What Elite Investment Bankers Do Differently in M&A

23:37And that person told me, this isn't actually about my company. Very popular, large cap FinTech name. Not about my company. I'm actually an investor in this business. and I think that they would benefit from meeting some people in the wealth tech ecosystem. I know you know that space. I said, sure. So he introduced me to that founder CEO that he had invested behind and we got to talking and he explained to me what he was looking for. And from that, I generated a set of ideas. These are actually people I think would really enjoy meeting you and likewise, you would enjoy meeting them. And originally, it was around distribution.

24:16So find a way to create a distribution relationship. He was creating a specific wealth management product that he needed help getting out to advisors, getting out to retail investors. He's really good at creating the product, not good at distribution. I wish more fintechs thought about how to partner with distribution versus struggling with scale. But again, this is a person who kind of knew about this. And I made an introduction to another fintech in the wealth tech space. Lo and behold, a few weeks pass, and they ultimately decide that they should just join forces. in the truest sense, which is he should sell his company into that fintech.

24:52I could probably pick up across a dozen public companies where it is not even transactional, like specific idea, focus on it, the nature of our engagement. It is much more strategic in that it's, I know I need to do something. I don't like how I trade today. So help me figure out how I should run my business, discuss my business, report my business, but also what are the ideas and strategic alternatives that exist for me to go out and go and chase and really get smart on so that I can address those things that my board cares about, that my investors care about and the like. That's how we help drive strategy.

25:32It's because people identify, maybe it's because we help them identify, but they identify that there's a deficiency in how they're trading or how they're performing. Like they're not optimized and they can feel it. The organization knows when it's not optimized. And so then we helped them think through, okay, can this be solved with M &A? Can this be solved through other means? Have you thought about this operational exercise? Have you thought about that operational exercise? So that's, again, without getting into like specific client list, but across a couple different industry verticals, that is the exact nature of dialogue that I have on a day-to-day basis.

26:04Very different. I'm like liking you a little more. It's a little more. That's a low bar. I'm getting a sense of being a real partner strategic advisor as opposed to the cliche a transactional banker where it's all about the engagement letter and they're calculating what's the big of a house they can buy from that. You talk through challenging and thinking through strategy, but then it's also execution. Sounds like you're just, hey, let's pick up the phone and get the conversation going. Clients like to know that someone cares about what they care about. Go back again all the way to basic concepts.

26:38Independent, conflict-free advice, putting ourselves in our client's shoes. They might as well have this written on the wall. That's what we all subscribe to, at least to this firm. And so you have to play those roles. That's the other reason, by the way, that it was a very nice transition for me coming from the bulge bracket is we weren't containerized till you can only cover these three companies that you've been assigned. You cover an ecosystem, you cover an industry, which means that we can go where our clients need us to go. How many large cap clients are tired of a banker showing up and pitching the mega cap deal that's going to earn the most fees.

27:10Because that's really what the banker wants to talk to them about as opposed to, hey, can you show up and talk about what I've told you I'm focused on? Sometimes people are in tactical bolt-on mode. Sometimes people are in transformational mode. Sometimes people are in, I'm not going to put my head down mode, but I need to know if there's things changing in the industry. That means I need to pick my head up and reconsider how I'm spending my time. Big question for CEOs, how much time should I be spending internally versus how much time she'll be spending getting to know potential buyers, getting to know potential private equity firms.

27:42So there's a balancing act. All of that now fits under our remit of places we can go and help. And that's because we cover companies large and small. If I think about my transactional experience, I've advised on three of the most consequential deals in financial services across three different industries. Huge industry-shaping deals. On the flip side of things, I've helped founders who started a company still own almost all of the equity in it, get that once-in-a-lifetime exit. And they were selling, by the way, to a large-cap company. So they needed to be as well-equipped to deal with that big buyer as that big buyer was equipped to deal with them.

28:19And so you only get that kind of penetration into... And these are all in financial service and fintech industry. The only reason you can do that is you have that flexibility to go up and down the spectrum. As some of our pitch materials that we'd crafted in the early days, our original messaging was like, you have the big firm capabilities and the small firm feel. We are your friends. We are the people you trust and rely upon. But make no mistake, we have all the sophistication and capability to advise on the biggest deals in the world. That's important to be able to really cover an industry and cover a client.

28:49You need to be able to go where they need you to go. Yeah, you mentioned that. Companies could be at a different place and whether they're doing the bolt-ons or need to think about doing something transformational. You mentioned for the executive, thinking about their time spent internally versus externally. What have you seen around that? Is there an answer? And does it vary by company? Varies by company, varies by stage, varies based on how they're doing, based on their goals. That's what's super important. You cannot show up and give a cookie cutter response like, yes, of course, you should be out there courting because deep down inside, I secretly want you to hire me to sell your company.

29:22And if I get you out there talking to people, maybe someone will come in and lob in a bid. Okay. That's not that useful because what if the company's not in good shape to be sold? What if the market multiples or the market sentiment around that business is not constructive? What if the company has plenty of runway? And really the question is, what do I do for six months versus what do I do right now versus what I do a year from now? It lacks that context and that thoughtfulness. And that's where every specific situation dictates a different piece of advice. And that takes time. It takes effort.

