Reverse Auction in M&A

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It's going great. It's great to connect again.

Glad we get to get together and hang out for a bit. Maybe we can kick things off with your background.

This is my seventh year doing corporate development and I've been pretty focused on cybersecurity. I've been at Barracuda for over five years and before that I was at another cybersecurity company in a similar role. I was at Fortinet, which is another public cybersecurity company. Prior to that I was an investment banker for over 10 years and I worked at RBC Capital Markets which is a mid market investment bank and I started my own little boutique shop called Centaur Partners in downtown Palo Alto. My background is got an MBA from UC Berkeley and I have a couple of engineering degrees also to my credit. Bachelor's in Electronics and Communications and Master's in Computer Science and Engineering from the University of Michigan At Ann Arbor, lots of technology and software focus. So I've kind of stayed within that. And then over my career and over the. It's only in the last few years that I've been much more focused on cybersecurity.

You got a lot of props with engineering degrees here at M and A Science.

Engineering is such a great discipline. It's helped me with my M and A job as well, particularly in the technology sector. So it does help me connect with many of the founders, their founder CEOs and also frankly helps me assist our product teams and also our CTO and doing a better job at evaluating the tech that we're looking to acquire.

Is that allowing you to be able to click down and look at more details? Is it more of the relationship building? Is it I can have a different view to problem solve pieces of doing M and A.

A lot of it is credibility because when you're talking to a founder CEO and they're technical, they feel like you actually understand what they're doing in a credible manner and you have a level of depth that others may not. It just makes the conversation and the relationship building easier. You can express the buyer's point of view better as well. So I think all of those things are helpful.

Connect and empathize better. Especially if it's an engineering based founder.

I'm able to connect with technical founders and there's a lot of those in software, particularly, particularly in the venture backed companies. There's many technical founders at the earliest stages and it's only a little bit later that after the company's done a couple of rounds of financing that you may have a more professional CEO step in once maybe you've gone to series C or later.

What is a reverse auction in M and A?

One way to understand reverse auction is to just think back about what an auction process is. And a simple auction process is when you've got a bunch of buyers, think ebay, bunch of buyers trying to buy a product here, you flip that on its head where you. And it's actually a process used by procurement departments, typically where you flip the typical auction process on its head. You tell the sellers we're looking to buy this and you try to specify that what it is that you're trying to buy with as much clarity and transparency. And then you engage with sellers. I've tried to institute that with a little more rigor within M and A within the M and A process. In the M and A context, this.

Sounds like an rfp. Does it go into that level of detail when you say you're specifying what you're looking for, are you writing a hundred pages out?

No, it's all part of a broader process. If you have a clearly articulated M and a process which talks about what you're looking to acquire. So you've got, as a company, if you've articulated and have a common understanding of what it is you're trying to acquire. And in cybersecurity it's particularly challenging because there's thousands of cybersecurity companies and it becomes really difficult to find the right company. There's a lot of marketing noise. So you've got to sort of sift through all of that. And it's important to at least have a sense of, here's some of the key criteria that you're looking for when you want to acquire a company. And it doesn't have to be the typical things like size and so on or geography, but much more. For us at Barracuda, it's what are the subcategories within cybersecurity that we want to acquire in? Because it's such an overfunded sector, I find dozens of companies that are doing or claiming to do very similar things. So it lends itself really well to this notion of reverse auction.

I got to be in a market that has a sizable market map. There's a lot of companies or potential suitors.

Yes, that's a really important point. Typically a reverse auction process would not work if you've got very different companies. It would work much more so in a hyper competitive, very well funded market ecosystem like cybersecurity. Cybersecurity has thousands of companies that are funded globally. It's over 2,000 companies that are selling products and 4 or 5,000 companies that are selling products and services. So it's a really large set of companies. The overall market size is about 200 billion.

Do you find a market with a lot of like companies and then you're detailing out what you're looking for? That's the first step. And it sounds like, I guess, how much clarity is that? Is it you bullet pointed on a one pager or what does a level of detail look like? What are those things on there?

