The Seller's Power Shift: How to Defend Valuation After the LOI

21:39Praveen Ghanta:Raj and I were very complimentary in terms of being able to develop a product versus someone who's able to really sell and position it. But actually, one way in which we were both very similar is both of us have fun debating, arguing, whatever you want to call that. But certainly, even in a negotiation, we're happy to take a hard line to basically to stand up for ourselves or to vouch for ourselves and to really push in a negotiation. I would argue in that case, you need a banker who does the opposite, who can lower the temperature in our room. I would say that we didn't know that going in. Hey, we got the sense that Andy and Ash were both easy to get along with, you know, had that kind of personality.

22:17Praveen Ghanta:But that was what served us well in the actual negotiation was that they were able to, at key moments, lower the temperature. So some folks might be the opposite. If you're trying to sell and you need someone to advocate for you because your instinct might be to not reach for optimal pricing or not reach or push a little harder. We were pushing. It was a question of like, from the banker's perspective, can we keep this whole room stable enough to get across the finish line at times? So that's good. You got a good dynamic balance there. When you went to market, you had this 10 million ARR story that was centered around TD Canada, this big contract that you mentioned.

22:54That's been in the works for years. Then it like falls apart mid diligence. Can you talk through what happened?

22:58Praveen Ghanta:Yeah. Okay. So this is where it probably accentuates this idea that's firmly parked in my mind, though, that moment of letter of intent is a moment of maximum kind of leverage for the seller, or at least we felt that way. So we get the terms that we're looking for at the front end of the negotiation in terms of, hey, 10 million, 10 million plus ARR. Maybe we were asking for 18x ARR, but settled it. Hey, 16x is good. That's what they think they can do. Okay, we'll sign the letter of intent with these terms. And then you get into all the weeds. The way it went, at first it seemed everything was fine.

23:36Praveen Ghanta:So this is actually like early December. We start due diligence. So going right on through the holiday season, we're churning out documents and all the information that's needed, loading up the deal room, which amusingly, we didn't use interlinks or anything fancy. We literally just used box.com or something, whatever we had that was cheap and easy. We're getting all the documents, everything together. They're looking at, you know, it all seems like it's going fine. I can't remember when the exactly what day the first. So the way that letter of intent was written, there was maybe this is often the case, but there was an initial expiring due diligence period.

24:09Praveen Ghanta:And then the buyer had negotiated up to a certain number of one week extensions or something like that. It could easily be brought to the table. We're getting to the cusp of that first expiration of due diligence. And at that point, I'm feeling pretty good because we had dealt with not just the basic of questions from the M &A team and the legal team and all of that. So there's all of that kind of due diligence, but also the quality of earnings. We'd gone through that process. They brought in Alvarez and Marcel or somebody like that. So we'd gone through a lot of the heavy duty analysis. There was some tax compliance analysis and all of these things are happening.

24:42Praveen Ghanta:And it seems like, we're getting through it. And then the bomb drops. The day before the end of due diligence, they dropped the hammer. And they're like, now, actually, sorry, let me back up. Why did they dropped the hammer. Part of this was that in early December, so we go, we sign the letter of intent, it looks like TD is going to close. And then meanwhile, now this is out of our control, but certainly out of the buyer's control. We're talking to our TD contacts and they're like, guys, we just haven't been able to get all the due diligence. This is the due diligence on that enterprise deal done that we wanted because we can't come to the United States right now.

25:16Praveen Ghanta:Back then, all those pandemic rules were in place. It wasn't easy to travel across the border. So we can't come there. You can't come here. We're going to have to push this off. And therefore, let's keep talking about it. But it clearly wasn't happening at that moment. So all of a sudden, this is like a gut punch. We're like, oh man, how are we going to explain this to the buyer? We have to. It's not happening. It's clear. It's not like you can fake that. Not that we even want to fake it, but you can't. We say, hey, look, it looks like there have been delays. And there are some issues with the deal.

