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Gaurav Bhasin | How Investment Bankers Play A Role In M&A
POSTED 5.5.20 M&A Masters Podcast

In today’s episode of M&A Masters, I sit down with Gaurav Bhasin, managing director of Allied Advisers– a Silicon Valley-based investment banking firm with team members in Irvine, Tel Aviv, and Mumbai. Allied Advisers specializes in M&A advisory services, or middle-market companies, particularly in the technology space.

Gaurav and I met when he engaged Rubicon to provide rep and warrant insurance for a client of his that was being acquired by his commercial partner. Ultimately, the deal closed, but what stood out to me and the reason Gaurav is on the show, were the lessons on the role of an investment banker in an M&A deal.

We’ll chat with Gaurav about what it’s like to work in the middle-market, the types of services he offers that set him apart, as well as…

  • The common themes of M&A processes
  • How he manages to reach out to 100+ people per deal
  • Gaurav’s ideal client profile, and how he narrowed it down
  • When to reach out to an investment banker in the M&A process
  • And more

Listen now…

Mentioned in this episode:

Transcript

Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today I’m joined by Gaurav Bhasin, managing director of Allied Advisers, a Silicon Valley-based investment banking firm with team members in Irvine, Tel Aviv, and Mumbai.

Allied Advisers specializes in m&a advisory services for middle-market companies, particularly in the technology space. Now a brief description on how we met, Gaurav, is you engage Rubicon to provide rep and warranty for a client of yours that was being acquired by his commercial partner.

Ultimately, the deal closed, but what stood out were the lessons on the wall of an investment banker such as yourself and get a complacent buyer to take action and how important it is to have an advisor in your corner, particularly where there’s a massive buyer 1000 times larger than his target company and negotiations and I put those in air quotes, the negotiations between those parties at that different size can be, let’s say a bit one-sided. Gaurav, welcome to the podcast. Thanks again for joining me today.

Gaurav Bhasin: Thank you, Patrick, for having me. Pleasure to be speaking to you.

Patrick: Before we get into you and Allied Advisers, let’s set the table and describe the deal that we’re talking about that brought us together.

A Lucrative Acquisition

Gaurav: Yeah, Patrick happy to. So first of all, thanks for stepping in on that deal. I know our client was quite happy with the work you’ve done on the reps and warranties insurance for them. So how we got engaged with that company was they were a software company which was in commercial partner with the eventual buyer for a long period of time. Our client didn’t have a big sales team, so a lot of their revenue was coming from this commercial partner. The commercial partner had told our client that they would buy them at some point.

But after several years of hearing this, our client got a bit tired and engaged us as advisers. When we got engaged, what we did is after talking to the commercial partners slash eventual buyer, we quickly realized that there was no sense of urgency on their behalf to move forward. So what I suggested to my client is we should reach out to other buyers in the sector and generate interest. We prepared some materials, we reached out to other buyers.

And luckily for us, we got a couple of buyers interested in the company. And we got some offers as well. Once this happened, we let the commercial partner know that we have multiple parties interested and also let them know that some of these parties actually competed with this buyer and didn’t want to support them post-transaction.

What this did is it basically got the commercial partner worried about losing access to the technology, which was supporting a big product line of theirs. And then we ended up getting a term sheet, which was a pretty attractive valuation and eventually got this complacent buyer to move forward and close the acquisition with my client on terms that my client was pretty happy with.

Patrick: The interesting thing that I didn’t realize on that is you have an organization there where they had a situation where the target was attractive because it was something that they’d been outsourcing to, and they probably figured they’d get a more favorable economic outcome if they just brought them in house.

But then I guess they had the feeling well, why buy the cow if we can get the milk maybe now for free, but we don’t spend as much as the cost to buy the cow. So it was a decision that they can put off as long as they wanted. And unfortunately, that leaves that private merging tech company kind of dangling out there. And that’s not a cool place to be. So it’s great that you came in, you got them out there got a highlight on them and definitely increased the interest level.

Gaurav: Yeah, I certainly agree with you. I think, you know, the fear of missing out was what sort of prompted them to move forward. You know, they didn’t want to lose this partner. And a partner, frankly, our client also wanted liquidity. You know, they’ve been doing this for a long period of time. So it is, you know, good for us to get them to come to a conclusion that worked for our client.