29:55It takes thinking. But that's actually what makes this job really interesting to me. It's a constant Rubik's Cube. You get a new one every few minutes to solve. That's why. Big differences between working with public companies versus private companies? Not much in terms of like, I'll call it like the building blocks of transaction activity. Hyper conceptual level, it's the same thing. What are you trying to do? Why? What are the facts? What are the financials say? What is the market telling us? What's the appetite? That's all kind of the same. I think with public companies or private companies, a couple obvious differences.

30:25Public companies usually can be resourced better. Maybe the quality of their information is higher. Maybe the amount of experience they have in M &A activity is greater. So you can tap into some institutional knowledge versus private companies. Big private companies can have all the same characteristics, but small ones can have none of those. Secondly, when you work with a public company, chances are you're working with a board or a management team where they've done this before. This is one of a series of transactions they would have worked on across their career. And they are professional corporate leaders.

30:55And they're great. They are the right people you want in that seat. But when you're talking to a founder or someone who's going to have one, maybe two exits in the life, it takes on a whole different scale in terms of the headspace. Again, that's not to diminish the role that a board member or a CEO of a public company has, but it's different. If you own all the equity and ultimately you're just deciding like, my lifestyle is intertwined in this. What my kids think of as where my parents go to work is tied up into this. It takes on a different... So in those instances, you can find that you play equal part, shoulder to cry on, therapist, friend, as well as sophisticated financial advisor.

31:32So that's another difference I think exists when you go into specific types of private companies is that there is that extra element that you need to be able to bring up. And there's other differences like valuation methodologies and the like, depending on the profitability of the company or the sector that it's in. The fact that public companies have a daily mark as to what the market thinks that they are valued, whether or not that's compatible with management of the board's view. It tends to drive a lot of transaction activity when you're private, like there's a opacity to valuation. So you're looking at like prior marks or different rounds and things like that.

32:04So there's like a little bit of data element differences that exist as well. But I think of advice on this holistic level. Like I said at the beginning, we bring the experience, we bring the knowledge, we bring the data, we bring the analysis, and we create frameworks to make good decisions. And that is the same for a public and a private company. Let's test it out. Let's not all talk. Okay. We're going to role play one of our catch-up calls. Let's go. We'll take all the niceties out to save some time here. For the update, it's been a year since we last talked and growth is still doing good. We mentioned last time we had a couple of really good years hitting 60 % year over year.

32:39We closed out last year, 5.3 million revenue. We're at 10 million run rate. We're going to close this year out probably about eight, nine million revenue. At the end of last year, I got a new COO, restructured the whole management team, got a new VP sales, VP marketing, CFO. They've all come from backgrounds from venture-backed companies, scaled up the 50, 60 million revenue. I got a lot of confidence that they're going to be able to get this to 25 million ARR over the coming two years. Exit ARR will be 10? 8 to 9. 8 to 9. Yeah, we should 8 to 9. Run rate's sitting around 10 right now. Okay. So I'm really confident.

33:14And they've put a whole new operating framework in there, really restructured the teams. And you can tell last quarter was our record quarter. And the growth is going in the right direction. They're acquiring great talent. But I have high confidence in the direction they're going in terms of organic growth. I'm removed from operations. I get to do podcasts and hang out. But now I'm starting to learn how to wrap my head around thinking more on the business as opposed to in the business. So trying to network with other CEOs, get an understanding of what those conversations are, the ecosystem to better look at the whole picture.

33:44And be truthful, Nash, I'm like dying to do deals. Like I come from a background like you doing deals and I haven't done a deal in a long time. I talk a lot about doing deals, but I sure as hell am dying to do deals. I would like to see this company get to 25 million ARRs so we're less looked upon as an acquisition target and more looked upon as a potential platform. And at that point, I would, given that we have employees with options in the company, that we recap this business, dilute a minority stake around 30%. And let's say some round numbers, keep them as simple. Obviously, the time may be a little different, but if it's 25 million AR, we're looking at 250 in terms of potential valuation.

34:23But if we could introduce something like 50 million of primary capital, 25 million of secondary capital, 50 million would be a strong position for us to go out and do some deals. I think this is where we would see that organic growth still continue, but really want to get more aggressive. and I think there's a couple other things I've been thinking about. One is doing deals. I noticed there's not a lot of stuff in our really core area and they're competitive. We've seen a lot of activity in our areas. The one I'm really interested in carve outs. If we can look at leveraging these relationships that I get through these podcasts with senior executives, that's these large companies.

35:00If that's an area to build this company into the M &A platform, that's one area in terms of inorganic and on the organic side, because I did have a conversation. I don't know if Nick Schumach, he's VCO of Berkshire Capital. Now he's got his own firm, Schumach & Co. He's been doing a lot of deals with strategics on these kind of minority recap positions. And its valuations have been really good. They obviously want to push for a call, but then it's negotiated on hitting some certain milestones that you can remove that. But I thought that's pretty interesting. And the reason I'm going back to that is looking at a strategic partner for the distribution side.

35:35Because right now we're selling really well into these large strategics. a number of Fortune 50 companies, but also roll-ups. A ton of roll-ups. The next phase for us would be to sell directly into private equity, which I feel like is a whole new go-to-market and everything. But is there some kind of partnership that already has those relationships into those firms where they're selling some kind of LP relationship, CRM product, which may be one of the businesses like S &P has? So that's kind of where we're at with the business. And when I'm looking ahead around the corner, what do you think? Am I missing something?

