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Friday, Sep 22, 2023

The Deal’s In The Details

BIOTECH: Sienna Biopharmaceutical Chief Financial Officer Ric Peterson discusses company’s successful IPO. Ric Peterson Chief Financial Officer Sienna Biopharmaceuticals Inc. Westlake Village Peterson was instrumental in taking Sienna Biopharmaceuticals public in an initial public offering on July 27. There was never any doubt in Ric Peterson mind that Sienna Biopharmaceuticals Inc. would become a public company. Peterson, in fact, was hired as chief financial officer in March by the Westlake Village drug therapy developer to facilitate the initial public offering process. Drug development is an expensive endeavor and even with private investors backing the venture, there was always the premonition among the management team that the company would go public, he said. “Early on that was always part of the vision that the best way to fund the company was in the capital markets,” Peterson said. Shares in Sienna opened at $19.05 on July 27 and reached a high of $26.48 a month later. It closed on Dec. 6 at $20.16. Founded in 2016 by an entrepreneurial minded dermatologist, Dr. Frederick Beddingfield III, Sienna is working on several new drugs, including SNA-120 for treating itch associated with psoriasis and SNA-125, a targeted topical therapy for the treatment of not only psoriasis but atopic dermatitis, a dry skin condition common in children. It also is developing a light-pigment hair removal treatment. Beddingfield had previously been with Kythera Biopharmaceuticals Inc., in Westlake Village, which Allergan plc acquired for $2.1 billion in 2015. Peterson came to Sienna after serving as chief financial officer at Novan Inc., his one other experience in taking a company public. Novan, in North Carolina, did its IPO in September 2016. Still, that venture and his established relationships with institutional investors on Wall Street were a big part of why Peterson was hired by Sienna. Indeed, he called the relationships with investors a key part to having a successful IPO. The earlier those relationships are made, the better a company can gauge their interest and get a best guess on what the demand will be for the stock, Peterson said. “You do not want to launch and not be successful,” he explained. “You are really stacking the cards in your favor so that when you do file the S1 publicly and go on the roadshow, you have a higher degree of certainty that you can get a deal done.” When Peterson and other executives from Sienna did their weeklong roadshow of pitching to potential investors and analysts, he called the experience a highly intense process of 50 to 60 meetings in seven states. During those meetings, the executives needed to clearly articulate the company’s strategy to be successful and why the potential investors should put their money into Sienna, Peterson said. “It is grueling travel but it’s a fun process because we believe so strongly in the story,” he added. As the July 27 date for the IPO approached, Peterson admitted to there was some apprehension that investors who had committed to Sienna would not come through. The executive team envisioned a successful offering but not until orders come in that determine the share price and volume will you know just how successful, he added. “From our standpoint it was not just about getting an IPO, it was about getting it done with high quality investors committed to the long-term vision of the company,” Peterson said. Sienna could have stayed private, Peterson conceded. There were private investors, which included Arch Venture Partners in Chicago, that would continue to put money into the company. But because of the meetings and the preliminary outreach to institutional investors, management believed there was a window to get the IPO done successfully and the company needed to take the chance, Peterson said. “We knew we were going to need long term funding for our platform,” he said. “The markets can be fickle and when you have an opportunity to go you should take it.” – Mark R. Madler TELECOM: B. Riley Financial Inc.’s Bryant Riley shares challenges of buying a phone device manufacturer. Bryant Riley Chief Executive B. Riley Financial Inc. Woodland Hills Why did a finance firm buy the maker of MagicJack, the free phone gadget? B. Riley Financial Inc. announced a deal to buy magicJack VocalTec Ltd., owner of the MagicJack free phone calling device, on Nov. 9. The Woodland Hills investment bank plans to spend $143 million on the acquisition. So why did a finance firm buy the maker of a voice over internet protocol device? Chief Executive Bryant Riley said his company is always looking for great opportunities. “We followed magicJack as a public company for a number of years and so when we saw an opportunity with the company, we got involved,” he told the Business