I can talk about the specifics, but to answer your question in a brief way, typically we define a product market segment and you can do a reverse auction process within that product market segment. So it could be broadly cloud security. There's a lot of digital transformation happening today, so everybody's familiar with that notion. There's a lot of companies that are getting funded within the broad cloud security market. The challenge that I have as a corp dev guy is sifting through the noise to figure out, do we have product market fit this particular cloud security company versus this other cloud security company. So if we define cloud security as a segment, I can guarantee that in about 24 to 48 hours I'd be able to find about 100 companies that say that they're selling cloud security products. So I've got to go a little bit narrower than that as well. So it's really a question of looking at the market segment. So to answer your question, is it one bullet? So cloud security is one bullet, but if you look at that segment and you find a hundred companies, you can't talk to all hundred of them within a short period of time. So then you're going to have to refine your search criteria a little bit more to run your reverse auction process. Typically, I try to get it down to about a dozen or less companies that I want to talk to.

Oh, so you'll still shortlist it down to about a dozen? Yeah, you're talking me through this and I'm correlating it with, we have a business line, product firm room that's all self service, virtual data room, hundred players in that space. I'm trying to model this out because I want to take what I learned and put it in play here. So we do that. But you still will take the time to shortlist it and say, hey, let's really get this down to ones I'd actually want to buy.

And then you can decide if you're actually able to credibly sift through that list. If you're not able to without a conversation, then you should go and have that conversation. I would put these companies in buckets where, hey, can I credibly take a decision around whether I can disqualify this company as a target? And if I can't, then I'll keep him on the list and go and have that conversation.

If you do have to go have that conversation, what does that look like? How do you reach out to them? How do you talk to them?

I'm not shy. I'll reach out. I'll discover the name of the company, often through an industry research report or through maybe a venture contact or maybe someone in engineering or the product team. And often I'll just reach out to the CEO of the company on LinkedIn or if I know one of the board members, I'll reach out to him or her for a connection to the CEO. But My sort of, my, my sort of first instinct is just to go to LinkedIn and reach out.

Okay, what does the messaging look like? Is it like, hey, we're trying to shortlist you for this auction?

No, it's not like that at all. It's a very short message. I normally say, look, here's who I am and I do M and A at Barracuda and I would love to connect with you for a mutual business introduction. And I just keep it really short. I get very high hit rate.

So they're recognizing your company and your title?

Yes, exactly. And the fact that I say explicitly that I do M and A, most CEOs will respond. Sometimes there's a, there's few people who are not on as active on LinkedIn, so maybe I won't get a response back or maybe it's like a few weeks later. So in that case I'll try to go connect to maybe a salesperson within the company. Normally the VP of sales will be super responsive on LinkedIn as well. So I might go through the VP of sales if I'm not hearing back from the CEO.

What does a conversation look like? You sort of ask specific things to.

Get the sense I have my standard kind of core dev questions. So if you've been doing corp dev, then you have your standard set of questions. But typically I schedule these as 30 minute calls. After sort of the niceties are over, I spend the first five minutes telling them about Barracuda. So I make it a point to share first what Barracuda does. Many CEOs in the cybersecurity industry know Barracuda. We're a 20 year old company in the cybersecurity market, so we're pretty well known. But I make it a point to share information about our company so that they feel like it's not a one way street coming to the table with authenticity and transparency. And then I talk about what I do at Barracuda and why I'm reaching out. It's sort of a three part delivery, but I try to do it in about five minutes so that I have about 20, 25 minutes to listen to them talk about their own company.

And there's certain things you listen for to get a sense if this is a fit for you.

I have very typical questions. I ask about when the company was founded, when the product became available for general availability, or in software. We say GA and how many people are at the company, where are they located, how many customers they have, what does the product really do? I've gone to the website and read through what they do. But I like the CEO to tell me because sometimes the website's a little bit behind or they have a more nuanced way of delivering the competitive differentiators. Depending on where I am in the reverse auction process. I'm already very smart about the space because if it's the sixth CEO that I'm talking to, I know a lot about the market by that time. So I can start at some point asking very nuanced questions as well if I want to get into that level of detail.

And then you'll come to a conclusion if this company's of interest or not?

Oh, no, I don't come to a conclusion right away. I listen. I have 20, 25 minutes of listening and then we have a set of actions. I take that information back normally to the product teams and the technology teams and we triage next steps as a team internally and then we invite a smaller group for a next round conversation.

