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M&A from a Founder's Perspective - Real Story

Show Notes Of Podcast

Show Notes

00:00 - Introduction

02:20 - Strategies of AdEspresso’s Recent Acquisition

03:15 - Identifying an Acquisition’s Value Drivers

06:25 - Conducting Initial Deal Due Diligence

09:42 - How To Focus on Running a Business During Diligence

11:48 - Common Due Diligence Challenges

13:02 - How to Overcome Deal Uncertainty 

14:50 - Mitigating Deal Surprises 

16:53 - Conducting a Deal Without Investment Bankers

18:23 - Setting Expectations for M&A Timelines and Workload

19:20 - How to Time Integration Properly

19:57 - Strategies for Post-Close Success

22:52 - Maintaining Deal Goals Post-Close

23:57 - How AdEspresso's acquisition could've been improved

24:40 - General Advice for Corporate Development Professionals

26:09 - Craziest Deal Encounters 

28:05 - Ending Credits

“You have this growth opportunity, and at the same time you care about what you built and you want to preserve that.“

On this episode

Armando Biondi, Co-founder and COO of AdEspresso, shares the communication and negotiation involved during Hootsuite's acquisition of AdEspresso.

During this podcast, Biondi describes how he strategically communicated during negotiations, how he completed complex due diligence while still managing his company, and how essential trust became between investors and founders. He also give advice on integration and how to ensure post-close continued growth.

“You have this growth opportunity, and at the same time you care about what you built and you want to preserve that.“

On this episode

Armando Biondi, Co-founder and COO of AdEspresso, shares the communication and negotiation involved during Hootsuite's acquisition of AdEspresso.

During this podcast, Biondi describes how he strategically communicated during negotiations, how he completed complex due diligence while still managing his company, and how essential trust became between investors and founders. He also give advice on integration and how to ensure post-close continued growth.

Show Notes

00:00 - Introduction

02:20 - Strategies of AdEspresso’s Recent Acquisition

03:15 - Identifying an Acquisition’s Value Drivers

06:25 - Conducting Initial Deal Due Diligence

09:42 - How To Focus on Running a Business During Diligence

11:48 - Common Due Diligence Challenges

13:02 - How to Overcome Deal Uncertainty 

14:50 - Mitigating Deal Surprises 

16:53 - Conducting a Deal Without Investment Bankers

18:23 - Setting Expectations for M&A Timelines and Workload

19:20 - How to Time Integration Properly

19:57 - Strategies for Post-Close Success

22:52 - Maintaining Deal Goals Post-Close

23:57 - How AdEspresso's acquisition could've been improved

24:40 - General Advice for Corporate Development Professionals

26:09 - Craziest Deal Encounters 

28:05 - Ending Credits

Text version of interview

Here's more on Armando’s background. 

I’ve been the co-founder and CEO of AdEspresso for four years. I focus on effective organization and coordination to generate growth, which I’ve been a big part of. I'm also an angel investor and I invested in the last years in around 45 companies and projects as a way to be involved with the ecosystem and help other finders potentially do a good job with their companies. Finally, I'm also a guest contributor for VentureBeat Business Insider, entrepreneur.com, and Fast company. 

I'm really curious about the exit with AdEspresso. How did it start and how did the initial M&A talks go?

It was around February last year. We were at a conference, and there was Hootsuite there, and some of their confidante guys. They reached out to us very directly saying that they would like to either partner or acquire the company. We accepted and were more than happy to partner up with them. We decided to talk and see if there are other conditions to make an acquisition happen. We partnered up with them and then it moved into more of an M&A discussion. 

When you're going through that M&A discussion and discussing some of the initial terms, I'm curious to know what was your main interest in that negotiating, outside of price?

The culture fit was very important for us, and also the fact that both companies cater to more or less the same type of customers. We had done M&A conversations before, and what was interesting in this particular case was that there was an actual potential thereof going to market as one joint entity instead of two separate companies. We were in a position to choose what was the best direction to go in, so it was mostly a conversation about whether we are going to join forces versus going to market and going in parallel with just, a partnership in place. 

