Growing through Multiple Roll-ups

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Very good. Kisan, thanks a lot for having me on your podcast.

Hey, thanks for taking a break from doing all these deals to teach me a few things here. Can we kick things off with a little bit about your background?

I've been an entrepreneur since I'm a teenager. I've had a bunch of businesses that I've started, sold some around web marketing. And then in 2010 we got together, my partners and I put $20 million together or so and started an investment company called Valsef Capital. And then Valsef Capital started investing in the stock market. And then we started learning a lot about the world of investment and how to compound capital and what type of businesses were good and what type of businesses were bad. And we invested more, more businesses. We fell in love with the software industry throughout that study period. We were investing a lot in acquisitive companies because we found they tended to be undervalued in the market because a lot of the value they brought was through M and A and the market doesn't have a good ability to predict that into the future, so it didn't discount it properly in the price. So a lot of these good acquisitive companies tended to be undervalued by the market. So we got to learn a lot about companies that do roll ups and, and we studied many of them. And then in 2015 we decided to do our own. So we bought our first software company and then three more the year after and then eight more the year after. And this year we're gonna buy 30 of them or so.

You went through your life story so quickly, that was like a minute and a half. But you went from the teenage entrepreneur, which we could probably unpack in a whole interview there. And then you went through some exits in that process, got together with some folks, put together some capital and it seems like there still was a lot of learning there to come to this conclusion or an area to focus on with acquisitive companies. What started it? What was their first business?

We had a few businesses all focused on affiliate marketing and advertising.

But how old were you? You said you're a teenager back then.

No, I was in my, in my early 20s, early 20s. 2004 to 2010, we started many businesses, ad networks, a few different web marketing businesses. A lot of that knowledge came back later. In our lives when we also we have another business that buys web companies called Valnet. But our primary activity today is software companies. We buy software companies and we still actively trade the equities. So it's a really a passion for investing.

It is. The part I'm trying to point out is these parts in your background that lend to this pedigree that I think you look at M and A a little different. Because when you understand how a business really operates in and out and even ground up as you built one, I'm just curious of how do you look at that we'll get into the investment size but functionally of buying and growing companies through acquisitions.

You know, Warren Buffett said I'm a better investor because I'm a businessman and I'm a better businessman because I'm an investor. I think I found that to be really true. And it's my experience that my knowledge of business has helped me invest better in. My knowledge of investment has helped me manage our businesses a little bit better. So in that period from 2010 to 2015, we really learned a lot. I used to maybe read something like 2000 pages a week of 10Ks analyst reports. I used to listen to earning calls and I used to really deep dive into companies to understand their economic characteristics, what made them great, what make them good companies. To be able to predict which companies are likely to do well into the future. Because that was my job at a time and then invest in them. When I studied roll ups, I found that a lot of them that did well, the underlying businesses they were buying were businesses that lent themselves well to a decentralized investment strategy or by bringing the businesses together, they had the tremendous competitive advantage to roll up the next business. But in every case they sort of had a a clear reason why they earned the right to acquire. And then there's a lot of other companies that engaged in acquisitive activities and just wasted shareholder capital because they were putting businesses together with no real purpose. And they hadn't earned the right to be an acquirer. You earned the right to be an acquirer by managing the businesses better than they were previously managed. Because you could drive more growth out of them or you could drive more profitability out of them, or you have something to bring to these businesses that will make them better in one way or the other. And we devised our strategy around that and our investment playbook around that. We tried to buy companies that are intrinsically very good businesses. Then we try to run them a little bit better than they were run Previously.

So you looked at all kind of companies, investment strategies came to this realization. The companies that did good acquisitions were better investments, undervalued. It's almost like they kind of have this forward trajectory that you found to be a little more predictable. Is that fair to say?

I was personally comfortable with it because in my life and in my business career I found that people drove outcomes in business. If I could predict how somebody thinks, how the management team of a company thinks and how they're likely to behave into the future through looking at what they've done in the past, and M and A was part of their past and they added a lot of value through that. Then I was able to look into the future and I was able to underwrite that into my price at which I'm ready to buy the company. And then we were able to buy companies that the market thought were expensive, but we thought they were really cheap because we were underwriting capital deployment that was going to be accretive into the future. Companies like Kushtaard, companies like Transdigm, companies like Constellation, Software, companies like Berkshire Hathaway. A lot of those companies sort of framed our investment model for what we would later build.

