How FE International CEO Thomas Smale grew to $3.9M revenue with a 43 person team in 2021.

hey everyone thanks so much um so firstly I'm Thomas I'm the founder and CEO of Fe International we are a m a firm that works with business owners of software e-commerce digital media based businesses um like James mentioned over the last 13 years we've been in business now we've represented over 1200 Founders we've completed over a billion dollars in transactions um and Nathan invited me today to come and talk about a transaction we worked on recently so never seen before going behind the scenes of a real deal that I can talk about that closed a couple of months ago so over the next 20 minutes I'm going to talk about three main things so firstly Thrive cart was the business we represented they sold for eight figures I'm going to go through some of the things that went into that I'm going to talk about why the deal happened many of you in the room if your Founders you're all going to be at completely different stages of your business maybe you're you're literally just starting out your idea phase maybe you've already had multiple exits or maybe you've thought about selling one day in the future so I'm going to talk a little bit about the motivations of Josh who is the founder here and the things he thought about throughout the sale and then I'm going to talk a little bit about art of the deal so how does m a really happen what kind of things go into it what do you need to be thinking about without as a Founder if you're going to run a successful m a process so firstly let me give you an idea perspective of size for a business like Thrive card that sold um so they started out in around 2016 bootstrap company no outside funding um the founder did not have any entrepreneurial background he came from a family that had no money he had no experience in the space at all launched in 2016 as you can see from the revenue chart he grew pretty steadily and consistently it was by no means a rocket ship business was growing every year he got to the stage where it started to slow down a little bit so he got to Stage for him he wanted to know like what was next and he had a small team so even an exit he only had a team of four people very small team um and for him it was a case of did he want to hire more people manage more people or did he want to get out of the business now while while things were good so good business growing steadily but the growth was definitely beginning to slow down lots of businesses we represent look very similar to this you don't need to have a business that's growing 300 year-on-year to exit there's a lot of not necessarily misinformation but often you only hear the stories of the founders who have sold for huge multiples or amazing deals or their business was growing a huge amount the reality is a lot of M A happens for businesses that are not in that situation which is Thrive got good business but not not rocket ship so in the first section we'll go through talk a little bit about how the X did for eight figures a little about by the revenue which I showed you already and how they time the the market so Beyond just Revenue growth in the current market particularly so yesterday I was at Bloomberg on Bloomberg Radio talking to them about what M A looks like in Q2 and all they wanted to talk about was Silicon Valley Bank and how that's going to affect things hopefully none of you in the room have been overly affected by a no-founder path and Nathan's team have been working a weekend um so I'm sure hopefully some of your clients and have like benefited from help from companies like Nathan's um but um this is part of my interview on Bloomberg yesterday and I'll share it again with you guys all today businesses that are small profitable and don't have outside funding don't really care what's going on with the debt Market as long as you have access to your Capital you own in in this case Josh owned 100 of his business himself he had no reason to no reason to sell for the financial perspective no reason to read out raise outside Capital um and he was making a very nice living 100 of the business himself he got to the stage he was paying himself over a million dollars a year if his office is actually in New Zealand if you go to his office he has a Ferrari a Porsche and a Lamborghini parked outside so most of his money was going back into cars not into into growth um but profitable is very important when we got into the the buyer process I want to talk a little bit about some of the things that buyers care about and some of the things buyers don't care about um and like I said at the start this has never seen before we don't usually disclose this kind of information but we speak to hundreds or thousands of buyers on every business we represent and sell and if you show the same business to a hundred buyers you'll get completely different feedback from everyone generally you're going to fall into some people hate it some people love it most people are somewhere in the middle and some of the things that people hate are things that other people will love and some of the things people love other people will hate so there's no perfect business there's no business you can build which everyone will love there's always going to be people who don't like things um so in this case we took a selection so we I had my team I would lie if I said I got this day to myself had my team go through all