Exploring succession plans or actively preparing your company for sale? It is helpful to hear directly from peers who have been there before. Our 2019 Seller Panel includes four managers from our businesses who will share their experiences selling their businesses to Perseus Group, Constellation Software Inc.
Daniel Zinman: Okay, we're ready to get started. Thank you very much and welcome to today's Webinar: Selling Your Software Business, hosted by Constellation Software Inc. ("Constellation"). I'm Daniel Zinman, and I'm on the acquisition team here at Constellation. I'll be your host today. I want to provide you with a brief intro to Constellation. Here at Constellation, we manage a portfolio of hundreds of software companies that we've acquired over the past two decades, and most of the software companies that we've acquired have been small-to-mid sized, industry-specific software companies that employ anywhere between 20 to 100 people on average, and most were sold to us by owner operators that were looking to retire or pursue other business interests. Today, our diverse portfolio of software companies generates over $3 billion USD in annual revenue, and we continue to grow through acquisitions.
In today's Webinar, we're going to showcase the stories of four software businesses that we've met through our travels. Three of them were acquired by Constellation, and one of them chose to sell to another professional buyer. The panelists on today's Webinar will share their personal experiences on the entire acquisition process, from contemplating a sale all the way through to closing and beyond. Regardless of whether you're thinking about selling your business this year or in ten years, we hope that you learned something valuable from their personal experiences and that you leave today's Webinar with a better appreciation for what it means to sell your software business.
We've organized today's Webinar into three sections. We're going to start off by introducing each of our panelists. I'm going to give each panelist an opportunity to provide a one or two minute personal introduction. We will then moderate a 20 minutes panel discussion consisting of five questions for our panelists, and we'll conclude with a brief Q and A section to address some of the questions that were submitted through the chat panel. So if you have any questions, please submit them through the chat feature, and we'll get through as many as we can at the end.
So let's get started with some intros, starting with Cha Loh.
Cha Loh: My name is Cha Loh. I run the financing system vertical for Constellation Software. We focus on software for asset financing and equipment financing for a bank and lease company. I joined Constellation in 2008, constellation, and at that time I was general manager of a small company. Now I manage all business units in the financial vertical.
Daniel Zinman: Thank you, Cha Loh. Next, I'm going to turn it over to Randy McIntyre to introduce himself. Off to you, Randy.
Randy McIntyre: Thank you, Daniel. My name is Randy McIntyre and I run Dealer Information Systems. We serve agricultural, construction, lift truck, and truck refrigeration dealerships. It's a full service system that handles inventory, whether it be heavy equipment or parts. We do full service scheduling and all the way through to accounting. We also have deep communications to their manufacturers.
I've been with DIS for about 33 years. Well, I was with DIS for 33 years prior to the acquisition, and this June will mark 35 years for me.
Daniel Zinman: Thanks for the intro, Randy. Next, I'd like to turn it over to Adam Zimmer.
Adam Zimmer: Thanks, Daniel. Obviously, Adam Zimmer. I'm President/General Manager of Campana Systems, which is a company based in Waterloo, Ontario, Canada. And we provide solutions for Canadian and US Auto Clubs around membership, roadside assistance and travel, and we serve millions of members. I had previously founded and sold a software company, Area Software, and at that company, we had developed software to help onboard customers. And after a few years, 13 years in fact, I sold that business to a partner firm that we had done business with. I joined Constellation in 2016, about three years ago, and currently run Campana after the previous general manager retired.
Daniel Zinman: Thanks, Adam. Turn it over to you, Scott.
Scott Smith: Thanks, Daniel. So my name is Scott Smith and I'm the President and General Manager of the Constellation Real Estate Group. This is a group that provides vertical market, front office, and back office solutions to over 500,000 real estate agents, franchises, and mortgage professionals. I joined Constellation in 2015 — in October, we were acquired. I was running Market Leader at the time and have been running this business for more than a decade. Now, as part of Constellation, I oversee a portfolio of 13 different software companies that we've acquired in the real estate and mortgage space.
Daniel Zinman: Great. Thank you all panelists, for your introductions.
Daniel Zinman: We're now going to move into the second section of our Webinar: a Q&A moderated panel.
First question being, "when and how did you decide the time was right to sell your business?" To start us off, I'm going to ask Randy to provide us some background.
Randy McIntyre: My partner and I had worked together for a lot of years. He had lost interest in growing our business and was looking for an exit strategy. The management team that we had there and I knew that we had a pretty strong business, and we had a vision of where we wanted to take the company, but this was going to require buying my partner out. So, I actually began entertaining calls from prospective buyers, of which there were many, but I wasn't in a particular hurry. I was actually looking for the right investor. And after due diligence of Constellation, we agreed the timing was right and appropriate to move forward.