25:43Praveen Ghanta:We're still hoping to go forward. But it's going to carry into 2021. one. And maybe as the pandemic starts to recede or things start to happen, maybe we can get some of these things taken care of. So that hits us. And initially, what did we tell them? We're like, yes, that's bad news. But there's good news. We had closed BNY Mellon, smaller deal, but in a similar timeframe, we'd closed, there was another enterprise deal. So we'd closed multiple six figure deals. We would continue to close a lot of other business. We're like, hey, we haven't replaced all of this revenue. But between what we've done, even during the last couple of months, in what we're on track to do by the time of formal closing, say March 31st, we'll probably have backfilled half of it.

26:23Praveen Ghanta:So out of that 2 million that you thought was there, maybe we will have a million of it done. We're pitching the story as best we can. Like, okay, yeah, that's cool. Everybody's happy. And then you get to 24 hours before due diligence ends. And they're like, the board has decided that the offer on the table is no longer acceptable given this issue and that the revenue doesn't align. We need to reprice the deal. So their initial repricing, It wasn't just like a linear repricing based on what had come out. It was, let's just take an axe to the thing. They came down almost 50%. Wow. And we're like, what just happened here?

26:58Praveen Ghanta:And at that point, maybe after a stiff drink, Raj and I are debating, okay, how can we come back here? In our negotiations, we're negotiating with the, principally with the COO who is heading the kind of M &A team for the acquirer, for Orion. So there's chief operating officer, I believe it was, at times their CEO. But behind the curtain, it's like when you go into the auto dealership and you're trying to buy a car. And they're like, oh, let me go speak to the finance manager. Yeah, the manager. So who's the finance manager in this deal? It was TA and Genstar, the two multi-billion dollar private equity firms that between them owned around 90 % of Orion stock.

27:36Praveen Ghanta:So they are the actual voting controlling folks who need to approve a deal. And yeah, it was just such an odd dynamic. Like more than ones who were like, can we just get them on the call? Let's just have it out. But of course, that's not the way it works. Certainly, we were never given that access. So it was very much, it felt like that car dealer style negotiation. We pushed back hard. We were like, what? We're going to make this. This deal needs to work for us. We're profitable. We've got 4 million in change in cashflow, which is just ours as bootstrapped owners. So we don't need to, we don't have a ticking time bomb.

28:05Praveen Ghanta:As it happened, there were some other tier one buyers, actually among others, Goldman knocked while we were in lockup. We're like, maybe we should exit and go talk to others. We were thinking, yeah, we'd like this deal to happen, but we're not going to just take a 50 % haircut. So what ensued was a pretty tense negotiation, kind of in multiple rounds. But first, we try to defend the valuation. Then we're like, okay, let's reprice a little bit, but fill it back in with options and equity. There was some back and forth there. In the end, This was, there was a first round that the board rejected.

28:41Praveen Ghanta:There was a second round that they felt was closer that the board rejected. And then we're like thinking that, hey, yeah, it's pretty much three strikes and we're out. So we need to get where we're comfortable and go with something that we think that will close. And essentially, there's a little bit of an element of, we've been talking to management, many Orion management that's representing the buyer. This is the moment at which during some of this part of the conversation that was very heated. And at one point, it was the PJT team that were like, okay, let's not go pencils down here, but let's just have a pause.

29:13Let's come back to this in a couple of days because it was getting heated.

29:17Praveen Ghanta:But what we decided in the end, I think it was round three of the negotiation, we're like, all right, what is our walkaway number? Because you got to come up with a walkaway number. Where we ended up was, okay, let's come up with a walkaway number with a little bit of equity on the table with options plans that look reasonable for Raj and I as execs on top of that, draw a line. And if they don't take it, then this is our best and final. So we put the best and final out there. They come back and they say, make 5 million of it and earn out. And we're good. And it was a pretty straightforward earn out.

