies were going through the IPO process annually. Today, this number has fallen to approximately 50 companies a year for NYSE. The London exchange handled more than 600 IPO listings in 2005, which is twice the number NYSE and NASDAQ combined. What’s the attraction to international markets? Lower thresholds, lower fees, better performance for new issues, and lower regulatory related costs (404 certification can run $2-3M annually), as pointed out in a recent Morningstar article- http://biz.yahoo.com/ms/061211/180427.html?.v=1

With these recent trends, VC firms have been eyeing international purchases with an increased interest. The primary reasons- lower expenses and greater success with exit strategies. Will these fees attract needed attention? I believe those public companies on the fence may be encouraged to switch over to the NYSE, but this enticement only puts a dent in the true US cost of going public. In order to keep the competitive advantage, international exchanges may, however, move in the same direction if they see US figures on the uptick.

Implications: Depending on the article you read, private investment is either slightly up from a year ago or significantly on the rise. Depending on the statistics quoted, investments into the private sector are increasing over last quarter and year. Most articles I’ve come across are selective in their analysis, either referring only to the IPO or focused on a few market sectors. This article, however, appears to approach their study on a broader range of investment types- M&A, IPO, overseas, equity, and VC investments. While this article points towards a wide range of investment types, it neglects domestic concentration and does not discuss industry focus.

Analysis:

From the numbers I’ve reviewed over the past several months, US investments in private companies are also on the rise. Not to the degree this article quantifies, but significant nonetheless. US investments in US based companies have increased between 15-30% year-over-year. I point this out because the majority of equity and VC firms tend to keep their money close to home where they can more easily monitor agree and government regulation. Still, international investments are significantly higher this year due to a number of reasons, namely SOX regulations and the costs related to preparing a company for sale (a company should be GAAP compliant in order to increase the value). International regulations are less expensive (approximately $500k vs $2.5M in compliance costs), and the prevailing exit strategy, M&A, is not limited by the location of the company. Within 3 to 5 years, a successful start-up should be reaching across country borders to expand their market.

From recent articles in VC news and major publications, the following is a summary of finding over the past twelve months. Software and other hi-tech companies still have the largest slice of the investment pool, however, flat year-over-year. While this sector covers several corporate needs, the main attraction has been network management and security. According to several articles, this is primarily due to the fact that this area has been receiving a great deal of press, the product-lines can be sliced into dozens of markets, and large companies are concentrating on creating slight improvements to existing products. From IP routing to extrusion protection to network efficiencies, new companies appear to be gaining traction through test-clients on a consistent basis. Another sector gaining attention is alternative fuel companies. With the increase in global demand for fuel, many energy companies like Exxon, and wealth individuals like Richard Branson and Paul Allen are frantically looking for other sources to supply a growing need. This sector, while having a much smaller base, has had the largest increase in investment infusion (almost 250% according to recent studies) over the past 12 months. Biotech firms have also had an increase in investments since last year as new products go before FDA and other gov't bodies for testing and approval. With the recent stock option scandal, complemented with high SOX costs, look for smaller public companies seeking privatization avenues to increase in the near future. Of all the articles reviewed, no analysis was conducted to determine the rate of return on these type investments.

Implications: As with Enron and Worldcom, there will be companies trying to skirt ethical standards to make a buck. I’m not saying that this particular case has merit, but it won’t surprise me if something along these lines doesn’t get settled in the near future. But before we rush to judgment or run for the hills because another investment vehicle has turned sour, let’s look at the situation.

Analysis: When a company has reached an exit strategy, either privatization or VC funding, the process is a competitive bid- you either get the most money you can or sell the least amount of the company. I’ve been involved in over a dozen transactions, both seller and buyer, where the owners and bankers want to maximize the purchase price while the seller want a good return on their money. Valuation calculations are subjective with many components debated (i.e. discount rate, revenue growth rates). In the end, the buyer and seller must agree to the calculation and selling price; and in the case of LBO’s, a third-party must justify the price to shareholders. If such a case ever earns merit, the ramifications will go well beyond the purchasing equity firms.

