February 18, 2025 • 57 mins
Welcome to another captivating episode of the Life on Mars podcast by MarsBased! 🎙️ In this electrifying discussion, we dive headfirst into the dynamic world of mergers and acquisitions (M&A) with our brilliant guest, Clemens Rossberg. 🌟 Interviewed by our very own Alex Rodriguez Bacardit, this episode is a must-listen!
Tune in to discover:
📌The latest trends shaking up the M&A market in 2025
📌Key factors driving the recent surge in M&A deals
📌Expert insights on whether this growth is a lasting trend or a fleeting phenomenon
Don’t miss out on this must-listen episode! Get the scoop on what's happening in the ever-evolving world of M&A and stay ahead of the curve. 🚀
🎬 You can watch the video of this episode on the Life on Mars podcast website: https://podcast.marsbased.com/
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome everybody to Life on Mars.
I'm Alex, ceo and founder ofMarsBase, and in this episode we
bring you Clemens Rosberg ofRod's Advisors.
We'll be discussing M&A,because clearly we haven't
discussed M&A enough on thispodcast.
It's the fifth or sixth episode, but at least once per year we
try to discuss what's the stateof the art, what is the momentum
(00:21):
right now, because we areseeing a slight recovery in M&A
activity in the last months,even if at a discount, even if
some of these guys' acqui-hiresare being passed on as exits or
substantial exits in theindustry.
So these and much more are thetopics that we discuss with
(00:42):
Clemens.
We also discuss, you know,being on both sides of the table
, because he's been a founder,he's been also a banker.
Now he's an advisor in theseM&A processes, right?
So we will discuss pricing,we'll discuss negotiation,
etiquette and much more in asuper interesting episode, and
also the question of the day,which is have you used any
(01:06):
advisor in any capacity at yourcompany?
So let us know in the commentsdown below.
We'd love to hear yourexperience and, without further
ado, let's jump right into theepisode.
All right, so we're live.
I like this countdown.
(01:28):
I'm not used to it.
I haven't been using Riversidefor long.
This is the third episode Irecord and I'm still getting the
vibes of.
I love the countdown.
It gives solemnity to thepodcast.
Welcome, clemens, how are youdoing?
Speaker 2 (01:41):
Thank you very well.
Thanks, alex, for having me.
It gives it a special feelingwe're starting, we're about to
take off.
Speaker 1 (01:55):
We have to start with energy.
Although it's 10 am in themorning, I'm pretty sleepy.
I was working until very lateyesterday at night, and so today
I needed an extra dose ofcoffee.
Are you a coffee person?
Speaker 2 (02:02):
Yeah, no, actually I tea In the mornings, I drink tea
and then a coffee.
I have maybe one per day a bitlater.
Speaker 1 (02:09):
Good.
So we wanted to discuss.
I mean, you and I have beenknowing each other for long.
I seem to remember we metaround 2014 or 15, four years
from now.
We sort of stayed in touch.
We have been seeing each othersporadically here and there,
more often lately because you'vebeen coming more to the
(02:31):
StarCraft events, and that's howwe reconnected.
And I will always have thatthorn on my side that I never
got to interview you atStarCraft.
So here's the compensationBetter late than never, better
late than never, better latethan never.
Good, you are in a veryinteresting period of your life
(02:52):
right now.
I mean, having been a founderfor many years, also been an
investor, you have a prettysuccessful career, in my view.
You're now I mean, not thatyou're getting into M&A, but
you're getting into M&A, butyou're getting into M&A more
professionally and you'relaunching a new project.
Do you want to talk about itright now, to give some context
to the audience for a couple ofminutes?
(03:12):
So why this transition periodand what are you getting into
Exactly?
Speaker 2 (03:18):
Well, just to give me a bit of background, I've been
an entrepreneur for 25 years.
I've set up my first company 25years ago and before I did that
, actually, I was an investmentbanker.
I was working for LehmanBrothers in New York, in London,
but it wasn't my fault.
I left a long time before allof that happened.
Anyway, that was my backgroundfrom banking and as an
(03:40):
entrepreneur, I worked in thetelecom sector.
Basically All my startups hadto do with the telecom sector.
I've been working in thatsector all my life and the
latest company where I was isPhoneU.
This company is still around.
It's a scale-up.
It's actually very successful,it's profitable and growing and
(04:03):
that was a great experience.
But I left that company um lastyear.
So this this year I was um.
I asked myself so what, whatcould I do professionally now?
And, um, after giving it somethought, I came to the
conclusion that what uh fit best, uh, according to the
experience I had, is somethingwith m&aA, basically M&A and
(04:27):
financing.
So mergers and acquisitions,sales and acquisition of
companies and financing ofcompanies.
And of course, there's a lot ofM&A advisors out there.
There's a lot of M&A advisoryfirms.
So I had to think about, youknow, to give it a special focus
, and I think I found thatbasically, my motto is from
(04:49):
founders for founders.
So I'm I want to look, I want towork for clients that are for
companies that are led by theirfounders or by their owners,
because that's a very differentsituation than if you have a
company that's led by a hiredmanagement, because, by
definition, if you were founderof a company and if you're
(05:11):
thinking about someday aboutselling that company, whether or
not that sale works out well,that will really make a big
difference on your future,because you likely put in a very
big part of your life's effortinto that project.
And the reason I chose thatmotto or that focus is because I
, of course, have made that sameexperience, because I've been
(05:32):
an entrepreneur for such a longtime my own companies and so I
know what it means to be in thatsituation.
So that, in a nutshell, is whatI launched.
The company is called RossAdvisors Ross with two Z.
And, yeah, I officiallylaunched at the beginning of
October.
Speaker 1 (05:51):
Nice.
I like the from founder tofounder.
You know, I relaunched mypersonal website a couple of
months ago and I started anewsletter that is called
founder to founder, like F2FBasically.
Yeah, I like the idea.
It comes back, like the namingperhaps is not, I don't know if
how original is that?
Probably 10 other thousandpeople have got that naming, but
(06:15):
, um, when I was at, when I wasin erasmus and there was this
erasmus student network, rightand, and we organized the
welcoming weeks for new studentsand whatnot into the
universities.
The concept was from studentshelping other students, right,
and I always like this equal toequal in a level field of play.
(06:40):
And what I like about fromfounder to founder is because I
am giving tools to people everyFriday that I, as a founder,
need.
You probably, as a founder,will need it.
You probably need it for yourcompany, and what is interesting
from your business and I wantto dig deeper into that is you
(07:03):
will have been on both sides ofthe table in many aspects, right
, so you've been an investor.
You've been a founder, right,so you can tell which feelings
and which situations can youapply to one or the other.
Now, with M&A, you will be theperson.
You tell me what part of thevalue proposition you will be
placing yourself.
(07:23):
But, uh, you have used m&a fromphone, you, and so I don't know
like.
Being able to see multipleperspectives is very interesting
.
What part of the volume, uh,the value proposition or the
value chain are you placingyourself at?
Speaker 2 (07:39):
you know, as an, I'm basically ross advisors is an
m&A boutique, so I'm an M&Aadvisor.
So, if you want almost aconsultant, I'm an advisor to
companies who are thinking aboutselling themselves or who are
thinking about acquiring othercompanies or companies who are
looking for financing.
(08:00):
And an advisor means a lot ofthings.
I mean, it's the classical, theclassical steps of an m&a
process, where you, you firstlook at the company, you, you
analyze it, um, you come up witha strategy, um, you think about
the positioning of the company,um, and then you prepare.
You prepare to go to market.
(08:20):
Go to market means to reach outeither to potential buyers or
to reach out to potentialinvestors.
And you prepare, uh, by doingresearch, research on who could
be the, the right, uh, uh set ofcompanies who would be
interested in your company.
You prepare the documents,which is a, you know, into the
summary, a business plan, excel,all of these things.
(08:43):
And I, as an advisor, I wouldbe doing all of these things and
then executing the process andeventually, hopefully
successfully closing it.
Speaker 1 (08:54):
Okay, yeah, because M&A boutiques for people who are
not very well-versed are kindof like a black box, right, m&a
is a field that not everybodyknows what is it about until you
face it the first time.
And once you know one of them,one person working on this, you
start.
You start meeting, um, all ofthem.
(09:14):
I think that most entrepreneursand I myself included, right, I
didn't get in touch into withm&a until I don't know like five
, six, maybe eight years deepinto running my own company, not
because we're interested in anyM&A process, but because we are
(09:36):
in the industry, right, and youhear all the time companies
selling, but somehow when acompany is sold, normally the
M&A company is not mentioned andso in the news, these kind of
companies, they don't get anysort of exposure.
So you sort of assume that M&Abecause they're like magic,
right, companies get sold andbought all the time, but we
(09:57):
don't get to see who actuallyworked on this.
Right, and some of them aredoing the sourcing.
Some are only in advisorycapacity, like Simpson, you are
here.
Some of them do audits, some ofthem do all the things.
Right, they're a one-stop shop,so it really depends on the
volume of the transaction.
Some of them they don't work ondeals below $100 million, while
(10:21):
others are for more smallerstuff, and so we've had four
episodes so far in the podcast,which, for a podcast of
technology four episodes out of80, it's pretty high.
Three of them with MikeCunningham from Transcend
Partners, who are very goodfriends from the company, and
the other one with FounderPartners from the US, and the
funny thing is these are theepisodes that perform the most
(10:43):
right.
So it's like people don't givea shit anymore about programming
languages, they just want tosell their company.
Which brings me to my nextquestion.
It's been a down economicdownturn.
It's been a relatively badmarket for selling or for
selling well, it's been twogreat years since the stock
(11:05):
decline in the technologicalscene, and while it's been very
bad because scale-ups andcorporations didn't have the
money or investors didn't wantto lend out more money, private
equities have been making therounds and they've been buying
tons of companies right.
What kind of activity have youseen in the last two years?
(11:28):
How active have you been, andwhere are we sitting now?
Do we see any kind of recoveryin M&A?
Speaker 2 (11:35):
Well, I mean just to give a bit of context.
It's true, everybody speaksabout there's a downturn in M&A
markets and, just to translateit, what that means basically
that there are less transactions, less companies are being sold
and bought, and those that aresold and bought are often sold
at lower valuations than before.
(11:56):
But the question is, of course,compared to what?
And if you look at thestatistics, then of course
people compare it always to thelast peak, because that first
year of COVID, in 2020, therewas actually a lot of activity.
(12:28):
It was really a lot of activitybecause actually a lot of
companies, of course, wereafraid of this new situation.
They decided, okay, maybe thisis the moment to sell and there
was a lot of money in the market, there was a lot of appetite,
so the markets were very activeand we had the high in in,
globally speaking, in the firsthalf of 2021.
And since then, yes, it hasgone down a lot.
(12:49):
It has gone down a lot in thenumber of transactions, which
are actually today on a somewhatcomparable level to, you know,
before covid in the 2019, butwhat has gone down significantly
is the average valuations.
So, um, this year, I mean, youknow also you have to
(13:10):
differentiate between thedifferent different markets here
in europe.
In europe, this, this 2024, themarkets have been okay.
They have been more or less onpar with last year, but that
seems to be actually the casebecause there were some really
big mega deals which pulled upeverything.
In the number of transactionsthere has actually been even a
(13:32):
reduction.
And then it also depends on thecountry.
The UK, for example, has doneextremely well.
There's been a lot of activity.
Germany has been really down,has gone down even further
because Germany has seen a greatreduction in M&A volume since
2022.
So those are the kind of thingswe're seeing and the phenomenon
(13:53):
that you were mentioning aboutprivate equity.
Yes, I mean here we have todistinguish between private
equity and venture capital.
Venture capital is really at anearlier stage of the company's
life.
Venture capital investors, asthe name says, they take a
bigger risk and they invest instartups, in early stage
companies, and these investorshave been much more cautious.
(14:15):
It's much harder for ourstartups to find financing.
I can confirm that fromprocesses I've been in.
Private equity is a bit of adifferent animal.
Private equity also does bit ofa different animal.