36:06Let me ask you a couple of questions. How much of that 50 of primary do you need to fund growing the business from 8 or 9 ARR to 25 to 30? I don't need anything right now. I guess to add that context, I'm still bootstrapped. Yeah. I haven't raised any money. I've still got good cash reserves on hand. We've got about a million and a half cash on hand. So I'm confident that we can continue bootstrapping to reach that 25 million ARR. Right. I think that's a good goal too. 3x in 3 years is a great goal. It's a great goal. Here's what I'd say. I get all the desires. And I think that's a great plan.

36:36The thing I care about and I like the most is I can organically grow from eight or nine to 25 plus in three years. And I have the team in place to do it. I have all the capital I need to do it. The reason I say that is when you start talking about raising primary, we start talking about valuation. At what point along that journey, you raise that primary plus that big secondary component you're talking about is going to be important. And you're sitting in between a place where you're a bit small for growth equity to where you start to get into the sweet spot for growth equity. But you don't need the money.

37:12So should you be spending time talking to investors today? I'd say no. Because it's more important than you get from 8 to over 10 and towards 20. So you can tap into a more ambitious, a more deep-pocketed group of potential investors. who would get excited about taking the company from 25 to 100, if that's ultimately the goal. Like if it's to keep growing. Second, I think raising equity capital on spec, if you have no need for it, is really challenging unless you're in a handful of specific industries. If you're a Gen AI startup, and I know you got some great AI capabilities that you're rolling out, but none of what you articulated to me, the 50 that you want to raise, is for investing in product or investing in the company.

37:58It's for M &A. So I say, first, find your M &A targets. We'll talk about that in a second. And then if you need capital to get that deal done, you show up with that package because then you're selling to Proforma. You're not selling your business as a standalone today and you get no credit for the fact that you're going to go deploy successfully that$50 million. Maybe you can get a little bit of credit for it. But again, that's going to require quite a bit of information, pipeline of deals, certainty of being able to get them, the price you can get them, how well you can run it. And all of that's going to be haircut because again, it's all on spec.

38:29So if you really want to use external capital to finance an M &A roll-up strategy, go really build out the M &A roll-up strategy and build it out the same way you build out a sales funnel. People want data information. Here's my target list. I've identified that there are these private companies, there are these carve-outs, I've initiated these conversations. Treat it the way you would treat running your business. If you're going to make M &A a leg, like I said before, there's strategy and your strategy can be, I'm going to go do M &A. Or M &A can be an accelerant to a strategy, which is I'm going to try to get bigger and I want to find ways to grow my revenue base through new products or capturing scale within my market that I'm in today.

39:06That's all the same stuff. So you got to go use your M &A strategy. You go build that pipeline. Now, pipeline building to finish off the thought, look, you and I can sit there and talk about it. Let's talk about the companies where there's the capability that sits inside and we can determine whether I got access or whether one of my partners has access. We can create the right type of introductions. You should go and farm your network that you have as well and put the word out. Hey, I'm looking. I'm open. I'm interested. Here's what I would like to get to know people on the basis of. If you're on the buy side, I think having people have an awareness.

39:41There's so many people that are out there looking for ways to connect dots. Some good actors, some bad actors, but at least there's some awareness you can create. What you're going to have to manage though is separating the good leads from the really bad ones, the fishing expeditions. That's my reaction. Without spending a good amount of time with you, I think. I think that's it. And I'll click in one level into it real quick to take it one step further. So I started building a pipeline. I pursued one direct competitor and I learned a lot. I learned that, hey, it's going to be really hard to predict churn.

40:13It's going to be a very complicated integration that would come at expense at our organic growth. I was low-balled. It is basically I wasn't comfortable to put a competitive value on it. And it's still there. These are more distressed or stagnant or declining growth. So I've learned a lot from that. I build this thesis around consolidating data room products. We own a separate data room or firm room. And it is a really clean, simple product that I thought if we can buy some of these been around 10 plus year businesses, move the customer base over, much simpler product. You can have much higher confidence in the churn.

40:50and it's definitely been like enhancing customer experience, but then be able to cost energies. Single platform lifts and shifts. Pretty aggressive. Yeah. And that's why I thought, hey, build a pipeline, actually validate the thesis. What I realized is there's a gap one. There's a bunch of little crappy one to$3 million companies, but then it goes up to 20 plus million. And there's a good amount of activity in that consolidation that's already happening with the big two, the big two buying up those size companies. And then at that low level, there wasn't as many as I thought there was. there's not as clean of a product that you would be able to do that play.

41:23They do different things and it would be even some situations you might have to keep that product a lot longer than you need to or have to keep it. So that's where still looking at doing some of those deals to try to get a rep or two in. I think there's a whole learning curve and muscle building of doing the deal itself. But that's when it sparked my interest in Carvout because I lost one deal to a competitor. But I thought why I compete When I can want to focus the energy to leverage these relationships that are hard to establish and try to find those carve-outs. And that's, looking back, the best I've seen from M &A are roll-ups.

42:01They're pretty predictable and sound and tend to make good results. And then carve-outs. They're hard and tricky, but if you really do them, they unlock a lot of value. And so that's where I thought the area would be a shift is the carve-outs. And that's where we're starting to build some pipeline there. Test and verify. Develop a thesis, go out and test it, verify whether the thesis is right, or adjust it. The scientific method applies to deal frameworks and deal strategy as well. I'd say part of this job is helping people determine when they should transact. Equally, it's when they shouldn't.

