How to Build a Global M&A Machine with Local Expertise Part 2

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1:29this episode is sponsored by deal room and if you're in corporate development or managing m &a deals this is something you'll want to check out on april 16th at 10 30 a.m we're hosting a live all demo no pitch session it's a hands-on look at how teams are using deal room to set up deal rooms, manage permissions, and keep diligence moving without all the manual chaos. You'll also see how buyer-led can lead the process even if the seller isn't using Dealroom and how that gives you a real edge, better visibility, faster timelines, and fewer drop balls. It's designed to give you practical takeaways you can use right away.

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2:24I'm Kisan Patel, and you're listening to M &A Science, where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies, and what actually happened during M &A deals.

2:48Hello, M &A scientists. Welcome to the M &A Science Podcast, where we learn from the best in M &A to uncover proven techniques for enterprise value creation. If you're interested in learning more about how to optimize your M &A practice or want to get involved with our community of forward-thinking M &A practitioners, visit mascience.com. Subscribe to our free weekly newsletter. If you want to keep up with us on the go, Head over to LinkedIn and follow M &A Science. I'm your host, Kisan Patel, founder and CEO at Dealroom and chief scientist at M &A Science. Welcome back to part two of this podcast interview with Sindra Telleras-Holand, head of M &A at FISMA.

3:31FISMA is a leading provider of cloud-based business software, specializing in accounting, payroll, invoicing, tax, and HR solutions. This man has over 16 ,000 employees serving over 2 million customers across Europe and Latin America. If you missed part one, I recommend giving that a listen first. Otherwise, let's pick it up right where we left off. If I were to pick up a buy-side banker in this new market for their expertise, I don't want to pay banker fees on the buy-side because I feel like that's stupid. Not to knock any buy-side bankers out there. I get it on the sell side because you're creating an auction and there's like a base around the value created.

4:12But the buy side, can I find like an ex-corp dev person and saying, hey, I'll put you on like an hourly engagement or something like that. I'm just curious of like... Absolutely. You can do that as well. With the buy side banker? Instead of a buy side banker, yes. The buy side banker is going to want fees. He will have fees typically on a presenter deal size. I like how you're being very honest with me. I really appreciate that. What's the typical percentage range? Oh, it can vary. But it's also, for us, a buy-side banker that's as much a door opener as anything else. And to have that cultural aspect and to know the market.

4:45Because once we have an LOI, then the Visma Aminé train takes over. And then we run the deal in our own way. So getting up to an LOI, that's where we see that they can actually be helpful. Still a lot of fees to pay. Can you negotiate the fees? Absolutely. Nothing is signed before it's signed. Okay, so we negotiate the fees. Would that be a thing, is find an ex-corp dev person? I feel like they would be as good if not better. Oh yeah, and absolutely. And there are these platforms where you can find M &A talent. If I were to start a business now, that's like an interesting opportunity is to have, I always think tech enabled right away because I come from tech.

5:21But if you can bring in folks that had that deal expertise, that don't have that mindset of the salesperson, of I need a commission on every single thing. I don't know. There's something there. Absolutely. Totally agree. If somebody listening wants to build on that, let me know. I can't stop what I'm doing now, but glad to help out. So if we brought in the local expertise, we got comfortable doing that deal. It's probably the best thing. Any other big risk items of just like executing the deal and making it successful that why should or shouldn't do the deal? In terms of risk? Yeah. You're going in a first international deal.

5:56We're just branching out into the market. We're still talking about the German deal. We're talking about the German deal. Okay. okay, there are risks. By default, there are tons of risks in M &A. You need to get comfortable. You're not able to diligence everything. It's being blind to risk, but then being like exponentially more blind because it's in a whole different country. Yeah, yeah, different culture. That's what I'm trying to learn from you. You teach me that, I'll walk away happy. You're on different continents. When you've done 350 deals, you always have that. It's a balance. You need to understand the market.

6:24You need to understand the key DD topics. On the other hand, analysis paralysis. You need to know what's important and what's not important. You can talk yourself out of any deal. That's the easiest way to do it. Easy peasy. Then you don't do M &A. It's actually pretty easy. There's always some issues with all deals. Even the slam dunk ones, there's always something that you can use in some argument not to do a deal. There is always risk. But I do think if you do a thorough DD, then you do it with open eyes. You know the risks. And then you say, okay, this is actually still worth it. Why do you keep the cost of diligence low?

6:59I feel like that's the other flip side because everybody will tell you due diligence. Even the point you made earlier is like you're spending more. You're even looking at hiring a big name consulting firm to help with diligence. Look at me. I'm Indian, man. I'm cheap. I'm just like, it's in my DNA to not spend money on things that you're not going to get money back on. Which happens if you're going to do a deal and all of a sudden you're like, we can't do this deal. Or you get deal fever then where I'm invested in and feel like I have to do this deal because I'm already financially invested into it.

