How FE International Closed Over $1 Billion in Transactions Across 1,200 Deals Including the $35M ThriveCart Exit (Interview with Founder and CEO Thomas Smale)

Introduction: FE International and Thomas Smale

Thomas Smale

00:00Hey, everyone. Thanks so much. So firstly, I'm Thomas. I'm the Founder and CEO of FE International. We are a m and a firm that works with business owners of software, ecommerce, digital media based businesses. Like James mentioned, over the last thirteen years we've been in business now, we've represented over 1,200 founders. We've completed over $1,000,000,000 in transactions. And Nathan invited me today to come and talk about a transaction we worked on recently, so never seen before

ThriveCart Overview: An 8-Figure Exit

Thomas Smale

00:33going behind the scenes of a real deal that I can talk about that closed a couple of months ago. So over the next twenty minutes, I'm going to talk about three main things. So firstly, Thrivecart was the business we represented. They sold for 8 figures. I'm going to go through some of the things that went into that. I'm going talk about why the deal happened. Many of you in the room if you're founders, you're all going

00:57to be at completely different stages of your business. Maybe you're literally just starting out your idea phase, maybe you've already had multiple exits or maybe you thought about selling one day in the future. So I'm going 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 talk a little bit about art of the deal. So how does M and A

01:19really happen? What kind of things go into it? What you need to be thinking about as a founder if you're going to run a successful M and A process.

ThriveCart's Growth Story and Founder Background

Thomas Smale

01:30So firstly, we'll give you an idea of perspective of size for a business like Thrivecart that sold. So they started out in around 2016, bootstrap company, no outside funding. 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

02:00ship. Business is growing every year. He got to the stage where it started to slow down a little bit. So it got to stage for him. He wanted to know, like, what was next, and he had small team. So even at exit, he only had a team of four people, very small team.

02:18And 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 are 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,

02:42but 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 and A happens for businesses that are not in that situation, which is Thrivecart, good business but not rocket ship. So in the first section, we'll go through talk a little bit about how they exited for 8 figures, little bit about the revenue, which I

03:08showed you already and how they time the market. So

03:14beyond just revenue growth in the current market particularly, so yesterday I was at Bloomberg on Bloomberg Radio talking to them about what M and 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 it. I know Founderpath and Nathan's team have been working a weekend, so I'm sure hopefully some of you are

Why Founders Sell: Motivations and Timing

Thomas Smale

03:40clients and have like benefited from help from companies like Nathan's. But 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 the debt market. As long as you have access to your capital, you own in this case, Josh owned 100% of his business himself. He had no to sell from a

04:12financial perspective, no reason to raise outside capital, and he was making a very nice living, 100% of the business himself. He got to the stage he was paying himself over $1,000,000 a year. If he 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 growth.

04:37But 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. And like I said at the start, this is 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

M&A Market Context and Profitable Bootstrapped Businesses

Thomas Smale

05:01business to a 100 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 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 that

05:26don't like things. So in this case, we took a selection, so we've I I had my team. I would lie if I said I got this data 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 Thrivecart business, things they liked was

05:48the 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. Most buyers when they're looking at acquiring

06:16a company want 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 buyer was already doing. And again, to my point around you survey 100

06:46buyers, 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. 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 Thrivecart is a platform where you

07:09can sell digital products online.

ThriveCart GMV and Stripe Partnership

Thomas Smale

07:13A big part of the business is monetizing the GMVs, the gross merchandise volume that is essentially the volume of payments going through the platform. Thwiftcard at Time of Ex actually had over $1,000,000,000 a year in GMV. And for perspective, if you look at Stripe, who's just raised the down round $50,000,000,000 valuation to be a top 100 partner of Stripe, the number 100 process is about $1,000,000,000 a year. So the perspective, they're about a top 100 Stripe

07:50partner, pretty big business in their ecosystem, a lot of GMV. So a lot of buyers liked that, particularly those that had fintech or payment experience. It was a lot of volume. 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

08:18vendors, suppliers, not necessarily team, but anyone you work with, you can negotiate better terms. And in this case, if we skip ahead six months and now the deal is closed and completed, my understanding is the buyer 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 done.

08:48But 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 payment processing, why would I buy this business? Some of the negative feedback we got is add an entirely international team, like we're all sealed in The U. S. 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

Buyer Feedback: What Buyers Liked and Disliked

Thomas Smale

09:12U. S. Based, so the vast majority of private equity are in The U. S. The vast majority of large strategic buyers are in The U. S. Definitely does not mean it's impossible to sell your business outside of The U. S, but in this case, lot of negative feedback, lot of U. S.-based or even European acquirers don't want to touch businesses with international teams. He was actually an English guy who lived in New Zealand. His entire team

09:39were English. They were all friends he had known for years. Hence why he didn't want to keep building the business because he didn't want to hire anyone that wasn't a friend.

09:48The revenue base, was quite a small business, so $5,000,000 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 at 5,000,000 revenue, some won't even pick up the phone if we're

10:15at a 100,000,000 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. In this case, actually, I'm aware we're at a SaaS conference, but the vast majority of their revenue is actually not SaaS. They

10:36had a SaaS 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 back end. But most people on stage would say, you have to be recurring SaaS

11:01if you're not, you don't have a good business. But in his case, was fine. Some buyers didn't like it, some hated it, some thought it was a good idea.

11:12And ultimately with this business, it needed a CEO. The founder was great, but he couldn't really grow it any further, needed to hire some more people. So definitely something that people think about.