Yeah, it's interesting. So you look at this element around acquisitions, you distinguish between good acquisitions and bad acquisitions. Yeah, they're bad acquirer, they're not creative in acquisitions, not a good thing. You want to weed those out. But on the good acquirers, do you distinguish with the strategy? Because it sounds like part of what you're referencing is they could be very focused on more of an economies of scale or doing a traditional roll up or being more strategic in nature. Do you distinguish between those two? And it mainly would be those two and look favor one over the other.

No, we looked at both and we invested in both. For example, you look at a company like Salesforce, a very strong acquirer. What they would do is that they had a base of customers and then they would append product that would add value to these customers and would make the customers more sticky. And they would leverage these customer relationships and provide them more products that they needed. So every time they bought a company, it looked very expensive, they paid for it versus the revenues and profits the company had at the time. But then you expose this product to the large customer base of Salesforce and their revenues would go up a lot. So then it would become cheap. And then this is one of the strategy that's allowed Salesforce to compound at a very high rate for a very long time. And it's not Very different than the strategy that a company like Microsoft employed for many years. Then you look at other acquirers. Let's say you look at a transdigm where the companies would keep running independently so they weren't necessarily have a lot of synergies with each other in the products, but develop expertise at running these companies in a way that allowed them to extract more revenues. They had best practices through learning from 50 different acquisitions that every time they bought a company, they're like, this is the playbook we run to make this company more efficient. Higher revenues, higher profits, and they had earned the right to be an acquirer. Every time they made an acquisition, it would add value to their shareholders, whereas a lot of other companies, they would just buy companies to grow the revenues, but they really would not add any value to the shareholders or to the customers or to the companies they were acquiring themselves. We don't invest in those and then we invest in the forum.

So regardless, it's either you're looking for their capability to drive synergies off the revenues or an element around the operational efficiency.

Yes, one of the two.

Okay, ideally both.

Ideally both. That's how we sort of study the acquirers and determines which one are likely to do well. And we did really good with it.

How'd you figure out the segment? And maybe you can help me get a sense of even company size that we're talking about, because it sounds like there's a spot. And remember what I was talking about before that you really laser in on.

First of all, if I get to software before I get into the size. So we were studying these companies and then you're investing passively into businesses on the stock market. You're looking for companies that have certain characteristics. So you want a lot of predictability because you're not managing the company every day. You want to be able to model in your head and on a spreadsheet, what's this company going to look like in a few years? So we found software companies had a very high level of predictability. A lot of them had pricing power due to the fact that they were very important to their end customers. They had a low churn rate, enabling us to, we're starting next year with 98% of the revenues we have this year. It's much easier business to manage than if you start from scratch next year. So this made us really focus on software. And then we started studying a lot of software companies and we invest in a lot of software companies. And then we're like, okay, maybe we could do that. On our own. So then we started looking, where can we add value in the marketplace? Where is there a gap in the market that we could fill? Where we would earn the right to be an acquirer and make good acquisitions that would add value to our shareholders and to the whole constituencies. Companies that sell to us, the employees of the companies that sell to us and everybody else in the vertical market. Software. There's about 30,000 of those companies. Most of them tend to be in the 2 to 3, $20 million range because the vertical markets themselves are small. Then there's the a few bigger companies, maybe a thousand of the 3,000 are larger companies. The larger companies are to a certain extent, usually easier to manage. If you have a large revenue base, you leverage one R&D budget across much more customers. And they're usually in bigger verticals that tend to attract venture capital and private equity a lot more. So we didn't feel that we would bring tons of value there. But at the small and mid sized markets, they have to be operated a lot more efficiently to bring value. And we felt within Valsoft, by learning how to operate those properly, we would become a good exit strategy for these companies. We would provide something valuable for these entrepreneurs that have those companies and that want to move on or the companies need to go to their next step. We would buy them and we would help them make that transition. They're a different phase of their life cycle. Sometimes they're operating in a market that's saturated. So deploy money in R and D and sales and marketing. But there's no new customers to grab because everybody's vended. They all have software solutions, so you have to go get them from your competitors. But these competitors have sticky solutions just like you do. So the company has reached a point in its life cycle where it's blocked from growing and it's mature. In a mature company, you tend to lose your best employees. It tends to be less fun to work there when there's limited growth. So we come in, we'll buy these companies and we'll be like, okay, you know what? Now we'll give you money and expertise to go buy your competitors and then acquire your growth and then create a dynamic company where you have a much bigger customer base to which you could sell more product. And then we'll go buy other adjacent product that serve that vertical and create a really dynamic mini conglomerate around that company we initially acquire. And that we found brings a lot of value to the employees of the companies we acquire, the owners of the companies we acquire and Our shareholders and employees at vel.