So it was a real long-term view you were thinking about post-transaction and not just getting to close. From there, I'm sure there was a period of negotiating. Did you evaluate other options and just soliciting other interested parties?

That's a piece of general advice that founders usually get, but in our case, so we knew the alternatives well. Regarding other potential acquirers, we were in there already, we knew them already and we had some initial conversation already. In that sense, we knew that there was not as much interest there. That's one angle. The second angle is that we also weren’t much interested. However, this particular company, compared to other players, was the best solution for our type of company. They were our type of company. 

The third thing is that we were profitable and growing, and so we didn't have any pressure to sell. We did talk with investment bankers and we explored alternatives. The conversation with Hootsuite was the most interesting conversation from a long term perspective, and there was potential from several angles.

Things aligned and the value was seen there, and it felt like this was the best option, so you decided to move forward. How did due diligence go?

Diligence is a very complicated and very time-consuming process. For the vast majority of the founders, it's a once in a lifetime experience. And the reality is that the large majority of them never even go through that once. So the best proxy for that is a founding round. The reality is that M&A diligence is like 10 X more thorough than the one of a founding round. You have to go through everything in the lifetime of the company, contracts and, partnership agreements and employment agreements, price rounds, how the business model works, what is the hiring plan or the projection for the next year, etc. 

It's a lot of paperwork and it's a lot of time. It starts fairly slow also because, at least in our case, as we weren't a hundred percent decided on the fact that we wanted to go through the whole thing. We started focusing on conditions that are enough for us to move forward, even if we are not half the percent decided just yet. And so we did the diligence.  

As you become more and more convinced and get closer to the deadlines, it becomes a real effort. It was a very expensive process, priced anywhere between 150 and 300 if not 350 K just from a legal standpoint.

Did you have any backup in case the deal fell through, where you could recover some of that expense? Or are you just out? 

We categorize that as operational experience. If we decide that there aren’t enough conditions for us to move forward at the given moment, or we aren’t sure, but we could potentially decide to pull it at the last possible moment we know that there is a cost to that. However, for a company that's running generating several millions of dollars in revenue, it's not that critical of an expense. Again, our situation was a little bit special because we didn't have the pressure to sell. If you do have the pressure to sell because you are running out of money or a company is going nowhere, it's an entirely different conversation.

One of the biggest pain points during an M&A transaction is on the management team with all these due diligence requests and things. How do you keep that from distracting you over away from the business? 

There are two distinct moments.

The first one is where you are trying to protect the management system as much as possible, so you're essentially working as a filter so nothing is going out to the team. You want to try and do that as long as you can because, at the moment in which you start sharing the news with a team and you start involving the team, it becomes more real. 

On the other side, you're essentially putting in front of these people, something that is very distracting, so there needs to be an actual balance. For example, in our case, before sharing the whole thing with a team, it was just me doing the whole communication, paperwork, and taking care of the process. I decided to push the conversation forward to see first if there are the conditions to make that happen or not until the point that you need to engage the team. Once you do put it in front of the people, you need to be mindful of the time, the people and to structure everything you're putting in front of people.

What would you say were some of the big challenges when you're going through the rest of the diligence process? 

I would say this is probably the biggest one, taking on the initial responsibility onto yourself. Another big one is whether or not this is a good decision that you're making. If you think about that from a founder's perspective, the reality is that settling company is pretty much the biggest sale that any person will ever do. Selling a house is very big, and selling your company is one or two orders of magnitude more than that. So it’s a pretty big decision and there are a lot of questions.

You mentioned a couple of times throughout the deal where you thought the deal is completely dead. Could you tell me a little bit about that? What would be some things that trigger that?

For us, number one was communication and disconnects, because communication is key and it’s critical on all sides. It is critical in a relationship between founders, between the founders and the team between, the founders and investors, and between the acquiring company and customers. We didn't feel that we were getting the information that we needed to move forward with the conversation.

