Strategic M&A Framework: IFS's Acquisition Playbook with Rachel Hindley

Today's episode of M and A Science is brought to you by Grada. Grada is the leading private market dealmaking platform. With its best in class AI workflows and investment grade data, Grada helps investors, advisors and strategic acquirers effortlessly discover research and connect with potential targets all in one sleek, user friendly interface. Now part of Datasite, Grada is bringing its platform to dealmakers around the world. From consolidated financials to to precise comps, Grata offers dealmakers full visibility into their markets so they can find the right deals faster. Discover more, win more with Grada. Visit grada.com to learn more. That's grada.com. Today's episode of M and A Science is brought to you by SMP Global Market Intelligence if you're in Corp Dev or for private equity, you know the pain. Good private company data is hard to come by. Everyone's still chasing clean, reliable, up to date data. I started out using capiq Pro for public comps but didn't realize until recently how deep their private company coverage has gotten. Over 58 million private companies, global reach and actually usable for real deal work. This isn't surface level. You get real metrics, ownership, financials, funding rounds, even asset level insights. So if you're still toggling between a dozen tools trying to piece together the picture, maybe it's time to stop guessing and start sourcing. Better explore this data@sp global.com pcd science and that's spglobal.com pcd or look for a link in the show Notes.

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Visit mascience.com and follow us on LinkedIn. I'm your host Kisan Patel, founder and CEO of Dealroom and chief scientist at M and A Science. Today I'm joined by Rachel Hindley, Vice President of Corporate Development at ifs. With years of expertise in M and A strategy and execution, Rachel oversees transformative acquisitions that enhance ifs's portfolio and market presence.

She has honed her skills in building.

Relationships with sellers, coordinating complex integrations and balancing the interests of IFS three private equity backers, EQT HG and TA Associates. IFS is a cutting edge cloud enterprise software company and a global leader in industrial AI, empowering businesses that manufacture service and manage complex assets to deliver exceptional.

Outcomes at their moment of service.

IFS combines organic growth with strategic acquisitions, including high profile transactions such as Copper.

Leaf and the loops to expand its capabilities and reach.

Today we'll learn how Rachel Henley and the IFS corporate development team aligns deals with long term strategy, integrates effectively and balances the unique dynamics of multi PE backing. Rachel, how are you?

Great. I'm excited to be here. Thank you for having me.

Thanks for hosting your office here and.

Welcome to the IFS studio.

Yeah, just outside of London. I appreciate you taking the time from doing deals to have a conversation. Can we kick things off a little bit about your background?

I'm from New Zealand and I started off my career at PwC in New Zealand in tax and then I seconded over to London like most Kiwis do. I moved into the M and a tax structuring team in London. So that was mainly doing larger private equity deals. And that's when I first got a flavor for the wider deal process. Became a lot more interested and curious about it and thought that I'd like to pivot, which is not always so easy. So I moved sideways into transaction services, did some valuations at PwC. It was always my sort of aim to move into corporate development. So I went out and got a little bit of fund experience and then managed to move into Corp dev in Royal Mail, a very iconic British brand and then moved over to IFS where I am today. Incredibly amazing team that I have and we do super exciting deals obviously like in AI now. But I did when I joined ifs, it was the first time I was working in software which I had made clear. But it was a very steep learning curve. Like it is literally another language.

But from IB Consulting, when you say funds, that private equity.

Yeah, it was an alternative investment fund.

So pretty well rounded background, got in, beat into the Corp Dev at Royal Mail.

Yeah.

Now at ifs, which is first tech.

Role, what was the big difference that.

You saw from doing these sort of traditional, traditional industries versus tech?

It was a huge move from professional services and that type through fun to Royal Mail. That's sort of an iconic obviously brand, but it's also a huge dinosaur of a company. And it's thousands and thousands of people. And moving to IFS was like why envisioned more of a corporate to be like, it's fast paced because it's growing rapidly and it's really supported an M and A environment. Whereas for Royal Mail they had so many issues in the core business that M and A wasn't necessarily as well a supported function. Whereas at IFS it is. And it's incredibly important part of the strategy. So it's nice place to be, it's fast paced.

And just seeing that they have a different emphasis on M and A as.

Part of their strategy, probably because as well we obviously have three very large credible private equity shareholders as well.

Can we talk about that? Because that's always interesting. We've talked about it before, just different timelines of investments can occur with them and that may have different influence. But how is it having three major private equity firms on the board?

Yeah, firstly it's incredible from a support perspective just the fact that you obviously have private equity shareholders who do deals as a daily job. Being in the M and a team of one of the Portco's, you just feel so supported. It's so motivating to work in an environment where M and A is a very important pillar of the strategy. That's one aspect that's incredible. And also the market downturn of the last few years in software, a lot of corporates would have been holding back on their M and A at that point. And for us we do very strategic M and A. We're not just rolling up onto a platform. It enabled us to continue to do M and A basically because we've got three pretty deep pockets as shareholders. We kept doing deals. We're not a high deal flow team because we typically integrate, but it enabled us to keep going and keep acquiring where it made sense, which is also pretty amazing given the market conditions have been so tough.

A lot of support interesting thing, these are like highly reputable firms, eqt, hd, ta, they're just great reputations across all three of them. I've seen that E firms tend to have different operating models and how they support portfolio companies, just little different approaches and whether they're very hands on, prescriptive and so forth. Do you see that? Is there some sense of there's a different way that they work and just wondering does that play out well together? Do you get a cherry pick and get the best of?

