When the four founders started Revolutionary Security, the plan was to run it for 10 years, building it into a sustainable, profitable business, something that's not always a consideration in the cybersecurity industry. As their 10-year benchmark approached, the owners got together to discuss what they wanted to do. They acknowledged that they didn't have to sell ... unless the price was right.
"We were sitting in a bar we all wrote it down separately, like, what's the number that anything below this we just shut it down and don't even consider it?" says Revolutionary's former CEO Rich Mahler. "And we were all within a couple of percentage points."
Speaking at the Philadelphia Smart Business Dealmakers Conference on the Overcoming Challenges on the Sell Side of M&A panel, Mahler says the deal that ultimately came about with Accenture was two weeks from close when the governor shut down Pennsylvania because of COVID. When that happened, he says he entered what he calls the most difficult couple of weeks he's faced.
"The transaction was just intense," Mahler, now managing director at Accenture, says. "It was significantly more intense than when we started."
Because the acquisition was by a public company, there was a hard deadline to release the news. Wanting to be the one to tell his company's employees and clients about the deal, he had a small window of time in which to act.
"That compresses the timelines, so we had to take 25 clients, 30 key clients, the ones we really wanted to get to, divide them among our leadership team, schedule them on every 15-minute increments the night before the press release so we can get to all of them," he says.
To get the news to the employees, some of which were in different time zones, they set a 10 a.m. EST call, which ended 20 minutes before the release was sent out.
As COVID changed the economic landscape, supply-chain challenges rocked many companies. Because the company deals in cybersecurity services, he says their supply chain challenges were people.
"There's something like three and a half million unfilled cybersecurity jobs globally right now, about 1 million in the U.S.," Mahler says. "So, that's our supply-chain problem and has been our supply chain problems since I've been in this business since 2008."
The company got a positive COVID bump from its life sciences and pharmaceutical manufacturing business as those companies prepared for the vaccine, leading to some special projects in large part because of the shift to remote operations. But, in terms of the deal, that just required an update on the status of those relationships.
While typically the emphasis is on the company's last 12 months of revenue when a deal is being done. But he says that's not how they value companies in this line of business. Having already sold the next 18 months, all that's left to do is execute, so the deal was structured so that if the company made good on those numbers, there would be a bump. And if they missed the mark, there would be money taken off the table.
"COVID was neutral to our structure, but it just made the process a lot more complex, a lot more orchestration," he says.
More than money, he says a potential sale hinged heavily on the cultural fit. Revolutionary management, he says, kept clear and open lines of communication going with his employees. When the question from them about selling would come up, he would tell them it wasn't for sure, but if something came up that's a great fit with an ideal culture, they would look at it. The founders had even identified companies that they would not sell to. And if one of those companies were the highest bidder, they would use that as leverage in a potential auction process but wouldn't sell to them. That relationship with the employees and the culture they built would be important to the Accenture deal.
"Part of our earnout was the retention of our employees, the retention of our management team," he says. "In professional services, that's expected. And we're running on attrition that's 1/4 the industry, 1/4 of the business that acquired us, even after the acquisition when we expected a bunch of people to get frustrated with a big company setup. We've really kept our team together through that."