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Viewing the Deal from Both Sides of the Table: Q&A with Group Leader Jay Hoffman

As a Group Leader at Volaris Group, Jay Hoffman specializes in discovering and acquiring software companies in the Arts & Culture and Non-Profit spaces. But in 2012, Hoffman was on the other end of the deal, evaluating whether Volaris would be the right fit for Gallery Systems, the company he founded in 1981 to help museums and other cultural curators manage their collections.

As someone who's been on both sides of the negotiating table, Hoffman is uniquely positioned to provide insights to those looking to find a buyer for their software company. Acquired Knowledge magazine sat down with Hoffman to find out what he's learned from selling his company, making his own acquisitions, and finding unexpected career growth opportunities at Volaris.

Selling a business you've spent decades building is a big decision. What originally brought you to the table?

I had an angel investor and a few other investors, which I took on in 1996. The angel investor was getting up in years, in his 90s, and he decided he wanted to exit. We had been approached several times and turned away people looking to buy the business, but my investor had been good to me, so when he was ready to move on, I was going to cooperate with him. And we decided to start a process.

Volaris had called me six years earlier in 2006. And at the time, I said, "No, we're not interested." But coincidentally, they called me again just about the time we were going to start a process. And so I said, “Sure. I’m interested. Let’s talk.” We were talking to a few other parties, but four people came from Volaris and met with me in mid-2012 and I was very impressed with them. And obviously, it worked out.

What set the Volaris team apart from other potential buyers?

The team that came down for the initial meeting with me in New York was transparent, curious, and humble. They answered my questions completely. I liked the fact that they didn’t beat around the bush or deflect my questions. I try to do the same thing when I’m talking to a business owner who may someday sell their business.

I could gather that one of the four people who visited me would be the person I would end up reporting to if the deal were to happen. I had not reported to anyone for over 20 years, so that was also an aspect of feeling comfortable with a company. I think that most of our potential acquirers assumed that I would leave soon after the acquisition, so maybe they weren’t thinking about the reporting relationship from my perspective. That made it easy to cross some of the potential acquirers off my list.

The way Volaris approached the situation aligned with my expectations and needs. The fact that Volaris is a buy-and-hold acquirer meant that we would not be going through this process again in four or five years. That was also important to me.

A lot has changed since 2012. What has surprised you about where your career has gone since Gallery Systems joined Volaris?

In 2016, I started to do acquisitions myself. I continued to run Gallery Systems as the General Manager while also doing some acquisitions. Eventually, I had five companies reporting to me and decided in 2021 that it was time for me to step back from Gallery Systems and turn it over to someone to run who had already been with the business for about 16 years.

I didn't actually expect that being acquired was going to change my career trajectory. I thought maybe I would just stay with Gallery Systems and continue to grow until it was time to move on. So, the fact that I started to do mergers and acquisitions, working with prospective acquisitions as well as companies that we acquired, really broadened my horizons and presented this unique career path. And the same happened with my team. It’s been rewarding watching them grow, being able to open new doors for them, move up, and expand their horizons. Most of them have stayed with me, which I'm very happy about.

You come from the art world, which is an intersection for culture, history, and finance. How does your appreciation for the multifaceted nature of fine art inform how you evaluate companies you’re considering?

Wow, that is an interesting way to “frame” the question.

I would say my team and I think holistically about the different elements of a business. Financials are of course important, and we spend quite a bit of time modelling the numbers, but we’re also thinking about a company’s strategy and leadership, their culture and market position. And why do the customers stay with a company and how do they compare to the competition? What is the company’s potential for long-term success? Perhaps this holistic perspective is like having an appreciation for the different elements of a work of art, but I’d also say that this approach to evaluating companies is consistent with Volaris and Constellation's best practices.

Selling a business you've built is a business decision, but it can also be an emotional process. How helpful it is to be able to put yourself in the seller's shoes now that you're on the other side of the table?