Journal. “We look for underappreciated assets.” MagicJack plugs into a USB port of a computer and allows the user to make unlimited phone calls to the United States and Canada. The user can make local or long-distance calls with an existing internet connection. The calls can be made or received using the computer or a cell phone. VocalTec Ltd. in Netanya, Israel is now owned by subsidiary B. Riley Principal Investments, which also owns United Online, Inc., a dial-up internet service provider. Riley said that United Online has an office in India and with MagicJack based in Israel, he believes both companies can cross-utilize resources internationally in the future. The biggest obstacle in the deal was the complexities of acquiring a public company, especially in another country, Bryant said. A public company has a board, which makes the deal-making process more time consuming. In the case of MagicJack, he had to contact every board member to see if they would agree to sell and if they agreed on the price. Also, Riley had to outbid the competition, Carnegie Technologies, a San Antonio computer company. Carnegie intended to bid $8.50 a share, but Riley got the deal by offering $8.71 a share. The price represents a 23 percent premium to the closing price prior to the deal. Riley said he looks at the company’s fundamentals when deciding how much to pay. “Valuation determines your price,” Riley said. “We determine what we think is a good price for the assets based on several factors. We determined that price, and that happened to be a 23 percent premium. If you are going to buy all the shares of a company, especially one with a good business and strong cash flows like magicJack, you have to pay a premium.” On the other side of the deal, MagicJack Chief Executive Don Bell said in a statement that both MagicJack and B. Riley believe there is significant importance with the merger that will increase shareholder value and benefit customers. Since the deal was announced, MagicJack shares have jumped 49.1 percent. The buyout is expected to close in the first half of 2018. Currently MagicJack is selling its fifth-generation product. Riley plans on upgrading the products, but because the deal hasn’t been closed, plans are not fully determined. MagicJack retails for around $35. Riley plans to finance the deal with cash on hand and debt. He said the company did not find it difficult to fund the deal because it has money on hand to close deals. – Stephanie Bedolla TECHNOLOGY: Mark Pierpoint details the acquisition of Ixia by Keysight Technologies. MarK Pierpoint Vice President Keysight Technologies Inc. Calabasas Pierpoint was involved with the $1.6 billion acquisition of Ixia, the Calabasas telecommunications network testing and security firm. For the past several years, Keysight Technologies Inc. has been making a transition away from developing computer hardware to one supplying software and services. Mark Pierpoint, a vice president with the Santa Rosa company, said that assisting in that transition was the acquisition this April of Ixia, in Calabasas. “Ixia really helps us with the transition because the bulk of their engineers are software engineers,” Pierpoint said. Ixia’s basic business is manufacturing software and hardware that tests telecommunications equipment and networks. The testing products can simulate real-world conditions and search for flaws. Keysight paid about $1.6 billion in the transaction. Ixia’s products are complementary to what Keysight offers. For instance, Ixia tests mobile telecommunication networks while Keysight products test mobile devices. Keysight was spun off in 2014 from Agilent Technologies Inc., itself a spinoff of Hewlett-Packard Co. in 1999. Keysight was Agilent’s electronic test and measurement business to the electronics and wireless communications industries. As of Dec. 1, Pierpoint has been acting president of the Ixia Solutions Group to replace Bethany Mayer, who had been chief executive at the time of the acquisition and joined Keysight afterward. The company is seeking a permanent successor. Pierpoint’s involvement in the acquisition was the business sponsor for the deal. Anything that dealt with what made sense from a business standpoint of the transaction fell under his responsibilities, Pierpoint said. “At the time this was going through I was responsible for our internet Infrastructure business, and so we had been looking at the needs of the customers in that space and that was the other piece that led naturally to considering Ixia,” he added. Keysight Chief Executive Ron Nersesian had known Mayer, who worked for Hewlett-Packard before joining Ixia in 2014. Talks between them about an acquisition started in August 2016. While Pierpoint described the process as smooth, the one challenge that emerged was from at least three other companies seriously interested in buying Ixia. Once Keysight