I'm your host Kison Patel, CEO, and Founder of M&A Science. Joining me today is Bill Stone. Founder, Chairman, and CEO of SS&C Technologies, a global provider of software and investment financial services.
SS&C has undergone over 60 acquisitions since 1995. The largest to date being the acquisition of DTS systems at 5.4 billion.
SS&C was taken public in 1996 but was taken private again through a leveraged buyout at 492 million in 2005. SS&C went through a second IPO in 2010.
Today we're going to talk about lessons learned as a private and public company acquirer.
So SS&C has been an incredibly successful acquirer and uses these strategic transactions to grow significantly as an organization. Can you explain this mindset and how it contrasts with organic growth?
I have spoken about this a number of times that in our view, we have a very talented development team and we can always build it.
But also we have large sophisticated customers that don't want to wait. So they want some particular functionality and they want it yesterday. If we can find that organization that we can acquire and deliver that functionality to one of our clients, it's a win-win.
Plus we like to be able to buy things that we can sell into our client base. So we have 18,000 clients. So if we can find something that's going to be attractive to them, then that's a very nice leverage point.
And then we also like to take what we have, which has over a hundred products and services and be able to sell it into their client base so that you get chances to grow the revenue, as well as almost all companies that you acquire.
You don't really need two CFO's. You don't need two, lots of what would be considered the overhead of the company. You really get a chance to streamline that which obviously improves profitability.
Kison Patel: So, what I've heard is time to market versus building it from scratch, expanding on your current profit or portfolio of products to your existing customers, but then also acquiring customers that you can then turn around and sell some of the other products you already have in your portfolio.
That's what we think the formula is. And that's what we've executed.
What triggered you to start making acquisitions?
Sometimes when you have a really good product that you can buy legacy companies and replace their product, , and take good care of them, give them white-glove treatment, but then they'll upgrade to your brand new, good products.
That started back in the early 90s, where we had a product that we bought a couple of companies or products out of a couple of companies.
And then we're able to move their customers onto our new product and that was very effective. And so we had that view and have had that view ever since.
Were your early acquisitions, the sort of end-of-life cycle products they essentially acquired and then look to move the customer base to your product line?
The first couple of work, yes, the first couple. And then we went into product extension. We're trying to be able to have things that were complementary and trying to be able to realize that even in the 90s.
And it's even more so now it's accelerated ever since, that the complexity around technology and the functionality that these organizations need in order to operate on a day-to-day basis is increasingly sophisticated.
They want as few vendors as they can have. And there's an awful lot of knowledge out in the world. And there's an awful lot of ways to apply that knowledge into technology. SS&C is not going to be able to be all things to all people.
You have to pick your spots. You have to be the best at it. And then you have to have great service in order to be able to leverage it. That's not always easy. You have to have people, you have to have motivated people trained, right?
You have to have people who are not tone deaf. You hire people that are going to be customer-facing and they only open their mouth when they switch fees. That's a problem. That's a real problem.
So you have to be sensitive to that. You have to realize it's not what you say, it's what people hear that is important about having a successful anything is pretty much being able to listen as much as talk.
On the end of life cycle products, how do you evaluate those companies? Is this still like a typical purchasing on a multiplier or are there other ways of looking at it?
Generally, if you're buying a product out of a company, that company is primarily interested in how well you can service that group of clients. Because they want to sell other things to that group of clients.
And they don't want a bad taste in those clients and you have to take care of them both from a sales company who sold it to our company, to those customers.
And so we have a number of times where we have bought like CITI fund services or Wells Fargo fund service or others who bought something out of Unisys, but taking care of those company's customers makes us a great acquirer.
And that message goes out that if you want to get rid of something, SS&C is a good home. They'll take care of the customers. The customers will have a better experience. Your employees that are going to go to SS&C will have a new lease on life.
And that allows you to stay in the M&A game when you might not be willing to pay the prices that are in the M&A game.
You're pretty transparent when you would acquire that business line in terms of what you're going to do with it afterward, and how you may move those customer bases to a different product.
That's right but we don't do it precipitously. We listened to those clients and depending on the numbers again, really hemorrhaging you, you've got to move quickly. Otherwise, they're all leaving anyway and it's just a mess, right?
