Episode: 291 |
Paul Cuatrecasas:
M&A Advisory:


Paul Cuatrecasas

M&A Advisory

Show Notes

Paul Cuatrecasas is the Founder and CEO of Aquaa Partners, a London-based, FCA regulated boutique M&A and strategic advisory firm that advises established companies on managing transformation to create exponentially increasing market value, revenue and profits.

Paul is also the author of Go Tech, or Go Extinct: How Acquiring Tech Disruptors Is the Key to Survival and Growth for Established Companies.

In this episode, Paul shares his firm’s approach to tech industry acquisitions.

Learn more about Aquaa Partners on their website:


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Will Bachman 00:01
Welcome to Unleashed the show that explores how to thrive as an independent professional Unleashed is produced by Umbrex, which connects you with the world’s top independent management consultants. I’m your host Will Bachman. And I’m here today with guest, Paul quadric cosas, who is the founder of Aqua partners. Paul, welcome to the show. Thanks, we’ll appreciate it. Thanks for having me. So, Paul, what exactly is a tech acquisition?

Paul Cuatrecasas 00:30
A tech acquisition is generally known as an acquisition, or it could be a large strategic investment of a tech company, by a non tech company, that’s probably the most simple way of describing it.

Will Bachman 00:46
I love the fact that you guys came up with this term and even trademarked it, it seems like such a natural term to exist, tech acquisition acquisition. So I understand that, that uncle partners really does two things you work on the on the sell side working with entrepreneurs, looking to sell a tech company and also with with corporates that are looking to, you know, figure out how to buy a tech company. Let’s start with that second piece. What are and I know that you have a new book on the topic, go. And let’s talk about your book and about about your firm’s approach to this because I know you’ve come up with a really distinctive way of thinking about it.

Paul Cuatrecasas 01:29
Right? Well, the Yes, the book is go tech or go extinct, which encompasses our our longer term view of the world, frankly. So what we see happening, and this is something that, you know, maybe happens slowly at first, and then picks up speed is that across most industries, technology is infiltrating the entire value chain. So there are increasingly there’s digitization, of course, everybody talks about in so many areas, but it’s it’s beyond digitization. Now, it’s automation, digitization, to the point, where companies will frankly rely on humans less and ultimately will rely on humans to design the systems that are carried out effectively by machines with other software or hardware machines. So the the acquisition idea I had about three and a half years ago, or maybe four years ago was just around the time that Walmart acquired jet Comm. And, and that that was a deal that just literally knocked me out of my chair. I mean, it was, it was astounding. To me that such a conservative company with one and a half million employees, the largest retailer in the US would pay $3.3 billion or 13 times revenue for an e commerce platform that only been set up, I think about 18 months before the deal was announced in the form of jet Comm. And, and I just I just was in shock. It’s something you just hadn’t we hadn’t seen before in the retail industry. And it was the type of deal that I had been thinking about for many years, that would happen in the software in the tech world. And it finally did. And the fact that such a conservative company at that time, would would execute such a deal really got got my interest. And so we did some research about two or three months of research to see where this was happening in other industries. And we determined that this was definitely the beginning of a trend across other industries. So for example, in automotive, in March 2016, GM acquired cruise automation for a billion dollars, which was a self that is a self driving software company. And and then around the time, I think about six months or a year after we we decided to form a business around this, I also decided to write a book because as we were having some initial discussions with some of the more established companies in these industries, we realized that it’s it’s it’s still really very new, you know, sort of as a concept. It was still new. And and there were and there still are today, many limiting beliefs that corporates and executives and these corporates have about, you know, can they can they really do it? So that’s a summary really of how we came up with the idea and and what it is?

Will Bachman 04:18
What are some of those limiting beliefs?

