EP 66: George Boutros (CEO, Qatalyst) On Negotiating the Biggest Tech Acquisitions (LinkedIn, Slack, Figma) and Advising Steve Jobs in 1996

27:06That said, you guys have earned a reputation of playing the long game, knowing that if you stare off in the horizon, doing what's right by your client will earn the trust of the board, will earn the trust of even if the deal doesn't go through, you tell them not to take it, they'll come back to you because you gave them that counsel at the moment. That's a great point. Look, that's one of the most common impressions that companies have of investment bankers, right? If they don't know you, and if they don't know your track record, or haven't dealt with you before, given that our compensation is success-based, they'll say, well, you're just going to try to get a deal done because that's how you get paid.

27:47It's true. That's how we get paid. But see, our job is first to provide advice. Now, a lot of times we tell companies not to do something. In fact, some of the things that I'm proudest of, which we can't really talk about, are situations where we've told companies don't do something. By the way, sometimes they listen to you, sometimes they don't, because ultimately they decide. But we can brag about this because that's not something we can discuss. So we end up all bragging about the deals we've done. So the perception is we're here to get a deal done. I think this is where being in this business for so long, having built brand equity, both personal and firm equity comes into play.

28:25Because it's a small world. The tech ecosystem is really small. And after 40 years, almost I've been dealing with this over 40 years, I'm pretty much dealt with everyone in this ecosystem. And then ultimately you don't have to prove anything anymore because they know, right? That ultimately, hopefully they know that I'm just going to give them the best advice. And if it means doing a deal, I'll do my best to get a deal done. Right? So, but, but, but that we're not just motivated by the next deal. This is like you said, this is a long game, right? I do this because I enjoy doing it. I don't do this because I want to make a fee on the next deal.

28:56I mean, it's nice to make money. We're all in business to make money. But that's not what it's about. It's about, you said it earlier, what we do is so important for our clients, whomever they may be, an entrepreneur, a board, an investor. It's oftentimes the most important event in their professional life cycle and sometimes in their personal life. So I think to do this job well, and this goes back to, is this a job? What is this about? I think you have to really care greatly every bit as much as they do, right? Like when I work on an assignment, I feel like I care too much. Like I will, after the deal is done, I will always second guess myself.

29:39Did I do enough? Was that the right answer? Even when it's done, right? And along the way, I'm obsessed by it. I'm thinking about it constantly. And I think if you approach the job this way, right? I think people trust you at the end of the day. But look, it's an interesting balance because when you go into situations sometimes where they don't know you and there is this assumption or presumption that, hey, you're just motivated to do a deal. And then sometimes your client will be less transparent with you than you would like them to be. I think they have to negotiate with you as much as negotiate with anyone else.

30:12Because if I tell George exactly what I care about or what my threshold of pain may be or ultimately, you know, what my bottom line is, maybe you'll go sell me down the river. The answer is no. If I actually know, I can be much more effective in trying to devise an approach that gets the best possible outcome versus a situation where I'm more in the dark because the client is less transparent, is more worried about telling me this thing. That's sometimes hard for people to get. But as I said, I think you get there, it's ultimately about trust. It really is about trust, 100 % about trust. And, you know, you hope that you can create this foundation of trust, you know, broadly in the industry and with specific clients.

30:54And, you know, it's all about word of mouth at the end of the day. I said it's a small industry. When did you take over as CEO of Catalyst? I did in 2016. 2016. Okay. How has your job changed since you've been doing that? You know, candidly, almost not at all, right? Because, you know, when Frank was CEO, you know, Frank and I ran the business as partners and, you know, he still is involved in the business in some capacity today. And so it's not like my job description actually changed. It didn't. I was actually concerned when Frank asked me to take over because he was ready to sort of move on.

31:37I was concerned about taking over because I didn't want to end up doing a lot of management stuff at the expense of client activities, right? Being in front of clients and advising, doing deals, which is really my passion. And if I felt that I would be spending most of my time doing the former, I wouldn't have done it. I felt that given our business, we're a small firm, we have 80 people, 65 bankers, it's really small. And you don't really need, there's not a lot of management involved in this. Now, you know, we have issues, regulatory issues and reporting issues, and, you know, we have compensation, all that stuff.

32:18I have to deal with this regardless, and this doesn't take a lot of my time. And I have my longtime partner, Jason DeLue, who is the president of the firm who helps me a lot with these issues. So he's been one of the reasons why I can do what I like to do. while he's doing client stuff as well. So it hasn't really changed at all. And I spent, I would say, 95 plus percent of my time doing what I enjoy doing. And that's why I'm still doing it. What's your proudest moment since you've been at Catalyst? Is there a single moment that stands out? You know, I don't think there is a seminal moment. I think what I'm proud of is what we've built together as a team, right?

32:55And I think the franchise we've been able to build, the reputation we've established, and the flywheel effect that this has created is what I'm proud of. I think we're at a point, and look, I never get complacent because we compete with incredibly powerful brands. And I always approach the business from an underdog's perspective. I still feel I have something to prove today, even though some people would say I don't. I do. And I always think we are competing with very powerful brands. And so, but I feel that we have created that franchise where we are perceived as the trusted advisor, the go-to firm when it comes to really important decisions in a company's life cycle or someone's career, or the go-to firm when it comes to real transformational transactions, the technology ecosystem.

33:54I think we've accomplished that, and I'm very proud of this. I'm also very proud, and of course, the team we've assembled in the process because it's all about this. Without this team, we wouldn't be where we are. I'm also very proud of the succession transition that we've been able to affect when Frank moved on. I mean, our business, we haven't missed a beat, and our business is a lot bigger today than it was in 2016, and it's been up and to the right. Of course, we're subject to the vagaries of the markets generally. And there is a cyclicality element to this business, even though if you look at the last 10 years, those who have not been doing this very long assume that it's always up and to the right, including in the stock market, by the way.

34:29But that's not the way life is. So it's all of that stuff. Why do you keep doing it? You know, I really enjoy doing it. I enjoy doing it for a variety of reasons. Frank said you're a fucking junkie. Yeah, I think I am. I think you have to be. I mean, I've been doing this 37 years. That's a lot of dog years in this business. Because it's a constant obsession. You can't disconnect. So I like to do a lot of things and I get to do a lot of things, but I never, ever disconnect. I can't. And that's a tough part of it. So in order to keep doing it, I'm 62 years old. You have to really, really enjoy doing it.

35:07And I enjoy doing it because, A, like I said earlier, I believe that what I do is extremely important to the people that I do it for. So I care a lot. And the day I don't care anymore is when I'll stop doing it because then I'm not going to do as good a job. So that's number one. Number two, every deal is different because it's about people. That's what it's about. There's no two people who are the same, so there are no two deals who are the same. So this job involves as much analytical skills and rigor and rational thinking as it involves people's psychology, right? Understanding what's motivating your client, the other guy.

35:49What are the constraints, hot buttons? What pisses them off? What makes them happy? What are they trying to accomplish? And trying to put all this together and seeing 20 steps ahead, what's really going to happen, but then planning for that 20 steps earlier. it's fun and it's different every time and it's much more an art than it is a science so it's it's exciting uh and i'll keep doing it as long as i enjoy doing it like this well i want i want to uh talk a little bit about your path into it and then uh maybe talk about negotiating and market dynamics and all that stuff but you grew up in lebanon right and but you were educated in France?

36:24No, I grew up in Lebanon. I left Lebanon when I was 15 years old, when the civil war broke out. And I went to France for a couple of years, then came back to Lebanon for a year, then went back to France for one year. So I spent three years in France. And in 1979, I came to the United States. So I spent three years at the end of my sort of high school, and actually one year in college in Paris. So I wouldn't say I was educated in France. In Lebanon, Lebanon used to be on the French mandate. And Lebanon is a very, was and continues to be a very cosmopolitan place with crossroads of many, many cultures, currents and so on, which has been part of the problem.