29:52Praveen Ghanta:It was just deliver on certain technical integration aspects. We're like, okay, yeah, you know, if they want to screw us, maybe they're going to finagle their way out of that 5 million, but we'll live. Can you share the terms like what you ended up with? So we ended up, it was around 130. There get to be these kind of questions of how much is the equity actually worth. There's that sort of debate because it's not publicly traded. Do you trade the equity at the last price that the PE firms came in at? Then there was a price that their CFO wanted to use that was like more than double that. And we're like, no, that's not reasonable.

30:29Praveen Ghanta:There's a whole negotiation around what, and that's why I say like, okay, what's the official valuation? But yeah, it was around that with a small chunk of burnout.

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31:21Ask and it pulls from 400 interviews in seconds. You can even build your own course on any topic on demand. It's an on-demand advisor. You get answers, but the answers come with the receipts. You see where it came from. You see who said it. This isn't a chat bot making things up. The best practitioners on earth on call. Mascience.com. How much of that That was cash versus like rollover equity.

31:50Praveen Ghanta:It was over 90 % cash. Okay, so it was quite a bit cash. Yeah, yeah, yeah. So it was still a largely cash deal with a bit of equity and just a bit of earn out. But yeah, so that's how we got there. But it wasn't like that big of a, from where sort of they were trying to reprice it in half. It sounds like it's roughly 20%. You ended up coming down. Yeah, so we came down some, but yes, they initially came down to, it was 80. So yeah, it was like, this is just not happening. At least from our perspective, we're like, no, we're not taking that. But at the end of the day, of course, there's risk in standing your ground if the buyer just says, okay, we're done here.

32:23Praveen Ghanta:And after the fact, here's what was really interesting. After the fact, in talking to them and just coming to know sort of the dynamics, they were like, yeah, we had other deals that we were lining up. So if we had completely gone pencils down, we would have just walked. So we'll never know how that would have played out because we had other buyers that we were talking to as well. But no, it worked out well. I mean, from a strategic perspective, Orion, the buyer that we went with, it was a good fit. because it was a company that served our same core audience. And I should note that there's two players in that industry, in that sort of financial advisory industry that go head to head.

32:56Praveen Ghanta:One is called InvestNet, and then you have Orion. And there are others as well, but they're the ones that sell a mix between kind of portfolio management, software solutions, and a whole stack of software for advisors. And then they also have a TAMP, a turnkey asset management platform for advisors as well. But both of these companies operate in that space. and InvestNet used to be public and actually went private again at some point in the last year or two. Orion is private and maybe eventually is seeking to go public. The funny backstory to all of this is that we knew the Orion folks fairly well.

33:26Praveen Ghanta:They ended up being the best strategic bid in the mix, but we knew them going back years. They were one of our earlier partners. You might make the argument like, oh yeah, could you guys have just gone to them directly and tried to come up with a sale? And maybe, but I think that having PJT there and having a structured process enabled us to defend pushing for a premium valuation. So I do think there was value in that. It was interesting because we, some years before, we were at a conference where, and this was like written up in the industry, trade rags and whatnot. But there was a whole kind of like to do because we called out their key competitor, InvestNet, at a conference on stage.

34:03Praveen Ghanta:And the CEO of InvestNet came breathing down my co-founder, Raj's neck, in the sort of public space after this sort of on stage thing. And it was a big, I don't know, old school, high school throwdown in a way. They're like shouting at each other. And then the CEO of Orion, the firm who would go on to bias, comes by smugly watching from the sideline and then occasionally pitching in on our side. It was a weird thing. This was like maybe four years before the deal happened or three years before the deal happened. But it was a day in which we got closer to our future acquirer by becoming the adversary of their adversary.

34:36Friends of the common enemy.

34:38Praveen Ghanta:Yep, exactly. So yeah, so that was like a foreshadowing. I want to clarify the power dynamic here because you said the moment of maximal power is right before you sign an LOI and your lowest ebb is the day before binding. And you gave an example of that in real time of how that flowed out. But is that pretty much the lay of the land in terms of how you think of the power between? That's how I think about it. And that's certainly how I've advised other founders who are coming up against it. Because in fact, this just happened to a company I'm an investor in. they got what looked like an LOI that was or the initial kind of signals of, oh, yeah, this is going to be an amazing deal.