I like how you explain it. It's simple to understand. It gets me fired up, makes me want to go find a sector to roll up.

It's worked well for us. We've scaled the company significantly over the last five years. We completed over 60 acquisitions.

Now when you look at that 60, are there a number of platforms that you look at saying hey, here's a platform play and then you did all your add ons around it.

Yeah, we usually going to enter a new vertical with a platform company. In vertical market software and software in general, you're building one product and you're selling it to many customers. So if you have a lot of customers, the same R and D budget gets levered across much higher revenue base. So if you start with a very small company in a new vertical, you're starting weak. So you have to start with a company that has a little bit of pedigree in a vertical. You enter strong, you have staying power in that vertical, and then you look to buy companies that have interesting customer relationships and you bring those into your platform and then you could buy companies that have interesting products and then you could sell those to the bigger base of customers and there's a lot more you could do. And that's our strategy. But all the companies that we buy in this independently, we usually manage them in a decentralized fashion, meaning we keep most management teams in place. All the companies we buy, we need them to be mission critical to their customers. We need them to have a certain level of strength in their customer base, meaning they've been around for a little bit of time and shown that they bring a lot of value to their customers. And yeah, the companies by themselves have very interesting economic characteristics. We bought a company this year that had been around since 1955. So this company is a small company and independently they've weathered. Think about what's happened over the life cycle of this company seven years and it's remained independent and it's remained successful and it's weathered every attack upon its domain. So there must be something about this company that's special, right?

Yeah. Big common point I'm seeing in your approach is around this operational efficiency and driving value out of improving that. And then as you acquire companies, when you start with your platform, then you start looking for those revenue synergies. Is it something adjacent that gives you an opportunity to cross sell upsell solutions to create the additional revenue?

First of all, we gotta buy the company at a price that makes sense. We underwrite each Acquisition on a standalone basis and we underwrite it to our unlevered IRR that we will get from this acquisition. So I've studied, like I said, the amount of information we've gathered on successful and unsuccessful acquirers is our ip. It's the IP of our investment group. It's what's allowed us to be successful across two roll ups so far. And the third one coming. A lot of acquirers are going to be like, my stock is trading at 15x EBITDA. I could buy companies at 10x EBITDA. This is accretive to my shareholders. I'm making a good deal. My stock's going to trade up on the news. Let's do it. Those always fail in the long term. Those will always fail.

Why?

What your stock trades at is a moment in time. This could vary very widely. And when you're purchasing an asset, this is a long term investment you're making with your shareholders capital. You need to make sure you're making a good deal standalone. You need to look at the IRR of this investment on a standalone basis, modeling a very conservative terminal value. Because the further out you're modeling, the less certain it is because the world changes a lot in five, 10 years.

I haven't heard the term IRR in the last five years. It's a new concept for me again.

Yeah, you know, I mean a lot of people don't use that. The market is hot.

It's been that crazy. Yeah, right.