7:27In business, well, we are a trade buyer. We're an industrial company. Are we concerned about fees? Absolutely. That's also why we have an in-house FDD team doing that in-house. If I look at the returns on that versus using an external... What do you call it? FDT? Financial DD. Oh, FDD. Okay. We have people who can do financial DD. We have three in-house M &A lawyers. So to compare that to having sort of external lawyers, that's a big difference. Then we have tech people only doing tech M &A. Also a big difference. And then we have the whole operation team that's helping us out on commercial aspects, etc.

8:03Economies of scales sound great. Can I borrow your team once in a while? We can discuss an hourly rate. I'm going to go invite them out for a beer. Absolutely. No, yeah, it's a three for two. Two for three. We do 30 to 40 deals per year. So that's also when you calculate your IRRs on having people instead of consultants on this. That, of course, helps a lot. Okay, I have a feeling, and this is actually putting it out there, Like my current approach, I do go on those platforms like Upwork and other platforms, FinTalent, and we'll hire freelancers or referrals. I'll go talk to folks like I know, like you and tell you, hey, I'm trying to save some money.

8:42And you're like, oh, I know somebody that just left a role and they're just freelancing right now. Perfect. That's been my biggest wins. I know maybe if I was doing the international deal, I'd do a little more legwork to find the resource. Is that fair to say is like a good approach for... For a first timer? Yeah. Absolutely. Yeah. That's total legit. Can I ask you questions like how you guys operate over there? Over? Visma. One of the reasons I'm asking is I've talked to so many corporate development professionals. Yeah. And it's interesting. You can have a PE-backed company and they really are maybe just consolidating industry.

9:17And there's some sort of direct correlation of this corporate team's performance to the growth of that company revenue-wise. And then you have a larger strategic where a lot of it's like supporting the leadership like we talked about and really facilitating that. And then I guess structurally too, there's strategics that almost operate more like private equity firms in terms of the way they're structured. They're sort of like a good financial discipline, investments in, investments out. Because a company like yours have done both, you've made some exits out. And then there's ones that are very just strategic, extremely like moonshot bets that it doesn't make any sense till 10 years later when they can tell everybody I told you so.

9:57Where do you sit in that world? Because I'm confused. I've tried to do my diligence. And at first I thought you guys were like the typical strategic. But then the more I looked at it, I'm like, that's kind of not. It's a legit question. We do look at us as a trade buyer. We do look at us as a strategic buyer. But at the same time, we're also maybe more opportunistic. than your average trade buyer. So if you look at the divestments we've done historically, that's all been, we've divested our services, our BPO division, we've divested our IT consulting division, we've divested the hosting division, we have divested retail software.

10:33The things we've divested has been because we want to focus on really being that, call it SMB, ERP, cloud champion in Europe and Latin America. So I think we're there now. Can you tell me a little bit about that? What prompted the company to go focus in that specific area and divest those assets? I can, of course, only relate to the last 16 years. But if I look at it, I say, where have we performed best? And it's that SMB, accounting, payroll, invoicing, tax. That's been the business unit that has always performed the best and been that North Star. So it continues to be, right? For the American listeners, that would typically be Intuit.

11:14So in many ways, we're sort of an intuit of Europe. That business is just inherently much better than a services business. And it's valued thereafter as well. Having that sort of very clear strategic vision that we've had and HG as well, they've been a good owner. We've been working on this together and having that strategic mindset in really nurturing that part of Isma. And now actually that's still an lion's share of what we're doing. That makes sense in terms of how the strategy has evolved. I guess clicking down in how you operate, like you buy so many companies, what happens to these companies?

11:51Because a lot of them still carry their same name. They're not Visma this, Visma Norway, Visma Denmark. They're all operating their independent brands. And I'm wondering, is this like some of the software roll-up companies, a lot of popping up Canada, new ones as long as one big behemoth out there, that don't really do a lot of integration. They sort of do some pretty light touch stuff on the back end and then let them run. That's the playbook, basically. It's just arbitrage the valuation over the scale. What does that look like for you? I wouldn't necessarily compare us with the ones you were throwing out there.

12:24That's just an example I've seen. I think we are inherently different. But in terms of that, call it soft integration approach, I agree. We also have that, even though we were probably 100 business units when I took over as head of M &A and then we've probably done 200 plus deals since then, but we're still 180 or 190 business units now. So it's not fair to say that we don't integrate and we don't merge. So some can merge. So we do absolutely do that. When it makes sense, we do it. But I do think if you look at it holistically, we like to buy entrepreneur-led businesses that has a driven entrepreneur to still have that on board.

