Stop Falling in Love with the Deal: Guardrails for High-Volume Acquisitions with Birgitta and Lars Elfversson

25:14It's always a problem when you only have two or three targets and it's like you need to take this one. Because otherwise it will disappear. So it's super important that you work with a long, long, long pipeline. It should be absolutely massive pipeline because then you know the whole organization will automatically weed out the bad ones and keep the good ones. It's easy for management teams to get deal happy. Part of the role is acting like parents and reel them back in, share them some life lessons, hope they listen. The problem is also that the private equity companies are also very deal happy.

25:48That's the double problem. That's also how they earn their money. So everybody's getting incentivized by doing deals. And that's why it's quite hard to sometimes manage that urge. And the way to manage it, I found, is to have a super long target list. Yeah, expand on your target list. Yeah. It's much easier to say no if you, by saying no, are saying yes to something else. Or the opportunity to do something else. But if people feel like there's no opportunity to do something else, they're going to fight you. So if you have a list of 10 companies versus 50, there's just probability that you're going to have a more compelling yes out of the 50 versus the 10.

26:25In reality, it's more either two companies or 50. So a lot of times the deal flow is way too small and that's creating an enormous problem. While all the time when I've been in companies where I have a very long pipeline, it's been a lot easier and everybody's been happier. I find that this is often because of the way you look at your criteria. You have this framework and you have your strategy and that leads to a set of criteria. And what often happens is that you use more strict criteria than you need to create your long list. And that makes long list very short in a sense. So what I try to do is always to be a bit more lenient on the initial criteria.

27:03There are some that are very important, but we can't sit here and say exactly what the company is going to look like. We need to allow for a lot of degrees of freedom in terms of how the company looks that meet these three or four really important criteria. And if you do it like that, you allow for a very long list that you then can investigate and you can have your funnel continue to be a funnel rather than a tunnel. Because when you have a tunnel, that's when you feel like you have scarcity. And that's when you feel like you have must win deals. And that's when you start making the wrong decisions.

27:34How do you expand the pipeline? How do you expand it? you go in the right markets. That's one fundamentally going. No, no, no, no, to be honest. So the question is like, why is there so many rollups in Sweden? It's because all public records are public. All records are public. So you can search any company in Sweden and we're in the Nordics and you get all the turnovers and all the financial data and everything. Why? Even all the private companies? Yeah, there is no private. There's no private in private companies. While if you go to Switzerland or Germany, it's much more secretive. It's super more difficult to make the roll-ups in Germany than in the Nordics.

28:08If you would say one thing to the politicians, if they want to have a moving market with the best of the best, they should just make it more transparent, as always. If you have a transparent market, more deals will happen and the cost for every deal go down also because everything is public knowledge. That makes sense. It'd be nice if it was all clear. I actually worked in financial industries in the US and it's all public too. Our FDIC, you post all the financials for every bank in the US It was just so easy to do deals because you could model everything out, have first meeting, be pretty productive and put a valuation on the business and see if you can get a deal done.

28:44And now with AI agents, it's a pretty level field because it's not that complicated to do your own agents for just searching everything, basically. I was going to say, there's a lot of private company data is sort of the new revolution that's popping up. That could be another element. So regardless, find your avenue, expand your pipeline. That's going to help with a lot of these things. When you looked at those three or four must-have criterias, what are those on our veterinarian roll-up? Typically, you should try to find your right size of the company because it's very difficult in my experience to mix companies that have super different sizes.

29:19You probably have something about profitability. You probably have something about what type of services that they provide. Those are basically it. What business are they in? How big are they? What kind of profitability? Most of the time, those three are enough to make a long list. And then you need to dig into them to figure out what makes sense to put together in your platform. Sorry. Oh, it's the clock. Yeah. Time is money. There we go. There we go. The reminder, the size, the business is actually a good point because the business could range a little bit within that realm, what we talked about veterinarian.

29:58Yeah. And then profitability is another key thing. I'm in like first board role myself as of maybe three or so months ago. In terms of choosing like what are the political battles that you want to play in and just step out of, how do you decide that when it comes to working with these companies? if there's areas where you just kind of know, like you don't agree with the way they're operating things, but you have to let it be versus, hey, I got to get aggressive and vocal here. How do you decipher that? And what typically are those parameters? The most important rule is to save your silver bullets.