Yeah, the market is hot. So we buy and then our stock trades up. But you know what, now it's not trading up anymore. And now you're on the road. 3% debt. Now your debt is going to move to 8% when you refinance it. And what happens to your investment then? Did you really make a good investment with your shareholders capital? We operate by the philosophy that opportunity is sure to come back. But destruction of capital is permanent for us. You need to be really careful in M and A. The way we do it is we need to have a lot of looks. So we have 60 people full time in MNA, always looking for opportunity and looking all around the world for good opportunities for us to deploy our capital. And at any moment in time we have over 20 due diligences projects ongoing. The reason we do that is to be able to really be selective in which companies we invest. If you're looking at three companies and you're looking to do M and A and the pickings are slim, you don't get to choose your opportunity effectively. So for Us, we want to make sure that if we do, we'll do good M and E for shareholders and we have no problem not doing any capital.

Discipline is a big part of this, which I like. You stick to the values of IRR and the stuff that really makes sense despite market fluctuations. I was thinking about negotiations on this stuff. When you are engaging with these companies and you have this sizable team, are they engaging with the owners directly? When do you get involved?

My job at this point is more of a risk officer. Just making sure that at the end when we write a check, we're making a good decision. A lot of our M and A activities are done by our investment partners. We're one of the few companies that has a decentralized capital allocation strategy. So we have investment partners that each run their own investment organization. They each have a portfolio of assets and they're responsible for the returns, the growth and the deployment of capital for that portfolio of assets. They are the ones that speak to owners that make deals. And occasionally I'm going to get involved when it's a bigger deal and I want to know more. But generally speaking, our investment partners, investment directors are the ones that are making the investment decisions. And also.

So I was going to ask you, how do you differentiate yourself from PE firms?

First of all, the smaller the company, the harder it is for a P firm to run. So it's rare we see P firms coming in the sub $20 million market because often putting one of their management teams and the way they run business, there's not going to be enough scale to warrant the effort when you have $5 billion to deploy. So we run into them less. And also in our field, we provide a very attractive exit strategy for owners. We keep our businesses forever. You sell to us very rarely are we ever going to sell a business only if it's the best thing to do for the business. But as far as VLsoft is concerned, we want to keep all our businesses and basically we buy, we hold the business, we invest in the business with a 40 year horizon. We make investments that might not pay off for five years and we buy businesses that we expect to stay around for a very long time. That's a very different strategy than a company that's going to NFP firm that's going to buy a business with the goal of selling it and five, six years, you're going to make very short term investments. You're going to make cuts in staff, you're going to run things very differently than we would given our model.

It's like a bootstrapped model at scale because you're really disciplined about how you run those businesses.

We have a Valsoft system, so a playbook that we apply and we have best practices on how to manage these companies. And we have leadership summits that we run to educate all our CEOs on how to better run their businesses. Also this is something a lot of that we learned from our own experiences. Like sometimes running a company is a very lonely experience. You're at the top of the company and everybody listens to you and you don't really have the peers to run things by. And we bring these companies together and we give them like a network of peers that can help them. It makes their lives and their careers more interesting. Like I've had this saying here, people make decisions based on what makes their lives better, not necessarily always what puts the most money in their pocket. So a lot of owners care about money, but they also care about their employees, their future, their careers within the acquirer. So there's a lot of things we bring that private equity doesn't necessarily bring to the table.

I get a sense of some of that, that you focus on the smaller deals. The financial structure I'm still a little lost on because you said 40 year horizon you're investing on. I'm familiar with the firm operating on a structured fund, investing in, with the time horizon to exit. Then you have more of these sponsored activity. You got a search fund or a fundless sponsor and you're a little more ad hoc about putting the capital. And I've seen some interesting things around that where people find their approach of getting the Visa investor money. They populate and fund on more of an ad hoc basis and then realize the value on individual exits of those deals. But you have a really long term strategy. What's the mechanics behind that?

I'll tell you a little bit about it. Sold a few businesses. I was 27 years old, 28 years old. Got together with our partners. We're like, we retired. We were retired for like six months. Hated it. Absolutely hated it. So we're like, we want to work, we want to do something with our lives. The sense of purpose that work gives you is sort of important. And we're going to put this company together and our advantage is going to be our time horizon. We're going to do things that other people, given their capital structures, cannot do. We started these investment activities. A lot of things we do other people can do because we start everything with our own money. So it was all our own Capital. We started buying these businesses within Valsof with the intent to keep them and then these business would make us money and we would buy other businesses with them. And then we got an external investor in 2022, February of this year that came into Valsof and then Valsof now makes its own cash flows. There's no need for incremental capital. The cash flows the company makes is enough to fund the acquisitions we make. Eventually we'll take Valsof public, we'll retain a very large stake in vsof and Valsof will keep deploying this long term capital allocation strategy where we seek to build value for our shareholders for the very long term. The goal is not to sell it, the goal is to eventually bring it public. Whomever wants liquidity could have it. Valsef will retain most of its stake and will keep working at deriving value for shareholders.