Paul Cuatrecasas 04:22
Well, where do I start? I mean, there’s a list of probably over 100 of them. I in the book, I go into the top 10. And I’d say that the one that the two or three that we hear most often are, you know, yes, we see that, you know, tech is growing in value, and it’s it’s growing exponentially. And yes, it is affecting all these industries. But, you know, do we really have to buy a company? I mean, we’re not Google around Microsoft. So yeah, do we really have to have to acquire one of these companies? And the the answer to that is you don’t you don’t necessarily have to until you done the work. And you see for yourself, the the pros and cons of using versus owning. And you’ve got to begin with the assumption that doing it in house is a challenge. Yeah, I’ve seen very few companies, in fact, few come to mind that have done a transformation or digitized, or fully technology enabled through to in house means alone. So one of the advantages, major advantages in acquiring a company, or having a very large, you know, position strategic position in the company, is that you, you now not only own that, that intellectual property and the solution or the platform or the technology itself, but you, you also have the people now in your family, and it’s unlikely you would integrate them directly, you know, into your operations, but they’re in your family, and they’re part of your team, and they’re part of where you’re going, they’re part of your future. In fact, in some cases, they’re going to help determine your future and that I’d say, could be the case with jam cruise where I would say that GM did a reverse takeover here with Cruise and and this was crystallized someone and Dan Amman, the number two executive at GM, moving to CEO of cruise last year, where that’s going to be how how automobiles and vehicles look like in eight or nine or 10 years not going to be driven with petrol by humans, they’re going to be electric, self driving vehicles. It’s a complete and utter total game changer almost like going from the hearts and coarsened car to the automobiles. And so in that case, GM said, you know, we need you the people to help us with fresh ideas and insights and know how and how are we going to be a global leader, as opposed to trying to figure it out ourselves when we know that all of our competitors are doing the same thing. So owning the whole package is really important. McDonald’s saw the same thing with dynamic yield last year where they acquired dynamic yield for reported $300 billion, they had been working with the dynamic yield mobile personalization software for for many, many months, and they had such a good experience in relationship with the company, they decided to acquire the company. And Daniel Henry, who’s the global Chief Information Officer for McDonald’s said, Look, this acquisition is as much about the people the you know, the data scientists that come with us come with the deal. And the speed they bring as much as it is about the the actual, you know, software product. So that’s, that’s one of the first objections we get. Another one is price. So there’s this seemingly generally held assumption that if we’re going to acquire a tech company, it’s going to be expensive, you know, it’s going to be pricey. The multiples are like nothing that we have in our own district. And if we’re going to do a core business, gaffield acquisition or expanded a new geography, you know, it’s going to be within standard industry multiples, but if it’s a tech or software company, the multiples are going to be, you know, very diluted earnings earnings dilutive. And I think that is a dangerous assumption to make. First of all, I don’t think it’s true at all. And I think you’ll even if you look at some of the tech deals, if you look at Facebook, Instagram, when Facebook announced it was paying a billion dollars cash for Instagram, or maybe it was a billion total podcast, bar chairs, for 13 people, that’s how many people Instagram and put at the time, had no revenue. People thought Facebook was, you know, kind of, you know, losing it. And they just weren’t, you know, Zuckerberg was was off on a tangent. And in fact, it’s one of the smartest deals that’s ever been done. Instagram today is probably worth a couple 100 billion dollars, if not more, extremely smart move. And it was not too high of a price. It was a bargain. You could say the same about Google acquiring Android for about 50 million Android today is worth, you know, how many hundreds of billions? Is it worth you to? Same thing, you know, it’s very often that the industry experts and observers can be short sighted when they first learn or they have a price of a deal that’s announced only to over time find that there was phenomenal value that’s been created. And the price was was a very good price to pay. And I think the Walmart shareholders were pretty