Kison Patel is the Founder and CEO of M&A Science, with a passion to drive the M&A industry forward and the best-selling author of Agile M & A and M&A Tactics and the M&A Science podcast.
Kison was an M&A advisor for ten years in which he sold larger companies such as commercial banks and hotel chains. In 2012, he noticed teams lacked efficient technology to manage deals and created DealRoom, an M&A lifecycle management platform.
Listen to this informative Publish. Promote. Profit. episode with Kison Patel about efficiently managing mergers and acquisitions.
Here are some of the beneficial topics covered on this week’s show:
- How you should look at your business once a year and see who your potential acquirers are.
- Why you want to attract sophisticated buyers when selling a business and how to do that.
- How building relationships with CEOs of companies you’re interested in buying is smarter than asking if they are selling.
- How DealRoom standardizes practices to allow for an agile merger and acquisition process.
- How DealRoom builds solutions to enable your customers get value from your products.
Connect with Kison:
Links Mentioned:
mascience.com
Guest Contact Info:
Twitter
@KisonPatel
Facebook
facebook.com/dealroom.net
LinkedIn
linkedin.com/in/kisonpatel
Rob Kosberg:
Hey welcome everybody. It’s Rob here with another episode of the Publish. Promote. Profit. Podcast. I have a great guest for you today that I think you’re going to learn a tremendous amount from. Kison Patel is the founder and CEO of M&A Science. He has a passion to drive the M&A industry forward. He’s the best-selling author of a couple of books, Agile M&A, and M&A Tactics. He also has a great podcast, the M&A Science Podcast. I just learned that you have a leadership podcast as well, which is cool. Perhaps we can talk about that. You were an M&A advisor for 10 years, in which you sold larger companies such as commercial banks, hotel chains, et cetera. You noticed the lack of efficient technology to manage deals, so created your company, DealRoom, which is a management platform for M&A. Thanks Kison, for being on the podcast and I look forward to chatting with you today.
Kison Patel:
Hey, my pleasure, Rob. Thanks for having me.
Rob Kosberg:
You know, a lot of people that are listening are small business owners and I want to get this right out of the way because some people may start listening and go, “Ah, you know, I’m not the size of commercial bank or what have you.” One of the biggest Achilles heel of a small business, and I’ll call small business anything over a million dollars, 3 million, 5 million, is they don’t really have a plan to exit their business. In essence, M&A is about exiting, whether it’s someone that started a larger company or someone that started a smaller company. I wonder if you can speak to that just for a few minutes because I’m sure you’ve seen that in what you do as well.
Kison Patel:
Today, our practice is built around working with corporate M&A. So, we’re dealing with large billion plus market cap companies, but I’ve been an operator of small businesses for two decades now. Looking back and combining perspectives from both sides, Rob, I think it’s a good exercise to, at least once a year, look at your business and think about who potential acquirers may be. Keep that as an exercise, not as necessarily anything to act on, keeping it in mind so that you’re conscious about that landscape. What does that look like? Who would they be on the strategic side that would be large organizations that would find unique value and pay a premium for your organization? Who could it be on the private equity side that are focused in your industry and actively making investments there, or even beyond that? What would that look like? I think it’s good to at least know of it. Then as you get closer to making a decision to go down that path, there’s a series of steps that you want to do to really prepare yourself. If we look at the number one falters in why sell- selling a business goes wrong, the preparation wasn’t there. Even with a house, right? You want to do a lot of house cleaning and get it in the most presentable form for prospective buyers to come in and you see the savvy realtors even stage a house if it’s empty just to give it the best look and feel to get the best price. It’s similar for business. When it comes to having perspective buyers look at it, you want the sophisticated buyers and they’re going to do sophisticated diligence and really get into the nooks and crannies of your business. The better prepared you have it for them to do that, the better it’s going to show and the likeliness to have a better value associated with it.
Rob Kosberg:
You know, I spent some time with an M&A guy that focused more on smaller businesses and I really learned a lot from what he said. I’ve run small businesses my entire life. I’ve done the very thing that I’ve seen others do, and that’s not think about an exit plan or an exit strategy. I don’t want to have the same exit that I had out of real estate in 2007 and 2008. That was not a favorable exit. One of the things that was interesting to me is, he talked exactly along the point you’re making. Even multi-million-dollar businesses, when they think about selling it, they think about maybe selling it to their competition or maybe selling it to an employee in house or doing something like that. He said, “Look, that is the absolute worst thing that you could think about doing.” He said, “Instead, you really need to think about what it looks like from a strategic perspective for somebody to buy your company and a competitor perhaps could be that person. In most cases that may be somebody completely off the radar of the same industry you’re in.” It really opened my eyes to how much work needs to be done from a strategic perspective to really think about who it is that could be purchasing your business. Can you maybe elaborate on that a little bit? What are the questions that you ask yourself that gets them thinking along these lines?