So you can't wait one or two in that situation, but when it's a good business and the products work really just generally what happens is they don't have the latest database, so they don't have the latest interface.
So they don't have fast enough connectivity, or they don't have something else and people get frustrated and then they want to move and it often it's not economical. The thing works cheap, why would you switch?
That isn't everyone's motivation, making sure when you're selling and sometimes you're selling your organization when you're trying to get somebody to sell their company to you. Then obviously, price is a pretty big motivator.
But it's not the only motivator. And it's realizing around the soft things, the things that you can do in order to be able to create, if they can sell to who they want to it's us, that's what you're trying to do.
And hey, we'll get priced out. We're not chasing that, but if we lose, somebody paid a big number and they may be over-leveraged or they may be something else that's going to cause them heartburn if they try to integrate that acquisition.
How involved in M&A are you? Even going from early days to now this sounds like you're having a lot of these conversations about the strategy and negotiating some of the terms.
I'm pretty involved. I'm not as involved in the day-to-day due diligence in the deal room, virtual data room, but I'm very involved with pricing, what multiple? why?
And I'm also pretty involved with if you're the business that's going to buy this company. All right, how much your bonus is going to get tied to how successful this acquisition is.
Leaders have to understand that this isn't other people's money. This is our money, treat it like it's our money, but if you don't treat it like it's our money, you're going to make less money.
And you have to be honest with people, right? You can't tell them afterward, too late, you have be upfront and you have to have difficult conversations, which aren't particularly fun but are necessary.
As part of M&A is that sort of headcount reduction, things like that?
That and then also, why would we pay nine times sales for this company? You have a big development team. There's no burning hole in our pocket that makes us have to go get this.
Why would we pay that number? Let's just go build it. Nine times sales, how are we going to make any money? Again, it comes back to, people have to be able to answer those kinds of questions.
And when they can, okay, you may not still get to nine times sales, but you might get to 5, 6, 7, it's getting a little dicey. And some of these things are going at 20 times.
It's like, how do you ever make any money? Aren't you in business to make money?. This is business. There's an answer.
There might be two answers, but there's a very finite number of answers. So it's not unlimited, not a library.
You don't have thousands and thousands of books from which to choose from. This is right now, right here. Let's make a decision based on the best available facts.
You've successfully operated SS&C both as a large public and private organization. How do operational and growth strategies change between public and private?
Primarily, they don't. Primarily, it's the same. If you're running a good company, you run a good company for whoever your owners are.
One of the things that you may have in something that changed when we were private in '05 is we used to be earnings per share company, from '96 to '05 and cashflow.
From '05 until I would say really recently, 2019, 2018, 19, 20. We've been to EBITDA comp, where earnings before interest taxes, depreciation, and amortization.
That's how Carlisle ran their companies. And that's how we ran SS&C and that's what we focused on. So what you can do then if you can finance acquisitions with low costs debt it's making hay, but the sun is shining on M&A make hay.
And that's why you see some of the evaluations because that is so cheap and it's technology. And if it works and you have lots of maintenance streams coming in, or SAS streams coming in awfully profitable, so you can really handle a lot of debt.
Has your M&A strategy changed between public and private?
Not really. I think on the private side, they had a broader spectrum as to what they would want us to acquire than what we were particularly comfortable with.
So they would play the guy from Carlisle are plenty of smart people. And, but they had a lot of confidence in us. My background, all of our backgrounds are CPAs.
And running large organizations or large processes within financial institutions, whether that's a broker-dealer or a bank or insurance company, or a hedge fund or private equity fund or a real estate company, it's really understanding the numbers.
And if you work at SS&C you have to know your numbers, if you don't know your numbers, you're going to feel like you're in front of a gun and these questions are just firing at you because ultimately investors have 10,000 choices.
They invest based on those numbers, growth rates, profitability, cash flow, EBITDA, EPS, there are all kinds of different criteria, but ultimately it comes down to numbers. What's the TAM, total addressable market?
And then what's your market share? Can you double it? Who's your competitor? What's their market share? So it always comes down to numbers. When the more numbers, the more confident you can be and how you're operating your business.
