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EXIT STRATEGIES

Forgoing the IPO in Favor of Selling

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CEO/president: Mitchell Jones
Company: W2Com (#162 on the 2000 Inc. 500), in Dayton, Ohio
Business: Long-distance data carrier that puts long-distance learning packages together for large companies
Deal: Sold to Arel Communications and Software, based in Yavne, Israel, a $13 million public software manufacturer and video application service provider
Goal: To retain the company's value in an industry (telecommunications) in which private companies don't flourish

Mitchell Jones made the decision to sell his five-year-old company on the heels of trying to buy somebody else's. "In July 1999 we set out to acquire some companies, but their valuations were too high," he says. "We decided that if they were worth that much, we would be worth even more." In a different economic climate, the next logical step would have been an IPO, but Jones nixed the idea because the process would have taken too long. "Given the market correction in March," he says, "our timing couldn't have been better."

By January, the $7 million W2Com had retained the investment banking firm of Morgan Keegan Co., based in Memphis, to handle the sale, and together they came up with a list of 18 companies to send prospectuses to. From the response to that mailing, the team narrowed the list of possible acquirers down to five.

Arel was not the highest bidder among the four companies that offered term sheets to W2Com. Its offer was in the middle. Nor, at 7,000 miles and seven time zones away, was the company the most geographically convenient. But it had the technology muscle that W2Com was looking for. "We didn't look at the financing angle -- we had north of $25 million in capital and didn't need money," says Jones. "We focused on the strategic buyer."

The deal, which closed on August 8, 2000, was valued at $29 million. W2Com got $2.3 million of that in cash and the rest in stock (nearly 3.7 million shares, including options and warrants). There's no earn-out agreement, but Jones, 38, plans to sign a three-year employment contract to serve as CEO of the North American branch of the combined company, and he will hold a board seat.

Jones compares the last few days of the acquisition process to the last yard before a touchdown: The distance is short, but the tension is intense. "The negotiations and collective bargaining will wear on one," he says. "You don't sleep. And there's a lot of emotion in giving up something you created from scratch. Starting the company was nowhere near as painful as selling it. Not even close."

Copyright © 2000 G+J USA Publishing

Last updated: Oct 15, 2000




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