42:33And the caution I tell people is don't let the desire to do a deal put you in a situation where you do a bad deal. Like, why would you do small deals? You do small deals because one, maybe there's less competition for them. Two, maybe the valuation is very attractive. And three, that's what you have capacity for. And I'll put a fourth there. It shows that you can get deals done, integrate, and you can be a successful acquirer. So as you get bigger and you go out and you need someone else's money to help you do it, you have the ability to prove. That's the goal. I was hoping to do two deals before we get to$25 million.

43:02Then that story of why we want to raise to continue doing acquisitions is a lot stronger. Right. But if you find that in order to satisfy some of those goals, you do a bad deal. You pay a little for a company that's probably not even worth that much. You can't integrate it because the client base really did not want to port because they were more attached to the original principle of that business as opposed to the service. And you can't shift them to your platform. So now you're running two platforms, which you never wanted to do. And you can't demonstrate that money wouldn't have been better spent plugging it into your OPEX or driving sales.

43:34So the return on capital was actually a bad decision. And all of that stuff backfires. You got to put that lens when you're thinking about a strategy the way you're thinking about it. But I think you're doing the right thing. You have the opportunity, you're acting on it, and you got to put the right decision framework around it and make sure it makes sense. Don't forget I'm Indian. I always get good deals. Exactly. The carve-out. What do you think the approach is? I think there's an angle. I was actually talking to a good friend, Antonio Sanchez, who's been on this podcast the other day about this, that you should really spend the time with CorpDev and learn the business lines and identify an actual business to start cultivating a business case around, then start leveraging that executive to be on the same page about sponsoring that deal.

44:15What am I missing? How can I leverage you to find these covered opportunities? Well, one, you could tell me what you're looking for. And then when I'm speaking to the companies that I speak to, if there's a fit, then it's top of mind for me to mention to them and to mention to you. That's part of it. That's that awareness point that I made earlier. If you put out to the right folks, these are the things you're interested in and you know they traffic in the worlds where you want to traffic, It creates enough of a catalyst for someone who is looking to find ways to connect people to go do that basic work.

44:48That's a big part of our day-to-day. We collect information and expectations and needs and wants from a great universe of people. And then sometimes we find that we know where they match up. Second, corporate development professionals are incredibly busy people. If they're at a good company that's got a good balance sheet and some firepower, they're probably getting a lot of inbounds. Because I literally carve out funds that are dialing every corporate person every day. It all becomes about people want to know that they're not expending calories they don't need to. And so if you are working with or you got to know a corporate development person, that's great if you, through them, can have a good sense or understanding of the business and you can find areas of the business where collaboration makes a lot of sense.

45:29But then ask yourself, are they even looking to do something with this? And can what I put on the table be more attractive to them than owning this business anymore? And maybe you'll find that in some instances, the answer is yes. And I think you have a nice formula for, you know me, you know my business, you know there's a benefit here. And I know that you're looking for a solution for your business. Why don't we spend some time talking about this and take the time to really explore it properly? If you can't find those characteristics, I think it's a bit harder. and you just have to ask yourself, does this person have the time and appetite or the conditions right for me to do this or do I have to keep upping the price in order to induce it?

46:05And at some point, you're going to bump up against your hard parameters. Is this a good deal? There's a spectrum of doing what's very strategic, which I mentioned, the distribution of private equity. So if I find those kinds of products and large companies that have already got that scale, really focusing on that. And that may be more of a partner approach and then from there, expand what other opportunities. other than the spectrum is my core Indian self being highly opportunistic, looking for a good deal, which people, this podcast isn't the best thing to do. There are companies out there who have done a good job buying companies when it was a good deal and they do not integrate them at all and they're doing fine.

46:43So that's good at cutting costs too. Well, so again, if you're going to put them together, that's different. I want to opportunistically own a bunch of different businesses and I'm going to buy them at the right time. there is such a thing as buying a company really well. You buy in at a really specific point in time where they need an exit and the market conditions aren't particularly conducive to paying a big multiple for it. And so you can swoop in and you can show up with capital when they need it the absolute most and do a good deal. That's different than a good deal being defined as something I can buy, integrate, and maybe even drive the revenue up on.

47:16It's two different types of transactions. Maybe there is an intersection of that Venn diagram where it's opportunistic and it has that. Do that deal all day if you can find it. Yeah. But otherwise, those are two different underwrites, if you ask me. For your reference, I would say B2B SaaS. I'd like to stay in that circle. Finance related. Got to be some kind of finance theme, or it could potentially be collaboration. If you look at our business ecosystem today, it is very oriented around the nature of high security, whether it's IPO, M &A deal, and there's data security. There's collaboration as an element.

47:48And now with this AI that we've recently released, it's legal diligence all day. So that's like another area we'd potentially look at as finance, legal and transactional, and then it's kind of collaboration, document workflow. Got it. Just as you talked to some folks. I'll keep it in mind. In terms of what I'm doing now, which is trying to get, I think, looking to be more strategic, building the relationship with these companies. I've got a list right now about 30 strategics that I'm trying to learn and start courting. Is there anything else that you think I'm missing or should be thinking about?