30:33So if you agree on something in general, but maybe you have some minor input or there are other things that you want to happen, or maybe you want to tweak it a little bit, I would say just leave it because nobody's going to be happy with that type of input. And the only thing you do is that you're wasting one of your silver bullets. So I think back to my McKinsey colleague who was like, if it's good enough, boost the team. Because the team needs to have positive experience of working with you as well. And a lot of what you do is to really motivate the team and give them energy, help push them in the right direction.

31:08If you're not going to stop something, then I would just say celebrate and be very positive and boost everybody's energy. And then you have those few occasions where you say this is important enough to actually take a stance. And that's where you put your foot down and you become a little bit cumbersome. And they really have to be linked to strategy. So if we have one strategy and we're now going to take an action that is moving us in the opposite direction, that's when it's also not your point of view that this is wrong. this is something that you can link back to a decision that's already been made.

31:45And your role as a board member is to safeguard a company and you have a duty to basically make sure that the decisions you're making are consistent. So usually it comes down to inconsistencies with previous decisions that you've made, usually strategics. So don't nitpick, use the bullet when you have to. Have you ever used a bullet and killed a deal? Yeah. Can you tell me about deals you've killed with a bullet? For me, it was the size. The most recent one, they were acquiring two small companies. And then we agreed that we shouldn't have the size of companies. And after a bit of discussion, they said, okay, yeah, we agree.

32:19We agree to that. But then we just kill the deal. And it goes back to your point of holding them accountable on the criteria that you originally built in the framework. And most of the time, because it happens, it's the wrong type of technology or it's the wrong geography or it's the wrong size or it's the wrong profitability. It is one of those criteria. And what I think is important to be open for is that sometimes you learn from the targets that you identify. Sometimes they are a sign that your strategy was maybe not so thought through. So in all those occasions, I try to leave an opening and be like, actually, our strategy says this is not what we should do.

32:58It's the strategy wrong. But if the strategy is wrong, then we should rework the strategy. We can't just push for this deal and leave the strategy as is. So it's one or the other. I mean, so it's very much not about you're not killing the deal. You can't do that as a dialogue. You're just there as an advisor. By pointing out inconsistencies, you make them come to that conclusion themselves. The other thing that's also quite important is, I know it's slightly different in the US, but in Europe, it's the board that hire and fires the CEO. and that's the ultimate power. So that's what the board is doing.

33:32That's the main job and it's a hire and fire. So you don't really waste your silver bullet, but if you have a CEO that doesn't understand any of your hints of the whole board, if everybody says something and it doesn't happen, then eventually they will be changed. A lot of influence there. Yes, if it doesn't work out for a while, then they change the CEO. Can I pull a thread on one of the things you mentioned earlier? Because you mentioned making sure the deal fits the framework criteria. you also mentioned the management team in terms of things that can go wrong with the deal that they don't know if the founders are staying leaving and i think there's the people element is something worth chatting about but since that's like one of the main reasons why these deals go sideways can we talk a little bit more about that like what does that look like in terms of part of the diligence to make sure that there's some alignment the traditional ways do that during diligence and have a lot of contracts to say that people have to stay.

34:25I find that that only captures part of it. What I really like to focus more on is the people side. Do they really want to, you know, where are they in life? Why are they at this point right now? Is it because they want to go into retirement or do they have super much energy and want to take this to the next level? It's very important that you feel that. And sometimes not all sellers are 100 % transparent and honest about that. I try always to pick a bit on the story and see if my management really try to puncture that story and see if it's working or not. And sometimes, even if people are truthful, it's very difficult as an owner to realize what life is going to be like after you're acquired.

35:04So a lot of the time, I have seen founders who are super keen to continue. They got loads of energy and they're like, yeah, I'm going to stay and they sign all of these contracts. and then when reality hits and they're suddenly a part of a platform and they have a different type of owner they are not the owner themselves they can't take all the shots anymore reality hits and it turns out this is not what they want to do and then they exit even though they had all the greatest intentions and figuring out who really understands what they're signing up for and who might have a little bit of a rose-tinted view of what life is going to be like after the acquisition, that's a really important part of what you do when you've been in the industry for a while and when you've done a number of deals and integrations.