happy even within the short term of the jet.com deal. So they paid as I mentioned, 3.3 billion, but I think it was within the first 18 months of that deal being announced, the Walmart market cap had grown by 60,000,000,006 $0 billion. That’s a phenomenal return even in the short term for shareholders. And look, the reason is that the jet comm team mark, Laura and his team, were outstanding, they came in and turned around the walmart.com site very quickly, and almost immediately were generating very significant increases in quarterly revenue there, which had a direct impact on on Walmart. So you know, I could go on there many examples, but again, it’s just this this it’s a limiting belief that I think is due to a lack of just a lack of information and a lack of education. Those are and then the third one, I’d say that we hear all the time is okay, let’s say we, let’s say we can acquire this tech company. And let’s say that we can get over the price hurdles, or the week we, you know, we can agree on a price that absolutely makes strategic sense. But then, you know, the people are gonna leave us, you know, what, why would they stay with us, you know, we’re a big established non tech, corporate, we’re going to be, you know, boring to them, or we’re not going to be as exciting. And, again, I think that is, it’s a limiting belief that’s self imposed, and doesn’t have to be the case at all. And it’s one of the reasons for our 12 step acquisition methodology is to tackle these things straight on. And you know, if it’s done properly, this is a way of reinvigorating a company’s strategy, you know, established company strategy and reinvigorating their belief of themselves and what’s possible and when you can align your own strategic objectives and what you want to achieve over the next you know, 345 years for your stakeholders with where the these tech companies are going you align your your objectives with the right one and you have the right kind of discussions around it and you agree on the business plan and you agree on the results that you think you’re gonna achieve, then it becomes very exciting. And and again, this is what McDonald’s has done with dynamic yield jams done it with crews, Walmart’s done it with jet, you know, Prudential is going to be doing it with assurance, IQ, it’s, we can change the world, you know, we’re doing something very special here something different from our competitors, we are becoming fully technology enabled, at least in one part of our value chain, it’s not many parts, like Walmart is now doing. And and that’s exciting to the employees of the of the target company, the tech company, because, look, we tend to take for granted that entrepreneurs slave away, you know, day in and day out for years, and it might look into service, like they’re doing very well they’ve done a series A Series B raising money, and and maybe you know, built up quite a valuable asset. But it doesn’t mean that their lives are not difficult or frustrating. And it doesn’t mean that they still wonder all the time, are we really going to have an impact, are we really going to make a difference to the world, most entrepreneurs, certainly software and tech entrepreneur, set up their companies to really make an impact on the world or to change the world, you know, that is their dream, that is our hope it’s not to make a lot of money. The ones who are most successful are the ones who really want to make a change. Now, dif it’s difficult to do on their own for all sorts of reasons. You get entrepreneurs who are phenomenal engineers, or data scientists and can create solutions, but they maybe aren’t so good at sales, or marketing, or maybe they’re not so good at raising money or at hiring people, or managing people. And they get to a point where they realize, you know, if we had a big brother partner, that would solve all those problems, and it would be a win win. And that’s really what you’re looking for, you know, when you get that, then you can Yeah, you can do almost anything. And, you know, the beauty of that is that I call it a twofer a two, for one, the beauty of it is that not only do the target company employees want to stay stay with you to help change the world. But your own employees don’t talented employees are less likely to leave. Because they’re now part of a different organization, a company that has shown an executive committee and board level that it has vision and it’s executing on the vision. And actually, they want to be a part of that. So instead of being tempted away by Microsoft, or Google or an Uber, or, you know, the latest flavor of the month unicorn with, with with with share options dangled in front of them, they say you know what, I think I’m going to stay because this is just got a lot more exciting, a lot more interesting. So those are just three of the the things that we hear from the corporates.

