How To Create a Value Chain Ecosystem

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I'm Kisam Patel and you're listening to.

M and A Science, where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and what actually happened during M and A deals. Hello M and A Scientists Here at M and A Science, our goal is to continuously expand our understanding of M and A and use that knowledge to create top notch training programs and resources. By visiting mascience.com you'll find all the information you need to take your M and A skills to the next level. Get started by signing up for our free newsletter to stay up to date on our latest courses, upcoming events and expert interviews. Again, that's mascience.com I'm your host Kisan Patel, CEO and founder of M&A science. Joining me today is Brian Matthews, CEO at itel. Itel is a leader in the insured tech industry backed by gtcr, leading private equity firm out of my home city Chicago. Today we're going to talk about how to design and create a value chain ecosystem that can lead to M and A opportunities. Ryan, can we kick things off a little bit about your background?

Good afternoon Kissan. Great to be here. I spent first decade in banking in New York City as you had a lot of the consolidation on the commercial side working for Chase Manhattan, coming together with Manny Hanney Chemical, ultimately Bank One and JP Morgan came together. So it's an interesting time to be in banking. I then pivoted to the technology side quickly was acquired by a company, Verisign. And inside of Verisign is really where I grew up from a technology perspective. Initially involved in M and A and product, general management roles, marketing, et cetera. And then it really has spent the last 20 years in leadership roles, the last 10 years really in more president CEO roles of growth phase data and analytic companies where part of our growth play not only was organic development, but by rolling up other companies in the space. And ultimately all of those have had a successful exit either on the strategic or the financial side. So looking forward to the conversation.

Pretty well rounded experience from the banking, the operational experience, the M and A. Can you tell me what is your value chain ecosystem approach?

To me it actually goes all the way back to Verisign days when Verisign, they originally were a security company, but the Internet was going through a lot of rapid evolution at the time and they wanted to have a broader value chain. So two of the acquisitions they did, one was actually getting into the domain name business. That's the first step of the Internet. Get a domain name, then get it secured and then you want to accept payments. And so the company that I was leading at the time, sales and business development, was the leading online payment gateway company. So get your domain name, secure it and then be able to take payments. By bringing those together you have a broader value proposition for a community or customers. Fast forward 20 years and the last few opportunities I've had are really on different industries. Whether it be people based risk or more recently insurtech, these industries are going through dramatic digital transformation. Oftentimes there's point solutions along that value chain. As industries go through digital transformation, the ability to interconnect those different value streams or point solutions into a optimized frictionless solution for businesses or consumers is really a key part of the value proposition. Number one. And number two, if you're really looking at how do you increase value, increase wallet share, looking at that value chain, looking at adjacencies where you could expand either backwards or forwards to deliver more value, again, reduce friction and increase what you're doing with your customers is a great way to increase value and ultimately make you more valuable and may support an exit.

Okay, so we're looking at our business. Here's a cohort of customers that we're providing value to through an offering. And as we look at the broader ecosystem, we can look in different directions around it to identify other products and services that would add value to that customer.

Could be, what are the other services that the buyer that you're selling to today because you already have relationships, you may have an MSA or a master service agreement. So what are the other products, what are the other SKUs. But you can now take the market from a go to market perspective through that same relationship. Many times these value chains, they're very fractured. So you have these organizations that have vendor or procurement groups and they might be buying data or technology from 5, 10, 20, 30 different companies. And as these industries go through consolidation, as it goes through a digital transformation, those same customers are actually often looking to simplify their supply chain. And there is an opportunity to become more of a strategic partner to work with those companies to define value, define roadmaps and deliver. And they're actually open to having strategic relationships. Moving the sales process away from or together with the traditional vendor procurement office and really moves you from being a supplier, more of a commodity, to being a valued partner. And one way to do that is to kind of move up the stack with an increased value solution with multiple components woven together organically through partnerships or ideally through acquisitions.

Okay, I like that because it expands further that it goes beyond just looking at purely acquisitions, but looking at your customer. What is the ecosystem of products and solutions are using? And if you could provide more of it, it reduces the amount of overhead they have to have with managing all these relationships with different vendors and looking at you as a bigger partner in consolidating that relationship with your organization.

