The Acquisition-Led Growth Playbook ft. Anirvan Sen

By consolidating, let's say, 7, 8 companies, you can pretty much get a hike in your valuation. So you were like maybe a 3x or a 4x valuation, and then all of a sudden you go to an 8x or a 10x valuation just because you've got a few companies together. That first thing when you acquire a company, forget about everything else, revenue ring-fencing. It is the number one thing. People think it's synergies. No, it's not. Look at how many people in in the history of business have been able to scale their company from zero to more than $100 billion. There are only 4 people. Majority of them, I would say 999 out of 1,000, would not even cross $20, $30 million.

[MUSIC] Good day and welcome to The Wealthy Entrepreneur Podcast. I'm your host, Bob Gauvreau. It is a pleasure to have you with me here today. I wanna remind you that The Wealthy Entrepreneur Podcast is the place where we dissect the elements that contribute to your entrepreneurial success, from mindset and leadership to profits and revenue. And I'm delighted today to have a guest, an experienced M&A expert who's written multiple books on the subject, and we're gonna make sure that you have access to those books as well as we go. But, um, my guest today, his name is Anirvan, uh, he's the CEO and founder of Fifth Chrome, a global business strategy advisory firm helping founders, CEOs, and investors build scalable and resilient organizations. Today we're gonna dive into the topic that many scaling entrepreneurs eventually face, how to grow through acquisitions and to build a scalable organization through a buy and build strategy. And you may be asking, what is a buy and build strategy? We are going to kick the podcast off with walking through that, but the opportunity that's involved with growing and scaling a business, you know, you have to consider acquisitions as one form of a growth strategy if you truly are looking to build a business that you're gonna be able to exit from and to build a business that has value and to do so at a pace that is maybe a little bit more prompt than, uh, doing it organically. So, Really excited to have him in here today. He's a strategic advisor. He supports leaders navigating growth, complexity, and transition, particularly in organizations moving from entrepreneurial momentum to institutional scale. And his work sits at the intersection of strategy, leadership, and operating design, helping decision makers bring clarity, coherence, and discipline to how they— businesses evolve. I'm really excited to share this conversation with you guys today. I know it's going to be extremely valuable, so it's going to be all things M&A. And things that you wouldn't necessarily consider and things that we haven't necessarily talked about on this podcast before. So I look forward to sharing this with you. And you know what? It's time. Let's just bring him in. Anirban, it is a pleasure to have you on the Wealthy Entrepreneur Podcast today. And to kick things off, maybe just tell us a little bit about how you got started in your career and how it's evolved to where you are today.

Sure. Thanks, Bob. And I'm excited to be part of this conversation today. Starting out, let me kind of paint a bit of a picture of what happened. So essentially I was born and I grew up in India, in Delhi, and over there I, it was already, because my ancestors come from east of India, uh, so it was a second culture where I was, grew up. And then, um, I started my first job as a salesperson. I used to sell Dell machines even though I had done engineering as my bachelor's degree. So it was a complete contrast. And then from there moved into sort of solution design into I used to do software coding for a number of years before I realized that the people who call the shots sit at a different room compared to the software developers, right? So, which is what, which is what got me started in that lifelong quest on how organizations run. And early on, I'd recognized something called pattern recognition. This was a subject I would've probably pursued and done master's, but Things didn't happen the way I wanted it, uh, but that pattern recognition is something that continued throughout my life. So I have worked so far, I've worked in my career, as in a corporate career, more than 20 odd companies in different shapes and forms. Uh, and then in my consulting business, I've worked and trained folks in more than 100 companies, 100 different industries, 80+ countries, right? So this gave me a wide array of how things are similar and yet not similar. And by the way, I started my M&A career back in 1997. Literally, I joined GE Capital and the second week I was there in Amsterdam, you know, you know, I'm based in Amsterdam. I'd moved from Singapore. We were thrown in the deep end of the pool. We like, hey, you are, we've gotta a company that we need to now integrate. You know, I don't think somebody said integrate, but we just acquired a company and we need to make the systems work together, right? So, uh, I didn't even know the integration existed as a word back then. And since then I've been involved in lots of different transactions. But what started out in 2013, which is when I left my GE career, was my quest of trying to understand what happens in the boardrooms, what happens in the pre-deal stage, in acquisition stage. And that's where I ended up working very closely with strategic investors, uh, family offices, PEs, as well as, uh, companies that were going through both from buyer's perspective as well as seller's perspective. And because I helped a company to be set up as a PE, it also gave me an understanding of the VC route into PE kind of thing, right? So it gave me a wide area for understanding what that is. So on the basis of that, that's kind of what formulated on what I have now been producing over the last 5, 6 years. So what has happened is in the past it was all about learning, learning, learning, learning. And there came a point in time I was like, you know what, I've done enough of learning. Not that you ever stop learning, but it's like now it's also for me to give back to the world, right? So this is where my training started. And then I started writing books. Literally the last week my 10th book came out. So the last 3, essentially a trilogy on Buy and Build. So that's a long short answer for my AutoGen story.