Private equity also doesinvestments.
They invest money in newcompanies, but that will be a
different stage of the company.
It will be in the growth stage.
But also what private equitycompanies do a lot they buy
(14:38):
companies outright, becauseprivate equity companies have a
strategy that's called bolt-onor platform strategy, and what
that means is that they oftenbuy one company in one sector.
For example, they buy a companyin the travel sector online
travel and then they buy this asthe base company and then they
(14:58):
start buying several othercompanies that are related and
they put them all together tocreate one much bigger company,
and this is called the bolt-onor platform strategy.
So, because of the ratheradverse economic environment, a
lot of companies have found itdifficult to grow organically by
growing their own naturalbusiness.
(15:20):
So that's why they've turned toinorganic growth, which means
the growth through buyingcompetitor, through buying other
companies, and this is exactlywhat the private equity
companies are doing, and this iswhy we've seen quite an
increase in yeah, there's beenquite an increase in in the
number of transactions of, of,of you know, sales, sales and
(15:41):
and purchases of of companies,whereas it is true that it's a
lot more difficult to raisefresh financing for companies.
Speaker 1 (15:51):
The it's good that you mentioned that there's been
a difference between countries,right?
I think that gives the theperspective that europe is very
fragmented and that's whyamerica usually has got an upper
hand in terms of M&A, becausethey're bigger.
I mean not that they're bigger,I don't know in terms of
millions of people, but I knowin terms of a market 330 million
(16:14):
Americans living in the samecountry, more or less the same
roles overall, and so it's easyperhaps for one company from
Delaware to acquire one inBoston and the other way around,
or one in Texas buying one fromSan Francisco.
So I think it's easier.
It creates some sort of morelevel playground than we have in
Europe.
But the other thing I wanted totouch on and I didn't get to
(16:36):
talk about this with the formerM&A people that have been on the
podcast is you've been afounder and you mentioned that
you're a founder helping otherfounders.
I wanted to talk a little bitmore about the emotional journey
of preparing yourself for that.
Uh, let me give you somecontext.
Um, we've received two, maybethree serious approaches of m&a
(17:01):
and uh and the company and I'vebeen pretty public about that
that it's never been the like.
We never entertained them very,very far, but they were our
biggest clients in two of theoccasions, right?
So of course we had toentertain them, because the
protocol dictates that and youhave the etiquette mandates that
(17:23):
you just go, take the meeting,listen, talk through it and and
maybe just polite, decline theor postpone.
Let's speak next year,something like that, right?
Um?
But deep down it's gut-filling,like there there are probably
some criteria financial criteriaby which you might want to sell
(17:45):
the company, like oh, we'redoing well or we're doing poorly
, or this is strategic, Maybe wecould.
You know, we want to take onbigger challenges, so we join a
bigger company and whatnot.
But in our case it was more likegut feeling.
It's like it's not the time,not yet not ready.
It's like it's not the time,not yet not ready.
Perhaps we will never sell.
(18:05):
I don't know Right, how did you?
How did how did you prepareyourself?
Question number one.
Question number two is how willyou be helping entrepreneurs to
prepare themselves for sellingtheir companies?
Speaker 2 (18:23):
Right, how did I prepare myself for?
Well, I haven't sold my company.
Speaker 1 (18:26):
Yeah, I know you haven't sold, but like well,
partially I mean investmentyou've taken a step back or down
, so I don't know if that helpsto prepare for the M&A journey.
Speaker 2 (18:39):
Yeah, well, I mean, I'm not part of the company
anymore.
So, yeah, if one day thatcompany is sold, of course I'll
be happy because I'll have areturn.
You know, I always try to tellfounders the following that they
have to realize, especiallywhen they have a tech company,
it's not a family business.
(19:00):
There is very, very few techcompanies who make it on their
own, and make it on their ownmeans that they become so big
that they come sustainablewithout themselves.
There's so much disruption,there's so much technological
development in the tech sector,in in generally, it doesn't
really matter in whichsub-sector of that you are,
where you're in that it's thatyou have to be very careful.
(19:23):
And, um, you know, I try to.
I try to explain it with adecision tree.
When you have a company in thetech sector, there's two
possibilities Either what you dois relevant or it's not
relevant.
So if it's not relevant, thenyou're probably not commercially
successful and you'll probablygo out of market, unfortunately.
Then there's a second optionyou are successful, what you do
(19:44):
is relevant.
When then?
Then there are again twooptions, and these options are
either you sell yourself on timebecause you're relevant and
somebody else is interested inyou, or you don't, and then
somebody else bigger will comeand replicate what you have and
you'll go under you.
And I've seen this personallywith friends who've set up
companies and they didn't reallyhave a strategy.
(20:06):
They didn't have a strategybecause in one case they were so
lucky that they didn't needoutside investment.
They didn't have otherinvestors.
They got some bank loans but sothey didn't have any pressure.
But you really have to thinkabout it.
And also, as an entrepreneur, weoften see about these companies
that are sold, and verysuccessfully, and you know it
makes the founders rich.
(20:27):
But you know mostly if there'sactually there's a medium median
time of how long ago a companywas founded before was sold, and
that median time is oftenaround between 12 to 15 years.
So it's a long time.
It's a big part of yourprofessional career.
So what I'm trying to say withthat is it's legitimate as a
founder that you think about theexit eventually, because you
(20:50):
have to lock in value, becauseif you don't you may be left
with nothing.
And also, you know, I've livedin some years ago.
I lived in San Francisco for ayear and was very interesting to
see the mindset of the peoplethere and there the mindset of
founders is quite different.
They are all repeat founders.
So it's very common that youset up a company, you're
(21:10):
successful, you sell it and thenyou take these funds and
reinvest it into a new project.
And a lot of them they do iteven more than once, several
times.
So again, but it's importantthat the first time you do that
login of value and that youdon't miss the right point.
Of course I mean you knowanybody listening will say, yeah
, of course you have to say thatyou're an M&A advisor, it's
(21:33):
your business.
Speaker 1 (21:33):
Exactly.
Speaker 2 (21:34):
It's your incentive.
But you know, speak to you alsofrom my personal experience and
again, think about it.
This is your baby.
You've invested 10, 15,sometimes more years into this,
so you don't want it to go underwithout anything, without any
return, I mean.
Speaker 1 (21:55):
I think it's hard to let go right.
You've been working for so manyyears.
You've eaten ramen and monster.
For two years you were on areally, really low budget and
work through nights, weekendsand whatnot.
And I don't know, maybe it goesvery well, you can sell it or
it doesn't, and the only optionyou have to survive and to make
(22:18):
some pennies out of it is tosell the company, even if it's
at a discount to a low bidseller.
But at least you've sold thecompany and you will get
something out of it, right,rather than shutting it down.
But I remember, like anothergood.
Maybe this is unsolicitedadvice, but I will give my two
cents about what you're saying,about the value proposition,
(22:40):
right, about what you're sayinglike someone else will come and
do what you're doing.
I.
I think this is super greatadvice for product companies,
for services.
We're more like, more or lesswe offer all the same, we're
much more of a commodity, if youwill.
But I I remember the first timewe were approached by our
biggest client and, um, and youknow, we took the meeting and
(23:03):
after the, after the meeting, Iwent to my two co-founders
because we didn't have much timeto prepare and so funny.
We always took the meetingnaked.
And so after the meeting wejust take the elevator, go there
like we didn't even go fivemeters beyond the door of our
client and say like look, we'renot going to sell, but if we
(23:26):
sold, what would we be doing inthree, five years from now,
because we'll have to stay withthem for this amount of time?
And Jordi, one of myco-founders, said we'll create
the same company.
I'm like fuck, no, motherfucker.
Then we're not selling.
Like what's the point?
Like sell the company to createanother company and start from
(23:47):
scratch.
It's like no, I'm not takingthat shit, I'd rather continue
building what we have right now.
Or else we sell and we dosomething different.
But to go back to square one anddo the same play, like I
wouldn't say it was extremelyhard for us.
It's been kind of like a.
You know it's been relativelyeasy, but you know you go back
(24:10):
to zero budget, zero clients,build a brand, start messaging
people telling them why you soldmars race, but then you're
creating a new company and howwill they trust that you will
not sell again?
Because you probably fuckedthem over when you, when you
sold the company, right?
Um, so it's hard to let goright us.
(24:30):
It was more like we don't have,like the upside was not very
good and the downside wasterrible.
So I don't know if.
How do you calculate, how doyou put all of these things into
balance and how do youcalculate upsides versus
downsides beyond the economicreasons?
Speaker 2 (24:46):
Yeah, I mean, and we talked about this, alex, you're
absolutely right, it reallydepends a lot on your business.
It depends on your business, Imean.
That's why I was saying thisrefers above all to tech
businesses.
If you have a service business,it may be different.
You know, as in servicebusinesses, you're, you're
basically, uh, you're valued onyour what, on your project, on
your, on the size of your team.
(25:07):
But since there is no productper se, valuations for service
companies are usually quite abit lower than for tech
companies, so it may not beworthwhile.
Also, as an entrepreneur, youhave all the freedom that you
want in the world, so why wouldyou give that up?
I mean, I've worked and talkedto so many entrepreneurs in my
life and really I think thenumber one reason for anybody to
(25:29):
set up a company is, well,freedom of choice.
I don't want to have a boss, Iwant to be the one who takes the
decision.
So that's worth a lot.
And also, I totally confirmwhat you say.
One, because it happened tomyself and my partner in our
first consulting company.
That went well in the beginning.
(25:50):
We grew up to 10 people, people, um, but then you know, then,
then, um, you know, the, thedot-com bubble, burst 9-11
happened.
It had a lot of negative impacton what?
What?
Our sector.
So, unfortunately, we had tolet go of our team and we were
only two, the two partners wewere left.
And you're right once you'veset up a company like that and
it's up and running, but thenyou go back to zero.
Actually, you don't really, youreally don't feel like doing it
(26:13):
again, because it's like no, no, it's kind of yeah, the
excitement is gone.
So, yeah, do something else.
And we did that.
And a few years later we set upa different company which is
we'll now phone you, we set thatup, but, uh, doing the same
again, yeah, it's probably, it'sprobably not a lot of, not a
lot of fun.
What?
Speaker 1 (26:29):
one thing that I want to.
I'm very curious about youropinion on this.
You know, normally M&A peoplewill tell you you guys should
prepare your documentation, haveyour data room, everything
prepared for the potential eventof an M&A process, right.
But we all know that founder'slife is very messy and the
(26:53):
company changes overnight andwe're always very busy with
10,000 things that we could do.
We're not ready to have like,oh, I'm going to spend three
weeks to prepare like all thedocumentation, to have
everything in place, all thepaperwork, all the certificates
and whatnot, and to be preparedfor an audit or a due diligence,
(27:13):
right, Of course, M&A boutiquesare like no, no, you guys
should have it.
If you don't have it, well, wecan help you with that, because
they want to sell you thatservice.
What's your position on this?
Like, how would you approachthis as a founder?
Is that something that youthink every X months, you have
to dedicate some time to do itwhen you are potentially
(27:34):
eligible for an M&A process.
Or no, wait until the firstprocess, prepare it.
Even if you are signaling thatyou are a first time approaching
these kind of processes becauseyou don't have it.
Therefore, it signals thatyou're a rookie.
Speaker 2 (27:50):
Yeah, well, no, actually, actually I would go
with the latter option.
I you absolutely right, this isa lot of work.
I would definitely not do itout of the blue if there's no
specific reason.
Also, I mean, it's good to beprepared, but I would say, be
prepared in general by doinggood housekeeping on your
company, keep all youradministration in order, all
your documents, all yourcontracts.
(28:12):
That should be, or in anorderly fashion, yes, absolutely
.
But preparing a data room andall the or even documentation
about your company, like abusiness plan, just in case
somebody may know, I would do.
I would definitely not do that.
You know, also for the verysimple reason that this data
gets outdated very quickly, youknow, and so then then you know,
(28:34):
if you do it today and thensomebody approaches you in half
a year, you will have to go backand update it anyway.