Absolutely. And as a part of that, we're all constrained for resources. Regardless of who your customer is, at some point there's always a resource constraint. And as a strategic partner, you have the opportunity, once you've delivered that value, to potentially take on more of that innovation, potentially start to again do some of the development on your side to solve problems they have, which is a point solution, or as a commodity you'd never be welcome at the table for those conversations. It really moves you up in the stack, delivers value, and makes you a trusted partner.

Can you give me an example of that?

So if I go back to the last company that I was at, a company APIs that we sold to Equifax, it had one core data asset, and we saw an opportunity in the background screening market. Right, the background screening market. It's about a $5 billion domestic market. Who knew about 600 different companies who were in that? So there's this whole ecosystem of end customers, and all of them were buying data to deliver a background check from 30, 40 different companies out in the industry. A very fractured supply chain. We had a differentiated data asset, but we saw the opportunity in talking to the customers to really consolidate part of that supply chain. Instead of them coming to us and seven or eight other companies to buy, we could actually aggregate that together. They could come to us as a single supplier, number one and number two. And importantly, as we brought those data assets in house, we could actually start to weave them together, gain insights, and actually solve problems to deliver to the customer. And so instead of selling them the raw material, we could actually start to go higher up and do the production work on behalf of those partners and sell them an insight or a solution as opposed to the raw material. So moving part of the work from their side of the balance sheet over to ours, increasing our wallet, how much of the wallet we get, because we're now actually taking on some of that work, and because we had all the data assets in house, we could do it faster. We could do it automated, less manual labor, and actually deliver a better product than they could do on their own and get rewarded for that. We went down a path. We acquired five companies over 24 months. We grew the business from, say, 50 million to a couple hundred million, and we sold that business to Equifax for 1.8 to 5 billion as a part of that process.

And the Equifax was the customer that you worked with and being able to create some of those solutions.

It was a channel. So going back to the ecosystem approach, if we think about it, there is data itself, in this case, the raw materials you're putting together into a product. There is then also selling it to your customers. In our case, it was background screening organizations. It was governmental, agency and other customers. We had both a direct, but really more of a channel model. And as we pivoted to a channel model, we worked with other larger data organizations that already had feet on the street that had contracts, that had trust. People like Equifax, Thompson, Reuters, LexisNexis is an example of others as a part of that distribution strategy. We always thought that actually might be a nice strategic exit for us. It provided us a time to get to know those organizations, understand the cultural fit, accelerate our sales and revenue, and in turn increase value for us and increase stickiness for our channels. Right. Equifax, Thomson Reuters and others. In the end of the day, that strategy actually ultimately played itself out, accelerated the timeline in our exit. And Equifax again was the acquirer in the fall of 21.

I like how that came together. Now, that was one of the themes we wanted to touch on in our interview is around the exit process. When you went through that, how much emphasis did you have on exit planning in the organization? Because obviously you're making some strategic moves with acquisitions. You're building around your vision, with the ecosystem that you're building. Is it, hey, we have this timeline. In X amount of years, we're going to start planning this exit, we're going to get this banker lined up. Or was it something that happened more naturally where you identified a likely acquirer is going to be one of these channel partners and happened more naturally.

Every different asset or business has its own life cycle. In our case, we're private equity backed. So generally private equity has its own cycle of kind of four to five years was the timeline for them to be able to return capital to their shareholders, their partners. And so that was generally the timeline we're working towards. And it can be faster or slower, obviously, depending on execution and macroeconomic environment. In our case, we had always assumed or likely assumed that the buyer would be a financial buyer, another kind of private equity sponsor. We did believe there was an opportunity to be a strategic buyer. And rather than have one or the other, we wanted to increase our exit optionality. We saw by establishing some of those channel relationships that would not only accelerate the value proposition, increase revenue, reduce customer acquisition costs, a lot of those key KPIs that you look for, but also would increase our optionality from an exit standpoint to your question, in the end it ended up happening faster. Right? Because in the end, that exit is not only driven by time, but overall kind of value that the shareholders are looking for return. We were able to actually get a meaningful return through the sale to Equifax in a time that was a little sooner than I think the owners had expected based on the dimensions of time and shareholder return. It allowed all those boxes to be checked. It happened again fluidly, organically and frankly it happened fairly quickly over the course of a few months. Part of it was accelerated by the relationship and the cultural understanding and the alignment between the acquirer and us that we had built over many quarters.