11:27Lots of doomsday information out there at the moment about M and A. If you look at Wall Street year on year as in 2021 to 2022, down 38% total deal volume, lots of banks making layoffs, lots of challenges in the market. If you're doing deals above GBP $250,000,000, 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 $250,000,000 are still

11:57happening all the time. If you build a good profitable business like Josh did, you can sell it in any market. And my firm belief thirteen years into a business and probably in the next thirteen 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 businesses.

The Letter of Intent and Legal Process

Thomas Smale

12:19Go 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, but that's 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 have probably already spoken to my

12:41team 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 10,000,000, 50,000,000, 100,000,000. 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

13:04told from stage what you have to sell for.

13:09This 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

13:36doing is sending back paperwork back and forth with legal wording that a lot of you wouldn't understand, it's always going 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.

13:57But ultimately, this stuff doesn't really matter. You leave it to attorneys, negotiate terms you want yourself.

People Over Funds: Why Josh Chose Kevin

Thomas Smale

14:05This is Kevin. Kevin is actually the new CEO of Thrivecart. He came in as part of the acquisition. 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 fund. So when you're doing these big deals, even if you're

14:31doing a deal for $1,000,000,000 you're still ultimately dealing with a real person on the other side. So it's something 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 why out of I think

14:55we had 11 offers on this business. Kevin was the one that won, and it wasn't necessarily because his terms are the best, it's because Josh liked Kevin. So always trying to think about do bit you're doing business with people, not businesses don't do business with businesses.

15:14So final section, talk a little bit about what goes into deals, things you should 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. 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

15:40we just have three offers. We have some where we have 20. But 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.

Deal Terms: $35M, 70% Cash, and Win-Win Negotiations

Thomas Smale

15:55My philosophy on negotiations, having done 1,200 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. So in this case, win win. Ultimately, the deal was covered by TechCrunch, dollars 35,000,000 transaction, 70% cash upfront, and the acquirers

16:22put a lot of money into the business sense.

16:26So 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 your business. Get some leverage.

16:39The middle ground on this deal and with every deal as a seller decide what you want, every seller wants all the cash upfront, 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, buyer wanted 20%, we met somewhere in the middle at 70%. There's a paid transition.

17:05Josh is actually now Chief Product Officer. He actually has just extended his contract voluntarily. He loves acquirer, loves working for Kevin. And the business has more cash to grow, which is a big important thing for Josh selling the business. He has a 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.

Post-Acquisition: Josh as Chief Product Officer

Thomas Smale

17:29This is a screenshot from TechCrunch. Just so you know, I wasn't lying, and this is a real transaction. Again, I can't use Photoshop, so I couldn't have made this up if I wanted $35,000,000 transaction. The fund that acquired it raised money acquired ThriveCart as part of the deal announced as a raise. For any of you that ever tried to get PR for a M and A transaction, you'll know that places like TechCrunch don't want to talk

17:53about it. So it was positioned like this.

17:57Pretty much out of time now. So just over the last twenty minutes we went over how they exited, they were growing every year. Recurring revenue is better than SaaS revenue, but in this case it's not the only way to sell your business. Josh timed the market well, he sold well while M and A was still good. I still believe M and A will continue to be strong. If you go back a couple of years ago, his

18:22business was just worth a couple of million dollars. So sometimes being patient is good. Josh decided ultimately he wanted to sell now.

18:32He 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. 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

Average Deal Terms and Market Resilience

Thomas Smale

18:56good example of a good deal. You don't have to have everyone walk away unhappy. And ultimately, the terms are fair. 70% cash upfront 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, and that's been working well. So thank you very much. I know I'm overtime, so I

19:22might get dragged off stage, but if anyone has any questions. Yes, sir.

Nathan Latka

19:31How many offers? 11.

Thomas Smale

19:35Yes.

19:40One did. Yes. But he really did not like them because they 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. So no, it was not technically if you did not know anything about the context of the deal at all and you just

Q&A: Highest Offer Not Always Accepted

Nathan Latka

20:06looked at the top nine numbers, technically, did not accept the highest number. And I would say of all the 1,200 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. It's ultimately, particularly in this case, there's a transition period. He wanted to

Public Markets vs. Private M&A Transactions

Nathan Latka

20:31make sure he liked Kevin, liked the team and they get on well. Yes. How to say the question was public markets, how are they affecting private markets? Elevator pitch? Well, the short answer is that they're not. Companies like Stripe, they just raised the down round at like 50% of the last valuation, 50,000,000,000 versus $95,000,000,000 The reality is that does not affect Josh in Auckland, New Zealand, who's built his business to a couple of million profit a

20:59year growing consistently. There's for perspective $3,000,000,000,000 of dry powder of private equity at the moment in The U. S. 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 3,000,000,000,000. 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

21:25it, but it doesn't affect transactions at $35,000,000 or even $100,000,000 to be completely honest.

21:34Yes.

21:40That's a good question. So most private equity firms we see generally have a like fund lifetime of ten 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 equity firm, should always be opportunistic. Like if you ask me privately, Thomas, do you want to sell your business? The answer would be no, But

22:05if 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 ten years. And I'd say if you saw 100 funds that most of them would be around

22:25that level.

Thomas Smale

22:30And my sorry, James, my team also said our booth is over near the VIP area, so if you want to go see them, would definitely appreciate if you went to say hi because I think they're getting a bit lonely. We're like the last booth. But thanks very much.

Nathan Latka

22:46Thank you. Thanks very much.