Since I started doing M&A in 2016, I’ve closed eight acquisitions and I would say my experience as a seller has come into play in all those deals, at one time or another. Sometimes it is in the initial contact and talking about my experience, while other times it may be during the negotiation of the purchase agreement when the seller raises a concern that I remember having myself, you know, when I was in their shoes, and can help work through the issue.

Having gone through the process of evaluating potential buyers, valuation, due diligence, and then post-acquisition integration, I can genuinely relate to what our potential acquisition partners are experiencing, the concerns and questions they have. But I’d say each member of our M&A and integration team brings valuable experience that is important to the success of any deal.

You pointed out earlier that your decision to sell was mostly based on the needs of your investors. Have you been in situations where a group of investors weren’t in agreement about what they wanted out of the sale process?

Sure, I’ve encountered a few situations where there wasn’t total alignment in a group of shareholders. It often relates to valuation expectations or deal structure. We are always patient and respectful and try to be creative. Volaris has skilled M&A experts who have encountered numerous scenarios in prior deals that they can leverage, so it’s not one-size-fits-all.

We’re able to cooperate and think creatively about how to structure a deal so that stakeholders with different goals can have their individual needs met as part of the larger agreement. Ultimately the matter has to be resolved by the sellers with the help of their advisors, but we always do our best to provide thoughtful suggestions and alternatives.

Your portfolio includes companies in the art world as well as several non-profits. How does a company’s market affect what they’re looking for in a prospective acquirer?

From the perspective of a seller, I would say strategic fit and corporate culture are important, regardless of the industry the business serves. But all our companies are software businesses, and there are a lot of commonalities even among companies that operate in totally different markets.

We help them with best practices and guidance, but the business leader continues to run their business their way, because we trust them to know what’s best. Volaris’s approach to autonomy in managing your business makes it easier to bring in a company and allows us to focus on things we all have in common. But for companies that are in a market where Volaris has a strong presence, we do see instances where our businesses make deals with sister companies to collaborate or cross-sell their products, which will depend on the industry they serve.

When selling a company, what would you suggest owners do to prepare for the process? What are some common hurdles you see sellers stumble over?

Selling your company can be a lengthy process. Learning about mergers and acquisitions, attending webinars about the M&A process, and doing your research is something worth considering. You are probably already being contacted by interested parties looking to engage in discussions with you regarding your exit plans. Do your own research about these potential acquirers.

As a seller, you are probably thinking about valuation and how you could improve it. Look at your financial metrics, including your EBITDA and think about areas where operations could be more productive or efficient. On the revenue side of the equation, taking steps to grow your recurring revenue and reduce any churn or customer attrition are things that will improve your business and probably your valuation.

Look at your management team. Hopefully you are surrounding yourself with A-level players with a combination of strategic thinking, domain knowledge, and passion, who are driven to succeed. Think about succession planning to identify future leaders. This is something that Volaris has made a part of our corporate culture. We like to see people coming up through the business who could run it someday.

Also, think about the due diligence process. Potential buyers conduct their due diligence on the financial, legal, and operational aspects of a company.  Pre-emptively do your own due diligence before an acquirer and address any gaps to avoid unexpected surprises when you get to that stage.

I could go on, but these are a few things to think about to prepare for the process.

In terms of hurdles, when the financial data needs to be pulled together and cleaned up, it slows down the process. It’s not terrible and we are patient and will give a prospective seller guidance and answer questions to be helpful, but having clean data that can be organized into an information memorandum is very helpful.

What’s the most important thing a seller should be considering when trying to find their right home for their business?

I think every seller has a similar long-term goal, and that is to find a home for their business that continues their vision, helps the business continue to grow, and will be good for their employees and customers. I think in the short and medium term, it depends on the goals of the business owner. If they plan to stay on and continue to manage the business under the new ownership, looking at the cultural fit for themselves would also be important. In any case, talking to others who have already sold their businesses to the prospective acquirer is something the seller should consider.

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