37:09But so we were educated both within the French system and the Arabic, Lebanese system. So I did two programs, exactly the same as the French system and the Arabic system as well. So when I had to leave, which wasn't a decision I made, by the way, I went to Paris. It was a logical place to go because I spoke French very fluently and continued in that French system. Right. And then I switched to the American system for college eventually. So, yes, I was educated both in Lebanon and France, but the educational systems very much overlapped. And your father, Fouad Boutros, was one of the most highly respected lawyers and political leaders in Lebanon.

37:49I imagine when the Civil War broke out, that was hard for the family and there were a bunch of sacrifices that had to be made for you to go to school. Can you talk about that and the circumstances around that? Yeah, absolutely. Yeah, my father, it's my father, but I think anyone you ask will tell you, he was one of the most respected politicians in Lebanon. It was tough because when the civil war broke up, he's in politics, actually. And he concluded that it was very unsafe for me to stay in Lebanon. Because as a son of a political leader? Yes. And, you know, my father, Lebanon is a country that wasn't today's even much more polarized than it was.

38:35And for a variety of reasons we can get into, I would think for forever. But he was a moderate in a very polarized country and was trying to keep the country, bring people together. And that wasn't very popular at the time for all sides. Right. He served as a foreign minister for four terms and the defense minister for two firms. That's right. And he was the head of diplomacy for Lebanon, which is in a very delicate place in the Middle East, which is a very tricky part of the world. As you know, it's just a super complicated part of the world. And Lebanon doesn't have the resources some other Arab countries have.

39:10So no one really cares about Lebanon. So to operate in this environment took incredible skill and diplomacy and intellect. And so when the war broke out, A, he had a lot of foresight, actually. He predicted what was going to happen very far ahead. He thought that there was really not going to be any future. Things were going to get a lot worse. And with hindsight, unfortunately, he's right. And so he said, you have to go. You can't stay in this country. There's no future. And it was really tough because, you know, families are very important in Lebanon. We're very, very close. So for my mom and dad to say, go at 15, that was a huge sacrifice, right?

39:48And I didn't want to go. I mean, I was leaving when you're 15. You're a kid, right? And the country is blowing up. And I didn't mind. I have no problem. I mean, I used to go back during summers when I was in college and stay most of the time in shelters when it was bombing. And I was happy to go back home. So it was very tough. It was a big sacrifice. And with hindsight, I mean, he did me a huge favor. And he was right. But it was very tough on that. How did he influence most who you are today? Like what, what was the biggest lessons you've taken? Look, and again, you may say it's because it's your father.

40:22He's the most, uh, incredible human being I've ever, I've ever dealt with. Uh, uh, and, uh, he's without any question, my biggest role model. Right. And, um, how did he influence me? First, he had, uh, an intellect and a, and a, and a thought process that I've never seen before. So the logic that he had when he was thinking about very complex problems, right, was just remarkable. And I got to witness some of that, right? Like when I was a kid, you know, and he would meet with political figures, et cetera, I always sit with him, with them, and listen. Or when he would analyze the situation, I would listen.

41:02And I learned a lot from that. And so that's one thing, his intellect. And then he was extremely cultured. Like he knew a lot about everything. You know, he was a Renaissance man in many ways. Very, very deep understanding of history and very analytical. He thought the most important thing in life was math. He used to just, you got to be good in math. You got to be good in math, even though he was not, you know, a science guy. And most importantly, most importantly, I think that's the one thing that will never, will never go away. is he was an incredibly ethical man in a world where, you know, there was a lot of people were in the gray area.

41:50Even at the time when Lebanon was a real country, unfortunately today, corruption is rampant. It's beyond, beyond anything anyone has ever seen. But at the time, it was a real country, but still, there were a lot of people willing to compromise on ethics and he was beyond, beyond reproach this way. And that's one thing that has been deeply ingrained in me that'll never change. And I would say that's the biggest influence he's had on me. But his work ethic was just unbelievable. I mean, all he did is work and do this for his family. That's all he did. And that's the other thing, you know, work hard.

42:24And he was always to a fault, right? You have to be the best. You have to be the best. That's the only way to be. I mean, it was almost like brainwashing, you know what I mean? But it's okay. It's okay. I think it's... Now, what was your path into investment banking? So you went to school in the States. And how did you end up in investment banking? So, you know, I went to college to study civil engineering. I actually did a master's in structural engineering. It was that math influence. Yeah. Yeah. Well, exactly. And frankly, it was engineering because I was told, engineers are the guys who do it, right?

42:59You have to be an engineer. So I guess I was brainwashed, like I said. And, you know, at the time, back in the 80s, early 80s, right, the Arab Gulf was booming and a lot of Lebanese people are very entrepreneurial. Lebanese people are, you know, traders by, you know, history, right, would go in the Arab world and start businesses, construction in some cases. So, you know, you do an engineering degree, you get a business degree, and you go work in the Iron Bowl. That was sort of the path. So I went to study engineering. Then, of course, the path was to get a business degree. So I went to UCLA to get a business degree.

43:35I had no clue what investment banking was. In fact, I'll confess to you that until the second year of business school, I hadn't read the Wall Street Journal. So investment banking couldn't be farther from anything I ever contemplated or would have even thought about it. And then, and by the way, UCLA was not a place that investment banks recruited in investment banking. They did some recruiting for sales and trading, but I think I may have been like the first investment banker recruited out of UCLA. So I wasn't really exposed to that world post. It was in LA. So I started reading the Wall Street Journal, and this was a time where Drexel Burnham was rising, right?

44:14And junk bonds and corporate traders. I said, man, this is really interesting stuff, right? This is mid-80s? This is, I graduated in 86. So this is 85, 86. Wow, this is really fascinating. So I literally asked him, I said, how do you do that stuff? They said, you go in investment banking. You go in M &A. This is a professor you're asking? No, it was a student. One of those students who were absolutely fanatical. I want to be an invest, a bond trader at Solomon Brothers. That was the big thing at the time, right? That's the guys who do M &A. That's what it's called. So I just kind of started reading about it.

44:46And I reached out to every investment bank. And I interviewed them. And I learned what they did, I mean, as much as I could by reading. I learned what they did. I had no idea what you do when you go to a bank. Now, at the time, Drexel was also based in L.A. And they were the rising star. And I almost went to Drexel. I almost went to Drexel. I ended up going to Morgan Stanley instead because I thought I wanted to cut my teeth in M &A. This was the beginning of the big banks setting up dedicated M &A efforts. I was sort of the special forces. You know, they hired only five, six guys in M &A. And I thought this was a great place to run the trade.

45:27And our class was very small at the time, as opposed to Drexel, which I'm a conservative guy. I felt, you know, maybe rose too fast and was kind of more questionable. Maybe it did. and it was more financing house than advisory M &A house where at least in the area that I joined Morgan Stanley. So I ended up going there. Well, your intuition was right in a lot of ways there. In ways, right? And I just, you know, the beginning was really tough because I had no clue. I was in class of maybe six people and five of them had been analysts for three years before. So they all knew exactly what they were doing.

46:04I had no clue. They asked me to do something. And, you know, it was very hard to get stuff done back then. We didn't have this technology tools that we have today. So you wanted information on the company. You go to the library, order the public filings, wait three days to get them. You have to look at the public filing. It was a nightmare. You wrote the presentation and you gave it to a word processor and you had to proof it after the fact. These were different days. So it was tough at the beginning because, you know, as the new kid on the block has never done it, you get the shitty deals. right and the other guys get the great deals and one day they put me by mistake on a really complicated deal right and i did okay i guess and i started getting the good deals back then it was just almost random but you know i never looked back and i've been doing so so had you moved to new york for that yeah between i was in new york between with morgan stanley between 86 and 92 and then i moved to morgan stanley in san francisco in 92 and was there until 96 i was Morgan Stanley 10 years initially.