13:03Founder. Yeah, founder. Five years after, between 70 and 80 % of all founders, they're still on board in Visma. What? And I do think that's pretty spectacular. So that says a lot. How do you keep them? If you're out of there I'm like done. I do think that soft approach in terms of integration we don't call it integration by the way we call it onboarding. For me at least it sounds much better. But having said that they still have a very strong ownership feeling that they still own their own company even though it's actually owned by Visma. Might be an earn out for one year three year five years.

13:35But the reality is we give them a lot of go-to-market freedom. But then we are extremely rigorous on a few, but very specific elements. First of all, financial reporting, fifth working day every month, previous months reported, full P &L, full balance sheet, full cash flow statements. That's super important. And after all, we are working with accounting and reporting and tax systems. So it's a bit, we should eat our own medicine. You're able to work with the companies much more hands-on than you are if you're getting from the previous month on day 20 in the next month. It's already old. Having that fifth workday every month gives you actually fresh data that you can steer from.

14:16We are very data-driven. So that's one element. Tech is the other element. We're extremely rigorous. Security, there is so much. You would know this as well. The cyber security, very important. I would even argue probably tech and cyber, that's the single biggest reason why we pull out of deals. If we don't believe that there is the right vision for the tech, we will pull out of the deal in a heartbeat. We are almost religious on this. It doesn't need to be all fancy and super multi-tenant cloud from day one, but you need to have that vision. You need to have the belief and you also need to have the organization to do it.

14:50If you don't believe you have that, then we will be quite upfront about that. Visma is the biggest network of B2B software SaaS entrepreneurs globally. And there's almost 200 of them out there in the Visma ecosystem that are working and working together, collaborating, measuring, comparing what type of KPIs are you following? Okay, why are you doing so much better than I am? Okay, what do I need to do here to increase that, etc., etc. So we always see that if you look at the companies we acquired in 24, back again to the type of businesses we acquired, good businesses, great businesses, I would argue.

15:29So they performed almost a rule of 50 on average. That's second to none. It's really great businesses. And adding the fact that it was 33 businesses that we acquired last year makes that pretty unique, pretty solid. What was the rule of 50? You take the growth rate plus the margin, the cashier bid-off margin. Ideally, it should be above 40 or better. So when you're getting close to 50, I would argue it's pretty good. So you're taking a rule of 40 and saying... Yeah, exactly. Exactly. So it's a rule of 40 metric. But the rule of 40 metric is then closer to 50. Yeah, I like that. And still we see after one year, because of this, because of you entering into this environment, we do see quite a big shift upwards on that rule of 40 scale.

16:16That you're actually growing faster and you're earning better margins. Because why? Because all just becoming, just starting measuring the right KPIs. there's so much inherently low-hanging fruits in these businesses that when they come into a professionalized system with a professionalized board, you really start to push on the right things. And that's also one aspect where we are pushing a lot is around adding the right competence to the various companies. And this is, again, no companies, no process is the same. So if there is a company struggling or scaling super fast, Maybe you should have someone who has scaled a software business before.

16:55Maybe you should add HR competence. Or if it's a company that has a great product but struggling a bit with go-to-market channel, whatever it is, then you'll make sure to add that competence. Someone who's... We have entrepreneurs in this group that have grown their companies from zero to 150 million euro ARR. There is a lot of competence throughout the group. Adding that mix of competence to the various companies on a board level, I do think that is very important. It's interesting. You have things that you described that are very typical strategic, then you got elements that sound very private equity-like as well.

17:25A couple of things I noted that you mentioned for retainment of leaders was burnout, like one to five is pretty common. You also mentioned just reporting accountability right off the bat, getting your numbers in within five days a month. And the other piece you mentioned, developing the community between the leadership, that they're there really comparing notes and getting value from each other as a part of the business community. That sounds pretty good. Yeah, particularly now, right? You even see AI is a big thing. How to monetize on AI and how to use it. And we have several hundred AI experiments all across the group.

17:58I'm still going back to our deal. The offer you put on the table to buy our company. You need to prove your growth rate, though. I got that. Don't worry. You got a great FTD team. They're going to make sure. I was thinking about all the stuff I could buy with it because I could get that house on the slopes and probably a nice SUV to get up and down that mountain and stuff. How do you convince me? The money part is good, but I'm still, I can easily get this thing another 20 million ARR. That's no problem. Like, why don't I wait till then? I'm just, I'm wondering, like, how do you negotiate and get me to want to sell now versus, like I said, I'm always optimistic.

