In this post, I’m going to share how we came across this deal, our evaluation approach, the transaction process, and our post-acquisition plan.
P.s. If you are an accredited investor and would like access to the deck for this deal, which has more details including numbers, please email me email@example.com. Although the round is closed, it will give you a sense of how we underwrite deals and drive returns for our investors. You can always join in on the next one!
In today’s competitive market, tracking down high-quality software deals requires extreme dedication, focus, and perseverance. Bloom relies on a number of different approaches to sourcing deals and keeping our pipeline full. One of those sources is our network of VCs.
An old colleague of Bart’s, my partner at Bloom, discovered that a publicly-traded Australian-based venture capital firm was looking to divest one of their portfolio companies. We got in contact with the VC firm to learn more about this divestment and deep-dived into their financials.
To preempt this deal going into market we knew we needed to act quickly. The entire Bloom team shifted focus and spent every hour over two days researching, developing in-depth analysis, and financial models. It didn’t take long for us to discover that we came upon something special, which can be summarized in 1 single tweet:
We immediately fired back with an offer and promised to close the deal within 30 days. The VC firm was impressed with our speed and conviction and awarded us the deal.
Viostream is a software platform for hosting, managing, and distributing video content. Millions of dollars have been invested into the technology and product over a decade. The software’s security and encryption capabilities are second to none. As a result, large enterprises and government entities have relied on Viostream’s secure video solutions for over 10 years.
Their client base is made up of government entities (The Australian Tax Office, The Australian Government Department of Health) and large enterprise clients such as The Macquarie Group, and National Australia Bank, just to name a few.
The enterprise video industry has massive tailwinds, and video communication is expected to grow exponentially. The enterprise video market was valued at USD $16.2B in 2019, and is expected to reach $48.3B by 2025, making it a compound annual growth rate of 24.4%. Government institutions and enterprises are increasingly relying on video communications and solutions, making video a critical business function.
Viostream was the smallest company in the VC firm’s portfolio and it was obvious it wasn’t going to hit hyper-growth anytime soon. Hyper-growth is core to any VC firm’s investment thesis, and if a company isn’t on that path after some period of time, less attention/care is given to that company.
The opportunity lied in the fact that the VC firm simply wasn’t the right owner for the business. A company like Viostream with steady cash flows is much better suited for private equity ownership. From a PE perspective, Viostream is a fantastic business to own – it offers predictable and steady cash flows and it has done so for over a decade.
The operational and financial value drivers were obvious to us, and so was the potential for growth. Bloom’s team identified ways that it can improve the business and developed a growth play book with detailed and seamless implementation strategies post acquisition. Based on our strategy and industry tailwinds, we’re confident that we can consistently grow revenues year after year, and drive significant value for our shareholders.
The fact that Viostream was a small portion of the VC firm’s portfolio was a key factor in the valuation expectations. They wanted to divest this asset in a timely manner, and Bloom’s ability to conduct due diligence and close the deal in 30 days was appealing. They offered a discounted asset value in exchange for deal speed and certainty, allowing both parties to walk away with what they wanted most.
In short, Viostream was a deep value play in a growing industry, representing a massive upside.
Deal Structure & Due Diligence
Completing due diligence and structuring a deal within 30 days is no easy feat. Couple that with the fact that it was the end of the year (December 2020) so holiday closures were looming and not to mention the global pandemic was still ongoing. To add to the difficulty, we were operating on multiple different time zones as well. The Bloom team is located in North America and Viostream is located in Australia. We were coordinating with multiple law firms, tax firms, and advisors in different jurisdictions, all remotely.
That however didn’t stop us. If anything it fueled us. We knew we had a short window of time to get this deal done, and we were dedicated to making it happen. The entire Bloom team clocked in 16 hours days, every day, right through the holidays in order to get the deal done.
There were some roadblocks along the way, but we collectively came up with creative solutions to overcome some of the following challenges:
- asset vs. share purchase and how that would affect large government contracts
- how to approach net working capital requirements for a company that has very lumpy cash flows
- the right capital structure to drive great returns for equity holders with a good embedded margin of safety
- the international nature of the transaction and parties involved (Australia’s Foreign Investment Review Board gave us a bit of a minor road bump)
Creative problem solving and team perseverance was key in overcoming all the roadblocks in an extremely compressed timeline.
Viostream was acquired by way of a share sale, as this was the most feasible way to structure the transaction. Our Delaware C-Corporation acquired 100% of the outstanding shares of Viocorp International Pty Ltd., an Australian proprietary limited company. Bloom used a combination of equity and debt to finance the transaction.
Post Acquisition Plan
Concurrently, Bloom structured and tailored its 90-day post-acquisition plan to set up Viostream for future success.
The first order of business was to bring in an experienced CEO to manage operations and drive growth. We did a thorough search through our network and Bart connected with an old colleague, Evan Parker, that he previously worked with at a private equity firm. Evan is an impressive executive with years of experience successfully spearheading private-equity-backed software companies. Exactly what we needed. Location was not part of our criteria for this role, but Evan being based in Australia made it the perfect coincidence.
Bloom is currently re-defining the strategy and resource allocation of Viostream. Viostream has historically allocated most of its resources to product development, which has resulted in a great product and technology. But not enough resources have been allocated to sales and marketing. Viostream has historically benefited from a sticky customer base and has therefore never had to place urgency on new customer acquisition. Bloom is about to change that with a new customer acquisition strategy.
The go-to-market efforts needed to be ramped up, and this is exactly what Evan and the Bloom team at large specialize in. As mentioned earlier, the industry is growing at a nice pace. The tailwinds should give a significant boost to our sales and marketing initiatives. The timing is perfect, as COVID and remote-first work environments are driving heavy use of video communication.
Lastly, with the theme of remote-first work environments, part of our strategy is sourcing remote talent around the globe to keep costs down while expanding the Viostream team. Bloom itself is a remote organization, and all of us have ample experience working remotely – so bringing this strategy to Viostream is quite natural to us and should create significant value for the company.
The key ingredients to closing the Viostream deal were – speed, conviction, a deep network, and creative problem-solving. This is the secret sauce at Bloom Venture Partners and we plan to continue using it as our competitive edge in the acquisition of future deals.
I’m very excited for the future of Viostream, and the team that we have in place to take it to the next phase of growth.
If you’re an accredited investor and want to invest with me in our next software acquisition, please apply here to be added to our investor list.
Hi there! I’m Jay Vasantharajah, Toronto-based entrepreneur and investor.
This is my personal blog where I share my experiences building businesses, making investments, managing personal finances, and traveling the world.
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