Developing World Systems (DWS) acquired by LogiGear Corp.

DWS is a U.K. company which offers a variety of its own software automation products and services to support the introduction, maintenance, and operation of Oracle Corporation’s (incl. JD Edwards) Enterprise Resource Planning (ERP) systems. The company is also a Gold Partner of Oracle.

DWS’ products and services have strengths in streamlining test areas, such as impact scope analysis, test management, and test automation at the time of ERP upgrades. The company has steadily grown, supporting their clients’ introduction of Oracle products, particularly in the U.S. and Europe.

What was our customer looking to achieve?

With a target valuation in mind, the DWS shareholders were seeking to realise their investments in the business by completing a sale of the company. Of equal importance, the shareholders also sought help in finding an acquirer with the resources, shared values and reach to take DWS’ products and services to a wider international market.

It was apparent at the outset of the project that the Entrepreneurs Hub team needed to guide the owners of DWS towards a more considered ‘growth and preparation for sale’ engagement strategy rather than simply rush out into the market. This would ensure the gap between the potential value of the business as it was and the shareholders’ desired potential value, could be bridged.

Having looked at a number of alternatives, DWS selected Entrepreneurs Hub for two main reasons:

1. Entrepreneurs Hub offered straightforward and honest advice geared towards achieving shareholder objectives instead of just telling the shareholders what they wanted to hear.
2. The completeness of scope, depth of resource, tailoring, and ‘science’ behind our proposition provided greater certainty of outcome. This contrasted with more generic proposals which placed all the risk on the customer.

How Entrepreneurs Hub engaged with DWS

The Entrepreneurs Hub project team who delivered the services consisted of the following roles and responsibilities:

• Lead Advisor – responsible from day one for overall project strategy (including growth advisory in the run up to a sale process), leadership, meetings and negotiations with potential acquirers, and delivery of the stated DWS shareholder objectives through to transaction completion.
• Finance / Project Director – responsible for all the financial aspects of the engagement including analysis and presentation of the numbers, building and managing the data room, optimising existing financial reporting, working alongside the customer’s finance controller, and leading and managing financial elements of the due diligence process.
• Project Manager – supporting the customer and the Entrepreneurs Hub project team in collecting all relevant company information, populating the data room, and leading the production of the company’s business sale documents.
• Market Researcher – responsible for conducting exhaustive research to identify a qualified list of potential acquirers and monitoring valuation metrics throughout the duration of the project.
• Client Director – responsible for confidentially reaching out to and qualifying potential acquirers identified by Entrepreneurs Hub and approved by the DWS shareholders. This included securing all non-disclosure arrangements with interested parties prior to provision of the approved Information Memorandum.

Once appointed, the Entrepreneurs Hub project team delivered the services in three phases as described below.

Phase 1 – Growth Advisory and Preparation

The Entrepreneurs Hub team conducted an initial commercial, financial, and legal review of the business to develop a strategy and plan to deliver DWS shareholder objectives.

Key deliverables from Phase 1 included the following:

• Developed a growth and business optimisation plan to provide shareholders with an exit strategy aligned to life goals and value aspirations in the medium term (several years).
• The Entrepreneurs Hub Director (Lead Advisor) acted as a Non-Executive Director to the Board, chaired Board meetings, supported the business through its transition period (including weekly calls with Directors), monitored company performance vs growth plan and assisted in company motivation / team building.
• Introduced structured corporate governance including monthly board meetings.
• Enhanced financial reporting and controls.
• Created and supported the data room build (including its subsequent management) in readiness for an acquirer due diligence process.
• Developed and promoted a highly performant Sales & Marketing Director.
• Assisted with the recruitment of a US team and deeper penetration of the US market.
• Developed the revenue model of the company to build a SaaS / subscription recurring revenue stream.
• Completed off-market discussions with a core group of approved potential acquirers building strong trusted relationships over time and providing live market feedback to help shape and validate the business plan.
• Prepared all aspects of the business – commercial, financial, and legal in readiness for a market approach. No stone was left unturned which, when the time came, ensured a confident negotiating position and eliminated any potential self-inflicted ‘curve balls’.
• The agreed plan was successfully delivered in all respects and drove a significant increase in sales and EBITDA during the engagement to support the shareholders target valuation.

“It has been an amazing journey which we couldn’t have done alone – one where DWS has  matured and evolved into a far superior organisation with your excellent guidance and support.”