35:51So coming back to the framework there, it's basically, you might have in your framework that most of the founders should stay, but we also have the options of people not staying and then we find a substitute for it. But then you have to go back to how many of these can we have and is everybody honest in this process? Would that change your valuation approach? I wouldn't say necessary. If the process is open and you speak to each other in an open way, you get a much better result. The only time it's been really problematic is when it's not been open. Then it's quite nightmarish for everybody involved.

36:24Things that change the valuation approach are, I often see founders who don't have realistic salaries, for example. They haven't taken the type of salary they would have if they were on the open market. And when you buy small companies, all those salaries can clearly influence the value of the company. And if you have to replace somebody who has come in as a founder with an externally hired CEO, your costs might shoot through the roof. And maybe you need more people to place somebody who has been there from the start. In that sense, figuring out the cost base and the impact of founders leaving is going to be quite important for the valuation.

37:03This is really interesting. I feel like the numbers are pretty clear. I'm a numbers person. then I can get aligned around it and get a sense of the business seems good on paper versus not. But this people element gets pretty interesting. A lot of deals I looked at last year, I wasn't really that excited about the management team, but it seems like they're doing pretty good. The numbers speak for themselves. They're producing some revenue. I want to learn more about that, of how do you get really better at the people identification? Because it sounds like, and I haven't had that yet, where you do a deal.

37:36And maybe you have examples of it, but the numbers made sense, but then the deal didn't work out because the people didn't align well. And like, should that be a must-have that you're really excited about the people that you're bringing into the organization? It depends on what you're planning to do with a company. It's very nice when you have people excited about coming on board. Obviously, especially if you're in a people-based business, you can have huge negative effects if you have an adverse reaction to the deal. That's a real risk you need to take into consideration. when it comes to whether the management team or the founders stay or not it depends on your approach and I've done both I've done a roll-up where we exchanged all the CEOs as soon as the company came on board and that was part of the plan and it was all fine and it worked really well and I've also done another where it was more important to keep the entrepreneurial spirit and then you wanted the founders to stay on in the individual companies and the important thing is to plan for the outcome you want because you're going to approach it differently you're going to have different degree of integration costs you're going to have a different impact on management costs and you're going to have a different risk level a lot of the founders are really great sales people and if they disappear you have a big risk on the customer side for example all of those things you need to take into account but i wouldn't say there's a right or a wrong it's more need to work with a consistent approach and plan for what you're going to do.

39:05Do you have an example of a deal you've worked on where numbers looked really good, but then it fell apart because of the people? Quite a few of these deals. And the worst one is the one who falls apart after you acquire them. So I had quite a few of these, unfortunately. In some of the occasion, I've been advising quite heavily against acquiring these companies, but the urge to do the deal has been stronger. That's the concept of when you're doing roll-ups. Basically, you buy so many companies that some of them will fail. And most of them fail because of people. Would you say that's the biggest risk in doing consolidation plays?

39:37I would say two things. One is market. Because what we've seen during the last year is always, you suddenly have a hyped market and then you not have a hyped market. So if you start doing a roll-up now in AI, in two years' time, you might sit here and say, that was the stupidest ever. And it doesn't matter if people are good or bad. So unfortunately, the market is having a great effect on your success, which is quite sad because you can't really do much about it. And the other one is, I would say, people. people or they have not been truthful in their assumptions before or you start finding stuff?

40:08Sometimes people say that you can buy in the down market and then you sell in the up market. Typically, the value expectations are pretty high in the down market. So that's actually a really, really difficult thing to do. And the bad market is 80 % going to be at a disadvantage to you. And on the people side, what I've seen a lot is that it's very difficult for founders to really articulate what they're doing and the value they're bringing. So if you're going to replace them, you can't trust them to write a job description, for example, for their successor, because they've got no clue. I've seen it so many times, especially if you've been in the company since it started, you're one of the founders and you've been building it up.

40:47It's extremely difficult for people to articulate exactly what their role entails. And then when you try to hand over to an externally recruited CEO, or if it's somebody who is internally recruited even, There is a lot of things that are going to fall between cracks. It's going to be super difficult. How do you crack the code on this? I can see how you can be very involved with hiring the management team that's going to execute the consolidation play. And then there are targets that they're acquiring. You probably aren't as closely involved. How do you set this up? What's your approach to accessing the people?