Have you been on part of an exit that was traditional bank talking process.

So not a pure exit Appris the company I was at, we went through a process owned by one private equity company, Insight Partners out of New York and we ended up doing a transaction were brought Clear Lake into the relationship and that was a fairly structured process. In 2019, 19 different bankers and strategic organizations and ultimately brought Clearlake to the table. But I wouldn't characterize that as more of a traditional exit. And then on the flip side, if I look at on the acquisition side, I've probably been involved with many more acquisitions that were a traditional sales process where there was a banker on the buy side over the last seven or eight years when I've been the CEO and taking this ecosystem approach, by and large we try to do deals outside of a process I was trying to.

Get into was the difference between the bank process versus this partnership approach. And a lot of the things sound like really good things in terms of understanding the culture, how these organizations are going to come together. And that's where I wanted to get a sense of how much value do you actually weigh on that? Because again, a lot of times you get so objective about running a competitive process to get the highest price versus do you end up with the best possible outcomes when it's dealing with the partner and friends and family that you know.

Now going back on how you framed the question, it was exactly right. How much influence did I have in those processes of friends and family versus more of a structured process. And fortunately it just happened again organically and that the numbers were there to come together, but I think there's huge value. You look at the number of M and A deals that you're aware of and your listeners will be aware of that fail and it's a high number. And the number one reason, at least from my experience, is really about that cultural fit. How do they come together? How do you have an aligned go to market approach? Is there a tech transformation needed? Do you kind of break relationship with customers? All those things are critical. The benefit of having this ecosystem model, the benefit of kind of embedding what you do from a go to market standpoint and enabling that expansive potentially strategic exit option and ultimately either buying or selling, buying a product or a solution that you've embedded in your go to market and or inversely selling the company to somebody that you had that relationship with. The culture is a common so you've reduced if not eliminated the cultural risk. The go to market motion is very clear. You've already been kind of working together on a go to market and messaging and customer relationships, so you've eliminated that risk. Oftentimes you've already integrated from a technology perspective, so really you start to check off the boxes or eliminate or reduce the risk and really what you're left with is execution. And so there's still risk, but you've dramatically reduced the risk from an outcome perspective if you can influence it that way.

I like that. These are the big risk items that define why deals fail. Being able to validate the go to market, basically validating the culture compatibility and the technical integration compatibility. Let's go back to the ecosystem approach. What are the benefits of an ecosystem approach?

One is it opens up kind of the overall tam. Oftentimes a lot of companies I've joined or companies I partner with, they offer a specific product and when you look at their competition, they very narrowly define their competition or their wallet through the specific service or product they deliver. If you expand the aperture either from a value chain perspective of hey, what are the spaces upstream or downstream, where what are the other markets I can potentially move into, what are the channels I can deliver it in maybe to get to new markets that I wouldn't otherwise you dramatically increase your potential tam, you dramatically increase your potential wallet opportunity. And obviously a key part of the exit process is not only what is your existing white space like, how much of the market and the products I'm selling do I have today and what is my growth path for the new buyer, financial buyer, strategic buyer, to continue or accelerate growth. And if you don't have enough TAM or growth optionality, that's either going to remove your exit or dramatically dampen the multiple you're going to get. Because you don't have the growth profile, it increases the tam, it gives you that growth optionality and ultimately it probably leads to a better exit for you.

I like that. Bigger tam, but also looking beyond that, that you create a bigger growth path for the potential acquirer, means they'll pay.

More money, that's on the sell side. And also as a company and as a leader, it actually starts to then map out what your acquisition strategy is. Because when you take that value chain or ecosystem approach, you're going to not only identify your growth path, you probably start to identify some Tuck in acquisitions that can accelerate your growth, whether it be through increased distribution or increased products, which is a faster growth path than just doing everything organically. So you have both the acquiring side as well as the sales side. I think benefits to that approach.

Very good. One of the other comments you made on our prior conversation was around bringing fresh perspectives. Can you tell me more about how that comes in play with the ecosystem?