48:19Because I haven't put the private equity themselves as much of a focus, but then I'm thinking at their level, they're not looking or thinking about little carve out deals or anything like that. There's a whole universe of, I'll call it private equity firms that exist for companies of all sizes. So there's private equity firms that focus on companies with one to five of revenue. There's private equity firms that exist for companies from 10 to 30 and so on and so forth. So if you're saying, should I go to Blackstone to help finance a$20 million acquisition? No, you shouldn't. I think responsibly, if you are targeting deals that's going to require outside capital, you should have a couple relationships you've started to develop so that at least a few people you can call that already know your business and understand that you're going to call them back, not when you need money because you don't, But you're going to call them back when a creative high return on capital transaction that you've identified requires a partner to come in and help you.

49:19You have an actual reason to spend some time with a select group. And you'll have to figure out whether someone's really understanding the story reputationally. You can even ask for referrals like who's good in this space, but at this size threshold. And you can also try to think about, do they have the right type of capital for where I want to partner today versus tomorrow versus down the line? Right now, I get about five to seven inbound inquiries every month from all different types. Really small PE firms to some pretty high-profile ones. I even wonder why they're reaching out. They heard about the service.

49:51They just want to sign up. That's what I always tell them. Because a lot of times they're like junior associate level. I'm like, listen, be a customer first. I only take these calls from customers. There's a lot of software and services companies, CEOs, who have that exact same position of large cap public companies. How do I weed this out to find those P firms I should be spending the relationship with? It's a blur. I mean, there's firms I love out there like TA Associates, which I know they don't cut checks less than$100 million. I'm like, we're far from that. But then the other ones, they all blur.

50:23They all seem the same. And I'll start asking them, what's your fund size, check, average check and stuff. But then you really want the one that has that incredible good reputation, tier one. But like I said, at that check size, how do you go through figuring that out? I don't have a depth of experience on that slice of the market. I know it exists. I know, man. I took you from... We just talked about the biggest deals that you worked on. And the smaller deals I work on tend to evolve at least one party as a large party. We're going to do this interview five years from now. And it'll be a different story.

50:52It will be a different story. It's on them to convince you that they are a worthwhile partner. Because you're inviting someone into your house. If you're ever going to take capital from a private equity firm, from a growth equity firm, whether they're small or large, they are assessing whether you are a worthy steward of capital for them to give money to. And in reverse, you are assessing whether they are the right partner that not when times are good, but when times are bad, will they stand by you and help you figure things out and get the company to a successful place. Some of that comes from them being able to articulate why they're an investor in the first place, What their special sauce is?

51:33Is it just money? Is it something else? Do they have operational know-how? Even more specific, who are some of the entrepreneurs and founders you've worked with? I'd like to talk to a few of them. Current or former portfolio companies. And you can look up where they've invested in the past. If they're not willing to engage in this mutual dialogue, then you could probably just move on. Because there's some firms out there, just like you said, some bankers have a bad reputation. There's investors who have mixed reputation. These are like inbound. What about going outbound? If they say, hey, I know this B firm's got a really good reputation or something.

52:07You can try. That's why there's generally available information on a lot of their websites. Again, for the universe of private equity firms that you're looking for, discovery is one of the hardest parts. Because the distribution of companies in the United States that have this revenue profile versus, say, one that's got$10 billion of revenue is a totally different sample size. Yeah. When you compete in this lower end of the private equity market, half of the challenge, I have to imagine, is how do I even find the companies? And that's where you're in this weird space between business broker land and true investment banker land, where if you're that investor, what's the best way to figure out what's even around?

52:46How do I screen for this? It's not like there's a directory of great information that has perfect fidelity of what's this company, how well is it doing, what are their prior raises? That's what exists at the higher end of the spectrum. And so they're all about discovery. So again, a good firm with a good reputation, you should have no problem finding a way to call them and start a dialogue. And again, if they have time for you, then that's great. Off the bat, you already know that this is someone who's going to take a moment and give an honest assessment. If they don't, move on because there's more.

53:16I agree. I found just talking to other founders, CEOs, seems to be good. That's always a great way. Warm intros, warm leads, warm referrals. It works both ways. ask people, who can I talk to that'll validate everything you've said to me? I want to switch things up. I got this thought leadership point of view I've been working on. And it's buyer-led M &A. A lot of this, I took some time off and I was putting myself in an asylum in Italy, a little town, wandering around, drinking a lot of wine, eating good food. Reflecting back on all these podcasts I did, came to this conclusion because a lot of it, there's buyer-oriented.

53:50Like we don't, one of the few bankers I've had on the sell side. And I see this maturity curve that the first deal you do ever, it'd be like very seller anchor led process. But as you do more deals, you mature, you'll start learning all those integration lessons and why you should put that up front. Have some idea of how you're going to integrate the company sooner than later. The way they manage their data and having the data really central, single source of truth. So start integrating it. You don't have to go back and ask for the same thing again. building your process around scale, synchronizing your integration planning with your diligence, all these little things I've put together.

54:27And I'm wondering, as a company matures and their process becomes more buyer-led from the banking perspective, because it's basically calling out the problem in the industry is this traditional seller-led banking process. But I do believe that there's a nice balance you can create that once an LOI is signed, the buyer with more people involved in the deal typically should be able to control the flow of information so that they can manage information in a way that allows them to do their integration planning at the same time and put much more comprehensive effort into integration planning. That's like the biggest gap I've seen.