Daniel Zinman: Thanks Randy. Adam, maybe you can share a little bit of background on how you decided time was right to sell your business.
Adam Zimmer: Sure. I'd been running my business for 13 years with a founding partner. Over that time period, our business has grown significantly, and we achieved market penetration with all the major clearing firms in Canada. However, our next challenge was to move beyond our beachhead at one of the big five Canadian banks to the remaining four. However, talking to them, they were concerned that we just weren't a large enough software company, and we were left with a choice to either raise additional capital or find partners who could help offer a solution to those larger clients. Certainly raising capital would have required a larger exit to give a return to those new shareholders, and it would have required a lot of key hires to beef up our team. After 13 years without any liquidity for shareholders, it seemed appropriate to consider alternatives, and we found one of our partners was reselling our solution and was interested in purchasing the firm. So, we did a deal with them, and they were able to take the market synergy.
Daniel Zinman: What were some of your concerns or considerations when selecting a partner to sell your business?
Scott Smith: Sure. When we decided to sell, we talked with a number of potential acquirers, and we focused on finding a good price and a partner that would allow us to continue to run and grow the business.
We had a number of major real estate franchises and brokerages as partners, and for us, it was important that we could continue to service these businesses. So, we needed a partner that would allow us to keep investing in these relationships. Also, we have many employees that have been around and part of the business for more than ten years, and we wanted to be able to continue to invest in the time spent by them building our business so they could reap those rewards and the success there. And I say, lastly, we wanted someone that would allow us to operate and grow the business versus an owner that would come in and either integrate us or give us their playbook on what to do.
Daniel Zinman: Great. Thanks, Scott. Randy, I want you to share some commentary on some of your concerns and considerations.
Randy McIntyre: Yeah. Well, as I stated before, we needed to buy my partner out. At that point, I decided I was going to put together a grid of really understanding the companies that were calling on us, and I actually narrowed it down to just a few. But, there were two key components that I was looking for, one was knowledge of what we do, and two was a commitment to investing in the business. And that really did narrow it down. And in the end, in speaking with Daniel, who's moderating this, he gave me insight into how Constellation manages the businesses that they acquire. And it was really exciting to me how I could share what I know with other general managers, which kind of compelled me to pursue Constellation at that point.
Daniel Zinman: The next question that we are going to turn to is, "what does the process look like to actually sell your business?" And for that, I'm going to turn to you, Cha.
Cha Loh: Sure. I think I'll focus on the due diligence process. So we received an offer from Constellation, we accepted it, and then there's quite an extensive due diligence process that Constellation proceeds through. They ask a lot of questions, really, to find out the details of my business and to understand if there were any exceptional problems or circumstances. They look at all our customer contracts, vendor contracts, any customers we've lost, and whether there are any legal proceedings. And what I found, as I was a small business, was that trying to get all of that information can be daunting, especially if you're an owner who doesn't want the employees to know that you're thinking of selling. But at the end of it all, I found that I knew my company and all the details of my company much better than I did before. One of the other parts of due diligence is that Constellation uses, I think everyone does, a virtual data room for all the document gathering. So, everything needs to be provided in an electronic format for all documents. And I think we all have contracts that were signed 15 or 20 years ago. There's a lot of searching for storage files and then scanning them.
And then close to closing, Constellation does an on-site due diligence where there's a visit from a small Constellation team, usually for one-two days where they ask and address any final questions, and they answer that in a Q&A setting. They also meet one-on-one with all the key employees, and I found the on-site visit to be a very positive thing.
I think the overall thing is that it's quite a long, thorough process, but I found that I really learned about my company a lot better than I did when I started it.
Daniel Zinman: Great. Thank you, Cha. Adam, maybe you can share some insight into what the process looks like from your perspective, having sold to another business.
Adam Zimmer: Sure. So the process was a little bit less formalized, and I think that was largely the result of the acquirer not being as experienced as a Constellation. So, it certainly proceeded more in fits and starts. But, I would echo Cha's statements that it certainly does force you to kind of go back and be a bit of an archaeologist at times. Certainly, it is something that when you come out the other side of it, you do give a bit of a sigh of relief because it does validate all the controls and policies you've had in place for many years across many employees. And that's a nice feeling when you're able to put it behind.
Daniel Zinman: Next, we're going to turn our discussion to the experience post-acquisition. Cha, maybe you can share some of your experiences.