So I would recommend you knowoften the trigger for an m&a
process, so the trigger that youare actually really considering
selling your cell company s iswhen you are approached by a
potential seller, by just one,and this is like a classical
(28:54):
trigger.
And in that case what?
I would recommend that, if youthink that buyer is serious in
that moment, hire an M&A advisorand start a formal process
where this one buyer who firstapproached you they can be a
part of that process.
But you also deliberatelyinvite other potential buyers
and this is the moment when youstart preparing all the
preparations.
Of course you'll have a part ofthat process, but you also
deliberately invite otherpotential buyers and this is the
moment when you start preparingall the preparations.
(29:15):
Of course you'll have a bit ofdelay, it's not immediate.
But, as you said, as a company,I mean first and foremost you
have to think about the business, keeping it afloat, being
profitable, servicing yourclients.
You can't always think about,oh, I'm going to sell it.
I mean, despite of what I saidbefore, yes, it's true, but
still I mean you're running abusiness, so you know how much
(29:40):
work are we talking about here.
Speaker 1 (29:41):
How many kinds of documents Can you give a little
bit of an overview?
Maybe Don go into the specifics.
Is that like two weeks of work,two months of work?
What kind of documents can weexpect to prepare in a first
package of deliverables?
Speaker 2 (30:00):
Yeah, I can give you a little bit of background on
this.
The short answer is it dependson the size of the company.
Stage of the company Makessense.
For example, in my company afew years ago we ran a financing
process which I was in chargeof, and in the course of that we
also had to prepare a duediligence room and I could tell
you I had thousands of documentsin there, because there is, you
(30:23):
know, the general companyinformation, who are the
shareholders, meeting minutes,of all the shareholder meetings,
like your board of directors,the shareholder meetings, like
your board of directors,shareholder meetings.
So if your company is 10 yearsold, well then you know, and you
have one per month, then thoseare already already like a
hundred documents easily.
Um, then you know all the thepublic deeds, escrituras of your
(30:48):
, of your company you need tohave those, of course all
contracts with suppliers, withwith clients, then all the
contracts with your employees,um, and there's then information
about your product and it getsmore and more and more and more.
The more you have the um, thebigger the company is, the more,
(31:10):
the more companies will come upand, I'm sorry, the more
documents will come up.
And but of course you want todo it.
You want to.
Basically, there's some standarddue diligence lists for digital
room that you can.
You know, I as an advisor, I'dgive to a client and I have them
prepare it and you start withthat.
But then during due diligence,often the buyers will even ask
(31:31):
for some additional things.
So, yes, it does take a lot oftime, but you know, the good
thing is you can do it inparallel In a process.
What you first have to prepareis your business plan, your
business plan and your financialprojections, because this is
what is first presented to apotential buyer or to an
investor potential buyer or toan investor and that process to
(31:54):
get in contact with theseinvestors takes quite a few
weeks.
And then, until you have afirst management presentation
where you basically have ameeting between the management
of the company and the potentialinvestor that also takes some
time and after that you havesome pre-due diligence questions
and then you would regurgitatethe term sheet.
So what I'm trying to say fromthe moment that you start the
(32:14):
process to where you actuallywould start a due diligence,
usually it's at least threemonths, so during that time you
can prepare the due diligenceroom.
So that's another reason whythere's really no motive
whatsoever to have this preparedbeforehand.
Speaker 1 (32:30):
No, of course not.
To have this preparedbeforehand.
No, of course not.
The reason why I sort of didthis documentation in the
company is not because we'reselling the company and I want
to send out the message.
We're not doing it.
It's because we're starting towork on a lot of M&A projects,
because between 2021 and 23,.
Six of our clients got acquiredright and we were involved in
(32:55):
different capacities right.
Sometimes it was just auditingthe product, sometimes it's
doing the integrations,sometimes it's dismantling the
product and sometimes it waslike doing more things or just
advising, or sometimes we werenot involved at all, right, and
so it kind of like piqued mycuriosity and I started delving
into M&A.
(33:15):
And the reason why I'm bringingthis up and you're going to get
it, why right now, is, I said,maybe thisA teaser, right, which
, to my understanding, is thesort of PowerPoint presentation
one, two pages of why you wantto sell the company and you
(33:40):
basically say, like we're thiskind of company, this size,
these are vision, these arecompetitive advantage and two or
three things more, but youdon't share data, maybe just
some basic data like more orless like a threshold of
revenues or the annual profitgrowth rate and stuff like that,
but you don't go into thespecifics because you want to
show something to attract, butyou don't want to share too much
(34:03):
so that you don't discloseright and um.
And by doing so I remember,though, like wow, first off I I
had never thought through whatwas the real value proposition
of Mars Based, and I had tosqueeze my brains in that
document.
And the funny thing is that Icame up with the marketing, the
(34:25):
new claim of the company that isbeyond development right, and
two or three arguments I use nowin my sales process is like our
employees stay for an averageof seven years in the company
and all of them have workedtogether, so technically they
don't have a ramp up.
It's kind of like a verycohesive team of developers.
They've worked together alreadyright, so they understand very
(34:49):
well each other and, given theamount of attrition that there
is in this market, this is avery high competitive advantage
for us.
So by preparing for an M&A, Igot marketing and sales
arguments and documents andassets I'm using now to my
advantage.
(35:09):
Do you think we can draw anyparallelism with fundraising as
well?
Because at the very end, m&a,sales and fundraising are all
sales processes.
Yes, yes.
Speaker 2 (35:19):
Yes, absolutely, the two processes are very related.
They're very similar and you'reright about what you say.
Actually, you know, preparing ateaser which is basically a
summary of your company.
If you do it yourself, itforces you to really think about
okay, what is the quintessenceof my company and how do I get,
(35:40):
how do I kind of formulate thevision or the mission of my
company in a very short sentence?
It's basically about, you know,doing an elevator pitch of your
company.
You know, and for a lot ofpeople it's very difficult to do
an elevator pitch if you askthem just like that, if they're
not in the process becausethey're not prepared, and it's
actually quite difficult oftento sum up in 30 seconds what
(36:01):
your company does.
But you're absolutely right.
If you want to sell to somebody, you need to do that, because
they're not going to listen toyou for five minutes and want
you to go on bubbling on whatyour company does.
You need to be concise and youwrite an m&a process or a
financing process.
They often have other, maybeunexpected or but also positive
(36:21):
consequences.
Once is, one thing is if you,for example, if you try to raise
financing or if you try to sellyour company and, let's say,
these processes in the end arenot successful.
What you do get, you getfeedback from the market.
You get feedback that, okay,maybe my company wasn't prepared
to be sold because there wasstill something that's missing
(36:43):
or it's not, I should get intoorder.
Or maybe my value expectationwas too high, and the same for
the financing.
I mean it didn't depend on thefinancing.
If you don't get the financing,you will also learn something
from it.
You'll learn, okay, maybe Ididn't position my company right
, I didn't sell it right, maybemy plans for the future aren't
(37:04):
convincing.
So it allows you to go back toyourself, do an introspection,
maybe change some things in yourbusiness.
Definitely change some thingshow you present yourself next
time you go through such aprocess.
So there's always learnings.
And one other thing that alsoquite often comes out of an M&A
or financing process that youactually don't find an investor,
(37:25):
but you find a business partner, somebody who may wow okay,
maybe I'm not interested inbuying you, but we could do like
a pilot project together andyou may get a new client.
Today.
That always also happens quitea bit.
So your experience of likedoing this teaser I can confirm.
I mean, of course.
I mean, a financing process isa lot of hard work and and you
(37:45):
don't just do it to try it outno, you, you should only do it
if you have serious intentions.
But what I'm trying to say is,even if it should fail, you can
get something positive out of it.
Speaker 1 (37:56):
Yeah, On the topic of rejection, which was going to
be my next question, right, howdo you bounce back from it?
Because I take it that wetechnically know that M&A
processes are very long and theycan be very distracting.
Right, so there's a potentialacquirer comes and they start
involving you in this process.
You prepare the documentation,you talk to M&A boutiques, you
(38:18):
negotiate, then you talk tolawyers, then to the acquirer,
go into due diligence and stufflike that.
It could drag along 12 to 18months and maybe at the very end
of the process there is a noright.
So, wow, that can be sowrecking.
And how do you bounce back fromthat?
(38:39):
How do you prepare yourself forthat?
Speaker 2 (38:42):
Yeah, that's a very good question.
It's actually something thatany founder or management of a
company goes into such a theyshould be aware of, of these
possibilities, and they shouldum consider it from the very
beginning.
And the way you present, youprepare yourself, for that is
how you, how you go about theprocess.
You know the.
(39:02):
The reason why it's a good ideato have an m&a advisor is that
you have a shield.
You have a shield between themanagement of the company and
the potential investors, becauseit is a lot of work, especially
if you're the founder of thecompany, owner of the company,
it's very nerve-wracking.
I mean, you know, as a founder,it's very hard to separate
(39:27):
business and private life.
The two become intermingled.
So if you're in an M&A process,which is very stressful, and you
also have a stressful business,this will take a toll on you
and on your private life and youwill want to get all the help
you can.
This is why you have an advisor, because that's why usually you
let the advisors do thenegotiations with the investors.
(39:49):
You let them answer thequestions, because that takes a
lot of the edge away from you,because what often happens at
the end of an M&A process themanagement is exhausted.
It's really physically andpsychologically exhausted from
the process.
And then when you get a no,then you're like, oh Jesus, I've
wasted all my time and thatcould really have a negative
(40:11):
impact on your business.
So you need to be aware of thatis definitely an option, a
possibility at the beginning andyou need to mentally prepare
yourself.
Okay, well, I'll pull through nomatter what, even if I don't
sell the company.
Okay, my company is still going.
Then I'll just continue andmaybe I'll try in one or two
years and maybe, as we saidbefore, you get some positive
(40:41):
learning out of it.
But you need to prepareyourself psychologically for it.
And again, this is the functionof an advisor to act as a
buffer in between you.
Use that buffer becauseotherwise you'll just burn
yourself if you expose yourself.
So you don't need to be anexpert in that.
There's other people.
It's better for you to be anexpert in your business to make
it successful.
That would be my advice on that.
Speaker 1 (41:04):
Actually, if I forgot that, yesterday we recorded
another episode, but for theSpanish feed with Diego Marino,
who's creating a softwareboutique M&A friendly for
founders as well, which I guessnow is the trend that is called
Petalo, and he touched onsomething very interesting.
(41:24):
I want to get your take on that,which is what clauses would you
recommend for entrepreneurs todemand as part of the M&A Like?
For instance, you mentioned Ididn't know back at the time he
sold Daxport to New Relic in2014.
And they convinced him to havesome leadership in a part of the
(41:47):
company, but as soon as hejoined the company, that area
disappeared and his duty wassomething else.
And they told him now you gotto do this, like he was like a
project manager or somethinglike that, and that's called the
tour of duty.
This is what you got to dobefore you quit the acquiring
company.
And so he said, had I knownthat, I would have requested or
(42:10):
demanded to have a clausewhereby if my responsibilities
within the company changeddrastically from what I was
hired to do, then I'm out right,I don't know what other things
you that you have been a foundercan you recommend other
founders that they request inthe negotiation process?
Speaker 2 (42:34):
That's an interesting question, because you say
request.
Well, I can recommend a lot ofthings that you should request,
but for the first place, youhave to ask yourself in what
position you are in thenegotiation Normally not very
good yourself in what positionyou are in the negotiation
Normally not very good.
Well, it all depends on how goodyour company is and it also
depends on the market cycle, youknow.
(42:54):
Going back to what we talkedabout before, before there was a
very high demand for companiesand that meant it's kind of a
graph that it crosses itself.
When the market is very highand there's a lot of demand to
buy companies, then you as afounder, you can ask for a lot
(43:14):
of things.
Often you can ask for an allcash deal.
Your earn out period will beshort, which in which, if that
is the case, these clausesbecome, they're not so relevant
anymore.
