When Pulse Therapeutics and ICHOR Vascular merged, it was Sean Morris’ job to bring the two companies together. And there’s a lot to consider during that process.
“What's been very difficult, which is very hard to plan for, is the integration,” Morris says. “You always feel like you've underestimated the amount of dollars it’s going to take, even with synergies.”
During a merger is when redundancies are eliminated — a company only needs one CEO, one accounting firms, one facility, etc.
“You want to maximize yourselves together and share the cost and the burden of that together.”
In terms of structuring the deal, the most important component was value, specifically determining how assign a value to company A and company B that everybody can live with because the real value of the company is going to be A plus B. There’s also the value that’s available for all of the company’s stakeholders — from employees to investors. Not diluting that value too much is a tough path to navigate.
Smart Business Dealmakers talked with Morris about how he prepared Pulse Therapeutics for a merger, and worked to maintain value for everyone involved.
Assets, people, interests
While there was merging the right assets together and doing that in the most tax-friendly way possible to consider, Morris had many other things to think about when navigating the Pulse Therapeutics and ICHOR Vascular merger. Mainly, the people. Morris had to determine what the key stakeholders wanted to get out of the deal. That means not only the employees, but also the current and previous investors.
“When you have a legacy company, you got a lot of investors,” Morris says. “Pulse had a pretty large cap table. People have invested in Pulse since 2009 when it was started. As CEO my job is to represent all the investors, all the shareholders, to the best I possibly can. But as you raise money, everyone gets diluted.”
Morris says there are also recaps and revalues, and with each a new investors come in and they take a bigger chunk of the company, further diluting the legacy investors. That’s why the communication strategy becomes important.
“You want to make sure the key stakeholders know what's going on,” Morris says. “They have the opportunity to pull together money to solidify their position because they feel good about the future of the company, or they can just be okay with a write-off or just saying that they don't see the value in this or they’re not in a position to raise any more money, so they’ll just have to take that dilution.”
Getting input (carefully)
How much to involve investors in the process of selling a company is also a fine line to walk, according to Morris. He suggests focusing on talking with people who are going to be helpful and to concentrate on the people who can help get the deal over the finish line.
“That becomes very important because of I’m a CEO, I'm a board member, but I don't have all the decision-making power,” Morris says. “I have to have people sign off on it and get board approval and they represent the shareholders. They don't want any shareholder saying, ‘Hey, I'm getting screwed here.’ They don't want any kind of legal issues or lawsuits, so they have to feel like the plan is good, the strategy is good, we thought this through. When they put their signature on as a board member, they’ll want to make sure they can say that they vetted this, they looked at it and it's going to work. And if it doesn't, then it's not because it wasn't a good idea or I didn’t have access to the right data and the information to make the best decision.”
On the flip side, he says the more people who are involved, the more questions there are to answer. That can lead to analysis paralysis and nothing gets done.
“So I try to cast as wide a net as possible, but I also want to make sure that I'm not out there asking dumb questions,” Morris says. “‘What do you think about this?’ That's a very open-ended question. I would go in and say, ‘I'm setting down a path to do this. Here's A, B and C. here's why it makes sense. Here are the risks associated with that. Here's a couple of questions that I have specifically for you that I’d love to get your feedback on.’ The more narrow you can make your questions, the better answers you're going to get.”