Mark Evans has found transparency to be his most powerful tool when working with private equity owners because there’s no advantage to being coy or sly.
“The ability to have relationships that are based on mutual honesty, respect and trust, you can’t create that instantaneously when all of a sudden you want to do a deal,” says the CEO of Confluence Technologies Inc.
Confluence was acquired by TA Associates in 2018. Eighteen months later, Confluence built enough trust to convince the Boston PE firm to step up with additional equity and its debt partner, Golub Capital, to step up with additional debt, to buy a company bigger than itself.
It acquired StatPro Group, a publicly traded U.K. business, on Oct. 29, for approximately £161.1 million (over $207 million U.S.) in cash.
We spoke with Evans about Confluence’s experience with dealmaking through two PE owners and three acquisitions, including the StatPro deal.
Taking on investment
Evans founded the Pittsburgh-headquartered financial services data management software platform in 1991. Fourteen years later, he decided to try to sell to private equity but got a lukewarm response from potential investors.
“One of the first things that we learned was you have to have — at least in our world — a narrative about where you’re going,” Evans says.
After a year of corporate soul-searching, Evans and his team had a better handle on the company’s identity and where it wanted to go.
“That resonated, and we began to find private equity companies that were interested,” he says. “In 2006, we did a deal with Polaris Partners. It allowed us to reward some of the people that were involved in building the company but at the same time continue to move forward.”
After surviving the Great Recession, Confluence grew into more of a global company.
“We knew that all investors have a timeline or time window, and in the case of Polaris, they were fabulous partners and never pressed very hard on when an exit would happen, because they realized that a lot had reset during some of the challenging times,” Evans says.
When Confluence went to market the second time, it needed either a larger-scale investor that could help it grow, or a strategic partner. So, Evans used an investment bank and looked more formally around the landscape.
TA took out Confluence’s prior investor and allowed the company to clean up its cap table and focus on the future.
“Their mandate was much about very much about growth, not just organic growth but inorganic growth,” Evans says.
Evans also knew a number of the TA partners from the first time he’d looked for investors.
“One of the things that you learn when you’re talking to private equity is they never throw a piece of paper away,” he says. “And so they can pull out what you were talking about 10 years ago and say, ‘Oh, how’s that going?’”
Fortunately, Confluence’s credibility was strong.
Proving the case
This past spring, Evans approached TA about StatPro, which he felt had complementary products and geography. However, the deal was complicated, taking a larger public company private.
Confluence had two things going for it, he says. The company was already executing the plans TA had set out, and it had done its homework constructing a theory about how the two companies could work together.
In fact, just prior to TA’s investment, Confluence had put together a market map of potential acquisition targets, including who had just gotten an investment and wouldn’t be able to talk to several years, and who had longer-term investors that might be looking for a change or a way to revalue.
“It’s like houses — not all houses are for sale, and not all houses you want to buy,” Evans says.
Confluence gathered a lot of information from the public company.
“Our view was that StatPro is a company that was worth more than their share price reflected,” he says.
StatPro also had done 15 acquisitions with companies that still had entrepreneurial mindsets. Evans felt Confluence was a good fit for that spirit, and he’s confident of his team’s ability to bring smart, hardworking people together.
Over the next six weeks, a disciplined integration process will help determine what’s worth bringing closer together and what should continue to function independently. But Evans wants to move quickly because uncertainty is never a friend.
“People not knowing what’s happening gets them freaked out,” he says. “And so we’re committed to very quickly painting a picture of what these two organizations together look like.”
StatPro isn’t Confluence’s only acquisition. It bought Data Agent, based in Vietnam, in 2013. That created challenges with time differences, language differences and cultural differences, which were overcome through respect, honesty and transparency.
“We learned a ton about true integration, truly bringing people into the fold and having them understand that we care about their career progressions, their ability to feel like they’re contributing to what matters to the organization,” Evans says.
Confluence bought Orfival in 2014, which it later divested. Evans says that deal proved the importance of fit, which Confluence applied to the StatPro transaction.
“One of the things you’ve got to ask yourself when any company buys any company is, ‘What can I do to make it better?’” he says. “And if, at the end of the day, you don’t think that you have an answer for that, then you need to be honest about that, as well.”
Not all relationships are what they seem when you enter into them, Evans says. And just because you spent money to make something happen doesn’t mean that you shouldn’t be honest during that entire journey.