Don't the economics change as a public company?
If you look at the size of the private equity firms now, they're an enormous source of capital and they also, if you look at some of Thamo Bravo's acquisitions. I think they bought Ellie Mae for 3.7 billion and sold it.
I think less than three years later, for 11 billion. How do you do that? That's almost $8 billion worth of market cap in a three-year period and Orlando Bravo's a smart guy, really smart guy.
And he's figured out that cash flow in the software companies is pretty sticky and again, as a private equity firm, whether it's Thamo Bravo or Carlisle or KKR or TBG or a whole bunch out of Blackstone and you can just keep going, right?
And silver-like, so it's just, those are a hundred billion dollar pools of money.
The only challenge I would say about being private is, it’s hard to use equity as a binder of talent to the company. When you're public it's right there in front of you. You have 10,000 stock options.
The strike price is 47. The stocks at 72, that’s 25 points, 25 times 10,000 is 250,000. So you make $250,000 in equity. When you're private, I don't get to say Kison. How about that 250,000. You’re a citizen. Well, so what's it really worth?
And then it puts management in front of the CEO and the board in the uncomfortable position of deciding what value is.
Deal set and value, that's bad. You're undercutting the price, which I just don't even want to be in that discussion.
The market's telling you what you're worth. You don't have to believe it. You can decide you're undervalued. And we like to buy back our stock where we think we're undervalued.
And we generated a tremendous amount of EBITDA for the last 12 months ended on March 30th when we had $2 billion when I started the company in 1986 with about 20 green. Hey, it's not Apple and it's not Microsoft, but it really does create a nice living.
Any other mechanical differences between doing deals private versus public, obviously different disclosure rules apply?
It's not as independent when you're private, if we're going to do a big acquisition, Carlisle's gotta be on board. And if they're not, it's not going to happen.
As I said that, but Watts who's a really good guy, and with Carisle deal guy. One time we were disagreeing and I said, okay, bud, let's vote.
They voted, he's got 70, I got 30. He wins. And you just have to recognize that look, if you're not going to live like that, we shouldn't have sold the company to that private equity firm to start with.
You have to be willing to be a big boy about it or a big girl. Same thing, right? If someone makes an offer for us and the board accepts it, you're in play.
Now, maybe you thought that when that offer came in, that I was where I thought that I was going to stay as CEO, but somebody else comes in and tops that offer and they don't want me as the CEO. I think they're going to win anyway.
Generally, whoever comes in with the highest price tends to win and you just have to be aware that it doesn’t frivolously put your company in play. If you don't really want to potentially lose your role.
People get surprised and we've bought some companies where I've had to tell the CEO, remember there's only one CEO and I don't want to get in a battle about it. I'm not going to get into a battle about it.
And if I do get in a battle about it, there's going to be one CEO. And he's never going to talk to you again. You have to have clear lines of responsibility and authority and accountability, and you can't bore them.
You can't say, we're kind of co-CEOs no, no, no. That's pretty important. And I think the more upfront you can be, the better off you are.
What else are you looking for in acquisitions?
We have very big customers. They're very demanding. The work we do is very detailed. So there's a lot of knowledge that it takes and thinking quickly is pretty important.
We're not selling popsicles here. It's not going to be your big smile and a 25 cent popsicle that ain't gonna cut it.
So it's understanding that it's a lot of minutiae and people have to be willing to understand that every day we have to deliver when we have $2 trillion in funded administration over 1700 heads funds or 17,000 management companies I think.
Let's talk about numbers versus culture it seems like you have a different approach about that?
The approach is just being transparent, upfront, friendly, and nice to people but let's hit those numbers
When you're succeeding, it's amazing the comradery that gets created that everybody knows they have an order and we roll in the same direction. People that try to create a culture, I think is a mistake. You have to be who you are.
And if you read too many business books, all that kind of does it turn you into it but you get whiplash. I can't do that and it's okay to read them, but it's not okay to change yourself to try to be Jack Welch, Steve Jobs, or anyone else.
I'm not a perfect human being. And I tend to think most of the people I work with are not perfect human beings. And I don't believe our customers are perfect human beings. And we have to have a relationship that is based on trust and belief and execution.