41:20Teach me how to crack the code here. Choose your management team very carefully. and then you coach your management team or you're available for them to bounce things with you as a sounding board. You got to do really good at making sure you assess that there's a good fit for this management team that's going to execute on this thesis and then you can coach them along with the way you identified with them as being good players that they continue that and the targets that they acquire. But teach me how. How to find the good management teams? How do I assess them and make sure they're truly because everybody interviews really well.

41:52No, it's nightmare And then it's coming back to the fire and hire obligations of the board. Both of us have been to platforms where we actually have changed the management team quite a few times before we find the right setup. So sometimes there's a trial and error to this? Yes, 100%. But this is also why if you see people's careers, this is why you see them follow each other. You have people that work together and then you see them follow each other from company to company and from job to job. Because once you know you can work with somebody, you don't want to let them go. So obviously, if you have prior experience of somebody in your management, that's a fantastic thing.

42:28And that's not always possible. But what I see is often going wrong when you have the wrong management is that they become, they isolate themselves. If you have management that has good outreach to the board and they leverage the different board members, they reach out proactively, they ask for advice. Typically, those management teams tend to do quite well. even if they don't know everything to begin with at least they get to leverage everybody on the board and their strengths and that's going to help them and they're also going to be much more in the same boat as the board and you're going to have a much better understanding between each other to make life a little bit even more complicated quite often management team reach out to private equity companies and say like hey we're a management team we want to roll up this business.

43:16And that obviously gives you a head start. Often it's underestimated how difficult it is to find a good management team to do a complete new business where they haven't worked together before. You're putting to bed sort of a boy band and then you're trying to infuse them with the enthusiasm for this specific thing that you as a private equity company has already thought out for them that they should be enthusiastic about. There's a lot of things that can go wrong when you start with an external management team, but that's how it often is done. What are the standout traits for a killer management team?

43:46It's a combination of both doing M &A and running the business. That's normally where the big problem is that a lot of people are either or. And often they're brought into this type of roll-ups by being very good at M &A, but then they forget about the core business. So you have to mitigate that. So that often means that you have a dual CEO. One takes more care of the operations of the existing business and one focuses more on the M &A side. What I also often consider is that it is very hard to be management in a role, if I'm honest, because if you're there from the beginning, it's a little bit like being an entrepreneur, starting your own company and you need to take quite a big risk.

44:25Of course, you're going to get paid, but if you're on a corporate career journey or whatever and you jump into this unproven concept, it's a big risk that you're taking career wise. So you need to be a little bit wild to go for it and you really need to believe in this project. And in the beginning, it's a lot about charming the companies that you want to get on board as your first platform. And that takes a certain personality type. But then as your business is growing, you also need to build a proper business out of it. So it's almost like being a founder in an entrepreneurial company. It's just that the journey to maturity is so much faster.

45:00So it's actually very difficult for you to mature along with a company. You almost need to have that kind of quality or that capability to begin with to run something which is more of a corporate. Now, these roll-ups are rarely corporates like the big multinationals we see in the world, but you still need to be able to build a proper company with the right processes, the right structures and deal with things that large companies deal with. And to be able to do that while you're that a little bit crazy and very charming person who's willing to jump on, for example, as a CEO in something which is completely unproven, that must be so hard.

45:37I've seen very few people who are able to do that. That's an interesting take. That is like truly a transformation to go from a founder, organic built business to scaling through acquisitions. If you look at a typical PA journey, you start with zero or maybe the first platform is 100 people. And then within three years, you'd be maybe 3 ,000 people. And it's a very quick journey. So in the beginning, you need to charm people. And then quite quickly, you have to go into the financial market to get the right bonds and everything. You have to be a quite capable person. Can I ask you about integration?

46:08And the reason I want to ask is when I had my last role working with Dealroom, about two-thirds of our customers were a roll-up. And the big thing I've noticed over the past five years was private equity buyers were digging more into their diligence of how well these roll-ups are integrated. And that when they do their diligence and find out things weren't as nicely packaged and integrated, that was then discounted on valuation. There's a lot more scrutiny around how well these platforms are actually integrated. Is that like the same thing that you're seeing as well? How do you sort of circumvent that as a...

46:43Do you mean when somebody's looking to buy a roll-up in the next journey? When we look at the cycle, right? Private equity buys the next one, the next one. So now we see that as like, there's a deeper diligence in looking into how well that company is integrated. Then all of a sudden it turns into, well, here's a backlog. You don't have a consolidated ERP. All these things are fragmented systems. We're now going to discount that valuation because we see a backlog of integration work to do. It seems like that was the big talk when I talked to our customers was like a lot more criticality about how well the companies are actually integrated.