So eqt up until recently, obviously they've always been the majority shareholder. They took us Private in 2015. Since then it's been basically one of their most successful portcos ever. So instead of running the normal cycle every few years, they've rolled it into a new fund and brought on a minority investor. Which is why first it was TA and then it was HG in 22 and then just recently HG's increased their shareholding. So now EQT and HG are co controllers. Historically, EQT's always been, I'd say, just almost like the perfect balance. They are incredibly supportive. We liaise and we use them to bounce ideas off and get feedback and their perspective on valuation or DD and things like that. But they do let us run our own deals, so they don't heavily get involved in particularly smaller deals. They won't get involved in the actual deal process. We'll keep them abreast of our DD summaries and business plans as we go, but they're not wanting to be in the model and say, oh, you should be doing this or you should be doing that. There's quite a lot of trust there over the years. We've delivered pretty decent deals so far and having HG come on has been really good as well. Obviously they are a software specific private equity fund, so the depth of knowledge that they have is incredible in the software space, just having differing perspectives and differing feedback come back to you and even like, oh, have you thought about this? And you're like, oh, yeah, actually I haven't. That's pretty incredible for a corporate development team. And then ta, they're a little bit more hands off actually. But again, they all present a fairly united front to us. I can't really say too many bad things about them to be honest and really nice people.

Does it typically the majority owner have the most influence? Is that always the case or.

Yeah, it was until they didn't. So typically each of our deals, unless it's a very small deal, will go to board approval and each of the shareholders has someone on the board. So basically it is really a collaborative board decision. I guess at the end of the day, if there was a scenario where EQT wasn't on board and the others were, they could probably assert the control then, but actually there hasn't. Since I've been at IFS anyway, there hasn't been a situation where they've vetoed a deal over the others.

Have you seen any challenges from having three different PE firms on the board?

Yeah, it comes with a definite level of complexity in that they, I'm sure above my pay grade to know what their actual exit Time horizons are, for example, and we're a corporate business, we're looking at it from a long term strategic perspective and what makes sense for the business. But we do have to obviously interplay that with what the business needs to look like. Or you want the KPIs to be strong in the year before and leading up to an exit event. So for example, we've just had one. So this is a good time in the cycle now because it's probably longer till another exit event. But in the last few years there's a few factors that make it difficult. IFS is such a strong performing business on both the top nine and AD. But our rule of 40 is like very high. And therefore if you're finding a relatively large target, it's actually really difficult for us to find a business that's not dilutive to our KPIs or if it's loss making but of really strategic importance to the business. That would be really good for us long term. But it's loss making for the foreseeable next 18 months in a time leading up to an exit event that makes it incredibly difficult to meet the priorities of the shareholders at the same time as meeting the priorities of the business. And what we do to try and mitigate that is we come up with a pretty robust business plan that really needs to be able to show a path to profitability within the next 18 months to two years. I would say if we can show that it's of such strategic importance and it's going to be in the future very accretive for the business that helps with the shareholders. But I don't think, for example, if it was loss making and it was not growing, well, that would just be a no go. When you're looking at the rule of 40, there has to be some benefit. It can't be loss making and off port growth and not have a trajectory to turn around within 18 months. We wouldn't buy a company like that anyway.

That's so interesting. Now I get the complexity. HP firms got their exit horizon which is influencing their strategic view on the business. And then you have your business having its overall long term vision that they're building a strategy against. And then when you look at your specific investment opportunities, some could be near term accretive and some may be long term. Like all the AI stuff everybody's looking at right now, there's some distance out there balancing that out. It's.

Yeah, it can be really challenging and we're seeing that. Like you say with these, with the AI Ones what is easier for us is if it's a smaller, like if it was a product bolt on, it's an. It's an easier sell if it's not dilutive by virtue of materiality. So obviously ifs is pretty large now. That can be one mitigating factor. So if it is a smaller company and the dilution isn't there, then it doesn't raise the same flags as if it's a larger dilutive company but of high strategic importance. Copperleaf we acquired last year was of huge strategic interest to the business and we actually chased that for quite a long time. It was listed in a company in Vancouver and it was loss making. But we had a very, very robust plan to turn that round to profitability and I think we have. So it's one that we could see where we could execute well.

So that's a big goal. I think the common ground you mentioned is that 18 month or so horizon to become profitable.

Yeah.

And then you can take those bets.

That most people aim for that, don't they?

They say they do.

When you see the IMs, they're always like we are going to be profitable in 18 months.

That's true, yeah. It's interesting because right now it's just some of those segments like AI being one of them, they're trading at really high multipliers. What's your view on that? What's the census between your company, even the PE and everybody's looking at AI and making bets for it. I think that'll probably lend into just your view on M and A and just the different types of strategies and types of M and A that you execute.