But if the market is in a lessfavorable position, as we are
right now, it's not really bad,but it's definitely worse than
(43:36):
it was before.
Well, it means that you willnot get all cash for your
company.
You'll likely get like a partpaid in shares of the acquiring
company and of course there'salways some earn out.
It's normal, it's part of thegame company and of course there
will be there's always someearn out, it's normal, it's part
part of the game where you know, typically at least one to two
years.
You you'll have to stay and ofcourse you you can try to
(43:59):
protect yourself in any way youcan, but I would caution here.
I would, I I would say, proceedwith caution, because if you
give indications to theacquiring company that you are
kind of not so keen or willingto do the earn out, it's a bad
sign.
It's because it's a bad sign,it's like you don't believe in
(44:20):
the project, because the reasonthat the buyer wants you to stay
on is first of all because ofyour knowledge, but also,
secondly, because they want tolink your payout to the success
of the company, becauseotherwise it could just be that
you sell the company to them andtwo months after and you leave
without an earn out, and aftertwo months after you left, the
buyer finds itself that thiscompany actually wasn't as great
(44:42):
as they thought it was, and theway for them to protect
themselves is through these earnout periods.
So as a, as a seller, as theseller of the company, you you
want to be careful not to sendthe wrong messages.
And of course, I think thatwhat happened to the, the, the
person you just referred to,that was unfortunately.
But you know, I think it's it'sdifficult, it's difficult to to
(45:07):
foresee all the differentpossibilities.
I mean, there's a lot of thingsthat could go wrong or could go
south.
And of course, yeah, you shouldtake some precautions, but to
what extent?
Because, also, you know, oftenthese deals they're how do you
(45:28):
say?
There's a lot of possibilitiesthat they can go wrong.
Until it's not closed, there'salways a high risk that it may
not end the way you want to.
So, therefore, all of thesethings matter and you want to
keep it simple and with apositive outlook.
So, if you go, okay, once youbuy the company and you do this
(45:49):
and this and that, then I wantto have this and this and that,
then like, hey, come on, I'mbuying the company.
Of course I'll be deciding, youknow.
So you know.
Speaker 1 (45:59):
The client is always right, right, one of the biggest
bullshits that we've ever heard, but I guess everybody
perpetuates this.
Of course, every founder giventhe opportunity would like to
request yeah, I'm selling thecompany, but I'm out of the
equation because I want to moveto the next thing.
Give me the cash and I'll gocreate another thing.
Then the acquirer is like well,precisely, I want you.
(46:21):
I think all the acquiringcompanies know that the heart
and the mind of the CEO of theacquired company will be
somewhere else.
But the fact that they stay isgood for the team morale, right?
So if they buy Mars Basetomorrow and I'm fucking off, or
(46:41):
like the three founders werenot staying, the team will be
like you guys sold us, right,what's the point?
And they will leave the dayafter because they have no
obligation.
Maybe the founders do, but likethey don't.
But the fact that you'restaying, maybe that sends out
the message that nothing willchange.
We'll continue operatingindependently, which sometimes
(47:03):
it's true, most of the timesit's not, but it's a disguised
lie.
But you got to sell it to theteam, right?
And because you have your earnout.
So my point being how to findthe balance?
I don't know that I know that'snot an easy question.
But how to find the balancebetween I'm leaving money on the
(47:23):
table by getting out of theequation or, you know, I'll just
take the money, I'll stay inthe company for two, three years
, do absolute minimum while I'mmoonlighting other projects and
stuff like that.
So I don't know.
I don't know what I would do inmy position because I'm not a
corporate guy.
I know I could stay there but Iwould be working in other
(47:47):
projects.
I did before, like we createdMarsh Flplace while I was in my
previous company, right, but Iwas working on weekends and
night shifts and stuff like that.
But some people cannot do it.
They'd rather just leave moneyon the table.
Move on to the next thing.
I guess that depends on thefounder type, maybe.
What would you do?
Speaker 2 (48:06):
Yes, I think it depends.
I mean it depends a lot, ofcourse.
I mean it depends also.
I mean you have to you enteringinto a contract okay, maybe
there is a possibility, as yousay, okay, you know, I won't
stay in my earner period, andthen you basically lose a part,
or which usually would be a bigchunk, of the part that you sold
.
Um, I don't know, for me it'salso a kind of um, it's a
(48:27):
professional commitment, I mean,and you know, especially if
it's your company and it's yourteam and you've worked with them
for years, then you know, Ithink also as a founder, what
you want to.
You want to make sure that this,your company, the services, the
products you created, and theteam, that they find a new home,
a good new home, that they finda new home, a good new home,
(48:47):
and you want to help thatprocess.
You know there's this thingcalled post-merger integration.
You know a lot of this.
Actually, a lot of, actually,m&a transactions fail after the
transaction because the acquirerand the acquired company, they
don't integrate well, becausethe integration isn't done well,
because of different corporatecultures.
(49:08):
So there's a lot to be done andof course, it helps a lot if
the original founders or ceo ormanagement is still there.
So you know, I'm saying, ofcourse it depends on every
person, but you know, um, Ipersonally, as a founder, I
think it makes sense to alsoconsider that that you you
because I mean you know all ofthe people you worked with you
(49:29):
may come across them later onand, as you mentioned, you don't
want them to feel, hey, thisguy just sold us and to get the
money and then he didn't careabout us.
I think that wouldn't be alegacy you would like to leave
behind.
Speaker 1 (49:43):
Good, I don't know, we're running over time.
I don't know if you got five to10 extra minutes because I have
so many questions and I willactually take on the occasion to
ask you a couple of startupbrand questions.
I never got to ask you, so onerelated to M&A still is how much
money like a company of, say,companies that are being sold
(50:03):
right now companies up to 20, 30people, maybe tech companies,
because they're selling out to abigger player I take it people
in our audience are more or lessthis size how much money do
they have to put up front forthis kind of process between
boutiques, advisors and whatnot?
Speaker 2 (50:24):
It depends.
I mean there's two models.
There's a model where you havea retainer and a success fee.
It depends.
I mean there's two models.
There's a model where you havea retainer and a success fee.
That means you pay the M&Aadvisor a monthly fee and then
you get a percentage of thecompany that sold.
How much?
More or less?
In both cases it would be a fewthousand euros per month during
(50:47):
maybe three, four months.
And then the success fee.
Well, I mean, where I come from, it's typically 5%, but it
depends a lot on the amount ofwork you do.
And there's another model whereyou have, maybe, an advisor that
works only on a success fee, sothey only get a fee once the
(51:11):
company is sold, which is, ofcourse, the better option for
the entrepreneur because theydon't have a cash flow that they
have to put out up front.
However, your costs aren'treally covered and also there's
always a very high risk,especially with smaller
companies, that the process willnot go to its end, because in
(51:32):
any other day the, the, theowners of the company, at any
point they can abort the processfor whatever reason, and as an
m&a advisor, you can't protectyourself against that.
So I personally the way Iprotect myself against it, that
I asked for a retainer because Ialso believe in you know what.
You know what people don't payfor.
They don't, they don't value it, they don't appreciate it and
(51:53):
uh.
But you know, again, it dependson the point of view for the
company, obviously it's betterif they have a have a success
fee.
Uh, only model.
Speaker 1 (52:02):
No, of course, I mean a hundred percent.
I agree on having this sort oflike paywall because, as you
said, like no, like, that'ssomething I don't know.
Pay no gain, right?
Actually, that would be the.
It's funny that I got thesentence right in English and I
didn't know how to say it inSpanish.
This is how used I am to uh, tospeak Spanish for business.
(52:26):
Like, literally, I have no ideaabout some terms or sayings.
Speaker 2 (52:31):
No, of course the payroll helps.
Speaker 1 (52:33):
It qualifies, it qualifies At the very end.
M&a is also like for you, it'sa sales process and you have to
qualify your prospects, and soif three out of five they don't
want to pay a retainer becausethey're like, oh no, we totally
don't, like we're aligned withthis, but we don't have the
financials and whatnot.
But you have two other optionsthat they pay, let's go for the
(52:53):
paid ones.
I mean not because it's easymoney, it's because most likely,
they're going to be ending upas better clients because they
want to put up money up front.
There's more trust, right, andso anyway.
So the startup brand question Iwanted to ask you.
I mean, you've come to a fewevents.
There are a couple of signaturequestions that we asked there.
One of them is your mostexpensive fuck-up and how much
(53:16):
money did it cost to the company?
Speaker 2 (53:18):
70,000 euros.
Oh wow, what was it?
And basically I spent 70,000euros.
You know one of these like unacesta de Navidad.
It cost me 70 000 euros let meexplain the context.
Speaker 1 (53:31):
Christmas box, right?
I don't know if that's theenglish like uh, but yeah yeah,
exactly christmas gifts yeah,yeah, wow, wow yeah, uh,
basically what happened?
Speaker 2 (53:41):
we were raising financing.
It was like the uh first, uhwell, it was the second round
and in in phone, you and we hadthese advisors and, uh, that had
been recommended to us and youknow already, at the beginning,
after a few weeks, I didn'treally like the way it was going
and I was actually thinkingabout, um, firing them, about
(54:02):
not continuing, which I we hadthe option from the contract,
but they convinced us to stay onbecause we needed the financing
.
In the end, we found financingon our own, through our own
contacts, and we closed it.
And they still got their fee,which was that 70,000 euros.
(54:24):
And for Christmas they sent methis Christmas box which ended
up costing me 70,000 euros.
And for christmas, they sent methis christmas box which ended
up costing me 70 000 euros.
And that that really hurtbecause, I mean it, the round
wasn't that big and you know howcome they get a percentage, if
you like, on money they didn'tbring to the company.
Speaker 1 (54:42):
Like because I mean what was the deal?
Speaker 2 (54:45):
because the thing is you pull the effort.
I mean you know the advisor,they do more, more just the
contacts.
They do the whole preparation,they advise you the process.
So you know, in per se it maynot be a bad setup for a
contract.
I just feel these guys in theend didn't add that much value.
Speaker 1 (55:04):
But you know of course in hindsight you're
always smarter, okay, and theother start brand question it's
the useless superpowers.
So everybody has got a uselesssuperpower, something you do
extremely well, but it's fuckinguseless.
What would be yours?
Wow, very useless.
It has to be something like Ialways put on their socks, like
(55:25):
on the wrong foot and stuff likethat, but like it happens every
day.
So I do it very well, but it's,you know, it's useless, wow you
really got me on the spot there.
Speaker 2 (55:36):
Um, useless.
I mean, you know I low, I canrecognize a lot of songs when I
hear them playing on the radio,because I really love music, but
for business that reallydoesn't get me anywhere.
Speaker 1 (55:49):
Any particular type of song, like songs you don't
like.
Like, for instance, one of myuseless superpowers is I know
the lyrics to songs I don't like, but I don't know the lyrics to
the songs I like.
Right, it's like all of thesesongs like Rihanna, britney
Spears, one Direction, they getstuck in my head because it's
like pop, shit, oh yeah, and youhear them everywhere.
But my songs, I love them, butI don't know the lyrics to them.
(56:12):
So it's like, geez, why?
Why is my brain playing?
Speaker 2 (56:16):
on me.
Yeah, well, it happens they're.
They're made like that, thesepop tunes, that they stay in
your head.
Yeah, I mean, that's that's.
Speaker 1 (56:22):
You know, that sounds bad I know well can I have to
to wrap this up?
Well, thank you.
Thank you, clements, for beinghere One minute for you.
I'm rolling out the red carpet.
How can we help you, how can wehelp your new initiative?
And if you've got somethingelse to share, just one minute
for you.
Speaker 2 (56:41):
I'm spreading the word about this new project.
Obviously, I'm looking forclients.
I'm looking for companies whichare founder or owner-led who
would consider sellingthemselves, or company who want
to raise capital.
At the same time, I'm alsoreaching out to a lot of
(57:02):
investors just to make thecontacts, because I have quite a
lot of contacts in the investorcommunity.
But they know me as anentrepreneur who's looking for
money.
They don't know me as somebodywho's bringing opportunities to
them.
