Insights on how to execute a better tech M&A transaction, from our CEO Mark Miller
Recently, Volaris Group CEO Mark Miller spoke at a virtual conference run by World Financial Symposiums (WFS). The focus of the event was Tech Growth and Exit Strategies: Canadian Tech.
Mark was featured on a panel of buyers to give practical insights and advice to help CEOs and founders execute successful tech M&A transactions. Below, we summarize his comments.
Interested in watching the full conference? View the event here.
1. What gets you excited about a company that you want to acquire?
We buy and hold forever, so we love companies that we think in five to 20 years’ time that the business will still be there – and that it will continue to evolve over that period of time. Since our time horizon is basically forever, that’s pretty important.
2. What is the transition like for acquired companies that join Volaris?
Once we acquire companies, they are run separately and we leave them alone – and with the exception of small tuck-ins that get bolted onto some of the businesses, we leave them alone to be run by founders or managers in the company.
The people that join us tend to be really excited about that vertical and their business, so you can see that enthusiasm spread throughout the whole organization, or at events, or through developers who are passionate about the problem they're solving.
Letting companies keep their brand is really important to us.
3. How do you think about the “right” time to buy a company? Given the COVID-19 impacts, has this changed?
For many companies we’ve acquired, we’ve had relationships with them for years. Generally, the timing of a sale is because something’s happening in their life, or it's because they need to get some help taking the business to the next level and want to preserve the legacy.
Generally, we find that the decision to sell isn't because of market conditions.
4. How should tech entrepreneurs prepare themselves for the M&A process?
Being honest with where your business is at is a big challenge. But it’s worth it to go through an M&A process, even if you’re not perfectly ready for it.
At the end of the day, you’ll learn something, get feedback, and can give it another shot. If you know very little about what the other side is like, it takes understanding to know what their needs are. It’s a journey to sell.
5. How do you think about valuation in this current environment?
It’s really interesting to look at the COVID effect on the numbers. You have some businesses that have been more impacted by the pandemic, where revenues have dropped off, and you look at their pre-COVID revenues and whether those will return to those levels post-pandemic. We look to make sure you understand those and that your expectations are realistic.
Then of course, some businesses have been positively impacted by COVID and were able to drive more sales. Understanding whether that’s sustainable is also important.
COVID has made things interesting for businesses in that you probably spend more time looking at the historical numbers and now these blips in time to see what the pandemic really meant to your business.
6. What advice can you offer to the audience on how to prepare for a successful due diligence process?
If you didn’t sort out key issues that really drove the valuation before the letter of intent (LOI), I’d make sure this was done and out of the way. There’s no real point of doing the other 90% of the due diligence process if you’re not comfortable discussing these key driving issues.
I’d also suggest you do due diligence on the people you’re talking to. Ask to meet with other people they’ve invested in, or whose businesses they’ve acquired. That gets offered to a lot of our sellers and surprisingly, they don’t take us up on that. It would be wise to do this, almost like you’re hiring key employees.
You can imagine that with your employees who have worked for you for years, or even decades, that you owe it to them to make sure they end up in the right hands. Valuation aside, that needs to be part of the decision, I think.
7. If I’m a CEO in the audience who has to choose between several offers, how would you recommend that CEO decide who to go with?
Our appeal to sellers would be that you can continue your legacy, your business, and develop your leaders with us. Looking at our business leaders, 75-80% of them are from within the businesses we acquire.
We have capital, like everyone else, but our scale of knowledge sharing is on another level. Just before COVID, we held an event in London where we brought 600 leaders together, around 50 conference rooms that ran several learning sessions over four days. It’s a chance to meet leaders and learn from each other.
We’re really trying to drive learning content and best practice sharing while keeping the legacy of the acquired business alive. We rarely ever see a brand go away that was created by a founder.
8. What does life look like after the deal – for the selling company, its founders, and its employees?
Since we let the businesses run very separately and independently, we measure them all the same way with benchmarks, so they can see how they're doing versus our other businesses. Then we share best practices to find insights seen in other software companies. So there's a lot of coaching, sharing, and benchmarking.
Since we buy and hold forever, we have time to work through those processes with them. When you leave a business to run independently as we do, it’s because we trust them. We’re not integrating them in, so we don't have any central resource responsible for them. The benchmarking allows them to see how they're doing. People always want to do better, is what we sense, and if you show them better ways of doing things, they’ll try to improve their businesses.