I can talk to how we think about it in terms of archetypes but also then laying in AI now as well. So traditionally we look at it across four different archetypes and that helps us really set our investment thesis and we try and make that then a little bit like, okay, well if it's this archetype then it's going to be this way forward in the business integration wise. We have a product bolt on archetype and that's our typically smaller companies basically looking to fill a gap in our current functionality. It might come about because the Go to Market team are feeding back to us that we're in the lost feedback. It might be that a customer's highlighting a particular weaker part of the product versus competitors. If they see that on a consistent basis then that becomes a problem and then we have to go and say to the R and D team, okay, is this in your roadmap for the next 12 to 18 months. Okay, no, it's not. There's not enough resource there for it. Okay, well that probably makes sense for M and A to go out and screen to fill that gap. It can be challenging. And the value thesis is that you integrate quickly because it's just a product integration. You can rationalize and the synergy on the back office and usually on go to market. But the value creation is really just a little bit of a defensive case because you're saying, hey, we might lose these deals, we might be losing some deals if we don't have this functionality. It's really hard in a business case to say how much more are you selling? Because actually it's just part of IFS cloud. Like we have one main product and it's hard to then say, okay, you can sell this for another hundred K. Because realistically what happens is they have a price list and then you negotiate, the sellers negotiate on how much you pay for the product. But if you don't do it, then you might start losing deals. So it can be a difficult one. And we do it on a buyvy build basis. You look at it, okay, how much does it cost to build? Problem is that hits your P and L if you bring in more R and D resource. So actually doing M and A can be quite good because there's more funds usually on the capital side to do it as an M and A rather than through a build system scenario. Another archetype we look at is customer migration. So that's essentially where we want to either consolidate in a particular segment, often it's an industry basis. So we might want to just increase our market share in an industry. Our USP at IFS is that we're leaders in industrial AI, so we stick to six core industries like manufacturing, aerospace and defence, telco, energy, utilities, construction and field services. And we rarely stick to those industries. We don't really deviate too much out of it. So for example, we did a deal in aerospace and defense of a migration case. So we just wanted to take on some more share. It's obviously big airlines, but it's big deals but a smaller market. And in that case we would try and migrate the customers pretty quickly their products onto our product. Obviously there's a fair amount of churn that goes into that and then sunset the product as quickly as we can. And you can obviously get synergies through the back office and then that's through sort of enhanced deals from having better logos and better brand recognition. In the market then we would have market entry type archetypes. So that's where we're going into sort of an adjacent segment and they'd have their own go to market team. We'd want to retain that. They might be in a certain industry so have better expertise than we might because it's an adjacent segment. And Copperleaf was an example of that. So that was in asset investment planning. We're strong in enterprise asset management. That gives us a broader suite to offer to our customers. So like really good cross sell revenue synergies. Then you can also sell it standalone but also bundle it in with IFS cloud. We would still typically integrate for those types of transactions as well. And then the last one would be just a new strategic platform or like a new business line completely where we would be buying in the whole business to keep it. There wouldn't be a cost synergy there for example, unless it was back office because you're really looking to bring in a whole new line and drive a whole new go to market. So you're probably hiring more than getting rid of people. And the loops is probably a good example of that and a slightly, I guess segue into AI in that as with all software companies, we are having to move very quickly now into the AI space. And we say we are leaders in industrial AI. The market is just moving so quickly. So we acquired the loops as of just a month ago, which was a small Silicon Valley startup in the agentic AI space. But in their go to market is customer experience completely outside of our customer base. Obviously we were a customer, which is how we got to know them. And they obviously sell to IT service companies and that type of thing. What we've done is bought them not for their current go to market, but we bought them to basically form our entire agentic platform for ifs. And we are then going to build, or should be now building our own IFS industrial agents on top of this platform to be able to roll out to our customers as our agentic offering. If we hadn't acquired the loops and it's a small business that you end up like you said, it's just a different world of valuation. You're looking at something more scaled. It would be like hugely expensive, something that we wouldn't be able to afford to acquire. And this gives us basically like a 18 month, 2 year head start. It was already in our roadmap, but I mean now software companies can't afford to be talking about moving somewhere in 18 months because you would be totally redundant in that time we acquire these to say we need to remain valid valid in the market and not become a legacy software business.

I want to make sure I can recap the four different archetypes and let me know if I missed anything. The first one we covered was bolt ons and this is essentially acquiring a feature set that maybe this would bridge a roadmap gap. It's a business that you would want to integrate quickly. And you mentioned this a lot of times could be more about defensibility that hey, this could help us be more competitive and win more deals as opposed to betting on just pure revenue synergies from it. Those are the bolt ons. And then the migration cases are more focused on consolidation or you want to increase market share in a certain area. So this is more buying competitive product and you're likely to try to migrate the customers as fast as possible and sunset their technology so you can achieve cost synergies from it. Then we have market entry. This is when you're moving into adjacent spaces. Use the example of having the asset management product and then acquiring the investment planning which would be a nice adjacency that could fit into maybe a cross sell with your existing platform.

Yeah.

And then the new platform acquisitions when you're buying a whole new business line, something that could have a completely different go to market which is where we use the loops example and bring in agentic AI that's becoming a whole new offering to the tier customer base.

Exactly. Spot on.

I'm ready to go work in corp dev now. Like I got it.

This is software corp dev. Yeah.

The AI is interesting because you used the example of looking at it as a whole new platform. Could that fit in any of the archetypes? If you're looking at AI companies of our current archetypes. Yeah. Because you could say hey, here's feature set. But now maybe it's not like a whole new platform like the Gentic example, but here's like AI features. How do you think of just AI in general as it fits into your strategy? Is it more about building out this new products completely or is it also looked at as enhancing current products?

A lot of it is for our current customer base. So this is where customers that already have our ifs cloud product. When we look at ifs cloud, historically it was an ERP backbone and then it's enterprise asset management and field services management. It's all your sort of core software companies are still going to need all of that software. It's just that you'll then have all of The AI and agentic motions to go with that. So a lot of it is basically like not replacing what they already have. They'll still need to have IFS cloud for all of their systems of record, for all your asset maintenance and things like that. And the agentic and AI still need to be able to extract all of that data. So this is one of the things we're doing with the loops. That takes time and it's like probably going a bit technical but like they need to build these connectors through to IFS cloud because you need to have all of the data to be able to still then build the agents to go and orchestrate all of their use case. But they still need access to data. So you can't just say, hey, I'm just going to go and sell you our Agentic offering part of the suite. It's part of it. So it's like an enhancement and we're at the moment like IFS is going out and doing. Going out to customers, our larger customers and taking a team basically to go and customize AI solutions for them. But these are all current customers to start with. And then obviously for new customers it'll be an offering of IFS cloud with the AI packages along with them.

Got it.

This is coming from. I don't want to go over my skis. I'm not a technical person.

As you're talking through, I was starting to think of. We talked about just how integration. I was thinking about the first example. If it's acquiring feature sets for the bolt on, we'll integrate quickly. Trying to get a sense of like what's the variability of integration? Because when you do a whole new platform but then you use this example of AI like it's ultimately feeding back into overall platform. That's your system of record. There is a level of integration. Does it vary in terms of just.

Partially versus fully integrating for AI or just in general?

In general, I guess because. I guess AI just part of the piece integration.