46:59So how did that, so that was your connection to Frank, right? You had maybe done a little bit of deals together. No, no, no, no. My connection with Frank was totally random. Maybe Frank could, well, it tends to rewrite history sometimes, but it was random. What happened is in 92, there was a bit of a recession. It was either some Russian crisis, some dislocation in our world. There are so many of them. And, you know, things slowed down. I was getting a little bored. than I am a deal junkie, as you suggested. So a small group approached me, whom I never worked with, actually, who was starting an investment banking boutique.

47:36And through a partner at Morgan Stanley, he recommended me. So I approached me and they said, do you want to do this with us? I said, yeah, why not? Lucky I didn't do it, by the way. But I told Morgan Stanley, I'm going to leave to do this. This is going to be a boutique investment banker. Boutique investment banker. And I was going to be based in LA. Actually, I wanted to be back in San Francisco because I went to Berkeley. And I love the Bay Area. I really wanted to live in the Bay Area. right so but ellie was the closest so i told morgan stanley i'm gonna they said well why i said well i'd like to get on the west coast so why don't you stay with us would you rather be in san francisco or ellie i said well san francisco that's a great san francisco it is so i'd stayed with morgan stanley and i met frank so that's when i met him he didn't actually recruit me i met frank and everyone said you know watch it that guy's gonna monopolize you he's gonna just just suck you dry.

48:26Take up all your time. You won't be able to do anything else. Doing all these shitty little tech deals. Yeah, yeah, right. That's exactly right. And I met Frank and we really hit it off. I said, this guy's awesome. And, you know, we were very different, but we really hit it off. And, you know, M &A was starting to take, I mean, it was really early in tech. And I started doing stuff with him. But I wasn't doing things exclusively with Frank. I was doing things in other areas. I wanted to keep my options open and diversify, right? I don't want to be too dependent on tech. And then I saw that tech was going to be really big.

48:53Now, with hindsight, everyone knows that. But at the time, you know, people, New York, we're looking at Frank and saying, this is the guy doing$15 million IPOs for Cisco systems, you know, and linear technology and Cypress semiconductors, right? But he had a vision and he knew this was going to get big and he was super passionate about him, which I really admired. Then he gave me the bug. And then we became very close and we built the effort at Morgan Stanley together and Deutsche Bank and Kreditsch. So that was 92 and you started to focus on tech exclusively at some point in that journey? Yeah.

49:29I mean, increasingly between 92 and 96. But then when we left Morgan Stanley in 96 to Deutsche Bank, this was 100 % tech because we were the technology group within Deutsche Bank. So I would say around 94 was primarily tech. I wouldn't say exclusively tech. And, you know, by 96, it was exclusive. Now, what do you think about galvanizing a board to make these decisions, right? Like convincing a bunch of different stakeholders, because the founder is one stakeholder, but then there's a board, especially venture-backed boards. There's a lot of divergent opinions, right, about people got in at different entry prices.

50:08People have different incentive structures based on fund sizes. People, you know, at different points in their life. Do you talk to the CEO mostly and then let them be the mouthpiece to the rest of the board? Will you talk to the board based on the CEO's interest? How do you sort of think about it? I think it depends on the circumstances and the relationship that the CEO has with the board and the decision-making process in the company. I mean, you first have to look at that. So there's really no one-size-fits-all approach. But oftentimes, it's all of the above. Very often, it's all of the above.

50:40And you have to talk to all the stakeholders. and our job really, right? And I think that's where we, there's a difference between a banker who can be very effective and one who can be less so, who is less so, is being able to bring all these interests together to create an environment that's conducive to a transaction if that's the right answer for the company, right? And you know, you have tough discussions sometimes, in particular in private company settings because, you know, there are investors who will say, I don't give a shit. I'll, you know, because the difference between a billion and a billion to today is zero difference to me.

51:10I only start benefiting if it's six or more. And if it takes five years to get there, so be it. Well, there's no dynamic price at which anyone can agree. At least in the public markets, we can all agree that that's the price, right? Right. So you have to prepare to present. I think this is where your credibility as a banker and having dealt with these folks before and having the trust helps immensely, right? Being able to drive that discussion and to act as the arbiter of this discussion and see if you can bring people together in private deals. In public deals, it's a different dynamic because the board has to be intimately involved.

51:46And if they don't, then the CEO is in trouble. I think it's storytelling. It's like when you do a board presentation, you can come in with a book and we have a lot of dense stuff and you go through it and people will fall asleep. or you can just come and tell a story, really, like captivate them. Just keep them in and just get them to, at the end of the day, the answer you think is the right answer, right? But make sure that they get there because you're presenting a framework that is getting them to what you think is the right conclusion. But it's a big part of it. And I can't tell you how much time I spend on this topic.

52:26I mean, I think of a number of deals I'm doing now, the public and public deals in particular, where there are a lot of diverging interest between the board, different board members and the CEO and what have you. And, you know, sometimes you have CEOs who don't want to do a deal and have no interest. It's understandable. But how do you manage that? Because at the end of the day, he's a CEO. But you work for the shareholders. We work for the board. And hopefully the board and the CEO is ultimately aligned. But it's a very delicate and tricky exercise and a big part of, I think, what the value add will bring to the table.

53:02What were those times like through that period? Like as it was non-consensus for tech and I assume, I mean, you talk about Cisco's IPO and some of these iconic companies. But, yeah, what was that like? You know, it was fascinating. And what drew me to tech at the time, coming from New York and having worked with industrial companies and big corporations, is I come to the West Coast and I'm working in tech at the time with small companies. It's a$500 million market cap company with a big company, Intuit in the early days, for example. and I saw that I was able to deal with, you know how the decision-making is concentrated within the hands of one or two people of these companies early on, right?

53:48So I came into this where I would meet with a CEO and I could see I had a direct impact on the outcome, right? I was providing advice to the decision-maker as opposed to doing a bunch of analysis, sending it to a treasurer or a co-dev guy, maybe never seeing the CEO, you know, being a perfunctory part of a process in the board presentation. Now you're actually part of the process in a big way. And that was super exciting. Right out of the box, I said, this is what I want to do. And this is, remember, this is a time where it was a bit of the Wild West in tech M &A and no one was really doing this.

54:22So it was very interesting. It was very exciting. And you know what? That's one thing that hasn't changed. Even though techs has gotten bigger, companies are bigger, I still feel that we have much more participation and influence on the outcome, right? From potentially catalyzing it to executing it, then you do in other industries because of the structure of the industry. And the fact that it's such an entrepreneurial world, it's nimble, it's ever-changing, I mean, it's just disrupting itself all the time. That's what's very unique about it. I want to ask about a story from 1996, Apple almost selling to Sun.

54:58You guys advised Apple, I get water under the bridge at this point. I think Apple's going to be okay. But what was that story? So were you at Morgan Stanley or had you switched? I was at Morgan Stanley. And it was actually during the time that we were negotiating our departure to go to Deutsche Bank. It was right. We were straddling that. We were in deep discussions with Deutsche Bank while we were doing this deal. So who's the CEO of Apple at the time? So Michael Spindler was the CEO. A name long forgotten. Yeah, long forgotten. Long forgotten. And Apple was in real trouble. I mean, it was truly facing an existential crisis at the time.

55:32Financially, it was on the brink of insolvency. It didn't have a next-gen operating system. It had become completely irrelevant. So it didn't have a CFO at the time. I mean, it was really bad, really bad. And the more we got into it - Sounds like delisting territory. No, we're not yet because it's like a$4 billion market. Okay, yeah, yeah. Right? But it was bad and things were going to get a lot worse. We knew it. So Sun expressed an interest in acquiring the company and we went into deep discussions for quite some time. And frankly, we were willing to do a deal at almost any price. It would have been a deal at market with no premium because it was about survival from Apple's perspective.