of the feedback because we had hundreds of buyers who sent back feedback on this business and I think these are all things which are relevant to many in the room and relevant on many businesses so with the Thrive Club business things they liked was the fact strong financial profile so I showed you the revenue growth I showed you the profitability it was a good slow growing business profitable almost every buyer is going to like that we survey 100 people 95 of people will like the fact it's growing and profitable some will say they want it growing a little bit more some people just want to buy distressed businesses But ultimately it was objectively good um most buyers when they're looking at acquiring a company wants some sort of synergies with either their personal experience their existing portfolio or something they've done before people very rarely buy or private Equity firms private companies very rarely buy businesses that they know absolutely nothing about have no personal interest in and don't really understand so a lot of the positive feedback we got was that there were synergies with What that particular boy was already doing and again to my point around you survey 100 buyers some are going to hate it some are going to love it in this case the ones who liked it understood the space the ones who didn't did not I think so the key really like one of the lessons is speak to a lot of buyers don't just speak to three people get three bits of negative feedback and stop because you're not going to have a successful process this was a business so Thrive car is a platform where you can sell digital products online um a big part of the the business is monetizing the gmvs the gross merchandise volume that is essentially the volume of payments going through the the platform um so I've got our time of X I actually had over a billion dollars a year in um gmv and for perspective uh if you look at stripe who's just just raised it down round a 50 billion dollar valuation to be a top hundred partner of stripe the the number 100 process is about a billion a year so the perspective they're about a top top 100 strike partner pretty big business in their ecosystem a lot of GMB um so a lot of buyers liked that particularly those that had fintech or payment experience it was a lot of volume um and ultimately with this business there was a lot of unexplored opportunity a lot of Founders do a great job building their business but they do a terrible job negotiating often the easiest way to grow and improve your business is just to negotiate better terms with existing vendors suppliers not necessarily team but anyone you work with you can negotiate better terms and in in this case if we skip ahead six months and now the deal is close to con and completed my understanding is to buy is about tripled revenue of the business by renegotiating a partnership agreement with stripe so that's what they saw in the business you could have 100 negatives but they knew they could pretty much triple the business and that's what they've they've done but some buyers would look at that and say that's a bad thing like I don't know anything about stripe don't know anything about parent processing why would I buy this business some of the negative feedback we got is at an entirely international team like we're all seal in the US like James mentioned I'm originally from the UK hence the English accent but I moved here to build a business 80 of acquirers we work with are us-based so the vast majority of private Equity are in the US um the vast majority of large strategic buyers are in the US definitely does not mean it's impossible to sell your business outside of the us but in this case a lot of negative feedback a lot of U.S based or even European acquirers don't want to touch businesses with International Teams he had he was actually an English guy who lived in New Zealand his entire team were English they were all friends he had known for years um hence why he didn't want to keep building the business because he didn't want to hire anyone that wasn't a friend um the revenue base it was quite quite a small business so five million dollars he earned 100 of it for pretty much anyone if you sell that business you have a life-changing exit you never have to work again but a lot of funds have minimums which are not necessarily arbitrary but specific to the fund some funds only want to buy businesses at a million Revenue some want to buy it five million Revenue some won't even pick up the phone if you're at 100 million Revenue there's no right or wrong level to be at in this case it was just too small for some but again if you speak to 100 some are going to think it's absolutely fine and some are going to think it's too small there's no right or wrong way to go about it um in this case actually I'm aware about a SAS conference but the vast majority of their revenue is actually not SAS they had a SAS product but they sold it entirely one time it was a lifetime license and most people would think that's not a very good business not a very good idea but because they were monetizing the gmv on the back end it was actually quite a good business because they were essentially funding their marketing with one-time sales and then monetizing the the back end um but most people on stage would say uh you have to be recurring SAS if you're not you don't have a good business but in his case it was fine somebody didn't like it some hated