Will Bachman 13:48
Let’s talk about the 12 step acquisition process. Walk walk me through how you suggest that corporates should do tech acquisitions?

Paul Cuatrecasas 14:04
Right? Well, we break it into three phases, the 12 steps. And we it’s interesting, you know, we thought at the beginning that that we’d be hired from, you know, the first step all the way through the 12 step. And we do we that does happen, but we were also being hired for different phases for different needs. So I’ll just summarize though, that there’s, there’s the first phase, which we call phase zero. And we created it. We created it only about a year ago, after companies were saying, look, we don’t even know where to start, you know, we really don’t even know where to start. They might have a Chief Digital Officer, or head of innovation. Maybe they have an innovation department, but they really, you know, they really don’t know. And so we we just created a phase zero to be able to say, look, we can help you with that. So we’re going to take four to six weeks with you. And we are going to view your industry, your peers, competitors, we’re going to talk to your own executives, you know, could be up to 2030 different executives in the company, we’re going to interview them for an hour on their views of innovation and technology and how it’s affecting their own particular part of the business or the value chain. And we’re going to collect our views, we’re gonna look at some tech company targets as examples to talk through. And we’re going to help do two things we’re going to get clarity on on where in the value chain, should you prioritize the efforts in terms of looking at acquisition, and, and just focus on those top inflection points. And we’re also going to get alignment at the executive committee level, because you need that, you know, there’s, there’s often one or two champions or sponsors of this idea in the executive team. But there’s also one or two who are just dead against it for all sorts of reasons. And very often, you might have the executive committee on board, but then there, there is reluctance at the middle management layer, because there’s an immune system there. And it just rejects anything that’s new. So that phase zero was created to help companies really get through that that initial stage of getting clarity and getting alignment. And then that moves to phase one. And phase one is once there’s clarity on the part of the value chain that is fertile ground for tech position, we then turn over every stone. So depending on the industry, depending on the part of the value chain, we could be looking at anywhere between 10,000 to 50,000, potential target companies all over the world. And when it comes to tech in the digital, you know, geography just doesn’t matter that much. Certainly, today, I think now, with with this lockdown, people realize now more than ever, these companies, the talent can be anywhere. So we do the we do that the difficult work of rolling up our sleeves, and we don’t just rely on databases, but we we get into the Google searches, and we make calls, we need to make calls. And this is so important, right? It’s more important than I think most executives realize. Certainly when it comes back, if it’s your core business, your oil and gas company, you’re going to know where most of the oil and gas development companies are, you know, you’re going to know your own industry. But if it’s, if it’s if it’s AI, or machine learning for the petroleum industry, that’s that’s a little bit different. You may you may not know where they are. So it’s important to do because the databases are often wrong. They either have inaccurate data or it’s old. And and that’s dangerous. The databases also don’t have any forward looking information. websites are out of date, almost in every case. And even with, you know, the more innovative tech companies that have patents, they’re especially out of date, because the the founders of those companies tend tend to Karen, you know not much about their websites, they care about their solution, their product. And then you’ve got product videos, which are good, but they’re also way out of date. So it’s really important, doing this search to not just rely on the superficial superficial layer of information to go really deep. And that’s that’s something that we do because because we know how important this phase is, you know, as, as I tell people very often the reason these academic studies show m&a failing so much of the time in many cases over 50% of the time, is that it was the wrong company. It was the wrong company that was acquired, or it was it was done in the wrong way. But it’s got to be the right company. So we do that work. And then once we have a shortlist through, you know, a couple of months of work, typically sometimes three months, we get it down to a maximum of 30 companies from 10,000 or 50,000, down to 30. And then we move into phase two, and phase two is contact with contacting engaging with those 30 companies. And we advise our clients to do this on no namespaces. Because if it’s, you know, I’m just gonna pick a name out of the hat here, British Airways, British Airways, were to pick up the phone to some software company, you know that the entrepreneur might think why we just got a call from British Airways, you know, they maybe they want to buy us, you know, that’s just that’s just not not the way to do this. You know, that’s just, I would say that’s just wrong. The way you want to do this is to is to get the right information on these companies first, before engaging a proper discussion. Unless you already know the target from having work with them in a in a supplier or commercial relationship, which is also fine. Nothing wrong with that at all. It just tends to be a limited universe of companies. But what we do with those 30 companies is we will call the the founder or the CEO or one of the shareholders on the board, maybe maybe now non exec and ask all the questions that we really need to ask first to get the answers which is everything from Why did you start your company? What inspired you to do this? And how’s it gone? Do you like? Do you like hiring people? Do you like firing people? Do you like raising money? Do you do you want to sell the company one day? And if so, to whom? And why? What are the real drivers? What are your challenges and we asked about the numbers and look after doing those calls, we tend to end up with you know a list of anywhere between three to seven companies that Really quite special, and that we’re excited by. And that then moves into the next phase of contacting them, but to meet and have a proper discussion, and when we, we meet with them, they’re meeting with our client for the first time, ideally, and we and our client turn up with the whiteboard in our boardroom and the target company’s in the center of it. And when they say, hey, john, you know, what, why, why do you have us in the center of your whiteboard there, you don’t even know us, you know, we haven’t even met before. And we say, Well, you know, Bob, we’ve been talking about you every day, for the last three months, we know everything about you, we love how you do this, and how you do that. And we think, you know, we could change the world somehow, if we did this together. And, you know, we’ve already thought about how we could partner and that’s why we’re here today. Look, we’re not here, here, here to here to buy you anything, necessarily. This is just a discussion how we could partner. And we’ve already given a lot of thought, and we just wanted to share it with you. And, you know, if you do that in the right way, it’s extremely powerful. First of all, you know, these, these companies at the end of the list shortlist tend to be among the very best companies that you’re going to find. And the best companies get calls every day, you know, they get calls from VCs, they get calls from corporates, and, and but they don’t get calls or meetings like this, you know, this really is an entirely different approach. And it’s all about that target company, and why they’re so special. But having really done the homework first, you know, it’s the opposite of, of just turning up with a check. You know, we’ve you know, we’ve we’ve studied you and we want to buy your, this is different, this is a genuine partnership, and it’s focusing on Win win. And a big part of it is people and culture. And that can start to come out in that first meeting. And if it’s done well, then that’s where the emotional bond is created, it’s one of the things that helps support the the target company, management and team staying for a long time, because they’re beginning to form, you know, the excitement about the next phase of their future. So, once once that is done, that it moves into the final phase, which is valuing the the assets in the company, but also in an in an unconventional way, you know, valuing the intellectual property, valuing the people doing psychometric testing of the people, looking at the patents, all the things that you would expect, it’s kind of beginning the the due diligence, and then, and then its execution. And by the time you’re finished, and the last step is, we call it leverage, which is the first 100 days and ensure that everything that was planned in the business plan before the deal was completed, is actually on track. And that requires, in some cases, some some post merger, integration work, but more as insurance policy, because if you do this, right, you really should need post merger integration, you really shouldn’t you bring it in as an insurance policy, but that’s really it. So but but by the time you finished, you should have a deal, that that we call, you know, is relatively low risk. So so you’re you’ve done this, this process in a way to really reduce your risks to all those limiting beliefs that a company may have at the beginning are gone by the end of it, and the board is approving a deal that they’re really excited by and the board, most of the board members are very excited by it management’s excited, and everyone has a fairly high expectation of it being a dramatically value enhancing deal. That sums it up.