56:11And it was a really interesting process. But ultimately, McNeely decided not to do the deal. Scott McNeely, the CEO of Sun. The CEO of Sun decided not to do the deal because he was concerned. He saw the situation at Apple and he was very concerned that if he acquired the company. And Sun was flying high back then, right? It was right before the internet bubble and, you know, selling servers like there was no tomorrow, right? There was a high flyer. And he thought that by doing this deal, he was going to basically take his company down. It was sort of a bet the company move. It was trying to catch a falling knife and maybe it would be threatening to his own existence.

56:48And he walked from the deal. Best thing he ever did. Best thing he ever did because I think if he had acquired Apple, Apple… It would have killed it. Yeah, it would have killed it. No more. I mean, I saw that whole, you know, to a company that was almost going out of existence, didn't get acquired by a high flyer, ended up being one of the most, maybe the most successful technology company in the world and changed the world in so many ways. Sun becomes completely irrelevant, ends up being acquired by Oracle. It's wild. Right? I mean, this is what's exciting about tech, right? This is why I guess I'm still doing it.

57:26What about the time after that period, the dot-com days and doing M &A through that period? Was that just chaos or what were those days like? During the bubble. Yeah, during the run-up. You know, it was crazy. I mean, it was fun because we were doing deals left and right. We were selling companies that didn't have any revenue and sometimes barely had a product for$4 or$5 billion. But we were also getting sometimes or oftentimes currencies that were equally overvalued or at least significantly overvalued. So we had to figure out a different way to approach this from a financial perspective. I remember even then, without the benefit of hindsight, looking at this and saying, this is stupid.

58:05This is not sustainable because there has to be fundamental value at the end of the day to justify that. I mean, yeah, momentum, this, that, multiples, but something has to translate into cash flow generation because that's what it's about. You cut it, right? So we had to find new ways to do these deals, right? We couldn't value a company at 30 times revenue because there's no way you can get to that. So we did these deals that were mostly stock deals. We looked at relative value. We weren't looking at intrinsic value anymore. We're looking at relative value. What am I getting versus what I'm paying?

58:38And is it a fair trade? Which was a weird way to do things. And I'll tell you something. Back a couple of years ago at the height of the COVID froth, there were valuations that They weren't that far off what we saw in the internet bubble. And I remember going in boardrooms for clients who were great companies, grossly overvalued, and saying that, and I was, you know, it wasn't a very popular view. Yeah. And, of course, with hindsight, it's true. But there has to be a reason at the end of the day, right? There has to be a rationale for that valuation. But it was crazy. And then when the bubble burst, obviously, you know, you did this deal and you hoped you could get liquidity fast enough before the stock was, as long as the stock was liquid before the stock collapsed or tanked.

59:21They were wild days, but we did a lot. I remember 2000. Reminds me of crypto last year. Well, yeah, yeah. Now, did you guys actually advise Apple on the acquisition of Next? Yes. So you were opposite Steve Jobs on him coming back into his company? Yes, although, candidly, the deal got done really between Gil Emilio, who had replaced Mike Spindler, right, and Steve. So what happened is... site. And Spindler was replaced. Spindler was replaced during the negotiations with Sun. Got it. And there's a crazy story about this, which I can tell you one day. But anyway, so Emilio replaces him, and the deal with Suncraters, and Apple realizes they don't have an operating system.

1:00:03So they start a conversation with a company called B, which was started by Jean-Louis Gasset, who was an ex-Apple executive, which had a great operating system, very similar to what the Mac operating system looks like today. and he and his investors, Dave Marquardt was the main investor in the company, wanted about 25 % of Apple to do this deal and it was too much. They wanted 25 % of the company. So Steve Jobs got wind of what was going on and he was running Next and he said, I have a Next Gen operating system. So Emilio bought it and Steve didn't do this deal. I don't think he did this deal because his ulterior motive was, I'm going to go take over Apple.

1:00:42Not at all. He wanted to find a solution for Next That was, okay, perfect solution. And then Gil asked him to come back as a consultant and help him and eventually kicked out Gil and took over. But so, yes, we did advise Apple when they bought next. And when you think about it with hindsight, you say, wow, this should have been the easiest, fairness opinion you ever gave, right? Because obviously Steve hadn't come back to Apple. Apple wouldn't be what it is today either. Totally. But there was also the Pixar acquisition, right? So was that advising, were you advising Pixar? Jobs, yeah. What was he like as a client?

1:01:17You know, look, everything that's been written about him is true, right? In particular, you know, his intellect, his vision, I mean, his intensity. He was a very unique person. I don't know there are many people like him or any people like him. And he was a tough guy. So what's interesting is that, you know, I'll give you some funny stories. I mean, my friend Larry Sonsini actually introduced me to him at the time. Founder of Wilson Sonsini Law Firm. Law Firm, yeah. And Larry's a very prominent lawyer in Silicon Valley and did a lot of M &A. And he and I worked together on the cross from each other a lot.

1:01:54But he introduced me to Steve because Steve was looking for an advisor in the context of potential acquisition of Pixar by Disney. So I went to meet Steve and I got interviewed by him. And I guess it worked out because he hired me. But then he asked me what I expected to be paid. then he told him what our fee would be and he looked at me and said well i can get whatever 100 engineers for that much money so it doesn't work so i i'll confess that i compromised for a meaningfully lower fee because i wanted to work on this deal i wanted this was this was a you know industry defining transaction plus you know it was it was it was steve so um but you know i'll give you an example so incredibly insightful of course but you know it was an interesting situation because this is a company pixar was a company that probably made five movies at the time all successful, some very successful, some quite successful.

1:02:41And it was acquired for like eight and a half billion dollars. So it was priced beyond perfection, right? It was priced on the assumption that they can continue to churn great successful movies consistently and without any hiccups along the way. And to his credit, Steve understood that this company was priced to perfection, which is why the deal got done and not a very big premium to market. It was actually amazing, they get comfortable with the value in the first place. And there was a discussion around the cadence of releasing new movies. They released movies about once a year. And you could justify bigger numbers if you released more than one movie a year, right?

1:03:18If you did two movies and there was more money in the bank. And Steve was adamant that, no, we're not going to compromise quality just to make more money. And you could argue maybe he would have gotten more. I don't think he would have, but maybe we'd have gotten more by saying, yeah sure we can do two movies a year no he was absolutely uh you know that said that that's just a way to do it and quality is very important and what's what's really interesting about this deal is that when you think about it uh disney which heart and soul is animation had had lost that and they had to actually buy pixar to get their dna back which is why they did the pixar deal in reality but it was actually a very successful deal for disney was that the only logical home that steve wanted it to go to he wasn't even interested in having any other discussion we in fact didn't talk to anyone else and he was a controlling shareholder by the way we didn't talk to anyone else and look disney was distributing pixar movies anyway so it was the natural home for disney and before um there was the relationship between jobs and eisner got strained uh for a while and then when eiger took over that relationship got uh got repaired and they were they became very close and had a very constructive relationship and that was one of the catalysts for this deal coming together.

1:04:29But that was the only natural home for it. I want to ask about negotiating because I think you're one of the, your partner, Frank, and I've heard from others, one of the greatest negotiators of all time, certainly in an M &A context. But how do you think about negotiating on behalf of a client when you're opposite someone that could be a repeat acquirer? We kind of touched on this earlier, but like psychologically, how do you think about getting the absolute best value for your client? Yeah, look, I think getting the absolute best value is always the basic premise. I don't think them being a serial acquirer makes any difference.

1:05:12I'll tell you where it matters. It matters insofar as, A, you knowing that you will face them again and making sure you establish a certain credibility, right? And don't do anything that could backfire the next time around, the next time you'll be across the table. So for example, I would never do this, but if you go make shit up, right? They're going to call you. You can't make things up. You can keep people guessing. You may tell them part of what's going on. You may tell them nothing. You may create uncertainty, but you don't make things up. You don't say, hey, I have an offer when you don't have an offer or I have a higher offer than yours when it's not, right?