Typically, as I said, we're not. This is why we don't. We're not a high deal flow team. We look at four to six deals a year, slightly increasing with the level of ambition. But realistically why that is is because we typically integrate. We are a strategic acquirer. Like it's all typically to enhance our current offerings for our customers so that we can sell more into the broader set on that basis. If I look at our archetypes, we would always integrate product bolt ons, migration cases and typically market entry where we don't Fully integrate. And an example of this was we acquired Poker a couple of years ago and they are a smaller connected worker platform. That was our first foray into something that was more frontline worker focused rather than ifs is more about the asset side of it. In that case there were two young guys that were the founders, really lovely guys and we have kept them standalone actually, so we haven't integrated them at all. The thinking was because it's not going to be necessary to integrate the product into ifs cloud it we have a connector so that you can sell it alongside or bundle it with ifs cloud, but you can also sell it standalone to their current market. It was thought that like they're relatively agile, like dynamic company, that sometimes that's better to hold standalone rather than overlaying larger behemoth of a corporate onto them. Obviously the founders will feel it and the core management because they still have to report through to ifs. You get the beauty of being able to leverage ifs for all its go to market engine and scalability and like knowledge. They utilize Sri Lanka to take on new resources. It's like more offshoring but they can still retain their a little bit more dynamic entrepreneurial style and it's gone really well. So there are some and I rarely.

Hear about this, usually it's cut it off, they've put the website, we've been acquired, we no longer are selling direct.

I was checking in on them the other day. They're going really well and beating targets and something like cross sell is always really difficult. And most people will talk about this in software companies. It sounds good in theory, but it's quite hard sometimes to orchestrate just because you have to get the sellers aligned to actually sell the product. And it might be a smaller company. So if it's a smaller company and it's lower ARR, are these sellers who are incentivized to hit their quotas going to take on a lower ARR product? If they can do a bigger sale elsewhere, they need to align incentives as well to do it. But I hear that it's actually going pretty well and they are doing really well as a business. Striking the balance between saying standalone but then having like a parent here who can actually provide value to you and support.

That's interesting. It'd be fun to talk to them because here's your organic path to growth that they had in mind. And then obviously you have a vision of how it's going to be accretive with your broader ecosystem. And a lot of the thinking is always let's focus on this new strategy. And then like I said, that's how all these tales of startups getting blown up by large organizations happen is because of that small company can be fragile at that growth stages are at. But I was curious as if there's so much more overhead trying to do both where you're trying to, you know, maintain their current growth but then also achieve the big drivers that you expected from them from larger company side.

I don't think so. You know, there are aspects to the setup. There are for example some third party contract or like into company contracts in place to make it arm's length that it's definitely not integrated. But I don't think there was a whole nother layer of overhead put on the business more. So they've managed to and there's probably a recharge in there, but they've managed to leverage ifs quite well as well in the areas where they were probably lacking. And there is that element like you picked up on there that there might be a different strategy that they were thinking about in their head versus there could be a strategy that ifs are thinking about and those two strategies long term might be different. So that's something that they would have to be aware of because they've been acquired. Like there's certain aspects being acquired. For example, we help them with a separate track on M and A. For example, we actually do help them think about their own separate M and a strategy for poker and what would make sense for them.

I talk a lot about buyer led M and A. I'm trying to create some kind of cult movement and a lot of it's just a lot of these podcasts and working with corp dev, they just see aspects. It's like why don't we put this all together in a framework and one of the pillars is connecting diligence integration. Because I feel like this diligence itself is the foundation for your integration planning. And I'm curious because you're coming from larger organizations, I know you have a bunch of different work streams. How do you do that? How do you approach diligence on a company like this where it's smaller in size, larger entity, cover your basis on the diligence and then set up for a successful integration.

In commercial diligence, we have a point person for every work stream and that person is where possible the same person on each of our deals. So there's now an M and a kind of commercial lead usually on top of their day job and where possible that same person is the integration lead as well. And this is where things are really we've refined it and it's getting a lot better is that we have a pretty seamless approach to it now because all of the people who are involved in the commercial diligence have all the knowledge, all the insight and then are the same hopefully set of people that do the integration. So ideally there shouldn't be this gap where things fall through the cracks between the people handing off the deal to the integration team and the function.

It's the same person that's doing diligence and is responsible for the integration.

Yeah, we try and make it fairly repeatable. For example, things like your underlying technology and architecture back office related and think on the support organization because that's agnostic to a deal. Obviously depending on the industry then that's where it differs. It might be a different R and D product team because if it's A and D, it'll be the A and D team and there'll be an and go to market team. So that's where it gets more specific. But in general, across a lot of the work streams that are standardized, it can be the same person. And that is working really well. Because we try and run pretty tight deal timelines because we involve so many people in the process. We want to minimize the amount of distraction both to the management team of the target and to our organization. We try and run them quite fast, but people are like they know what the process is. We have pretty standardized management meeting agendas. We only outsource the standard things of finance, legal, tax, insurance. Because we integrate most of our deals and because we are a strategic acquirer, not a platform. Roll up the people like product is usually one of the most important things and go to market. Those people have the most expertise in our business to be able to opine on it versus a third party because they're going to have to understand how it integrates into ifs. How does it fit with our current product? How does it fit with our current go to market? No other commercial diligence provider can tell us that we have the best expertise in house. So it works really well.

Keep it in house because ultimately you should own the work.

Yeah.

This is one that I've been thinking about is like customer diligence. Where in some of the stuff it's like looking at competitive products and there's like already this bunch of sensitivity about talking to the customers or engaging with them. I don't know if you've ever had any experience with that like getting A third party to.