In just my own experience, the last three companies I'm in, including the one right now, I had zero industry experience, whether it be people based risk, whether it be an insurer, tech, whether it be in the whole securitization process, which was a company before that had never been there. And one of the reasons that I was hired and frankly one of the things that found very early on is as you have, these founders or these leadership teams had done a phenomenal job building a brand, building kind of a deep moat around a specific product. And maybe one of the challenges is they actually were running out of tam. It was unclear kind of how to grow it, but they oftentimes were so close to the market and the product, they had a hard time really stepping back and really thinking of it from an ecosystem perspective or thinking about the digital transformation that either was coming or starting to happen and the implications on that for the business. And oftentimes as a CEO, as I step into these organizations, some of the resistance I see initially is actually from the really smart, successful employees who were there because maybe they tried something five years ago or maybe they've been so close to it. But now by bringing in a set of fresh eyes, you can start to ask different questions and really start to see the art of the possible through that fresh perspective. So it's worked for me, I've seen it work for others. It's something that I continue to invest in as I build out my organizations.

How does that work? Like how do you come to an organization and not be the guy to be disruptive, pain in the butt that frustrate people versus I'm going to create some bigger view on the possibilities for our organization.

There's no perfect playbook, right to go into it. Very much is going in building trust, having a leadership team and working with that leadership team to really set a clear growth strategy, to really set what is our mission, what is our purpose, what are our values in. It may seem a little bit kind of hokey to say that, but oftentimes these organizations that again have been very successful in a product or an area, or even have grown more holistically through an ecosystem, have gotten away from a clear view of a strategy, a vision, a mission and a purpose. And really going back to its roots and establishing that really provides a North Star not only for the leadership team to assure they're aligned in marching towards, but really to bring the employees along on that journey which is so critical. And so part of it is going in and just facilitating those conversations, breaking down sometimes kind of the barriers or the silos between the functional groups and really oftentimes getting already what's in some of your leaders head think of as a consulting organization, you know, coming in and really getting the best out of the people around the table and really packaging that up and getting buy in and then going to execute again. Not a perfect playbook, but that's the path I've taken and it's worked a number of times.

What would be the rough outline of a playbook in approaching that? Say I'm CEO of a new company, I'm trying to get them to really open up to potential. You're looking at, hey, introducing a strategy around building out and participating in a broader ecosystem for the company and delivering this greater value to the customers. What would that look like? I'm just trying to get a sense of, hey, get teams together, get them back to mission and understand their perspective of it. What was that going to look like?

Simple as it is, really having a working session, getting on a whiteboard and asking some of the simple questions like, hey, how do we grow? That's our mission as a leadership team. If we're not have a strategy and we're not growing, you don't need us here. When the answer isn't GE that we can't grow, we're running out of room or we've sold to all the existing customers, then you start to ask the next level question, well, who are our customers today? Hey, it's a cfo, it's a chief sales officer. Who is it? What are the water coolers like? What are the problems they have and where are they kind of aggregating together to learn? Is it different conferences, is it newsletters, is it LinkedIn groups? And really starting to look at some of those places to learn more about the industry, the emerging players coaching your team to have more thought provoking conversations with the customer. Not about what keeps you up at night, but hey, who's the most interesting startup company that's been in here in the last month? Who are the most disruptive kind of organizations that you're seeing? And you start to piece together those breadcrumbs to understand who are the emerging companies? What are the problems that they have? Where are those water coolers that you and your team and your sales team and product organization can start to go participate in? It really is a participation exercise to get there. And then with that, you can start to flesh out what are your growth vectors? Is it new verticals, new? Is it these adjacencies? And really from there start to prioritize. May start with a whiteboard kind of engagement and then evolves into a number of different tactics and programs to get the data and set a path forward. Kasan Right.

And I think you're getting into a question that I had coming up here was how do you go about creating a value chain ecosystem? It sounds like some of this starts with understanding this core strategy. How's that shaping? I don't know if there's any other details in terms of getting more specific to the value chain ecosystem.