55:06If you purely run a seller process, you don't really do it. You miss it. It's a whole different area. It's a whole different group. When you look at roll-ups that are doing M &A at scale, it has to be buyer-led. They end up driving the whole process regardless. I was just curious, you're on the investment banking side. And before I call out big problem is the bankers in the world, what's their perspective on that? Because I understand early stage running competitive process, you got to control it and keep the information separate. But once you sign an LOI, you go exclusive, there's flexibility there to work with the buyers so that they can drive process that gets the deal done faster and integrates the company better?

55:44Yes, is the short answer. There's a constant battle for controlling the process that exists with a pre or post-LOI. And certainly the dynamics around exclusivity add a whole other layer to that. But it exists perpetually. I'd say, look, you mentioned a couple of things. A buyer has a set of criteria that they need to satisfy in order to get comfortable with the deal. They have to balance that with being able to move fast enough with enough conviction to keep up with the seller's process. If the seller, in fact, has a process, whether it's a banker-led process or whether it's a process that's been created by management or the seller's board that says, this is how much time we're going to allot for this.

56:24There's lots of different ways a seller can run their process. But what you want to do is make sure you're satisfying as many of your important items as you can while balancing staying competitive if their process even exists. Sometimes you know it's bilateral, and maybe you have the perfect ability to take your own sweet time. It's fine. That's great. And then you can play that into, look, once they've come to the point that they're committed more to, the seller's committed to the buyer, you're an exclusivity. Part of that is establishing that relationship and then making it clear that in order to get to signing or beyond, these are the things I need to focus on.

57:03Everyone's going to have their list of things that I need to get through to be able to get my side to approve a transaction. More apropos of your question is, M &A is a muscle. Some companies don't have it yet and they're building it. Some companies have it well-defined. But it's not one muscle. It's like the human body. It's a series of muscles. Some are primary, some are secondary. So integration and being able to diligence integration, develop a point of view to inform the transactional elements of the deal process, helping make sure that what integration is going to look like, what it's going to cost, how long it's going to take, how that informs the outlook for the business, and therefore what you're going to pay for it is a muscle.

57:37So if it's really important to your organization and you recognize this now, make sure you develop that muscle so they can go as smoothly and efficiently and as quickly as possible. So you're not really worried so much about not being as competitive from a timeline perspective with what the seller is trying to do. Now, sellers may say, I'm not going to get into some of that stuff until you're at a certain point. But I think that's a bit short-sighted. That's probably not as sophisticated of a seller because the reality is the more comfort you get with integration, they should be able to understand that means that you have a more realistic point of view on synergies.

58:11And so selfishly for them, that means there's value that's going to emerge that may have been unknown or less likely to be realized that they have a chance to elevate. And that point becomes part of negotiation. What's the jump ball? Who's going to capture this value? But both sides should be motivated to find where the synergy exists. So I think it's always about framing is that like, I need to understand where the benefits exist. And part of that is really understanding how am I going to put these two businesses together? There's lots of reasons where you can slowly dip into it and get the information you need because it's extremely important in order to get the deal done.

58:47Again, it depends on dynamics across time. I've dealt with this a lot, particularly in the wealth ecosystem where moving companies on different tech providers over or through different clearing providers over or the custody relationships over. There's a big synergy opportunity that exists. But if you don't do that work upfront, want, very hard to ascribe value to that synergy because what if you can't move stuff over? It's a major ding on the P &L. Same thing for tech companies. If you're buying another tech company, you don't have the chance to diligence that tech stack and how it's run and how many custom integrations are out there or customized deployments versus bread and butter and vanilla deployments that are out there.

59:23You have an inability to really know how quickly you can lift and shift all those customers to your platform. And so it makes it that much harder to pay a price that might be compelling to a seller who is expecting to get paid some share of the benefit that exists by putting the two companies together. And I'm dealing with that right now. There is a huge conversion aspect to it that is tied up into contingent consideration. And the reason it has to be like that is because you cannot find enough harmony of understanding as to how that conversion is going to go. But that's where all the value in the transaction sits is getting that conversion done right.

59:55So I think, again, both sides have a lot of incentive to do this. It's just about framing it the right way. So the key to buyer-led M &A in a bank process is to communicate early the emphasis around the value that's unlocked during integration and those synergies. That's key to the buyer. The key to creating a buyer-led process in a transaction is to show up with the right amount of conviction, the ability to move fast, and the right amount of value that you can put to work so that you can push away competition. If you want to truly create a buyer-led process, outside of being the only buyer they could work with, like forgetting like when structural elements create a buyer-led process.

1:00:37If you're in a competitive process and you want to take more control, it tends to be on one of three verticals or axes, speed, value, and certainty. And there tends to be one or two of those that rise above the other ones to a seller. If you want to control a process, show up with whichever of those elements is most important to the seller. Part of your upfront work is understanding why are you selling? What are your goals? What are your objectives? Sometimes your banker will do this for you. Sometimes you're doing it on your own. But it's always good to ask, why are you doing this? What matters?

1:01:14What are you going to do if someone can close tomorrow versus someone can pay you 2x as much, but they got to close three years from now. It's a way of asking, what do you value, speed or certainty or value? So yeah, speed and value, which you may need that business case of synergies through integration. And then their certainty. Can you get to a close? I have the money. I know how to diligence this deal. I've addressed my bright line issues. So it's really about finishing diligence, but like the fundamental go-no-go is I've already addressed. That's a speed and a certainty thing. The certainty is really about, are there going to be a bunch of conditions and risks that come with you transacting with me above and beyond.