Okay, so I want to make sure I got the steps right. We start off with building a criteria, what we're actually looking for. We build a list of all the possible companies that fit in that criteria. Then we start shortlisting. We'll qualify them if we need to have the conversation.

If it's a large list?

Yeah, if it's a large list, then what happens?

If it's a large list, then it's like you said, that you shortlist, you qualify. I have the initial conversations and we decide to. Let's say I reached out to a dozen in the beginning and we've, after my initial conversations, we've shortlisted that down to maybe half a dozen names or maybe even three or four names. We schedule product demos. So we get an NDA in place with the company. I'm very particular about doing that. So I get an NDA in place. Without an NDA in place, I'd normally not have a conversation or the next level conversation because the initial one is without the NDA. So we get the NDA in place, have the product demo, then we triage again, maybe go back with follow up questions. The product demos are a little bit longer, they might be about 60 minutes long. And then we decide, okay, do we want to continue discussions here or not? I have at some point already articulated to the CEO that we are looking to acquire in this category. They're all coming to the table with that knowledge that we are looking to do a, do an acquisition here. There's a lot of clarity in the process where we're not looking to partner. So we're not having that discussion saying, oh, we're looking to partner, because that confuses things, just makes things more confusing. Sometimes I've heard deals say, look, we're not interested, we don't want to sell the company today. That's a disqualifying factor as well. Where they might feel that Barracuda would never be able to get to their asking price or they just want to execute for another 12 months for whatever reason. I have had that happen as well. Those kinds of companies are more open to having a partner conversation, but they might not be willing to continue with an M and a discussion.

Isn't that your job to convince them to sell?

Yes, it is. But the reason I'm running a reverse auction process is because I want to find the optimal company. One of the reasons why I might disqualify a company is if they don't feel it's the right time to sell the company. And maybe I'm a little spoiled living in the cybersecurity world. It's a target rich environment. So when you've got a target rich environment, then you can afford to be picky. If we decide for some reason that this is the company and we have to go after it, then it's a different conversation completely. But for the most part, the way Barracuda is set up, we're able to not have to pay the huge premium to the market multiples that are out there. And a big part of running a reverse auction process is so that you can control the pricing and the valuation as well in your favor.

We have an NDA sign. We have it shortlisted down to three to six companies. What happens next?

When there's a sort of an understanding, we're normally able to get it down to one company. We engage much more deeply with the CEO and a couple of key folks and then talk about valuation and strategy post deal. If there's a meeting of the minds around various elements and price is just one of them, I know people think that price is the big thing, it is one of the bigger elements. But there's many other things that matter and we try to suss out all of that during the diligence, initial diligence process. Often what happens is that you can't do a lot of the diligence pre loi. So whatever we can do pre loi we try to do. And some of that is cultural fit, product level high level product fit and product quality high level. Like you can't really do the deep drill down until you've produced An LOI and we don't produce an LOI willy nilly. We will go to our board and get an approval and get a letter signed by our CEO. Most companies are not, but I think some are much more loose with the frequency with which they send Lois. But we're not. We take it very seriously. Once we have the LOI in place, we go into exclusivity. Just like any process where if we have an agreed upon loi, then we go into exclusivity, which is where we do a lot more technical diligence, customer diligence, financial diligence. A big part of it is also making sure that we have fit with the team. Most of the deals that we're doing. And when we're running these reverse auction processes, it's normally smaller targets and most of them are for technology. So they're more tuck in sub 10, $15 million revenue. Companies having that engineering fit and cultural fit is really important as well. So we are trying to suss all of that out during post LOI exclusivity period.

Where does like the auction or competitive nature come into play?

