Deals case study
LiveRamp: maximizing deal value, unlocking SaaS opportunity
Unlocking value for LiveRamp through a complex carve-out
PwC helped LiveRamp maximize deal value through data integrity, scenario modeling and anticipating needs.
Client: LiveRamp
Our Role: We helped LiveRamp with a carve-out that increased deal value through efficiencies in the auction process, despite significant complexities.
Industry: Technology, Media and Telecommunications
Services: M&A Integration, Data and analytics, Divestitures strategy
Situation
How to realize a new strategic focus through a fundamental shift
In the world of M&A, it doesn’t get any more complicated than a carve-out, especially on the sell-side. This is particularly true where the piece of the business being carved out represents the majority of the business. We had already worked with the client on a number of non-core assets, but our client knew that their value still wasn’t being fully recognized by the market. Their industry had changed, and the basis for valuing that industry had shifted. On one hand, there was heavy consolidation in the traditional consumer marketing services space, leading to the formation of global advertising holding companies. On the other hand, there was an emergence of specialized SaaS-based companies focused on solving specific consumer marketing problems, like identity infrastructure. These types of companies had a high value to other players in these specific segments. Our client had a strong presence in each segment, one through their Marketing Services business and the other through LiveRamp, a business focused on identity infrastructure. As part of a common parent, their value and growth potential couldn't be fully realized. It was time to transplant the parts to larger, separate containers in order to unlock exponential value. Management called PwC.
“This carve-out helped the client drive value through efficiencies in the auction process, despite significant complexities. Everything clicked.”
Solution
How PwC helped maximize deal value 3 ways-- data integrity, scenario modeling and anticipating client needs
In addition to working with the Chief Strategy Officer on several deals (both buy-side and sell-side) prior to this transaction, PwC had worked with the client on various tax and internal audit engagements over time. We had a good understanding of the company. The client's initial focus was to assess their business portfolio to understand the potential value. When the client started considering the possibility of a carve-out, they hadn’t yet defined the deal perimeter (i.e., what would stay and what would go). By understanding the value of the business components, the client was able to make strategic decisions related to the business (e.g. carve-out vs. re-org) as well as have a deeper knowledge of value associated with a potential divestiture. PwC’s role was to help the client understand the underlying financials and business operations associated with different deal scenarios so they could evaluate which options would drive increased value (i.e., optionality assessments). This was a very collaborative effort between PwC and the client.
Data integrity enabling optionality and a clean separation
Done right, this type of carve-out with built-in optionality is an intensive, time-consuming, data-driven process. You need to develop the data model and analytics in such a way that you can segregate various data flows to gain the flexibility to quickly generate scenario-driven carve-out and audit financials. This is the approach we took with the client, and it helped them to agree upon an optimal post-transaction structure and to anticipate and quickly respond to questions from potential buyers performing diligence, helping the client to increase deal value.
In addition to helping the client with the carve-out and RemainCo financials, we also leveraged the full spectrum of PwC’s divestiture services and accelerators to allow us to holistically prepare for and mitigate issues associated with the separation. Upon the announcement of the deal, we worked with the client to help launch a Separation Management Office to manage the transition of back office functions globally across 14 workstreams, driving dependency, risk and issue resolution. With the client, we helped create over 130 Transition Service Agreements (TSAs) and Reverse TSAs, and managed the separation of over 200 applications and corporate and production networks worldwide. In addition to PwC’s Divestitures & Separations team, professionals from PwC’s Finance Operations, Operations/IT Due Diligence, Emerging Technologies, Cloud and Cybersecurity practices all worked with the client. PwC also helped the client with the transition, including managed services in Security, Workday Financials and Human Capital Management, and Salesforce.
“PwC was a trusted advisor throughout the process, and they’re still at it. They helped us determine the right business model for the new company (and had the data to back it up) and then helped us to identify and work through the issues. They really functioned as an integral part of our team.”
Results
From transaction to transformation
This engagement was not just a carve-out; it was a complete transformation. The parent company changed its name to LiveRamp, the name of the remaining asset. Almost 80% of the original company was divested and sold to IPG. Our client transitioned from a company with $700 million market capitalization, 8,000 people, 35% gross margins, and top line decline of 2-4% per year to a company with $3-4 billion in market capitalization, 75-80% target gross margins (after transition), fewer than 1,000 people, and growing at 25-30% per year. Even after the transaction, we’re still working with LiveRamp as a trusted advisor, helping them continue to execute on the new strategy, anticipating issues and working through solutions. The new LiveRamp entity is now laser-focused on being an industry-leading SaaS identity platform, executing on its vision of creating a world where connected data makes every customer experience exceptional.
We’ll let the numbers speak for themselves:
- On July 2, 2018, with a market capitalization of $2.2 billion, our client announced that it had entered into a definitive agreement to sell its marketing solutions business for $2.3 billion in cash;
- The Company realized approximately $1.7 billion in net cash proceeds at closing, on October 1, 2018;
- This transaction provided capital to execute on a disciplined and balanced capital allocation strategy to pay down debt, return up to $1 billion of capital to shareholders, and further fund LiveRamp’s growth and innovation.
- The decision to pursue this strategic path was driven by strong underlying business and financial rationale, resulting in 60%+ share price appreciation for LiveRamp from deal announcement to closing.