made its intentions clear, the Ixia board decided to go out and see if Keysight was the best acquisition option, Pierpoint said. “That caused challenges because you get into multiple people looking to buy the company,” he added. Keysight was chosen as the buyer because it likely made the best financial offer. As a then-public company, Ixia had to be aware of what was the best deal for its shareholders. Ixia shareholders received $19.65 per share in cash. Keysight funded the transaction with a combination of cash as well as proceeds from public offerings of stock and notes and additional debt financings. “I am sure there were other considerations they had in terms of fit for the company and where they would like to end up” Pierpoint said. For Keysight, the benefit of the transaction was to get a company with a great reputation for network test equipment. A bonus was that there was zero overlap in each company’s product portfolios, Pierpoint said. “The final piece that was key, aside from that the financials made sense, was a complementary culture in terms of a focus around engineering excellence,” he added. “That we believed would fit well with Keysight in a foundational aspect of what we stand for.” As 5G wireless networks gradually are deployed, Keysight wanted to be at the forefront of testing for the equipment and devices. So increasing the company’s capabilities became an important part of that strategy. “There were some other companies considered, but Ixia was the best option if we could make it happen,” Pierpoint said. – Mark R. Madler AEROSPACE: John Hill tells how his private equity firm acquired Bandy Manufacturing in Burbank. John Hill Managing Partner JW Hill Capital Hill’s Newport Beach firm acquired Burbank-based Bandy Manufacturing LLC from GKN Aerospace, a division of GKN plc, in August. Financial terms of the transaction were not disclosed. Question: How did the deal for Bandy come together? Answer: Bandy was owned by GKN (Aerospace) for a number of years. They made a strategic decision to find a private buyer who could better focus on the business and give it the support and leadership it needs to be very successful and entrepreneurial and customer focused. It was a part of a division of a larger business and because it was so small, they weren’t able to give it attention. When were you first contacted about a deal? They approached us in March and asked if we were interested, recognizing our background in aerospace and experience in small manufacturing businesses, which is our specialty. So we said yes, and they went through a process of talking with multiple buyers and we ended up being selected by them to acquire it in June. So the deal came together quickly? It took two months, from the time we signed the non-binding agreement to purchase of the business. We closed the transaction on Aug. 10. Can you say how much you bought Bandy for? That is not something we feel comfortable with. GKN asked that we not share the details. There were no roadblocks in putting the transaction together? It was a straightforward deal. We had to do the normal range of diligence – financial, operational, management, environmental. We did a comprehensive diligence that we do for all our transactions. There was nothing that we uncovered that would have been a roadblock. What made you interested in buying Bandy? They have a great brand. It is widely recognized as a leader in the production of hinges for the aerospace market. It was started in 1953 and been around a long time. They were in need of some new leadership. It’s a company that’s really known for something, has a great reputation but was ready for really focused leadership and investment in the long term to keep it successful in the aerospace market. It is a very specialized business in making hinges. What was it about your firm that made GKN choose you as the buyer? They liked our experience in aerospace and manufacturing. They liked our focus on making long-term commitments and investments. They like that we focus on building robust companies that are healthy and well managed and has a culture attracts and rewards employees. They wanted to find an owner that would take care of the people and focus on the customers to make the company a success. That was really the reason they chose us. Your company is what’s known as an independent sponsor. What is that? We have numerous financial partners that are eager to do deals with us. Traditional private equity firms raises a dedicated fund, a committed fund and then focuses on deploying that capital. We’ve kind of flipped that around. Our focus is finding great companies that we want to own. Once we find one, like a Bandy, we put together the investment people and capital structure required to buy it. We bring in partners on a deal-by-deal basis. – Mark R. Madler

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