Kison Patel:
It’s a tough one. This is where I think expanding out, talking to other executives, trying to get these ideas, because you’ll get boxed in if you just sit there in a corner trying to figure that out on your own. This is where some of the M&A advisors or bankers are helpful, despite that nobody likes to pay their deal fees. In terms of their experience and knowing that buyer universe, you can get some of those ideas. You may come up with, “Hey, here’s the big players in the space I play in, and they’re obvious.” Frankly, you can connect with their corporate development teams. Your job is to be out scouting for these inorganic opportunities typically associated with acquisitions. Being on their radar is something that they’re supposed to do. They should welcome those conversations. There is this universe of firms that could be strategic, that aren’t so obvious where maybe they’re looking to break into the space. Maybe they’re in this adjacent industry that would complement their current business lines. Can you be open-minded about that and try to identify who they are? There’s a whole market map exercise that could be worth doing as well. You map out the vertical you are in, then also the verticals adjacent, and really build that local list of whoever is involved in those different areas. Then you can extend it with the private equity firms as well. That might be something good to do as an internal exercise. We talked about thinking about that occasionally, even if it’s a yearly activity, then rebuilding that market map and just being able to build off of it.
Rob Kosberg:
Well, let me ask you about deal flow, and finances, and money. I’ve heard a lot. Obviously, we have unprecedented money printing going on, right? I think 40% of all the US dollars in existence have been printed in the last 12 months. I’ve heard that mergers and acquisitions are through the roof and they’ve continued to be chasing or have the money to chase these opportunities. Can you speak about that a little bit? How does that affect the cycles of up years, down years, et cetera, when it comes to mergers and acquisitions?
Kison Patel:
It’s going to be interesting. I think the same way I came through the typical cycles everybody (laughs would accept, but I’ve just never seen so much capital in the market right now. When you look at M&A activity, it’s highly, highly competitive. If you’re going to buy a business through an auction process, you got to be prepared. There’s just a lot of interest in these deals. A lot of the typical formalities are getting cut short, where you got to run a really fast process to get these deals done. With that, the multipliers are high. Depending on the industry you’re in, but you’re seeing all-time record high values that are transacted on a future revenue anticipation. It’s an interesting market. Looking at triggers that are going to come about changes things down the road. It’s just really different. We’re seeing so much capital in there and it needs to be deployed. It’s time to do that. The other factors are, the nature of what’s driving this M&A, we’re seeing a shift from the traditional. We’re expanding, getting more market share, we’re acquiring capabilities. We’re looking to acquire these up and coming emerging technologies, and even disrupt some of our own business lines so that we can stay relevant. That’s where we’re seeing this exponential increase in technology that’s emerging. Right behind it is M&A activity. There’s that trend that’s happening that is going to keep M&A strong for the long run. Hopefully we see some cyclical changes as well because I think it’s inevitable. It needs to happen.
Rob Kosberg:
You’re describing what is an incredible seller’s market right now, right? You have all this money chasing the deals. You’re saying the deals are getting done faster, which oftentimes means maybe less due diligence than what they would normally maybe go through that process, or they’re expecting to do it all on a faster basis. When you talk about a shift or trend, you mean a shift from a really strong seller’s market, to maybe there needs to be a little bit more of a buyer’s market and valuations need to come down. Do you see that happening?
Kison Patel:
Yeah, it is. It’s just, the valuation thing throws me off. Given what companies are buying businesses for today, I don’t know if that’s going to happen. Are we creating some new standards around the way we value businesses? Things are changing. I’m interested to see. I don’t like putting these positions out there that I’m not fully confident in. I’m really excited and interested to see what happens.
Rob Kosberg:
You’re on the forefront of it, especially with DealRoom because I imagine you’re not just dealing with your own deals now but all of the executives that are using DealRoom and running their deal flow through it, must make it cool to see the data on all of that stuff.
