Telecom Mergers and Acquisitions The VC angle Oren

Telecom Mergers and Acquisitions: The VC angle Oren Zeev Apax Partners January 18 th, 2001

Agenda • About Apax Partners • Why M&A? • What are buyers looking for? • Prepare your business • Strategic Investor as a step to an M&A • During the transaction

Apax Partners: Telecom Activities 25 years, $7 B, 150 investment professionals, 3 continents Butterfly (TI) Ceragon Networks Coreteck (Nortell) EZChip td. Soft Jazztel Esprit Telecom (GTS) IPG Photonics Dialog Semiconductor Webraska Fore Systems (Marconi) Tel. Da. Fax

Why M&A? Buyer’s perspective: • Buying a business • Integral part of R&D strategy Seller’s perspective: • Exit • Liquidity – easier to lock in value • Selling products to telecom operators is extremely challenging • Leverage marketing, distribution, financial power, manufacturing and reputation

Erosion In Value Of Tech IPOs Source: Broadview

What Are The Buyers Looking For • • Technology lead Management and technical team Market opportunity Competitive opportunity/threat Fit with buyer’s business/channels Customer validation/momentum Strategic Partners – could be a plus, could be a liability

Prepare Your Business • • Build it and manage it like a sustainable business Fit with potential buyers’ customers and channels Avoid aggressive vesting accelerations Avoid problematic commercial agreements - use assignment/termination clauses Capital structure – take into account taxation and accounting considerations Chief scientist – limit/avoid Play hard to get – but don’t overdo it Timing is everything!

Strategic Investor As A Step To M&A • • Try to get a supportive, but not too dominant strategic investor: Let a VC lead the round Be ware of valuation “kiss of death” Be extra careful in the commercial deal Preferably 5%-15% Option/ROFR/ROFN/ROFO Observer/Director Get 2 -3 if you can

During The Transaction • • Manage your shareholders consensus Take care of your employees Manage the process – don’t let your lawyers/accountants manage it Get interest/offers from more than one – create a sense of urgency and competition Keep your alternatives even after you have a term sheet Focus only on the important issues In stock deals registration rights are very important Leave your ego at home

Oren Zeev Apax Partners Oren. zeev@apax. co. il