With the recent rash of stock backdating scandals and continuously high SOX related fees, I see the LBO market continue to rise, but with the selling pricing set at a fair benchmark.

Implications: In determining the cost of capital, corporations place a threshold of capital expenditures, acquisition target, and other uses of idle cash. With the changes in market and company directions, many companies have come to realize their beta (a primary element in the cost of capital calculation) has changes over time. But does the change merit an adjustment in the company’s benchmark. This article seems to miss the mark on the under-lying reason for the calculation.

Analysis: What kind of return do investors expect from their investment? This is the primary question that is answered by the cost of capital calculation. Using Beta as a multiplier highlights the relevant risk of an investment. It is assumed in this calculation that the general risks in the market are understood better to individual companies' risks. By using Beta as a multiplier, the individual company risk is put on par with the market. Including the 10-year bond and historical return of a specific market in the calculation uses the same type assumption. It is “back-wards looking” as this article points out, but so is much of the investing public’s return determination.

Much of the financial modeling exercises need to be reviewed. But unlike IP valuation or option valuation, the cost of capital valuation makes intuitive sense and is more entrenched as an accepted method than other broad-based calculations.

Implications: For years, financial executives have been valuing intellectual property using standard and accepted methods such as cash flow calculations to raise capital, value acquired assets, and determine shareholder value. While the NPV calculation is accepted, much of formula is marred with broad based assumptions that can wildly swing the final valuation. Much like valuing a house using a 5-mile radius; using comparable asset purchases, Black-Scholes computations, or forecasted cash flow streams are at best assumptions in the calculations. Finding a better mousetrap could prove to be a more accurate answer.

Analysis: While determining an improved calculation in valuing assets takes more than brains, it also takes time to prove merit. Rick Nathan appears to be on the right track in establishing an improved valuation of IP assets. By breaking down the components of the assets into elements that carry separate factors, Mr. Nathan is narrowing the broad assumptions and focusing the multiplies into a more understandable and acceptable assumption range. The new calculation is unproven (its only been in use for 2 years), many companies are open to a change. Personally, I’ve been through several dozen similar valuations and have questioned the assumptions and calculations, especially when there is a proprietary product, or strong brand name. Cash flow calculations are anecdotal and estimated at best; where if the answer is not satisfactory, the temptation to change the set of assumptions is prominent. Just as changing personal banking to automation, this new calculation will take time to accept. I’m not sure if this is the correct formula, but its definitely on the right track.

Implications: The data is conflicting... how much of an advantage do companies get by outsourcing their IT and call centers to India? My experience through three expansions is the quality is very good, but the cost advantage is diminishing. But that adds to the debate. Companies are becoming slower to move on international outsourcing, and at times, are withdrawing their operations (Apple recently pulled the plans for a 3,000 person call center in Bangalor). If this trend continues with the slower pace, how will these countries continue to expand? Acquire domestic US outsourcing companies.

Analysis: Wipro is just one example of an aggressive, India-based company expanding its market share through acquisitions. While some India based companies are buying competitive India-based companies, the aggressive firms are targeting US based outsourcing companies. This is a great way to continue the country's growth... buy the business, show the quality standards are high, and drop the costs. As more and more US and Europe based company hesitate to make the move, this strategy to buy the business and bring it overseas will continue to grow (at least until the cost advantage disappears).

Implications: The computer networking market is running at full force, consistently introducing new products that help clients bring their networking pieces together to run efficiently. From data storage to communications to switches and routers, this market sector is continuously expanding and refining. As the article points out- its not the growth we saw from some technology sectors in the mid-90’s, but it has strong growth. And with the ever-expanding product lines, the products are certain to find buyers in need. This article presents a very good analysis of the market, however, it misses one critical element that is driving the progress…speed of delivery.