The only thing I would add to it, again, maybe it sounds overly simplistic, but actually writing it down, laying down in an Excel sheet, ultimately into a PowerPoint on a whiteboard to literally understand each step in the value chain. When there's a data or a participant, who are they handing it off to? What are the underlying platforms they're using? Is there a platform or a workflow that actually the customer is using that takes all those elements and who are those leading workflows? Are those companies going through disruption? Are there opportunities to partner with those organizations to drive stickiness and again reduce friction, which I'm a big fan of, to deliver value, but really mapping it out in addition to then going out and asking your customers, really talking to bankers, talking to bankers that are out there to understand who are the emerging companies that they're seeing. Going to different innovation forums. And it really is about mapping it out and putting it down on paper and then continuing to iterate and learn.

I keep asking you stuff because here at M and A Science, we like to make basic frameworks so that it's easier to explain and learn and apply. So if I were to turn this into that type of framework, it sounds like step one is understanding the players in your organization. And when you reference water coolers, is that idea of understanding where the water coolers are or are you trying to create these water coolers to have more of those conversations between functions?

I think both are important. When I was talking about water coolers, I was more referring to it as an ecosystem perspective. Where are the respective places that customers and partners are coming together to talk to Learn from about what's happening. And Those can be LinkedIn sharing groups, that might be conferences, they might be customer advisory councils. There might be thought leaders that have their own kind of blog or newsletter, such as you do around M and A. What we're doing today, hopefully is a water cooler space for people who are learning about M and A. So where are those water cooler opportunities that either I can go learn from or participate in the conversation to start to get our point of view on? I think the point you were making, which is not what I was mentioning, but I think is equally as important, is who are those internal thought leaders? Where are those places that different functions are coming together? Oftentimes they don't exist internally. How do you create them is critically important.

All right, so we got internal and external water coolers.

We do.

And then from there we want to start documenting our value chain. What does that look like, by the way?

Yeah, so I mean, it could be. The way I think of it is again, think of a value chain and a classic Chevron step. What are all the steps left to right? What are the kind of systems underneath? And then it's actually starting to add logos. I'm a big visual person where you might have this three step or a 15 cent value chain, and then underneath each one, hopefully you're adding logos and that really becomes the types of companies you're looking to partner with or integrate. And as you start to understand one particular Chevron, you may find out that there's another vector you haven't thought about. It could be companies that are doing that in a different industry. It could be companies that are doing that, but you're only in the US market, but they're doing it in the Canadian market. And hey, can we actually move into the Canadian market by partnering with or acquiring that company? So by mapping it out and having rigorous conversations as a team, you start to identify those growth factors. And then you also can't be afraid. And this is key. Oftentimes people are afraid to reach out to competition or afraid and reaching out to other companies that may be in adjacent space. And you just got to get over it. You got to pick up the phone, you got to call them. This is what we do. What are you doing? How can we work together to again reduce friction and accelerate value for our respective customers? Is it a product integration? Is it go to market? I have one customer base, you have another. Maybe I can take your product to market. Ultimately, it may get go nowhere, but those conversations and peeling it back are just so critically important to continue to build on and iterate Cassan and many companies just don't do that well or are afraid to do it.

It sounds like we're documenting our customer journey here in some ways. And then you have the different products they would touch at different timeline. But then also sounds like there's different markets included in terms of the geographies that you're serving.

It is. It could be different markets, it could also be different verticals depending on the product or the service. You and primarily today you might own the financial services industry, but you're running out of market. But by going through it, you find out that, gee, if you took what you had and you tweaked it a bit, you can now take that same service into the chemical industry. Part of it is understanding those vectors what the competitive landscape in and where you may have an opportunity or remote to go do something different.

And then after we map all this stuff out, we're going to go talk to people, we'll go talk to the customers. Bankers find the innovation events and conversations are happening.

And in a minimum, when you now go talk to your customers, you're really positioning yourself as a trusted advisor because you know the ecosystem. Instead of just going in and just selling your products or services, you can have a conversation with them about other problems. And gee, there's are they working with company A or company B or company C? And surprisingly the customers will open up and say, hey, look, we've actually tried to work with all three of them and we think the best is company B and here's why. And it would be great if you could partner with company B. So the customer starts to lead you in that direction and support you in that integration. Or the customer might say, we've worked with A, B and C and they're all horrible. Is that an area you'd explore investing organically in? So understanding the ecosystem and not just talking about what you do allows you to have those more strategic conversations and ultimately positions you more as a trusted advisor. And it's surprising how much you can learn by asking those questions.

