Closing Date: 12/21/2011
Acquired by Globe Equity Partners | Industry: Software
Cleo Software provides managed file transfer solution software to a variety of industries. The company has more than 35 years of experience and more than 100,000 installations worldwide. Cleo offers solutions in enterprise managed file transfer, network fax, and dynamic interactive voice and text messaging. The company is known for their ease of installation and deployment. Cleo solutions handle the most comprehensive demands of multiprotocol communication and integration including over 800 preconfigured connections to the largest trading communities.
The Company had a large number of minority shareholders who had been holders of the company’s stock for a number of years. The four shareholders who controlled the majority of the stock wanted a deal that would allow for all of the stockholders to exit in an orderly and profitable way. Adding to the complexity of the transaction was understanding the tax implications of a deal where many of the shareholders were residents of states outside the company’s headquarters. This made for a challenging deal structure as the deal had to account for the various state tax situations. Also, there were challenges in valuation due to the amount of deferred revenue that the company had on its balance sheet. The GAAP accounting for deferred software sales made for a mismatch of revenue and EBITDA. Therefore, it made the valuation challenging as the buyer and seller had different ideas about how the deferred revenue should be valued.
The original deal structure was an asset transaction. This structure was preferred by the buyer due to the large number of shareholders. However, shortly before closing, it became clear that the tax situation driven by the various shareholders was going to make an asset deal financially disadvantageous to the selling group. Cross Keys worked with the seller’s tax advisors to determine how a number of structured stock sale scenarios would impact the selling shareholders. The analysis included how much additional cost it would add to the purchase price, and therefore, how it would impact the buyer. The challenges of all of the changes caused the deal to be terminated a few days prior to the projected closing date. Once the deal was terminated there was a lot of tension between the buyer and the seller. Cross Keys worked with the seller to determine if there were other solutions that could bridge the gap between buyer and seller. It is situations like this where tensions are high and emotions are volatile that Cross Keys continues to work tirelessly for its clients and takes a never give up attitude. Cross Keys Capital is committed to seeing a transaction through the ups and downs and even when a deal appears all but dead and continues to work for a solution that matches the goals and desires of both the buyer and the seller. Eventually, a deal and tax structure was established that allowed the sellers to exit and bring substantial value to all of the company’s shareholders. The buyer was able to consummate a deal that worked for them from a valuation perspective and allowed them to acquire a company that truly fit their investment objectives and criteria.