So you know I'm also working onthat.
So you know, to help, I mean,you know, spread the words.
You're helping me with thispodcast.
I'm very thankful for that andyou know, anybody who is
(57:27):
interested in any of theservices I offer, like selling
your company, financing yourcompany please lead them my way
and I would be happy to have aconversation with them.
That means vielen Dank, vielenDank.
Thank you very much for yourtime, alex.
Welcome everybody to Life on Mars.
I'm Alex, ceo and founder ofMarsBase, and in this episode we
bring you Clemens Rosberg ofRod's Advisors.
We'll be discussing M&A,because clearly we haven't
discussed M&A enough on thispodcast.
It's the fifth or sixth episode, but at least once per year we
try to discuss what's the stateof the art, what is the momentum
(00:21):
right now, because we areseeing a slight recovery in M&A
activity in the last months,even if at a discount, even if
some of these guys' acqui-hiresare being passed on as exits or
substantial exits in theindustry.
So these and much more are thetopics that we discuss with
(00:42):
Clemens.
We also discuss, you know,being on both sides of the table
, because he's been a founder,he's been also a banker.
Now he's an advisor in theseM&A processes, right?
So we will discuss pricing,we'll discuss negotiation,
etiquette and much more in asuper interesting episode, and
also the question of the day,which is have you used any
(01:06):
advisor in any capacity at yourcompany?
So let us know in the commentsdown below.
We'd love to hear yourexperience and, without further
ado, let's jump right into theepisode.
All right, so we're live.
I like this countdown.
(01:28):
I'm not used to it.
I haven't been using Riversidefor long.
This is the third episode Irecord and I'm still getting the
vibes of.
I love the countdown.
It gives solemnity to thepodcast.
Welcome, clemens, how are youdoing?
Speaker 2 (01:41):
Thank you very well.
Thanks, alex, for having me.
It gives it a special feelingwe're starting, we're about to
take off.
Speaker 1 (01:55):
We have to start with energy.
Although it's 10 am in themorning, I'm pretty sleepy.
I was working until very lateyesterday at night, and so today
I needed an extra dose ofcoffee.
Are you a coffee person?
Speaker 2 (02:02):
Yeah, no, actually I tea In the mornings, I drink tea
and then a coffee.
I have maybe one per day a bitlater.
Speaker 1 (02:09):
Good.
So we wanted to discuss.
I mean, you and I have beenknowing each other for long.
I seem to remember we metaround 2014 or 15, four years
from now.
We sort of stayed in touch.
We have been seeing each othersporadically here and there,
more often lately because you'vebeen coming more to the
(02:31):
StarCraft events, and that's howwe reconnected.
And I will always have thatthorn on my side that I never
got to interview you atStarCraft.
So here's the compensationBetter late than never, better
late than never, better latethan never.
Good, you are in a veryinteresting period of your life
(02:52):
right now.
I mean, having been a founderfor many years, also been an
investor, you have a prettysuccessful career, in my view.
You're now I mean, not thatyou're getting into M&A, but
you're getting into M&A, butyou're getting into M&A more
professionally and you'relaunching a new project.
Do you want to talk about itright now, to give some context
to the audience for a couple ofminutes?
(03:12):
So why this transition periodand what are you getting into
Exactly?
Speaker 2 (03:18):
Well, just to give me a bit of background, I've been
an entrepreneur for 25 years.
I've set up my first company 25years ago and before I did that
, actually, I was an investmentbanker.
I was working for LehmanBrothers in New York, in London,
but it wasn't my fault.
I left a long time before allof that happened.
Anyway, that was my backgroundfrom banking and as an
(03:40):
entrepreneur, I worked in thetelecom sector.
Basically All my startups hadto do with the telecom sector.
I've been working in thatsector all my life and the
latest company where I was isPhoneU.
This company is still around.
It's a scale-up.
It's actually very successful,it's profitable and growing and
(04:03):
that was a great experience.
But I left that company um lastyear.
So this this year I was um.
I asked myself so what, whatcould I do professionally now?
And, um, after giving it somethought, I came to the
conclusion that what uh fit best, uh, according to the
experience I had, is somethingwith m&aA, basically M&A and
(04:27):
financing.
So mergers and acquisitions,sales and acquisition of
companies and financing ofcompanies.
And of course, there's a lot ofM&A advisors out there.
There's a lot of M&A advisoryfirms.
So I had to think about, youknow, to give it a special focus
, and I think I found thatbasically, my motto is from
(04:49):
founders for founders.
So I'm I want to look, I want towork for clients that are for
companies that are led by theirfounders or by their owners,
because that's a very differentsituation than if you have a
company that's led by a hiredmanagement, because, by
definition, if you were founderof a company and if you're
(05:11):
thinking about someday aboutselling that company, whether or
not that sale works out well,that will really make a big
difference on your future,because you likely put in a very
big part of your life's effortinto that project.
And the reason I chose thatmotto or that focus is because I
, of course, have made that sameexperience, because I've been
(05:32):
an entrepreneur for such a longtime my own companies and so I
know what it means to be in thatsituation.
So that, in a nutshell, is whatI launched.
The company is called RossAdvisors Ross with two Z.
And, yeah, I officiallylaunched at the beginning of
October.
Speaker 1 (05:51):
Nice.
I like the from founder tofounder.
You know, I relaunched mypersonal website a couple of
months ago and I started anewsletter that is called
founder to founder, like F2FBasically.
Yeah, I like the idea.
It comes back, like the namingperhaps is not, I don't know if
how original is that?
Probably 10 other thousandpeople have got that naming, but
(06:15):
, um, when I was at, when I wasin erasmus and there was this
erasmus student network, rightand, and we organized the
welcoming weeks for new studentsand whatnot into the
universities.
The concept was from studentshelping other students, right,
and I always like this equal toequal in a level field of play.
(06:40):
And what I like about fromfounder to founder is because I
am giving tools to people everyFriday that I, as a founder,
need.
You probably, as a founder,will need it.
You probably need it for yourcompany, and what is interesting
from your business and I wantto dig deeper into that is you
(07:03):
will have been on both sides ofthe table in many aspects, right
, so you've been an investor.
You've been a founder, right,so you can tell which feelings
and which situations can youapply to one or the other.
Now, with M&A, you will be theperson.
You tell me what part of thevalue proposition you will be
placing yourself.
(07:23):
But, uh, you have used m&a fromphone, you, and so I don't know
like.
Being able to see multipleperspectives is very interesting
.
What part of the volume, uh,the value proposition or the
value chain are you placingyourself at?
Speaker 2 (07:39):
you know, as an, I'm basically ross advisors is an
m&A boutique, so I'm an M&Aadvisor.
So, if you want almost aconsultant, I'm an advisor to
companies who are thinking aboutselling themselves or who are
thinking about acquiring othercompanies or companies who are
looking for financing.
(08:00):
And an advisor means a lot ofthings.
I mean, it's the classical, theclassical steps of an m&a
process, where you, you firstlook at the company, you, you
analyze it, um, you come up witha strategy, um, you think about
the positioning of the company,um, and then you prepare.
You prepare to go to market.
(08:20):
Go to market means to reach outeither to potential buyers or
to reach out to potentialinvestors.
And you prepare, uh, by doingresearch, research on who could
be the, the right, uh, uh set ofcompanies who would be
interested in your company.
You prepare the documents,which is a, you know, into the
summary, a business plan, excel,all of these things.
(08:43):
And I, as an advisor, I wouldbe doing all of these things and
then executing the process andeventually, hopefully
successfully closing it.
Speaker 1 (08:54):
Okay, yeah, because M&A boutiques for people who are
not very well-versed are kindof like a black box, right, m&a
is a field that not everybodyknows what is it about until you
face it the first time.
And once you know one of them,one person working on this, you
start.
You start meeting, um, all ofthem.
(09:14):
I think that most entrepreneursand I myself included, right, I
didn't get in touch into withm&a until I don't know like five
, six, maybe eight years deepinto running my own company, not
because we're interested in anyM&A process, but because we are
(09:36):
in the industry, right, and youhear all the time companies
selling, but somehow when acompany is sold, normally the
M&A company is not mentioned andso in the news, these kind of
companies, they don't get anysort of exposure.
So you sort of assume that M&Abecause they're like magic,
right, companies get sold andbought all the time, but we
(09:57):
don't get to see who actuallyworked on this.
Right, and some of them aredoing the sourcing.
Some are only in advisorycapacity, like Simpson, you are
here.
Some of them do audits, some ofthem do all the things.
Right, they're a one-stop shop,so it really depends on the
volume of the transaction.
Some of them they don't work ondeals below $100 million, while
(10:21):
others are for more smallerstuff, and so we've had four
episodes so far in the podcast,which, for a podcast of
technology four episodes out of80, it's pretty high.
Three of them with MikeCunningham from Transcend
Partners, who are very goodfriends from the company, and
the other one with FounderPartners from the US, and the
funny thing is these are theepisodes that perform the most
(10:43):
right.
So it's like people don't givea shit anymore about programming
languages, they just want tosell their company.
Which brings me to my nextquestion.
It's been a down economicdownturn.
It's been a relatively badmarket for selling or for
selling well, it's been twogreat years since the stock
(11:05):
decline in the technologicalscene, and while it's been very
bad because scale-ups andcorporations didn't have the
money or investors didn't wantto lend out more money, private
equities have been making therounds and they've been buying
tons of companies right.
What kind of activity have youseen in the last two years?
(11:28):
How active have you been, andwhere are we sitting now?
Do we see any kind of recoveryin M&A?
Speaker 2 (11:35):
Well, I mean just to give a bit of context.
It's true, everybody speaksabout there's a downturn in M&A
markets and, just to translateit, what that means basically
that there are less transactions, less companies are being sold
and bought, and those that aresold and bought are often sold
at lower valuations than before.
(11:56):
But the question is, of course,compared to what?
And if you look at thestatistics, then of course
people compare it always to thelast peak, because that first
year of COVID, in 2020, therewas actually a lot of activity.
(12:28):
It was really a lot of activitybecause actually a lot of
companies, of course, wereafraid of this new situation.
They decided, okay, maybe thisis the moment to sell and there
was a lot of money in the market, there was a lot of appetite,
so the markets were very activeand we had the high in in,
globally speaking, in the firsthalf of 2021.
And since then, yes, it hasgone down a lot.
(12:49):
It has gone down a lot in thenumber of transactions, which
are actually today on a somewhatcomparable level to, you know,
before covid in the 2019, butwhat has gone down significantly
is the average valuations.
So, um, this year, I mean, youknow also you have to
(13:10):
differentiate between thedifferent different markets here
in europe.
In europe, this, this 2024, themarkets have been okay.
They have been more or less onpar with last year, but that
seems to be actually the casebecause there were some really
big mega deals which pulled upeverything.
In the number of transactionsthere has actually been even a
(13:32):
reduction.
And then it also depends on thecountry.
The UK, for example, has doneextremely well.
There's been a lot of activity.
Germany has been really down,has gone down even further
because Germany has seen a greatreduction in M&A volume since
2022.
So those are the kind of thingswe're seeing and the phenomenon
(13:53):
that you were mentioning aboutprivate equity.
Yes, I mean here we have todistinguish between private
equity and venture capital.
Venture capital is really at anearlier stage of the company's
life.
Venture capital investors, asthe name says, they take a
bigger risk and they invest instartups, in early stage
companies, and these investorshave been much more cautious.
(14:15):
It's much harder for ourstartups to find financing.
I can confirm that fromprocesses I've been in.
Private equity is a bit of adifferent animal.
Private equity also does bit ofa different animal.
Private equity also doesinvestments.
They invest money in newcompanies, but that will be a
different stage of the company.
It will be in the growth stage.
But also what private equitycompanies do a lot they buy
(14:38):
companies outright, becauseprivate equity companies have a
strategy that's called bolt-onor platform strategy, and what
that means is that they oftenbuy one company in one sector.