35:12Praveen Ghanta:Much earlier stage, but still amazing. And then it's like you get into the due diligence and the weeds, and that's when it flips over. But there's a couple of logical, obvious reasons for that, at least in my opinion. One is that it is typically exclusive. So when you're in the due diligence phase, you can't talk to anyone else. So quite literally, the power dynamic has shifted. Pre-LOI, you're talking to everybody. You're trying to get the best intent out there, the best offer. And then once you sign, you're only allowed to talk to this one firm for that period of time. Quite literally, the power dynamic has shifted.

35:46Praveen Ghanta:Also, I'm sure that there are companies out there where everything under the scenes, under the covers is perfect. But most of us, maybe we don't have skeletons in our closet, or maybe we do. But there's always some wrinkles. Nothing is perfect. As you go through that process, invariably... So I would draw the analogy to selling a house. In fact, it's the exact same thing. And for most people, buying and selling a house is their biggest transaction. And you go as a seller, let's say, you sign with the buyer and you're at price X. And then a crafty realtor on their behalf will wait until the day before new diligence expires and then mention that, oh, by the way, we've got this whole list of repairs that need to be done that our inspectors found.

36:25Praveen Ghanta:And we're going to cut 20K off the offer. It's the exact same dynamic, just smaller. Yep. I haven't done it to that extreme, but yeah. Did you run like a competitive process? It sounds like. I'm just curious a little bit, go back. We hit the climax of the story here, but to go back to how'd that process look like when you took the market? How did you ultimately settle with the buyer? Because it's always funny. It's not always purely about the price. What was that part of that drive? Yeah. So you'll definitely hear deals where people will say, oh, I had a better financial bid, but I went with this buyer for this reason.

36:58Praveen Ghanta:And while I can honestly say that wasn't the case for us, it was the case that the strategic buyer that made perhaps the most sense also had the strongest bid because we did get other bids that were like, one was private equity, so purely in a financial buyer. And that was more like a 10X ARR kind of a bid. And then another was a major mutual fund company that was in that, at that time, also buying up software in the financial advisory space, maybe just to get access to more advisors. So both of those bids that came in, were formal bids that came in, were lower. Maybe they were backup offers at best, but it just happened that maybe because our strategic fit with this company, Orion, that had also been a partner, was so strong that they could see the most compelling valuations.

37:42Praveen Ghanta:So in our case, that ended up being the case, whereas I feel like you hear this cliche almost of, oh, I had a better offer, but this felt like the better fit for my company. In our case, actually, both of them ended up aligning. So there wasn't a whole lot of tension. The only question might have been this one of when you enter buying due diligence, it's like, oh, was there a fish that got away? For us, that was when Goldman briefly showed interest, but we were already in buying due diligence because they at that time were buying. They've gone through a cycle now as a bank. They spent some years buying and bolstering their wealth management division.

38:14Praveen Ghanta:And then they started unwinding it a little bit too after that. But at that time, they were acquisitive in the space. We're like, oh man, it would have been great to be able to talk to them. But outside of that, you're already in buying due diligence. And once you pull the trigger, that's just where you are. And we'll never know, truth be told. Do you get to see from the seller's perspective of this differentiation between private equity and strategics in terms of how they think? They feel like even for the business I'm running with Dealroom, I want to optimize, get an exit probably next three, four years.

38:40But I want to optimize it to be attractive to strategic and even ideally like an adjacent strategic. Do you think through that where it's like here, private equity is like a financial buyer. They look at this as a platform, try to do more of a 10x versus. You've seen already what comps look like from some of these strategics. It ends up being 14x, even higher sometimes.