47:18Working backwards now, it's like, how do you circumvent that so you can... First of all, it's not surprising because if you are buying a roll-up, you're probably buying more than one roll-up. And if they're all poorly integrated, you have an exponential complexity in there and you need to do all the hard work. And integration is so hard. So it's a real value add if the roll-up that you are acquiring is already integrated. So not very strange at all. All right, that's bad practice. What's best practice? When you look at integration, you can choose what to integrate and what not to integrate. And doing everything semi-integrated is probably the worst thing to do.

47:54But I would prefer and I would recommend that you rather choose your integration areas and where you integrate, you do it 100%. And then there might be other areas that are zero integrated, which is fine at least for a while. Depends on what you're going to do with a company later. This is like done pretty early when we talked about the framework earlier that you're starting to think about a broad strategy of how you're going to integrate the businesses you acquire. That's part of the sales pitch for all companies you're acquiring. You have to tell them how you want to integrate them. There's probably different views whether they're fully integrated, partially integrate, like you integrate the backend systems, accounting, HR, give them autonomy to run the front end like our local veterinarian here where they can focus on the customers and stuff.

48:37Maybe they don't like the backend part. Non-integration is the other one. Which also, I mean, it's working. So my take with it is it's different trends. Sometimes it's very important to everything is super integrated. Next phase should be semi-integrated and sometimes it shouldn't be integrated at all. I don't really like to see it as value, you know, how much that's going to decrease the value of the target. It depends so much what people are looking for at that moment. There's quite a few really large roll-up cases where they basically buy anything under the sun and have no thoughts about it and that integrates zero.

49:08And they're doing great. You're just doing a multiple arbitrage and everybody's happy. The whole thing is that a big pool of things is lower risk than a small company. Is that still a thing? I thought that was going away. I think there's some of the bigger name private equity firms I've talked to that are, now you got to really have synergies and you can't just... That's what I mean with trending. So as you say, that trend is not on right now, but who knows in five years, is that going to be trending or not? I would say right now, over the last five years, the trend has been semi-integrated. And my feeling is that going to more and more integrated again, But you have to remember, it used to be a lot more integrated.

49:42I was at Brand before that. It is a circle. I mean, the 90s was very much integration. It was a lot of backend synergies. It's been swinging the other way, as you're saying, and now it's maybe swinging a little bit back. Clearly, there are areas that are easier and more value adding to integrate than others. Finance and HR is typically quite easy. in my previous job when I was acquiring supplement companies, legal and regulatory is really important as you're growing. But if you're a young entrepreneur driven business, you typically don't have it. So you're very happy if somebody else can take care of that for you.

50:17And a lot of times marketing and sales are what people really safeguard and sometimes branding because it's kind of their home and it's what's in their identity. So a lot of times those are more risky, maybe less value adding a lot of times they've also gone away from thinking that you're going to have a lot of synergies in the acquisition is most of the time there's very low synergies there are some depending on the roll up you do you can find synergies but in generally quite overrated so if you can stay on the selling profit margin as you did with a founder that's probably going to be where you're going to end up in a good day and if your largest customer is not 50 % of your turnover, but 10, and that obviously is a less risky business to acquire in the next round.

51:05There's some varying schools of thought here. This is interesting. There's one fundamental, there's evaluation arbitrage. The bigger you get, the better your multiplier is going to get. There's another element where if you're buying healthy businesses, they'll keep growing organically. They have low customer churn and they're continuing growth and strong management. A little bit of if on the synergies, if you can really predict and count on them. It sounds like there's a lot of it depends on there's no clear cut answer on how you should approach integration. It really depends. You need to have a plan.

51:35When you start the roll up, you need to have decided what level of integration should we do? What do we think the market want when we're going to hand this baby over to somebody else? It's part of your story. Your exit story. Yeah. And you have to be a straight red line through it to be able to follow it. There's a story that reads out to everybody. It reads out to your current team that you're executing. it reads out to the target company and then your potential company you're going to sell to. And then it's got a line. And that could be of like, hey, we are going to fully integrate. That's how we're going to lock all the synergy, central distribution, blah, blah, blah, economies of scale.