1:05:50So you have to be, you're very careful at establishing that credibility where the other guy knows you're doing the best you can for your client, but you're a real straight shooter. And what you see is what you get, and they can deal with you with all integrity. It goes back to the integrity point. It's critical. So that's why it's relevant. And the other way around, understanding their MO, their hot buttons, their constraints, how they negotiate, because you want to obviously leverage this next time around and use that to the benefit of your next client. But it doesn't matter otherwise, right?

1:06:24And to be honest with you, a lot of clients I've gotten, I've gotten because they were across the table on a deal and they say, well, we respect what these guys have done next time. We want them on the same side of the table. So that doesn't really matter. But negotiation is an art, right? At the end of the day, you have to figure out a way. You have to align a lot of stars and moons, right? It's very hard to get a deal done. It's really hard, right? And the difference, there are some bankers who just piggyback behind the process. And if it happens, it happens. If it doesn't, it doesn't. I like to believe that we are really involved in that process and we try to drive it in a very significant way.

1:07:08And when it's challenging, when it's tough is where you make a big difference, right? Easy deals are easy to do. It's tough deals. Situations where a client doesn't have a choice but to sell, doesn't have any other alternatives. Because when you have competitive auctions, great, we can all get a higher price. It doesn't happen very often. So it's trying to find out what is important to everyone, your client, the other guy. It's all about human psychology, right? And how can you create an environment where everyone feels they got what they want? Because it doesn't have to be a zero-sum game, right?

1:07:37And maybe your client feels they got a little bit better outcome than the other guy. Maybe the other guy feels the same way, which is good if that's the case. so it's um it's um it's really it's really fun it's it's just it's never the same do you try to psychologically get in the the shoes of the acquirer and understand their their incentives and motivations yeah always i mean that's critical if you don't you'll never get deal done or or you will never get the best possible outcome i think that's the most important thing and and the head of your own client. Every bit as much, right? It's about setting expectations around the table, right?

1:08:18You got to set expectations with your stakeholders. You also got to create an environment where you set expectations for the other side and where they all feel at the end of the day, they got to a place that's acceptable to them. So it's really important. And what you do early on has a huge impact on the final outcome, which is why the ability to think 20 steps ahead is critical. And if you don't, you'll paint yourself in a box. You'll paint your client in a box and the deal will crater. So it's that, it's preparing for that final outcome that's really important. Do you care when a company is sold how it does within the acquirer?

1:08:55Like, is that something that weighs on you? Look, I care because I'd like them to be successful, right? I mean, there are people involved and there are human beings and if it's successful, then I think it's a good outcome for everyone. So from that perspective, I care. But I'll tell you, when deals are not successful, it's oftentimes because the buyer screwed it up. It's all because they bought the wrong company or that the premise for the transaction was flawed. Now, that's not my job if I'm representing the seller, right? If someone has concluded that they must own this asset for the following strategic reasons, right?

1:09:37obviously I'm going to play to this and leverage this as much as I can. That's my job. But if ultimately the premise was flawed, you know, Veritas Semantic, I didn't do that deal, but the premise was flawed. There was no synergy in putting these companies together. Then that's the problem of the buyer, right? If it's a great company and they just basically destroy it because they destroy everything that's unique about it, they smother it within a bigger company, It loses all the ingredients that made it successful, which happens oftentimes. Then, I mean, I can't feel bad. I feel bad because I'd like it to be for all the reasons I mentioned, but I'm not responsible for this.

1:10:19And look, at the end of the day, some companies are great companies. Some companies are not so great companies. And sometimes it fails because the target company was a mediocre company. And again, that's what it is. My job is to get the best possible outcome regardless for my client. So in a long-winded answer to your question, yes, in a very sort of targeted way, because I'd like these deals to all be successful, be great, but it's not my job. This is a tough question, and I realize everything's a little bespoke in nature, but how, just in general, you're talking to a founder, and how do you help them think through if now is the right time to sell?

1:11:02Because obviously there's a value maximization component of this, which, you know, as a fiduciary should be the North Star in totality, right? But there's also an emotional side talking to a founder CEO about their baby that they've built to a certain point. So how do you help a founder think through, get to the answer on this? That's a great question. And that's really important, actually, because you're right. In theory, the fiduciary duty should govern. At the end of the day, if you decide to sell, obviously, you should get the highest possible price. In fact, you should argue that your duty as a founder is to create the most value.

1:11:44And if the most value is by selling the company, that's the path. Now, it doesn't really work that way in the real world, as you know, because if you're a founder who's created a successful business, you have tremendous leeway. And you as investors give these founders tremendous leeway. Sometimes you may disagree with their decision, but you'll support their decision because that's what you do. It could be very hard to replace them. The business could be worth zero, so you might as well. And it goes to your franchise and how you sell yourself as founder-friendly, et cetera. You don't want to force people doing things that they don't do.

1:12:11And I've seen investors support founders in making decisions that were blatantly wrong decisions financially, like really bad decisions financially. But they did, knowing that they were not good decisions, actually. So the answer is… It's kind of the iterative. We're both playing an iterative game, right? It's not a local maximum. It's an iterative. And the answer is you have to have these conversations. So the conversation goes well beyond the value, right? So you have the conversation about value and you try to show them, here's a value trajectory if you keep doing what you're doing versus what you could get today.

1:12:48And how does that compare on a risk-adjusted basis? That's a rational way to think of anything. Am I better off selling today than creating value over time with all that entails? And you can never know for sure, but you can create a framework to think about this. But I think it's equally important to understand what they really want. You have founders who say, look, I want to create a$200 billion enterprise. And this is a new space. I'm a huge disruptor. There's enormous runway ahead. And I want to go public. And I want to be the next Google. And I have no interest in being sold. And by the way, if I sold today, I realized that I have something incredibly unique, which is true, by the way, if it's a great company.

1:13:36and that it's almost impossible to replicate. So what am I going to do? If I sell, I can't go create what I've created. And I'm young. I want to keep doing this for a long period of time. I don't want to sell. Or, but, okay, so then it becomes, what do you really want? If you could write the script, what would it look like? I mean, that's a conversation I have. And I say, okay, well, if you consider an acquisition, what matters to you? So is there a buyer who really helps you? If you're very mission-driven as a founder, Is there someone who can help you turbocharge that mission, right, and get to the promised land sooner in a bigger way and give you the autonomy to go do it, for example, right?

1:14:15And if you have a lot of respect for that entity, maybe you consider it. Is that something you're prepared to do if the deal happens? Because they may want you to do it. So you have all these types of conversations. And if the answer, but I've seen founders tell me, look, I actually want to go do something different. Could be another company or could be something completely different. can think of one not too long ago. And he was more than happy to sell because he didn't want to be the CEO of a public company. He didn't see himself being there longer term. And maybe the company didn't belong as a public company in the long term.

1:14:47I think I've had him on this podcast. I think he wanted to go change the world from a climate standpoint, maybe. And, you know, it's, yeah, no, it's, everyone has their own motivations around this stuff, right? Now, what are the right steps? just good hygiene. If you're going to sell at some point, which is the ultimate outcome for 99.9999 % of companies, what are the good steps in hygiene that you would say to anyone, hey, this is just a good way to operate your business in preparation for, we never know when that day is going to come, but such that. Is it building relationships with strategic acquirers?

1:15:26Is it having the competitive positioning of how you fit into those companies potentially ready? What are the types of stuff? It's a great question. And you hit a couple of key points. Look, I'm assuming this is not a company that was created to be sold. Because there are companies that are created just to be sold because that's the only outcome. I'm assuming it's a company that could have two paths, right? One is to create value and the other one is to get sold. I think, right, hygiene, and some of this may sound like motherhood and apple pie, right? First, you've got to execute. and you've got to get attention, right, from the key players in your ecosystem, including your competitors, by showing them that you've done something that they don't have because the customer is really buying it and the customer actually likes it.