Kison Patel:
With the nature of confidentiality, we only get so much. We don’t actually know what happens unless we connect the dots and what gets announced. There are all these drivers that are changing the way we’re looking at deals. Let’s put it this way – we buy a company, traditionally, we buy a company on a multiplier, EBIT, the multiplier. I’m buying it from angel investment. After that, I grow the business and that’s how I make a return on it. Today’s market is so competitive. You virtually can’t buy a business on those same financial metrics. You need to model in some synergies. If you don’t have a clear plan detailed, or a defined approach, and how you’re going to create value acquiring a business, you don’t have no business to buy anything in this market right now. Is that going to change? Is that the new environment we live in where the only way it makes sense to buy a business is if you have some clear advantage on what you’re going to do after you buy the business that’s going to create value. You got to act and think like a strategic. To get in now, you’re going to be paying a higher bar entry to be able to get in and act like a strategic. That’s what I think is fundamentally changing this market. We had it good with the opportunities to come in as a financial buyer. It’s all out the door. You essentially need to come in as a strategic and have some unique position to create value after you complete your transaction.
Rob Kosberg:
I guess, in the past or at different parts of the cycle, you would see people maybe rolling up similar companies and purchasing the revenue in essence, right? They’re going to a higher dollar amount, which that may give them a greater market cap, a greater multiple perhaps. It sounds like you’re saying that’s not happening anymore. It’s more about the synergies. It’s more about, what is intangible somehow being modeled into the whole process. Maybe there’s economies of scale in a situation as well as something strategic.
Kison Patel:
Those days are over. Those were the good old days. It used to be, you’re buying a business and can leverage the heck out of it and know you’ve got enough cashflow coming in to pay off your debt on a monthly basis. You can’t buy businesses like that right now, you know? I think there is an, actively today if you’re an acquire, you should be developing your own proprietary pipeline. I think that’s another shift that if companies have to, you don’t have a choice because it’s so competitive with the market of deals. If you’re a smaller outfit, you don’t stand a chance. Your best bet is to hone in on an industry that you really want to focus on and find your own opportunities. Network with the CEOs. That was the one thing I learned. Don’t go to CEOs and say, “Hey, do you want to sell your business?” Ask them if they know anybody that’s going to sell their business cause they’ll come out and tell you even if they are. I always say, “I’m really interested in your business,” build your story. I’m interested in the sector. “Hey, you’ve been a veteran in the sector, love to pick your brain. Love to see if maybe you know some opportunities I can invest and get in.” See if you find something on your own. That might be your best bet cause you, you can find a unique circumstance where somebody is an operator and you build some rapport or relationship with them and they’re essentially looking to retire. Now all of a sudden you can create some owner terms and take over this business that may be more structured on some logical finances that make sense. There’s a nice mutual, “Hey, I’m, I’m looking to get an exit but I’m also looking to make sure the business goes in the right direction as an owner that’s going to take it to a good place. That is the big trade off to when you’re exiting. You got a big check coming out of it, but is that business going to go the direction that you want it to? Are people going to get taken care of?
Rob Kosberg:
You know, that’s interesting. You gave a kind of old school but very effective way to create some deal flow for yourself. You’re talking about maybe not cold calling, cold emailing, cold outreach. That’s actually the process that we talk to our clients about a lot when they’re trying to get speaking engagements, using their book to frame them and position them in their industry as an expert. I prefer that over email but email could be a way to do it. With the methodology you just talked about, you’re approaching, uh, CEOs, C-suite executives, right? They’re not going to want to talk to just anybody. I imagine that there’s some type of due diligence or they want to know that they’re, that who they’re speaking to is not a waste of time for them. How do you do that? Have you seen people use their books to kind of frame those conversations ahead of time?
Kison Patel:
It really, really depends. A big variable in the context of all of this is, if the, the books have a reference point, it definitely adds a lot of credibility. If it’s related to the subject, that can be definitely helpful to open up a conversation. I think the channels are changing. You sort of gave some examples where maybe, maybe not calling, emailing. I found LinkedIn to be very successful. I think building out your profile as well, and looking at it from the other person’s perspective on why I would want to speak to this person. Try to button that up as much as you can. Even if there’s little things where you may have some roles that don’t look great in the onset, but can you at least add some bullet points of some achievements that you made? So, really outline that you’re a person that takes opportunities and creates the most out of them. So, we published two books, one was Agile M&A and then the second one is M&A Tactics. The first book we published was starting to pick up on this trend in the industry of ideas from the software and how they project manage. We’re using agile as various agile techniques and that is an approach, drawing parallels of how it could be related to our industry, mergers and acquisitions and invalidated it with some case studies with organizations like Google. They were actually using these agile techniques in their M&A approach, essentially wrote a book but made into a framework to help other corporations adopt those same kind of practices. That led to a lot of speaking engagements.