Cha Loh: Certainly. As you can see, I joined Constellation in 2008. I came on board because they acquired my company, and my intention was just to stay on with Constellation for six or nine months to make sure that my staff and my friends were all looked after, and I'm still here over eleven years later. What I have found is Constellation is a very open and transparent company to deal with, and they're very fair in dealing with you. A major change for me was being able to hand off all the routine admin and accounting tasks that take so much of my time as an owner and to be able to focus on actually making my little business better. So focusing on the customers, on the product development, something that we hadn't achieved before, which is being profitable.
I think one of the challenges of being an owner of a small business is always the feeling that you're alone, and it's a very invigorating and supportive environment. At Constellation, we meet at all levels, both formally and informally, and we can reach across to a lot of other General Managers and businesses at any time to discuss any problems that we face because someone in Constellation has faced them before.
So, in summary, I would say that the feeling I have is that it's not your company anymore, you sold it, but it actually feels like it still is your company because you get to run it and be very personally involved in the business.
Daniel Zinman: Thanks, Cha. Scott, do you want to share a few words on what the experience has been like for you post-acquisition?
Scott Smith: You bet. So for me, Constellation has been a really nice hands-off owner. Constellation has made it easy on the core GNA side of the business with financial and HR systems and also with some core operating metrics that we can all run and measure our businesses by.
With our team, we've been free to act as owners. We get to make the right business decisions both for us and for our clients. We have access to a Constellation Playbook, which is a nice set of shared best practices that we've been able to choose to apply where we see fit, and it's been very helpful for us. We've been able to learn from the other businesses in the portfolio, so we can make ourselves more efficient and more profitable. I'd say lastly, regarding the experience post-acquisition, we've been able to grow our portfolio to 13 companies now, and a very core group of the leaders in our businesses from the original acquisition have a much broader span of control than before. So, today I spend about 70% of my time overseeing the portfolio companies and about 30% of my time focusing on companies that we would like to acquire, which has been a great experience.
Daniel Zinman: So for our final question, we're going to turn to is what advice would you generally give to others looking to sell their business? Starting with you, Randy.
Randy McIntyre: Sure. I think the first thing you need to do is understand your goals, and deep down, you already do. But I'd recommend writing it down and really having some introspection on that. Do you want to exit the business? What do you want for your staff? Do you want to stay and run the business? These are just some of the questions, but understanding your goals helps you put together the key points that you want to look for when you do your due diligence on the company that would be acquiring you, and that's every bit as important as the due diligence they do on you. For me, I was looking for a company that was committed to allowing DIS to grow and, in fact, make us stronger than we were. And I can say two years post-acquisition that I'm probably a better manager now than I was two years ago, and that is through the shared experiences I had with other GMs.
Daniel Zinman: Thanks, Randy, for sharing your perspective with us. Scott, do you want to talk a little bit about the advice you'd give others generally looking to sell their business?
Scott Smith: Sure. So, firstly, I would say engage closely with the possible buyers and get a feel for who they are and what they're looking to do with the investment. So, understand what their motivation is. For me, we had a couple of suitors that were trying to acquire us and, in the Constellation case, it was clear that the Constellation team wanted to understand what we were looking to do, and we, as the operators of the business, wanted to continue to run it. So we got an alignment on that very early on in the process. With the other two companies that were looking to acquire us, it felt more like an acquirer that wanted just the assets, the revenue, or the technology of the customers, and they were looking to increase the value of the other holdings they had. And it felt like we would not be able to act as owners. We would be part of a bigger machine there.
Secondly, just make sure you know what you want to do, and if you're looking for an exit, be clear about that. If you're looking to run the business ongoing, be clear about that and just get alignment up front on topics like what your intentions are. If you're on a different page from the start, it's only going to get more difficult over time.
Daniel Zinman: Great. Thanks for sharing your experience with us, Scott. Adam, did you want to add anything to this section?
Adam Zimmer: I think one point I would echo is you really have to figure out what your goal is, not just from a personal level, but from a company level. Selling my company to a strategic acquirer did result in a premium valuation. But it's probably about seven years now, and the office is closed, the name is gone, and the product is still there. Some of the staff were relocated to another city, but many of them drifted away to other employers. So there are impacts beyond yourself and your shareholders, and you have to kind of consider the value you place on your legacy and also on some of the employees and their future plans as well. And different acquirers have very different viewpoints on that. Certainly, Constellation values the independence of the acquired company through their decentralized model — probably more than many [strategic acquirers] out there.
Daniel Zinman: Now, we're going to switch to a broader Q&A section, addressing some of the questions that have come in from the participants that are on the line today.
The first question that was asked was, "what was the toughest part of the change after your company was sold?"
Cha, I'll ask you or any other panelists, but let me ask you to talk to start.