Patrick: Well, let’s define the market that we’re both actually targeting because you don’t want to be all things to all people necessarily because there’s a real true value that you can bring in particular segments if you focus on niches. Tell me, you know, about your target with the middle market with the emphasis on technology as opposed to all other, you know, flavors of business out there.

Why Allied Advisers Focuses Exclusively On Technology

Gaurav: Yeah, happy to. So Allied Advisers is hundred percent technology. That’s all we do is technology. One of the things better given in the valley for a long period of time and most of the exits that companies have is through m&a. In fact, over 97% of the exits over the last five years have been through m&a compared to IPO. Naturally, where we focus in is on m&a. I’ve done IPOs before at larger banks, but by and large for the last decade, I’ve only been working on m&a.

The next thing we do is we focus on middle-market, a broadly speaking middle-market. You know, we target these below 150 million, I would say the bulk of our deals tend to be below the hundred million dollar range. If you look at the size of the market, you know, there were about 2500 tech deals annually below hundred million. So as you can expect and imagine there’s a lot of transactions which are happening in that space.

And what happens in this 150 million dollar and below market is that it’s an underserved market. A lot of the larger banks due to their infrastructure and cost tend to go for bigger deals because that generates a bigger fee for them. But what happens is in this lower middle-market, none of the banks kind of lose attention or don’t pay focus on it. Or worse, you may have a young associate or a VP driver deal and kind of learn on the clients’ nickel.

So we specialized in this space and I think in this space, you want to have experienced advisers and legal team on staff because the buyer on the other side have pretty experienced development teams and legal stuff. So, you know, us playing in the market, which is underserved, kind of helps our clients and entrepreneurs. So all we do is technology focused on the middle-market almost all m&a.

Patrick: Another thing that I think you and I should emphasize here is just because of our passion for this segment of the market, where it’s the middle-market, lower middle-market, is that I, you mentioned being an underserved market, we really want to be there to support and provide services and value to the entrepreneurs out there who really aren’t getting the service that they deserve.

And it’s just because there are so darn many of them. And that’s not a bad thing for us. There’s enough business out there for everybody. And when you got the smaller market and you can provide the attention that they need, hold their hands, bring in the great expertise and experience that they otherwise would have to pay, you know, multiples for, they really appreciate it.

And you know what, a lot of what we do and why we enjoy doing the deals is that we get great favorable feedback and appreciation from these clients. So why not focus on the people that you love to work with, rather than working with the Apples and the Walmarts of this world? Let’s go out there and there’s no shortage of those clients. And the beautiful thing is they’re underserved. We’re ready to serve them.

So that’s what we want to do. We do that on the rep and warranty, not only on the transaction side, but other insurance products that may be necessary brought to bear as we do your client. But in light of this huge underserved market graph, explain what Allied Advisers can do and what you bring to the table that the large institutional bankers, you know, aren’t doing or are reluctant to do due to cost.

What Allied Advisers Offers That Large Banks Do Not

Gaurav: Yeah, absolutely. You know, as I mentioned, the larger banks due to the overhead and cost, can’t serve the middle market clients like you and I can. So for us, you know, our clients’ success is our success. We are fully motivated to get them over the finish line, to provide an exit to them which they worked so hard to build a business. So, the things Allied Advisers can do is we can provide access to buyers and investors.

You know, we work hand in hand with our clients and find out who the right seller-buyer is for them. Is it a strategic buyer or is it a private equity buyer? Or is it a strategic buyer backed by private equity? We have done deals with all categories of buyers and, you know, having this access to the buyer is helpful for them. You know, clients are busy growing and building their business, having a banker who can do the outreach on their behalf and get them in front of the right sort of buyers and investors is quite valuable.

The other thing we can do is we can help them in positioning their company appropriately to each buyer group. You know, strategics will look for different things than what a private equity might look for. Even in private equity, there are some private equity firms that will look for profits and there’s some private equity firms that will look for growth. We know what the hot buttons are, what the buyers are looking for, and what are the valuation drivers for your company and sector.

And having this kind of knowledge, we can help position your company appropriately to get the top valuation for your company. The other thing we do is we also entrepreneurs like our clients, we started our own firm, we’ve been at bigger firms. And we work with a client every step of the way. There’s a lot of twist and turn that comes during the process and we help you think through this. Think of us as a client, friend during the process. We are working hand in hand with them for six to nine months.