1:16:13Inflicting pain in your competition gets a lot of attention, by the way, from an acquisition perspective. Building a business that is a lasting business, so not building it for sale, but building a business with the infrastructure to have an independent company. Because when you're considering a sale, you want to be in a position where you can credibly say that, you can say no, and you can actually build the business. And there are companies that can say that credibly, others that absolutely can't. So having that credibility and having the infrastructure in place to do this. So if you direct, for example, an enterprise software business, having a go-to-market engine that works, it's going to be small initially, and it's expensive, as you know, and it takes time, but at least showing that there's a way to create that cadence, that value.

1:17:02And last but not least, establishing relationships in and around your ecosystem with the people who matter, who could be partners or acquirers. You could have commercial relationships with them. Because the day you want to sell, and if you approach me to buy me, and I want to call him, I don't want to have to educate him about who I am. I want him to know me already and to say, you know, I want people to tell you, you want people to tell you, if you ever consider a deal, please give me a call because it's really important. So it's relationships with that ecosystem and other strategics, but it's also personal relationships because deals are about people.

1:17:38At the end of the day, right, if you don't have these personal relationships, it's very hard to get deals on, especially in technology. It's critical. What counsel would you give to private companies right now? There's a lot of them that, through the fault of my industry, has marked up to very high valuations in the last round post-money. What counsel would you say to those folks as they sort of look out and execute and potentially consider different options of being acquired and all of that? You know, this is a very, very relevant topic right now. It's relevant in the public markets where it's looking in the rearview mirror.

1:18:14It's where your stock price was a year ago, whatever. and it's relevant in public markets if you've done around at a very high valuation during the frothy days. To be honest with you, what I tell them is, it's irrelevant. It's irrelevant insofar as your future decisions. Now, it may create constraints as to your ability to do certain things, clearly. Because of preference and blocks. Because of preferences or because some shareholders may say, I'm not going to sell. But it's irrelevant because it's about the value forward. And it may take you five years to grow into that valuation that you funded a year ago.

1:18:47You may never actually grow into it. A lot of them will never grow into it, right? But it's okay because you just got to look forward. Now, obviously, it can get challenging because, you know, you have preferences that make it more challenging to get a deal done or shareholders or oppose a transaction, etc. But everyone at the end of the day should act with logic and in an analytical way. And I think everyone gets to the right answer ultimately. And the same thing with public companies. Public companies, because again, they look at the stock price and they're trading at fractions of their high.

1:19:21And if they're going to transact even with a premium, it's going to be a fraction of the high. But you know what? A fraction of the highs can still be an incredibly good value. Incredibly good value. So you've got to transcend this. But this is why it's hard to get deals done in this current market. A lot of time you spend on that. And this is where some of the art of what we do is to present to these companies what a framework to really think about this and just reality set, right? This is how you need to think about value. It's not just looking at your stock price chart. Are you starting to see some capitulation from the public boards now that we're – how far are we removed for 52-week highs?

1:19:59We're probably 18 months-ish or 15 months now at this point? Look, the market, in particular the software market, the market generally started correcting in the fall of 2021. November-ish, and so now we're in May. So 18 months or so. So has the psychological anchor of that high water mark started to dissipate? No question. No question. And so do you think, do you expect there will be much more rationality in the public markets with regard to what prices, deals can get done? For deals. I think there will be. without any question, we're seeing companies are capitulating already. I think the challenge is, I think the bottleneck is buyers, not sellers.

1:20:42There are so many companies today in the tech ecosystem that are now affordable to buyers, strategic or private equity buyers, right, which were completely unaffordable for a long period of time. So there's a very long list of very attractive targets, great companies. And you don't have to go to the private market. They're all in the public market, which is why I think most of the activity is going to take place in the public markets. And because the capitulation takes longer in the private markets. Yes. That's the other reason. But yes, they're starting to capitulate. The issue is there aren't that many buyers and strategic buyers.

1:21:19Strategic buyers have tended to retrench after this correction for reasons we can get into. so there are too many strategic buyers who are active today the pe guys want to deploy a lot of capital and have a lot of dry powder but access to capital is a lot more challenging than it used to be a lot more challenging doing a deal today is every bit as much a capital raising exercise when you do a pe deal a pe take private as it is a deal making exercise so that's the constraint The constraint is on the availability of capital and its cost. You know, the LPs who invest in these PE funds and were co-investing in these funds and writing big checks, most of them have retrenched.

1:22:04A couple of sovereign funds were still playing at scale, particularly Middle Eastern sovereign funds. They're retrenching even more now. They're saying our cost of capital is going up. You know, we can make attractive returns by investing in mezzanine debt. So if you're going to invest in equity and leverage equity, you need big, big returns, etc. So they're retrenching. So that pocket of capital has dwindled. And then the PE firms, the GPs themselves, you know, we sold Anaplan to Toma Bravo. They committed$11 billion alone. And then they syndicated it. That stuff's not happening. Yeah. And the reason a couple fold, but I guess debt is hard to come by.

1:22:45just in general with the rates where they are. And then two, these are often not cash generating companies. And so the equity checks that these folks are writing, in the case of Anaplan,$11 billion or whatever in equity. And then the LPs that would normally be the co-investors also are public investors. And so they don't want to be 50 % weighted to private investing or something in that case. They could deploy capital elsewhere with nice returns or including, you know, debt, et cetera. And, you know, the debt market for these companies that you're referencing, they're not the traditional bank markets.

1:23:22They're the direct lending markets. You know, they're so-called ARR loans. And they're out, they're open. They're more expensive. Of course, capital has a cost to you. That's a revelation. And it takes a lot of players to put together a debt package, right? It's not just one firm. I mean, when the buyer is putting these debt deals together on going to take private, they're talking to 20 lenders, right? Those direct lenders, not the traditional bank lenders. So it's tougher. There's no question it's a lot tougher. So that's, I think, the biggest constraint right now because there's so many targets that are A, affordable, and in many cases, actionable, if you actually have the money to go do these.

1:24:08What do you think about the institutionalization of private equity within technology over the course of the last, I don't know, 20 years? It could have been you guys once upon a time being a part of it, but we've seen the Vistas and the Toma Bravos. Obviously, Silver Lake's been in it for a long time, among a bunch of others. How has that impacted your business? I mean, it's a huge driver. It's a huge driver of our business, right? I mean, in 2022, 100%, no, I believe it was 80%. I believe in 2022, 80 % of software transactions greater than a billion dollars were done by P. in 2023 year to date, 100 % done by P.

1:24:50And that's up from maybe in the 2015 timeframe, somewhere in the 40, 50 % range, plus or minus, right? So they're driving a lot of the activity. Now, yes, it's become institutionalized because in the early days, tech was perceived to be this risky area where assets walk out the door every day. And then they realized there is a business called software, which is one of the few legal ways to print money the way you can, right? And predictable recurring revenue, all the stuff that you know better than I do. And suddenly they all thought, okay, great, great investment opportunities because you got businesses with incredibly attractive cash flow characters if you run the right way, right?

1:25:38In secular growth markets many times. And now the opportunity to participate as a private equity investors in transitions and dislocations that can be very attractive. So product transitions, you know, go-to-market transitions, transition from an on-prem to a cloud business, from a term license to a subscription model, to some subscription to cloud. They've done enough of these and there have been enough companies in the public markets doing this that they know it can be done and faster in the private market. So you do this, you change the company, you transform it even faster, you come out the other side and either sell it to a strategic because suddenly it's more attractive because it's more profitable, or you take it public.