The auction and competitive nature comes in, it's both internal to Barracuda and also external because it focuses everybody's attention. So first of all, it's a process. People know what it is that we're doing. So you have a broader framework where you've expressed both internally and externally that you're running a process. You can call it what you want, I call it the reverse auction process. But there's a process with a timeline and you're trying to get to an end within a certain time frame. You've articulated what it is that you're trying to get to. And the competitive part of the process is very much in the front end evaluating different companies. And we see that where companies do engage much more, if you are much more explicit in telling them that, look, this is what we are looking to buy, we rarely find 100% technology fit. So conversation becomes centered around how good a fit one company is versus the other company. Often we are evaluating three or four companies at the same time until we get to a decision. So there's a period, maybe eight weeks or 10, eight to 12 weeks, where there's a lot of conversation internally around the different competitive elements of picking one versus another. So it creates a level of focus both internally and externally. And a big part of it is also how well informed we become as a team. The internal team becomes much better informed because you're running this process over a really Short period of time. The competitive nature is not necessarily in what you would expect, which is the pricing dimension. It's also in how responsive people are internally, within the organization and externally as well.

I like how you explained in the internal view, where it's very constructed, the timelines are there and you're building the urgency, and there is essentially the competitive nature in the way you're getting to the target. On the external side. I need a little more clarity there. How do you communicate that?

Externally, it's always a dance, right? No two companies are the same price. They could be competitive, but there will be multiple differences from a product point of view, which may be what we're looking for, but valuation could be completely different. And there's so many behavioral elements that come into play or the history of the company. How much money have they raised in the past? You can't really use price as a. It's not your typical pricing that you would expect in a traditional reverse auction process of a commodity. Each company is very different, but it does create an urgency in the sense that you're signaling to the CEO of the company or the board that, look, barracuda is out there looking for an asset within this space. It could be you or it could be one of your competitors. And not only will we transact in this space, but we'll also set price. Whether you like it or not, it's going to change the market dynamics for you and we're going to enter this market and then you're going to have a bigger, stronger competitor. Now, depending on the hubris element of the CEO on the other end, they might say, go right ahead and go acquire one of my competitors and make my day. Or they might say, oh, we're interested. We'd like to be part of this process.

Lighting a candle over there.

Yeah, exactly.

That explains the why, too. You would do this is to create more of a fomo.

There is a FOMO element on the board side. And I always say this, and I think you must have heard this before. Most VCs act or live in only two states of existence. They're either in a state of fear or in a state of greed. We try to kindle a little bit of both. Depending on how the markets are today, it's more fear, but maybe 12 months ago it was more greed. If I engage in a process, definitely has them vacillating between both of those states.

What are the benefits of a reverse auction process?

I think it focuses everybody's attention. It sends a clear signal to the various participants in the process that we're serious about doing a deal here, we're not just having a conversation because we want to get to know you better. This is not, hey, we just want to get to know you and we'll reach out to you again in six months. It's, there's intent behind why we're having this conversation and it's an actionable conversation to have. And then also internally creates focus, it creates information. You have a plethora of information to help you take the right decision for the buyer, which you may not have if you're being more reactive and you're waiting for inbounds to come in, or you're waiting for the company to be available for sale.

Stirring the pot.

It is absolutely stirring the pot. Yeah, absolutely stirring the pot. The reverse auction process is not applicable to every market. If you have a very fragmented market, you can't really run a reverse auction process because if you don't have a dozen competitors within a submarket, you're not going to be able to really run this process. If you look at maybe your procurement software, it's a very fragmented market with a couple of dominant players and not that many smaller companies. And many of the smaller companies are fragmented by industry verticals, so they don't theoretically compete with each other. So it would be a little bit hard for you to run a reverse auction process in that market.

Yeah, I was trying to get a sense of when you get down to the wire and you got three companies that are really similar, lot of common, whatever matrix of point system that you have in assessing the companies, how do you get to that point? Do you ever have them actually compete on offer terms?