And then, you know, where we add additional value is we help them negotiate in terms of the deal. You know, founders and the CEOs have worked so hard to build this business and in some ways, they are emotionally tied to the deal. Having an outsider who has kind of done this many times before can be very helpful. We can advise the founders what is market, what’s not market. We can push for things the founders and CEOs find awkward asking their potential future buyer and bosses about.

They also know they will end up working for the buyer slash private equity firm for two to five years. And negotiations can sometimes be very strenuous and emotional. And you want to preserve your relationship with your future boss. So having a banker kind of manage that for you helps preserve your relationship but at the same time, you know, get your deals done which you may not have been comfortable asking for.

And last but not the least, you know, you only know what your value for company is by talking to many buyers. I’ve done many transactions in my career. And I’ve seen for the same company different buyers value completely differently and pay value differently. So the only way you know you’re getting a fair value is by doing a proper market check and making sure you’re getting the best value for the company you and your team and investors have built.

Patrick: Yeah, and I want to emphasize two of the points you made there is that this is very emotional for the buyer and to have the buyer and the seller, excuse me, but for the target company is unbelievably emotional and can distract them from their jobs. So, which is to run and grow their company, not to sell it.

And so that avoids a distraction. And having that intermediary between the two parties is helpful for filtering out communications, getting, you know, discussions going and getting the process moving without taking things personally, because that, as you know, is part of the process. And the other thing I’d emphasize is there are very few, there are some but they’re very few first-time buyers.

There are a lot of first-time sellers that haven’t been through this and so they don’t necessarily know what to expect. So to rely on somebody that can walk them through the process, as you said, step by step, be the sounding board is all the difference in the world. So give me some examples of, you know, the types of services and the case studies and what you did for these middle-market companies that set you apart. Just highlight how you do things because there are I’m sure listeners out there wondering whether or not this is a fit for them.

What Sets Allied Advisers Apart From The Rest?

Gaurav: Yeah, so I’ll give you two examples. And the interesting thing about m&a processes is no two processes are the same. They have some common themes, but they have variations. So in one case, one of my clients had received an offer from a former company and the company actually was the investor into this, into my client as well. So they had interest in acquiring the technology they had built. When this prospective client came to me, what we did is we did a look at the landscape of other potential buyers who could have interest in this company. And we quickly reached out to another set of buyers.

Luckily for us, the technology was well received and there was a need for this technology in the marketplace. We actually got another bidder who wanted to buy this company and offered 70% higher than the initial offer, which came from the first buyer. And as a result of that, we were able to improve the initial offer from the buyer from where they started twice over the course of the process and sold the company 70% increase to the initial offer.

So if you look back, the fees they paid for us was tiny compared to the increase in value they got for the company. And I think the lesson learned here for us was that, you know, companies if they really generally want a technology, they’re willing to pay more. The first offer is not the last offer, but you need to read competition for the buyer to sharpen their pencils. So, that was an example where, you know, the buyer had an inbound interest and we were able to use that to start a process and get additional value through presence of another bidder.

And then, there was another company, which was a SaaS software company recently sold, it was bootstrapped. The owner and his wife had run this for several years. And the company had grown nicely, it was profitable, but all their eggs were in that basket in that, you know, they had essentially invested all the life savings into growing their company and building their company, but they had preserved essentially all that equity. In this case, they reached out to us and wanted to get some liquidity.

And they were not even aware of, you know, the types of folks who will have interest in their company. We reached out to a whole bunch of strategic as well as private equity buyers and got multiple offers from both categories of buyers. There are benefits of going with strategics. There are also benefits of going with private equity firms. And then, you know, given they had multiple offers and multiple options, the owner was able to make a wise decision. And we sold that company at a pretty nice healthy premium of 10 x multiple of the trailing revenue. So that’s another example where the client was extremely thrilled about.

Patrick: When we talked a while back on this second scenario, you mentioned that you were probably reached out to some 100 potential buyers or interested parties on this.

Gaurav: Yep. That’s right.

Patrick: I mean, who has Yeah, who has time to do that and keep all those relationships going and all those lines of communication open? You can’t possibly do that and run your company effectively. So

Gaurav: Yeah, exactly.

