Life on Mars - A podcast from MarsBased
Life on Mars - A podcast from MarsBased
Is M&A activity REALLY on the rise this year? with Clemens Rossberg
Welcome to another captivating episode of the Life on Mars podcast by MarsBased! 🎙️ In this electrifying discussion, we dive headfirst into the dynamic world of mergers and acquisitions (M&A) with our brilliant guest, Clemens Rossberg. 🌟 Interviewed by our very own Alex Rodriguez Bacardit, this episode is a must-listen!
Tune in to discover:
📌The latest trends shaking up the M&A market in 2025
📌Key factors driving the recent surge in M&A deals
📌Expert insights on whether this growth is a lasting trend or a fleeting phenomenon
Don’t miss out on this must-listen episode! Get the scoop on what's happening in the ever-evolving world of M&A and stay ahead of the curve. 🚀
🎬 You can watch the video of this episode on the Life on Mars podcast website: https://podcast.marsbased.com/
Welcome everybody to Life on Mars. I'm Alex, ceo and founder of MarsBase, and in this episode we bring you Clemens Rosberg of Rod's Advisors. We'll be discussing M&A, because clearly we haven't discussed M&A enough on this podcast. It's the fifth or sixth episode, but at least once per year we try to discuss what's the state of the art, what is the momentum right now, because we are seeing a slight recovery in M&A activity in the last months, even if at a discount, even if some of these guys' acqui-hires are being passed on as exits or substantial exits in the industry. So these and much more are the topics that we discuss with Clemens. We also discuss, you know, being on both sides of the table, because he's been a founder, he's been also a banker. Now he's an advisor in these M&A processes, right? So we will discuss pricing, we'll discuss negotiation, etiquette and much more in a super interesting episode, and also the question of the day, which is have you used any advisor in any capacity at your company? So let us know in the comments down below. We'd love to hear your experience and, without further ado, let's jump right into the episode. All right, so we're live.
Speaker 1:I like this countdown. I'm not used to it. I haven't been using Riverside for long. This is the third episode I record and I'm still getting the vibes of. I love the countdown. It gives solemnity to the podcast. Welcome, clemens, how are you doing?
Speaker 2:Thank you very well. Thanks, alex, for having me. It gives it a special feeling we're starting, we're about to take off.
Speaker 1:We have to start with energy. Although it's 10 am in the morning, I'm pretty sleepy. I was working until very late yesterday at night, and so today I needed an extra dose of coffee. Are you a coffee person?
Speaker 2:Yeah, no, actually I tea In the mornings, I drink tea and then a coffee. I have maybe one per day a bit later.
Speaker 1:Good. So we wanted to discuss. I mean, you and I have been knowing each other for long. I seem to remember we met around 2014 or 15, four years from now. We sort of stayed in touch. We have been seeing each other sporadically here and there, more often lately because you've been coming more to the StarCraft events, and that's how we reconnected. And I will always have that thorn on my side that I never got to interview you at StarCraft. So here's the compensation Better late than never, better late than never, better late than never. Good, you are in a very interesting period of your life right now. I mean, having been a founder for many years, also been an investor, you have a pretty successful career, in my view. You're now I mean, not that you're getting into M&A, but you're getting into M&A, but you're getting into M&A more professionally and you're launching a new project. Do you want to talk about it right now, to give some context to the audience for a couple of minutes? So why this transition period and what are you getting into Exactly?
Speaker 2:Well, just to give me a bit of background, I've been an entrepreneur for 25 years. I've set up my first company 25 years ago and before I did that, actually, I was an investment banker. I was working for Lehman Brothers in New York, in London, but it wasn't my fault. I left a long time before all of that happened. Anyway, that was my background from banking and as an entrepreneur, I worked in the telecom sector. Basically All my startups had to do with the telecom sector. I've been working in that sector all my life and the latest company where I was is PhoneU. This company is still around. It's a scale-up. It's actually very successful, it's profitable and growing and that was a great experience.
Speaker 2:But I left that company um last year. So this this year I was um. I asked myself so what, what could I do professionally now? And, um, after giving it some thought, I came to the conclusion that what uh fit best, uh, according to the experience I had, is something with m&aA, basically M&A and financing. So mergers and acquisitions, sales and acquisition of companies and financing of companies. And of course, there's a lot of M&A advisors out there. There's a lot of M&A advisory firms.
Speaker 2:So I had to think about, you know, to give it a special focus, and I think I found that basically, my motto is from founders for founders.
Speaker 2:So I'm I want to look, I want to work for clients that are for companies that are led by their founders or by their owners, because that's a very different situation than if you have a company that's led by a hired management, because, by definition, if you were founder of a company and if you're thinking about someday about selling that company, whether or not that sale works out well, that will really make a big difference on your future, because you likely put in a very big part of your life's effort into that project. And the reason I chose that motto or that focus is because I, of course, have made that same experience, because I've been an entrepreneur for such a long time my own companies and so I know what it means to be in that situation. So that, in a nutshell, is what I launched. The company is called Ross Advisors Ross with two Z. And, yeah, I officially launched at the beginning of October.