Analysis: Many technology companies have expanded into computer networking. Large companies like IBM, Cisco, Juniper are heavily invested. Symantec, Blue Coat Securities, and RSA; while described as security companies, also tout their networking capabilities. Countless private companies, such as Netcordia, Fidalus, and Splunk, offer a range of networking products. All of these companies offer different products, but have one common element. Along with hundreds of other competitors they compete in the computer networking field. So what makes a company successful in this fast moving industry? Speed of delivery. In the peak of virus activity, McAfee & Symantec would release upgrades to their products every 4-6 months, quickly evolving from virus attacks to system solutions to network solutions. The one with the product to the market first got the lion’s share of the sales. Even today, anti-virus companies continue to evolve into this market. Small and start-up companies are constantly finding ways to better the products. Network “extrusion protection”, network efficiency reporting, IP routing improvements to name a few. With funding, these companies can move fast to delivery. So what are the larger companies doing to keep pace? Acquiring the smaller, faster companies. While these larger companies are drawing out white papers, jockeying for operating and capital spending, and positioning their project as the next mover, these smaller companies are delivering at a very fast pace. It’s the smaller companies that are setting the market pace, and the larger competitors are acquiring to keep step.

Implications: Over the past several years, many (even countless) analysts have discredited HP for their acquisition of Compaq. The companies are too big to merge, the products aren’t compatible, the management is not compatible, they will loss more than they gain…What makes this acquisition unclear, and many others in question, is their intention. If companies who are actively acquiring would spell out their strategies, unanswered questions and potential devaluation could be avoided.

Analysis: When HP acquired Compaq, immediate success was never predetermined. Over the past several years, some glimmer of gain has been seen. During this time, executives have been discharged, stock valuation has been discounted, and employees have been discouraged, even questioning the acquisition’s purpose. HP doesn’t stand-alone. Many acquisitions that don’t make strategic sense have cost investors money. Sometimes the lose is correct, sometimes not. During the acquisition process, one of the first steps for a publicly held company to accomplish after disclosing the purchase is to clearly state why the acquisition was made and how gains will be achieved. So many companies are in fear that they will disclose to their competitors their intentions. More importantly, they may be withholding valuable information from the public. By discussing a company’s purpose on an acquisition is not disclosing trade secrets. The secret is how well a company integrated the acquiree. This will clear the air on why the purchase was made and will end potential questions on management’s ability to run the company. Had HP properly discuss their strategy with Compact, their recent history would have been more rosy.

Implications: Over the past several years, companies by the dozen have made uncalculated errors in reporting. Most recent is the option backdating cases. While these missteps have cost these companies millions of dollars in outside help, it has also brought into question the true value of the companies. Don’t expect this deal to be the last privatization among those viewed through the magnifying glass.

Analysis: Over time, companies are bound to make errors in determining quarterly and annual results. After all, GAAP guidance is written for interpretation. On the rare occasion that these errors are uncovered to reveal mass correction, opportunities arise. In the case of OSI, improper accounting treatment caused a major investigation, costing the company in investigating their trouble, causing Wall Street to question valuation. While the analysts were scrambling to revalue and outside help worked to quantify the problems, potential investors have took a keen eye to determining the true value of the company. Could this happen with some of the option cases hitting the headlines on a daily basis?

This is not to say the accounting errors with OSI were deliberate. GAAP rules are complex and can sometimes be misinterpreted. The scenario, however, lends itself to potential avenues. While dozens of companies spend millions of dollars determining their errors in option valuations and stock valuations fluctuate, outside investors could be scouring through records to determine undervalued companies. Rumors are flying around several companies caught in this picture. It will be interesting to see if and how many companies over the next 24 months are taken private and what the correlation is with recent accounting troubles. Even further, how many privatization deals involve insiders.

Implications: During an international acquisition, an acquirer must consider several areas, before completing the purchase. This article collectively highlights several areas to consider such as tax credits, structure, pre-existing subsidiary structure, foreign tax laws, and wording in the LOI/definitive agreement. But what should the acquiree do to make itself more attractive?

