In January 2021, Candid Partners, a specialty cloud implementation firm, was sold to McKinsey & Co. Motivating Co-Founder and Managing Partner Merrick Olives to seek a transaction was that he had a lot of his personal wealth tied-up in the business, which meant there was a sizeable financial commitment component. Given that the M&A market was robust and valuations, Olives says he felt like it was time to take some chips off the table.
Another factor is the space Candid is in became a booming market and large players are making significant entrances into that realm, so how long the valuations were going to stay, as well as how long it could continue to compete in that space, was unclear
"Those combinations of factors were what drove us to pursue a transaction," Olives says.
Weighing who to sell to — private equity versus a strategic — Co-Founder & Managing Partner John Peak says going through the process there were benefits and drawbacks to each option.
"What ultimately drove our decision was what would provide the best home for our employees," Peak says. "What would have the best impact overall for everyone in the company?"
Not having much experience with PE firms, Peak observed that later on in the process they tend to pursue a lot of financial engineering around the deal, which produced what he called interesting and varying terms at various points in time.
"Frankly, for an entrepreneur, it's frustrating," he says. "It's like the deal seems good and then it'll be something that you've never seen before and then Citizens would go, Well, this is what it means and this is your potential upside, and this is their potential upside. It takes a lot of explaining and understanding and it just feels like they're always trying to turn the knobs and tweak the deal terms and that's something that ultimately helped drive us back towards the strategic."
Another factor that had them choose McKinsey, in addition to being the better home for their employees, is the company was willing to put both the co-founders in leadership positions with no specific earn out metrics that they needed to hit. That, he says, made the two co-founders more invested in working hard on the integration.
"They didn't have metrics that made it almost like a competitive situation where we're just trying to hit the metrics," Peak says. "When you don't have those, you're just trying to do overall what's best for both firms."
Olives says the company had several offers from several strategics and private equity, but after the price and terms right, the cultural and strategic fit with McKinsey felt natural.
"Like this is kind of a no-brainer," he says. "And if the other components of the deal were even in parity with the other offers, it was a pretty obvious choice for us."
LLR Partners Principal Michael Pantilione says the competition among buyers these days has meant the overall investment process starts long before there's any investment on the table. PE firms rely heavily on an outbound calling and emailing to get the attention of executives and companies. Ten years ago, it was fairly novel, even flattering for an owner to have someone showing interesting their business. But that's changed.
"Today, when I talk to CEOs, they'll tell me pretty early in the conversation, you're one of five to 20 contact points that I’m getting per week," he says. "The whole paradigm of how executives are interacting with and becoming more familiarized with private equity is changing. You have to be a lot earlier in the game, even then we used to be, to try to stand out to try to differentiate. And it's harder to just get that attention in the first place because there are just so many more outreaches being done. So, when an executive or an executive team finally does make the decision to raise capital or sell their business, the reality in today's market is that if you're not already on their radar, you're behind, meaningfully behind."
Olives, Peak and Pantilione, along with Citizens' David Dunstan and Blank Rome's Louis Rappaport, spoke at the Philadelphia Smart Business Dealmakers Conference about preparing for a transaction. Hit play to catch the full conversation.