it some thought it was a good idea and ultimately with this business it needed a CEO the the founder was great but he couldn't really grow it any further needed to hire some more people so definitely saying that people think about lots of Doomsday information out there at the moment about M A if you look at Wall Street year on year as in 2021 2022 down 38 total deal volume lots of banks making layoffs lots of challenges in the market if you're doing deals above 250 million which is a lot of Wall Street that's what they're seeing at Fe International we saw 51 growth last year in total deal volume so deals below 250 million are still happening all the time if you build a good profitable business like Josh did you can sell it in any Market and my firm belief 13 years into a business and probably in the next 13 years that will still always exist there's never going to be a world where there is not a pool of buyers out there that wants to buy profitable visitors go through section two first thing you did this is a picture outside our office so we're in rock we don't have the entire building just yet we just have one floor um but that's the Rockefeller Plaza so if you guys have seen the big tree we're just in Midtown Manhattan we had a conversation with Josh about five years ago so well before he even thought about selling many of you in the room probably already spoken to my team in the past we don't pin you into a corner and say you have to sell now you sell whenever you're ready there's no right or wrong time it's the right time for you personally and no one should ever tell you otherwise there's not a correct number it's not 10 million 50 million 100 million you should all have your own number which is personal you should discuss it with kind of close family members it shouldn't be saying you get told from stage what you have to sell for this is a scan of the final letter of intent so I can't go through all of the legals but everything has all of this boring legal stuff on a page but I want to be very clear that with every deal you have to hire attorneys you have to go through a legal process but But ultimately deals get agreed outside of all of this stuff if you're relying on attorneys to negotiate your your deal and all you're doing is sending back paperwork back and forth with legal wording that a lot of you wouldn't understand it's always going to be difficult to get a deal done so this is an example of what happened in this transaction some of the things that they were talking about so the buyer spoke about they're going to bring in a CEO lots of other things about their Vision some of the things they do as a fund um But ultimately this stuff doesn't really matter you leave it to attorneys negotiate terms you want your yourself this is Kevin Kevin is actually the new CEO of the right car he came in as part of the acquisition um while Kevin ultimately has a private Equity Fund behind him it's important for you all to realize you might know a lot of funds by name but ultimately it doesn't really matter people do business with people Josh sold to Kevin because he liked Kevin not because he liked his his fund so when you're doing these big deals even if you're doing a deal for a billion dollars you're still ultimately dealing with a real person on the other side so the same to think about like if including if you're on the buy side and you want to acquire a business realize that people are trying to connect with you as a like an individual not don't really care about company policy company website all that kind of stuff build a real relationship Kevin did that hence way out of I think we had 11 offers on this business Kevin was the one that won and it wasn't necessarily because his terms were the best it's because Josh like Kevin so always something to think about do bit you're doing business with people not businesses don't do business with businesses so final section talk a little bit about what goes into deals things you think about so high level you have to have multiple buyer options if you go into a process and you sell to the first buyer you ever speak to in 99 of situations you haven't sold for enough money um you need to have leverage the best way to get Leverage is with multiple bidders we had 11 on this deal we have some businesses where we just have three offers we have some where we have 20. I'd say anything above three is a good number because then you have multiple people to leverage if you just have two it can be a little bit more tricky and you might end up stuck with just one um My Philosophy on negotiations having done 1200 deals is every deal has to be a win-win if you go into a negotiation and this applies to any part of business and you just want to win and get 100 of things you want and nothing that the other side wants you're never going to have good transactions um so in this case win-win um alternative deal was covered by TechCrunch 35 million transaction 70 cash up front and the acquiries put a lot of money into the the business sense um so don't sell to a random guy in the suit yes this is a stock photo I have no idea who this guy is but don't sell to the first person who emails you and say hey I want to buy a business get some Leverage the middle ground on this deal and with every deal as a seller decide what you want every seller wants all the cash up front every seller wants no transition no liability easy deal every buyer wants the opposite in