Interview with Karl Willig, InfoGenesis and Jay Beaghan, USBX

My interview today is with Karl Willig of InfoGenesis ( and Jay Beaghan of USBX. InfoGenesis was recently sold to Waburg Pincus in what is rumored to be one of the largest Enterprise Software deals of 2004 for Southern California. Karl Willig is founder and former CEO of InfoGenesis, and Jay Beaghan, who heads up Technology Investment Banking at USBX, advised InfoGenesis on the deal.

BK: What does InfoGenesis do, and how are its products used?

KW: InfoGenesis is the leading provider of advanced POS Software/ASP solutions to the world's top Hospitality & Foodservice operators. The Company's application suite is based on a single integrated Software platform, the depth and richness of which enables customer, product and transaction intelligence as well as reporting and management for the most distributed, varied and challenging POS environments (large casinos, resorts, corporate campuses, sports stadiums, etc.) The Company's enterprise-class, internet-centric and web-services(.Net) Software is well regarded as highly reliable, configurable, interoperable and extensible. In addition to allowing the Company to be the leader in high-end POS enterprise Software, the strength of its technology also makes it possible for the Company to offer the only full-function ASP for POS (an ideal alternative for customers who seek enhanced ROI from a Business Process Outsourcing solution).

Examples of implementations include a nationwide installation for IBM that enables them to centrally manage the finances for their disparate cafeteria operations. The most demanding and smartest operators in its markets turn to InfoGenesis solutions - customers include: Ceasars, Mandalay, MGM-Mirage, Sheraton, Four Seasons, Westin, Madison Square Garden, Staples Center, Stanford University, Vail, IBM and Microsoft, just to name a few.

BK: It seems a bit unusual to have a big PE firm like Warburg making this investment when there's so much activity among strategic acquirers. Can you tell me a bit about the process?

JB: We began detailed talks with suitors in June after spending a bit of extra time in careful preparation. We invested incremental effort preparing because we diagnosed this as a unique situation for a few key reasons: 1) USBX generated preliminary interest in the Company from multiple directions, each of which represented a different opportunity for InfoGenesis and a correspondingly distinct strategic angle on the Company's future, 2) based on the quality and size of the Company, we determined early on that many high-profile suitors would be involved, accurately predicting that several of the most sophisticated strategic acquirers, financial acquirers and hybrid acquirers (private equity controlled 'platform' companies) would look to pursue this opportunity, and 3) the Company's management was very committed to its employees and customer base and sought to fully vet every viable alternative in an effort to select the truly best partner for all its constituencies.

BK: Why so much interest in this company and why Warburg?

JB: The extensibility of the business is ultimately what drove the breadth of the process. InfoGenesis delivers the richest Software solutions to the multi-billion dollar hospitality industry, and their position in the value-chain is as the 'on-ramp' for all critical customer, product and service data; this makes them a key enabler of valuable management and analytics functions, only some of which have been fully explored, but many of which constitute the inevitable future of applying advanced technologies to this otherwise mature space. For these reasons maximum value could only be created by developing an individual thesis for each acquirer, anticipating the downstream critical issues for each suitor and making certain that the qualitative and quantitative information we prepared in advance was complete and relevant for all those purposes.

We selected a few finalist suitors in early fall. The depth of discussions we undertook with each of these finalists required that we conduct those discussions in parallel, not granting any suitor an exclusive until we were sure that our preferred partner was nearly ready to close. We were very pleased that Warburg Pincus emerged with a leading vision for the Company and we worked exclusively with them during the weeks leading up to completing the transaction. At the end of the day, we might have been able to pursue a deal with an alternate party at terms slightly better in some way, but Warburg was competitive and it was their view of the future of the business and the quality of their team that distinguished them most.

BK: Karl, congrats on the sale of your company. How has the experience been for you, and how do you feel now that the deal is done?

KW: Thank you. The experience was both gratifying and frustrating. We had an unusually large number of high quality potential acquirers and had to spend a great deal of time with each of them to narrow the field to a more manageable number. The ideal partner was someone who respected what we have accomplished and the principles upon which our business was built. That ideal partner's concept of the future would be centered on both employees and customers. We had excellent professional guidance from our investment banker, and we ultimately chose Warburg Pincus as the company that best met the needs and expectations of our customers, employees and investors. In some respects the process was longer than usual because we spent a great deal of time in preparation and partner evaluation, with the resulting depth of the process making it fairly exhausting for much of senior management. In the end I am satisfied that we were thorough and am glad that it is behind us so that management can focus on continuing to build a great company.

BK: What's next for you now?

KW: During the past year, I have literally had two jobs: the job of running the Company, and the job of participating in the Company's M&A process. Because we were having a record year with nearly 40% growth, on top of a record year of more than 30% growth, the first job was job enough. Working through this process left little time to prioritize my personal post-transaction plans and activities. We were about half-way through the process with Warburg Pincus when it became clear that Warburg was looking for a long term CEO commitment. I was unwilling to make a full-time commitment for more than three years, as I generally anticipated my desire to pursue other interests within Warburg's time horizon; and this led Warburg to consider other leadership options. So, fundamentally, my departure was not really planned. Since the announcement was made, I have received inquires regarding public and private company board membership and professional consulting. I will be thinking about the best options to pursue over the coming weeks.

BK: Jay, It looks like December was a very heavy month for M&A activity overall--what have you seen, and why do you think there's been so much M&A in the last month or so?

JB: December is often a heavy month for business activity, depending of course on related economic and sector dynamics. Our firm experienced another record year closing 12 transactions, but to your point, it was back-end loaded: 5 of our deals closed in Q4 and 4 of those were in December, with an additional 2 deals that were ready to close but rolled into January for tax or other purposes. One reason for year-end activity is of course the natural tendency to seek completion of prior projects, enabling one to focus on the future as the calendar shift emphasizes the arrival of that future. But certain business climate factors had, and will continue to have, a more important impact: M&A has been particularly strong because the capital markets are healthy and the economy is relatively stable (and stability in this context means both a low likelihood of big downside and a backdrop of only modest growth). Together these factors imply that stock currencies are well valued, cost of capital is low and inorganic growth opportunities such as acquisitions are in greater demand. The latter is particularly true in several Technology sectors as the space matures overall, customers increasingly seek to deal with fewer vendors and the resulting consolidation wave continues. The integration of enterprise technologies has always been a meaningful M&A risk, but such integration is beginning to become easier too as we slowly start to see real adoption of standards. We see continuation of a robust M&A market as long as this foundation remains in place - which bodes well for the near term: we believe it is in fact still an opportune time to explore M&A and later round growth financing.

BK: Thanks!


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