So we always do voc voice of the customer as part of our diligence. So we do two types. We do one typically really early on, which is more outside in. So we'll engage a provider that's. There's many of them out there now, but that works with identifying either customers or if we want to know about, get glimpses from past employees, et cetera, as to the business. So we do that type of diligence, which is usually super useful as long as you get a good H10 interviews. And then once we're in the process, we run a customer diligence as well. So we'll get the management or founder CEO to do the warm introductions and we'll ask them for their top, depending on the size of the business. But we'll ask them for, say their top 10, 15 ARR customers and then they'll have to outreach to all of those customers with a kind of warm introduction. For this other outfit we use with the guise of a operational feedback session to say, we're like wanting to get feedback from our customers and it's all you can.

The customer doesn't know. They just think it's just, hey, we're gathering general feedback.

Yeah. Because it's warmed up by the management. Yeah, that's really effective because it is with a third party. So they tend to be very honest. It's not like they're like, oh, we better not say anything bad about the company. And then what is really useful as well is that unless there's something terrifying and we cut the deal, we package it up and then when we've closed the deal, we give it all to management because there's really good insights into how they can improve.

I just want one question on that survey. How likely are you to churn on the next renewal?

Yes, we do. It's part of it. Our supplier will have it in their report and will list like red, amber and green around their likelihood to churn.

This is cool to me. This is one of the biggest things and it's helpful actually hear how you approach it when working on these kinds of software deals. You want to know the quality of revenue, you want to know what direction it's going, what churn risk is. Does it still apply with these mitigation deals? Because this is like another one where if you don't have a predictability on that churn from mitigation, it can really throw your model off.

Oh, sorry. On migration.

Oh, sorry, yeah, migration, yeah. So on mitigation. Yeah, I'm sorry. Wrong. Migration.

Migration, yes. It's different because we can't ask them if they're going to migrate to us during a pure practice.

That's what makes it tough. So how do you predict it? Maybe you got past experience to reference, but that's one I've been struggling with.

The way we model it is I would say fairly conservatively. And yes, we look at past experience as to levels of churn. It forms part of the case. So you will have a certain proportion of migration each year, then you'll have a certain proportion of churn and then you'll have like a final churn because obviously the customers in five years time that haven't migrated are pretty likely to churn. But then you get the uplift as well on the conversion. These cases, a lot of them reality, they are likely to want to migrate because they want to be able to use the functionality.

So we hope that's why. When you model these things out, it's like here's bolt ons that are more defense oriented deals. Here's migration which is like you're betting on how much you're going to lose. And then you have market entry which to me sounds the most interesting. There's some clear cross sell and uplift opportunities there. Are there a certain category that's like clearly better investments than others because I feel like everybody still wants a high valuation, especially in software.

Yeah, but then there's that thing, like I said, product bolt ons are so they're actually really difficult cases for us to build because it is really hard to prove the value thesis. Having said that, there was one that we were looking at where it was just so clear that they were referencing it in loss feedbacks on deals. So where you have it actually referenced that this particular functionality is weak multiple times even if it doesn't seem to make sense, it just becomes a like, well, we have to get it. What we do is then we just we state the number of deals that have stated this and then you're like you're losing X number of arrangements because we haven't plugged that gap or we haven't got strong enough functionality. It's not the most exciting like you say, I mean doing a Copperleaf or the loops is exciting but they are still really important deals. And also just to consolidate the space sometimes if other vendors are going to do it, you don't want to miss out either. They've all got their place. But I agree it's more exciting to do market entry transactions.

Wouldn't the deals get more Complicated but unpredictable. The further away you get from your.

Core, there's a lot of leaning in in the business and that also means that there's a lot of executive lean in. Because when it goes to our go no go, which is essentially like the C suite signing off on a deal, every single C suite person has to agree and that means that they have to understand and have signed off on what their work stream has said either in DD or in the assumptions in the business case. So from that point of view it's incredibly important to that you have the expertise and then you have the executive to sign off where you get away from the core. Obviously you have less expertise in the business and that's where it can get a little bit more uncomfortable because we're used to having a lot of it being easier to say I really believe in this. And then you can trust that that person understands why it's a good investment. Once you get away from the core, that's when we start to bring in more third party providers was suddenly we're like, this isn't for example AI in the loops. We didn't have a strong agentic level of expertise in the business yet. We've been investing in a lot obviously of resource and AI. So our executives wanted validation from third party to say okay, well is this a defensible moat? Could this founder go off? We closed the deal, we don't manage to retain them and could he go and build in his garage in three months is that kind of thing which the business at the moment we didn't have the expertise to opine on. So we need to go out and get that third party validation.

So know what you don't know. Yeah, I brought up revenue and customer because that's my big ticket. And I'm learning right now, especially looking at that in diligence and bridging it over to integration. What's your big ticket in terms of really nailing down diligence? Integration. Set up the deal for success as.

In what's important from going from due diligence into integration.

Yeah. And just. Or just in general with the deal. Make sure you don't screw this up and things will go well.

Integration, if you click into it.

What does that mean?

It's interesting because I don't typically get involved in integration. Our team does origination through to execution and then we are obviously involved in integration from the outset because the very lead from the outside of the deal, the overall integration lead starts with us and runs with us right from the beginning.

They're There in the beginning, doing the planning as well. And then they're quarterbacking all those work stream leads that are, yeah, we co.