1:26:21Now, all that being said, and they've shown the ability to actually not only buy them, but realize very attractive return. But this was in an environment where for 10, 11 years, we had the market up and to the right and multiples expanding. And a lot of the returns that were achieved were achieved because multiples were expanding in the marketplace. The big question mark is what happens going forward? A, what's going to happen to the deals that were done at these very big valuations? We'll see. And now the deals that are being done today, right? You know, what I think PE firms are struggling with as buyers, one of the many things they struggle with is what's the exit multiple assumption, right?

1:27:03What's a normalized multiple? No. Is it 20 times EBITDA? Is it six times revenue? Is it whatever? 25 times unlevered free cash flow? Where is the new normal, right? Because when you look at multiples, you know, they peaked over 20 times. If you look at a very broad index of subscription software companies, at the height of COVID, it was over 20 times. Today, that same index is trading around five and a half, six times forward revenue, next 12 months revenue. Is that the new normal? Personally, I think it is. But who knows, right? And people look at this and say, oh, multiples suck. But they don't suck.

1:27:40Six times revenue is actually a pretty good multiple. Yeah. It's not as good as 20 times. Now, you still have companies trading at deep double digits revenue multiples. Amazing companies. The Snowflake still, I think, trades close to high teens revenue multiple. One of the other things we talked, you touched on this, but the psyche of strategic buyers right now and why there aren't more strategic acquisitions going on. Obviously, there's two big components, I think, that we're seeing. One, activist investors, right? And the other is just antitrust. And we're seeing it play out, I guess, in spades with some notable acquisitions potentially.

1:28:16And so we don't need to talk about any specific names there. But what's your perspective on, I guess, how those two forces are kind of coming through the industry? Look, I think those are two important forces, but I think there's even more than that. I think that when market dislocations occur, in this case, you know, multiple compressions we've seen, which obviously is combined with rising interest rates, you know, challenging macro uncertainty about the future. Right. A lot of these big companies will step back a little bit and try to figure out what the impact of all this is on their own businesses.

1:28:53So before doing another deal and doing something inorganic, they say, OK, what do I need to do to make sure my house is in order? So you've seen a lot of companies do restructurings. You know, the name of the game in software these days is profitability is back in vogue, right? And they all have a lot of pressure. And many software companies are improving profitability. They're firing people in the process, right? So in times like this, CEOs, M &A is about confidence in the future and being willing to make a ballsy move. they tend to retrench because they're not sure exactly what the future holds.

1:29:26And they say, why the rush? We can wait, right? It's hard to justify buying a business with a lot of people. I'm firing a bunch of people. I don't know where my own business is going. So that's one set of issues. Human psychology is such that in times of uncertainty, people retrench. I think it's a mistake. Because if you look at every prior cycle, they all say, well, next time I'm going to get really aggressive when it happens because valuation will be aggressive, will be attractive. It never happens. It never happens. So that's one thing. Secondly, there is a finite number of strategic buyers who do big deals.

1:30:00It's actually a small number, right? Less than a dozen. It depends on the sectors, but certainly less than a dozen in one sector, much less. They can only do so many deals. So some of them are digesting deals that just announced. They haven't even closed, or if they've closed and they haven't yet digested, they're not going to undertake another deal, especially in this environment. So they're on the sidelines for a while. So that's another consideration. And just to give an example, we have Microsoft with Activision Blizzard. We have Adobe with Figma. I'm sure there's more than I'm not. Well, Oracle was Cerner.

1:30:27That's closed. But it was a big deal. They're still digesting it. And they're paying down debt. And they've been very disciplined, Oracle, in terms of what they're buying out prices they pay. Always, right? Since NetSuite. Well, NetSuite was the last deal which we had done where they paid, you know, what was the highest multiple they ever paid. And then they got set on the sidelines when the world was going crazy in acquisitions. You're right. Microsoft hasn't closed Activision and is under the regulatory spotlight. So they want to do this. Adobe with Figma, we advise Figma. They're also going through the process.

1:30:56They haven't closed. So these deals are not just not integrated. They're not even closed yet. And then you have other buyers who are under pressure from their investors to not do deals, who are very active acquirer. Well, look, I mean, it's public. Salesforce is a very active acquirer, most active in software, right? Now people are saying, stop. We want to see you get to a certain level of profitability. We want to understand what your organic growth truly is, etc. You've seen everything that's going on there. And they have activists breathing down their neck. So Salesforce is on the sidelines for a different reason.

1:31:29So it's all of that, right? And some others, you know, some of the hyperscalers will say, if we're going to do something, let's make sure it's something that we can get through the regulatory process. Because if we're going to pick a fight with the regulators, we want to win that fight. We're not going to pick a fight to lose it. So it's got to be important for us to do this deal. And we've got to feel confident we can get it done. So that's weighing more heavily on people's mind, not just the hyperscale or everyone's mind. So it's all of the above, which is why the strategic activity has come down very, very significantly.

1:32:00One that was almost a strategic deal and then wasn't a strategic deal that I guess you guys weren't initially involved in but then were was Zendesk. And what are the takeaways from that process that if you were a CEO or executive running a business, like what would you want someone to know? This is fascinating, right? I mean, if you'll bear with me, think about it. So they create a new category, right? It's customer service. They're the leader in that category. It's a high flyer. A company can do no wrong, right? We're investors, so. Right? Yeah. Great company. Yeah. Great, amazing company. They decide to do this Momentive acquisition.

1:32:40Which is the survey monkey. The survey monkey. By the way, we weren't advising on this. So I'll tell you when we came into the picture. Sure. So Goldman Sachs was advising them. They decided to do the Momentum acquisition. It was a stock for stock acquisition. In ballpark, Zendesk was$10,$12 billion and Momentum was$2-ish, something like that? No, I believe it was more. I believe Momentum was the time, the headline value before the stock dropped was around$4 billion. Okay, wow. And I believe Zendesk was probably closer to$20. Okay, oh wow. because it was sold for$12 ,000. But at$78 ,000,$77 ,000,$50 ,000 a share, the stock was around$130 ,000.

1:33:18Got it. When they announced it. Okay, so their shareholders hate the deal, right? Zendesk shareholders. Zendesk shareholders hate the deal. The price craters on the day the transaction is announced. Shareholders said, we don't like this deal. Activists come in. Jana comes in and says, we're going to oppose the transaction. This was the fall of 2021. Shortly thereafter, I think it was early 2022, a consortium of private equity folks, H &F and Permira, show up, offer$127 to$132 a share. During the pendency of the momentum deal, before the shareholders had to vote on it, the board turns it down. We're not involved with Zendesk at all at this point.

1:34:00Janna comes out and says, we're going to oppose the transaction and the company should pursue and consider a sale of the company. Shareholders overwhelmingly vote the transaction down. So that deal craters. The momentum deal craters. So momentum is alone. Zendesk is alone. The stock price is down. Not too much, actually. The board's under a lot of pressure. We get hired. We get hired to help figure out what the right thing to do is. We run a process. We run a process during one of the most severe market corrections that's ever taken place when the Zendesk business was actually getting more and more challenged.

1:34:31Now this is like February, March? Now we're talking early 2020, February, March, 2020. So we reach out to a lot of people. We have fewer interested. We get bids, but the bids don't hold because the business is deteriorating. I mean, bookings, which is the best leading indicator of the business, are declining, declining faster and faster. So things are really looking bad. Prices are coming down. We think we can get a deal done. The PE guys can come up with the capital, right? So the board has terminated the process. We can't be in limbo forever because the deal had leaked. There was a lot of disruption, uncertainty, et cetera.

1:35:04We announced that the process is terminated. The stock comes down. The guys, the private equity guys get their act together, come back, they have their capital. We sell the company for$77.50 a share. The initial bid that the PE guys made before we got involved was$127 plus or minus dollars a share. Now, it shows you what being a public company is and how you can lose control of your destiny. It can be a great company, make a move that with hindsight was perceived as a bad move, a deal that requires a shareholder vote. So that deal required a Zendesk shareholder vote. If it didn't, it could have been a different outcome, potentially.