We overcome those challenges by putting those perceptions on the table and talking about them and realizing that there was some misalignment between them and lawyers, so we ended up moving forward on that side. And the other time was when there was a point in the negotiation where we were in there in terms of the things that we were looking for to make the deal happen because our alternative was to keep growing the company independently.  Again, this goes back to us being in the position of being able to choose, and if you can do that, that's the best position to be as a problem. 

Throughout this process, what would you say were the most surprising or unexpected things for you?

The cost of the whole thing was a surprise to me. The other thing was how critical communication was through the whole thing and the number of people that work on a transaction like that. Also, it is realizing how, at some point, it becomes a gigantic trust exercise on all sides. 

From the acquiring company perspective, we are talking about tens and tens of millions of dollars. On the founder’s side, there is someone who is giving away something on which they worked hard for. And from the team’s perspective, there are workdays and weekends, hard work, and years of experience. It's a big change and people are concerned about going to happen to their employment positions, to the company, the culture of the company, or how their job is going to change.

One thing mentioned on this particular transaction, you didn't work with the banker.  Looking back, would you think that would have made a  difference?

 No, because we knew of the markers, we knew the potential acquirers. We were fairly confident that this was the best outcome in terms of potential. Everybody was very happy with it and we were not in a position to have to sell it. The forcing function that you an investment banker usually creates by having alternatives wasn’t necessary. We already had the alternative, and that was to keep the company operating separately. We did not have to sell the company, and we were still a fast-growing company, profitable company, highest that I've been doing per month ever. It was doing more interesting things together in our case. 

Do you think a banker would have helped negotiate a little better terms?

We did speak with a few bankers, but I don't think so. 

This process is pretty taxing. How would you personally describe how consuming the process was for you personally?

It was all-consuming, night and day for 16 hours per day, the weekend included. The tempo was like that for three months during the due diligence. Before that, we had negotiations that were lower intensity. There was some tension there because of course, simply because of the importance of the conversation.

When do you guys start talking about integration in terms of post-closing merger integration? 

It was a few weeks before finalizing close. But again, this was an uncommon one because in our case, we were thinking about the company functioning as an independent business unit within the broader organization. And so there was the decision right there. 

If you are involved in integration, was there much of a process after closing? 

We're still running the company, we're still running the group as an independent business unit.

Now, do they integrate accounting or HR or any functions at all?

We are integrating some functions. For instance, we're integrating accounting and HR. The main goal relates to what makes sense from an operational point or a customer standpoint. Part of the reason for the acquisition and joining forces with them is the fact that we have strong expertise and background in our domain, which is becoming more and more critical and the organization didn't have that strong domain and expertise. There are some operational things and some product things that are happening, but the main driver is what makes sense for customers. 

Another thing that was interesting to us was that Hootsuite is a more mature company, and has a very structured enterprise angle. They have a larger footprint in the world when it comes to social media management. On top of that, they also have a very strong and well-functioning enterprise Salesforce and products. At that point, we have been growing extremely fast for the past three years and thinking about developing Salesforce or enterprise products ourselves. Everything came together in a very synergistic way. 

Are you tied in pretty well with some type of earn-out agreement? Are you incentivized to stay with the team for a while?

There is no earnout, but we do have our retention package as part of our agreement. We are motivated to see the transition through and continue growth for three years. We love what we do. We have been loving that for three years, and that didn't change, so part of the motivation was to play in a bigger playground, with more resources and see what we can do together. The motivation was to do things together in the market. We wanted to put together two things that make a lot of sense and that resonates with the same customers. There was a very similar go-to-market strategy and we wanted to see where we could go with that. 

Armando, what would you go back and do differently?

It was a stressful process, very time consuming and intense, but it was an awesome learning experience as well from a professional standpoint. I don’t think I would change anything. 

What advice would you give to Corp dev teams that are in their shoes, pursuing an acquisition with a company like yours? 

Maybe just try to take the time to understand what motivates the founders. Once you understand the motivation you can understand a lot of the behavior. We were very straightforward in telling what our motivation was, and that goes back to why communication is key from every angle. This will make decisions and take actions that set up the stage for success on all sides.