52:10Or we're giving operators autonomy and we're supporting them and helping them focus on their core strength areas. I'm doing both right now. I'm not saying one is right and one is wrong. Yeah, there's no right or wrong, but it's really important that you're consistent and that you make up your mind. in a sense. Because when you try to mix things within the same company or in the same rollout, that's where it gets really messy. What are the best, like what would you say the traits are the best platforms in the market today? They're consistent. Consistency. Because just focus on the real consistency across the board that you got a really clear, concise, everything's aligned.

52:44Here's your strategy. Here's your operating model. Here's a framework that you're executing. How are you going to integrate? And the story aligns all the way across the board. Yeah. The strategy and the operating model and the framework are all consistent with each other. That's actually not self-evident all the time. It's actually something you need to work on. And then you come back to good to great. It's all about the flywheel, pushing the flywheel and get everything going. So you should see acceleration in all these parts. I admire those who buy struggling companies and turn them around. I do too.

53:14They're really great ones. I haven't seen them among those. I've seen them where you buy really strong companies and you make them even better. But that's also quite interesting. So different private equity companies have focused on different things. So some PE companies know that they're nice. So they're just going to go for good companies that are great, do them even better. And some other private equity companies are more focused on distressed companies and like to do a turnaround for them. It's a lot more brutal and it's not always pretty. You're not always going to be popular, are you? It's like the in-between too, the companies that consolidate flatline companies.

53:50Because you can usually buy them at a pretty good multiplier and then yeah and then you can have arbitrage just making them bigger that's the generational play you buy a lot of plumbing companies or then you buy a hundred of those different ones then you come back to integration and say like oh they need to have a crm and so like why do they have a crm so everything is in the founder's head in that local village because he knows the hundred people that buys from him and it's not that from another village going to come here yes there is no synergies in serum yes that's an example of things that you can discuss if you should integrate or not So a lot of minimum integration I've seen is that you basically every month send in like the key, 10 key metrics and that's it.

54:29That's the only integration and you keep your name and everything. Got to dial it in and make sure it's interesting. I guess ultimately your true validation is at the end when you exit. Maybe that's a good area for us to talk a little bit about is like really signing up these companies for a successful exit. Is there anything in that area that are key areas that you as an advisor would really help to frame these companies for an exit? There is a structural problem with funds because they have a specific length when they need to sell their assets. And that all often get in a way of doing good deals.

55:07My recommendation would be to be more opportunistic. When there is a good valuation in the market, sell. I got it from a super successful investor and he said, you should sell in an upward market where the buyer can imagine what's going to happen in the future. Too many people try to fit the peak to sell at the absolute top. But if you do that, you're not going to get the top dollar and it's really difficult to do it. So it's better to sell in the up market than to try to sell in the down market. It's very difficult. If you take a cautious decision, if you get a good offer in the up market and you didn't take them, then you also have to realize you're going to be sitting with this asset three to five years more than you might have bought in the beginning.

55:45So my recommendation was sell early. If there is a good market sell early. How do you think that through? I feel like there's only one bottom line metric and that's your IRR. Yeah. And that's the problem because then they sit and look at the IRR and the one I was like oh. They're like I want more. I want more. I can have two more years of this and then goes two more years and then you didn't get it. Yeah and theoretically you had a good IRR but there's no buyer. Then you have three or five years of downturn and then you have to sell it because that's maximum length of your fund they hold too long then you get into continuation funds i've been to all of them and it's a nightmare isn't that what that market's like now i feel like we have big write-up but 2021 was our fabled year where yeah known some folks that did some deals in that year and it's like well how are you going to make out of it i think there was some kind of assumption that all these companies are going to come for sale and they're going to have to come to realization that there's a valuation correction, but people don't want to take a down round.

56:40No. No. So that's why people are getting creative. They come up with continuation funds and all kinds of stuff. That's what they say. Private equity right now is the longest hold period they've ever had in history. Yeah. And it's a nightmare. They can't reach, raise the next fund either. So it's really tricky. Everybody's just holding their breath and waiting for this to turn. But a lot of people were also thinking, oh, now they have to sell, but nobody has to sell really because they have the money. But yeah, now I'm talking about zombie funds and all kinds of stuff. So there's a lot of things going on.