For example, they buy a companyin the travel sector online
travel and then they buy this asthe base company and then they
(14:58):
start buying several othercompanies that are related and
they put them all together tocreate one much bigger company,
and this is called the bolt-onor platform strategy.
So, because of the ratheradverse economic environment, a
lot of companies have found itdifficult to grow organically by
growing their own naturalbusiness.
(15:20):
So that's why they've turned toinorganic growth, which means
the growth through buyingcompetitor, through buying other
companies, and this is exactlywhat the private equity
companies are doing, and this iswhy we've seen quite an
increase in yeah, there's beenquite an increase in in the
number of transactions of, of,of you know, sales, sales and
(15:41):
and purchases of of companies,whereas it is true that it's a
lot more difficult to raisefresh financing for companies.
Speaker 1 (15:51):
The it's good that you mentioned that there's been
a difference between countries,right?
I think that gives the theperspective that europe is very
fragmented and that's whyamerica usually has got an upper
hand in terms of M&A, becausethey're bigger.
I mean not that they're bigger,I don't know in terms of
millions of people, but I knowin terms of a market 330 million
(16:14):
Americans living in the samecountry, more or less the same
roles overall, and so it's easyperhaps for one company from
Delaware to acquire one inBoston and the other way around,
or one in Texas buying one fromSan Francisco.
So I think it's easier.
It creates some sort of morelevel playground than we have in
Europe.
But the other thing I wanted totouch on and I didn't get to
(16:36):
talk about this with the formerM&A people that have been on the
podcast is you've been afounder and you mentioned that
you're a founder helping otherfounders.
I wanted to talk a little bitmore about the emotional journey
of preparing yourself for that.
Uh, let me give you somecontext.
Um, we've received two, maybethree serious approaches of m&a
(17:01):
and uh and the company and I'vebeen pretty public about that
that it's never been the like.
We never entertained them very,very far, but they were our
biggest clients in two of theoccasions, right?
So of course we had toentertain them, because the
protocol dictates that and youhave the etiquette mandates that
(17:23):
you just go, take the meeting,listen, talk through it and and
maybe just polite, decline theor postpone.
Let's speak next year,something like that, right?
Um?
But deep down it's gut-filling,like there there are probably
some criteria financial criteriaby which you might want to sell
(17:45):
the company, like oh, we'redoing well or we're doing poorly
, or this is strategic, Maybe wecould.
You know, we want to take onbigger challenges, so we join a
bigger company and whatnot.
But in our case it was more likegut feeling.
It's like it's not the time,not yet not ready.
It's like it's not the time,not yet not ready.
Perhaps we will never sell.
(18:05):
I don't know Right, how did you?
How did how did you prepareyourself?
Question number one.
Question number two is how willyou be helping entrepreneurs to
prepare themselves for sellingtheir companies?
Speaker 2 (18:23):
Right, how did I prepare myself for?
Well, I haven't sold my company.
Speaker 1 (18:26):
Yeah, I know you haven't sold, but like well,
partially I mean investmentyou've taken a step back or down
, so I don't know if that helpsto prepare for the M&A journey.
Speaker 2 (18:39):
Yeah, well, I mean, I'm not part of the company
anymore.
So, yeah, if one day thatcompany is sold, of course I'll
be happy because I'll have areturn.
You know, I always try to tellfounders the following that they
have to realize, especiallywhen they have a tech company,
it's not a family business.
(19:00):
There is very, very few techcompanies who make it on their
own, and make it on their ownmeans that they become so big
that they come sustainablewithout themselves.
There's so much disruption,there's so much technological
development in the tech sector,in in generally, it doesn't
really matter in whichsub-sector of that you are,
where you're in that it's thatyou have to be very careful.
(19:23):
And, um, you know, I try to.
I try to explain it with adecision tree.
When you have a company in thetech sector, there's two
possibilities Either what you dois relevant or it's not
relevant.
So if it's not relevant, thenyou're probably not commercially
successful and you'll probablygo out of market, unfortunately.
Then there's a second optionyou are successful, what you do
(19:44):
is relevant.
When then?
Then there are again twooptions, and these options are
either you sell yourself on timebecause you're relevant and
somebody else is interested inyou, or you don't, and then
somebody else bigger will comeand replicate what you have and
you'll go under you.
And I've seen this personallywith friends who've set up
companies and they didn't reallyhave a strategy.
(20:06):
They didn't have a strategybecause in one case they were so
lucky that they didn't needoutside investment.
They didn't have otherinvestors.
They got some bank loans but sothey didn't have any pressure.
But you really have to thinkabout it.
And also, as an entrepreneur, weoften see about these companies
that are sold, and verysuccessfully, and you know it
makes the founders rich.
(20:27):
But you know mostly if there'sactually there's a medium median
time of how long ago a companywas founded before was sold, and
that median time is oftenaround between 12 to 15 years.
So it's a long time.
It's a big part of yourprofessional career.
So what I'm trying to say withthat is it's legitimate as a
founder that you think about theexit eventually, because you
(20:50):
have to lock in value, becauseif you don't you may be left
with nothing.
And also, you know, I've livedin some years ago.
I lived in San Francisco for ayear and was very interesting to
see the mindset of the peoplethere and there the mindset of
founders is quite different.
They are all repeat founders.
So it's very common that youset up a company, you're
(21:10):
successful, you sell it and thenyou take these funds and
reinvest it into a new project.
And a lot of them they do iteven more than once, several
times.
So again, but it's importantthat the first time you do that
login of value and that youdon't miss the right point.
Of course I mean you knowanybody listening will say, yeah
, of course you have to say thatyou're an M&A advisor, it's
(21:33):
your business.
Speaker 1 (21:33):
Exactly.
Speaker 2 (21:34):
It's your incentive.
But you know, speak to you alsofrom my personal experience and
again, think about it.
This is your baby.
You've invested 10, 15,sometimes more years into this,
so you don't want it to go underwithout anything, without any
return, I mean.
Speaker 1 (21:55):
I think it's hard to let go right.
You've been working for so manyyears.
You've eaten ramen and monster.
For two years you were on areally, really low budget and
work through nights, weekendsand whatnot.
And I don't know, maybe it goesvery well, you can sell it or
it doesn't, and the only optionyou have to survive and to make
(22:18):
some pennies out of it is tosell the company, even if it's
at a discount to a low bidseller.
But at least you've sold thecompany and you will get
something out of it, right,rather than shutting it down.
But I remember, like anothergood.
Maybe this is unsolicitedadvice, but I will give my two
cents about what you're saying,about the value proposition,
(22:40):
right, about what you're sayinglike someone else will come and
do what you're doing.
I.
I think this is super greatadvice for product companies,
for services.
We're more like, more or lesswe offer all the same, we're
much more of a commodity, if youwill.
But I I remember the first timewe were approached by our
biggest client and, um, and youknow, we took the meeting and
(23:03):
after the, after the meeting, Iwent to my two co-founders
because we didn't have much timeto prepare and so funny.
We always took the meetingnaked.
And so after the meeting wejust take the elevator, go there
like we didn't even go fivemeters beyond the door of our
client and say like look, we'renot going to sell, but if we
(23:26):
sold, what would we be doing inthree, five years from now,
because we'll have to stay withthem for this amount of time?
And Jordi, one of myco-founders, said we'll create
the same company.
I'm like fuck, no, motherfucker.
Then we're not selling.
Like what's the point?
Like sell the company to createanother company and start from
(23:47):
scratch.
It's like no, I'm not takingthat shit, I'd rather continue
building what we have right now.
Or else we sell and we dosomething different.
But to go back to square one anddo the same play, like I
wouldn't say it was extremelyhard for us.
It's been kind of like a.
You know it's been relativelyeasy, but you know you go back
(24:10):
to zero budget, zero clients,build a brand, start messaging
people telling them why you soldmars race, but then you're
creating a new company and howwill they trust that you will
not sell again?
Because you probably fuckedthem over when you, when you
sold the company, right?
Um, so it's hard to let goright us.
(24:30):
It was more like we don't have,like the upside was not very
good and the downside wasterrible.
So I don't know if.
How do you calculate, how doyou put all of these things into
balance and how do youcalculate upsides versus
downsides beyond the economicreasons?
Speaker 2 (24:46):
Yeah, I mean, and we talked about this, alex, you're
absolutely right, it reallydepends a lot on your business.
It depends on your business, Imean.
That's why I was saying thisrefers above all to tech
businesses.
If you have a service business,it may be different.
You know, as in servicebusinesses, you're, you're
basically, uh, you're valued onyour what, on your project, on
your, on the size of your team.
(25:07):
But since there is no productper se, valuations for service
companies are usually quite abit lower than for tech
companies, so it may not beworthwhile.
Also, as an entrepreneur, youhave all the freedom that you
want in the world, so why wouldyou give that up?
I mean, I've worked and talkedto so many entrepreneurs in my
life and really I think thenumber one reason for anybody to
(25:29):
set up a company is, well,freedom of choice.
I don't want to have a boss, Iwant to be the one who takes the
decision.
So that's worth a lot.
And also, I totally confirmwhat you say.
One, because it happened tomyself and my partner in our
first consulting company.
That went well in the beginning.
(25:50):
We grew up to 10 people, people, um, but then you know, then,
then, um, you know, the, thedot-com bubble, burst 9-11
happened.
It had a lot of negative impacton what?
What?
Our sector.
So, unfortunately, we had tolet go of our team and we were
only two, the two partners wewere left.
And you're right once you'veset up a company like that and
it's up and running, but thenyou go back to zero.
Actually, you don't really, youreally don't feel like doing it
(26:13):
again, because it's like no, no, it's kind of yeah, the
excitement is gone.
So, yeah, do something else.
And we did that.
And a few years later we set upa different company which is
we'll now phone you, we set thatup, but, uh, doing the same
again, yeah, it's probably, it'sprobably not a lot of, not a
lot of fun.
What?
Speaker 1 (26:29):
one thing that I want to.
I'm very curious about youropinion on this.
You know, normally M&A peoplewill tell you you guys should
prepare your documentation, haveyour data room, everything
prepared for the potential eventof an M&A process, right.
But we all know that founder'slife is very messy and the
(26:53):
company changes overnight andwe're always very busy with
10,000 things that we could do.
We're not ready to have like,oh, I'm going to spend three
weeks to prepare like all thedocumentation, to have
everything in place, all thepaperwork, all the certificates
and whatnot, and to be preparedfor an audit or a due diligence,
(27:13):
right, Of course, M&A boutiquesare like no, no, you guys
should have it.
If you don't have it, well, wecan help you with that, because
they want to sell you thatservice.
What's your position on this?
Like, how would you approachthis as a founder?
Is that something that youthink every X months, you have
to dedicate some time to do itwhen you are potentially
(27:34):
eligible for an M&A process.
Or no, wait until the firstprocess, prepare it.
Even if you are signaling thatyou are a first time approaching
these kind of processes becauseyou don't have it.
Therefore, it signals thatyou're a rookie.
Speaker 2 (27:50):
Yeah, well, no, actually, actually I would go
with the latter option.
I you absolutely right, this isa lot of work.
I would definitely not do itout of the blue if there's no
specific reason.
Also, I mean, it's good to beprepared, but I would say, be
prepared in general by doinggood housekeeping on your
company, keep all youradministration in order, all
your documents, all yourcontracts.
(28:12):
That should be, or in anorderly fashion, yes, absolutely
.
But preparing a data room andall the or even documentation
about your company, like abusiness plan, just in case
somebody may know, I would do.
I would definitely not do that.
You know, also for the verysimple reason that this data
gets outdated very quickly, youknow, and so then then you know,
(28:34):
if you do it today and thensomebody approaches you in half
a year, you will have to go backand update it anyway.
So I would recommend you knowoften the trigger for an m&a
process, so the trigger that youare actually really considering
selling your cell company s iswhen you are approached by a
potential seller, by just one,and this is like a classical
(28:54):
trigger.
And in that case what?
I would recommend that, if youthink that buyer is serious in
that moment, hire an M&A advisorand start a formal process
where this one buyer who firstapproached you they can be a
part of that process.