This is good stuff. When I think of our own business at M and A Science, we started off with a product in the software technology side and then we added educational products that stem from the following around this podcast. We built an online school around it. But then we look at the deal life cycle. There's all these other areas. For example, a lot of deals use reps and warranties, insurance. So in your example, I could look at that vertical and saying, hey, who Are the players there? Can we partner with them? Let's use that example. Maybe I go get the introductions, meet the different reps and warranties providers, you know, and partly I'm looking at this from a perspective on maturity of the companies because we're still an earlier stage company with just under 50 people and these other companies are going to be much larger and more mature. Is that a big factor in terms of considering this approach with the maturity of the partner ecosystems that each respective company has? And then you can teach me how to actually make it happen.

It depends, but I've been a part of companies where I was the big dog and I was trying to engage what's much smaller. And I certainly have been on the other side of that. It's always all relative. But $20 million company is the big dog for a million dollar company. And the $20 million company is a little dog for a billion dollar company. Part of it is, is if you're the little dog going to that big company who has their own revenue goals, they already have their own priorities, they have their revenue goals. And when you're going to them, you're probably an ankle biter and you're trying to get their attention. And so part of it is, can you actually go prove it out? So in your case, can you go to some of your existing clients who've done deals and work with you across the various things mentioned from a life cycle perspective and how you engage with them? Who do they work with from a reps and warranty standpoint? How do they think the two of you partnering together might add value to them? Because that's the key. And so if you can find a common customer to really start to understand that if you and company A could do this together, that actually would help me. You do that a couple of times, then you're going to the big dog with, hey, a mutual customer of ours would see value in us doing this together. You now have brought something to the table. Now you're having a conversation. I think part of it is proving it out or coming to the table with a hypothesis, ideally a hypothesis that a customer or potential customer has endorsed.

I like that a lot. But I like the part specifically about getting the input from the customer. And what would be ideal partnering? Going back to the M and a science example, our flagship product, dealroom is a software product to run a deal end to end. But in there that customer would likely pick up some reps and warranties, insurance. You know, is there an opportunity to make that more seamless in the product, pretty hypothetically speaking here for anybody listening is a part of the workflow. You set up a room knowing that you're going into a phase of diligence. Hey, by the way, would you like us to get a couple quotes for reps and warranties, insurance for you and we can automate that and send the inquiry out and have a lot of this initial information and just make it a lot faster, easier for that practitioner. They come back with some feedback that would be really good. That's a really dumb idea, but at least you get some validation on those partner plays.

Not only exactly right, but even if it's that original idea, isn't the right idea. They might say, hey, that's a dumb idea, Brian. But you know what? There's this other thing you can do where this other partner we have that you could think of. Your original idea may be the wrong thesis or the right one, but your customers may suggest alternatives or other things that you never even would have thought of. But now you're having the conversation and the customer at least thinks, here's a partner that's trying to do more for me than what they're doing today. Not a bad place to end up if that's all that happens.

How much of that are you doing versus relying on channel partner managers or whoever are supposed to be involved in it?

It depends on the journey. A lot of the companies I've been at and where I'm at right now, it's still early on. It's a lot of coaching because this is a new muscle that they're learning. Where I'm at now is it's been more of a direct sales model. The ecosystem is literally going through a digital transformation. The last two shows I went to, that was the starting slide at both of the keynotes from both the CEOs as digital disruption taking more of an ecosystem approach. And my team looked at me and said, you've been talking about ecosystem and business development and partnerships and we didn't get it right. But now here are these two key partners who are starting their entire presentation with it. We get it. And so early on it is often me with them either internally or going to those conversations. But over time in time is probably measured in months, not quarters is then people get comfortable like in anything. Like in sales. Once you've made the sales pitch a number of times and you've handled objections, you can now go sell on your own. So once you've now engaged with different partners, you start to learn that muscle and more of it's happening down at the business development or in some cases the product level, depending on where you are in the value chain. But that's a journey.