Would you say is the craziest thing you've seen throughout the transaction? 

The amount of paperwork that we had to sign. There's too much paperwork, you try to keep up and read all of it, but you will not always be able to do so. When you do, likely, you won't understand the legal implications, because you are not a lawyer. This is where you have to trust your lawyers and have good alignment there.

Ending credits

Thank you for taking the time to explore the world of M&A with our podcast. Please subscribe for more content and conversations with industry leaders. If you like our podcast please support us by leaving a five-star review and sharing it. M&A Science is sponsored by DealRoom, a project management solution for mergers and acquisitions. See you next time!

Previous Episode
Next Episode
“You have this growth opportunity, and at the same time you care about what you built and you want to preserve that.“

On this episode

Armando Biondi, Co-founder and COO of AdEspresso, shares the communication and negotiation involved during Hootsuite's acquisition of AdEspresso.

During this podcast, Biondi describes how he strategically communicated during negotiations, how he completed complex due diligence while still managing his company, and how essential trust became between investors and founders. He also give advice on integration and how to ensure post-close continued growth.

Show Notes

00:00 - Introduction

02:20 - Strategies of AdEspresso’s Recent Acquisition

03:15 - Identifying an Acquisition’s Value Drivers

06:25 - Conducting Initial Deal Due Diligence

09:42 - How To Focus on Running a Business During Diligence

11:48 - Common Due Diligence Challenges

13:02 - How to Overcome Deal Uncertainty 

14:50 - Mitigating Deal Surprises 

16:53 - Conducting a Deal Without Investment Bankers

18:23 - Setting Expectations for M&A Timelines and Workload

19:20 - How to Time Integration Properly

19:57 - Strategies for Post-Close Success

22:52 - Maintaining Deal Goals Post-Close

23:57 - How AdEspresso's acquisition could've been improved

24:40 - General Advice for Corporate Development Professionals

26:09 - Craziest Deal Encounters 

28:05 - Ending Credits

Text version of interview

Here's more on Armando’s background. 

I’ve been the co-founder and CEO of AdEspresso for four years. I focus on effective organization and coordination to generate growth, which I’ve been a big part of. I'm also an angel investor and I invested in the last years in around 45 companies and projects as a way to be involved with the ecosystem and help other finders potentially do a good job with their companies. Finally, I'm also a guest contributor for VentureBeat Business Insider, entrepreneur.com, and Fast company. 

I'm really curious about the exit with AdEspresso. How did it start and how did the initial M&A talks go?

It was around February last year. We were at a conference, and there was Hootsuite there, and some of their confidante guys. They reached out to us very directly saying that they would like to either partner or acquire the company. We accepted and were more than happy to partner up with them. We decided to talk and see if there are other conditions to make an acquisition happen. We partnered up with them and then it moved into more of an M&A discussion. 

When you're going through that M&A discussion and discussing some of the initial terms, I'm curious to know what was your main interest in that negotiating, outside of price?

The culture fit was very important for us, and also the fact that both companies cater to more or less the same type of customers. We had done M&A conversations before, and what was interesting in this particular case was that there was an actual potential thereof going to market as one joint entity instead of two separate companies. We were in a position to choose what was the best direction to go in, so it was mostly a conversation about whether we are going to join forces versus going to market and going in parallel with just, a partnership in place. 

So it was a real long-term view you were thinking about post-transaction and not just getting to close. From there, I'm sure there was a period of negotiating. Did you evaluate other options and just soliciting other interested parties?

That's a piece of general advice that founders usually get, but in our case, so we knew the alternatives well. Regarding other potential acquirers, we were in there already, we knew them already and we had some initial conversation already. In that sense, we knew that there was not as much interest there. That's one angle. The second angle is that we also weren’t much interested. However, this particular company, compared to other players, was the best solution for our type of company. They were our type of company. 