But you also deliberatelyinvite other potential buyers
and this is the moment when youstart preparing all the
preparations.
Of course you'll have a part ofthat process, but you also
deliberately invite otherpotential buyers and this is the
moment when you start preparingall the preparations.
(29:15):
Of course you'll have a bit ofdelay, it's not immediate.
But, as you said, as a company,I mean first and foremost you
have to think about the business, keeping it afloat, being
profitable, servicing yourclients.
You can't always think about,oh, I'm going to sell it.
I mean, despite of what I saidbefore, yes, it's true, but
still I mean you're running abusiness, so you know how much
(29:40):
work are we talking about here.
Speaker 1 (29:41):
How many kinds of documents Can you give a little
bit of an overview?
Maybe Don go into the specifics.
Is that like two weeks of work,two months of work?
What kind of documents can weexpect to prepare in a first
package of deliverables?
Speaker 2 (30:00):
Yeah, I can give you a little bit of background on
this.
The short answer is it dependson the size of the company.
Stage of the company Makessense.
For example, in my company afew years ago we ran a financing
process which I was in chargeof, and in the course of that we
also had to prepare a duediligence room and I could tell
you I had thousands of documentsin there, because there is, you
(30:23):
know, the general companyinformation, who are the
shareholders, meeting minutes,of all the shareholder meetings,
like your board of directors,the shareholder meetings, like
your board of directors,shareholder meetings.
So if your company is 10 yearsold, well then you know, and you
have one per month, then thoseare already already like a
hundred documents easily.
Um, then you know all the thepublic deeds, escrituras of your
(30:48):
, of your company you need tohave those, of course all
contracts with suppliers, withwith clients, then all the
contracts with your employees,um, and there's then information
about your product and it getsmore and more and more and more.
The more you have the um, thebigger the company is, the more,
(31:10):
the more companies will come upand, I'm sorry, the more
documents will come up.
And but of course you want todo it.
You want to.
Basically, there's some standarddue diligence lists for digital
room that you can.
You know, I as an advisor, I'dgive to a client and I have them
prepare it and you start withthat.
But then during due diligence,often the buyers will even ask
(31:31):
for some additional things.
So, yes, it does take a lot oftime, but you know, the good
thing is you can do it inparallel In a process.
What you first have to prepareis your business plan, your
business plan and your financialprojections, because this is
what is first presented to apotential buyer or to an
investor potential buyer or toan investor and that process to
(31:54):
get in contact with theseinvestors takes quite a few
weeks.
And then, until you have afirst management presentation
where you basically have ameeting between the management
of the company and the potentialinvestor that also takes some
time and after that you havesome pre-due diligence questions
and then you would regurgitatethe term sheet.
So what I'm trying to say fromthe moment that you start the
(32:14):
process to where you actuallywould start a due diligence,
usually it's at least threemonths, so during that time you
can prepare the due diligenceroom.
So that's another reason whythere's really no motive
whatsoever to have this preparedbeforehand.
Speaker 1 (32:30):
No, of course not.
To have this preparedbeforehand.
No, of course not.
The reason why I sort of didthis documentation in the
company is not because we'reselling the company and I want
to send out the message.
We're not doing it.
It's because we're starting towork on a lot of M&A projects,
because between 2021 and 23,.
Six of our clients got acquiredright and we were involved in
(32:55):
different capacities right.
Sometimes it was just auditingthe product, sometimes it's
doing the integrations,sometimes it's dismantling the
product and sometimes it waslike doing more things or just
advising, or sometimes we werenot involved at all, right, and
so it kind of like piqued mycuriosity and I started delving
into M&A.
(33:15):
And the reason why I'm bringingthis up and you're going to get
it, why right now, is, I said,maybe thisA teaser, right, which
, to my understanding, is thesort of PowerPoint presentation
one, two pages of why you wantto sell the company and you
(33:40):
basically say, like we're thiskind of company, this size,
these are vision, these arecompetitive advantage and two or
three things more, but youdon't share data, maybe just
some basic data like more orless like a threshold of
revenues or the annual profitgrowth rate and stuff like that,
but you don't go into thespecifics because you want to
show something to attract, butyou don't want to share too much
(34:03):
so that you don't discloseright and um.
And by doing so I remember,though, like wow, first off I I
had never thought through whatwas the real value proposition
of Mars Based, and I had tosqueeze my brains in that
document.
And the funny thing is that Icame up with the marketing, the
(34:25):
new claim of the company that isbeyond development right, and
two or three arguments I use nowin my sales process is like our
employees stay for an averageof seven years in the company
and all of them have workedtogether, so technically they
don't have a ramp up.
It's kind of like a verycohesive team of developers.
They've worked together alreadyright, so they understand very
(34:49):
well each other and, given theamount of attrition that there
is in this market, this is avery high competitive advantage
for us.
So by preparing for an M&A, Igot marketing and sales
arguments and documents andassets I'm using now to my
advantage.
(35:09):
Do you think we can draw anyparallelism with fundraising as
well?
Because at the very end, m&a,sales and fundraising are all
sales processes.
Yes, yes.
Speaker 2 (35:19):
Yes, absolutely, the two processes are very related.
They're very similar and you'reright about what you say.
Actually, you know, preparing ateaser which is basically a
summary of your company.
If you do it yourself, itforces you to really think about
okay, what is the quintessenceof my company and how do I get,
(35:40):
how do I kind of formulate thevision or the mission of my
company in a very short sentence?
It's basically about, you know,doing an elevator pitch of your
company.
You know, and for a lot ofpeople it's very difficult to do
an elevator pitch if you askthem just like that, if they're
not in the process becausethey're not prepared, and it's
actually quite difficult oftento sum up in 30 seconds what
(36:01):
your company does.
But you're absolutely right.
If you want to sell to somebody, you need to do that, because
they're not going to listen toyou for five minutes and want
you to go on bubbling on whatyour company does.
You need to be concise and youwrite an m&a process or a
financing process.
They often have other, maybeunexpected or but also positive
(36:21):
consequences.
Once is, one thing is if you,for example, if you try to raise
financing or if you try to sellyour company and, let's say,
these processes in the end arenot successful.
What you do get, you getfeedback from the market.
You get feedback that, okay,maybe my company wasn't prepared
to be sold because there wasstill something that's missing
(36:43):
or it's not, I should get intoorder.
Or maybe my value expectationwas too high, and the same for
the financing.
I mean it didn't depend on thefinancing.
If you don't get the financing,you will also learn something
from it.
You'll learn, okay, maybe Ididn't position my company right
, I didn't sell it right, maybemy plans for the future aren't
(37:04):
convincing.
So it allows you to go back toyourself, do an introspection,
maybe change some things in yourbusiness.
Definitely change some thingshow you present yourself next
time you go through such aprocess.
So there's always learnings.
And one other thing that alsoquite often comes out of an M&A
or financing process that youactually don't find an investor,
(37:25):
but you find a business partner, somebody who may wow okay,
maybe I'm not interested inbuying you, but we could do like
a pilot project together andyou may get a new client.
Today.
That always also happens quitea bit.
So your experience of likedoing this teaser I can confirm.
I mean, of course.
I mean, a financing process isa lot of hard work and and you
(37:45):
don't just do it to try it outno, you, you should only do it
if you have serious intentions.
But what I'm trying to say is,even if it should fail, you can
get something positive out of it.
Speaker 1 (37:56):
Yeah, On the topic of rejection, which was going to
be my next question, right, howdo you bounce back from it?
Because I take it that wetechnically know that M&A
processes are very long and theycan be very distracting.
Right, so there's a potentialacquirer comes and they start
involving you in this process.
You prepare the documentation,you talk to M&A boutiques, you
(38:18):
negotiate, then you talk tolawyers, then to the acquirer,
go into due diligence and stufflike that.
It could drag along 12 to 18months and maybe at the very end
of the process there is a noright.
So, wow, that can be sowrecking.
And how do you bounce back fromthat?
(38:39):
How do you prepare yourself forthat?
Speaker 2 (38:42):
Yeah, that's a very good question.
It's actually something thatany founder or management of a
company goes into such a theyshould be aware of, of these
possibilities, and they shouldum consider it from the very
beginning.
And the way you present, youprepare yourself, for that is
how you, how you go about theprocess.
You know the.
(39:02):
The reason why it's a good ideato have an m&a advisor is that
you have a shield.
You have a shield between themanagement of the company and
the potential investors, becauseit is a lot of work, especially
if you're the founder of thecompany, owner of the company,
it's very nerve-wracking.
I mean, you know, as a founder,it's very hard to separate
(39:27):
business and private life.
The two become intermingled.
So if you're in an M&A process,which is very stressful, and you
also have a stressful business,this will take a toll on you
and on your private life and youwill want to get all the help
you can.
This is why you have an advisor, because that's why usually you
let the advisors do thenegotiations with the investors.
(39:49):
You let them answer thequestions, because that takes a
lot of the edge away from you,because what often happens at
the end of an M&A process themanagement is exhausted.
It's really physically andpsychologically exhausted from
the process.
And then when you get a no,then you're like, oh Jesus, I've
wasted all my time and thatcould really have a negative
(40:11):
impact on your business.
So you need to be aware of thatis definitely an option, a
possibility at the beginning andyou need to mentally prepare
yourself.
Okay, well, I'll pull through nomatter what, even if I don't
sell the company.
Okay, my company is still going.
Then I'll just continue andmaybe I'll try in one or two
years and maybe, as we saidbefore, you get some positive
(40:41):
learning out of it.
But you need to prepareyourself psychologically for it.
And again, this is the functionof an advisor to act as a
buffer in between you.
Use that buffer becauseotherwise you'll just burn
yourself if you expose yourself.
So you don't need to be anexpert in that.
There's other people.
It's better for you to be anexpert in your business to make
it successful.
That would be my advice on that.
Speaker 1 (41:04):
Actually, if I forgot that, yesterday we recorded
another episode, but for theSpanish feed with Diego Marino,
who's creating a softwareboutique M&A friendly for
founders as well, which I guessnow is the trend that is called
Petalo, and he touched onsomething very interesting.
(41:24):
I want to get your take on that,which is what clauses would you
recommend for entrepreneurs todemand as part of the M&A Like?
For instance, you mentioned Ididn't know back at the time he
sold Daxport to New Relic in2014.
And they convinced him to havesome leadership in a part of the
(41:47):
company, but as soon as hejoined the company, that area
disappeared and his duty wassomething else.
And they told him now you gotto do this, like he was like a
project manager or somethinglike that, and that's called the
tour of duty.
This is what you got to dobefore you quit the acquiring
company.
And so he said, had I knownthat, I would have requested or
(42:10):
demanded to have a clausewhereby if my responsibilities
within the company changeddrastically from what I was
hired to do, then I'm out right,I don't know what other things
you that you have been a foundercan you recommend other
founders that they request inthe negotiation process?
Speaker 2 (42:34):
That's an interesting question, because you say
request.
Well, I can recommend a lot ofthings that you should request,
but for the first place, youhave to ask yourself in what
position you are in thenegotiation Normally not very
good yourself in what positionyou are in the negotiation
Normally not very good.
Well, it all depends on how goodyour company is and it also
depends on the market cycle, youknow.
(42:54):
Going back to what we talkedabout before, before there was a
very high demand for companiesand that meant it's kind of a
graph that it crosses itself.
When the market is very highand there's a lot of demand to
buy companies, then you as afounder, you can ask for a lot
(43:14):
of things.
Often you can ask for an allcash deal.
Your earn out period will beshort, which in which, if that
is the case, these clausesbecome, they're not so relevant
anymore.
But if the market is in a lessfavorable position, as we are
right now, it's not really bad,but it's definitely worse than
(43:36):
it was before.
Well, it means that you willnot get all cash for your
company.
You'll likely get like a partpaid in shares of the acquiring
company and of course there'salways some earn out.
It's normal, it's part of thegame company and of course there
will be there's always someearn out, it's normal, it's part
part of the game where you know, typically at least one to two
years.