Okay, this is really helpful. It goes back to that point of the customer, having them be the champion of the partnership. Basically instead of having a hypothesis, working with the other provider and you speculating if this is go to market is going to work. Instead you actually get some validation from a common customer and get some of the guidance and feedback to shine light in other areas. How you could make it work if that's not the right fit.

It is. And a lot of what we've talked about, what we've pivoted the last 10 to 15 minutes really talking about an ecosystem and partnerships and new products. But I would tying it back to the M and a perspective is ultimately you're probably going to identify some of those partnerships from a distribution, from a technology, from our product that are good fit. You've now proven the value. You've proven you can take it to market to your existing customers and may shine a spotlight. Hey, this is really an acquisition we should look at. So it's really about increasing your wallet organically or through those acquisitions. And then on the inverse of that, through that process you may identify potentially strategic buyers who start to look at you in the same lens.

When do you know you get to that point? Is there a threshold, some KPIs that Hey, this should be something we actually look at as an acquisition opportunity or a gut feel?

It depends. And the reason I say it depends is what is your capital structure? What's your ownership structure? So if you're a venture backed deal that looks very different than if you're a private equity backed deal that may specifically have more strategic M and A as a part of the playbook versus if you're a founder and you're bootstrapping the business, your gut may be there. I think certainly it's a gut. But then the ability and the interest to actually go pull it off is not only based on your gut, but your kind of time horizon, your capital structure and the interest and motivations of your owners.

What's your preference selling out on this kind of organic, long term aligned sales process versus a banked competitive. I'm going to sell you on getting top dollar.

I think really the former everything's always based on your own point of view and your experience. I certainly have seen where you can get top dollar without going through a bank process. Because part of that is you understand the strategic value that you're bringing to that strategic buyer, you've reduced the risks that we talked about from a go to market, from a cultural, from a technology perspective. And as a strategic buyer, they may then be willing to more lean in. You have higher deal certainty, you have less distraction from management. And I think when you weigh all those out, the benefits of that approach outweigh the potential slightly lower multiple on a protracted bank process. That's my experience.

Can we talk a second about valuation? Because I'm curious from your CEO operator hat valuation is purely determined by who the buyer is. How much of this goes into your perception and understanding of what value means to these prospective buyers? And are you sort of thinking about that on an ongoing basis or is it more of now that we're looking to sell? Let me try to think about that.

I'm just, you know what, sincerely what I look to do each and every day, get up with myself and my team and build a long term sustainable business and ensure that I'm creating value for the customers, for the employees and increasing enterprise value. If I have a point of view, the last thing I want to do or can do is really try to build a company and make decisions based on one outcome. That one outcome being going public, that one outcome selling to a specific strategic buyer or to a financial buyer. Because ultimately depending on the time when you go to sell, one or more of those doors may close. And so do I think about some of those things. I do. But also I just need to be very cautious to make sure we're making decisions that increase the optionality and don't take us down just one path or another because it may ultimately not get us there.

I like that ultimately you're focused on the customer and mission of the company, but then you keep a peripheral open so that you're making sure options are open. I think there is a little sense of what the value generation is since you strategic plays do have a high amount of value that will be created for the organization.

Absolutely.

When it comes to deal execution, give me the secrets, the tips, the hacks.

On the buy side or the sell side.

Give me both. You done at both?

Part of it's transparency and trust. Just like in anything in business, whether it's a customer relationship or partnership relationship or the sales or a sales process, there's going to be challenging times and conversations. I think as long as you can be transparent about the situation, you have your fiduciary responsibilities and certainly conscious of those. But just being truthful in Canada is paramount in maintaining those relationships. Being responsive, I'M just a big believer that whether side you're on, you want to be responsive to the process, which goes back to building trust and people really not playing games. And therefore, if you're responsive and you're being transparent, when somebody tells you, tells you something or somebody tells me something, I'm more likely to believe it again than kind of gamesmanship. I think ultimately you get to the right and the best outcome faster by that level of transparency. That trust and that responsiveness is kind of one dimension of it. Secondly, it's about the right team. In my case, always having the right kind of CFO or financial partner, having the right technology partner and then myself as the CEO, is that right kind of core team that you need to go out and then obviously sometimes you're supported by buy side or sell side advisors. Be transparent, have the right team and be responsive to me are just table stakes.