The third thing is that we were profitable and growing, and so we didn't have any pressure to sell. We did talk with investment bankers and we explored alternatives. The conversation with Hootsuite was the most interesting conversation from a long term perspective, and there was potential from several angles.

Things aligned and the value was seen there, and it felt like this was the best option, so you decided to move forward. How did due diligence go?

Diligence is a very complicated and very time-consuming process. For the vast majority of the founders, it's a once in a lifetime experience. And the reality is that the large majority of them never even go through that once. So the best proxy for that is a founding round. The reality is that M&A diligence is like 10 X more thorough than the one of a founding round. You have to go through everything in the lifetime of the company, contracts and, partnership agreements and employment agreements, price rounds, how the business model works, what is the hiring plan or the projection for the next year, etc. 

It's a lot of paperwork and it's a lot of time. It starts fairly slow also because, at least in our case, as we weren't a hundred percent decided on the fact that we wanted to go through the whole thing. We started focusing on conditions that are enough for us to move forward, even if we are not half the percent decided just yet. And so we did the diligence.  

As you become more and more convinced and get closer to the deadlines, it becomes a real effort. It was a very expensive process, priced anywhere between 150 and 300 if not 350 K just from a legal standpoint.

Did you have any backup in case the deal fell through, where you could recover some of that expense? Or are you just out? 

We categorize that as operational experience. If we decide that there aren’t enough conditions for us to move forward at the given moment, or we aren’t sure, but we could potentially decide to pull it at the last possible moment we know that there is a cost to that. However, for a company that's running generating several millions of dollars in revenue, it's not that critical of an expense. Again, our situation was a little bit special because we didn't have the pressure to sell. If you do have the pressure to sell because you are running out of money or a company is going nowhere, it's an entirely different conversation.

One of the biggest pain points during an M&A transaction is on the management team with all these due diligence requests and things. How do you keep that from distracting you over away from the business? 

There are two distinct moments.

The first one is where you are trying to protect the management system as much as possible, so you're essentially working as a filter so nothing is going out to the team. You want to try and do that as long as you can because, at the moment in which you start sharing the news with a team and you start involving the team, it becomes more real. 

On the other side, you're essentially putting in front of these people, something that is very distracting, so there needs to be an actual balance. For example, in our case, before sharing the whole thing with a team, it was just me doing the whole communication, paperwork, and taking care of the process. I decided to push the conversation forward to see first if there are the conditions to make that happen or not until the point that you need to engage the team. Once you do put it in front of the people, you need to be mindful of the time, the people and to structure everything you're putting in front of people.

What would you say were some of the big challenges when you're going through the rest of the diligence process? 

I would say this is probably the biggest one, taking on the initial responsibility onto yourself. Another big one is whether or not this is a good decision that you're making. If you think about that from a founder's perspective, the reality is that settling company is pretty much the biggest sale that any person will ever do. Selling a house is very big, and selling your company is one or two orders of magnitude more than that. So it’s a pretty big decision and there are a lot of questions.

You mentioned a couple of times throughout the deal where you thought the deal is completely dead. Could you tell me a little bit about that? What would be some things that trigger that?

For us, number one was communication and disconnects, because communication is key and it’s critical on all sides. It is critical in a relationship between founders, between the founders and the team between, the founders and investors, and between the acquiring company and customers. We didn't feel that we were getting the information that we needed to move forward with the conversation.

We overcome those challenges by putting those perceptions on the table and talking about them and realizing that there was some misalignment between them and lawyers, so we ended up moving forward on that side. And the other time was when there was a point in the negotiation where we were in there in terms of the things that we were looking for to make the deal happen because our alternative was to keep growing the company independently.  Again, this goes back to us being in the position of being able to choose, and if you can do that, that's the best position to be as a problem. 

Throughout this process, what would you say were the most surprising or unexpected things for you?

The cost of the whole thing was a surprise to me. The other thing was how critical communication was through the whole thing and the number of people that work on a transaction like that. Also, it is realizing how, at some point, it becomes a gigantic trust exercise on all sides. 