Rob Kosberg:
I want to go a little deeper because you hit on a couple of things that are really interesting to me. You talked about your book getting you speaking engagements in front of these audiences. You have DealRoom and that’s your software. That is, in essence, your answer to the agile M&A problem, right? You’re giving them the frameworks within DealRoom to follow an agile process. Is that accurate?
Kison Patel:
I would say there’s practices and the software helps standardize those practices.
Rob Kosberg:
Okay. Good. So you got the software, it also sounds like you do consulting. Is that accurate?
Kison Patel:
You know, we do light consulting that’s essentially included when we provide our work with customers on the software side. We give a lot of talks and presentations. We sell the books, we run an academy program, provide training resources but I’ve not gone to a full-on service offering yet. I feel like at this point where the, the picks and shovels, uh, you know, vendor in the industry and provide all the educational resources and, and technology tools. I think one way to think of it, Rob, is the problems you solve, right? When we first started, we initially had DealRoom as a software to solve the problem of managing due diligence on a large scale acquisition. Even within that, we realized that the investment banks weren’t early adopters, it was actually the corporations. Then, as we continued to work with them, we identified other issues like the whole integration after you buy the company is another big complex process that’s even a bigger challenge. It started solving for that. You got three or four deals you’re working on, that gets a little messy to coordinate and even the whole prospecting piece. So really evolve that solution into a lifecycle management solution, combining all these different areas. That continues. Then we realized here’s the access to the educational material that was lacking in our industry. There’s only a handful of workshops that were accessible. They didn’t have the depth to be practical for most practitioners. So, we looked at that as a big white space and ended up creating a academy solution for that area. It keeps evolving. The idea is to prioritize by the problems that we’re solving. I think where we’re at now is the enablement piece. We build solutions out but how do you really enable it for these prospective customers and help them get the value? We even see it today where we may have even sold a solution and go back to the customer and realized, “Hey, you know, they, they’ve only gotten not the full value that we’ve intended for. Now how do we go back in it and really enabled that?” I think that’s where the opportunity for services comes in, that if you can make sure that it’s clear in how it’s going to make an impact and increase value then it’s worth pursuing.
Rob Kosberg:
I want to make sure I have this right because I really like what you’re saying. It sounds to me from what I just heard that, you know, you wrote the book and the book laid the groundwork for your IP, your trademarks, right? What you were building from there, or maybe at the same the timeline, maybe isn’t as important. From there you had the software, the academy, then like your course creation, teaching the IP to others, and then, perhaps, the last piece of this might be a very, very high ticket consultation for somebody that just says, “Look, I don’t want to, other than going through your book and seeing that you’re the legitimate leader in this category, I only want to write you a check and have you come and implement into that, into my organization.” At some point you may be doing that. Is that what you did with your book and how the frameworks were laid out?
Kison Patel:
That’s where it’s evolving. The book part, the value of doing a book, you know, it’s not so much the book sales. When you get this, “Hey, I’ve decided to create a book.” Now, all of a sudden you have this approach to a variety of different subject matter experts that you can reach out to. I’m working on a third book now and that’s all I’m doing is saying, “Hey, I’m working on this book about this topic. I know you’re somebody in the space that I should be talking to and can we grab some time?” Most people are happy to do that. I’m going to cite you. I’m going to quote you and reference you for any material that I gained from our conversation. I think that, that’s the one thing is it gives you access now to go out and reach a whole bunch of subject matter experts, build your network at the same time you’re gathering information to help with your book. It helps you. It makes you a better subject matter expert. Just knowing these people, because now I go to people and say, “Look, if I can’t solve this, I know who can. So we’ll figure this out regardless because we’ve developed this huge network, even within our industry.” I was looking the other day, it was like eight or 900 contacts of all these folks that we’ve touched over the past 10 years. And now are, are part of the network that we can reach out and get access to if we need help in certain areas. And then that’s when you thinking broader about the different solutions that you can provide to the, the community as a whole. Then it goes back to that whole enablement piece. For us, it was a little bit different cause we started the technology and then we actually started a podcasting soon after and leveraged the podcast. The idea of the podcast wasn’t to create a podcast for the sake of creating podcasts. I think you’ve gone through this exercise too. You should have a clear mission around it. For us, we identify this underpinning problem in our industry, that the industry itself was very siloed and lacked standardization around best practices, which was interesting cause all these companies have their own way of doing M&A distinctly different from each other. Nobody had the real right way or evidence backing their approach. So we led the idea of using a podcast to enable practitioners to share the lessons learned and in turn allow us to synthesize what are the practices that actually work. Can we find patterns and identify and start developing and documenting these best practices? And that sort eventually led to that theme around agile cause we see the theme here. I ended up turning into a book cause we thought there was material there. That’s how we ended up creating the book. The academy came last. You know, we had a book out in circulation and the timing wasn’t the best. It was January of 2020. So, you know, shortly after the country goes on lockdown, and I was hoping people had more time to read but that didn’t really impact book sales that much. We started doing some virtual events and those actually picked up pretty well because people had time. They were interested in some of the more interactive media. We ended up identifying the white space, actually based off of surveys from those events that we’re doing. We’d ask for feedback and say, “Hey, if you can change anything in our industry, what would that be?” People kept referencing learning the practical, how tos of our industry. It’s like, okay, well, we got to change that format a little bit. We started understanding that whole space in our sector around the continuing education and training and so forth that led to the model that we created today.