Lead basically the commercial diligence. Because realistically the integration head is the person that's actually going to be responsible for all those work streams going forward. So actually in a deal process, the Corp dev team and the integration lead, co lead, that's actually interesting commercial diligence which makes sense because that person is going to be the person taking it further. I would say in terms of the question, having seen and helping out on one of the integrations, it's so important to separate and it might sound very simple what systems integration is versus value creation. People talk about integration, they'll just say and we need to do the integration. But actually I think sometimes people are confusing what integration is. Systems integration. Some people just think it's systems integration. It's like, well our IT team run and project manage systems integration. That's integrating people, processes, systems, getting them on the email and all that kind of thing, invoicing and the practical elements which are very important. But the whole piece around value creation is really where you lose the value of a deal. You have a business and this is what I did learn in the deal process. Now, having seen integration, is that you go out into the business, we talk to go to market, we talk to R and D, we talk to everyone and we build our business case around what can we do, how can we drive synergies, how can we do cross sell, how can we, where are the cost synergies? And then you take that. This case is signed off by the board, there's an executive sponsor who's accountable for the whole thing and then you move it and then we close the deal and then integration takes over. But if you don't have a slick value creation plan which really is derived from all the points in the business case or how you're going to hit the numbers, you so quickly can lose value. Because our business cases, like I said, if you're Talking about an 18 month to 2 year turnaround, if it was loss making, you've got to really get out of the blocks pretty quickly. If you have to hire another 10 heads to help you sell, well, you need to get onto the recruitment. It's the value creation piece which is where it's so easy to lose the value of a deal. And you'd know from talking to everyone, but it's momentum. So if you're out the block slow, it's not the first year because usually there's Momentum in their own pipeline, et cetera. But if you're not putting in place all of the things that we wanted to do to drive the business case and to hit the numbers two years out, that's where you start running into trouble. Because you have to be on top of what each person, what each work stream said they were going to do. And it's all good that we talk about it during the deal and we're like, yes, we'll do that. We'll drive, cross, sell this way and we'll get these people and we'll get this team to help sell that. And then you're like, have they started doing that? No, they haven't.

It's like the integration plan really needs to be built around this north star of what the value creation, I guess, vision is. It then turns into an executable plan of the integration plan. And then you have your tactical stuff you got to do where people. And this week I hear the stories of people getting lost in integration. It turns into the checkbox activity because, hey, I downloaded this template off the website on how to integrate a company and this is what we're doing.

It's literally driven off what is in your business case. You can't just get a template and say, this is what is a successful integration. What did you say? How many deals did you say you were going to sell additionally next year and how are you going to sell them and what do you need to do to get there to sell them? That's what should be on your value creation plan.

You have that part of value creation plan which drives integration plan. I'm curious about the cultural piece because we haven't brought it up yet and it comes up in every conversation. How do you look at that part of it? Is there elements or just considerations around that part? Does that affect how you integrate a company?

Oh, yeah, for sure. And I use that example with poker. They were young, we wanted to retain their. They were in Quebec, like very different culture where you want to retain the people in the business. You have to be very careful, obviously, about culture. It's like common sense. I'm sure some people were, if you're going to remove half the business, you're at risk of removing the culture anyway. But the Loops is a good example. So they're a Silicon Valley startup that's like worlds away from someone, like ifs. And I was talking obviously to the founders every day and it's such simple things, but I was very cognizant of making sure that it was super important on this deal that we retain the team, the R and D team, they're mainly an R and D team in agentic AI. We needed all of them. One of the first questions other than there's the whole retention side around the monetary retention side but that's not enough usually for these types of people to retain them. It's like the way that they like to work. So there was really seemingly simple things but important to them. So we allowed them to keep MacBooks. We don't have MacBooks. I mean it sounds silly but like it was super important. Imagine having to make them go onto like a Dell laptop. I mean it would change their way of working.

It's so true. I remember I had a vendor and during the process they got acquired by big top 10 tech company. And it was funny cause I'm talking to the sales rep, our account executive and I was just curious how's the integration going? And he was like ah, this and that. Then they finally opened up. He's the one thing that pissed me off was they took away slack. And I asked him, I said well do you think it'll like impact your productivity is like huge. We religiously use slack. Now we gotta use this other crap product that everybody hates.

Yeah. And like people don't think about as something that's seemingly simple. Cause you'd be like of course you just integrate the system but if it changed your entire business's way of working for a small company as well. So we were, yeah, things like MacBooks.

Threw away my MacBook. I wouldn't be happy about it.

Even things like tooling, obviously we can't allow the whole, you know, the whole of IFS isn't able to just use whatever tooling or go and get trials of tooling to use in product. They were used to being able to do that to enable them to work quickly or efficiently or they were obviously in that world so they could, they'd be like oh let's trial this new product, new tool. So to a certain degree we have to within the. There's a bit of complexity around obviously making sure that the security protocols are there now that they've been acquired but allowing that as well. Which is different to the rest of the organization. But it's like you're still asking them to do a really different type of piece of work. So we were for that cultural retention of culture was so important. And I always make sure. This is one thing I do make sure in deals is that we stay close to particularly in founder led deals you stay really close to the founder that you're dealing with. Because there can be a lot of confusion. If it's their first rodeo, for example, then it's all new to them. Usually they should have a good advisor, but it's just things can be confusing. I don't know. They need to roll a certain amount of their shares into IFS equity. Do they really understand it? We bring in the expert and the equity to make sure that they understand it. You don't want to feel like you don't know who to talk to or like this bit was confusing that someone told me. But you also don't want 50 people coming at them either. So we try and make sure that we keep it streamlined and they know that they can ask us anything really and approach us and say, I need help with this. I think it helps avoid confusion where they don't know what. For example, she was like, oh, what can I communicate out to my employees day one? It's all that type of thing. It's just making sure that there's like continuity and transparency.

Basically there's a lot you have to be mindful with culture and that's going to help shape how you integrate the company. There's going to be some trade offs there. Your company is very distributed. Or is the company founded?

Sweden.

In Sweden.

It was an interesting story because it started with three guys from university who pitched a tent outside a nuclear power plant in Sweden and they were asked to do basically set up their really initial basic asset management system. So they just slept in a tent next to the power plant and that was the beginnings of ifs. So we do say that we try and obviously as a business gets larger it's difficult and you grow globally. But we do say that we try and maintain that original kind of entrepreneurial spirit. Like the resilience grit is some of our core values. And I do think it resonates. People are always willing to lean in, get their hands dirty. And I see that with M and A super supportive, always giving you time. And this is senior executives as well.

Resilience grit. The Swedes are always friendly. Is that part of the culture too? Friendly and forward maybe, yeah.