Speaker 1:Nice. I like the from founder to founder. You know, I relaunched my personal website a couple of months ago and I started a newsletter that is called founder to founder, like F2F Basically. Yeah, I like the idea. It comes back, like the naming perhaps is not, I don't know if how original is that? Probably 10 other thousand people have got that naming, but, um, when I was at, when I was in erasmus and there was this erasmus student network, right and, and we organized the welcoming weeks for new students and whatnot into the universities. The concept was from students helping other students, right, and I always like this equal to equal in a level field of play.
Speaker 1:And what I like about from founder to founder is because I am giving tools to people every Friday that I, as a founder, need. You probably, as a founder, will need it. You probably need it for your company, and what is interesting from your business and I want to dig deeper into that is you will have been on both sides of the table in many aspects, right, so you've been an investor. You've been a founder, right, so you can tell which feelings and which situations can you apply to one or the other. Now, with M&A, you will be the person. You tell me what part of the value proposition you will be placing yourself. But, uh, you have used m&a from phone, you, and so I don't know like. Being able to see multiple perspectives is very interesting. What part of the volume, uh, the value proposition or the value chain are you placing yourself at?
Speaker 2:you know, as an, I'm basically ross advisors is an m&A boutique, so I'm an M&A advisor. So, if you want almost a consultant, I'm an advisor to companies who are thinking about selling themselves or who are thinking about acquiring other companies or companies who are looking for financing. And an advisor means a lot of things. I mean, it's the classical, the classical steps of an m&a process, where you, you first look at the company, you, you analyze it, um, you come up with a strategy, um, you think about the positioning of the company, um, and then you prepare. You prepare to go to market. Go to market means to reach out either to potential buyers or to reach out to potential investors. And you prepare, uh, by doing research, research on who could be the, the right, uh, uh set of companies who would be interested in your company. You prepare the documents, which is a, you know, into the summary, a business plan, excel, all of these things. And I, as an advisor, I would be doing all of these things and then executing the process and eventually, hopefully successfully closing it.
Speaker 1:Okay, yeah, because M&A boutiques for people who are not very well-versed are kind of like a black box, right, m&a is a field that not everybody knows what is it about until you face it the first time. And once you know one of them, one person working on this, you start. You start meeting, um, all of them. I think that most entrepreneurs and I myself included, right, I didn't get in touch into with m&a until I don't know like five, six, maybe eight years deep into running my own company, not because we're interested in any M&A process, but because we are in the industry, right, and you hear all the time companies selling, but somehow when a company is sold, normally the M&A company is not mentioned and so in the news, these kind of companies, they don't get any sort of exposure. So you sort of assume that M&A because they're like magic, right, companies get sold and bought all the time, but we don't get to see who actually worked on this. Right, and some of them are doing the sourcing. Some are only in advisory capacity, like Simpson, you are here. Some of them do audits, some of them do all the things. Right, they're a one-stop shop, so it really depends on the volume of the transaction. Some of them they don't work on deals below $100 million, while others are for more smaller stuff, and so we've had four episodes so far in the podcast, which, for a podcast of technology four episodes out of 80, it's pretty high. Three of them with Mike Cunningham from Transcend Partners, who are very good friends from the company, and the other one with Founder Partners from the US, and the funny thing is these are the episodes that perform the most right. So it's like people don't give a shit anymore about programming languages, they just want to sell their company.
Speaker 1:Which brings me to my next question. It's been a down economic downturn. It's been a relatively bad market for selling or for selling well, it's been two great years since the stock decline in the technological scene, and while it's been very bad because scale-ups and corporations didn't have the money or investors didn't want to lend out more money, private equities have been making the rounds and they've been buying tons of companies right. What kind of activity have you seen in the last two years? How active have you been, and where are we sitting now? Do we see any kind of recovery in M&A?
Speaker 2:Well, I mean just to give a bit of context. It's true, everybody speaks about there's a downturn in M&A markets and, just to translate it, what that means basically that there are less transactions, less companies are being sold and bought, and those that are sold and bought are often sold at lower valuations than before. But the question is, of course, compared to what? And if you look at the statistics, then of course people compare it always to the last peak, because that first year of COVID, in 2020, there was actually a lot of activity. It was really a lot of activity because actually a lot of companies, of course, were afraid of this new situation. They decided, okay, maybe this is the moment to sell and there was a lot of money in the market, there was a lot of appetite, so the markets were very active and we had the high in in, globally speaking, in the first half of 2021. And since then, yes, it has gone down a lot. It has gone down a lot in the number of transactions, which are actually today on a somewhat comparable level to, you know, before covid in the 2019, but what has gone down significantly is the average valuations. So, um, this year, I mean, you know also you have to differentiate between the different different markets here in europe. In europe, this, this 2024, the markets have been okay. They have been more or less on par with last year, but that seems to be actually the case because there were some really big mega deals which pulled up everything. In the number of transactions there has actually been even a reduction. And then it also depends on the country. The UK, for example, has done extremely well. There's been a lot of activity. Germany has been really down, has gone down even further because Germany has seen a great reduction in M&A volume since 2022. So those are the kind of things we're seeing and the phenomenon that you were mentioning about private equity.
Speaker 2:Yes, I mean here we have to distinguish between private equity and venture capital. Venture capital is really at an earlier stage of the company's life. Venture capital investors, as the name says, they take a bigger risk and they invest in startups, in early stage companies, and these investors have been much more cautious. It's much harder for our startups to find financing. I can confirm that from processes I've been in.