Patrick: I would also say, and this is not to say, we don’t mean to inject any kind of politics whatsoever into this. But it was interesting in your first example where the first offer don’t jump at that first offer. Not long ago, I was checking out the book, The Art of the Deal. And many of Donald Trump’s real estate successes came because he bought properties very, very low, artificially low because why? Because the properties didn’t go on the market. He managed to have relationships with the building owners and came in to step in and offer deals on the buildings without it going to market.

Had the buildings gone out to market, he said he probably would have still been able to afford it, but he would have had to pay many, many millions more. So definitely in this market, whether you’re aware of your value or not, it’s always best to get, you know, more than one prospective buyer at the table, even just for a look, whether it’s a fit or not. And Gaurav, tell me what’s your ideal client? Give us a profile of that. And then with that in mind, given the time frame on when they should reach out and engage you.

Who is the Ideal Client for Allied Advisers?

Gaurav: Yeah. So our ideal client is ideally a company which is, you know, a SaaS software company or an internet company which is, you know, growing nicely in a large market. You know, I think for us, we are excited to work with middle-market founders who are creating businesses from nothing and, you know, getting revenue traction, customer traction.

For us, we encourage founders and investors to get to know us early on. It helps us build relationship with you. It helps us advise you on market dynamics. And also when is the right time to exit. Is it better to exit when you are extra revenue or whether you need to improve your margins or your services? This allows us to take on more of an advisory role versus a transaction role. And also, we can kind of work with you hand in hand to find out the best way to maximize exit value for the company.

So what we encourage is, you know, get to know us early on. There’ve been many times where we’ve gotten to know client three, four years ahead of them formally engaging us. We can keep you updated on market insights and address questions as they come up. And then, you know, as you mentioned, Patrick, anytime you have a bond with the company, you know, you should definitely check and make sure that they are, who else could be interested in your company.

I think anytime you get additional offers, you want to do yourself a benefit in the exit value. And then there could be situations where, you know, we get to meet founders, investors that have grown a company to a certain level and they feel that they either need to get some liquidity, to cash in some of the savings, or they need some capital for growth where it could be better suited to be in the hands of a larger buyer. So those are some scenarios where, you know, a foreign investor can approach us, engage us and in front of you happy to meet with folks and give them my point of view.

Patrick: So it helps for people even if they’re not planning on some imminent transaction or some imminent exit, is to maybe reach out and call you, get to know you a little bit, just some conversations, get some ideas, and then just have that dialogue on and off again periodically throughout the future. And then when some situations arise, you’re prepared with to have some intelligent conversation. You don’t have to start the relationship from square one.

You could also tell whether or not I, Gaurav, you’re nice enough guy, whether, you know, there’s a connection there. And having a conversation here or there, always starts, takes 10, 15 minutes. And I think it’s a first step and it’s an easy step before there’s all this pressure on you where you have to do something now because you’ve got some need for capital or you got an unsolicited offer just landed on your desk and, you know, you don’t know what to do. Gaurav, how can our listeners find you?

Gaurav: Yeah, it’s quite easy to find us. You are welcome to go to our website. It’s Allied ALLIED Advisers, ADVISERS. On there you can see the Contact Us button. You can fill out the form and one of us will get in touch with you. You can find us on LinkedIn. And we look forward to hearing from you and developing a relationship with you.

Patrick: Yeah, if you go to LinkedIn it’s Gaurav GAURAV BHASIN, that’s the easiest way for some of us who are not as good at spelling on these things for LinkedIn. That’s how they can find you. And I would recommend, you just, it never hurts having a conversation. You never want to, you know, start talking to an attorney when you’re receiving a lawsuit. It’s always nice if you could meet a couple of attorneys, get some ideas just on what’s out there with the landscape, show interest in what they’re doing.

And you’ll know whether or not there’s connections. You never know when you might need it. And if you’re an owner, founder of particularly a technology company, there’s definitely going to be the need. You may not think it’s now but down the road there’s going to come a time for a potential exit and you could do nothing more than help your situation with Gaurav on your side. Gaurav, thank you very much. It’s a pleasure speaking with you. We’ll talk again.

Gaurav: Thanks for taking the time, Patrick. Really appreciate it.