57:07What's your view when you see these different private equity funds? What are their target IRR that they're after? Does that range quite a bit? And how do they introduce that to you? We don't talk about that, to be honest. Most of them, the classic thing is to say, we want to have 3x within five years. That's the thing, common. The most staple is 3x five years. I've heard that before. They don't want 2x in two years. no that's the problem that's the problem that's the big mental problem you could have bought something and then all of a sudden there's some strategic or a public company that comes in they give you a good offer shortly after but you're like no because then we got to figure out how to reinvest that money again exactly no and they're not allowed if they sell it they have to hand out the cash to the owner yeah give it back and then they don't get the 2 % on that they don't get the 2 % on the people no they don't get the continued management they get the performance yeah yeah but the continued is often bigger So having the right balance between being nearsighted and long-term thinking.

58:06It's super difficult, super difficult. But I mean, there was a lot of deals being done in 17, 18, and then had the opportunity to sell 21. But they didn't sell because they were like, no, let's hold it until 23 because then our IRA is going to be absolutely amazing. Then 23 happens and there's nothing. And then they realize 24, 25. So now we have to close the fund. What should we do? And that's when the continuation funds and all different types of vehicles come up. Those are my advisors and those veterinarians. If you see a good offer, you should probably take it. Yeah. If you don't earn an evergreen.

58:35If you earn an evergreen, it's fine. Then you shouldn't be worried about it. Then you can play it long-term. Yeah. And then you can say, I'm going to hold it for 100 years anyway, so it doesn't matter. But if you think in a five-year cycle and you get a good thing after three years, you should probably take it. When you have your family office investment approach, you probably look at it very differently than a typical fund. Like you're not looking at a specific term. You're looking at each individual investment. Yeah. Our investments that we do are more of an evergreen basis. Do you still think about IR the same way?

59:03No. How do you think about it? I find it very, very hard to evaluate things that you haven't sold. I know the industry do it all the time, but the NAV is super difficult to set. And the NAV is a lot of these when I've been selling it, they end up selling it for lower than NAV. And I was like, why do you even do it in the beginning? I understand you need it in funds, but we don't need to have that on a quarterly basis. You'd be great investors to have. anytime we can work on the deal together. But to be honest, I think a lot of, I mean, we consider us more of as angel investors because we get heavily involved in the companies we invest in.

59:36I often recommend people to start business to work with angel investment or family office because they're much more long-term. They don't have an ending price. Yeah, for us, we've realized we're not very good at being passive investors in a number of lottery ticket companies because we get way too engaged. We want all of our companies to succeed. We would never be able to just say, oh, nine out of 10 are going to fail. And that's fine because we make the rest on the 10th. When we do direct investments, we only really do it with companies where we're engaging. And then our time becomes a limiting factor, in a sense.

1:00:13Then we have chosen that we're going to make sure that those companies, each of them has to be big enough to really make a difference. We engage heavily, I would say. In a few cases. It's like you're leading in and you're almost like gauging on how much of an impact you can make leaning in gives you confidence in that investment. Yeah. Can we share some deal stories? Like a deal you're most proud of, a deal you're least proud of and amortized? Birgitta is more sexist than me. She's got to work on the bigger deals. I never fall in love with the deals before I make them. I kind of fall in love with them after I make them because I feel very proud of almost all the companies that I've acquired or invested in.

1:00:55And it's like your babies and love one child more than the other. So I feel very strongly and I keep promoting the businesses that I acquired for Unilever and I keep promoting them to my friends. Because I also only acquire or invest in companies where, you know, if they have a product, if I really like the product and I can use it. I gave away, latest today, I gave away some Liquid IV to a friend because that's one of my favorites from Unilever. And they're doing so well and I'm so proud of them. It's ridiculous. And I keep promoting my Neurosim, which is a neuromodulating device that the company Parasim has made.

1:01:31And I'm quite heavily engaged with them and I'm super proud of them. They're doing loads of great things, clinical studies, and they're very scientifically thorough. They're doing amazing work. Wow. Most of my deals are smaller. So I tend to more fall in love with the process, with the flywheel. So it's more like when the companies I work with, when they really get up, get the speed up and get everything under control and you see the pacing. And they start scaling. Yeah, that's when I get the most happy, especially if they're doing a lot of acquisitions every year. One platform I did, that platform was 27 companies we signed in the first day.