1:01:51Getting aligned on that, waiting the deal to get to an exclusive, then you can frame things up for the mechanicals of how to get those things done. When you're in exclusivity, the buyer has more ability to really lean in on the most important things because they've already convinced the seller to a certain extent that this is the party that I'm going to forego other opportunities to work with. So of course, you generate a lot more leverage in that situation. Sellers still have a healthy amount of leverage. Everyone should always remember, sellers' ultimate leverage is the ability to walk away and say no.

1:02:20Maybe it's competition that allows them to feel that comfortable. Maybe it's anger. But at the end of the day, they can say no. Now, if they can't say no, then you have a ton of leverage. But usually sellers at least have that one out. But when you're an exclusivity, they've given up a little bit of it because the other buyers who are around the table are left wondering, is this still a good use of my time? And should I move on to the other stuff that I'm looking at? Because I may not even get another bite at this. Am I really going to be around? And if I am, am I going to be around at the same level when I was trying to win this versus knowing that someone else couldn't get there?

1:02:52This is an intense kind of like psychology of what am I buying and I want to win it anymore. And then all of a sudden price is back on the table. So once you're in that exclusivity as a buyer, it's huge. And at that point, it's like definitionally buyer-led because seller just wants you to get through your work as fast as possible. And you're going to say, I can get through my work as fast as possible as long as I have sufficient access to you and the information I want. Part and parcel of every communication around exclusivity and transaction timing from a buyer's perspective is I can move fast, but only as fast as you can.

1:03:24Yeah. That's my sales pitch. Close faster, integrate better. That's a good sales pitch for what you do, for sure. That's the thing. The industry is very, very used to the bankers driving it all the way to close. Now, like I said, you're starting to see it with this high scale roll-ups. Hey, LOI, there's sort of alignment to mechanically change it. great roll-up strategy companies out there. And they are very systematic about it. They show up. They've established a deal structure, deal documents, parameters around valuation. And it's, hey, here it is. It's vanilla. That's all I got. But I can move fast.

1:03:58I give you great terms. I can get this done quick. And by the way, on the back end, I have an integration team. This is all going to be smooth and seamless. In a lot of those cases, maybe that person is still participating in the pro forma. They're cashing out, but they're rolling a little bit. So it gives them a lot of confidence that this deal is going to go over really well. If you're a roll-up, I don't know that roll-up strategies actually is like the domain, like the bankers. It depends. Some are more banked than that. But like the actual strategy itself, if you're a company and you want to do roll-ups really well, and it tends to be like, I'm going to do a...

1:04:28I'm talking real volume. I'm going to do a dozen of these deals a year and they're all about the same type, then that's only the case. If they're not all the same type, then at least get the valuation, integration, and targeting on point. Know that it's a good target. It's worth your time. Know exactly how you think about value and be disciplined around, I'm going to walk away from this if it falls outside these parameters because I'm all to an ROIC or a return on capital or a specific internal hurdle rate or IRR. Do those deals and then be ready to go. Have your financing lined up. Have your advisors lined up, your accountants, your lawyers, your bankers, whatever you need to do that extra work to finalize that decision.

1:05:05And then have your backend integration set up. Do you have all that place? Some of the best acquirers in the world, that's what they build internally. And you've interviewed a bunch of corporate development people who've created this exact function or set of functions of their company. And my observation, when companies say I want to do roll-ups and they don't have any of this stuff, you're not going to see them do the roll-ups. They're not ready yet. Good point. That's kind of where I see the market going. Buyer-led M &A is more realizing it. They ultimately integrate better. At least in my world, in financial service and fintech, there's a lot of pent-up demand on the buyer side.

1:05:34We came out of a market environment where valuations were very seller-friendly. like the equity capital that was flowing into different fintechs and the overall sector was frothy. And as that froth comes out and valuation expectations normalized to like more standard market environment, I think there's an abundance of buyers that are ready. And so there will be an interesting kind of shift between what happened in 2021, where it was a lot of seller power. Too much seller power. I think the pendulum will shift a good amount in terms of the overall market dynamic around what's happening, again, in my world.

1:06:06but every industry is going to have its own flavor of that. My biggest takeaway is go out there and network with the best. I got you. I got PJT. This is the world's best investment bank. My humble opinion. I agree. And this is, I got a conversation with you. So that's the thing I really love about the podcast is creating some great content, but getting this voice or access. Otherwise, you don't hear these conversations at all. I'll plug PJT. We are a true partnership. When you work with us, not only do you get one person, depending on the situation, will bring all the right people, a very senior heavy deal team that has the right disciplines, the right background, so that no one's faking it.

1:06:43It's not because you're assigned to this vertical, this segment. You have to deal with this one banker, whether they know what you're dealing with or not. And particularly, again, in financial services and fintech, there's so much crossover now between different business models. You got insurance companies and asset management. You got payments companies getting into lending. You got consumer fintechs trying to figure out how they're going to work with Tradify players. You need multiple disciplines sometimes that cannot exist with one person. So you need to find an advisor that can mold their offering to what you need versus you trying to mold what you need to some specific brand or some specific company that you think will be able to help you the right way.