No, we never get to that point actually. Actually, at least we have not. The reality is that we should and we do to some extent, but the reality is that most companies qualify or disqualify at Barracuda. It's more a function of Barracuda, I think. And the markets that we compete in, they qualify or disqualify based on product market fit. Because Barracuda is a mid market focused business. So there are certain characteristics of a that are much more important for us, which we always have a hard time finding. When you're selling into the mid market, the ease of use and having a lower price point is really important. So the companies that we end up disqualifying often are selling to large enterprises and their price points might be too high. But we don't just disqualify them without looking at them because often the company might think that they are selling into the enterprise, but they have a really great technology and a great product that can also be easily sold into the mid market or the SMB segment. So we actually take it to that next level. But we've never had to sort of really pit two companies together in quite the way that you might be envisioning. It just gives Barracuda the optionality. After we've had these conversations, it becomes quite clear to us that there's a priority of which company we'd want to go after. Right. So if we can't get to our number one choice, we will go to the number two choice, at least in my experience. It's rare that we don't have a clear number one choice. We may come up with the conclusion that we just can't afford number one, it's just too expensive. Or the market dynamics are such that we won't be able to pay that much, we won't be able to get an approval from our board. I mean, we're very. We are disciplined around valuation as well. We pay premium multiples. But we will never overpay what we consider to be overpay if we can't justify the value based on what we believe we can drive the business to be.

How do you communicate this strategy with everyone?

You mean the reverse auction part of.

It or broadly just the reverse auction part of it?

I have a template that I use where I create a simple list of companies that we're going after and we have specific criteria that we're using to qualify or disqualify companies and I communicate that as well to the selling CEO. So it's not. We're trying to say, oh, gotcha. It's not a gotcha game, it's one of transparency. And I use that internally as well. We track each company, we're looking at different characteristics. Is the product easy to sell? How well will it integrate? Can we sell this product through the Barracuda channel? Do they have existing products, existing customers that are common to Barracuda? We look at multiple things and based on where each company lands, they move up or down our priority in terms of what would be the best fit. And in the end you're trying to get a sense of confidence. It's a probabilistic assessment. In the end, you can never be sure until you get to the next.

Level of diligence, when you move along the lifecycle. You took us through some of your initial diligence, essentially getting up to loi. How does managing this process post LOI look Like getting into integration.

Post loi, I don't think it's very different from another acquisition process. Post loi, the maximum benefit that you get from this reverse auction process is definitely at the front end of the process. The benefit kind of starts fading as you get into the second week of diligence. The other benefit you may get is that you're just better informed about the market. So there's a level of confidence that you have going into the process that, look, this company is in fact the best one for us. So I think, because another important notion that I like to look at the world when we're going to do M and A is what's your opportunity map look like? And the opportunity map when you're doing a reverse auction process is the list of companies that are targets for you. If that opportunity map is just three companies, if that's your number one area of M and A strategy, you got to pick from one of these three. Those three, none of them are a fantastic fit. You have to decide if you want to do an acquisition in this category or not. It just helps you inform your overall M and A strategy as well, where you may come to the conclusion that wait, valuation level. Then we actually ended up in these places last year where we came back and said, look, everything is too expensive and we do want to go after this category, but we just can't afford anybody in this category. So let's go to another category that makes more sense for us. We would definitely want to buy here, but the market is pricing this category at such a strong premium that financially it makes no sense for us to chase this.

You wait outward, then you shift focus in a different market that is more attractive. Do you deal with PE firms? How does that all fit in when.

You'Re looking at companies definitely been dealing with PE firms? We are Thoma Bravo portfolio company. So we were taken private by Thoma Bravo. We were a public company from 2013 to 2018. In February of 2018, we were taken private by Thoma Bravo, which is a private equity firm focused on the software sector broadly. And they have quite a few cybersecurity assets within their portfolio. So we are one of them. I've had the pleasure and the privilege of working with a number of the investment partners and junior folks at Thoma Bravo and it's been a pleasure to work with that group. They're very helpful and they've been super supportive of the corporate development function because when they had acquired Barracuda, they required Barracuda as a platform in cybersecurity for them to do more acquisitions over the course of the investment horizon. For Thoma Bravo, for instance, we've done seven acquisitions and one investment and they've been very supportive and it's been a great journey with Thoma Bravo.

So we get through that point. What you like better? Did you like working with the public company environment, doing corporate development or private equity owned.

