Tips from a successful acquisition
Good records and intellectual property "pedigree" are critical to a successful deal
By JEAN D. SIFLEET
We can learn a lot from the story of SOLX Inc. SOLX is a company that started in the Boston University Photonics Center in 2000 and sold in 2006, without having generated any revenue.SOLX was acquired by OccuLogix in September 2006. According to the Form 8K filed by OccuLogix with the Securities and Exchange Commission, the deal terms included: $7 million in cash at closing, $3 million in cash at the deal's first anniversary, $5 million in cash at the second anniversary, $5 million upon FDA approval on or before December 31, 2007 and OccuLogix Stock.
How did SOLX do it?
In a presentation at the Massachusetts Medical Society, Doug Adams, SOLX president & CEO, shared his insights and experience in developing an innovative "Deeplight" glaucoma treatment.
According to Adams, you need to "start with the end in mind" and "build the pedigree from the start." This means keeping great records ("everything in notebooks") and protecting your intellectual property.
SOLX is privately funded and incredibly focused. Its approach was to: "license a patent, build a prototype, do a clinical trial and sell the company." This is a summary of what I learned from Doug Adams' remarks:
Step 1: Pick an important problem to solve.
You need to be clear about the problem you are solving and how your solution impacts your potential buyer. For SOLX, the problem solved is a new treatment for glaucoma (a medical device, once-a-year therapy, that replaces the need for daily eye drops). The current eye drop treatment represents approximately a $2 billion pharmaceutical market. Hence, the SOLX treatment could displace a significant pharmaceutical revenue stream.
Step 2: Show that your technology works.
By building a prototype and doing a clinical trial, you compile actual documentation of the effectiveness of your technology. SOLX focused on its clinical trial and regulatory data compilation. It did not invest in marketing or sales, as these efforts would not be valuable to a buyer. The buyer would already have its sales and distribution channels in place. SOLX did invest in legal services to protect its intellectual property and ensure that the business records were in good order.
Step 3: Target a strategic buyer.
The buyer, Occulogic, is a health care company that wanted to expand its treatments for age-related eye diseases and was experiencing delays with FDA approvals for other products.
Doug Adams' talk also included some practical tips:
"Don't get hung up on valuation and what you want." Rather, shift the discussion to "strategic fit" and "business compatibility and potential."
"Stay involved during due diligence." It's critical for the principals in the deal to stay involved. When due diligence is delegated, the natural tendency is for the people involved to fear losing their jobs by missing something. To keep the deal from derailing, you need people involved who want the deal to proceed - otherwise it is almost certain to derail.
"Plan for transition and integration." The success of the acquisition depends on the technology transfer. A seller needs to plan to stay involved for several years following acquisition.
Key learnings from SOLX
The SOLX story is about focus and disciplined implementation. It reinforces the trend that buyers acquire technology to improve (and preserve) their market position. Further, it shows that a company can be an attractive candidate for acquisition (without a sales history) as long as its technology solves an important problem and its intellectual property "pedigree" and business records are in good order.
While I wasn't involved in the SOLX transaction, I applaud Doug Adam's recognition of the valuable contribution that good legal advice and "getting your house in order" mean to the successful outcome!
Jean D. Sifleet, is an attorney, CPA, three-time entrepreneur and author. As a member the business practice group of the Worcester-based law firm, Hassett & Donnelly PC, Sifleet focuses on counseling privately held companies on a broad range of business matters including leveraging intellectual property and successfully implementing transitions.
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