1:07:22It's all part of this same perspective. Go where our clients need us to go. We're set up to do that. That's going to be part of the way that you address some of these reputational issues. Again, to go back to where you started this, that the industry can have, Sometimes people are just talking about stuff they have no idea about because the incentives around them force them to do it. That's another thing that we've ripped out and don't have because we're a traditional pure partnership. We all work together. I think what you're doing with your podcast is great. Bringing awareness and best practice to this ecosystem.

1:07:52We're able to be a small part of that community that you're building. As a specie, the banker, we do have an opportunity to demonstrate our value. And it comes from one interaction at a time and people holding themselves collectively to a standard. and picking and choosing who you work with and make sure you're working with good clients who also hold themselves to standards. And rising tide will lift all boats and hopefully we'll find more and more ways to make it truly a successful way to affect a company's strategy. I got to ask you, what's the craziest thing you've seen in M &A? The craziest thing I've seen in M &A, honestly, is when you see a public company or you see an executive who you would hope operates fully above board, so tempted by personal incentives over obligation to the shareholders, whether it's public or private.

1:08:37It's crazy how much pressure shows up in the course of a transaction where it almost becomes hard for a person to delineate what's really motivating them. And I think therein lies an opportunity for a banker who has the right ethics, who has the right understanding of who is the client and who is ultimately we all responsible to go in and help guide, redirect. It's not about calling people out. It's not about publicly shaming or exposing, but just making sure that all that cloudiness clears up and it becomes really clear. Why am I doing this? Is it for the right reasons? Does it hold up? Is it the right process?

1:09:13Has it been done with discipline? And the answer to all that should be yes. So that's the boring version, the craziest thing. But to me, that's crazy because, again, I'm a purist. I believe in the inherent goodness of people and that all these great theoretical things are possible. My personal crazy is actually around the time we met. I worked on a transaction. It's been announced and it's public and it's closed a long time ago. But it was when I was in a dedicated M &A role. But I worked on a combination of Caterpillar and Bucyrus, which again, today I'm a financial services and fintech focused investment banker.

1:09:45But for a brief period of time, I did M &A across a bunch of different sectors. And so this was one. And it was one of those experiences where sometimes public company deals come together very fast. and I was a junior member of the team. I was working with the head of M &A at the firm I was at the time. And we sat down with our co-advisors who flew in from New York to Chicago for one meeting and ended up staying there for a week. But they had flown only expecting to stay for one meeting. And we were all stuck in a conference room together for almost seven days straight with maybe three hours at the most a night to go home, take a quick nap and come back.

1:10:22And it was crazy only because one, And the pure adrenaline and the scope of what we were working on, it was a$10-plus billion transaction. It was a major consolidation of mining equipment manufacturers. It carried us through it. But at the end, I finally... As the adrenaline came out of my system, I'd been working as well as someone could with a total of, I don't know, 15 hours of sleep, 12 hours of sleep over a six-day span of time. All of a sudden, once the final deliverable was done, once we got through the major meeting we were preparing for, once the presentation was set, all the adrenaline came out of my system.

1:10:53and I remember my wife, our kids were really young at the time. She said, we were like, let's just go out for dinner. We haven't seen you in a week. Let's go out for dinner. I was like, yeah, let's go to dinner. I opted to drive to dinner and I apparently was driving 15 miles per hour down the street because to me that felt fast. And then I fell asleep at dinner a few times before I finally went home and slept for 14 hours straight. I've done plenty of all-nighters, plenty of late nights, all kinds of stuff. But that continues to be my craziest personal experience in this job, in getting a deal done.

1:11:22I was so excited at the time to do it. I was an associate. It was really early on in my career. So it took on a whole scale of its own. And I was going to do my part and deliver for this team. But I don't think I've ever had a week like that again, even though the deal sizes have actually gotten bigger. Despite that one being so big, I've never had that situation happen. That was one of my crazy ones. That's the reason I can't go back to banking. I can't work that hard. Hey, someone's got to do it. Hey, Nash, this has been an awesome conversation. Thank you so much for taking the time. I learned a lot.

1:11:53You've helped me become a better M &A scientist. Thank you. Thank you for inviting me. And if anyone of your listeners is the type that needs some investment banking help, they can feel free to reach out to me. Don't you have like a client size? Don't you want them at least be publicly traded, have some symbols behind them? I have a different philosophy. There's the target client size for PJT as a firm. So yes, we have a business to run. We're not huge. So business selection is really important for us. But I tell everyone, I don't care what size you are. if you need some help, you need some advice, call me.

1:12:23I work with a lot of entrepreneurs. I work with a lot of founders. I work with a lot of earlier stage companies, private companies who are not yet of the size and scale where like us formally helping them on a transaction or mandate makes sense, mostly because the fees will feel untenable. But I always give people time and I'll spend time to give an honest assessment, my honest guidance, my honest feedback. And again, it's part of that philosophy. You put it out there. You never know where people go. I've even helped. I won't name the name, but there's a fintech that's out there that's hired a banker.

1:12:53I helped them create the criteria for how to hire a banker. I said, this is probably one of the weirdest conversations I've ever had as an investment banker. But here is this type of stuff you should ask these firms that you're interviewing. Some of those are competitors of ours, like on the lower end of things. But that's what they needed. And that's how I could add value. So I did it. Hello, M &A scientists. Hope you enjoyed this. You stuck this far. I'm proud of you. Reach out to me. LinkedIn's usually the best way. Love to hear feedback. funny ideas, things like that. Until next time, here's to the deal.

1:13:49optimizing 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.

1:14:33Views 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