38:58Praveen Ghanta:Did you have a view of that? Did the bankers walk you through it? What did that look like from your side? Buyers and sellers come in all varieties. Sometimes you lean on your banker more or your legal team if you lack that expertise. We were a little bit lucky in that both Raj and I are coming from a Wall Street background. We certainly have that background. I have a finance background. The product itself is fundamentally an investment-oriented analytics product. So we kind of understand markets and understand valuations and the principles behind that. So we understood that, yes, it was likely going to be the case that the strategics were going to pay more than financial buyers just for that reason.

39:30Praveen Ghanta:On the legal side, actually, I know we haven't mentioned that much, but on the legal side too. So Raj, he was an attorney early in his career, you know, and so has that legal background. So that was helpful. Now, of course, he wasn't the attorney on the deal. I like this Raj guy. He's a do-it-all person. Yeah, well, he was really good at those two pieces. It's very, very helpful to have a co-founder that has some of those skills. Yeah, we brought in Morris Manning was the firm that we use as the legal team. But yeah, it's helpful. We like to say that we never spent a dime on legal fees before we went to the sales process.

40:00How'd you do that?

40:01Praveen Ghanta:We were bootstrapped insourcers and Raj would act. He would cook up contracts when we needed them. So we insourced that too. Negotiate your own NDAs. Okay, so you sort of got a view. We ended up going through picking a buyer here and getting an LOI negotiated. Anything with LOI negotiations or that part? What were the key things or things that maybe surprised you or you would do differently? There's a question of how much detail should an LOI have. There, I would say it is important to get some of the details because in hindsight, we didn't pay much attention to this, but it did become a point of contention in the final negotiation, which is like, well, if you say you're going to pay this multiple revenue, 10x, 12x, whatever it may be, multiple of what?

40:43Praveen Ghanta:How are you defining ARR? Are you backward looking? Is it actual run rate? Is it historical revenue over the last 12 months? Or is it like trailing? Or is it actual as of this month? So how do you define these terms? Because then if you're not careful, folks can nail you to the wall and say, yeah, we defined it this way. And that's what we're going to stick to. They didn't lie to anybody. It's just that you didn't pay attention to the terms. So that would be one thing in hindsight that we could have tightened up more. It might have helped as we went through it. This, I think, mattered less for us.

41:12Praveen Ghanta:but I could see how depending on the size of a deal could be important. And that's when you do a deal, you're selling the company. And obviously, there's a question of compensation, both on the cash side, on the equity side, or the equity piece, though, that's really important. Like, how is that being priced? Sometimes there's a dollar number, and then it gets converted into a number of shares. In fact, quite often, that's the case. So then it becomes really important what equity price is chosen. So that's not a number you want to take lightly, because the CFO, on the sell side could easily cook the books and say, hey, it's worth this.

41:45Praveen Ghanta:And of course, they want to give away less shares. That was one that in hindsight, I don't think that our buyer was unreasonable there. But I could see that could have been a serious risk. And then finally, like on the employment terms, we didn't spend a lot of time thinking about all of that. But sometimes you hash that out later. But if you're really particular that hey, I particularly for smaller deals, this makes more sense. But if you need to get paid x for the deal to make sense for you, and that's not in the LOI, now you're at the mercy of the process, and it's getting late to get the terms you want on that front.

42:15Praveen Ghanta:And then, by the way, part of the employment terms, this could end up being very valuable and important, is what about personal options in the acquirer? That could actually be very material, worth getting what you want. So at least some of those high-level terms. Yeah, so it sounds like getting more of these details in the LOI, defining what those terms actually mean or what the basis is. Same thing, valuation, and then the sort of retention packages and things like that. Yeah, at least some of those high-level terms, If we think about, I can't remember how many pages our overall deal document was, but I feel like 400 some odd was the number.

42:48Praveen Ghanta:Anyway, so that's not uncommon. You're going to have a multi-hundred page document with all of the background information and whatnot that's in there. And LOI is going to be short, but it doesn't have to be so short that doesn't include some of these details. You're still talking about a one to two page document or something like that where you can get that in there. Let's talk through the actual execution of diligence because one of the things you mentioned is you insourced a lot of the process. One, I want to know what really sucked in diligence. What was the part that you really couldn't bear?