It's just a different flavor as a public company. There were things that we could do. There was a little. There was a certain sense of autonomy that the management team had, but I think it was fictional. There was still a lot of constraints as a public company. There was only so much cash that we had on the balance sheet that we had to operate with. And the reality is being private equity backed, I would say being a Soma Bravo portfolio company, I from the corp dev side really benefited a lot because Thoma Bravo focuses on cybersecurity. So they're very well informed in the cybersecurity market. I was able to talk to a number of the folks on the Barracuda Thoma Bravo team, both at the senior level and at the junior levels and they were all helpful in deal flow and connections and contacts valuation conversations. Also, when we were looking at although we never did a transformational deal at Barracuda while we were, we still are a Thoma Bravo company, we did evaluate a number of deals that would have been quite transformational for us. We just couldn't get to the price that we or the other deal dynamics were such that we just didn't get to the end. But the Thoma Bravo team really jumped in and helped me a lot in those conversations. It was wonderful actually to have them sit side by side and help evaluate some of these larger transformational deals. It was a great experience. I'd do it again any day.

Well, it's interesting how you contrast it between having the autonomy, but then now you have the additional support, but then looking at the additional support as benefit. Where I've talked to some in similar situation where it didn't pan out that same way, they had a little too much Big Brother oversight and sometimes the oversight was more conservative than their previous profile. And that led to some friction, but it doesn't seem that way. I think it was more of we have an appetite for the acquisitions.

Thoma Bravo. Obviously there's a financial discipline that private equity firms impose on you right now. The reality is that Barracuda was already very conservative in terms of how we were doing acquisitions when we went private with Thoma Bravo, we didn't necessarily have to deal with conservative financial conservatism as a challenge. The bigger challenge for Barracuda from a corp dev point of view was really finding the right company with the right product market fit. They were actually really helpful in that because they helped with deal flow. I was seeing some deals that I would not have otherwise because I'm just one corp dev guy versus they have a pretty large team focused on growth equity investments. They're investing in the growth side in cybersecurity. They're also doing other investments and they also have other cybersecurity companies within their portfolio. So they have a much broader view and a much larger set of eyes, I guess is a better way to put it. They're just more eyes looking at the market. I'm like a one man Army Corp dev guy at Barracuda. So it just helped me a lot from a deal flow point of view.

Are they usually having you initiate the conversations then even when they identify a target or.

Absolutely. I normally initiate all the conversations but sometimes they may get an inbound from a banker which they'll send to me and they just send me a message saying, hey, if you're interested in this particular company, please reach out to the banker. So then I reach out to the banker and take over the process. So it was and it has been fantastic, super collaborative process with the Thoma Bravo team.

I'm thinking about when approaching these companies that aren't for sale. Do you have an approach for corporate recording companies where I don't have this immediate need to sell because it sounds like you're very direct and forward about it. You're not even battering around the idea of a partnership.

Having been a banker for 10 years, I think you develop a sense of relationship management. As an investment banker. You're trying to win business. It's really a fancy sales job, to be honest with you. Banker's job is really you're just a sophisticated sales guy and you're doing large financial transactions and trying to collect a fee on the deal. So having been a banker, it taught me how to be very humble. And also when you're trying to build relationships with CEOs and board members because they're all your prospective clients. So having that mindset is really important. I can't speak for other people, but I feel often corporate development folks lose that because you're in a stronger negotiating position. So I don't. I try to keep that mindset of openness and trying to operate in a friendly, transparent, I guess the right word to use is trying to be as fair as possible. In all my conversations, you can't be transparent about everything because you just cannot. There's things that are confidential that you just cannot share. But I think the most important characteristic I think about my conversations that I try to keep in mind is that I want to make sure that I'm treating everybody with fairness and I don't want to waste their time. And I try to keep that sort of an underlying theme in my conversations is that I want to be fair to you, your time and be respectful of you and your board and your company. That's really the way I like to operate as an individual. I hope that comes across in my conversations and in my demeanor and then it lends itself to a better outcome at the end.

What would be a good approach? For example, our business, where there's about 200 companies across five, six different verticals to be prospecting the opportunities. I feel like for us it's not the auction process you described, but a little bit more of a longer game on that because some obviously are going to be bigger versus smaller. As you're a growing company, you grow and can do bigger deals. What's the good approach to have those relationships or nurture them over time?

This kind of goes back to what we were talking about right in the beginning of our conversation. You need to have a broader corporate strategy in place. You need to figure out how does M and A fit into that. I believe that the answers will come to you if you have that broader overlying strategy and vision of where you're trying to take the business. So M and A is just a process and a tool that can help you get there.