Will Bachman 23:24
How do you go about as a practical matter, filtering down from 10 to 50,000? targets down to 30? or so? Could you could you make it specific and maybe sanitize a real world example of what germ theory used? Because that sounds like the big. It sounds like a big part of the job?

Paul Cuatrecasas 23:45
No, it is it is you’re actually right. It’s painstaking work. And, you know, yes, we have all levels of people involved, I mean, I will get involved. Because it’s that important. And so the criteria tend to be, you know, four or five primary criteria in the first layer of the search when you when you’re going to get the 10,000 down to, let’s say, 15,000, down to 2000. And the criteria could be funded versus unfunded. It could be number of employees, it could be revenue, it really depends on what’s most important to the client, for that particular value, chain inflection point in that industry, that tends to be four or five different criteria, and we just crunch through it. So we we go through all the databases, the ones we subscribe to, as well as the ones that are, you know, publicly available. And then we do a manual search on Google using certain key key keywords to be sure we don’t miss anything. And that’s our long list and then we put the long list into a spreadsheet and and then we go through that spreadsheet and includes a company description as well which becomes a The important bit later on, but we go through that spreadsheet very carefully. And then we, you know, once once that list is narrowed down to 2000 or so, then we go through each individual company and we go to their website, and we go to the website, and we go to the product video, or we often will go to articles and press that have come out about the company, because very often that as I said, the websites are not up to date. And so we will do that for each and every company. And depending on the importance of the, of the of the of the of the actual search to the client, we it may be more than 2000. If it’s quite a wide, quite a wide value chain point. And that is the case for some clients. They’re not actually they they’re not actually sure, at the front end of the value chain, let’s say from raw materials, production, procurement, etc, that they you know, they just don’t want to miss anything, it means a lot of companies, and then we’ll just do it for more, you know, since 2000, will be 5000. But it’s but yeah, the answer is it’s it’s painstaking work, it’s rolling up our sleeves, it’s going into the website of every single company, and going into press articles to really check. It’s a bit like when you’re, when you’re evaluating the enterprise value of a large public company, you don’t want to necessarily at least we don’t trust databases, even though they’re vastly improved today, from from 510 years ago, or 20 years ago, we still go into the press releases, and we check for events that may have caused, you know, shares to have been issued on a diluted basis. So what’s there? Were there options awarded to a new executive? Were there was there a bond issue that’s convertible into warrants. And so we’re always checking up until the last minute of when we have to, to issue or publish that the enterprise value of of a company, we’re checking all the news to make sure that it’s up to date? Because not all databases are actually up to date to the minute or up to the date to the last day or week or month.

Will Bachman 26:59
Yeah. You mentioned that one of the steps is contacting the company on a name basis. And asking them a bunch of questions. You mentioned sort of, you know, how many employees do they like hiring? Do they like, you know, sales, etc. If someone just randomly called me up and says, Hey, we want to ask you all about, you know, my own company. Like, I’d be like, bugger off, you know, I got better things to do. And, you know, answer a bunch of questions and reveal private stuff to some random consulting firm. I’ve never heard of Sure. I mean, no offense. Sure. So like, No, no, it’s not random. That’s not random. It’s nice. So how do you get companies to actually, you know, answer the phone and take you seriously and answer those. Yeah, like, really private questions?