No, I love that. So, so talk to me a little bit about what buy and build is because, you know, when we think of M&A, obviously, you know, it's, it's highly exciting. You know, it's a little bit scary for a lot of people. It's a really great growth strategy. So talk to me and maybe describe for everybody what buy and build would be according to your terms.

Sure. So buy and build essentially, in my opinion, has 3 flavors. So the flavors, one is where an individual entrepreneur, that person goes and buys a company. It could be half a million, 1 million, whatever it is, small company, and then build it, right? We're not talking about that buy and build. Okay. The second one is what's pursued by Fortune 500. So for example, let's say a large company, they decide without naming names, you know, it could be anybody, GE, Amazon, Apple, whosoever. They decide that they want to do something specific. And, uh, you know, it could be a new product in the market. It could be, let's say, a new operating model, whatever it is. So they decide that that's strategically where they want to invest further, right? So this was something, for example, uh, back in my days at GE, GE decided to expand into water management. That's where GE acquired a platform company and then acquired— did subsequent, uh, acquisitions and then kind of build the portfolio into a buy and build story. Now, that buy and build is also different from the third buy and build that I'm going to just speak about. The second buy and build essentially is you buy, but everything becomes GE, you know, let's say from that example. So the core, let's say the core pieces, whether it's culture, whether it's the way people used to work, the operating model, that changes massively. Okay. The buy and build, which is the third category that I'm talking about, which is what you alluded to, is it's a fantastic way to grow rapidly. And this is, uh, essentially very prolific in the sub-$250 million, quarter of a million, sorry, quarter of a billion dollars kind of a scenario. And one of the main reasons why a lot of companies these days pursue buy and build, because it's easy, as in it's overnight growth. Second thing is there's a lot of money available in the market in terms of private equities or institutional investors or others who are ready to lend money, family offices. The third thing is, which is what's in it for the PEs or the VCs, is the upside. So which means that by consolidating, let's say 7, 8 companies, you can pretty much get a hike in your valuation. So you were like maybe a 3x or a 4x valuation, and then all of a sudden you go to an 8x or a 10x valuation just because you got a few companies together. So that is where we talk about buy and build. So buy and build essentially in a nutshell is you acquire a company, portfolio company, and then you acquire a few more and you essentially start building this company up. And that's your buy and build in a nutshell.

Yeah, 100%. And you know what? All of those would maybe be an area where we've done that in the past as well, right? We've looked at specifically areas of our business where we want to expand maybe a product line or service line, acquire an entity that has a little bit more experience, a little bit more resources, and then we, we bring that into the overall entity. But for sure, You know, the idea of— and is it called albatross? Is that what that's called? Where essentially when you make an acquisition that your multiple goes up because you've then just brought it into the next sort of EBITDA. I think that's what they refer to it as. But yeah, super, super valuable. So when would a business owner really start thinking about when a buy and build strategy would make sense for them? Like, I'm guessing it's not day one, or could it be day one as well?