What I'm getting is the strategy will help you prioritize where to go. You'll have clarity on that. And I think I'm still the banker at heart where I want to buy everything. But it's actually really important advice that's so fundamental in our industry.

And that's actually a really good comment. I'm exactly like that. Like, my first instinct is to chase the deal down. So you get into this mode when you're chasing the deal. It happens particularly when you have an inbound. Having a strategy in place actually gives you and running a reverse auction process gives you the focus to avoid that inherent deal chasing mentality. Right. Like you as a banker, you like to chase these deals down and you get and want to win right at the end of it. But if you have a strategy in place and you're running a reverse auction process, then you are in control of the process rather than you reacting to someone else's timeline.

End of the day, this is all about sourcing proprietary deals versus getting beat up in an auction process.

Exactly. So the reverse auction process, it's your auction process. The seller is dancing to your tune, so to speak. It's not exactly accurate because each company is so unique, but at least you're in control of the process.

I'm curious on your pros and cons versus an auction process versus proprietary. Since you come from the banking background.

As a sell side banker, you run a process. You are running a standard auction process where you're looking to find the best buyer for your business. So the reverse auction process is exactly the opposite. And the reason it came to me so easily was because I had been a banker. I was like, wait, you're not running a process. If you want to go buy a company in this category, that makes no sense to me. You've got to have a process where you engage with all the sellers. To me it was the most obvious thing because as a sell side banker, that's what I did every day of my life. The cons are that if you have a banker that's selling the company, you know that the seller is motivated to want to transact. The flip side here is that depending on the nature of the market, the FOMO might be happening at the buyer's side or on the seller's side. The hurdle is a little bit higher. Often. Let's just talk about specifics. If a company has just raised $50 million in a series B or something nowadays, some of these earlier stage companies have also raised tremendous amount of capital. The hurdle for you to convince that CEO and board to sell the company to you is really very high. So I would almost go as far as talking about the downside is that I would not even invite that company to our process. I would have the conversation. But it becomes very clear that particular target, if they've just raised a tremendous amount of capital, there's really no motivation for them to want to sell the company. That's the downside. We've talked about the benefits before. It definitely focuses everybody's attention internally within Barracuda and also externally the boards and the CEOs of these companies. That's point number one. It gets a focus around, around the team, even bankers. I'm able to articulate to various bankers that look, if you've got relationships, we are looking to acquire in this category and we're going to go and do a deal Whether you want to be part of it, Mr. Banker or not, that's entirely up to you. So it just kind of creates a sense of urgency on the other side. And then of course the other big element is in the end, a big part of what M and A is. It's an information arbitrage game, helps you get much smarter because you're talking to a large group of similar competitive companies at the same time. Obviously you've got your NDAs in place and so on, so forth. You become smarter as a team in the context of what's the right company for Barracuda to acquire.

That's the golden nugget I was looking for right there, because you can get a lot of interesting intel doing that. Atul, before we wrap things up, I got to ask, what's the craziest thing you've seen in M and A?

Gosh, I've seen all kinds of crazy deals. I think I've seen many crazy things across different dimensions. I think some of the craziest stuff I've seen on the buy side is different from what I've seen on the sell side. But on the buy side in 2021, some of the deals and the valuation levels where people were paying 100 times ARR, that was just mind blowing to me and I was just having such a hard time with that. It's not the craziest thing, it's the craziest things because it's plural. There were multiple companies that were acquired or even valued at hundreds of more than 100 times revenue. I struggled with that a lot last year. It's great to see a sense of normalcy return to the market. I don't know where we are in overall cycle, but certainly feels better this year as a buyer than it did last year.

I'm sure there's a lot of founders that are going to reflect on those as the good old days.

Yeah, it'll be good depending on which side of the selling sort of party you were on, whether you were able to get an exit or not.

Well, thank you so much for your time. I enjoyed this conversation and learned a lot from you.

I love talking about M and A, so it's definitely very much part of my DNA now.

Yeah, absolutely. Cheers. And here's to the deal. Thank you for taking the time to explore the world of M and A 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 reflect only those individuals who 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.