Paul Cuatrecasas 27:44
Yeah, well, it’s done very professionally and very carefully and with great consideration. So we ensure that the introduction, which we typically do by email is properly prepared, we make it clear that we’re representing an industry participant who is considering its strategic position and is considering different companies, for partnerships in different areas. And we typically would outline the specific area of potential partnership, in that email, we describe ourselves and give our our particular credentials and our track record. And and we never have a problem, you know, getting getting that meeting or that call. I mean, I don’t I can’t think of a time, you know, that in the last 20 years where we have ever had that problem. And the reason is that, you know, this is what we do. I mean, we’ve been doing this every day, in one form or another for the last, I mean, nearly 30 years now, in my case, and so maybe, maybe it’s a bit of an art, but we’ve never had a problem getting that call or that meeting, and it’s a serious conversation. I mean, we’re not calling them up to say, you know, we want to sell your company, we want to raise money for you. It’s, it’s no, we’re bringing, we’re bringing something to you. And this should be a value to you, in fact, how we advise our entrepreneur, tech clients, who are looking to grow, we say to them, when they ask, what can we be doing to grow our business faster and to scale? My first answer is, you know, if it’s not about people, it’s partnerships. It’s finding partners, or joint ventures or affiliates, or some way of leveraging an asset that you don’t own and you wouldn’t be able to own very quickly or easily or, or cheaply. But somebody else has that asset that you could really leverage very effectively. And by the way, they have an asset that they haven’t sweat or haven’t monetize as well as they could. And if they could find the right partner for that asset, then they would also grow in value. So it really fits with that spirit, that we’re bringing something that, you know, we believe potentially could be hugely valuable to that tech startup company. Now, they don’t have to answer every question. So that’s a different question. I mean, The question is, what are they willing to answer? And when and they don’t have to answer it all on the first call? You know, they usually do. And that’s part of, I guess, the way that we have these discussions that we’ve been doing for so long. It’s it’s a very natural, relatively informal discussion. And I think they trust us that it’s not something we’re going to publish or share, apart from with our client, on the basis of confidentiality, and it just works. Yeah, we’ve, we’ve never had a problem with it.

Will Bachman 30:32
Are you generally you mentioned introduction? Are you generally getting introduced to that company? from sort of a mutual mutual connection? Or?

Paul Cuatrecasas 30:42
No, no, no, we’re, let’s remember, our DNA is investment banking DNA. And one thing that investment bankers should be very good at, is making cold calls or getting through to anyone. I mean, that is something again, we’ve been doing day in day out for many, many, many years. So it’s, it’s part of what we excel at, is getting getting that call with anyone. We don’t we don’t need to be introduced. I mean, it doesn’t hurt and we can be, but we don’t really need to be. And I think that’s another misnomer in the in the industry, which is, well, if you’ve got a connection, or you can get through to someone that would really happy to actually today, it doesn’t really matter that much. Because what companies want, is they just want to cut through to the truth and get to the value. You know, they Yeah, I mean, not that relationship don’t matter. Of course they do. You know, they’re extremely important, always will be as, as is trust. But if you can establish trust, through credentials, and through, you know, track record and through Association, then it’s, well, let’s just get, just get to the truth, let’s see if there’s something interesting here or not. And, you know, one of the consolation prizes for our clients, and even for the target companies, is that they just met someone in that, and I don’t mean us, I mean, our client, that they otherwise, you know, wouldn’t have met or wouldn’t have known. And that’s valuable, you know, if you’re, if you’re a startup entrepreneur, you know, the one thing you want to do is make connections and get visibility and get out there, especially with larger corporates who already have the channel and the brand, and the Salesforce, you know, and, and everything that, frankly, you would want as you’re growing. So, you know, it’s, it’s, it’s only a good thing for both companies, as long as there’s trust. And, you know, certainly we don’t have any expectation that any of the, the target companies we call would be, would be releasing any sensitive or confidential information. That’s that’s typically not not necessary.

Will Bachman 32:43
You mentioned a few times that use a number of different databases, can you talk about some of the databases that your firm finds helpful?