Yeah. So there are people these days who essentially the moment they come up with an idea, they think it's going to be a buy and build. Okay? But it's not as simple as that. So what we have done, and that's in my trilogy book that's on Buy and Build Operating System, is a good point for a company to be part of buy and build, not necessarily to be the buyer, but to be part of buy and build, starts about $5 million. So we've done the stages, 5 stages we've defined, for the buy and build. So first stage is $5 and $15 million, which is primarily a founder-driven company. Then you have $15 to $30 million, which is when you start setting up, kind of doing platform setting, you know, some of the fundamentals. $30 to $60 million is when you start doing proper acquisitions. You know, you start that, you know, and then $60 to $120 million is what we call institutional. And then $120 to $250 million is essentially you start becoming a, like a conglomerate, you know, kind of trajectory that you start. Now you can buy a company even when it's $500,000, okay? But the uncertainties are huge. There's something called product market fit. Typically when a company gets a product market fit, it usually has crossed the threshold of $5 million. We have taken revenue numbers because that's the best marker we could get. Because if you go by the number of people, it can be skewed. There is some variation with respect to industry or with respect to the location, but largely the revenue mark are pretty good surbarcas indication. So we say for the companies who want to acquire, they should be about $60, $70 million, you know, definitely more than $30, $40 million. The companies which I would say are ready to be acquired, $5 million is, would be a good starting point.

Okay. And so, you know, thinking of acquisitions, and this is maybe a strange question and you might say, Well, Bob, you know, it really depends. But when you're looking at acquiring a company, let's say you've got an existing business in place. Do you feel like the strategy should be that you're buying smaller companies, companies that are of similar size or even larger? Like, I'm assuming all of those have different risk profiles attached to it. Which one do you see the most success with?

It all depends. So normally You would see the companies that get acquired are 5 to 20 times smaller than you. There are plenty of cases where the company that got acquired is larger than yourself, and we call it the reverse mergers because they probably have more sophisticated systems. Uh, the leadership is probably better experienced or have certain advantages over you. So we call it a reverse merger. Now, In reverse merger, again, 70% of the mergers and acquisitions fail for whatever reason it fails. And when we say it fails, it means the value that we are supposed to generate from the transaction did not happen, or it got eroded very, very quickly. So reverse mergers do take place, but it's a lot more complex. And the, one of the main reasons is when you are an acquirer, you tend to be the big guy at the table. Even if the company across the table is bigger than you, but you behave that I'm the boss. Okay? It's human nature. The person who's got the money tends to, uh, call the shot. So examples, I've seen a couple of very good examples. Now, the reason why they went and were successful, I would probably attribute it to the backing of the PE. Because the PE guys knew they had been through this. They had people who could mentor the executives of the acquiring company as well as the target. But it was the PE that made that difference. PE and probably the operating partner.

Absolutely. And so when you look at some of the 70% failure rate, because that is a staggering number, but that doesn't necessarily mean they're a complete failure, right? It's just that they didn't necessarily accomplish what they were set out and intending to, one of the, from my understanding, one of the greatest challenges is in the post-integration role, right? Why is it that that is the area that causes the greatest challenge for the success of a, of an acquisition?

The same reason why technology is always pushed into the basement, you know, technology teams, right? Um, it's not glamorous.

Fair, fair, right? Signing the deal and, and giving the dollars and everything, that's the exciting part. But then the work really starts.

Correct. Because there is so much of secrecy, so much of money being talked about, and everybody talks about— nobody talks about less than $5 million, right? That's the nature of the game, you know. Even some of the rewards that your brokers, your bankers, your lawyers may get, you know, on success, um, is still a large fee. It's a large check. And compared to, let's say, for integration, it's like, oh, you know what, how difficult can it be? Let me hand it over to the HR guy. Let them figure out, or let me give it to the technology guy. So there is less of recognition that integration is where the real value creation happens. Integration is messy. Integration is tactical. Integration is also functional. And therefore, CEO does not want to be involved in the day-to-day what happens. So it's the nature where The attention, the focus gets lost. The first thing that happens is erosion of revenues. So the target company is— some key people may have left the company because they're part of the seller group. So there is, or there are people who leave, you know, good sales guys leave. So there is usually a downward trend in on revenue. And that's what we always advise, that first thing when you acquire a company, forget about everything else, revenue ring fencing. It is the number one thing people think it's synergies. No, it's not. It's a revenue ring-fencing. Everything else gets— should be subordinated to that. 'Cause if you don't have revenue, you can keep crying till the cows come home, but without revenue, the companies don't exist.

And so why would you say, and, and I've seen this and truthfully in my acquisitions as well, we've had some turnover that happens. Right out of the gates. Right. And, you know, in the past I've had my COO sort of have to— I take it very personal.