Analysis: I’ve been involved in several international acquisitions- some where my employer had little if any market share. In each case we took extra measures to insure we were taking the appropriate steps so the international rules had little effect on the strategy for the acquisition. When an acquirer has an existing market share, the financial strategy behind the purchase becomes much simpler.

But from an acquiree viewpoint, what can you do to make yourself more attractive? First and foremost, keep your books clean; adhere to local law as if you were publicly owned. In the US, make sure your revenue recognition policies pass the litmus test, you have SOX policies and control points documented, your third party contracts and reseller agreements are clean, your lender agreements are straight forward, and your accounting and reporting systems are updated (you’re not using Excel to balance your accounts). For international companies, this means adhere to local tax and personnel laws. If an acquirer has a compelling reason to acquire you, they will take the necessary steps and make the necessary structure as to not take away from the strategic reason for the acquisition. The last thing an acquirer wants to let happen is to lose an acquisition for a non-strategic reason (the purpose for G&A is to support the company, not drive the direction).

Implications: This article, like most others written about M&A’s, assumes acquisitions are conducted purely to enhance a company’s revenue stream. Most purchases of this nature are in fact completed to either take out a competitor (negating market share erosion), expand a product line (which may be unproven depending on the stage of the acquiree), expand international markets (assuming traction and synergies), or use of idle funds.

Analysis:

As pessimistic as this sounds, many, if not most, acquisitions are conducted for one of the following reasons; companies pursue competitors, they want to expand without spending dollars on unproven markets, they want new revenue overseas, and/or they have idle funds collecting money market rates. This doesn’t mean the acquisition can’t have a positive return for the shareholder. If the strategy is detailed and the integration is completed correctly success can be achieved. Chances are a fast moving acquisition company has a high-profile person designated to acquisition, but has little bandwidth to integrate new purchases. As the acquirer moves towards its next target, the company hasn’t spent the time nor energy on fully integrating the last purchase. Thus failure is imminent. Taking over a competitor, expanding markets or product lines, and making better use of cash are good strategies. The problem lies in the execution of the strategy. So, when all else fails, tout the year-over-year revenue growth. That makes for a good story.

Implications: As the VC market changes its model from IPO to acquisition, many funding firms have paused to catch their breath. The drawback is most acquiring companies have not lost their appetite for the hunt. This statement leaves one conclusion- be flexible in your philosophy or wait on the sidelines and miss some great opportunities.

Analysis:

IBM’s acquisition of Palisades Technology is a great example of how larger companies are thinking; if we don’t want to spend the time and money developing branching out, why not buy an existing company in the market space?  Over the past few years, this has been the prevalent thought in the private equity industry. The likelihood of an IPO is becoming slim; turn-arounds are abundant, but where do you go once the company has turned the corner? Acquisitions. Many companies experiencing organic growth are doing so through reinvesting in existing markets or product upgrades that replace two-year old sales.  By acquiring companies with compatible product sets, larger companies have the opportunity to increase their market reach while further expanding sales through sales synergies.  IBM acquires Palisades Technology, Google buys YouTube, and McAfee purchases Citadel Security.  All of these recent acquisitions alien in one strategy- we can either reinvest our operating dollars and time in developing a new market, or go after an existing company with proven success and a strong name.

Even though a rare IPO will capture headlines, private companies with an acquisition exit strategy will continue to grab VC firms’ attention…at least until the market has a proven IPO pricing model. With the pain of the .com burst still burned in investors’ memories, this could take some time.

Implications: Many recent articles have argued and discussed the slowdown in VC funding; from Austin Ventures' recent investor funding return to misguided year-over-year statistics that truly point to an IPO slowdown.  The title of this article is misleading, as the content points towards a more meaningful outcome.

