Weekly Wrap Takeover: M&A chats w Chris Duell (Elevio) and Stuart Clout (thedocyard)
We’re back! Well, almost - our usual wraps of all things tech & startup goodness will start next week. Before we kick off, we thought we’d mix it up with an extra special takeover edition on mergers & acquisitions (M&A).
Why? Local M&A is heating up. In the last week or so, we’ve seen Uber acquire Car Next Door, Atlassian acquire Percept.AI and Maropost acquire Retail Express, for example.
M&A is increasingly becoming a topic that we discuss with founders as they start to consider potential exit options or plot for further world domination. ANZ startups exploded over the last 5-10 years, making many ripe for the picking. Plus cash is cheap for bigger tech companies like Xero, Canva and Atlassian who continue to lead the markets with strong valuations (for now at least).
But, how do you find ‘the one’? How do you know that you’re getting the best deal? And what does it really take to make a merger successful?
Straight from the horses’ mouths, we sat down with two founders who are past the honeymoon phase of their mergers as they reflect and share lessons learned from the mystical art that is M&A:
Chris Duell - founder of Melbourne-based knowledge management SaaS Elevio (founded in 2015), acquired by Danish customer support platform Dixa
Stuart Clout - founder of Sydney-based deal transaction management platform thedocyard (founded in 2014), merged with data room provider Ansarada
Finding the one
Rather than prowling the town for a potential M&A suitor, both Duell and Clout say their deals came about as a natural progression of their respective relationships with Dixa and Ansarada.
Duell explains “we'd had a solid partnership with Dixa for around a year due to how well our products complemented each other, some amazing flagship co-customers, and we knew we both had the same end goal but were a missing piece to each other’s puzzle… we became greater than the sum of our parts.”
Clout, too, says the decision to merge thedocyard with Ansarada was about having a greater impact. “We had a very aligned vision of where we wanted to take both of our businesses, and we were each self aware enough to see the strengths the other brought. Together, we’ve created an information governance powerhouse, and that has improved the overall value proposition for shareholders, customers and our people. The Triple Win!”
Unless you’re just in it for the money, Duell recommends asking two key questions from the outset:
Will we have a better impact for customers and a broader reach as a result of being acquired by this company?
Over the next 5 or so years, can we create more value alone or by merging?
Saying yes to the cheque
When it comes to the negotiation phase, both founders recommend investing in independent advice.
Since Elevio wasn’t running a formal sale process, Duell and cofounder Matt Trimarchi planned on saving money by negotiating with Dixa direct. But then they received some straight shooting counsel from AirTree’s John Henderson: “You guys are great, but you'll f*ck it up. It’s the first time you’re doing this, and you'll be up against people who do this for a living. Get someone involved even if it’s just to be an intermediary.”
Duell says that was the best single piece of advice. “I can’t imagine ever going through this without the help of our deal advisor, Scott Colvin from Black Peak Capital.” #notanad
Before negotiations started, the Elevio cofounders used the due diligence process to determine what was important to them:
Will the team stay together?
Will the team all be looked after the same both in terms of financial reward, equity and job retention?
What will day-to-day life look like moving forward?
How much autonomy would we retain?
Are we OK with giving up ultimate control to someone else?
In another world and given the opportunity, would we invest in the other company?
What’s our walk-away figure? (This took a lot of soul searching, research, and chats over beers)
What will make the deal itself enticing - both in terms of taking cash off the table and keeping skin in the game?
Once they were aligned on what they wanted, the negotiation was relatively straightforward. From start to close, the deal took just two months.
“Dixa put together an initial offer, we said thanks and got back to them with a counter that was justified by data and market research, they replied a few days later with a revised offer, and we accepted. We didn’t want to push to squeeze every penny at the expense of relationships - particularly as Dixa were already offering a good amount above our walk-away figure.”
When two become one
Now that the deal dust has settled, the founders are getting used to the realities of life as a part of a bigger company.
“Being part of a bigger organisation almost overnight was a major adjustment for me in terms of my leadership style and the impact of my activities,” says Clout. “I had to figure out how to still move fast, iterate, test, retest, hustle, all within the confines of Ansarada’s (legitimate and needed) systems and process.”
Duell also says it has taken some time to get used to Dixa’s operating rhythm. “There are more meetings to confirm direction and keep the right people in the loop, which is of course a necessary step when the team size grows. On the flip side, the people on the team are amazing. We have some really talented folks to learn from.”
Elevio’s transition has been helped by a core HR/workplace team at Dixa who are responsible for making the post-transaction phase as smooth as possible by listening to any concerns the Melbourne team have and working to find solutions.
Clout agrees that people are at the core of making all of these deals successful. “Sure you acquire tech, customers, suppliers, etc. But really, it comes down to people, and making sure they are aligned with the vision. Because if you get this wrong, you will be fighting gravity for a long time to come.”
If I had my time again
Interestingly, when we asked Clout and Duell what they’d do differently if they started all over again, both mentioned the pressure they faced to grow at pace as a funded startup.
“Next time, I wouldn’t raise money unless we had an absolute need for it. Even if I did raise, I would be conscious not to burn it all just to ‘put it to use’,” reflects Duell.
Elevio closed a Seed round after participating in Startmate. They soon found themselves in the position where they were running out of cash, but their metrics didn’t warrant a solid Series A.
The only logical option was to aim for profitability. “We made a conscious decision to tighten up expenses (that meant reducing headcount, which sucked), while also pushing to grow revenue and reach profit. We ended up hitting that goal much earlier than expected and decided to only hire new staff at an organic rate moving forward.”
“Looking back, this was one of the best decisions we made. It put us back in the driver’s seat, eased a lot of (self-induced) pressure on us and the team, and made us focus more on our goals, metrics, and spend. It also let us spend more of our time thinking about our customers and their problems, rather than just pulling out all stops justifying a valuation.”
Clout echos this sentiment. “The stress to grow at crazy rates is the worst part of a startup. It totally tarnishes your experience and clouds your judgement. And it can be to the detriment of you and your team’s mental health and counter to building a sustainable growth business.”
In the early days, Clout would instead work hard to ensure everyone—particularly investors—valued metrics other than revenue, such as key product adoption indicators. “Oh, and I would delay hiring sales as long as possible.”
Staying motivated after selling your startup baby
Driven by the entrepreneurial bug to start something new again, we often see founders leave a merged business immediately after their earn out period (when they get extra $$ if they stay with the acquirer until a certain date or milestone).
However, it seems both Clout and Duell have found a sweet spot. They’ve been able to de-risk by cashing out some equity along the way, while still retaining enough skin in the game and autonomy to continue full steam ahead on the Dixa and Ansarada journey.
Being empowered in key decision making roles has also been a critical motivator to stay. While remaining an Executive Director, Clout is now the Ansarada Group’s Chief Revenue Officer and Global Head of Growth. Duell is Dixa’s Director of Product Management and cofounder Trimarchi is Director of Engineering.
“There's a lot of mutual respect, trust and autonomy. We’re truly empowered to give knowledge a seat at the customer experience table and change the industry for the better,” says Duell. “That gets me pretty amped.”
That’s a wrap takeover! We hope you enjoyed it.
We’ll be back next week with a mammoth first wrap for 2022.
Bex, Gavin and the team at Ignition Lane
If you aren’t subscribed to the wrap, sign up now:
Seen any interesting startups? Have any tips for the Weekly Wrap? Want to indulge our inner-journalists? Drop us a note: tipoff@ignitionlane.com