Rob Kosberg:
Very smart. Very, very smart. You know, um, we, we’ve been kind of talking about this but I maybe want to ask the question more formally and see if there’s anything we missed. At some point in the podcast, I always want to know cause I’m always speaking to authors, how has your book helped you in your business? What are you looking for your book to do for you on a forward basis?
Kison Patel:
It’s not so much how it’s going to help myself or our company, it’s more about how it’s going to help the reader. Who’s your target audience and what’s the value? I mean, for us, it was, we knew that first book that people managing M&A didn’t have anything to reference. When they don’t have anything to reference, they default to this very plan driven waterfall approach. That’s not right for our industry. Our industry doesn’t work. It’s not like building a house where you can have a blueprint and you’re not going to change much. You go out and build it. When you do M&A, I think of the two guys in first class that make a handshake deal, and then as you continue the process just more and more people get involved, more and more information surfaces, and you need to be able to respond to all this new information coming in, whether it’s leading to identify risks, leading to identify opportunities, but you constantly need to act on information and manage details. That’s where there’s this tremendous case around agile as the management approach for our industry. That’s where we wanted the reader to understand that that, “Hey, there is a better way. There’s this whole thing that we can borrow a whole set of ideas from the software industry and apply it to M&A.” That was the goal with that. Now the more recent book we’re working on, we’ve seen this huge surge of IPOs and in conjunction with doing an IPO, a lot of those companies are standing up an M&A function. That, “Hey, we’re going to raise a large sum of capital and to deploy that capital, we’re going to go beyond organic growth avenues but we’re, we’re going to find these inorganic opportunities through acquisitions.” What we found is a lot of those teams, even despite coming from other highly reputable organizations with strong M&A functions, there is no guide for them to follow on how to stand up an M&A function. They go through a lot of tough lessons and learning curve and our ideas. We’ve already learned a lot about this. Why don’t we get a jump start and start compiling some of the resources. Our goal is to create a reference book with templates to help somebody that’s tasked with standing up an M&A function. I think it goes back to that. What’s the value for the reader? What problem are you helping them solve?
Rob Kosberg:
Your book has really good reviews but I saw a one star review. I thought it was actually humorous. Everybody gets one star reviews. The one star review I read, which I thought was really funny was, that the book was great but your upsells were terrible. It almost sounded like somebody was desperate to buy from you but they didn’t feel like you were giving them the next thing to buy. Where should we send somebody that wants some more information about you, about what you’re doing. Obviously you have DealRoom. How can someone take next steps and learn a little bit more?
Kison Patel:
mascience.com. We have over 350 pieces of published content from blogs, eBooks, et cetera, all publicly available.
Rob Kosberg:
Awesome. Great having you with me today. Thanks so much for, for taking the time, anything that we missed?
Kison Patel:
Well, we covered the aspect of putting a book out in our industry, which I’m glad to share. I think a lot of people always associate M&A with the banking parts of it but I think M&A has got a wide career opportunity. There’s so many different roles across the whole process. I always encourage people to just continue learning, exploring. It’s a fun industry. If you think about the largest transactions in the world, they tend to be M&A.
Rob Kosberg:
If you’re going to sell something, why not go to the biggest transactions in the world, right?
Kison Patel:
It’s, it’s an interesting space. There’s not a lot of people trying to solve problems. There’s a lot of people trying to put their hand in the pot of gold they see when a transaction happens and get as much as they can. There’s not a lot of people that are actually trying to drive efficiency and build valuable solutions in that space.
Rob Kosberg:
Thanks again for being a part. It certainly sounds like you’re trying to be part of the solution and not part of the problem.
Kison Patel:
It’s my pleasure Rob. Thank you, anytime.