Paul Cuatrecasas 32:52
Well, you can get, yes, you can get quite a lot of data, you don’t need all of them quite a lot of data from Kappa Capital IQ, facts that pitchbook traction, CBN sites, crunchbase, you’re gonna you’re gonna get most of, of what you need from that from the companies that have had some activity, some activity, you typically meaning, either raising some type of capital could be from angels, or friends and family, you typically would show up in a database or you’ve registered as a company in a country, then you will often also turn off on a database, and maybe they’ve got your website. So you can you can capture, in our experience, 80 to 90% of the company’s through through that method, maybe 80%. But then there’s the other 10 or 20%, that you’ve got to get to. Because that’s often where the gold is. I mean, I mean, that seriously, it really is where you can often find the jewels, where, and we’ve had a client recently on the sell side, so an entrepreneur, that that didn’t even have a website, they’d been around for eight years limited company, growing and very profitable, with a tech company, but it wasn’t on any radar screen wasn’t in a database. Nobody knew about it. And we found it was just referred through one of our other clients. And we’ve had another with another two of those come through in the last couple of months, and they are out there. And Andy’s, in my mind, having been doing this for so many years, in my mind, these companies are the ones that are truly special for all sorts of reasons. And in many ways, can be more special than companies in the same sector that have 10 times as many employees and have raised, you know, 10 times as much capital and it’s free seed round and have the best VCs in there. You know, that doesn’t mean that for a larger corporate, that that is the right type of target. You know, there’s there’s no Nothing here that’s automatic. And as I say every company is different has its own DNA, just like every human. And just like every marriage and relationship between two humans. So is every marriage between two companies. It’s exactly the same. It’s, you know that it’s the culture. It’s the it’s all the subtleties, all the intangibles, all the things that you don’t necessarily put a number on, that ultimately can determine how successful these marriages are. And those are the things that, you know, we do try to admit it’s, it’s almost impossible to pick all that up in early stage screen. But, you know, you really, when you’re trying to find that gem, that really special asset relationship, you got to dig, dig deep. And by the way, they’re not all small, right? So the one of my favorite acquisitions, which was announced last September, was Prudential financial in the US acquiring assurance, IQ assurance, I think it was for $2.2 billion. And assurance IQ had only been founded four years earlier, and I think only had a couple 100 employees. But they had amassed, I think 15 million customers, because and by the way, they didn’t raise any money. They had never raised any venture capital money. They didn’t even take in friends and family. I don’t think it was bootstrapped. two founders who bootstrapped a company and in four years sold it to Prudential for over $2 billion. That’s the world we’re living in today. You know, there are amazing things that can be achieved by really talented entrepreneurs, and in many cases without having to raise capital. So I mean, that’s if I were to leave any kind of message or lesson for, for others listening, it would be you know, no pain, no gain, you know, you got to do the hard work. If you really want to find the gems and produce something extraordinary. Then you got to dig deep into through the hard work.

Will Bachman 36:56
What impact Have you seen so far from the Coronavirus on the whole world of m&a?

Paul Cuatrecasas 37:04
Well, I don’t think we’ve seen a bit of apart from the obvious short term, everything’s on pause, or some deals have been cancelled. I don’t think we’ve really seen the true impact of this yet. It’s just too early. And the reason I say that is I think we’re seeing false markets at the moment. So we’ve had a correction. And different markets have corrected at different levels. So if you look at the US markets, especially the the s&p and the NASDAQ, they probably corrected at all I mean, they they’re in many cases, most tech companies are up, not down. So from a market perspective, we really haven’t seen the fallout yet. And I think this is the big question is once we start to come out of the false markets, and I don’t know when that will be, nobody does me more Buffett will be the first to tell you, you know, that that no one has a crystal ball, including him. But once we come out of the false markets, then we’ll know what the impact is on on m&a because it’s, it’s going to hit valuations. And I think we’ve I think it’s only begun my personal view is, you know, we’ve had the first wave and the Elliot wave theory, we’ve got one or two more to go, we’ve got a long way to go in this from a market perspective, I think we can certainly expect to see inflation in 2021. That’s one of the reasons why the markets are holding up like like they are because you want to be in hard assets, you know, property stocks, gold, etc. And those kind of times. But there’s no doubt about it in my mind that m&a is, is going to be very selective in the next 612 24 months. But if it’s going to be active anywhere, it’s going to be active in tech. And that thing, that’s I’m pretty I’m pretty sure about that. I mean, especially in the hot areas like AI and machine learning. And then to a lesser extent cloud, cloud hosting, and and then I would say, we’re gonna see a lot of activity in 3d printing and drones, you know, and certainly in food and food technology. I mean, there’s just so much happening. And there’s, unlike the last, I mean, I’ve lived through two crashes. I lived through the nuclear winter of 2000 to 2003 2004. And also the credit crisis of Oh 809. In the first tech crash nuclear winter, I didn’t know if tech was coming back, you know, back in 2003. It was it was still early days, you know, is still you know, is was was tech just the thing was just a trend was it just a.com boom, and then it busted. And that’s it. Today, I can tell you for sure that no matter what type of crash we get, whether it’s hyperinflation or its, you know, GDP plummeting over the next 612 months, it doesn’t matter. Nothing is stopping tech, nothing. It’s absolutely become the force of gravity. And it is charging through every single industry and it doesn’t depend now on cash being available to fund it. Because, as I said, with the assurance IQ example, clever talented entrepreneurs can do incredible things by bootstrapping their companies and by creating solutions that companies need. And if they do that, they will grow their business and they will generate revenue and they’ll go on to succeed. So I think from an NA perspective, tech m&a will will still be around. We can’t give you a view on to what extent I think again, next 612 months we’ll be down. But it’s a great opportunity for sure for the established corporates now to start talking to the tech companies that are on shortlist. And we’ve had, we’ve had discussion with our clients for the last year, year and a half about a crash list. Not knowing that we’d have the Coronavirus it. But the crash list has just been you know, we’ve had 1010 years of a straight Equity Line essentially, certainly in the US the s&p 500 and maybe many of the European markets. And that’s because we’ve had near zero interest rates. Fundamentally, that’s the most fundamental cause. We’ve had near zero interest rates for 10 years, which is also an anomaly. You know, that’s not normal. We’ve had a 35 year bond bubble with declining interest rates over 35 years. And so that’s carried equity markets. So we were already saying to our clients, you know, form your crash less because we’re going to have a crash. And so is this the crash? It’s not yet. But it carries significant probability that it will become the crash and a crash in my mind is when you’re reaching this maximum pessimism when you just don’t want to touch stocks. And today, you can read the news, you got plenty of people saying, Oh, you know, it’s a it’s a good time to buy you get thing? No, that’s there’s there’s not enough pessimism in the markets, right now to be calling it a crash. I mean, that’s, that’s without looking at actual numbers. So. So yeah, we’ll have to see, but m&a will be down but But nevertheless, selective and strong in certain areas of check,