1:02:04But when you do that, it's a lot of stuff. Wait, how do you sign 27 companies in one day? Big office with lots of lawyers. They went and signed 27 companies? Yes, in one day. How many deals they ended up doing over a year? No, they're probably up to about 50 now, 50, 60 after that, yeah. Well, they started and they just went right after it with all these proposed targets. That was the deal that started. I started working with 2016, so it was, yeah, 18. Yeah, it's ongoing. And then, as I said, the market's very important. And the market had gone down a little bit and was slower. And the market's a bit quicker again.

1:02:36So it's, yeah. I gotta ask you both, what's the craziest thing you've seen in M &A? I've seen people blatantly lying. That's the weirdest thing. And taking up future income as income that happened today and those kind of end-run stuff. Oh, some accounting lying. That's the worst kind of lying. Yeah, it's a lot of accounting lying. That's like criminal lying there. It's not that easy to prove it turned out in the end. It's weird because it goes back to like, oh, it's a Q of E adjustment and not, it's not considered lying. It's just like, yeah, and you had looked at the numbers and you have approved it, what's the problem?

1:03:08But I've seen a few of those, especially one big one, and that's quite messy. What was the premise of it? Was it just putting forward capital to the present? Yeah, forward capital and also took away some costs. Suddenly the numbers were a lot, lot, lot better than we... But then we had to basically disinvest in that specific company. So we dumped that company and continued with the rest of the platform. You had to take a loss? We had to take a loss, yeah. Oh my God. But that's the thing. When you do roll-ups, you have to realize that you're going to take loss. What's your batting average that you should target?

1:03:40I'm not sure. The average is trying to stay... Actually, batting average is probably a bad analogy. It shouldn't be that bad. It's always some go better than they expected and some go worse. So it's like you're looking for the median. Is it like an 80-20 that you miss on 20 and hit on eight? No, I would say it's more 50-50. 50 go better than 50 go worse. Worse means... But it doesn't mean that it go bust. That's very rare. They just end up mediocre and not getting exactly what you wanted. Yeah. And to be honest, 50-50 is enough, just at the time, statistically. Because even if they do worse, they typically don't go bust.

1:04:12But if they do better than you thought, it's going to be many times better. So that's going to outweigh the losses. So 50-50 is pretty good and it's enough. Okay. I won't be so critical, but... Rikki, you got a crazy story? Yeah, absolutely. I don't know if it's so crazy, But one of my favorite things is this company that I've followed for 10 years now. And initially it sparked my interest in supplements. And I just followed it from afar. And it was always too small for me to really do something big with it. But then now that I'm investing myself and I'm advising, I was able to reach out to this company.

1:04:49It's currently called Keto and IQ. And they have this fantastic energy shot. And with that, the business has truly taken off. as all the hockey sticks. You don't see before it starts to become a juggernaut and it usually takes a bunch of years. So I followed them for 10 years and now we are in touch and they are doing amazing things. That's a beautiful story. So maybe not crazy, but I love it. You took a lighthearted take on that one. I like it. It's the persistence on the deal and eventually you got what you wanted. Yeah. This has been great. I want to thank both of you, Brigitte and Lars, for taking the time, having this conversation.

1:05:26sharing your perspective as a board advisor to all these M &A deals and helping me become a better M &A scientist. Thank you for taking the time and coming all the way over here. Those of you listening, I want to hear what you think about this interview because it's a different one. First time I think I've ever had a husband and wife duo on a podcast interview that we got to do way up here, high altitude mountains. Let me know what you think about the conversation. It's a little different take than we usually have. Reach out to me on LinkedIn. I took off my privacy guard, so it's easy to add me on there.

1:05:57Just put a little note so I know because I get a lot of spam. Mention that you listen to the podcast and I'll be happy to connect with you. Give me some feedback. Give me some topic ideas I haven't covered and some criticism. I'll take it. Till next time, here's to the deal.

1:06:21Thank you for taking the time to explore the world of M &A with our podcast. We love hearing feedback. Tag us on a LinkedIn post, add a review on Apple Podcasts. We'd love to hear from you. If you need help standing up an M &A function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email, Kisan, K-I-S-O-N, at mascience.com. Or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter.

1:07:06Again, that's mascience.com. Here's to the deal.

1:07:20views and opinions expressed on M &A science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual this podcast is purely