18:30It's part of the DNA of being a founder. Oh, hey, why don't we talk into a year? I'll show you. I'll prove out that we're going to get another 40 % growth this next year. And you're going to have to put more. Even more. Even more. Oh, yeah. Oh, yeah. Yeah, like how do you convince somebody otherwise? Like timings now versus... As I mentioned, there are quite a few examples where we've talked into companies for a decade plus. And that's typically the case. I'm not ready to sell. That's a perfectly legit answer. That's your prerogative as a founder. It's I'm not willing to sell right now. Sorry, let's talk in a year, six months or five years.

19:06That's your prerogative. Still, I do believe that we have a pretty compelling story to entrepreneurs. And we see that the Visma story actually resonates very well to entrepreneurs across all NGOs. And it's still that, okay, so you have your own company, you continue to run that, but you still have this giant corporation behind you that will help you, that will support you, that will give you access to the most valuable network of like-minded MDs, experiments, whatever it is that's going on in your own world. Adding that and the fact that you might have an earn out so that you actually are having a bit of that upside yourself.

19:47So that one plus one... Is that earn out going to bridge? Because in my head, I'm like, hey, if I wait another year, you have to give me 30, 40 million dollars more. We've had companies that have earned way more on their earn out than on the initial EV, of course. What are the general terms of those earn outs look like? Again, based on what type of deal you're looking for and what type of company you're looking at. This one, 10 million euros. You could even use the rule of 40 scale. We in Wismog, we're still very interested in earning money as well. So I do believe rule of 40 is a fairly good metric.

20:15I'd be right at 50 if I got 40 % year over year plus 1 million net. That puts me right at 50. Yeah. So the higher rule of 40, the higher multiple you get. That's a bit of the dynamics, typically. On the earn out? On the earn out. Of course, not on the initial. That will be the catfight we need to do. Yeah, that's what I'm kind of wondering. But you need to find that price that's equally painful. And then what's good with us as well is that we allow them to also reinvest in Visma. You never get Visma shares as part of the initial, but as a working entrepreneur, you're allowed to reinvest. But why not?

20:49Why won't you roll over equity? That seems like the most simple thing to do. Yes. I would say yes and no. And there are things in doing that, and it's a dilution effect, etc. By letting them reinvest, more or less the same thing. Yes, as a founder, you're owning a small stake of something big instead of a big stake of something small. But you still have to nurture that ownership feeling. And I do believe that is important. To have that reinvestment possibility into Visma, I do believe that's, of course, also important. That's a good point. So you want them invested in... I got a private equity firm.

21:23I'm just being frank with you here. I got a P firm that's reaching out and talking to me. They're offering the second bite of the apple. So you say you got one fund that's willing to do a minority recap. You got a buyout fund that'll let me sit back with 20, 30 % of the company. These options look pretty good. How do you compete with those? What we're bringing to the table is still pretty unique. I do have a strong belief that we have a historical track record as well. It shows that, yes, you're growing faster. You're showing a more scalable operation. Margins are getting better. And you still have that ownership feeling.

21:57You're still running the business as it was your own. Is that part of what you bring into the picture? Here's kind of how we would actually support you to grow. Where you as a founder are visioning going. Yeah, that's of course part of the picture. I don't know if I'm role-playing with you right now. And I know there's not enough context to make it very detailed. So I'll give in a little bit there. I can sense that's where you're going for. But we haven't been talking very long other than this podcast. Do you see that happen a lot? where like some company you approach and they're talking to a PE firm, blah, blah, blah.

22:28If you look at our competitors, that might very well be a private equity. That's just the way it is. And I do believe we offer something else. I do believe we, with sort of the Visma equity, earn-ass components, but I would still, you know, we know what market price it looks like. And we're not trying to be cheap. If this is a tier one asset for us, then it's a tier one asset for us. I know then it doesn't actually get down to that last dollar. is more important to actually get that deal over the line. There's basically a total picture element that even myself as a founder, one thing to look at dynamics of the deal, but then you're pushing that against the total picture where, hey, if you're offering a really competitive offer, a really competitive offer with clean terms versus there's a lot of nuance.

23:12I would say a high degree of deal certainty as well. That is important, right? When you close 90 plus percent of all your LOIs, I do think that number speaks for itself. to be honest wherever we don't close an LOI there has been something typically fundamentally different that has occurred during the due diligence phase and that happens it happens when you buy a house and it happens when you buy a company something happens during the DD and just nature of the business and that's why you do DD you get great points I think I'm in I'm ready to sign a term sheet whenever you're ready to send it over to me great it's already in your inbox so I got just a couple topics left one thing to note about Bisma the business was publicly traded in the early days and around 2006 they went private.