43:13And then when you take that insource approach, where did that work well? And where were areas that maybe it was creating more risk than it was worth?

43:19Praveen Ghanta:Yeah, good question. We insourced a lot. Partly it's a function of how much you end up insourcing is a function of where you started from. Well, we had a CPA firm that we worked with. We didn't lean on them so heavily throughout the lifecycle of the company because we were so used to insourcing. As a funny aside, for the first five or six years of the company, I did the taxes. So we were like truly old school that way. We had a CPA firm and they were doing it. So once we started to claim R &D tax credits and do things like that, it got more sophisticated. So we had them, but they weren't like doing the bookkeeping and every last level of detail.

43:52Praveen Ghanta:So what was one of the issues that came up? That was the contention of the buyer that we owed$600 ,000 in sales taxes. And that was because the law changed while we were a SaaS company. I can't remember exactly what year that ruling was in. There was a Supreme Court ruling about sales tax and about collecting it interstate. And all of a sudden, actually you've seen since that, it was like 2018 that ruling came out, Avalara and TaxJar, there were a whole series of startups that came up to help software companies manage sales tax. Since that was 2018 and here it's 2020 when we're trying to sell, we had never collected a dime of sales tax and we were not even aware that it was really a thing to worry about.

44:29Praveen Ghanta:So here they're now presenting us with this crazy bill. So that was an annoying, frustrating process for me to weed through. But I was determined. I was like, there is no way we're paying$600 ,000 in sales tax. Let's go into the details. And as it turns out, you go state by state portioning your clients. Like, where are these clients? How many transactions have we actually done state by state? And we were able to disqualify all but five states off the bat. We've only got one customer there. There are not enough transactions to meet the test. We were able to shrink the picture. And then we had this key client, our biggest enterprise client out of New York.

45:02Praveen Ghanta:And we were able to show that, well, actually, their operations are all over the country. Many of those are satellite offices elsewhere. Some are even overseas. So shrink the footprint of New York even further. And then there was a lot of customization that we had done for them. It was charged. You can't tax the customizations. That's the custom software aspect. So we're able to whittle it down, whittle it down, whittle it down. The problem is that the buyer was like, oh, just pay it. And we're like, that's my money, man. I'm just paying it. we were pushing back. And so it ended up being a fair amount of work, but we got that bill down from 600.

45:34Praveen Ghanta:Our contention was that it should have gone down from 600 to about 60. They pushed back and said, no, we're not comfortable taking that risk. We got it down from about 600 to about 100. That was work. That was work that I did. I personally know exactly what you're talking about. You just, as a startup, you don't even think about that stuff of all the state tax registration and then all of a sudden it's a liability that you have. Yeah, and then for us, it was because that was like, if I were back in that the same shoes today, now it's a well-known and well-understood thing. But when you started a company in 2010, and then sales tax didn't even become a part of the industry until eight years in, and of course, you could have missed it.

46:10Praveen Ghanta:So that was probably the nastiest one. But yeah, I did the quality of earnings, sort of sparring with the accounts. Okay, so some part of me is maybe a bit of a masochist, and I had fun with it a little bit and showing that the numbers were real and what we'd done. But I can see lots of founders dreading all of that. You can't hand it off if you haven't given your accountant or the players that you want to help enough information to actually be able to work on your behalf. My thought process there would be like, anybody who doesn't want to do that, get into the accounting weeds and slug it out with accountants.

46:40Praveen Ghanta:You better have armed your accountant to do that job. And if you haven't given them enough of the information and the data they need, well, they're not going to be able to. That's a good point. The view we haven't talked about is on the buy side. and they spent seven figures for third-party diligence providers. So obviously the accounting was one that you had to get in the battlefield with. Were there any other parts of diligence that surprised you in terms of what it was like to be on the receiving end of? Yes, in that I won't name names. There was a major consulting firm that was brought in to do due diligence on the model, meaning the underlying analytical model that was the risk model that we had built.