Yeah, it's interesting. You want to build a platform that caters to these smaller businesses and supporting their acquisition strategy while you broadly support their initiatives with your operational efficiency framework. Sounds like a pretty cool model.

The same capital discipline that we bring to the acquisition side, we bring to the investment side internally into R and D projects, sales and marketing efforts, new product developments and all that. Whether we allocate capital internally or externally, we look at it with the same return criterion.

What do you think are like the real key things to making this work? Because I got a good sense of your strategy and I like it and it's getting me fired up to think of our own M and A strategy here. What do you think are those key things I want to understand ahead of time? What are my big hurdles going to be so I can focus on asking you better questions to get over them. If I'm going to go through this journey at this early stage where I'm at to build my acquisition muscle, what are these big challenges I'm going to encounter to get to your level?

I could tell you maybe a little bit of my failures, some of the failures I've had in some other parts of our business careers. So we own this other company called Valnet, another company sponsored by the Valsev Group with the goal to deploy cap but towards websites. So we own brands like screen rant, like moms.com, like Hot Cars and Gimme Sport in the UK, some very large web publishing brands. Early on in the development of this company, I tried to do the similar playbook I'm deploying at Valsof, which is buying independent companies, managing a decentralized fashion and make Good investment and it didn't work. The reason it didn't work was these companies needed to be very well managed to have staying power because the competition is so fierce that they are constantly attacked. And unless you have remarkable editorial ability or remarkable ability to drive advertising revenues and then redeploy that and great editorial and video content, these businesses tended to do poorly. So they would do good for the first year and then like second, third year they would like die or not do well. So then we switched the acquisitive strategy and we started developing Valnet's competitive advantage. So we developed the network of freelance content writers and we had 4,000 freelance content writers around the globe that could produce content for our properties in a very cost effective, scalable manner. And then we built the advertising engine that would power our properties to be world scale. So every time we'd buy a company, we could generate a lot more money than they did from the companies because of the ad relationships we had and the strategies we had around them. And then we started buying companies that were much more established and already had staying power and brand authority. So then we would buy these companies, we would plug in our superior content strategy and our super monetization strategy and then we would increase the viewership through our content, increase the monetization through our ad strategy, redeploy the capital we make into superior content, and then the business would start growing really nicely. Screenrant became one of the biggest publishing groups in the world and we have many other such success stories at Valentin. But the initial lesson learned was you have to earn the right to be an acquirer. If you haven't yet, you need to invest internally in your business to be strong enough to give you that.

Yeah.

And the lesson learned, number two, is you have to buy businesses that have staying power. Because often when a company goes through the acquisition process, it's gonna be mismanaged for a little bit. You go through some team members, don't adapt well to the new choir. And the integration process can be tumultuous. So you need to buy companies that on their own have staying power. They're not fickle. And these are some of the lessons I've learned in my career.

The thing that I'm picking up on is you deliver on those synergies. When you have a plan on these acquisitions and how you're going to drive value from it, basing it off those synergies, it sounds like you execute and deliver on those. How do you do that?

Well, we have. This is our job.

Well, most people don't do that. They talk about it and they don't and they pretend they do. And then people ask questions and that's not good.

We build a business acquisition thesis the day we buy the company. And then we have integration reviews weekly for a period of six months. And after six months we have a business acquisition review going over the results of the integration did our original six month plan panel. Two years later we have another business acquisition review. And this is something we do diligently for the 60 acquisitions we run. And we include large pool of team members in these business acquisition thesis and business acquisition reviews. What are the lessons learned? Where did we mess up on this one? So we constantly get better and then knowledge. If you're running one company, you're learning from one set of experiences. If you're running 60 companies, you're learning from 60 different sets of experiences. If you're able to have a good strategy to share that knowledge, then your knowledge should compound much faster than the knowledge compounds of the independence. And you should become stronger and stronger over time. And this is something that's true for everybody that acquires businesses. And learning from that for your future acquisition activities is very important.