Speaker 2:Private equity is a bit of a different animal. Private equity also does bit of a different animal. Private equity also does investments. They invest money in new companies, but that will be a different stage of the company. It will be in the growth stage.
Speaker 2:But also what private equity companies do a lot they buy companies outright, because private equity companies have a strategy that's called bolt-on or platform strategy, and what that means is that they often buy one company in one sector. For example, they buy a company in the travel sector online travel and then they buy this as the base company and then they start buying several other companies that are related and they put them all together to create one much bigger company, and this is called the bolt-on or platform strategy. So, because of the rather adverse economic environment, a lot of companies have found it difficult to grow organically by growing their own natural business. So that's why they've turned to inorganic growth, which means the growth through buying competitor, through buying other companies, and this is exactly what the private equity companies are doing, and this is why we've seen quite an increase in yeah, there's been quite an increase in in the number of transactions of, of, of you know, sales, sales and and purchases of of companies, whereas it is true that it's a lot more difficult to raise fresh financing for companies.
Speaker 1:The it's good that you mentioned that there's been a difference between countries, right? I think that gives the the perspective that europe is very fragmented and that's why america usually has got an upper hand in terms of M&A, because they're bigger. I mean not that they're bigger, I don't know in terms of millions of people, but I know in terms of a market 330 million Americans living in the same country, more or less the same roles overall, and so it's easy perhaps for one company from Delaware to acquire one in Boston and the other way around, or one in Texas buying one from San Francisco. So I think it's easier. It creates some sort of more level playground than we have in Europe. But the other thing I wanted to touch on and I didn't get to talk about this with the former M&A people that have been on the podcast is you've been a founder and you mentioned that you're a founder helping other founders. I wanted to talk a little bit more about the emotional journey of preparing yourself for that. Uh, let me give you some context.
Speaker 1:Um, we've received two, maybe three serious approaches of m&a and uh and the company and I've been pretty public about that that it's never been the like. We never entertained them very, very far, but they were our biggest clients in two of the occasions, right? So of course we had to entertain them, because the protocol dictates that and you have the etiquette mandates that you just go, take the meeting, listen, talk through it and and maybe just polite, decline the or postpone. Let's speak next year, something like that, right? Um? But deep down it's gut-filling, like there there are probably some criteria financial criteria by which you might want to sell the company, like oh, we're doing well or we're doing poorly, or this is strategic, Maybe we could. You know, we want to take on bigger challenges, so we join a bigger company and whatnot.
Speaker 1:But in our case it was more like gut feeling. It's like it's not the time, not yet not ready. It's like it's not the time, not yet not ready. Perhaps we will never sell. I don't know Right, how did you? How did how did you prepare yourself? Question number one. Question number two is how will you be helping entrepreneurs to prepare themselves for selling their companies?
Speaker 2:Right, how did I prepare myself for? Well, I haven't sold my company.
Speaker 1:Yeah, I know you haven't sold, but like well, partially I mean investment you've taken a step back or down, so I don't know if that helps to prepare for the M&A journey.
Speaker 2:Yeah, well, I mean, I'm not part of the company anymore. So, yeah, if one day that company is sold, of course I'll be happy because I'll have a return. You know, I always try to tell founders the following that they have to realize, especially when they have a tech company, it's not a family business. There is very, very few tech companies who make it on their own, and make it on their own means that they become so big that they come sustainable without themselves. There's so much disruption, there's so much technological development in the tech sector, in in generally, it doesn't really matter in which sub-sector of that you are, where you're in that it's that you have to be very careful. And, um, you know, I try to. I try to explain it with a decision tree.
Speaker 2:When you have a company in the tech sector, there's two possibilities Either what you do is relevant or it's not relevant. So if it's not relevant, then you're probably not commercially successful and you'll probably go out of market, unfortunately. Then there's a second option you are successful, what you do is relevant. When then? Then there are again two options, and these options are either you sell yourself on time because you're relevant and somebody else is interested in you, or you don't, and then somebody else bigger will come and replicate what you have and you'll go under you. And I've seen this personally with friends who've set up companies and they didn't really have a strategy. They didn't have a strategy because in one case they were so lucky that they didn't need outside investment. They didn't have other investors. They got some bank loans but so they didn't have any pressure. But you really have to think about it.
Speaker 2:And also, as an entrepreneur, we often see about these companies that are sold, and very successfully, and you know it makes the founders rich. But you know mostly if there's actually there's a medium median time of how long ago a company was founded before was sold, and that median time is often around between 12 to 15 years. So it's a long time. It's a big part of your professional career. So what I'm trying to say with that is it's legitimate as a founder that you think about the exit eventually, because you have to lock in value, because if you don't you may be left with nothing.
Speaker 2:And also, you know, I've lived in some years ago. I lived in San Francisco for a year and was very interesting to see the mindset of the people there and there the mindset of founders is quite different. They are all repeat founders. So it's very common that you set up a company, you're successful, you sell it and then you take these funds and reinvest it into a new project. And a lot of them they do it even more than once, several times. So again, but it's important that the first time you do that login of value and that you don't miss the right point. Of course I mean you know anybody listening will say, yeah, of course you have to say that you're an M&A advisor, it's your business.
Speaker 1:Exactly.
Speaker 2:It's your incentive. But you know, speak to you also from my personal experience and again, think about it. This is your baby. You've invested 10, 15, sometimes more years into this, so you don't want it to go under without anything, without any return, I mean.
Speaker 1:I think it's hard to let go right. You've been working for so many years. You've eaten ramen and monster. For two years you were on a really, really low budget and work through nights, weekends and whatnot. And I don't know, maybe it goes very well, you can sell it or it doesn't, and the only option you have to survive and to make some pennies out of it is to sell the company, even if it's at a discount to a low bid seller. But at least you've sold the company and you will get something out of it, right, rather than shutting it down. But I remember, like another good. Maybe this is unsolicited advice, but I will give my two cents about what you're saying, about the value proposition, right, about what you're saying like someone else will come and do what you're doing. I. I think this is super great advice for product companies, for services. We're more like, more or less we offer all the same, we're much more of a commodity, if you will.
Speaker 1:But I I remember the first time we were approached by our biggest client and, um, and you know, we took the meeting and after the, after the meeting, I went to my two co-founders because we didn't have much time to prepare and so funny. We always took the meeting naked. And so after the meeting we just take the elevator, go there like we didn't even go five meters beyond the door of our client and say like look, we're not going to sell, but if we sold, what would we be doing in three, five years from now, because we'll have to stay with them for this amount of time? And Jordi, one of my co-founders, said we'll create the same company. I'm like fuck, no, motherfucker. Then we're not selling. Like what's the point? Like sell the company to create another company and start from scratch. It's like no, I'm not taking that shit, I'd rather continue building what we have right now. Or else we sell and we do something different.
Speaker 1:But to go back to square one and do the same play, like I wouldn't say it was extremely hard for us. It's been kind of like a. You know it's been relatively easy, but you know you go back to zero budget, zero clients, build a brand, start messaging people telling them why you sold mars race, but then you're creating a new company and how will they trust that you will not sell again? Because you probably fucked them over when you, when you sold the company, right? Um, so it's hard to let go right us. It was more like we don't have, like the upside was not very good and the downside was terrible. So I don't know if. How do you calculate, how do you put all of these things into balance and how do you calculate upsides versus downsides beyond the economic reasons?
Speaker 2:Yeah, I mean, and we talked about this, alex, you're absolutely right, it really depends a lot on your business. It depends on your business, I mean. That's why I was saying this refers above all to tech businesses. If you have a service business, it may be different. You know, as in service businesses, you're, you're basically, uh, you're valued on your what, on your project, on your, on the size of your team. But since there is no product per se, valuations for service companies are usually quite a bit lower than for tech companies, so it may not be worthwhile. Also, as an entrepreneur, you have all the freedom that you want in the world, so why would you give that up? I mean, I've worked and talked to so many entrepreneurs in my life and really I think the number one reason for anybody to set up a company is, well, freedom of choice. I don't want to have a boss, I want to be the one who takes the decision. So that's worth a lot. And also, I totally confirm what you say.
Speaker 2:One, because it happened to myself and my partner in our first consulting company. That went well in the beginning. We grew up to 10 people, people, um, but then you know, then, then, um, you know, the, the dot-com bubble, burst 9-11 happened. It had a lot of negative impact on what? What? Our sector. So, unfortunately, we had to let go of our team and we were only two, the two partners we were left. And you're right once you've set up a company like that and it's up and running, but then you go back to zero. Actually, you don't really, you really don't feel like doing it again, because it's like no, no, it's kind of yeah, the excitement is gone. So, yeah, do something else. And we did that. And a few years later we set up a different company which is we'll now phone you, we set that up, but, uh, doing the same again, yeah, it's probably, it's probably not a lot of, not a lot of fun. What?
Speaker 1:one thing that I want to. I'm very curious about your opinion on this. You know, normally M&A people will tell you you guys should prepare your documentation, have your data room, everything prepared for the potential event of an M&A process, right. But we all know that founder's life is very messy and the company changes overnight and we're always very busy with 10,000 things that we could do. We're not ready to have like, oh, I'm going to spend three weeks to prepare like all the documentation, to have everything in place, all the paperwork, all the certificates and whatnot, and to be prepared for an audit or a due diligence, right, Of course, M&A boutiques are like no, no, you guys should have it.
Speaker 1:If you don't have it, well, we can help you with that, because they want to sell you that service. What's your position on this? Like, how would you approach this as a founder? Is that something that you think every X months, you have to dedicate some time to do it when you are potentially eligible for an M&A process. Or no, wait until the first process, prepare it. Even if you are signaling that you are a first time approaching these kind of processes because you don't have it. Therefore, it signals that you're a rookie.
Speaker 2:Yeah, well, no, actually, actually I would go with the latter option. I you absolutely right, this is a lot of work. I would definitely not do it out of the blue if there's no specific reason. Also, I mean, it's good to be prepared, but I would say, be prepared in general by doing good housekeeping on your company, keep all your administration in order, all your documents, all your contracts. That should be, or in an orderly fashion, yes, absolutely. But preparing a data room and all the or even documentation about your company, like a business plan, just in case somebody may know, I would do. I would definitely not do that.
Speaker 2:You know, also for the very simple reason that this data gets outdated very quickly, you know, and so then then you know, if you do it today and then somebody approaches you in half a year, you will have to go back and update it anyway. So I would recommend you know often the trigger for an m&a process, so the trigger that you are actually really considering selling your cell company s is when you are approached by a potential seller, by just one, and this is like a classical trigger. And in that case what? I would recommend that, if you think that buyer is serious in that moment, hire an M&A advisor and start a formal process where this one buyer who first approached you they can be a part of that process. But you also deliberately invite other potential buyers and this is the moment when you start preparing all the preparations.
Speaker 2:Of course you'll have a part of that process, but you also deliberately invite other potential buyers and this is the moment when you start preparing all the preparations. Of course you'll have a bit of delay, it's not immediate. But, as you said, as a company, I mean first and foremost you have to think about the business, keeping it afloat, being profitable, servicing your clients. You can't always think about, oh, I'm going to sell it. I mean, despite of what I said before, yes, it's true, but still I mean you're running a business, so you know how much work are we talking about here.
Speaker 1:How many kinds of documents Can you give a little bit of an overview? Maybe Don go into the specifics. Is that like two weeks of work, two months of work? What kind of documents can we expect to prepare in a first package of deliverables?
Speaker 2:Yeah, I can give you a little bit of background on this. The short answer is it depends on the size of the company. Stage of the company Makes sense. For example, in my company a few years ago we ran a financing process which I was in charge of, and in the course of that we also had to prepare a due diligence room and I could tell you I had thousands of documents in there, because there is, you know, the general company information, who are the shareholders, meeting minutes, of all the shareholder meetings, like your board of directors, the shareholder meetings, like your board of directors, shareholder meetings. So if your company is 10 years old, well then you know, and you have one per month, then those are already already like a hundred documents easily. Um, then you know all the the public deeds, escrituras of your, of your company you need to have those, of course all contracts with suppliers, with with clients, then all the contracts with your employees, um, and there's then information about your product and it gets more and more and more and more. The more you have the um, the bigger the company is, the more, the more companies will come up and, I'm sorry, the more documents will come up. And but of course you want to do it. You want to.
Speaker 2:Basically, there's some standard due diligence lists for digital room that you can. You know, I as an advisor, I'd give to a client and I have them prepare it and you start with that. But then during due diligence, often the buyers will even ask for some additional things. So, yes, it does take a lot of time, but you know, the good thing is you can do it in parallel In a process.
Speaker 2:What you first have to prepare is your business plan, your business plan and your financial projections, because this is what is first presented to a potential buyer or to an investor potential buyer or to an investor and that process to get in contact with these investors takes quite a few weeks. And then, until you have a first management presentation where you basically have a meeting between the management of the company and the potential investor that also takes some time and after that you have some pre-due diligence questions and then you would regurgitate the term sheet. So what I'm trying to say from the moment that you start the process to where you actually would start a due diligence, usually it's at least three months, so during that time you can prepare the due diligence room. So that's another reason why there's really no motive whatsoever to have this prepared beforehand.
Speaker 1:No, of course not. To have this prepared beforehand. No, of course not. The reason why I sort of did this documentation in the company is not because we're selling the company and I want to send out the message. We're not doing it. It's because we're starting to work on a lot of M&A projects, because between 2021 and 23,.
Speaker 1:Six of our clients got acquired right and we were involved in different capacities right. Sometimes it was just auditing the product, sometimes it's doing the integrations, sometimes it's dismantling the product and sometimes it was like doing more things or just advising, or sometimes we were not involved at all, right, and so it kind of like piqued my curiosity and I started delving into M&A. And the reason why I'm bringing this up and you're going to get it, why right now, is, I said, maybe thisA teaser, right, which, to my understanding, is the sort of PowerPoint presentation one, two pages of why you want to sell the company and you basically say, like we're this kind of company, this size, these are vision, these are competitive advantage and two or three things more, but you don't share data, maybe just some basic data like more or less like a threshold of revenues or the annual profit growth rate and stuff like that, but you don't go into the specifics because you want to show something to attract, but you don't want to share too much so that you don't disclose right and um. And by doing so I remember, though, like wow, first off I I had never thought through what was the real value proposition of Mars Based, and I had to squeeze my brains in that document.
Speaker 1:And the funny thing is that I came up with the marketing, the new claim of the company that is beyond development right, and two or three arguments I use now in my sales process is like our employees stay for an average of seven years in the company and all of them have worked together, so technically they don't have a ramp up. It's kind of like a very cohesive team of developers. They've worked together already right, so they understand very well each other and, given the amount of attrition that there is in this market, this is a very high competitive advantage for us. So by preparing for an M&A, I got marketing and sales arguments and documents and assets I'm using now to my advantage. Do you think we can draw any parallelism with fundraising as well? Because at the very end, m&a, sales and fundraising are all sales processes. Yes, yes.
Speaker 2:Yes, absolutely, the two processes are very related. They're very similar and you're right about what you say. Actually, you know, preparing a teaser which is basically a summary of your company. If you do it yourself, it forces you to really think about okay, what is the quintessence of my company and how do I get, how do I kind of formulate the vision or the mission of my company in a very short sentence? It's basically about, you know, doing an elevator pitch of your company. You know, and for a lot of people it's very difficult to do an elevator pitch if you ask them just like that, if they're not in the process because they're not prepared, and it's actually quite difficult often to sum up in 30 seconds what your company does. But you're absolutely right. If you want to sell to somebody, you need to do that, because they're not going to listen to you for five minutes and want you to go on bubbling on what your company does. You need to be concise and you write an m&a process or a financing process.
Speaker 2:They often have other, maybe unexpected or but also positive consequences. Once is, one thing is if you, for example, if you try to raise financing or if you try to sell your company and, let's say, these processes in the end are not successful. What you do get, you get feedback from the market. You get feedback that, okay, maybe my company wasn't prepared to be sold because there was still something that's missing or it's not, I should get into order. Or maybe my value expectation was too high, and the same for the financing. I mean it didn't depend on the financing.
Speaker 2:If you don't get the financing, you will also learn something from it. You'll learn, okay, maybe I didn't position my company right, I didn't sell it right, maybe my plans for the future aren't convincing. So it allows you to go back to yourself, do an introspection, maybe change some things in your business. Definitely change some things how you present yourself next time you go through such a process. So there's always learnings.
Speaker 2:And one other thing that also quite often comes out of an M&A or financing process that you actually don't find an investor, but you find a business partner, somebody who may wow okay, maybe I'm not interested in buying you, but we could do like a pilot project together and you may get a new client. Today. That always also happens quite a bit. So your experience of like doing this teaser I can confirm. I mean, of course. I mean, a financing process is a lot of hard work and and you don't just do it to try it out no, you, you should only do it if you have serious intentions. But what I'm trying to say is, even if it should fail, you can get something positive out of it.
Speaker 1:Yeah, On the topic of rejection, which was going to be my next question, right, how do you bounce back from it? Because I take it that we technically know that M&A processes are very long and they can be very distracting. Right, so there's a potential acquirer comes and they start involving you in this process. You prepare the documentation, you talk to M&A boutiques, you negotiate, then you talk to lawyers, then to the acquirer, go into due diligence and stuff like that. It could drag along 12 to 18 months and maybe at the very end of the process there is a no right. So, wow, that can be so wrecking. And how do you bounce back from that? How do you prepare yourself for that?
Speaker 2:Yeah, that's a very good question. It's actually something that any founder or management of a company goes into such a they should be aware of, of these possibilities, and they should um consider it from the very beginning. And the way you present, you prepare yourself, for that is how you, how you go about the process. You know the. The reason why it's a good idea to have an m&a advisor is that you have a shield. You have a shield between the management of the company and the potential investors, because it is a lot of work, especially if you're the founder of the company, owner of the company, it's very nerve-wracking. I mean, you know, as a founder, it's very hard to separate business and private life. The two become intermingled.
Speaker 2:So if you're in an M&A process, which is very stressful, and you also have a stressful business, this will take a toll on you and on your private life and you will want to get all the help you can. This is why you have an advisor, because that's why usually you let the advisors do the negotiations with the investors. You let them answer the questions, because that takes a lot of the edge away from you, because what often happens at the end of an M&A process the management is exhausted. It's really physically and psychologically exhausted from the process. And then when you get a no, then you're like, oh Jesus, I've wasted all my time and that could really have a negative impact on your business. So you need to be aware of that is definitely an option, a possibility at the beginning and you need to mentally prepare yourself.
Speaker 2:Okay, well, I'll pull through no matter what, even if I don't sell the company. Okay, my company is still going. Then I'll just continue and maybe I'll try in one or two years and maybe, as we said before, you get some positive learning out of it. But you need to prepare yourself psychologically for it. And again, this is the function of an advisor to act as a buffer in between you. Use that buffer because otherwise you'll just burn yourself if you expose yourself. So you don't need to be an expert in that. There's other people. It's better for you to be an expert in your business to make it successful. That would be my advice on that.
Speaker 1:Actually, if I forgot that, yesterday we recorded another episode, but for the Spanish feed with Diego Marino, who's creating a software boutique M&A friendly for founders as well, which I guess now is the trend that is called Petalo, and he touched on something very interesting.
Speaker 1:I want to get your take on that, which is what clauses would you recommend for entrepreneurs to demand as part of the M&A Like? For instance, you mentioned I didn't know back at the time he sold Daxport to New Relic in 2014. And they convinced him to have some leadership in a part of the company, but as soon as he joined the company, that area disappeared and his duty was something else. And they told him now you got to do this, like he was like a project manager or something like that, and that's called the tour of duty. This is what you got to do before you quit the acquiring company. And so he said, had I known that, I would have requested or demanded to have a clause whereby if my responsibilities within the company changed drastically from what I was hired to do, then I'm out right, I don't know what other things you that you have been a founder can you recommend other founders that they request in the negotiation process?
Speaker 2:That's an interesting question, because you say request. Well, I can recommend a lot of things that you should request, but for the first place, you have to ask yourself in what position you are in the negotiation Normally not very good yourself in what position you are in the negotiation Normally not very good.
Speaker 2:Well, it all depends on how good your company is and it also depends on the market cycle, you know. Going back to what we talked about before, before there was a very high demand for companies and that meant it's kind of a graph that it crosses itself. When the market is very high and there's a lot of demand to buy companies, then you as a founder, you can ask for a lot of things. Often you can ask for an all cash deal. Your earn out period will be short, which in which, if that is the case, these clauses become, they're not so relevant anymore. But if the market is in a less favorable position, as we are right now, it's not really bad, but it's definitely worse than it was before. Well, it means that you will not get all cash for your company. You'll likely get like a part paid in shares of the acquiring company and of course there's always some earn out. It's normal, it's part of the game company and of course there will be there's always some earn out, it's normal, it's part part of the game where you know, typically at least one to two years. You you'll have to stay and of course you you can try to protect yourself in any way you can, but I would caution here. I would, I I would say, proceed with caution, because if you give indications to the acquiring company that you are kind of not so keen or willing to do the earn out, it's a bad sign. It's because it's a bad sign, it's like you don't believe in the project, because the reason that the buyer wants you to stay on is first of all because of your knowledge, but also, secondly, because they want to link your payout to the success of the company, because otherwise it could just be that you sell the company to them and two months after and you leave without an earn out, and after two months after you left, the buyer finds itself that this company actually wasn't as great as they thought it was, and the way for them to protect themselves is through these earn out periods.
Speaker 2:So as a, as a seller, as the seller of the company, you you want to be careful not to send the wrong messages. And of course, I think that what happened to the, the, the person you just referred to, that was unfortunately. But you know, I think it's it's difficult, it's difficult to to foresee all the different possibilities. I mean, there's a lot of things that could go wrong or could go south. And of course, yeah, you should take some precautions, but to what extent? Because, also, you know, often these deals they're how do you say? There's a lot of possibilities that they can go wrong. Until it's not closed, there's always a high risk that it may not end the way you want to. So, therefore, all of these things matter and you want to keep it simple and with a positive outlook. So, if you go, okay, once you buy the company and you do this and this and that, then I want to have this and this and that, then like, hey, come on, I'm buying the company. Of course I'll be deciding, you know. So you know.
Speaker 1:The client is always right, right, one of the biggest bullshits that we've ever heard, but I guess everybody perpetuates this. Of course, every founder given the opportunity would like to request yeah, I'm selling the company, but I'm out of the equation because I want to move to the next thing. Give me the cash and I'll go create another thing. Then the acquirer is like well, precisely, I want you. I think all the acquiring companies know that the heart and the mind of the CEO of the acquired company will be somewhere else. But the fact that they stay is good for the team morale, right? So if they buy Mars Base tomorrow and I'm fucking off, or like the three founders were not staying, the team will be like you guys sold us, right, what's the point? And they will leave the day after because they have no obligation. Maybe the founders do, but like they don't. But the fact that you're staying, maybe that sends out the message that nothing will change. We'll continue operating independently, which sometimes it's true, most of the times it's not, but it's a disguised lie. But you got to sell it to the team, right? And because you have your earn out.
Speaker 1:So my point being how to find the balance? I don't know that I know that's not an easy question. But how to find the balance between I'm leaving money on the table by getting out of the equation or, you know, I'll just take the money, I'll stay in the company for two, three years, do absolute minimum while I'm moonlighting other projects and stuff like that. So I don't know. I don't know what I would do in my position because I'm not a corporate guy. I know I could stay there but I would be working in other projects. I did before, like we created Marsh Flplace while I was in my previous company, right, but I was working on weekends and night shifts and stuff like that. But some people cannot do it. They'd rather just leave money on the table. Move on to the next thing. I guess that depends on the founder type, maybe. What would you do?
Speaker 2:Yes, I think it depends. I mean it depends a lot, of course. I mean it depends also. I mean you have to you entering into a contract okay, maybe there is a possibility, as you say, okay, you know, I won't stay in my earner period, and then you basically lose a part, or which usually would be a big chunk, of the part that you sold. Um, I don't know, for me it's also a kind of um, it's a professional commitment, I mean, and you know, especially if it's your company and it's your team and you've worked with them for years, then you know, I think also as a founder, what you want to.
Speaker 2:You want to make sure that this, your company, the services, the products you created, and the team, that they find a new home, a good new home, that they find a new home, a good new home, and you want to help that process.
Speaker 2:You know there's this thing called post-merger integration. You know a lot of this. Actually, a lot of, actually, m&a transactions fail after the transaction because the acquirer and the acquired company, they don't integrate well, because the integration isn't done well, because of different corporate cultures. So there's a lot to be done and of course, it helps a lot if the original founders or ceo or management is still there. So you know, I'm saying, of course it depends on every person, but you know, um, I personally, as a founder, I think it makes sense to also consider that that you you because I mean you know all of the people you worked with you may come across them later on and, as you mentioned, you don't want them to feel, hey, this guy just sold us and to get the money and then he didn't care about us. I think that wouldn't be a legacy you would like to leave behind.
Speaker 1:Good, I don't know, we're running over time. I don't know if you got five to 10 extra minutes because I have so many questions and I will actually take on the occasion to ask you a couple of startup brand questions. I never got to ask you, so one related to M&A still is how much money like a company of, say, companies that are being sold right now companies up to 20, 30 people, maybe tech companies, because they're selling out to a bigger player I take it people in our audience are more or less this size how much money do they have to put up front for this kind of process between boutiques, advisors and whatnot?
Speaker 2:It depends. I mean there's two models. There's a model where you have a retainer and a success fee. It depends. I mean there's two models. There's a model where you have a retainer and a success fee. That means you pay the M&A advisor a monthly fee and then you get a percentage of the company that sold. How much? More or less? In both cases it would be a few thousand euros per month during maybe three, four months. And then the success fee. Well, I mean, where I come from, it's typically 5%, but it depends a lot on the amount of work you do.
Speaker 2:And there's another model where you have, maybe, an advisor that works only on a success fee, so they only get a fee once the company is sold, which is, of course, the better option for the entrepreneur because they don't have a cash flow that they have to put out up front. However, your costs aren't really covered and also there's always a very high risk, especially with smaller companies, that the process will not go to its end, because in any other day the, the, the owners of the company, at any point they can abort the process for whatever reason, and as an m&a advisor, you can't protect yourself against that. So I personally the way I protect myself against it, that I asked for a retainer because I also believe in you know what. You know what people don't pay for. They don't, they don't value it, they don't appreciate it and uh. But you know, again, it depends on the point of view for the company, obviously it's better if they have a have a success fee. Uh, only model.
Speaker 1:No, of course, I mean a hundred percent. I agree on having this sort of like paywall because, as you said, like no, like, that's something I don't know. Pay no gain, right? Actually, that would be the. It's funny that I got the sentence right in English and I didn't know how to say it in Spanish. This is how used I am to uh, to speak Spanish for business. Like, literally, I have no idea about some terms or sayings.
Speaker 2:No, of course the payroll helps.
Speaker 1:It qualifies, it qualifies At the very end. M&a is also like for you, it's a sales process and you have to qualify your prospects, and so if three out of five they don't want to pay a retainer because they're like, oh no, we totally don't, like we're aligned with this, but we don't have the financials and whatnot. But you have two other options that they pay, let's go for the paid ones. I mean not because it's easy money, it's because most likely, they're going to be ending up as better clients because they want to put up money up front. There's more trust, right, and so anyway. So the startup brand question I wanted to ask you. I mean, you've come to a few events. There are a couple of signature questions that we asked there. One of them is your most expensive fuck-up and how much money did it cost to the company?
Speaker 2:70,000 euros. Oh wow, what was it? And basically I spent 70,000 euros. You know one of these like una cesta de Navidad. It cost me 70 000 euros let me explain the context.
Speaker 1:Christmas box, right? I don't know if that's the english like uh, but yeah yeah, exactly christmas gifts yeah, yeah, wow, wow yeah, uh, basically what happened?
Speaker 2:we were raising financing. It was like the uh first, uh well, it was the second round and in in phone, you and we had these advisors and, uh, that had been recommended to us and you know already, at the beginning, after a few weeks, I didn't really like the way it was going and I was actually thinking about, um, firing them, about not continuing, which I we had the option from the contract, but they convinced us to stay on because we needed the financing. In the end, we found financing on our own, through our own contacts, and we closed it. And they still got their fee, which was that 70,000 euros. And for Christmas they sent me this Christmas box which ended up costing me 70,000 euros. And for christmas, they sent me this christmas box which ended up costing me 70 000 euros. And that that really hurt because, I mean it, the round wasn't that big and you know how come they get a percentage, if you like, on money they didn't bring to the company.
Speaker 1:Like because I mean what was the deal?
Speaker 2:because the thing is you pull the effort. I mean you know the advisor, they do more, more just the contacts. They do the whole preparation, they advise you the process. So you know, in per se it may not be a bad setup for a contract. I just feel these guys in the end didn't add that much value.
Speaker 1:But you know of course in hindsight you're always smarter, okay, and the other start brand question it's the useless superpowers. So everybody has got a useless superpower, something you do extremely well, but it's fucking useless. What would be yours? Wow, very useless. It has to be something like I always put on their socks, like on the wrong foot and stuff like that, but like it happens every day. So I do it very well, but it's, you know, it's useless, wow you really got me on the spot there.
Speaker 2:Um, useless. I mean, you know I low, I can recognize a lot of songs when I hear them playing on the radio, because I really love music, but for business that really doesn't get me anywhere.
Speaker 1:Any particular type of song, like songs you don't like. Like, for instance, one of my useless superpowers is I know the lyrics to songs I don't like, but I don't know the lyrics to the songs I like. Right, it's like all of these songs like Rihanna, britney Spears, one Direction, they get stuck in my head because it's like pop, shit, oh yeah, and you hear them everywhere. But my songs, I love them, but I don't know the lyrics to them. So it's like, geez, why? Why is my brain playing?
Speaker 2:on me. Yeah, well, it happens they're. They're made like that, these pop tunes, that they stay in your head. Yeah, I mean, that's that's.
Speaker 1:You know, that sounds bad I know well can I have to to wrap this up? Well, thank you. Thank you, clements, for being here One minute for you. I'm rolling out the red carpet. How can we help you, how can we help your new initiative? And if you've got something else to share, just one minute for you.
Speaker 2:I'm spreading the word about this new project. Obviously, I'm looking for clients. I'm looking for companies which are founder or owner-led who would consider selling themselves, or company who want to raise capital. At the same time, I'm also reaching out to a lot of investors just to make the contacts, because I have quite a lot of contacts in the investor community. But they know me as an entrepreneur who's looking for money. They don't know me as somebody who's bringing opportunities to them. So you know I'm also working on that. So you know, to help, I mean, you know, spread the words. You're helping me with this podcast. I'm very thankful for that and you know, anybody who is interested in any of the services I offer, like selling your company, financing your company please lead them my way and I would be happy to have a conversation with them. That means vielen Dank, vielen Dank. Thank you very much for your time, alex.