47:15Praveen Ghanta:And it was fine. We went through the process they asked us to go through, but it was kind of a joke. It was like you could see that, okay, partner shows up, waves hands for a few minutes, sends a bunch of little analysts to come and talk to us and they go through their emotions. But if I were the buyer, I would have looked at it and said, wait, what did you guys even do? And then you charged a big bill, but you didn't achieve anything. Interestingly, I think that this was where you get into buyers having, or particularly a PE-backed buyer, maybe having multiple parties, in a sense. One firm may have been picked by the PE overnords, if I can call them that.

47:47Praveen Ghanta:And the other, ironically, it was just post-acquisition or certainly it was post-binding. There was a second due diligence on the model done by someone closer to the firm and closer to the industry. They actually did a credible job. I actually give them a lot of credit, the smaller firm that came in and did a boutique analysis. So I had to go through it twice. I had to prove that the risk model worked with two different sets of, I guess, outside evaluators. It was amusing to watch the sort of big consulting shop just do PowerPoint versus the other guys actually at least did some stats. It'd be very true.

48:19You're paying for a deck. Yeah. You know, what makes or breaks a deal is integration. And I want to hear like how did it go for you? What went good? What didn't go so well?

48:28Praveen Ghanta:Yeah. Okay. So what went well and then what didn't go well? Or maybe this is almost a representation of what you kind of know or understand before a deal versus after post-closing. So we understood there was going to be a lot of technical integration because, hey, we're selling a SaaS software product that needs to be integrated into the mothership, so to speak. Orion sells a whole suite of products for financial advisors. Of course, we've got to integrate tighter. That was laid out at a high level early on. But during the due diligence process, they laid out like, okay, over the course of four quarters of work, these are all the integrations that we're going to do.

49:02Praveen Ghanta:And this is the work that we're going to do. And then they tied that to the small earn out that was associated with it. That was like really laid out. It was laid out well in the sense that at least it was specified. And it went smoothly enough over the course of the year that I was there after post-acquisition. And so that was a good transition in the sense that it caused our engineering team to work with the teams at the Acquirer and to really get embedded together. And I did as well. So that part worked well. What worked less well was sales integration, marketing integration, like all of that.

49:32Praveen Ghanta:There was a sense that, okay, you're becoming part of a larger organization. I don't think we realized the extent to which starting on day one, our team would lose all control of everything in that regard. It became much more of a like, okay, this is part of a suite now you can just give it away for free if you want. They're like, okay. And part of the problem there was that our sales team, and even my co-founder still, in theory, had targets tied to certain revenue goals and things like that, that became completely unattainable because the product was being used as a loss leader of sorts. Now, maybe strategically for the organization as a whole, maybe that's a good strategic decision, but it wasn't really communicated.

50:10Praveen Ghanta:That part just didn't work as well because your hamstring and folks are trying to sell this thing. So if we were to flip the scenario where you were the buyer at Orion buying your own company, what would you have done differently? Ooh, that's a tough one. Because the thing that I didn't mention in the previous question was, the other thing that I'll say that didn't go well was, so when we were integrated, we adopted Orion's approach to managing engineering and technology development, including their process for measuring and tracking the work. So what's the velocity of the team in terms of like story points and that sort of thing?

50:45Praveen Ghanta:So once we'd done that, we could see what was our velocity as we had just come in. We haven't fully integrated the team into Orion processes, but we can measure our own velocity and we know where that is. Apples to apples with sort of the rest of Orion. And it was somewhere between two and three times higher than the average team at Orion as of when we were acquired. Now, some of that's not surprising. Scrappy startup versus a larger company. To my dismay, by the time I left, they had succeeded, or perhaps shorter than after, but they had succeeded in dragging us down by 70%. They had succeeded in slowing the pace of innovation down.