And they holiday for the whole of July, so that's handy.

I know I met a lot of them when I was in south of France the last couple of weeks.

I'd like to do that too. But no, we still have a strong Scandinavian presence, but obviously we have a large amount of employees in Sri Lanka now as well.

Companies diversified is your M and A team is diversified and decentralized as well.

No. So we are pretty much UK centric team. Actually a lot of the executive team are UK based now.

Got it.

We obviously sit closely to them and the inorganic strategy of the business. We do all of the deals globally. To be fair. We do a lot of North American deals. We orchestrate it all from. Yeah.

Wow. All central here.

Yeah.

That's interesting. That's a whole other interview for us to maybe even actually a group. I can think of podcasts I've done where it's completely decentralized to very centralized to in between. Yeah, you have to pick that up. We do a quarterly head of Corp dev conversation. Be a fun topic to break down of. Just.

I know because I can see how there would be benefits to having North American based people. Having said that, like when I don't know how teams work but we have for example our core support functions say of like legal tax finance. So we have a North American tax person who then supports us on. From a tax perspective, we're not doing that.

The thing I was curious about was getting actionability on these deals, if that was part of it. And I've seen it a lot with rollup. You're doing an international roll up. You definitely have localized biz dev folks that are really sourcing it and getting the deals actionable. How does that work with your organization? Are you directly there talking to the founders and getting them to that point that they're ready to sell? Is it business unit leader leading that? Is it CEOs of the firm, everybody?

Yeah, we get them on a Zoom.

Call with 100 people and we do.

A lot of origination in our team as well. But that is another great benefit of three massive private equity shareholders is that our network is.

They're all.

They're all.

That's a big part of their playbook.

Exactly. I mean look at how many they would do it to all their port.

How does that work in terms of pipeline? A lot of times a P firm has a pipeline that they're using to support their port codes. So do you have like three pipelines within the three different PE firms then your own.

We have a monthly check in with them where we run them through our whole pipeline, which is useful because if new things come on that we haven't briefed them on, often they'll say, oh, we know the CEO or someone knows a CEO. So it's just like the network is incredible for having three large PE funds.

Okay, so you get intros.

So we get intros through them. But obviously they do And I don't know exactly how it works because obviously they assess so many targets and then often they'll be like, oh, we decided this one would be better for you. They must sit there and decide which portco it would make sense for and then hand it down to them. So there is that angle as well. It's a big business and I find, I don't know if you find this, that software's relatively incestuous, that a lot of people know each other, they've all come from the big ones. A lot of them are SAP or Oracle or Microsoft. So then they have quite a vast network as well. So people will come to us in the business and say, hey, I was at dinner with such and such from this company. Quite interesting. So we do get a lot of people that network within the business as well. And then obviously the standard bankers and we're in touch with a lot of bankers, so we're well connected through the States, through North America and Europe.

What percentage of your deals are bank deals or in a bank process versus proprietary?

I'd say lower in terms of processes for us of late, we much prefer bilateral.

We call it bioled bilateral.

Same thing. We much prefer it because obviously we have the chance to build a relationship. Whilst we like to run deal timelines quite quickly. That's from the start of loi, like free loi, because we do strategic deals, we prefer to spend a bit of time being able to evaluate whether it makes sense for the business. So we as a team do quite a lot of work with our internal teams in the go to market and R and D, really evaluating whether it makes sense for us to even bid on the target. Obviously in processes you're under a lot more pressure because you've got a deadline and you just have to decide whether.

To go in or not after you've outbidded everybody else. You did I get the right deal?

And then you're like, ooh.

And you shortcut the whole diligence process so you can hit the timeline now, bid everybody else.

And you're like, we didn't do any diligence.

No, I just talked to a CEO of one of our customers and he was very adamant that he wants to spend a total of like 12 months relationship building before he's comfortable to do that deal.

I know, and it's so important and we are spending less time face to face than we used to, which I think is a positive since COVID to be fair. But I still think it's incredibly important to have the face to Face at some point to build the relationship.

How do you think, you know, before it was so much easier to be like, hey, I'm coming in town. It'd be great to go meet up for a coffee, a drink or something. Now you just need to throw in as part of the process of zoom call for an intro.

Yeah.

At least do that part to like.

All right, if we vibe good enough.

Yeah.

And then, hey, I'm coming in town. We grabbed.

Yeah. Which I think everyone's used to that now.

That was the one thing that surprised me, moving to New York because I was used to New York before COVID and you always just met people directly in person. That was it. Now moving there, that's the one thing that threw me off, was even though you're literally five minute walk, you still do a zoom call first. And then when you do meet up, it's almost like, hey, let's just vet out over a quick, you know, 30 minute slot. Then when you meet in person, the quality's there. And that's what I prefer. And especially if certain relationships with a private equity firm, a potential target, you want to get to that point. That's where I was. I was kind of curious about, like, how do you get these deals really actionable? Trust is obviously a huge element and it does take some time. One year is like, fair to say. I don't know what your timeline is.

Before and maybe it isn't.

Maybe it's just more of like frequency and just.

Yeah, it massively depends. Like I said, we tried to acquire Copperleaf for about two years for various reasons. Obviously it's listed, so there's challenges. So yeah, that took a long time. Poker, one thing that IFS does really well is that Darren, who was the previous CEO, Darren Roofs, he is executive chairman now. He's always been very invested in M and A and closely involved in a lot of the deals. And for example, with poker, it was a process. We flew the two young founders out here and Darren was there and he was CEO then and gave them the full IFS story and charm. It's also pretty impressive that the CEO of a large business is investing that time as well. And that's always been something that we've done. Our current CEO, Mark Moffat and Darren, they will always spend time with the founders and management and invest. And that gives people a level of, you realize that we're serious, but also a level of comfort around it as well, that we're not going to be flaky or that we're not serious. Basically.