Cha Loh: The toughest part was getting my staff — my friends — to embrace a different way of running and managing the business. We've been so used to having our own sort of small company and running things ourselves. Now we're part of a large corporation, and there were certain systems and things that had to be put in place in order to do it. It took about a year or so before we fully embraced everything, and in the last ten years, everything has gone extremely well. So it was tough for the first twelve months and had become a lot easier once we embraced all the best practices and systems we encountered within Constellation.
Daniel Zinman: Thanks, Cha. Randy, do you want to chime in on what you found the toughest part was after your company was sold?
Randy McIntyre: Yeah, I think the biggest thing is when that change happens, there are a lot of changes. As Cha had pointed out, you're getting on new systems, as it's necessary. And when you're making that change, the staff has to accept that change — that was probably the toughest thing. But it was also really enlightening to me that certain employees really rose to the occasion and embraced those changes, and that was where you really noticed where your stars were rising from. So, while it was challenging, it was also illuminating for me.
Daniel Zinman: Great. Thanks, Randy. Our next question just came in, "how long did you stay with your company after you sold it?" So maybe, Adam, I'll start with you.
Adam Zimmer: Sure. So I stayed with the company for another four years. In that period, we went through three or four additional acquisitions, depending on when you count them closing. And the company itself was sold to a private equity firm, which was quite an interesting experience in itself because I went from reporting to the owner-operator to, in a sense, moving to a scenario where, while the owner-operator was in charge, many of the decisions were being made at higher levels with the private equity firm. Certainly, that was very difficult for me to understand because, unlike Constellation, private equity firms very much have a buy-and-flip mentality. So in the first year or two post-purchase, they were encouraging us to invest in many different initiatives, then as they reached the mid-to-end point of their holding period, they went with an entirely different strategy to try to prepare that firm for acquisition. So, the one thing that I find with Constellation, it really has a long-term view, a buy-and-hold forever philosophy, which was noticeably absent in a private equity model.
Daniel Zinman: Thanks, Adam. Cha, maybe you want to answer briefly about how long you were with the company after it was sold.
Cha Loh: Well, I'm still here. It's been eleven years. I've actually gone past retirement age, and I'm still around. So, I think I'll be here in the end for a few more years. And that's only because I'll be old and I actually want to go up and play golf. I'm really enjoying it here.
Daniel Zinman: Thanks, Cha. The next question is more of a practical matter and that is about the systems — "what basic accounting and CRM system were required by the people that acquired your company", starting with you, Scott.
Scott Smith: Sure. So we were able to continue to work on many of the systems that we already worked on prior. Our core operating system is from a CRM, we actually use Salesforce and have continued to use that — it was integrated across our core business. I look at the acquisitions we've done since then, and we continue to use the CRM. We also have Netsuite deployed, and then we also have an internal system called Infor that we've used in some of our others. So we are able to keep sort of things running similar to how they work today. On the accounting side, we also use a mix of Great Plains and Netsuite. There's been a great integration process there. It's pretty straightforward at the close of the acquisition. The financial analyst works to do the integration into the systems and ensure that we're reporting up through the Constellation systems properly, and it was fairly seamless. It's work, but not hard work, just work. Once it's running, it's very smooth. It's quite nice because it actually allows us to compare ourselves to other businesses in the portfolio since we're using some common metrics for our reporting.
Daniel Zinman: Great. Thanks, Scott. I think we're going to turn to our final question in the interest of time. I'm paraphrasing here, but we get contacted by many people expressing an interest to buy our business, and how can I qualify buyers from another?
Maybe I'll start by answering that one. We recommend from our experience to determine, first of all, how relevant buyers' experience is. Have they bought companies like yours before? Secondly, I would say qualify their ability to finance. Many buyers do not have adequate funds lined up when they approach your business and scramble to raise money. We've witnessed many deals fall apart on that basis. So people call us after an opportunity may have fallen apart because the buyer didn't actually have the money accessible. Finally, we encourage all sellers to conduct references. Make sure you've spoken with other people who have sold their business to this buyer and learn from their experiences.
Randy, is there anything you'd add to that?
Randy McIntyre: Yeah, absolutely. That kind of follows what I said earlier. I actually did put a grid together, and again, it goes back to the goals. I wanted to continue to be in the business, and I wanted to grow the business along with my management team. So, when I spoke with people, it was very clear who was just in it for the financial play — as we talked about earlier, private equity companies, that kind of thing. Constellation, Daniel in particular, knew my business very, very well. He studied it, and that was really compelling to me because I could already immediately talk at a level that no one else could regarding what the business was about. Understanding our business sets good expectations going into what Constellation would expect from us. So, I can't say enough about doing your due diligence and putting that together.
Note that the transcripts was modified slightly for improved clarity.
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