51:21Praveen Ghanta:Like hopefully you buy a startup to gain their innovativeness and speed and all those things. And instead, unfortunately, the opposite happened. We watched that happen. So that wasn't fun to watch. If I were on the other side, I would look at, okay, I'm buying innovation. I'm buying that kind of talent. How can I let that prosper a little bit and not drag it down to the speed of like, there's times when you got to move slow, but hey, we're trying to do this for innovation reasons. How do we keep that? Yeah, preserve what's working well. Yeah. Is there anything else that you would have done, even like trying to help prepare the seller for what's going to happen with integration or trying to plan things so it goes smoothly post-close?

52:04Would you have done more planning in the front? Is there anything like that that you would have done differently?

52:09Praveen Ghanta:That's a tough question because it's one of these weird things where you don't want, obviously, our employees, or at least on our side, so on the sell side, we're trying to maintain the status quo on the one hand. On the other hand, folks can tell, okay, something's going on. It seems like something's going to happen here. They don't know for sure. So that's dicey because until you're bound and you know that the deal is moving forward, well, it ain't happening until it's happening. And so that's sort of a risk. I'm not really sure how to do a great job of that because if you prepare folks and then it doesn't happen, then what?

52:42Praveen Ghanta:So we tried to maintain a status quo where folks understood that, hey, we got to keep on moving forward. Of course, inevitably, folks will have some sense that something's going on. Maybe because I do have better ideas than I do. But it's not obvious how you do that without upsetting or without controlling for the risk that, yeah, maybe the deal doesn't happen. And then what? Yeah, so yeah, that's a tough part too. It's sort of on the wire until you really get it, but bear as much as you can. But the key thing is don't destroy the company you're buying. Yeah, yeah, absolutely. My close question is always, what's the craziest thing you've seen in M &A?

53:12I don't know if you have that crazy story from this or other experiences.

53:16Praveen Ghanta:Craziest thing I've seen in M &A. That's an interesting one. I feel like our journey there in itself, just with the degree of repricing, having talked to other sellers who sold, some folks will say, oh yeah, nothing like that happened to us. It was smooth and it was easy. So I feel like just the sheer amount of renegotiation that we did and the need to stand our ground, essentially, you feel like you're negotiating a deal twice. So we definitely felt through that. Or we felt that happening. Again, it'd be one thing if we felt like all right, there's a haircut that needs to happen because you guys didn't quite hit this number that you said.

53:51Praveen Ghanta:But if it was a linear haircut as against your actual performance today, you kind of get that. Whereas they're asking for, no, we want 50 % off. So it was like totally a retrain where we got to stand our ground and fight for ourselves again. That stands out of my mind. And the thing, just as a random aside, the thing that kept me sane through that process, and this is like also like kind of pandemic, you know, we're all kind of mostly at home. We didn't even meet our deal team. in person until the post-close celebration. So it's just that era was very weird. I would actually like in the evenings, I would get a drink and go and work on the puzzle.

54:27Praveen Ghanta:So we had these thousand piece puzzles on our dining room table. And I'm like, there's one thing I can achieve. I can get this puzzle finished. It was like a way to mentally like do something that was like, quote unquote, doable. I don't know what's going to happen with this big part of my life, but this I can make happen. So find some way to keep saying. That's what I'd say. Find a way to keep saying. I like it. Proveen, I appreciate you taking time sharing experiences. You helped me become a better M &A scientist. Awesome. Yeah. No, thanks for the opportunity, Stone. This is great. Hey, those of you still listening, my fellow M &A scientists out there, I love to hear from you.

54:59Give me some feedback. I know we don't get the seller perspective on the podcast very often. They're tough. But let me know what you think of this. Reach out to me on LinkedIn. Connect with me. Just make sure you mention the podcast. Get a bunch of spam on there. I'll be happy to connect with you. Criticism too. There's something I missed or could do better on. I'll take it. Trying to get better at this. Until next time, here's to the deal.

55:39If 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. Again, that's mascience.com. Here's to the deal.

56:27views and opinions expressed on mna 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 educational and is not intended to serve as a basis for any investment or financial decisions