every transaction you have to decide what matters to you and meet somewhere in the middle that's ultimately what happened here the seller wanted 100 cash buy one at 20 we met somewhere in the middle of seventy percent uh there's a paid transition Josh is actually now Chief product officer he actually has just extended his contract voluntarily he loves the loves the acquirer loves working for Kevin um and the business has more cash to grow which is a big important thing for Josh selling the business he is the share of the future upside he has a job in the business which many people don't want and he's sharing in the upside which is great this is a screenshot from TechCrunch just you know I wasn't lying and this is a real transaction again I I can't use Photoshop so I couldn't have made this up if I I wanted 35 million transaction uh the fund that acquired it raise money acquired survived cut as part of the deal announced it as a raise for any of you that ever tried to get PR for a um m a transaction you'll know that places like TechCrunch don't want to talk about it so it was positioned like this pretty much out of time now so I just over the last 20 minutes we went over how they exited they were growing every year recurring revenue is better than SAS Revenue but in this case it's not the only way to sell your business Josh time the market well he sold well while M A was still good I still believe M A will continue to be strong if you go back a couple of years ago his business was just worth a couple of million dollars so sometimes being patient is good just decided ultimately he wanted to sell now he wanted to work with a like a real founder or like a real person Kevin was also a Founder himself he wasn't just a random private Equity Firm um multiple buyers we spoke to ultimately it was a win-win situation for buyer and seller the seller walked away if you speak to Josh he's extremely happy and if you speak to buyer and you speak to Kevin he's extremely happy everyone thinks they got a great deal that's a good example of a good deal you don't have to have everyone walk away unhappy um and ultimately the terms of fair 70 cash up front is last year our average was 80 for perspective 70 pretty good terms three-year transition which is quite a long time but Josh wanted that deal he loved Kevin loved the team it's been crushing it since they've acquired um and that's been working well so thank you very much I know I'm over time so I might get dragged off stage but if anyone has any questions yes sir how many offers 11. yes uh one did yes but he really did not like them because they and this is like some of the really stupid things they did they ran over the time deadline for the bid they came in late they were quite like rude on calls they were like oh your business kind of sucks and he didn't like that um so no it was not technically if you did not know anything about the context of the deal at all and you just looked at top nine numbers technically he did not accept the highest number and I would say of all the 1200 deals we've done not every a lot of Founders don't actually go for the highest offer which many people would not necessarily believe they think you always take the highest number in his case it was one of the better offers but not the highest no is ultimately particularly in this case there's a transition period he wanted to make sure he liked Kevin like the team and they get on well yes how to say the question was public markets how are they affecting private markets elevator pitch or the short answer is that they're not companies like stripe that just raised the down round at like 50 of the last valuation 50 billion dollars versus 95 billion the reality is that does not affect Josh in Auckland New Zealand who's built his business to a couple of million profit a year growing consistently there's for perspective three trillion dollars of dry powder have private Equity at the moment in the us alone every single one of you could have a every single person in this room or the entire conference could have a life-changing exit and you wouldn't even make a dent in that three trillion so a vast amount of money private Equity wants to deploy it public markets yes as a Savvy founder you should keep an eye on it but it doesn't affect transactions at 35 million dollars or even 100 million to be completely honest yes that's a good question so most private Equity firms we see generally have a like fun lifetime of 10 years but I'd say most would probably aim five to ten years for an exit this particular fund do not have anything in mind immediately but I'd say as a founder or as a private firm you should always be optimistic like if you ask me privately Thomas you want to sell your business the answer would be no but if someone turned up with a billion dollar check and say do you want to sell your business I would not be here today as much as I enjoy being on stage and like Nathan and the team I would be on a beach but so you should always be thinking about selling even if it's not necessarily a mandate but most funds 10 years and I'd say if you saw a hundred funds that most of them would be around that level and my sorry Jim my team also said our booth is over near the VIP area so if you want to go see them they would definitely appreciate if you went to say hi because I think they're getting a bit lonely with like the last booth but that thanks very much thank you thanks very much