You got to spend the time to build the trust. You flying them in. I was thinking about one of the PE firms when they invite you to the golf retreat. But not everybody's on private equity sort of model to do that. I think it's just to the time, the time to build a relationship. I don't think it's like a magic whether you're going to the sport game or just hanging out or at the pub.

Yeah, if you have time. I agree. And there are some types of deals where yeah for sure we touch base every so often and we're building a relationship. But I mean you must see now like with AI and the way the markets, the pace of the market is moving, you don't have a year to build a relationship with a company in AI. If you need that functionality like you.

I said maybe turn up the frequency saying hey, I gotta call, hey, you know what, why don't I come out in a couple weeks and let's spend some time.

And we did this with the loops we came in. It wasn't a proper process but they were talking to some people and we came in fairly late. We also again we delivered a vision to them. We didn't just say we're interested in buying your company. We. And this was again, Darren and Mark articulated what it would mean for ifs and what they could be part of in ifs. It was incredibly important that we retained them in this deal. And one of the founders was his seventh business. So there was a fair amount of risk that we wouldn't be able to retain. But they ended up really excited and bought into our strategy for their business, which was a different strategy to what their current strategy was. But I think by involving them being transparent, bringing them along on the journey and asking for their advice, basically because they were experts in something that we weren't that makes you feel part of the process rather than I just want to pay this amount of money for your company.

That's an interesting point where a lot of times you think according of pitching and just hey, here's this vision I have how we can grow together. But also being very open minded, then learning from that company, them getting a sense of it, that hey, there's actually reception for me to get heard and make a difference and what that could look like and make me kind of reflect on the pitches that I've received from different investors. And you don't feel that this is like a real two way relationship dialogue, that there's going to be influences on both sides?

Yes, because otherwise this is still like your baby, like most founder led businesses. So you don't want to feel like they're just going to rip it apart.

You're just following their playbook and trying to execute. And that's I think like a founder's fear is like you end up with a job.

Yeah, exactly. And are people transparent about what their job's going to be? And particularly for the loops. Like we went out to Silicon Valley and the core deal team and we hosted pretty much just more workshops rather than. I mean they're very young companies. There's only so much due diligence you can do. But what was more important was working out what we wanted to do with their product. That wasn't even set before we went. And then you could see the team collaborating with them to reach a conclusion which maybe they hadn't really anticipated themselves. That basically, actually we came to the decision that it didn't make sense to continue on their go to market strategy had we not done the workshop and discussed it. And everyone was just contributing as much as the next person because they're coming into the business as founders. They're actually coming into ifs. They have to roll a meaningful amount of their shares into ifs. So they have to be fairly aligned with where ifs are going in the strategy.

Pre loi.

No, this is post loi.

Oh, post loi. You're still continuing and having these like strategy workshops to.

Yeah, this was like strategy DD workshops to work out. Basically. It was a bit of a more difficult business plan to put together because you're creating something completely new that we didn't have a playbook for. So it's good.

You bring it down and then they're at least vested in to go execute on the agreed upon plan.

Yeah, it was super important.

I love how we went backwards on this interview. We went from completely backwards. We talked about the investors and we talked about integration, diligence and making the deals actionable. Completely backwards. Usually it's follow the timeline. So that's fun.

Hey Rachel.

So when we look at just the whole market and how things are evolving, how does IFS adapt its M and a strategy itself to stay ahead in a just fast moving software industry? But also the whole ecosystem seems to be moving pretty quickly with AI and other changes.

Yeah, it is and we're definitely seeing that at the moment. Our acquisition of the loops was one. It was much earlier stage than we would typically acquire smaller and with that comes more risk for a corporate. And we're PE backed, not VC backed. But what we're seeing. And what some of the PE firms that we talk to are saying is that because it's evolving and moving so quickly, it's almost like PE has to make some bets as well. It's not the same environment as it was. And I was talking to one PE firm that said, had I known what I know today, would I have made some investments that we did one year ago? And that seems like such a short amount of time, but that's how fast the market's moving. And so now it feels a bit more like you don't have time and you might have to. PE might have to be a bit more VC and make a few more bets and think, okay, maybe three of the six will pull off.

Hey, before we wrap up, I gotta ask you one thing. What's the craziest thing you've seen in M and A?

To be honest, I haven't seen a lot of crazy, really crazy stuff in corporate development, which is good. I'd say long time ago. I feel like the market's changed now. But I did see in a different type of world, an executive walk in and fire an entire team in the office in one day. So that was fairly.

This is like part of a deal where you just close the deal and it's like everybody's fired.

Not just a tame. It wasn't me.

You saw it firsthand that they came in and fired a whole team. How'd that go down? Was he yelling at them and just said, you're all fired?

It's a very weird environment, to be honest.

But yeah, we should go have a drink after this. I'd love to hear the rest of that story.

Sure. Offline.

Rachel, this has been a great interview. I appreciate you taking the time to have this conversation. You've helped me become a better M and A scientist. Great.

And I've loved it. Thank you for having me.

Those of you still listening, you're also a fellow M and a scientist. I appreciate you sticking through. I always love to hear feedback, especially from folks that can have attention span a lot longer than mine. To sit there and listen to this reach out to me. Love connecting with folks on LinkedIn. Actually was at the hotel and somebody just shouted out, said, hey, Kisa. And it was so funny because my daughter. And it was like. Because she does a lot of content with me. So I see it on LinkedIn.

So you're famous.

I know, it's so funny. He was with his family and I had a few other times before randomly. I was in Miami with my son getting gelato and somebody like I recognize you. So I thought it was like so funny that one.

Do you think you were cool or.

My son didn't Maybe my daughter does, but she doesn't let I feel like she's 14 so she finds her way to make a point. Dad, you're not that cool no matter what. Please connect with me on LinkedIn. Love getting feedback and the criticism. I take it I'm looking to get better at this. Until next time. 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 and do not reflect the views of any company or entity mentioned or 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.