How much of this is you hands on and I know it evolves from the early days to where you're at now, but really getting the right people in the right seats, I almost feel like there's. You need to build a team to execute this. I'm curious who the key people are there and then we can get into.

The knowledge sharing it's tools, process and people.

Yeah, exactly.

First of all, if you're not using Deal Room, you don't know what you're doing. You have no chance. Then your process and how prone is your process for continuous improvement and success? So you got to have the right process to be successful. And the most important thing overall is if you have the wrong people. No matter the quality of your tool, you could be using Deal Room. But if you don't have the right people, you're not going to be successful. We have a culture here. We call it meritocracy. So our goal is to be fair. Our culture is not a family. So not everybody is welcome no matter what. Our culture is a sports team. We're going out there to win. We're going in the marketplace. It's an environment where people are competing with us every day and coming to eat our lunch. And we're out there to win. And to deserve to be a member of the team, you have to earn your spot on the roster and you have to deliver for the other members of the team because they all want to win. That means that the spoils got to go to the people that deliver and sometimes people that don't bring enough to the team. We have to move on and there's just not the right person at the right time for that team to win. And being fair in a company, in an investment organization is very, very difficult. It's much easier to say than to do.

Yeah, I. That's a really great way you put it. I think it's the right philosophy is you need that competitive drive and building it more as a sports team.

This is the reality of the markets we operate in.

How do you share learnings? Describe the way you compound learnings into a way that gets people up to speed faster, driving value faster.

We have two leadership summits that we run every year. We're bringing leaderships of all our new and existing companies together and share explicitly over three days. It's an off site environment in a nice environment where people come, they're looking forward to it, they're there, a bit of a vacation, but they learn at the same time. And people that have gone through certain interesting experiences are going to share that with everybody else. And then people are going to share the results and the performances of their businesses and other people are going to ask questions. So there's these official forums. Then we have groups where leaders are encouraged to post and to contribute to the community within their groups. Like in the R and D groups, the R and D leaders are going to contribute knowledge there M and A people. We have investment seminars once a month where we go over a lot of the deals we looked at. Okay, did we bid the right amount on this business? Did we underbid? Did we overbid? This is also. We'll do a lot of our business acquisition reviews during these monthly investment meetings. And these things take time, but we find they bring tremendous amount of value because the rest of your month becomes a lot more efficient. You could know how to allocate your time units a lot more efficiently with this information, time management.

Because I don't see how the hell you could do all this. I was curious on what gets delegated like those holding those kind of programs and development of it. Is there like a COO you have that does a lot of that or.

We have a very large and quality group of people and all that is a community effort. The leadership summits. It's going to be 10 different people contributing data or 20 different people contributing. It's just we only put the Schedule together and invite people and then it doesn't come from the top. Valsoft is a decentralized. So we have a lot of CEOs within our business that probably would have the ability to do my job. So it's a very deep bench of talent here.

Yeah, you got the culture.

And my role is predict the things that could hurt us and sail the ship in a way that will avoid us going there.

Look around the corner and guide the direction forward.

Yeah, and constantly look at deepening the moat that's around our business. What trends exist that could make us less competitive and what do we need to do to become more competitive five years from now? These seeds need to be planted today if we're going to be successful in the future. Look at the biggest market caps in 2000. How many of those are still the biggest market caps today? Or look at the biggest market caps in 1980. How many of those were still the biggest market caps in 2000? The answer is usually none. Companies die. The job of a CEO is to make sure that your ship is strong and you foresee these events. And capital allocation and how you orient the capital allocation of your company is a very important job for a CEO. And if too many CEOs are poor at it, I try to be good at it. Often CEOs race through the ranks of the companies because they're professional organizers or they're great leaders and I think those skills are necessary. But as a company scales the capital, how what you do with your money is very important and how effective you are at deploying that is very important.

Any big advice for companies that want to do roll ups?