Sure.

Right. When you, when you have somebody depart, you're like, what is it that I could have done better?

Yeah.

And, you know, he sort of talked about the rates and the expectations of the fact that it is a drastic change and some people are just ready for it. And this is a trigger moment. What do you see as, you know, some of the reasons why people leave or what are some of the reasons or strategies that companies that are making an acquisition could put in place to eliminate or reduce anyone leaving?

So the first one, and which is what I've also mentioned in the book, see, if you are working in a company that's, let's say, $10 or $15 million, I'm just doing some comparisons versus a company that is acquiring you that's $120 million, right? So the $10 or $15 million is essentially where you could wear a t-shirt, go to work, everybody knows you, you guys work long hours if required, have pizzas, you know, kind of thing. The $120 million on the other side is you probably have, you know, kind of a suited meetings, board meetings, you know, kind of thing. It's a lot more management by numbers, a lot more structured. You probably get into some sort of an annual appraisal mechanism or tactics that needs to be done. You'd be given goals, etc. None of that is there in that $10 to $15 million, right? And the first thing I tell CEOs is that, let's call that person Alex. I said, Alex, you know, keep in mind, I know that you want to grow your company, but look at how many people in the history of business have been able to scale their company from zero to more than $100 billion. There are only 4 people. Majority of them, I would say 999 out of 1,000, would not even cross 20, 30 million. Okay. And I said, the reason for that is not because they can't, but in my opinion, they should not because it's not them. An entrepreneur is somebody who always loves to get new ideas. Okay. You know, it's the next thing that glitzy that I want to pursue because you'll constantly, constantly try to keep yourself, your mind fresh and look at, at least explore opportunities. Somebody who's like a CEO at $100 million, $120 million is thinking, how do I do my capital allocation? On which, behind which product, what sort of money should I put? Okay. Very different. And I say, if you, you know, look at it this way, do you really want to be that kind of a person? Some people say, yes, I would like to be. I said, in that case, absolutely, you should pursue. But if not, then But keep in mind that in 1, 1.5, maybe 2 years, you need to hand the baton over to somebody else. Okay? So this setting of stage right up front has actually yielded a lot of positive results because compared to that, everybody's like, oh, you don't tell the CEO, you know, or don't tell these execs that this is how it's gonna happen. And that's where there is distrust. People don't, are not transparent with each other and mismatch of expectations.

Absolutely. One of the challenges that we've had and we've got there, it just for some reason it takes, seems to take a little bit longer. How do you, or what's your guidance and advice on creating an entity that has one culture going forward?

That's a misnomer. One culture is a misnomer, right? I'm just saying it out of the gate for a couple of reasons, right? First is culture means it's the way we do things here. Okay.

Yeah.

Everybody has their own version of how we do things here. Okay. In my book called Promise, I have described culture as a tree where values is right at the top and the leaves and the branches are the beliefs and behaviors. The trunk of the tree is your leadership team. And then you've got these 4 things which are under the ground, right? That's your structures, your practices, your rituals, and your artifacts. If you want for your tree to grow, you, what you do, you don't add more leaves, you don't add more branches. You put water, you give fertilizers, whatever it is. Everything is below the ground. You know, it's the structures. You put more structures, you change the practices. You know, for example, if you want to become innovative company, you start changing the practices saying, okay, this is what we need to do. You change the artifacts. You know, the artifacts essentially would be you paint the colors, you paint the color of the wall as red or pink or whatever, right? You get beanbags in the office. That's artifacts. Rituals is you have Friday evening drinks, you know? So for example, if you need to change the culture of an organization, you'll need to start at one of these four underlying buckets because this is what reinforces. Now, culture. The first culture of an organization is formed as a reflection of the founder. It is the founder. The subsequently, when the company grows up, it usually tends to largely follow the CEOs till you are about $70, $80 million revenue. After that, you start getting institutional cultures. Institutional cultures essentially means there's no longer one homogenous culture, but several microcultures that kind of blending together to become one large culture.

It's interesting because you're right with the core values that we have. A lot of it is more of— we've sort of created it based around the behaviors that we didn't want and reinforcing the behaviors that we did want and truthfully to attract the people that we felt would best support those behaviors and avoid those negative behaviors. So