1:35:41So the shareholders voted down, et cetera. So, I mean, things can get out of your hands very, very quickly. So it's just, I mean, incredible. The Zendesk case is a case study of all that can happen, right, if you're public. you know ill-fated acquisition activists showing up a public bear hug unsolicited bear hug and a process during a market bell down i mean hindsight and this is 100 percent uh 2020 but was uh were there any points some of this is bad luck some of this probably strategic considerations around this but i guess what would the lesson other than you can get screwed in the public markets, potentially if your shareholders don't like your acquisition and if the market craters in your bookings go down.

1:36:29Are there any other lessons that you would have for either a public company executive, CEO, someone that's just curious about? I mean, your business is deteriorating. Yeah, it is what it is, right? Don't do that. The market is cratering. Don't let your business tank. Don't let the market go down. I think the lesson is there is one lesson and there's one lesson for both companies. You need to really assess when you do a deal like this, an acquisition, on both sides, especially when it's a stock for stock deal, how this deal will be perceived by your shareholders and go in with your eyes wide open.

1:37:06I don't think they did. I don't think, because I asked a question. I said, well, were you told that the stock was going to create it? Because I would have told that board, do you want to do this deal? It's fine, but that stock could be down 20%. It was down 15%. I don't think they knew. So they were blindsided, I believe, as a result. And I think that's what you can avoid. Now, it doesn't mean they wouldn't have done the deal. I said, we'll take a chance because you don't necessarily don't do it. If you think something is really good and it's just a longer term plan, maybe shareholders don't get it, you may still do it, right?

1:37:34You can't just let yourself be 100 % controlled by, you know, what you may view as short term shareholder considerations. But you have to be completely cognizant of what the reaction will be, especially when a dealer requires a shareholder vote and when you could put yourself in a position where you end up being in play as a result. I gave you a great opportunity to say the lesson was higher catalysts from the start. I did it in a more subtle way. That's the implicit lesson there. Okay, a couple last ones before we hop. Investment banking is an industry. How do you imagine it's going to change going forward?

1:38:11Look, I don't know that it'll change dramatically. I think what will happen is, I said to you earlier, capital raising is a commodity. I think clients are now getting that it is a commodity. So I think the perception that capital raising is a commodity is going to be more prevalent than it has been, right? And so that's point number one. I think, I hope that the strategic advisory business remains a very high value-add business. And I think it will because it's all about experience and judgment, right? I mean, it is intellectual capital. It's not about distribution or capital or anything like this.

1:38:50So I don't think that's going to change. But I think what we're going to see is that we're going to continue to see a talent drain from the big investment banks, which has been taking place over the last 10 years, where their best people will leave. And they leave not necessarily to go to boutiques, not necessarily to go to boutiques, to do other things or will retire. And I've seen that happen quite a bit, of course, because boutiques have taken a big chunk of the market over the last few years. I think this will continue. But it's not only at the benefit of boutiques. I think it's going to be that people will go figure out that they want to do other things.

1:39:25And banks keep getting themselves into the same predicament. You know, there's always a wrong bet on something that causes a problem or a mismatch between, you know, assets and liabilities like we're seeing in the banking sector. You know, there's always these issues, a crisis in some country, something blew up somewhere. And when you're working in one of these banks and you're doing your thing and, you know, every year they tell you, well, you had a great year, but you know what? The Russian crisis, we lost a lot of money. You say, screw that. I mean, I have nothing to do with the Russian crisis, which is why it's nice to be in charge of your own destiny and to rise and fall with it, with your own result.

1:40:03So I don't know that the structure of the industry will change dramatically. I don't know if there will be more regulations. That's always a risk given what we're seeing today. So that's possible. And I think that's all good for us, to be honest with you. What do you say to young investment bankers who are considering making investment banking their career versus going into venture capital, private equity, corporate development, whatever, to be a musician? Look, I say do what you love to do. How do they know? Because the job as a junior person is not nearly as glamorous as it is when you get older.

1:40:36And not that it's always glamorous, but it's much more interesting there. How do you know if it's worth staying at it? Or what would you say? Look, I think what we do with our young guys, this job is an apprenticeship. It truly is. The way you learn is by interacting with people who do it well. So what we try to do is give them the opportunity to interact on an ongoing basis with all of us who do deals. Be on calls, be in meetings. Ask their perspective and let them ask questions. Give an opinion, right? Really participate in that. And I think that's how you learn. It's really interesting and exciting.

1:41:12So I think they can see what the job is when you get there. I think they can taste it, even though their job is very different. So at the end of the day, I tell them, look, this is going to sound pretty obvious. You got to do something you love, right? You really have to be. You can't do this. This is not a job. I tell my guys, if you do it as a job, you're never going to be really good. If you do it as a mission and a passion, you'll be really good at it. And it's not easy. It's not easy. It's a very demanding thing. So I say, look, do you want to do, is that what you want to? That's what gets you excited at the end of the day.

1:41:42And I tell them the skills required to be in a banker are very different from the skills required to be an investor or PE or VC. Radically different. And the cadence is very different. Like, look, I like high cadence. I'm a junkie, right? That's part of the reason why I never, a lot of bankers have PE and VC envy, a lot of them, right? I never had that because I really like what I'm doing. And I know, as I said, I don't look at the grass being greener. I'm pretty down to earth. And part of what I like about my job is I get deep enough, but not too deep that, I mean, you have to live with companies forever.

1:42:18I don't think I can do that. I like the cadence of what I do. I see a lot of companies, a lot of sectors, a lot of deals. It's just very exciting. And I think that's one of the key determinants of, you know, which is the right career path for you. And look, you have clients, but you're not really in the service business, right? I'm in the service business, right? And I'm at the, you know, I'm totally beholden to my clients every day, seven days a week, 24 hours a day. And I can never disconnect. So if you don't want to do that, then it's not for you. That's a big thing. I've been told that you've been able to live a fairly balanced life despite working crazy hours, great family, kids.

1:43:03You do punta mita. You do surfing and you're able to take some time, always on call and all of that. But last question, like how have you been able to make that work? And how do you sort of think about work-life balance, even though work is always, you know, a text message away from interrupting your life? Look, it's hard, right? But I have indeed succeeded in doing this. And it depends who you ask. If you ask my wife, she'll tell you not nearly enough. But I love spending time with my kids. They love spending time with us, believe it or not. And we love the outdoors. So surfing, skiing, hiking, all that stuff.

1:43:39It's really important. I mean, that's what brings balance in my life. And that's, besides my family, the most important thing for me. And that's not something you do with your clients. It's something you do alone, right? So I disconnect when I'm not working that way. But it's tough. It's tough. So yes, I'm able to be surfing, but I'm always processing something. That's the tough part. I can never really disconnect. So when you say disconnect, I could be surfing five hours in a given day, but I have not disconnected one minute. And it's tough. But hey, I'm not complaining. I can still do the things I like to do.

1:44:12I enjoy my job and doing what I'm doing. And I found this balance. But it's tough because you end up doing everything with a high degree of intensity because the job is very intense. And when you have windows to do something else, you got to be very intense because you only have that window to do it. So it becomes a lot and maybe gets old after a while. But as long as I can do it, I'll do it. But yes, I have created that balance and it's very, very, very important. Well, I mean, many people, I think your peers from whatever, 1986, when you got into the industry, I think many of them have called it quits.

1:44:46It's amazing. You're at the top of your game and still doing this. Well, thank you. If you can outlive them, I guess. You don't have to be better. You can just outlive them. I think you figured out how to do both. But, George, thanks for doing this. Thanks a lot. Thanks a lot, Logan. I really appreciate it.

1:45:11We'll see you next time.