My biggest advice would be before you get into M and A. Most M and A is destructive to shareholder value. Most companies are going to buy in years. Like you saw. Deal making in 2021 was an all time high. 2021, where deal making was at an all time high is also a generational peak in valuations. So most companies bought companies at all time highs. So a lot of that M and A is going to end up being destructive to shareholder value and a lot of that is going to lead to these companies being weaker as a result of those M and A efforts rather than stronger. I would say read a lot about this, about the trends and who was successful at it and start with that. Rather than start with a blank sheet of paper, start with who was successful at it and identify patterns in the behavior of these companies. So read about that. You're not acquiring just to grow. You're acquiring because you will do something with this company that will make your overall company stronger and better and improve your. The forward trajectory of your company. Acquisitions for purely growth are usually not good either. So put some thought into it. It's not always obvious. And then you look at M and A this year now, Q3, Q4, 20, 22, it's at a very low level. Whereas right now is probably the best time to start buying because the prices are lower and there's less buyers out there. So now is probably a good time to start looking for M and A.

Especially if you got cash.

That's the thing. It's harder to come by these days.

Yeah, I want to learn. I wish we had more time. We'll have to save for another conversation because I can tell I'd learn a lot about negotiations from you to get these deals structured and across.

We could talk again and go over our process and Lois and negotiation discussion with sellers. We haven't touched on that. That's another side of the art that's important.

That'd be a lot of fun.

Convincing somebody that you are the right hold for their business, which is often their most important asset and it's something they've built over 10, 20 years or more of their life. And convincing them that they need to join force, which is the right thing for them. It's difficult and it's not an easy process. I could guide you through how we do it. I think there's also a lot of data there that is interesting for people that want to get into acquisition.

We'll get it on the books for a sequel. But before we wrap things up, Sam, can you tell me what the craziest thing you've seen in M and A?

The craziest. I could tell you two of the best acquisitions I've seen. One of the best acquisitions I've seen would be YouTube's acquisition by Google and Instagram's acquisition by Facebook. Those were legendary value creation acquisitions. I remember Microsoft buying an ad tech company for $6.2 billion. I think it was in the mid 2000s, and they rolled off the whole $6.2 billion and it was 100% loss on that investment. A few years ago, I was invested in a company called Micro Focus and they went on to buy HP's software assets and then that destroyed the company. The stock was down, I think 90% after that acquisition. They completely defocused the company. They doubled the size of the company, but deworsified it tremendously. They bought assets that were a lot worse than the assets that they had. Those were very bad cases. I've tried to study mostly the companies that did good M and a in 2021. I've seen a lot of that. I think this is going to go down in history as a cohort where you're going to see tremendous amount of write offs and disasters. We would talk to companies and it's $5 million software company growing at 15% a year. And let's say you run this company at 30% margins, you'll make one and a half million dollars and maybe in five years you may double that or something. And they would want like 75 million or 100 million and they would get that in the market. It was just a crazy market where the stock valuations were so high and money was coming in so easily for these companies that they would just buy growth at any price. You were incentivized to do so. Whenever we see those behaviors, we try to stray away from them. They're very appealing from a short term perspective, but reorienting your company culture towards taking advantage of these temporary fluctuations, it's not how you want to run your affairs, I think.

Well said, my friend. I had the same sentiments about this is what's happened the last years. Definitely had a good way of putting it.

Late 2022 and 2023 are going to be very interesting because the cost of capital is higher. So discipline acquirers and people that have a sound judgment for M and A are going to do a lot better.

I'm waiting for it at the housing market so I can get a better deal on the house.

But thanks you very much for taking the time to speak to me. I really appreciate it.

No Sam, thank you so much. You helped me become a better M and A scientist. Those of you still with us, until next time, here's to the deal. Thank you for taking the time to explore the world of M and A with our pleasure. Podcast. We love hearing feedback. Tag us on a LinkedIn post, add a review on Apple podcasts. We'd love to hear from you. If you need help standing up an M and a function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email Kisan K I S o n a science.com or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources that's where you can also subscribe to our newsletter. Again, that's mascience.com here's to the deal. Views and opinions expressed on MNA Science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual. This podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions.