Summary

In this conversation, Randy Wood shares his journey from founding Non-Linear Creations, a digital marketing agency, to its acquisition by Valtech. He discusses the evolution of his company, the strategic partnership with Sitecore, and the importance of content-driven marketing. Randy also delves into the sale process, the cultural fit with Valtech, and the insights gained from negotiating the deal. He emphasizes the significance of understanding deal structures and valuations in the M&A landscape. In this conversation, Randy discusses Valtech's unique culture and M&A strategy, emphasizing the importance of transparency, strategic acquisitions, and the impact of generative AI on the economy. He shares insights on identifying irresistible companies, the significance of management quality, and the deal killers that can derail acquisitions. The discussion highlights the need for companies to prepare well in advance for potential sales, ensuring they present their best selves to acquirers.

Takeaways

Randy started his digital marketing agency with minimal resources.
The partnership with Sitecore was a result of recognizing industry talent.
Content-driven marketing significantly boosted their visibility and leads.
Navigating the sale process requires careful planning and execution.
Cultural fit is crucial for successful acquisitions.
Understanding deal structures can impact the final outcome of a sale.
Valuation is influenced by market conditions and company performance.
Maintaining operational focus during the sale process is essential.
The right partner can provide growth opportunities for employees.
Transparency and communication within the team are vital for retention. Valtech's culture attracts talent from larger organizations.
Founders are encouraged to stay post-acquisition for a smoother transition.
Identifying the right acquisition targets is a nuanced process.
Healthcare is a key vertical for Valtech's growth strategy.
Generative AI could revolutionize the economy, similar to the internet.
Staying relevant requires awareness of emerging trends and technologies.
Financial health and operational transparency are critical for acquisitions.
Management quality and employee turnover rates are key indicators of a company's health.
Deal killers often stem from a lack of transparency or sudden revenue drops.
Planning for a sale should begin years in advance to maximize value.

 

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Transcript:

Jon Stoddard (00:01.149)
Welcome to the top M&A entrepreneurs podcast. Today my guest is Randy Wood from Valtech. Randy has built a digital market agency, non-linear creations, ran that for 23 years. He got it acquired by a very large 2,000 person company. And now he handles all the M&A for Valtech. Randy, welcome to the show.

randy (00:27.661)
Hey, good afternoon. Thanks for doing this, John.

Jon Stoddard (00:29.585)
Yeah, thank you for being here. So Randy, let's talk about your journey. You started nonlinear creations 23 years ago, digital market agency, but that's not a lot of digital going on back in 1999. So what were you doing there?

randy (00:45.611)
Ha ha ha.

So we started actually in 1995 and then we sold it after 23 years. So it's like 27 years ago or something now. So a business partner and I, business partner, an old roommate and I decided that this internet thing sounded interesting. We didn't have any particular skills in the space, but then neither did anybody else because the internet was brand new. No one was quite sure what it was. So we quit our otherwise fantastic jobs and threw our hat in the ring.

Jon Stoddard (00:55.389)
27. Awesome.

randy (01:13.77)
took our $500 in operating capital and one laptop and started a company. So that happened in 1995 and then for 23 years we grew as the internet grew and in 2017 we formally went to market to sell the firm and the successful bidder was VELTECH which was a global digital agency. That was in 2017 about 2,000 people then pushing 6,000 people now so it's been quite a growth curve for them after we joined them.

Jon Stoddard (01:39.209)
Yeah, that's amazing. Yeah. So that's kind of the focus I wanted to ask you the questions on. You've obviously built a digital market agency that was an irresistible buy to a much larger company. First of all, did they pay more than they normally would for a multiple for a company or?

randy (02:02.223)
It's always hard to get comparables, right? Like it's private deals of this size, because we were about 120 people. It's difficult to find out what everyone else has paid, but I feel fairly comfortable that we got, it was a very good deal for us at the right time. And I should be clear on what we were. So digital agency is probably accurate, but we really weren't involved in marketing deeply by the time 2017 came along. Initially we were in 1995.

randy (02:30.878)
technical experts in a number of technologies, including a product called Sitecore, which was rapidly growing and we were growing with that product. And we had offices in Canada and the US, Brazil and the UK. So our attempt was to sell to our customers in US dollars and UK pounds and then compensate our team members in Canadian dollars and Brazilian reais because that actually works in our favor from a currency perspective. Because we had that established group and established customers and we were working with this technology, which was in high demand.

We were attractive to Valtech given that they saw this as a growth area and us as one of the few experts in the world in this technology. Does that make sense, Tom?

Jon Stoddard (03:08.121)
Yeah. You were, uh, so site core is a content management system. There's a number of competitors out there. Why did you decide to go after and, you know, choose this one? Because there's a lot of CMS systems out there.

randy (03:22.538)
You know, sometimes it's better just to be good, lucky than good, John. So way back in like, I don't know, 2005, we started, we had a content management area of practice way back in 2000. We were working with a company called Red Dot. We had partnerships with OpenText and Ektron. We were at the Microsoft show in Boston in about 2005 and Sitecore, instead of a booth.

And two of the smartest people in the industry had just joined Sitecore. There's only about seven people in the company in North America at that point in time. So we recognize these people. We knew them from the industry. We walked over and talked to them and we thought, well, the smartest people in industry are joining this company. We'd probably better pay attention. So we sat down there and signed a partnership agreement and partnership agreements often go nowhere. But in this case, because the people that were there were well-intentioned and because there was opportunity, we quickly turned that into a real business. And so as they grew as an organization, we were able to grow as well.

So I won't tell you that we had this plan that they were gonna become one of the dominant players in this space. It was more like we liked the people, we liked the product, we saw the opportunity, and we happened to walk past them at a trade show in 2005.

Jon Stoddard (04:28.081)
Yeah. How, what were the rumblings of other content management systems out there? I mean, they, they were older ones, but. You know, why did these, it's just because of these two industry luminaries. That's just a, yeah.

randy (04:41.922)
That's part of what attracted us to them, but also the technology seemed solid. It seemed like the next generation. You know, these things have generational cycles. You might argue that there's a new generation of composable technology now, which is displacing some of the, uh, the Leviathans of old. So, um, we were at a point where we saw that the market was changing. You know, we were looking for opportunity and so they just kind of coincided with that and the technology worked. That's the other thing. Um, they were a company at that point that did what they said. The technology did what they said it did. Um, they treated their partners very well.

Jon Stoddard (04:53.62)
Yeah.

randy (05:10.938)
They didn't try to compete with us. We worked together to close deals. And so they're a really good partner. And we had lots of partnerships that didn't work, but this one did. And as a result, it became a large part of our business.

Jon Stoddard (05:21.541)
Yeah. Did they have, when you signed with them, did they already have a great deal of customer testimonials, big customers that said, you know, their, their adoption rate was higher.

randy (05:30.868)
Uh

a great deal. I don't know. They were a European firm and this was their North American expansion. So they certainly had European reference cases. They had a handful in North America and they had a substantial pipeline. They did a good job with analyst relations early on. And so they were, the founders were very clever in the way that came into North America and grew that firm. And so to a large extent, we benefited simply by supporting their growth by providing services to actually implement the product.

Jon Stoddard (05:36.262)
Okay.

Jon Stoddard (05:58.363)
When you say we, was that just you and your partner? How big were you at the time?

randy (06:02.454)
Oh, I'd have to go back and see probably around 2005. We'd run like 65 people, maybe at that point in time, doing a variety of things. And, you know, as the internet evolved, obviously in 1995, there really was no commercial internet by 2017, there was, you know, a thriving half the world's economy depends on the internet. So what we did over the years changed. And as I sometimes say, if we've been slightly smarter, we would have started like Facebook or Google or Amazon or something, but we weren't that smart. So said we had our own kind of a journey through this, but yeah, we evolved so that, um,

Jon Stoddard (06:09.821)
Yeah.

Jon Stoddard (06:14.239)
No.

randy (06:31.826)
Sitecore became an increasingly big part of the business, but we did have groups that did user experience and marketing and data and analytics, right? That was part of our offering. It's just that the real special sauce for us was the ability to work with this increasingly popular technology.

Jon Stoddard (06:47.173)
Yeah. Was it, I'm just curious, was it that there a gap in your company? Or you just said, hey, we need to resell and do value added services for a content marketing system, or we're going to be missing out? Trying to find out.

randy (07:01.17)
It's more like, yeah, like our general operating model wasn't even a strategy, but just the way we operated was we always tried to skate to the open ice. So when you saw a trend developing, we would try and get there so we could help our clients. So in this case, we knew that the infrastructure that existed did not support enterprise class websites. It was hard. There was like Webmaster used to be a full time job and there'd be like dozens of sub Webmasters and like people were doing things that computers did really well. And so there was a clear opportunity for technology to displace or change that model.

Sitecore was a good solution to that problem. So we ran to that. But previous to this, we'd ran towards data analytics at one point, because we knew there wasn't enough information about how people were working. And we had a little spin-off that did that. We looked at the commerce opportunity, and so we had some commerce team members as well. So that was the idea, right? The internet back then was evolving so quickly that you kind of looked for white space and then made sure that you were able to deliver in that white space. Sometimes it didn't work out. Like sometimes these things just disappeared and they weren't real, but sometimes it turned into a whole market.

And in the case of Sitecore, it did. So if I was going to rephrase it, and this is backwards looking, not the way we framed it at the time, but we kind of experimented, right? We tried a lot of things as the internet evolved and we found out what people would pay us for, we did more of that stuff as we naturally evolved into a space. Right? So does that make sense? No. Yeah. So it wasn't like we were at, yeah, we weren't actively trying to find like a new partner in this space, but we found one, they were doing well. We thought we could sell it. We did.

Jon Stoddard (08:14.825)
Oh gosh, yeah, that's the feedback you got, huh? Pretty simple, right?

randy (08:27.186)
it worked out and so we ended up in that place. If we ended up with a different partner, we probably would end up in a very different kind of company by 2017.

Jon Stoddard (08:34.405)
Yeah. And these were content management systems for fortune 1000 size companies, right? Very large companies. Yeah. And was this

randy (08:40.554)
Yeah, that's right. Yeah, early on they had a smaller set, like for smaller companies, but they got rid of that fairly quickly as they tried to go up market.

Jon Stoddard (08:48.037)
Yeah. And how much value added to your organization today? You have the software, we install the content management system, and what's the value added service that comes with when you go to a Fortune 1000?

randy (09:03.074)
Yeah, so for something like a site core or their competitors at the time, Adobe had a strong offering. Uh, there's a number out there. So at the sort of enterprise level, you weren't buying a product so much as the platform, right out of the box, the product doesn't really do anything for you. No, this isn't like using Squarespace or something to stand up a website. Like it's basically a technology that lets you build on top of it. And so what our team got very good at was taking the vision of the client, understanding their business objectives.

Jon Stoddard (09:14.717)
Yeah, it's not just a box. It's just, it's, yeah.

randy (09:29.398)
translating that into a design and content strategy and user experience that actually deliver that on those business objectives and then embedding that in Sitecore so they can operate it on an ongoing basis. So that's really what we were doing was taking the business vision and then embedding it in a system that allowed them to actually make that vision come true. And that was the story we told and that's the value we had.

Jon Stoddard (09:50.613)
Yeah. Curious. How did that change your, the makeup of your business and your revenue, like shifting from whatever you were, were doing. And all of a sudden, Sitecore, you said, lucky, you know, there's a number of that, but it just started taking off and now you're a vet kind of like a valued ed reseller for Sitecore.

randy (10:10.358)
Yeah, we didn't make any, I don't think we actually, we sold the product very often, maybe in Brazil, but not very often. It was more generally the services around it. But I think what changed the company was that as Sitecore went up market to larger and larger enterprises, so did we. And so we had to learn how to sell into the Fortune 1000, how to actually do contract negotiations with very large organizations where it's not a handshake and they sign you a check, right? It changes the dynamics of how you market and how you operate. And the marketing pieces may be

Jon Stoddard (10:17.3)
Yeah.

randy (10:39.87)
where it became most important. So early on in the evolution of Sitecore, they had more work than they had partners. So they were bringing us leads and that was great. We didn't really need our own sales channel. They were just bringing us opportunities.

Jon Stoddard (10:50.589)
Yeah, can you go help this? Like they would, they divvy up these leads, right? You know, by territory or so. Yeah.

randy (10:55.058)
Yeah, or we'd co-sell, right? Like it'd be like, look, these people need, but they want the product to do this. Can you tell them it can do that? And we just, you know, we were partnering in that. As they grew, that model had to shift. It does with any software company that's growing, so that they were, one, looking for larger partners, the essentials of the world, right? And two, as they matured, there were simply not as many new leads showing up in their pipeline, and there's a lot more partners. So we had to establish our own marketing around Sitecore. And what we actually did,

I can't tell you exactly the date, maybe 2010 or so. We sat back and said, okay, we're going to produce, we're gonna be known as the Sitecore experts. And so we used to close the company down for a half day every month, and everyone in the company would write content. Whatever you know about Sitecore, I didn't really care. I mean, the HR manager, the finance person, I think the finance person actually carried pizza for everyone else who was writing. But basically we produced thousands and thousands of articles on Sitecore.

on virtually every topic to do a site core. And it really worked because these were people who were wrestling with the challenges of implementation on a daily basis. And so they had answers to really hard questions and they would write 500 words. We'd publish it on our website, which grew very quickly. Not all the content was on site core, but a great deal of it was. And the result is that we packaged up the most popular articles into a book, which we used to ship to prospective clients. And we built basically a content driven marketing engine.

So that by the time we sold, that was part of why we were attracted to Veltech. You know, we were one of the, if you search for site core and two other words, we would show up no matter what you were searching for. We said so much content. Yeah. We were just, it was killing it. Right. And that's a great flywheel. Once it's running, it takes a long time to get there. It takes a lot of investment. If you do the math, I'm going to cost to shut down the company for a half day of billable time every month. It wasn't insubstantial investment, but once that's live.

Jon Stoddard (12:24.213)
everything. You were inbound content marketing kings. Yeah.

randy (12:41.034)
You know, we were having, if you were in the market for a site core implementation firm, our name was almost always in the conversation.

Jon Stoddard (12:47.689)
That's fantastic. First page on Google. Yeah.

randy (12:50.634)
Yeah, it really made a huge difference and it was a big bet for us, but we believed in the expertise of our team and we believed that by sharing that, we could fairly clearly carve out a space and a name for ourselves and that certainly helped. It helped us operate the company and then it helped us drive attention from prospective acquirers.

Jon Stoddard (13:08.925)
Yeah. What was your, you know, before you had this strategy, after you had the strategy inbound content marketing SEO, what was your, like, do you remember what your revenue and employees were to what your revenue right around like getting offers?

randy (13:24.299)
I'd have to go back and check. We did some of this too, like, and there's external factors. We had a large office in Calgary, Canada, which is an oil and gas capital. So when oil and gas prices plunged, you know, that hit us pretty hard because it changed the kind of clients that we had. So things like that happened, right? 2008 happened. So it's hard to tie the two exactly together. I can tell you that traffic to our website and inbound lead flow went up thousands of percent from where it had been. And we were able to...

Jon Stoddard (13:28.297)
Yeah.

Jon Stoddard (13:37.309)
Yeah, yeah.

randy (13:49.206)
pull back on our direct sales team. So fewer direct sales people, more inbound leads, more subject matter experts doing the selling, our close weight rate went up. Basically it was goodness all around. It just took us two and a half years of investment to get there.

Jon Stoddard (14:02.201)
Yeah. Traffic and conversions. That's fantastic. And then you got this, received this offer from Valtech. Were you actively putting your business on the market with you and your partner? Or?

randy (14:15.498)
Yeah, we, Shannon and I sat down after 23 years. It wasn't just the two of us, some of the senior management, Alison Abraham, Danielle Roberge, both had, there were key people we planned on ensuring that when we sold the company, they benefited as well. So they were part of the decision-making process and the team, the company itself had a profit sharing scheme. So there was, it was a broader set of decision-makers than just Shannon and I, but we did decide in 2016 that it was time for us to investigate the market. SciCorps had been growing very rapidly. We knew from experience that wasn't gonna last forever.

We also knew that the windows for selling your firm opened and closed over time. So there was a window around the.com boom where you could have sold the company for ridiculous dollars. Although it's hard to know if the company would have gone bankrupt immediately afterwards and not paid those dollars because the crash was very quick, but there's a window there. The window closed after the.com boom. The window opened up again before 2008 and then closed with the financial crisis. Opened up again about 2010. And I argue that right now it's harder to sell your company than it was maybe a year ago, given where interest rates were at. So we had this knowledge that

There are times that are good to sell and times when it's harder to sell. We thought, okay, we don't want to wait one more business cycle. This is probably our time to go to market. Our financials were good. Cyclo was growing quickly. That meant that our market was growing quickly and we were more attractive than we might've been if we were working with an older technology. We thought that our international delivery model made a lot of sense. And so we hired a banker and we formally went to market. I think we talked to 82, 84 companies, something like that over the course of a year.

Some of those were private equity. Yeah, well, so no, we talked to, we had one banker, we were talking to potential acquirers and potential investors. So our banker took us out and we didn't spend enough time actually choosing our banker. It worked out, but I wouldn't recommend that. Like I would now spend as much time interviewing your banker as you do, you know, going to market because it's a critical decision. Again, we got lucky, it was not due to good judgment. But we did this road show basically for 12 months. And the great advantage we had is that

Jon Stoddard (15:44.089)
82 different bankers, investment bankers? Yeah.

Oh, okay, okay. All right.

Jon Stoddard (15:57.621)
hahahaha

Jon Stoddard (16:06.962)
Yeah.

randy (16:11.862)
Shannon, Dan and Allie could run the company. Well, I went and did the roadshow. So we kind of split responsibilities and we didn't distract ourselves from the operational execution. And I think it's really critical because now that I'm on the other side and we're acquiring firms, I can tell you that it's very easy for firms to get excited about, for founders to get excited about selling the company. And while they're doing that, take their eye off the ball of running the company. And if your financials go like this, it becomes much harder to sell the company. So we were able to solve that by kind of like putting up a wall between the work I was doing, trying to sell the company and the work they were doing.

Jon Stoddard (16:35.561)
Yeah.

randy (16:41.538)
trying to grow the company. So that's a, you can't always do it if you haven't got the right team, but in our case it worked out really well.

Jon Stoddard (16:48.501)
Did you have the insight to know this or did the M&A advisor tell you to do this? Like you need to have some walls between, you know, the pitch in the business and still running the business.

randy (17:00.766)
Yeah, it wasn't our advisor that gave us that information. It was sort of a mentor that we had historically that suggested it. And his, he's been more involved in selling, uh, technology product companies, but nonetheless, it was very good advice. And so we took it and we, well, we were well equipped, right? If you don't have two founders, if you don't like sometimes you just can't do it. You don't have the people, but we did have, it meant that everybody had to pick up more work because I suddenly wasn't selling, so Shannon had to, you know, sell more and I wasn't, you know, I was still doing some CFO duties, but

Jon Stoddard (17:12.857)
Oh no, that's fantastic advice.

randy (17:29.206)
Shannon had to lean into that more, or maybe Dan did. So we had, it was not easy, but it was easier than it would have been having one person trying to do both, which I think is a really difficult thing to pull off.

Jon Stoddard (17:38.365)
Yeah. What about other parts of the business that you and Shannon talk about? Hey, we need to be at this profitability. Can we boost it up a little bit or get more revenue per employee or longer term contracts with customers? How did you model that?

randy (18:00.17)
Again, I wouldn't, if we do it over again, we probably would have spent more time trying to tweak those variables, right? But instead, and partly because of the way we did this, they were running the company as if we weren't going to be sold. So they were still making long-term investments that wouldn't pay off within the timeframe of our sale, which is not generally what you do if you're trying to sell the company, right? So we didn't really fine tune it for sale. We just kept running the company as it's run, right? So our numbers are pretty good to begin with. So that was partly why it was advantageous for us. But now that I'm...

Jon Stoddard (18:06.546)
Yeah.

randy (18:30.338)
see it from the other side. Certainly lots of companies will spend two or three years just refining their firm so that they maximize the value as an asset for the six to 12 months when they're trying to sell, actually trying to sell the firm. So we didn't do that, but I think we were pretty solid anyways in our financials and we were in such a growing market that I think the market demand as much as anything else is what enabled us to take it to market and sell it.

Jon Stoddard (18:55.741)
Yeah. So you looked at or talked to you did 82 pitches.

randy (19:00.19)
Yeah, roughly. Now, some of those were to raise. So we ran two paths at once. One was to sell the company, one was to raise money, say private equity and do a roll up or that kind of thing. And we realized pretty early on that wasn't going to give us what we needed. It wasn't the model we wanted to pursue. So maybe half of those were private equity firms that we set aside. The other ones were potential acquirers of various sorts. And we went, most conversations ended pretty quickly. Some went a bit further.

Some culturally, it was really clear we were not a good fit very quickly. And some really struggled with things like our Brazilian operation, because Brazilian legal principles are different than North American legal principles. I'm going to put this, if you're a firm that only does work in Ohio, and you're like, you know, a billion dollar firm, the idea of Canadian law is scary, let alone Brazilian law. So there are certain firms that just didn't feel comfortable with our sort of mini multinational status.

Jon Stoddard (19:51.685)
Yeah, it's like difficult to become an expert at the law, and like even in the UK, if you don't have a footprint in the UK, yeah.

randy (20:03.122)
And it's so it was funny because for some firms, it was an immediate barrier. And really, I got to the point that I would just raise that in the first call, like the first 10 minutes of the call, because it was going to kill the conversation. You want to kill them quickly rather than investing time in lots of firms just couldn't figure out how to do that or weren't interested in having a multinational footprint. But then for somebody like Beltech, it was a very different experience. The.

the main person on their global M&A team actually had a cottage fairly close to our office in Florianópolis, Brazil, as life would have it. He was Argentinian, he knew the space. It was a very different experience with them. They were already a European firm, small North American presence. They operated multinationally. They kind of understood transfer pricing and all the things we were doing. So it was a very simple conversation with them compared to what we'd have with many other potential acquirers.

Jon Stoddard (20:49.265)
Yeah. Were they already on the list, the original list of potential acquirers?

randy (20:53.286)
No, not even close. Had never heard of them. So this is where our banker did his job because he brought them to the table. We had never seen them in the market, never heard about them in conversation, never run across them at a trade show. And I would have sworn to you that I knew every potential acquirer out there. And this just wasn't the truth. Now, the reason why is because, well, they were a fairly large organization. They were large in Europe. They were not large in the Americas. They only had about 100 people, maybe 150 in North America.

when they acquired us. So we essentially doubled the North American or their America's operations when they acquired our firm. So they were small enough that we never seen them, but they were large enough globally that we were a really interesting addition for them. And that combination was really attractive to us because it meant that we were able to join a firm where our people had a chance to thrive because they were stepping into a quickly growing North American operation that was roughly the same size. And so they all rose to their level of capability

Many of our people have come like critical components of VELTECH post-acquisition.

Jon Stoddard (21:54.065)
Yeah, so to them it felt like maybe felt like it was just a perfect puzzle piece that they were missing.

randy (22:01.578)
Yeah, I think so. I can't really speak on why they purchased us, because obviously they want to hide their motivations. And what I didn't know at the time was that they had.

Jon Stoddard (22:04.892)
Yeah.

Jon Stoddard (22:08.605)
Not to get too excited because we're going to be overpaying for this. Ha ha

randy (22:12.062)
Right, right. They had a very large site core opportunity in front of them in their sales pipeline, which we didn't know, but we helped solve that problem. We gave them scale in the Americas, which they needed, and we gave them access to some great talent. In fact, if I step back, one of the reasons that Shannon and I thought it was the right time to sell the company is that we had a whole bunch of people who've been with us for a really long time, 20 years, 18 years, 16 years.

These are really good, solid, smart people, ambitious, but we were the cap on their ambitions because we couldn't grow the company fast enough to give them career paths. Our sense was they were going to have to leave the organization to really become what they could be. We thought, well, if we find the right partner, then maybe they can stay with us. We can still continue working together and they can rise to their level of capabilities. Veltech was a perfect partner from that perspective because many of them have gone on to be managing

$72 million operation within Belton.

Jon Stoddard (23:14.621)
Yeah. How did you know that? Do you have like the 360, you know, interviews with the employees to find out where they want to go? Or was it a, we sensed it, or did somebody say, Hey, they've, I think we're going to lose them. Yeah.

randy (23:24.439)
Hmm.

randy (23:30.358)
So a couple of things, we lost a couple, right? Which tells you, and so we did exit interviews and they're basically, yeah, I've loved my time here, but I need to, I want a different career opportunity than what I can see here. And I get that, like my job wasn't available. So there was a cap to how high they could climb in the organization. The other thing we did is because we had these longstanding team members that, if you work with somebody for 16 years, there's much, I won't say family, but there's a friendship and there's certainly a legality that isn't there in some.

Jon Stoddard (23:33.798)
Yeah.

randy (24:01.118)
you know, boss-employee relationship. So the lines of communication were really clear in our organization. People felt comfortable coming to us and saying like, you know, in three years, just so you know, I'm thinking about moving on because I want to do this in my career. So it was probably just the transparency inside the organization. It's partly some exits and probably just our awareness that, you know, it'd be time to do employee reviews. And we had nothing to tell them about where their career could go because, right? We just can't like.

Jon Stoddard (24:23.465)
But where are they going? Where are we going with the company?

randy (24:27.602)
We can't double the company by next year. So we can't build a new, I can change your title. Just don't get to change the job at all. Right? Like, you know, I can say whatever I want. Yeah. Right. So that was so it was more awareness that way. Like I wouldn't say it was like, you know, some sort of like programmatic thing that came out is the fact that we knew our team and we were really aware of that we were sometimes to constraint on their ability to be successful.

Jon Stoddard (24:32.689)
Yeah, I'll be getting me an office with a window. Yeah.

Jon Stoddard (24:49.501)
Yeah. Did you, did the M&A advisor, you, when you got down to Valtech, did you have a couple offers on the table or were they the only one?

randy (25:01.526)
By the time we got to Valtech, so we went down the road with a couple of opportunities, it didn't work out, sometimes on their side, sometimes in ours. We didn't get into detailed due diligence with anyone. We kind of killed the deals before then. But Valtech, they were the only person we pursued at that time. So it wasn't an auction situation. And I know that...

Jon Stoddard (25:21.477)
Yeah. It's like, well, the M&A advisor playing you against some, playing Valtech against somebody else, possibly in the market.

randy (25:28.658)
Well, certainly to get to the letter of intent stage, right? It was clear there was other offers out there But it wasn't we weren't we weren't doing a pure auction where it's kind of like, you know Write down your best offer and a piece of paper and slide across the table kind of thing Right. We we got to the point that Valtech had made us what we considered to be Notionally a very fair offer And more importantly, we like the structure of the offer, right? The dollar value doesn't matter nearly as much as how you get it and when you get it and what your certainty is of getting it

Jon Stoddard (25:31.634)
Yeah.

randy (25:57.854)
And we felt that the cultural fit was very strong with Veltech, both for people and because we wanted to stick around. We thought we wanted to spend a couple of years just seeing what it was like to be part of a larger organization. And frankly, we all stayed around. The whole senior team is still at Veltech five, six years later. So that part, we checked the box, right? We found the right place for our team to succeed.

Jon Stoddard (26:21.457)
Yeah. So that was one data point. What else made you feel confident that they would give you the terms? Like let's say it was a larger offer and will they pay you over these terms? What else made you feel confident that we'll take you out? Yeah.

randy (26:33.738)
Sure. It's a good question. So let me just put on my other hat now because I do acquisitions for Beltech at this stage, right? And something, maybe I'll put on a third hat, which is just what I do when I'm talking to other entrepreneurs. That's even maybe more useful. So people get really excited by the dollar value in the letter of intent or the nine-bind binding offer or whatever it is. So say that the dollar value is makeup number. It's $3 million.

Jon Stoddard (26:41.109)
We're gonna talk about that, yeah.

randy (26:58.058)
Well, if that $3 million is 10% cash upfront and the rest is an earn out over five years based on your performance, and you have the ability to do much better than what's in the deal, you really don't know how much you're gonna end up with. And in many cases, you're not gonna end up with anything like that original author, right? After the only dollars you can count on is what you get at closing. Unless you put in structure a place that is different. And Valtech has been pretty good about using earn outs, not as a way of reducing their risk, but as a way of aligning

motivations. And so what they'll say is, yes, you know, 20% or so maybe more will be an earn out. But it's based off of short, six months, 18 months, somewhere in there is designed to make sure that we all believe we can succeed in this. Yeah, six, 18. Yeah. So it really, so for a very different reason, the idea is like, you have to believe you can exceed that you have to believe this whole thesis for putting the two firms together to make sense for you too. And so one portion is that

Jon Stoddard (27:39.701)
Short earnouts, six months earnouts. Oh, interesting, yeah.

randy (27:54.034)
short or note piece. Another thing that Valtech commonly does is that some portion of the deal will be in stock in Valtech. So you acquire stock in a private company, Valtech, once you've sold, you have to believe that stock is going to be worth more in the future than it is today, because you'll have to hold it until there's a liquidity event at some point in the future. So again, that's about aligning interest going forward. That's a deal structure that I think is really attractive to founders. So in many cases, we've seen

when we're acquiring firms, we see that they may take a lower dollar value, total valuation, based on a structure that gives them much more likelihood of actually achieving the dollar value that's agreed upon. So all that to say, when you're working with your banker, and if you don't use a banker, make sure you've got somebody who's done this before and understands it, the details of the deal really, really matter, at least as much as the headline number that you see when the email comes in.

Jon Stoddard (28:34.726)
Yeah.

Jon Stoddard (28:49.981)
Yeah. Did he have a possible valuation for your company? Did you guys put the valuation together and say, okay, you know, Valtech's in there, right? Within 10%.

randy (29:05.206)
Yeah, let me tell you how we went about that. It's hard in the world of technology, especially, your company is worth exactly what somebody will pay for it. And that's how you know how much it's worth, right? So during the dot-com boom, it's ridiculous ratios. If you were a crypto company, you had ridiculous valuations a few years ago. I think right now, if you had a generative AI consulting firm, you can probably ask for numbers that have nothing to do with your financial reality. But yeah, right, yeah, right. But outside of those moments,

Jon Stoddard (29:13.733)
Right, right.

Jon Stoddard (29:26.833)
Yeah, how are those NFTs doing for you? Yeah.

randy (29:33.866)
there has to be some financial rationality in the sale of a company. So if you're a services company, as we were, we knew that the range is like, I don't know, 0.8 to 1.2 times revenue, maybe 1.3 times revenue, or the equivalent for EBITDA, which is like, you know, I'd have to go back and look at that time, but maybe somewhere between six and 12 times, EBITDA is what you're likely to get in the marketplace. And we're aware that those numbers, they just kind of make financial sense on both sides. So there's that piece.

Like we knew it's going to be somewhere in there. From another perspective, Shanite sat down and said, like, how much do we have to get for this thing to make it worth our while, right, for us to take the next step? And so we had some bottom, you know, walk away numbers. And then it was a question of testing the market. And so when you see the letter of intent come in, you see kind of where in that financially viable range the offers came in. And yeah, and Veltech was, you know, it was again, it wasn't the highest number we'd seen, but it was a, certainly within our set of expectations.

And more importantly, was structured in a way that we believed that we could succeed with them.

Jon Stoddard (30:34.601)
Yeah. Did you have, just curious personally, did you have an arbitrary number, like the threshold? People say, I want a million dollars for it or $10 million for it versus, Oh, I'm going to get a, you know, 4.367. I'm happy with that. No, I needed it to be five. So you need to raise the overall offer. Yeah.

randy (30:50.858)
Hehehe

randy (30:55.158)
Well, we did have a walkaway number in our heads, right? So it wasn't, and it wasn't, so I've run across this, right? People think their company is worth far more than it is sometimes, just based on the realities of the market. Yeah. So like, and it's, you know, you'll see these public deals for SaaS, software as a service companies, SaaS companies, and they're selling for 70 times earnings or something like that, right? Which is madness. And, you know, you have to.

Jon Stoddard (31:04.845)
Always. I've never heard anybody say it's worth less, so...

Jon Stoddard (31:19.141)
Yeah, 14 times like sales, like, uh, okay. I mean, I'm not going to put any debt on this because it doesn't make any sense. But

randy (31:25.858)
So you have to realize what you are when you're selling the firm. So we looked at it this way. We looked at, okay, so how much cash would we be able to take out the company over the next seven years if we keep running it the way it is with some assumptions about growth rates and that kind of thing. Okay, that's roughly what the company is worth to us in dollars and cash value. So we knew that. And then we thought, okay, but what's the equity worth? Then we came up with some number that kind of made sense in our head. And that wasn't so much for negotiation purposes with external parties. It was so that we had alignment among Shannon and I.

Jon Stoddard (31:28.594)
Yeah.

randy (31:55.662)
to make sure that my business partner and I, we don't have the company roughly, that we both have the same number in mind when we were having the negotiations. So that was really an internal conversation we had, not one really meant for external negotiation.

Jon Stoddard (32:06.205)
Yeah, yeah.

Yeah. When you say you own half the company, is that 50% of the company or, or he, you 50 and he 50 kind of, yeah.

randy (32:14.026)
Yeah, so we were structured. We were structured 40% I owned through a holding company, 40% he owed through a holding company, 20% was an employee trust that held shares on behalf of the team. And that structure actually really worked for us. It's not one that works for everyone, but it can be tax efficient, but it does put the trust in the word trust because everyone involved has to be pretty confident in the trustees and the other players. So worked for us. It's an interesting structure that I have advised other founders to take a look at.

Jon Stoddard (32:24.073)
Fantastic. Yeah.

randy (32:43.338)
It's cheaper than doing employee share option plans or ESOP. And it just has some advantages. I wouldn't, I'd have to look at the US law to understand how the tax implications are in the US, but in Canada, it worked out pretty well for us.

Jon Stoddard (32:57.269)
Yeah. So did they, Valtech purchases you. What was your intention, you and Shannon's intention to go to stay with the company? It's a much bigger company or take your money and go do something else.

randy (33:15.934)
It's an interesting question, right? So there's the there's what we told potential acquirers, and there's what we actually felt in our hearts. And I think those were aligned, but it's sometimes hard to know. Like, we both knew this, the biggest companies we'd ever built were companies we'd started. So as an aside, we spun off this tech, this technology that looked a lot like Google Analytics back in 1999, or something raised a bunch of money from a venture capital firm in the US blew up gloriously the.com debacle. So that was about

That's about 200 people in that company. So I said, like the biggest companies we've ever been involved with were ones that we were inventing from scratch. And it struck us that maybe other people who built large companies could teach us something so it wouldn't be a bad idea to hang out with a fast growing large firm. And so when Valtech came to the table and we saw kind of their growth rate and the expertise they had in their senior team and some of the really astonishingly talented people they had, particularly in Europe, we thought, okay, there's a lot we can learn here. So.

Let's see if they can use our talents for the next couple of years. They may not want us. Lots of firms don't want the founders to stick around because we are kind of a pain in the ass, right? At the end of the day. Cause we, we're all still pretty sure we're in charge. Yeah. Oh, and, and we're pretty sure we're in charge, right? So when you've got a company that's bought a bunch of founder led companies and keeps the founders around, like the management meetings are chaos. We're all pretty sure we're the person in charge, but we're slowly, VELTEX found a way to work through it.

Jon Stoddard (34:21.949)
You get, founders have big egos. Yeah. Right.

Jon Stoddard (34:35.985)
I was like, I always like, how would you have to be the individual you have to be to manage people like the Los Angeles Lakers? All big, you know, 11 people on the team, they're all making multimillion dollars and like, who do you have to be to be able to tell that guy to do something?

randy (34:53.998)
That's a good point. Yeah. I'm not sure we were at Lakers territory, but one of the advantages, and this is really not something I would have predicted, but when you've got a company that's built at least partially on founders who've grown their own companies and hadn't exit, a lot of the politics goes out of it because nobody's trying to build a career within Valtech. Nobody's trying to build their own empire because we did that already. So now it's more about doing this new thing together. So some of that internal dog eat dog politics.

Jon Stoddard (34:57.565)
Yeah, yeah.

Jon Stoddard (35:19.581)
Yeah.

randy (35:23.002)
of goes away, which is a really nice advantage that Valtech has compared to some of the other large global systems integrators or agencies. And I think it's a, we've certainly had people join us from very large organizations because they appreciated the lack of politics within the walls of Valtech.

Jon Stoddard (35:39.727)
Who was it that asked you, do you want to stay on? Do you want to take a new role in Valtech? Was that the...

randy (35:45.17)
It was their global M&A lead who sort of said like, yeah, here's how we perceive it afterwards. In fact, Valtek only buys companies if the founders state they're going to stick around. They don't always, because you can't actually sign them into servitude. That's an interesting question. So again, it's an ask, certainly through the earn out period, but that might be six to 18 months.

Jon Stoddard (35:47.837)
Yeah.

Jon Stoddard (35:56.051)
How long do they ask you to stick around? Minimum.

randy (36:09.59)
I'm trying to think of like, we've had one that exited at six months. Most have stuck around for at least a couple of years. Some for the firms were purchased before mine. Those folks are still around. So most for longer term. So, and, and they like working together and, you know, it's not very often you get to see a company that's growing at this speed, at this size, trying to, you know, do some world changing things. It's a, it's a pretty big educational opportunity.

Jon Stoddard (36:17.821)
Yeah. They like working at Valtech. Obviously. Yeah.

Jon Stoddard (36:34.313)
Yeah. And so you come on board, you join their M&A team to turn around, take your skills and go look for acquisitions to help Valtech grow. So do you feel like I know exactly what to look for in the next, in an acquisition? How to make a, what does a content management system, digital marketing company, you know, what does an irresistible offer look like?

randy (37:06.834)
Everything's more complicated than it sounds, right? So I didn't go directly from like joining Valtech to being involved in the M&A team. It's sort of evolved as I was able to identify some companies that I thought would be good choices for us, right? And suddenly it became a job. And my job is really to pipeline development, right? Find firms that I think are good fits and then have conversations with founders because I can do that because I've been one. It's an easy conversation to have, but I don't negotiate.

Jon Stoddard (37:08.977)
Yeah.

Jon Stoddard (37:18.482)
Yeah.

randy (37:33.782)
deals, right? That's done by the global team. I will help frame the business conversation or the business logic for the deal in a way that we're able to present it to the board. But I'm not really involved in the nitty gritty of figuring out share transfers and that kind of stuff. Yeah. I don't need to do legal due diligence. I do that once from my side. I don't want to do it from the acquirer's side. It's a difficult and fun thing.

Jon Stoddard (37:46.153)
Hey, here's your valuation. Here's how you're going to get the price terms deals part of it.

Jon Stoddard (37:56.509)
Did it once, that's enough. Yeah.

randy (37:58.842)
Yeah, so I do feel very comfortable that at this stage, we know which kind of firms will make VELTECH the company we want to be, right? Based on our five-year plan, and it tends to be a firm has to solve, either let us take advantage of an opportunity or solve a problem for us. So I'll give you an example. We're very strong in healthcare in Europe as a market, but in North America is a vertical, in the US is a vertical, we really didn't have much traction. So...

when a firm came on market that we knew we liked and they were really strong in healthcare, that was a pretty big feather for us, right? That's something that was very attractive for us, was giving us a foothold in the healthcare market.

Jon Stoddard (38:35.341)
Oh yeah, that is a growing market. That's never gonna stop. It's just a huge multi-billion trillion dollar industry. Yeah.

randy (38:44.414)
And there's a situation where the vertical they were in is what gave us, gave them, I think, sort of caught our attention, right? And gave us a business logic for the acquisition beyond just the financials. It might be a situation where we do something in one part of the world and we want to do it everywhere. So an example there would be we have a very large joint venture with Audi where we're helping design the software for the next generation of vehicles. And we don't do any of that work.

in North America, right? We were doing it basically in Germany. And so when we found the opportunity to acquire a very small company in Detroit to get a foothold in that space in North America, well, that was very attractive to us because it was a matter for us fitting one of our needs that we've already solved it globally, but not geographically in North America. So again, that was a really attractive piece, partly about the vertical part about the capability. And then sometimes it's about scale, right? We're a global provider of commerce services. We help some of the largest brands in the world sell online.

Jon Stoddard (39:32.669)
Yeah.

randy (39:44.158)
That's a growing space and it's hard for us to hire fast enough to meet the demand. If we can find a firm that has a lot of people who really understand the space, that's really attractive to us.

Jon Stoddard (39:54.269)
Yeah, what kind of companies are you referring to there?

randy (39:57.934)
Well, so there's all sorts of, I don't want to name names, but sure. We acquired Absolunet out of Montreal, Canada, but a year and a half ago, they had about 300 people in my memory serves who were helping implement Adobe Commerce and Magento for mid-market companies. So they were experts in doing that. They could help companies stand up commerce sites very quickly, reliably, make them work, help them actually sell effectively online, really good company. And that just helped us deepen our existing group.

which is already doing those kinds of services on different platforms. So it was just about adding more to what we do and giving us a scale that we didn't have previously. So there's an example where it's not new. Yeah, it's not new. It's just more of what we did and broadening the partnership strategy. So it's kind of like, if you want to be valuable to an acquirer, being really strong in one vertical is one mechanism or finding a fit where you let them round out their offerings from a global perspective can make you valuable. Or, you know, just adding scale in what they already do.

Jon Stoddard (40:33.481)
Yeah. Going horizontal. Yeah.

randy (40:56.95)
But then you need to be bigger for it to be something where you're going to drive better evaluation.

Jon Stoddard (41:01.621)
Yeah. Now, where does that mandate come from? That like your, the board meetings or your group meetings and say, hey, we don't have this piece of the puzzle. We need you to go find something to do that because we want, you know, they're, they're coming back. Oh, we need to grow 50% per year, right? Oh my God. That's an insatiable appetite. Who do we need to go?

randy (41:21.438)
Yeah, there's a top down and bottom up aspect to this, honestly. And because it's rapidly growing, that's not surprising. So certainly there's a defined strategy for the company, what we want to be when we grow up. And we have a fairly good understanding where we're lagging in that vision or where we have gaps that we have to fill. So that's kind of the top down piece of it, right? And we'll say, okay, this is the thing we need. Then there's the bottom up, which is that...

Jon Stoddard (41:24.372)
Yeah.

randy (41:48.59)
There's emerging technologies that maybe surprise us. The rise of Composable, we made a heavy bet on that, but five years ago, nobody was talking about that. We have a group that's doing generative AI services. Well, one year ago, that wasn't in our roadmap, but that's kind of evolved from the market, right? And so then we're being kind of market sensing and identifying firms or people that can help us. So those are the two mechanisms.

Jon Stoddard (42:02.997)
Yeah.

Jon Stoddard (42:10.537)
Yeah, I was watching a conversation. I don't remember who it was. It's not today only looking at companies that are developing revenue and they own their market. You still have to look at these kids that are developing technology that can really replace these other companies very fast.

randy (42:31.75)
Yeah, I think stepping aside from the M&A question, I think what's happening with generative AI right now has the potential to be one of those like super seismic shifts in the economy, like the internet was, where it just kind of touches everything in the economy, not like one, it becomes like, it kind of becomes a platform the economy operates on, kind of the way the internet did. Like I didn't feel that way about, you know, cryptocurrency, but this feels like there's something very real there. I don't know how to play out, but I do think that's a space that's going to...

change how we operate the economy, and there'll be lots of opportunities for startups in that space. And we don't know what those are yet, because I can guarantee you in 1995, nobody thought that TikTok would be a thing.

Jon Stoddard (43:13.481)
Now watch kids dancing for 90 seconds. Yeah. Who thought like Mr. Beast? Do you know Mr. Beast last four videos did 188 million views, which is bigger than all of the major mainstream channels to combine. His four videos, yeah.

randy (43:34.866)
It's just, it's almost unthinkable. It's amazing, right? Like it's not something that would have been predictable. So you wouldn't have predicted that an individual would be dominating that market if you went back in time. You might think, okay, probably the mainstream organizations that get into this and dominate on YouTube the same way that they always have historically or something, right? But that's not what happened. You did have Netflix arise and then Prime and the streaming services, which is kind of where that went. But

Yeah, I think it's very hard to predict. There's nothing linear about how these big seismic changes happen in the economy. It's like opportunity erupts. People take advantage of it and it finds new homes in the economy that you really wouldn't have expected. The classic example is that when people invented the car, no one would have predicted drive-in movies. I'm dating myself with that, but it's true, right? There's nothing obvious about we have cars. Well, now we all want to go drive and sit in the field and watch a movie play on the screen. Why does that make any sense, right? Nobody would predict that.

But at one point it was a huge industry. I think something similar is happening, what will happen with generative AI, that five years from now, there'll be all kinds of companies that right now we can't predict, which retroactively look obvious, right? That's the kind of way these things evolve.

Jon Stoddard (44:42.333)
Yeah. How do you stay young to look for that? Like, you know, we, as we get older, that we do get our biases and just age and we just don't see stuff that is coming up. And like that, I had this conversation on, on LinkedIn with somebody. I said, well, I watch my kids. Like they can sit there and look at 60 second videos and just scroll, scroll and waste.

two hours of their time just looking at 60 second videos.

randy (45:14.73)
That is a true statement. It makes me feel very old. I know I feel I know I'm feeling old I feel like raising my hand and go do something worthwhile with your life kids, which means I'm old There's only so many cat videos in the world. They're not they're not helping you

Jon Stoddard (45:24.105)
hahahaha

Jon Stoddard (45:28.885)
Yeah, like, uh, okay, that's funny. Funny dogs. Okay. Yeah. Thanks, Jack. Yeah.

randy (45:32.25)
Yeah, so like, and I can get sucked into it too. So I'm not a mean to it, but I do not sure it's productivity enhancing or life enhancing for most people. I don't know. How do you stay young around this or move away from your biases? I think it's really hard. I think one area that I find fascinating is to kind of watch where the early seed money is flowing, where the venture capital goes, gives you some sense of what bets are being laid by people who spend their whole life thinking about this. And that'll give you some sense of what's interesting. But

Jon Stoddard (45:43.942)
Yeah.

Jon Stoddard (45:51.954)
Uh-huh.

randy (45:59.906)
But if you're not passionate about it, you're not gonna pay attention. And, you know, we talk about entrepreneurs, the vast majority of entrepreneurs aren't tech entrepreneurs, right? This is a very peculiar orientation we have where the myth of Silicon Valley makes us feel like, you know, if you're not doing a WhatsApp startup, you're not an entrepreneur. Well, you know what? There's lots of people who've built a chain of car washes that are making $200 million a year, and their kids will run that, and their grandkids will run it. That's the real economy. And in many ways, they're the more interesting entrepreneurs.

Jon Stoddard (46:26.933)
Yeah, Mr. Beast is from North Carolina, right?

randy (46:30.378)
Right? Like honestly, I think that's, you know, we step away from the technology world. There's still, I know there's a, how many people are running mom and pop restaurants out there or a small chain, you know, six or 12 pubs in a region of the country, like that's really the real economy. And we forget that sometimes when you start talking about it's a technology world where things change so quickly, because I don't care how many cat videos you watch, you're still going to, there's still going to be a market for people to go out and have a pint once in a while.

Jon Stoddard (46:49.949)
Yeah, yeah.

Jon Stoddard (46:56.245)
That's true. So true. Let me ask you about when you get this assignment downhill that says, hey, you need to go buy this. What do you look for in an irresistible company? I mean, there's characteristics, you know, the first year, the financials, the business model, kind of the process, that area. What do you look for? It's important to you.

randy (47:17.694)
Yeah, absolutely. So financials are important, right? We're looking for growth, we're looking for profitability. We certainly don't want to buy a firm that's growing slower than we are or which is less profitable than we are because it kind of brings down our averages, right? There are exceptions. If it's truly strategic, we might make an exception. But generally speaking, we want to buy firms that are growing as fast as we are and who have even a growth as fast as we are, right?

Jon Stoddard (47:40.013)
What's as fast as we are? Are we talking about 50% a year or 500% a year?

randy (47:44.842)
Yeah, so the general rule in the market, not just for Valtech, is that you're looking for some combination that adds up to 40. So you want to be growing at 20% a year at 20% EBITDA, that's great. If you're growing at 40% per year and you're not making any money, that's okay. Right? So as long as EBITDA plus growth rate, those percentages add up to 40, you're probably in the right ballpark. That's really hard to do, by the way. Like there's not many firms that can pull it off, but that's what we're aspiring to. Not everything reaches that number, but that gives some guidance of where you'll get the highest valuation.

Jon Stoddard (48:06.889)
Yeah, yeah.

randy (48:15.462)
But financials aside, because if you assume the company is being run, then what we're really looking at are operations. Yeah, please.

Jon Stoddard (48:20.753)
Let me ask you at the financials, interrupt you on that, sorry. When you say it needs to be a revenue, you used to they say, hey, what's the revenue per employee? In SaaS, it's going to be a lot higher than an HVAC company or something like that. Yeah.

randy (48:37.922)
So revenue per employee is an important metric, but it's, when you're looking at global companies and get really skewed. So that's the caveat on our part. So I've been talking to a firm recently that has operations in Latin America. I think it's Colombia, Brazil, a group in India, and then a team in North America. And because they're in those other countries, they have a lot of employees. Like the Indian component is gigantic.

And so if you just do the simple math revenue by employee, it looks really small because they've got a whole bunch of low paid. So like to think it's not always the most useful guide. Like Warren Buffett was right at the end of the day, it's cashflow. Are they spitting off cash or not? You know, think hard about how you're doing that because EBITDA is always subject to adjustments, which can be, you know, hard to understand from the outside, but cashflow is something that any acquirer can look at and understand, you know, are you generating cash? And I would encourage companies to optimize that.

if they're thinking about going to market, because it's a really important indicator.

Jon Stoddard (49:40.817)
Optimize your cashflow before you grow back. Yeah. That's a good rule.

randy (49:43.402)
Yep, yep, yep. And then, it's about, part of this is about transparency. Cause you know, especially in a services business, you're buying things which cannot easily be seen, right? You're not buying a factory filled with machinery, you're buying people that are able to have processes to produce probably electronic goods, right? Data-based goods for people. So it's hard to see what you have. So I'd encourage firms to think hard about making transparent how they operate.

If you have a formal operating system, you might hear about EOS or Traction. There's a few of them out there that are actually sort of like operating systems have been defined. It's less important that you've got a label on them, but more importantly that they're easily understandable from somebody who walks in. So.

Jon Stoddard (50:22.281)
Right, right.

Jon Stoddard (50:27.753)
Yeah, the idea from here to the raw goods to this and this, and these are the people that run it, and these are the costs, and this is the process to turn assets into cash flow.

randy (50:38.346)
Yeah, and then decision making cycles. So how do you make decisions, right? It's like, we have a Monday meeting on this, we have a quarterly meeting with a board on this. They just have that documented so you can see fairly quickly how the company actually operates. All companies operate. If you're making a profit, you're doing something, right? But often it's not documented and it's really hard to like piece that together, the mental model together, if the firm hasn't crystallized it for you. So that's something that...

Bankers don't often talk about, but it's really important from the acquirer's perspective. It's just giving transparency to how you operate so that the acquiring firm can have some confidence.

Jon Stoddard (51:13.545)
You know, in turn or the opposite, we were looking at a engineering firm or it's a manufacturing firm, but it's run by an engineer who just, there's no process, right? He has a great idea. He goes, hey, you should go do this CNC thing. And then it comes out the other end and sometimes it's a hit and sometimes it's not. There's no process to that. Like, how do we value that? Because if he steps out of it, it's gone. Yeah.

randy (51:37.579)
Yeah, for sure.

randy (51:42.362)
Yeah, I should probably just started with if you are instrumental to the running of your company, you will not get the valuation that you would if you can go on vacation for three weeks and not answer the phone. Right? So yeah, you have to extract yourself from the key roles in the organization or your company is really hard to sell. The firms we buy are usually the size where that's happened or else you've got somebody with a... It's pretty hard for one person to be instrumental in every process of a firm's at $15 million in revenue in a services company. They

Jon Stoddard (51:52.021)
Right. Yeah.

randy (52:12.058)
gigantic brain and more than 24 hours a day, right? Because you can't do that.

Jon Stoddard (52:16.137)
Yeah, like if Elon Musk left, can you run SpaceX, Tesla? I think you can run Tesla now. I don't know if you can run SpaceX though.

randy (52:22.103)
Yeah.

randy (52:30.573)
Yeah, Elon's a very special guy. I think it's fair to say that from a whole bunch of perspectives.

Jon Stoddard (52:34.505)
Yeah, they just sold some stock for SpaceX, which boosted his net worth by $50 billion in just a short period of time.

randy (52:43.754)
I don't know, anyone who can look at the world and decide that they're going to compete with Nassau strikes me as having like, he just aspires at a different level than I'm comfortable with. So it's astonishing what he's done, any of his personal Picadilloes aside.

Jon Stoddard (52:55.453)
Yeah, I'm just going to launch 50 satellites. We did that yesterday. Yeah.

randy (53:00.014)
It's just, it's madness. So yes, he's an example where one person with a gigantic throbbing brain was able to do everything in like multiple billion dollar companies, but unless you're him, I would suggest that you... ..

Jon Stoddard (53:09.821)
Yeah, there's a lot of, there's like one out of 8 billion people on the planet. Right. Yeah.

randy (53:15.502)
Yeah, you might think about like stepping away and letting people the other thing is you it turns into a better company, it gives you a better lifestyle. There's a whole bunch of reasons to do it, even if you're not selling the company. The most important one is to get your life back. You don't have to spend 14 hours a day in the office. Right. So I would encourage that. It's not easy. But I would strongly encourage founders to find a way to hand off their most important rules and do it kind of prescriptively. You know, like these are the these are the things I do.

Jon Stoddard (53:27.691)
Right.

randy (53:42.918)
By next year, I'm going to be doing half of these. And the year after that, I'll be doing half of that. It's a useful way of thinking about your job, growing out of it.

Jon Stoddard (53:50.057)
Where do you put a score or value on the business model of an acquisition?

randy (53:56.818)
Really good question, right? Because so, and VALTEX a little bit unusual in that we're buying services companies, but the general rule, and even for us, the certainty of the revenue going forward is a really important indicator of whether or not we can get a deal done. So if you're a company, and there's multiple ways of looking at that. So in some cases you may have long-term retainer contracts. So it really is guaranteed. So that's like maybe the A plus level, right? Those are rare in service industries, but not unheard of, right? They do exist.

Or you might have something like a agency of record deal with a large organization. So it's not that's guaranteed, it can be canceled, but probably they're going to continue working with you. And so that certainty of revenue increases. And then underlying all that, and I probably should have started with this, is that if you need to be able to demonstrate how someone goes from not knowing you exist to signing a contract. And that process has to be something which is replicable.

and ideally scalable. So if you have a model where you can say, yeah, just pour money in this side and we get deals out this side and it happens at this ratio and this is what we're doing. If you just put more money in it, you'll get more, that goes an awful long way to reassuring the acquirer that what you have is a real company that can scale beyond the relationships of the founder and a handful of salespeople. You've got something that can generate long-term revenue certainty that doesn't rely on the personalities of a handful of people.

Jon Stoddard (55:23.985)
Yeah. Oh yeah. If I give you a dollar and you can turn it in five, tell me how you do that. Like what's the process there? And can somebody repeat that if I train them, right?

randy (55:24.106)
Does that make sense? How is it that? Okay.

randy (55:31.505)
Yeah.

randy (55:35.018)
Yeah, and that's the critical piece, right? It can't just be because, well, you know, I went to Harvard and I know half the Fortune 1000 CEOs. Well, that's great. But if you leave the company, then we lose all the value. It has to be like, what is your go to market strategy? How's it executed? Again, you have one, if you're making money as a company, document that, crystallize it, put it in a form that's easy to understand, ideally get numbers on it, like do the work to get the analytics so you can show them how it works because that just changes the conversation immediately.

Jon Stoddard (56:03.265)
Oh, I get 100% of my leads from referrals. How do I do that? Ha ha ha.

randy (56:09.03)
That's hard. That's hard. Again, you have to document it somehow or show us or something.

Jon Stoddard (56:14.179)
Yeah. How do you score competitiveness of like where they rank and

randy (56:21.57)
That's interesting. Probably we, rather than scoring it, it probably comes out of the growth rate of the company. Right, if you're more competitive, you're growing faster at higher EBITDA. So it kind of naturally comes out of the financials. I don't think we sit down and say, okay, like here's a T graph of, you know, how they compare to the competitors. That's not how we usually do that.

Jon Stoddard (56:30.322)
Yeah.

Jon Stoddard (56:36.241)
Right, it shows up on, okay, like here's one measure. It shows up higher on Google SEO. Okay, great, you're competing against each other.

randy (56:45.502)
Yeah, sort of. And it's more like it's also really when you're acquiring a company, you're not, it's not really about all the companies in the space. It's like comparing you to the other ones that are for sale right now that solve our problem. Right. So you may not be the best in your space, but you're the one that's available. And you're the one that's for sale at this point in time. So you may love that house in the corner. It's the best house you've always wanted. But if it's never for sale, you can't get it. So you buy the house next door. Right? Yeah. So it's about the available market.

Jon Stoddard (56:56.927)
Yes.

Jon Stoddard (57:09.241)
You can't buy it. Yeah. Unless you're part of the Costa Nostra. I want this house. Okay. Yeah. Um, what about, how do you value customer concentration and in how you.

randy (57:13.514)
Right? Yeah, something like that. Yeah.

randy (57:25.179)
Small companies, that's a killer. It's just a killer. Like if you've got 50% of your revenue tied up in one customer, it's really hard for an acquirer to buy you. No matter how good it is, no matter how long the relationship is, because it feels like, you know, we can pay X for you. And if they have a change in leadership, you know, we could lose 50% of the value of what we paid overnight. It's a really difficult, and we see this all the time, because like from the entrepreneur's perspective, what, you're gonna say no?

to more work from the existing customer? Well, of course not, you're gonna take the work. Like it's really hard to get past that because you have to find some way that if you've got one customer that's more than 30% of your revenue or five that are 80% of your revenue, you need to find a way to build a new business engine that lets you grow that percentage down as you grow the company. Because otherwise it becomes really difficult for an acquirer to make the logic work for the deal.

Jon Stoddard (57:54.237)
Right, right, right.

Jon Stoddard (58:19.537)
Yeah. Let's say your, your marker is 25%. Um, and it's, they, you find somebody that one of their customers, 30%, is there, is this a conversation you have with other individuals and say, Hey, they go past this a little bit. There is some risk, but all the other things are green light.

randy (58:42.762)
Yeah, we look at the deal as a whole, right? So for example, if their biggest client was, say the biggest client was 50%, half their revenue, but we knew that with our existing client base, we were confident we could triple the revenue in three years just by selling into our client base, what they do today. Okay, that 50% shrinks pretty quickly, right? That probably would not be as material to us. Still a hard deal to get done because somebody on the board is gonna raise the point.

Jon Stoddard (58:44.658)
Yeah.

randy (59:06.578)
And correctly, but so that's what I mean. You look at the deal as a whole and say, okay, this is still going to be a positive for the organization. But that deal gets done faster, easier, and probably a higher evaluation. Certainly as a revenue multiple. If you've got that 50% is 25%

Jon Stoddard (59:22.005)
Yeah. And then what you do, you turn that over to somebody else and then they come and look at your package and then go make an offer to them or you introduce them. How's that go?

randy (59:31.338)
Yeah, so it does vary a bit, right? If there's a banker involved or there's me just calling people I know, or it's a company that we've been working with for a long time and it comes off. So it really kind of varies. But generally speaking, it's, let's take the example of where a banker's brought a deal to our attention, right? I'll often do the original phone calls or a group of us will, I try and stay as kind of the contact for the founders that's kind of outside of the negotiation because, let me rephrase that. So,

We've got a deal going through, we'll look at them. Often I will help frame up the business case for it. So this is why we should buy this firm. It solves these problems for us. This is the potential inside the organization. This is why it would make sense for the longer-term vision for VELTECH. And if there's sort of general agreement on that, then the global M&A team will come in and do the actual negotiations, evaluations, deal structure. I'm not involved in that at all. Where I do stay involved is as this kind of back door for the founders.

Again, it's not like I can change the outcome. Don't call me and tell me you want twice as much money because I can't write that check. But what I can do during the negotiations is give you clarity on maybe what's happening. So if the deal feels like it's slowed down, this happened in the real world, the founder called me and said, look, we were really going quickly. And then all of a sudden things are like, come to a halt, what's happening? Well, what happened was that two of the people got COVID and were out and we just didn't have any people that could do the work for two weeks. But they had no way of knowing that without having a back channel to have the conversation.

Jon Stoddard (01:00:55.025)
Yeah. And what happens when you don't know really what's going on? That you, your mind starts squirreling. Yeah.

randy (01:00:56.77)
So that's my rule.

randy (01:01:01.522)
Absolutely, right? Because you've got a lot of rest. Like it's just, you can spend a lot of sleepless nights and I can help avoid those sometimes if I can have that conversation. Again, just bringing clarity from our side on what's actually happening. And then it also helps in the integration afterwards because often the negotiation process is pretty fraught, right? You're going back and forth and there's negotiation. It's kind of intense, but the day you sign the agreement, we got to work together. So having somebody who wasn't caught up in that fray can sometimes help simplify the integration activities.

Jon Stoddard (01:01:18.782)
Yeah.

randy (01:01:30.839)
after the acquisition.

Jon Stoddard (01:01:32.361)
Yeah. So we talked about the financials of the business, the business model, the certainty of the revenue, the process, repeating, turning assets into cash flow, competitiveness, a little bit of their customer concentration. What do you see as, and we didn't talk about the people, like who's running it. I, yeah.

randy (01:01:54.202)
Exactly. Yeah. So two pieces there, the management team, and then general employee turnover. Right. So listen, especially in the technology industry, I know right now there's layoffs. I think it's probably a moment in time, not a long term thing. There's not enough talent for us to power the economy, the technology economy. So we're all looking for the best available talent. So your attrition rate is really critical. Things like glass door reviews.

Jon Stoddard (01:01:59.891)
Yeah.

Jon Stoddard (01:02:14.855)
Right.

randy (01:02:19.798)
are something we really pay a lot of attention to. We'll often talk to former employees. You can find them on LinkedIn. Because we know if the perspective company we're looking at gives us the name of people to talk to, they're gonna be good, right? So yeah.

Jon Stoddard (01:02:22.252)
Oh.

Jon Stoddard (01:02:28.533)
That's pretty easy to go, like, hey, I'm going to go on LinkedIn and you're not allowed to talk to my previous player. Well, I'm just going to go right to LinkedIn.

randy (01:02:36.711)
That's not how it works. Because the industry is small enough that we often know them, right? Like somebody in our company will know somebody who worked for them. So you can get some back channel information. So like that's really important because that tells us more about the culture really quickly than all of the plaques saying we value teamwork and whatever on the board, right? So that's one mechanism. Quality of the management team is critical. If you don't have a team that we feel can...

grow into the kind of operations we're going to require. Because there's a lot of work to go from a company which is founder led to one that is a, you know, aspiring to much larger things. You know, we have to feel like the management team can rise to another level. And that's a it's a hard thing to define. It's more of a gut feel thing. But if we don't if we don't see that capacity or that ambition, it's again, harder for us to do a deal.

Jon Stoddard (01:03:09.757)
Yeah, yeah.

Jon Stoddard (01:03:24.537)
Yeah. Is there anything that just what you see is the biggest deal killers if everything looks past its muster?

randy (01:03:34.663)
But there's a few things. Maybe the most troubling is don't hide anything. Like, sorry, put your best first forward. Look great, it's a first date, right? Like don't open with your dirty laundry, yes. But if the entire executive team are related to each other, don't hide that in the first meeting. It's not a detriment necessarily, but if you hide it, then it feels like there's something to hide, right?

Jon Stoddard (01:03:45.041)
Right. Yeah. You buy new clothes, take a shower, get a haircut.

randy (01:04:01.462)
If you actually own the building you're leasing, but you're doing it through three shell corps, and don't let us know that's what you're doing, then when we discover it, it's gonna be like, we can't trust these guys. So that's one of the things that encourage you. Like, don't play games, maybe you won't get caught, but you probably will, right? And then it's like, now we don't trust you, and I wanna work with this person, and that's a deal killer. And that's happened a couple of times.

The other big one is just to make sure you're running the company because if, you know, between the time a letter of intent gets signed and the time the deal closes, if your revenue drops by 25%, that deal is not going to close, or at least it's not going to close with the kind of deal that was proposed at the beginning. Right? So like you got to keep running your company and act as if this deal is not going to happen because A it might not, but B if the company slows down, then you're not going to get the deal that you thought you were getting.

Jon Stoddard (01:04:46.937)
Yeah, so that's where it came handy, your rear view mirror about having Shannon run the company while you were selling your company.

randy (01:04:55.402)
Yeah, certainly, like, again, it was good advice, and I'm glad we were able to do it, because it makes a big difference. That can stop things. Certain things around financials, like make sure that you've invested in decent financial help. Ideally, years before we go to market, we had one deal that didn't proceed because, initially, because our accounting team couldn't get comfort with the financials of the firm we were buying. And so we weren't able to, we simply weren't able to get the letter we needed from them to go to the board to buy the company.

Jon Stoddard (01:05:00.402)
Yeah.

randy (01:05:24.854)
We got it straightened out, it took more time, but that could have killed that deal had we not been persistent in figuring it out. So it's worth investing. You need a level of accounting rigor to sell your company that you don't necessarily need to operate your company. And you need to invest in that two or three years before you go to market so you can see the track record.

Jon Stoddard (01:05:25.119)
Yeah.

Jon Stoddard (01:05:46.097)
Yeah, the financials tell the story. The business, the language of business is accounting. Yeah.

randy (01:05:53.066)
And it has to be a story that when you press on it a little bit, it doesn't collapse really quickly, right? Like you have to have some support behind it when it's looked at, right? So, and then that's, that's the reality. So again, it's the sort of thing, don't rush to market. Um, the right time to begin planning to sell your company is not, you know, six months before you want it sold. It's three years and six months before you have it sold. Sometimes that's not possible, right? Divorce, disease, death, whatever. But if you can get alignment for your shareholders.

Jon Stoddard (01:06:01.64)
Exactly.

randy (01:06:22.878)
All the interested parties three years ahead of time start thinking really hard about what levers you can pull to increase the value and then what things you can do to make it easy to buy. So by the time you go to market, it becomes an obvious acquisition for someone that can be done quickly without any like, you know, hairy things showing up in due diligence. That's kind of the ideal model.

Jon Stoddard (01:06:41.681)
Yeah, yeah. Wash your car before you sell it.

randy (01:06:45.782)
Yeah, do the repairs.

Jon Stoddard (01:06:46.289)
Randy, man, this has been fantastic. I really, really appreciate the time you spent with me today.

randy (01:06:53.182)
Oh, not at all, John. I appreciate you doing this. And I'm sorry that I actually scheduled this like on the Friday of a long weekend. If I'd realized I would have not put it in your calendar at this date, but I appreciate you hanging in there.

Jon Stoddard (01:07:02.397)
Yeah, no, it's fine. It's perfect. So let me stop that.