Brian, do you think transparency plays out different between being on the buy side and sell side? Like for example, if you're going to buy a company and you're going to gut out the sales team, is that something that is key to be very transparent about? And then on the sell side, maybe there's some things there where there may be some news that's leaving that's not going to get recepted. Well, so you're not going to say anything until they ask about it? I don't know. Is there differences in terms of how the transparency rules are between buy and sell sides?

I don't think so. Again, my personal view, I've lived both examples that you've just said and when I'm meeting with the CEO and leadership team, when we're in the first meeting as it relates to the potential acquisition, Right. This isn't, hey, we're getting to know you, but hey, now we're having a conversation about an acquisition, whether it be in a formal process or outside a formal process. Probably the last question that first conversation I have is, hey, what are your plans? And it's okay if the answer is, hey, I'm looking to divert to take some chips off the table and go do something else, that's okay, I totally respect it. If they really have an interest to stay on and drive the growth, hey, that's great, let's have that conversation. But really understanding where people are at, what their expectations are, is paramount. Because you as the acquirer or the seller, if you have a misaligned expectation very quickly, either it's going to take the deal sideways and you're wasting a lot of Time or it's going to lead to problems post close from an execution perspective. And on the flip side, if part of your thesis is cost synergy versus revenue synergy, and on the cost synergy side, it could be product, it could be sales. In your example, I think certainly that's the conversation you want to have with the other senior leadership team. Part of our thesis here is going to be cost synergy. Then the key thing is, have you already made the decision? Because to me, if you're going to consolidate sales teams, you're going to really look at everyone in that example to say who is the right leader. And in many cases, the right leader may not be on the buying organization, it might be in the selling organization. And to me, a true leader and a true process is really being open to how you layer and leverage some of those resources in the asset that you're acquiring because they may be better than what you have. But that's a hard practice to get comfortable with.

You want to make it a real collaboration when going through this.

Hey, at the end of the day, we all want to win together. Let's make sure we have the best team on the field aligned. Sometimes you don't know who the athletes are unless you have that discussion.

I feel like when you're going through an M and A deal, it's like a game of poker. How do you read between the lines to get a sense of what somebody's really thinking versus saying?

You said it earlier in our conversation, Kasan. Part of it's good. Part of it is hopefully, if you've gone through this approach, whether it be the buy side or the sell side, you've worked with an individual or a leadership team for months, if not quarters, you've got to know who they are, who they are as a person, who they are as a leader, what their interests are, when they're making a statement and they're sharing, hey, this is as much as I can tell you, or this is what's happening. Part of it's a gut check. Then you know, who is this person? What are they representing and can I trust it? And is this a part of a team and a leadership team I want to be a part of? And that's gut. But that gut is based off of your experience and hopefully the time you've invested to get to know those other individuals and vice versa.

And this is where we want to frame things to be collaborative so ultimately everybody wins. And this is those big elements we talked about earlier around culture before we wrap things up. Brian Can I ask what's the craziest thing you've seen in M and A?

Well, the craziest thing I've seen in M and A or kind of lived through in M and A was back in the day. This is circa kind of 2000 right at the beginning of the year at the peak of the bubble and I was with an organization sub 10 million in sales. I don't even know what our burn rate was ended up selling for. It was a stock deal and the stock deal was like 600 million. But the day we closed we closed for well over a billion dollars. So to me that was the craziest. Selling for a billion dollar with no earnings or EBITDA on 10 million in revenue was the craziest thing I was a part of. But hey, back in 992000 there probably was a lot of that going on. That was just kind of my one.

Experience Tika the good times just before the bad. That is crazy. Brian this has been great. I really appreciate taking the time and teaching me a lot of things, helping me become a better M and A scientist.

Hey Kassan, I really enjoyed the conversation. It gave me a chance to pause and reflect as well. Hopefully your listeners get something out of it and look forward to working together in the future.

Those of you still here listening in, thank you. Till next time. Here's to the deal.

Thank you for taking the time to explore the world of MA with our 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 M and A Science Reflection 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.