Will Bachman 41:49
right? How do you keep track of all the information that you gathered during one particular project? Do you have some kind of CRM or some kind of database on targets that you add that information to over time, so that if you do an interview with one tech company on one project, maybe it isn’t a fit, but then a year later? Would you still have that information accessible for other clients? Yes,

Paul Cuatrecasas 42:18
we do. We do. However, you know, I have to say, It hardly matters anymore. I mean, that mattered quite a lot 1520 years ago, but today, it doesn’t really matter so much. because things are changing so fast. I mean, that, that is the core concept that underpins our, our whole tech position thesis and my book, which is exponential change. I mean, this is, you know, the the Met, the rate of change in many industries, is beyond Moore’s law. And I was just watching a xo works webinar or summit last night showing how the cost of, of DNA gene sequencing has come down, you know, dramatically, the cost dramatically faster than it would be determined by Moore’s law. So exponential change means that the information that we got on a company six months ago is already obsolete, because things will have already changed significantly, at that company. Now, some of the core information, of course, wouldn’t change in terms of why did we set our company up and But typically, the end of the day, they’ve already pivoted in some way, or there’s been some course correction in their business plan, or they would have won new clients, which would have caused them to rethink what what products solutions are going to launch. I mean, just so many things change new people, people leave people people join. So it’s valuable, but it’s why I say data bases are out of date. Because everything moves so fast. I mean, look, even, even accounting information, it’s a fuzzy, fuzzy approximation of a distant past. It really is, I mean, it gives you some basis on which to make a judgement. But value is is only determined by the future. You know, it’s the core concept of a DCF, you’re going to discount future cash flows, what are those cash flows going to be, but it’s all about the future. And it’s, it’s what, you know, Zuckerberg would have seen in Instagram, when he acquired it $4 billion, would have had no revenue and 13 people he could see, he could see that, that actually, even if it didn’t work out, that they could probably add enough value to Instagram, you know, in the first six months or 12 months, that if it didn’t work out, and the way that it has worked out, they probably could have sold it for 5 billion or 10 billion, you know, it wouldn’t, it wouldn’t have been a loss, it wasn’t really a risk to them. And so, you know, when it comes to, to data, it’s not about data anymore. I mean, data is everywhere, data is becoming more and more of a commodity. And it’s now about insights. It’s funny, we’re saying this, even when we’re just some people just saying, well, data is the new oil. Well, actually, I think we’ve moved beyond that already. And we’re moving into insights. That’s based on constantly changing and evolving data. And that data is moving faster and faster. And a lot of it has to do with human behavior, which is also So change. I mean, it’s just been super to turbocharged by Coronavirus in terms of human behavior. So this is I mean, look, this is what’s exciting to me is is being able to keep up with the change and providing insights that are current and that, frankly, relate to what we can expect in the future rather than what we saw back in the past.

Will Bachman 45:25
Fantastic. Well, thank you so much for joining today. Paul, what where’s the best place for people to find you and find your firm?

Paul Cuatrecasas 45:37
Well, best best thing would be to just under our website, which is Uncle partners calm, that’s two ways. Or you can email me policy at Aqua partners comm probably the best way to to get in touch with us. Fantastic. Well, I’ll

Will Bachman 45:49
include those links in the show notes. Paul, thank you so much for joining today and helping tell us about acquisitions. Thank you. Well, I really enjoyed it.

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