From the acquiring company perspective, we are talking about tens and tens of millions of dollars. On the founder’s side, there is someone who is giving away something on which they worked hard for. And from the team’s perspective, there are workdays and weekends, hard work, and years of experience. It's a big change and people are concerned about going to happen to their employment positions, to the company, the culture of the company, or how their job is going to change.

One thing mentioned on this particular transaction, you didn't work with the banker.  Looking back, would you think that would have made a  difference?

 No, because we knew of the markers, we knew the potential acquirers. We were fairly confident that this was the best outcome in terms of potential. Everybody was very happy with it and we were not in a position to have to sell it. The forcing function that you an investment banker usually creates by having alternatives wasn’t necessary. We already had the alternative, and that was to keep the company operating separately. We did not have to sell the company, and we were still a fast-growing company, profitable company, highest that I've been doing per month ever. It was doing more interesting things together in our case. 

Do you think a banker would have helped negotiate a little better terms?

We did speak with a few bankers, but I don't think so. 

This process is pretty taxing. How would you personally describe how consuming the process was for you personally?

It was all-consuming, night and day for 16 hours per day, the weekend included. The tempo was like that for three months during the due diligence. Before that, we had negotiations that were lower intensity. There was some tension there because of course, simply because of the importance of the conversation.

When do you guys start talking about integration in terms of post-closing merger integration? 

It was a few weeks before finalizing close. But again, this was an uncommon one because in our case, we were thinking about the company functioning as an independent business unit within the broader organization. And so there was the decision right there. 

If you are involved in integration, was there much of a process after closing? 

We're still running the company, we're still running the group as an independent business unit.

Now, do they integrate accounting or HR or any functions at all?

We are integrating some functions. For instance, we're integrating accounting and HR. The main goal relates to what makes sense from an operational point or a customer standpoint. Part of the reason for the acquisition and joining forces with them is the fact that we have strong expertise and background in our domain, which is becoming more and more critical and the organization didn't have that strong domain and expertise. There are some operational things and some product things that are happening, but the main driver is what makes sense for customers. 

Another thing that was interesting to us was that Hootsuite is a more mature company, and has a very structured enterprise angle. They have a larger footprint in the world when it comes to social media management. On top of that, they also have a very strong and well-functioning enterprise Salesforce and products. At that point, we have been growing extremely fast for the past three years and thinking about developing Salesforce or enterprise products ourselves. Everything came together in a very synergistic way. 

Are you tied in pretty well with some type of earn-out agreement? Are you incentivized to stay with the team for a while?

There is no earnout, but we do have our retention package as part of our agreement. We are motivated to see the transition through and continue growth for three years. We love what we do. We have been loving that for three years, and that didn't change, so part of the motivation was to play in a bigger playground, with more resources and see what we can do together. The motivation was to do things together in the market. We wanted to put together two things that make a lot of sense and that resonates with the same customers. There was a very similar go-to-market strategy and we wanted to see where we could go with that. 

Armando, what would you go back and do differently?

It was a stressful process, very time consuming and intense, but it was an awesome learning experience as well from a professional standpoint. I don’t think I would change anything. 

What advice would you give to Corp dev teams that are in their shoes, pursuing an acquisition with a company like yours? 

Maybe just try to take the time to understand what motivates the founders. Once you understand the motivation you can understand a lot of the behavior. We were very straightforward in telling what our motivation was, and that goes back to why communication is key from every angle. This will make decisions and take actions that set up the stage for success on all sides.

Would you say is the craziest thing you've seen throughout the transaction? 

The amount of paperwork that we had to sign. There's too much paperwork, you try to keep up and read all of it, but you will not always be able to do so. When you do, likely, you won't understand the legal implications, because you are not a lawyer. This is where you have to trust your lawyers and have good alignment there.

Ending credits

Thank you for taking the time to explore the world of M&A with our podcast. Please subscribe for more content and conversations with industry leaders. If you like our podcast please support us by leaving a five-star review and sharing it. M&A Science is sponsored by DealRoom, a project management solution for mergers and acquisitions. See you next time!

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