Analysis:

So it appears year-over-year investment by venture capital firms, whether a stand along company or a branch of a large hi-tech corporation, has been consistent in forging ahead with pledged capital.  But the real story in this article is where the funds are going. Here’s the rundown-

Biotech down 5% at $1.1B (18% of dollars invested)

Software down 19% at $1.1B

Internet received another $1.1B (17% of the vesting market)

Medical Devices increased 12% to $640M

Energy had a 6 year high at $575M

Telecomm had a 4 year high at $850M

The significance is Biotech is ranked first for total invested, jumping over software; while software received the lowest funding level in 10 years.  Why the movement? While for one, many software companies are moving toward hosted platforms, which count toward internet funding.  Secondly, the biotech industry usually requires large, long-term investments for development.  It will be interesting to watch the energy sector, as fuel pricing have recently begun to cool.

Further, statistics point towards an increase in early start-up companies (up 10%), while expansion stage (B-round) fell 10% year-over-year, and late stage fell 13% for the same period.  It appears that with exit strategies changing from IPO to acquisition, attention has turned towards the young fledgling that has increased the most valuation with the growth of the company.

While some of these statistics can be misleading due to overlie of sectors, what will be interesting to watch is if this trend continues.

Implications: With India’s booming corporate landscape, many young companies have begun to show signs of success. This tends to lend itself to the next phase in corporate development- M&A activity. While India is in a position to learn from the other market leaders, the US, Europe, and Asia, it appears that M&A success is not one of the learned topics.

Analysis:

I’ve come across similar statistics around the world- 80% of all acquisitions fail to return shareholder value, and over half of those that do return shareholder value do not meet or exceed expectations. The reasons for this are many- the pricing model is too generous and forecasted cashflows are not discounted to reality, acquisitions are made for the wrong reasons (taking an early competitor out just to remove them from the landscape does not bode well), the companies/product lines are not compatible, and most common, the integration process is usually flawed and/or hurried.

On three occasions I’ve had the opportunity to create or revamp a company’s M&A process. This starts with a conservative pricing model, and ends with a long drawn-out integration process. In the late 90’s, McAfee went through 42 rapid-fire acquisitions over an 8-year period. Over half of these purchases were conducted to remove competition, and only four had returns that met or exceeded expectations. The problems with the conservative approach are; 1. an acquirer may have to walk away from a candidate, something executive and board members don’t like to do, and 2. the proper integration process will take much longer to complete, but will retain the star players and increase the chance of success. It appears by what Rashesh Shah says in the article, India is making the same mistakes the other regions have gone through (and in many cases, are still going through).

Implications: Google’s recent purchase of YouTube for $1.65B is a huge price to pay for a small private company. Most certainly Google’s calculation took several assumptions into consideration, such as, cost synergies within YouTube’s infrastructure, compatibility of product lines, and an obvious synergies with revenue flow. But what kind of assumptions would Google have to make to make this acquisition a success?

Analysis: Analysts say YouTube could generate approximately $250M in additional advertising revenue to Google. While this figure is generous, it’s not enough to regain the initial investment price within a 5-10 year time period. With YouTube being 18 months young, their infrastructure could not be such that much savings could be drawn out in the form of cost savings (chances are most of YouTube’s higher paid people are employees Google will want to retain). The answer in making this acquisition a success lies in the synergies between the product lines and the potential new products that can arise by joining these two companies. The YouTube acquisition gives Google a big advantage over competing companies in the media/video space.   According to Google executives, the sky's the limit on where they can take the expansion of YouTube.

One area that may not have been completely thought through is YouTube’s rebel image. Up until the acquisition, YouTube has danced a fine line on copyright infringement. While a young startup may be able to fly under the radar screen or take slow corrective action on missteps, a large publicly held company such as Google will not be allow such leniencies. It’s a wonder if Google took this type of change or possible litigation into consideration in their pricing model.

Keep in mind, quantifying a reduction in headcount, or synergies in product revenue are items that can be easily capture in the pricing model. Changing the company and image it was founded on is not easily quantified (or controlled during implementation).