You you'll have to stay and ofcourse you you can try to
(43:59):
protect yourself in any way youcan, but I would caution here.
I would, I I would say, proceedwith caution, because if you
give indications to theacquiring company that you are
kind of not so keen or willingto do the earn out, it's a bad
sign.
It's because it's a bad sign,it's like you don't believe in
(44:20):
the project, because the reasonthat the buyer wants you to stay
on is first of all because ofyour knowledge, but also,
secondly, because they want tolink your payout to the success
of the company, becauseotherwise it could just be that
you sell the company to them andtwo months after and you leave
without an earn out, and aftertwo months after you left, the
buyer finds itself that thiscompany actually wasn't as great
(44:42):
as they thought it was, and theway for them to protect
themselves is through these earnout periods.
So as a, as a seller, as theseller of the company, you you
want to be careful not to sendthe wrong messages.
And of course, I think thatwhat happened to the, the, the
person you just referred to,that was unfortunately.
But you know, I think it's it'sdifficult, it's difficult to to
(45:07):
foresee all the differentpossibilities.
I mean, there's a lot of thingsthat could go wrong or could go
south.
And of course, yeah, you shouldtake some precautions, but to
what extent?
Because, also, you know, oftenthese deals they're how do you
(45:28):
say?
There's a lot of possibilitiesthat they can go wrong.
Until it's not closed, there'salways a high risk that it may
not end the way you want to.
So, therefore, all of thesethings matter and you want to
keep it simple and with apositive outlook.
So, if you go, okay, once youbuy the company and you do this
(45:49):
and this and that, then I wantto have this and this and that,
then like, hey, come on, I'mbuying the company.
Of course I'll be deciding, youknow.
So you know.
Speaker 1 (45:59):
The client is always right, right, one of the biggest
bullshits that we've ever heard, but I guess everybody
perpetuates this.
Of course, every founder giventhe opportunity would like to
request yeah, I'm selling thecompany, but I'm out of the
equation because I want to moveto the next thing.
Give me the cash and I'll gocreate another thing.
Then the acquirer is like well,precisely, I want you.
(46:21):
I think all the acquiringcompanies know that the heart
and the mind of the CEO of theacquired company will be
somewhere else.
But the fact that they stay isgood for the team morale, right?
So if they buy Mars Basetomorrow and I'm fucking off, or
(46:41):
like the three founders werenot staying, the team will be
like you guys sold us, right,what's the point?
And they will leave the dayafter because they have no
obligation.
Maybe the founders do, but likethey don't.
But the fact that you'restaying, maybe that sends out
the message that nothing willchange.
We'll continue operatingindependently, which sometimes
(47:03):
it's true, most of the timesit's not, but it's a disguised
lie.
But you got to sell it to theteam, right?
And because you have your earnout.
So my point being how to findthe balance?
I don't know that I know that'snot an easy question.
But how to find the balancebetween I'm leaving money on the
(47:23):
table by getting out of theequation or, you know, I'll just
take the money, I'll stay inthe company for two, three years
, do absolute minimum while I'mmoonlighting other projects and
stuff like that.
So I don't know.
I don't know what I would do inmy position because I'm not a
corporate guy.
I know I could stay there but Iwould be working in other
(47:47):
projects.
I did before, like we createdMarsh Flplace while I was in my
previous company, right, but Iwas working on weekends and
night shifts and stuff like that.
But some people cannot do it.
They'd rather just leave moneyon the table.
Move on to the next thing.
I guess that depends on thefounder type, maybe.
What would you do?
Speaker 2 (48:06):
Yes, I think it depends.
I mean it depends a lot, ofcourse.
I mean it depends also.
I mean you have to you enteringinto a contract okay, maybe
there is a possibility, as yousay, okay, you know, I won't
stay in my earner period, andthen you basically lose a part,
or which usually would be a bigchunk, of the part that you sold
.
Um, I don't know, for me it'salso a kind of um, it's a
(48:27):
professional commitment, I mean,and you know, especially if
it's your company and it's yourteam and you've worked with them
for years, then you know, Ithink also as a founder, what
you want to.
You want to make sure that this,your company, the services, the
products you created, and theteam, that they find a new home,
a good new home, that they finda new home, a good new home,
(48:47):
and you want to help thatprocess.
You know there's this thingcalled post-merger integration.
You know a lot of this.
Actually, a lot of, actually,m&a transactions fail after the
transaction because the acquirerand the acquired company, they
don't integrate well, becausethe integration isn't done well,
because of different corporatecultures.
(49:08):
So there's a lot to be done andof course, it helps a lot if
the original founders or ceo ormanagement is still there.
So you know, I'm saying, ofcourse it depends on every
person, but you know, um, Ipersonally, as a founder, I
think it makes sense to alsoconsider that that you you
because I mean you know all ofthe people you worked with you
(49:29):
may come across them later onand, as you mentioned, you don't
want them to feel, hey, thisguy just sold us and to get the
money and then he didn't careabout us.
I think that wouldn't be alegacy you would like to leave
behind.
Speaker 1 (49:43):
Good, I don't know, we're running over time.
I don't know if you got five to10 extra minutes because I have
so many questions and I willactually take on the occasion to
ask you a couple of startupbrand questions.
I never got to ask you, so onerelated to M&A still is how much
money like a company of, say,companies that are being sold
(50:03):
right now companies up to 20, 30people, maybe tech companies,
because they're selling out to abigger player I take it people
in our audience are more or lessthis size how much money do
they have to put up front forthis kind of process between
boutiques, advisors and whatnot?
Speaker 2 (50:24):
It depends.
I mean there's two models.
There's a model where you havea retainer and a success fee.
It depends.
I mean there's two models.
There's a model where you havea retainer and a success fee.
That means you pay the M&Aadvisor a monthly fee and then
you get a percentage of thecompany that sold.
How much?
More or less?
In both cases it would be a fewthousand euros per month during
(50:47):
maybe three, four months.
And then the success fee.
Well, I mean, where I come from, it's typically 5%, but it
depends a lot on the amount ofwork you do.
And there's another model whereyou have, maybe, an advisor that
works only on a success fee, sothey only get a fee once the
(51:11):
company is sold, which is, ofcourse, the better option for
the entrepreneur because theydon't have a cash flow that they
have to put out up front.
However, your costs aren'treally covered and also there's
always a very high risk,especially with smaller
companies, that the process willnot go to its end, because in
(51:32):
any other day the, the, theowners of the company, at any
point they can abort the processfor whatever reason, and as an
m&a advisor, you can't protectyourself against that.
So I personally the way Iprotect myself against it, that
I asked for a retainer because Ialso believe in you know what.
You know what people don't payfor.
They don't, they don't value it, they don't appreciate it and
(51:53):
uh.
But you know, again, it dependson the point of view for the
company, obviously it's betterif they have a have a success
fee.
Uh, only model.
Speaker 1 (52:02):
No, of course, I mean a hundred percent.
I agree on having this sort oflike paywall because, as you
said, like no, like, that'ssomething I don't know.
Pay no gain, right?
Actually, that would be the.
It's funny that I got thesentence right in English and I
didn't know how to say it inSpanish.
This is how used I am to uh, tospeak Spanish for business.
(52:26):
Like, literally, I have no ideaabout some terms or sayings.
Speaker 2 (52:31):
No, of course the payroll helps.
Speaker 1 (52:33):
It qualifies, it qualifies At the very end.
M&a is also like for you, it'sa sales process and you have to
qualify your prospects, and soif three out of five they don't
want to pay a retainer becausethey're like, oh no, we totally
don't, like we're aligned withthis, but we don't have the
financials and whatnot.
But you have two other optionsthat they pay, let's go for the
(52:53):
paid ones.
I mean not because it's easymoney, it's because most likely,
they're going to be ending upas better clients because they
want to put up money up front.
There's more trust, right, andso anyway.
So the startup brand question Iwanted to ask you.
I mean, you've come to a fewevents.
There are a couple of signaturequestions that we asked there.
One of them is your mostexpensive fuck-up and how much
(53:16):
money did it cost to the company?
Speaker 2 (53:18):
70,000 euros.
Oh wow, what was it?
And basically I spent 70,000euros.
You know one of these like unacesta de Navidad.
It cost me 70 000 euros let meexplain the context.
Speaker 1 (53:31):
Christmas box, right?
I don't know if that's theenglish like uh, but yeah yeah,
exactly christmas gifts yeah,yeah, wow, wow yeah, uh,
basically what happened?
Speaker 2 (53:41):
we were raising financing.
It was like the uh first, uhwell, it was the second round
and in in phone, you and we hadthese advisors and, uh, that had
been recommended to us and youknow already, at the beginning,
after a few weeks, I didn'treally like the way it was going
and I was actually thinkingabout, um, firing them, about
(54:02):
not continuing, which I we hadthe option from the contract,
but they convinced us to stay onbecause we needed the financing
.
In the end, we found financingon our own, through our own
contacts, and we closed it.
And they still got their fee,which was that 70,000 euros.
(54:24):
And for Christmas they sent methis Christmas box which ended
up costing me 70,000 euros.
And for christmas, they sent methis christmas box which ended
up costing me 70 000 euros.
And that that really hurtbecause, I mean it, the round
wasn't that big and you know howcome they get a percentage, if
you like, on money they didn'tbring to the company.
Speaker 1 (54:42):
Like because I mean what was the deal?
Speaker 2 (54:45):
because the thing is you pull the effort.
I mean you know the advisor,they do more, more just the
contacts.
They do the whole preparation,they advise you the process.
So you know, in per se it maynot be a bad setup for a
contract.
I just feel these guys in theend didn't add that much value.
Speaker 1 (55:04):
But you know of course in hindsight you're
always smarter, okay, and theother start brand question it's
the useless superpowers.
So everybody has got a uselesssuperpower, something you do
extremely well, but it's fuckinguseless.
What would be yours?
Wow, very useless.
It has to be something like Ialways put on their socks, like
(55:25):
on the wrong foot and stuff likethat, but like it happens every
day.
So I do it very well, but it's,you know, it's useless, wow you
really got me on the spot there.
Speaker 2 (55:36):
Um, useless.
I mean, you know I low, I canrecognize a lot of songs when I
hear them playing on the radio,because I really love music, but
for business that reallydoesn't get me anywhere.
Speaker 1 (55:49):
Any particular type of song, like songs you don't
like.
Like, for instance, one of myuseless superpowers is I know
the lyrics to songs I don't like, but I don't know the lyrics to
the songs I like.
Right, it's like all of thesesongs like Rihanna, britney
Spears, one Direction, they getstuck in my head because it's
like pop, shit, oh yeah, and youhear them everywhere.
But my songs, I love them, butI don't know the lyrics to them.
(56:12):
So it's like, geez, why?
Why is my brain playing?
Speaker 2 (56:16):
on me.
Yeah, well, it happens they're.
They're made like that, thesepop tunes, that they stay in
your head.
Yeah, I mean, that's that's.
Speaker 1 (56:22):
You know, that sounds bad I know well can I have to
to wrap this up?
Well, thank you.
Thank you, clements, for beinghere One minute for you.
I'm rolling out the red carpet.
How can we help you, how can wehelp your new initiative?
And if you've got somethingelse to share, just one minute
for you.
Speaker 2 (56:41):
I'm spreading the word about this new project.
Obviously, I'm looking forclients.
I'm looking for companies whichare founder or owner-led who
would consider sellingthemselves, or company who want
to raise capital.
At the same time, I'm alsoreaching out to a lot of
(57:02):
investors just to make thecontacts, because I have quite a
lot of contacts in the investorcommunity.
But they know me as anentrepreneur who's looking for
money.
They don't know me as somebodywho's bringing opportunities to
them.
So you know I'm also working onthat.
So you know, to help, I mean,you know, spread the words.
You're helping me with thispodcast.
I'm very thankful for that andyou know, anybody who is
(57:27):
interested in any of theservices I offer, like selling
your company, financing yourcompany please lead them my way
and I would be happy to have aconversation with them.
That means vielen Dank, vielenDank.
Thank you very much for yourtime, alex.
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