Important Lessons on the Seller-Side of M&A

Seller-Side of M&A

Vamsi Maddipatla’s first job was with Deloitte & Touche in South Africa as a Management Consultant Trainee working at the largest aluminum foundry in the African subcontinent.

After moving to the U.S. and obtaining a masters in computer science, he joined Pfizer and was responsible for integrating systems.

From there, he worked with Merrill Lynch on Wall Street in a similar line of work.

In 2005, Vamsi started his own company focused on data compliance for the pharmaceutical industry.

His company provided technology to support clinical trials to the FDA. “I like to build companies, but I also like change. [After five years], I thought about selling the company and rolling it up into a publicly listed company.”

He sold it in 2010 and moved to India to pursue new opportunities. While the sale was smooth, there were numerous post-sale challenges. “They basically ran down the company within 18 months.”

“I like to build companies, but I also like change. [After five years], I thought about selling the company and rolling it up into a publicly listed company.” 

Don't Leave Too Much Cash on the Table

His biggest lesson learned from that transaction was to never leave too much cash on the table when selling a company. If you remain financially vested, take a seat on the board to retain control and influence the company’s decisions.

He wished he asked more questions to understand how they planned to fund and grow the company. Vamsi would have made sure there was a team in place to follow through.

That experience didn’t stop him from investing in the clinical research space later down the line.

While searching for the right opportunity, he was approached by an investment bank to buy a company called Clinovo –  the seventh company he considered from a macro level.

He thought Clinovo was a clean company with good fundamentals, a solid client base, at the perfect size. “I was willing to pay a higher price, rather than buy a larger company with low profitability.”

Based on his previous experience, Vamsi predicted a huge change in the way clinical consulting would evolve in the next several years. He was prepared to buy and grow the company.

When conducting business diligence, Vamsi’s considerations included,

“Who are the customers? How do they pay? What is the customer acquisition strategy? What is the average customer retention? What’s the profitability?”

“I always feel it’s good to have bankers and middlemen to structure the deal,” Vamsi said.

He didn’t negotiate directly with the seller at all – those negotiations happened between the banker and his consultant, who added a lot of value in terms of structuring the deal. He believes it’s easy to blow up a deal if it’s not handled professionally and maturely. The seller was cooperative and the deal was relatively smooth.

The Buying Side

On the buying side of the transaction, he approached the post-sale integration with lessons from his past experiences, but decided not to use outside advisors.

“There’s a lot of communication that has to happen post-acquisition and that’s what we focused on. Too much communication is always good.”

He now has a team that operates and grows the business.

“Never underestimate anything.” It’s impossible to know 100% of the business when you first do a transaction. You will always deal with unknowns.

“Always overestimate. You always want to buffer. You want to be a little pessimistic.”

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By
Kison Patel

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