Barry Burke, Co-Founder and MD of DWS

Phase 2 – Approaching the Market

Following the growth and preparation phase of the project, and once it was decided that the timing was right to approach the market, we completed the following tasks to formally engage with potentially interested acquirers:

• Completed comprehensive up to date market research to identify more than 100 potential acquirers which were all presented to – and approved by – the DWS shareholders. This included several ‘DWS preferred’ companies (also identified by Entrepreneurs Hub) with whom we had conversations during the growth and preparation phase of the project.
• Created all the associated ‘sale documentation’ including the Information Memorandum and teaser document (again approved by DWS main shareholders).
• Confidentially approached the approved buyer list to qualify interest and secured non-disclosure arrangements prior to provision of the Information Memorandum to a select group.
• Completed DWS shareholder ‘dry run’ / coaching sessions prior to meetings with interested acquirers. Although the Entrepreneurs Hub Lead Advisor leads and attends all meetings between interested parties and selling shareholders, we have found these ‘pre-meeting’ briefings to be a vital part of their success.
• Having secured direct interest from 15 international potential acquirers (under NDA) Entrepreneurs Hub arranged and led all exploratory meetings with the selected top 5 potential acquirers in unison with DWS main shareholders.
• Led and moderated all subsequent follow up information requests and Q&A ensuring expediency whilst at the same time reducing the unnecessary stress for shareholders associated with determining what is a reasonable vs unreasonable data request at this stage of discussions.
• Secured all initial offers against a deadline date and leveraged competition to drive maximum value (the highest offer outbidding the lowest by a factor of 2.5x).
• Delivered ongoing management and support of the data room in readiness for transaction due diligence.

Phase 3 – Completing the Transaction

Once initial offers had been received and fully negotiated by the Entrepreneurs Hub Lead Advisor, the DWS shareholders were presented with the three best options from which to select a preferred bidder. LogiGear Corporation (HQ San Mateo CA) was selected as the preferred acquirer with whom to finalise Heads of Terms and enter a period of temporary exclusivity during which due diligence could take place to complete the transaction.

In addition to overseeing and orchestrating all parties during due diligence, Entrepreneurs Hub supported the LogiGear Corp. CEO with financial and business synergy documentation to achieve successful sign off for the transaction through their Japanese board based in Tokyo.

All the work we had collectively completed for and in conjunction with DWS paid off and was reflected in the comments made by LogiGear Corp’s CEO highlighted below.

“EH reached out to us, presenting DWS, thinking there may be strong synergies between our two companies, and they were right! We discovered significant value to be unlocked in joining forces with DWS. Their suite of test automation tools and consulting services will enable our customers to accelerate development and deployment of new enterprise services applications, both internally and to the market. Further, we are excited to expand this technology across all the major SaaS services, to support all our global customers. Andrew and his team had DWS well prepared for a merge, which facilitated an extremely smooth transaction along the way.”

Jim Ellis, CEO LogiGear Corp.

It is worth highlighting here that selling shareholders often forget how their larger potential acquirers may be feeling during the process of buying their company. The acquirer, and their respective advisors, are themselves assessing risk vs opportunity when entering the transaction process and considering the following:

• Are the vendor shareholders aligned? Do they have reasonable expectations?
• How ready are they to engage in discussions with us? Will the required data be available, or will this be a slow and protracted process prone to falling over at any time?
• Will any lack of readiness incur unnecessary legal and transaction costs for us (and cause deal fatigue)? What if any ‘surprises’ could there be?
• Is there a better / less painful alternative for acquisition?

DWS’ potential acquirers were put at ease early on by the fact that they could see the shareholders had appointed competent M&A advisors in Entrepreneurs Hub. The business and its shareholders were prepared and ready to enter into intelligent and meaningful discussions.

The acquirer: Digital Hearts Holdings Co. Ltd (Tokyo Stock Exchange:3676)

Digital Hearts is a £280m market cap. business with 1,431 employees and includes its consolidated subsidiary LogiGear Corporation.

Rationale for the acquisition

With a heritage in gaming software, and having achieved strong market share in the sector, Digital Hearts is seeking to grow through product and geographic diversification. The LogiGear subsidiary is an established software test automation business which first broadened its remit by acquiring California’s #1 Salesforce™ Partner – MK Partners Inc. This acquisition accelerated the company’s entry and expansion into the CRM and Salesforce™ Ecosystem as well as to penetrate new market verticals.

This additional acquisition of our customer DWS now takes LogiGear into the ERP (Enterprise Resources Planning) space as well as into new geographies and verticals through DWS’ customer base across USA and Europe.

Digital Hearts / LogiGear also run their own technical engineering and software centre in Vietnam which is still quite ‘body’ centric vs automated. DWS will therefore help the acquirer become more “SaaSified” / automated. Furthermore, the acquirer will provide additional software development resources to accelerate product development plans within DWS.

Benefits of the acquisition

As well as the obvious financial windfall the company sale represents for the shareholders of DWS, both the acquirer and seller will benefit as follows:

• LogiGear and DWS will mutually share technical expertise to further improve service quality and enhance the functions of various tools specialising in Oracle / JDE products.
• DWS will benefit from utilising LogiGear’s Vietnamese engineering resources to strengthen its ability to develop products and service its customers.
• Combining the sales & marketing functions of the two companies will expand transactions with Oracle’s customers, particularly in the U.S. and Europe.

“A massive thank you to everyone at EH that has helped to bring this deal to fruition. EH went above and beyond on many occasions to help us through what is, for most owners, a once-in-a-lifetime transaction. I cannot recommend them highly enough.

“DWS was looking for an investment partner that shared both our vision and culture, and that would help to propel the next level of growth. We have that in spades with LogiGear and Digital Hearts.”

Barry Burke, Co-Founder and MD of DWS