Synergies are very important to how Perforce Software prices transactions and how it grows, says Mark Ties, the company's CEO and president.
"So, where we may have, a couple of years ago, prior to the interest rate increase that we've all experienced here, we may have leaned in a little bit farther from a standpoint of saying, We've got nine months or 12 months to take these actions or costs out to get the business streamlined. And now we're probably looking at three to six — probably closer to three than six, just given the cost of financing," Ties says.
Perforce is a buy-build company, not a build company. So, he says if they want to get into a new space, they will look to make a sizable investment, buy a big footprint, and then use Perforce's expertise to enhance its performance. That's because as a tech company, speed is critical.
"Tech moves at the speed of light," he said at the Minneapolis Smart Business Dealmakers Conference. "So, long lead times on the development of a product that you're going to come out with REV 1 that's not going to be competitive in the market, and then you got to wait for REV 2 and REV 3, the window may be closed."
Perforce has a full-time mergers and acquisitions, business development staff, which they've wrapped around five other key positions within the company — his and the CFO's, for example. They meet nearly every week to examine their M&A opportunities and have broad and aggressive outreach campaigns. All this is in an effort to add somewhere between $50 million to $100 million of revenue on an annual basis through M&A.
As the company looks to expand into new spaces, it first does its homework — for instance, interviewing market analysis firms to get enough information so that if they choose to put in a bid, they're arming their internal diligence team so they can run fast.
"It's easy to buy a company," Ties says. "It's hard to make a purchased company successful. We haven't changed our discipline. We're focused more on, this thing's got to be up and running in six months."
The company has a playbook that they use on every deal. They ask for quality earnings on every deal. If it's a tuck-in, the company's finance team will often do it. But in bigger deals, they rely heavily on the target's advisers to maintain the pace they feel they need. That means having the data within two weeks of an LOI because they're already planning their financing strategy.
That deal team, Ties says, acts in waves. There's a pre-LOI team that's focused on getting an LOI to conclusion. While they're doing that, they're giving procedural updates to the diligence side of the house. And once the LOI is signed, then there is a baton handoff where the company's CRO, CMO and EVP of product and engineering get involved. As they do their work, they're giving procedural updates to the integration team. And soon after that, part of the team has to transition off because they've got to fill the deal pipeline again.
Key to value creation is the hearts and minds of the individuals being acquired. Historically, they would land on site, whether virtually or in person, to get as close as they can to the team being acquired as soon as possible. Since they're working to be integrated in 90 days, they need to run really hard at the data, which is financial systems first, customer-related data second, and then HR data third.
"We run incredibly fast," he says. "Without it, it's really hard to get value creation; you don't know Jane is more important than Jack and, how do you go after it and make sure you're making the right synergy calls."
However, he understands that those who are being acquired want to know as fast as possible what's going to happen to them. Through the diligence of the deal, he says they are probably 90 percent firm on where they're going with synergies, and challenges Perforce's human capital team to make sure they have the paperwork and the messaging to be able to sit down with that employee base and let them know what's going to happen.
"It's a difficult conversation," Ties says. "Whenever you impact anybody's life, we believe that you got to do it with dignity and respect, but not delay it. So, we run really fast at that."
When the company started in 2016 it had 170 employees. Now it has 1,700. Whether someone comes to the company as a new hire or through an acquisition, it's important for the company to represent who it is — its culture — from the start.
"I've learned that when you go into a deal, if you try to be somebody different, you're only going to be able to fake it for a while," he says. "So, we come on very clear in each employee presentation that we do on day one — this is who we are, this is what you can expect, this is the standard you can hold us to. And all we ask is that everybody has to make their own individual decision. Just don't poison the well. If it's not for you, we respect it."