There are a lot of people who like talking about strategy. What's your strategy? The strategy takes about half a day but execution stuff takes a lifetime.
And it doesn't go away.
I think people go into business to make money. And if we can create a situation where our execution is pretty good, and our EBITDA on cash flow was good that we get to pay good raises, pay good bonuses, and have the stock price go up.
And people get to work because they want to, because they certainly can make money and depend on how ambitious and talented people are and that's the distance that you can make a lot of them.
How do you think about value creation after buying a business?
It's, what was cash flow when you bought it, what's cashflow now? What was revenue, what's revenue now? What's the margin? What's customer satisfaction? What are new products about?
Sometimes I can buy companies and it's difficult for the people to understand we're in a hurry because they may not have been in a hurry. We're pretty egalitarian at SS&C like equity is distributed to about maybe 60, 65% of our people.
Remember we have 25,000 people, but our view is that everybody should participate, but you have to perform in order to participate. Not everybody gets a green ribbon and somebody won the race. Somebody is just faster. They can run faster.
It doesn't make a difference if it's a man or a woman or anything else that person won that race.
And the same thing with ideas and service to customers and all those things are the things that make a business successful really are pretty identifiable and you can pretty much evaluate.
I don't do written evaluations of my very top people because I talk to them multiple times generally a day and they know exactly how I see them.
Sometimes we do acquisitions and they would have monthly sales meetings to find out what we generally have daily.
And if it's a big deal, it's like when people on our quarterly calls will ask me, what's going to make a difference in the score. If we win these deals, that'd be a lot better than if we don't win.
That's just the nature of the business. It is a profitable business. It is all the things of what you would want at the same time very competitive. And you have no choice, but to make sure that whoever's called into play knows how to call a play.
Like when we do sales, we do salespeople, you know who I like quarterbacks and I like point guards because they got the ball and that's like that deal, right? That's the ball. Get that ball over the goal or in the basket.
Throw that ball to that guy over there who can make the shot. Don't throw it over to that guy over there that the last time he made a shot was 1942. Don't throw it to him. So you get people who understand competition and you're never alone, there are competitors.
What knowledge do you have about, even in acquisition? Did you want to know who the competitors are of these companies that you buy in?
And you also realize like I've lost a few deals, but I thought for sure, we were going to win. Things come out of the woodwork, but wow, that's why you went with them?
And it's really eye opening to see the different reasons that people like, one time you're gonna treat this one guy. Oh, wait a minute. You only got one half of that story, you need to see the other half.
That would have been a non-issue, but you don't always get a chance. And then that's why as much as you can, you want people to be your friends or your colleagues.
You can compete without being nasty. You can disagree without being disagreeable. That's unfortunate in our society today that people hold things to a point that it's different but that doesn't make them a bad person.
There are good democrats. There are good republicans. There are good Independents there. Good lots of things. No one made me judge and jury.
I tell somebody, I have a good friend that's done lots of acquisitions. Every time I talk to you, I have to go home and think for a week about what you said. You talk so fast, you have all these different structures.
We like to have common stock and then we like to have debt. And we don't like to have cross-collateralized structured securities that take a Ph.D. in Mathematics to figure out exactly how this works. I'm not a financier, I'm an operator.
I was going to ask what were some of the key lessons from conducting over 60 acquisitions?
That's one of them and another thing is to do your due diligence. And then also one of the things I teach all of our people is if you get a whiff that they're not shooting straight with you, don't walk, run.
One time when I was with the CEO and CFO. So how many deals did you do last quarter? And they're looking at each other and wow. Joe, did we do two, or do we do three?
And I looked at him. I don't know if he did two or he did three, but you better know. I said, last quarter, we did 55. You want it highest to lowest, but I gave you every one of them. You guys did two or three and you can't remember. That's a red flag, right?
Or another time we're doing an acquisition and they said they had two offices in India. I said, okay, where, where are those offices? They didn't know. We didn't know where their offices were. That's a red flag.
This is a business that is operating where the senior executives are flying way too high. We have 15 offices in India. I can walk through each one of the cities and see how many offices we have there. It's knowing the business, you have to be into it. They're user-free.
Know the people or the business. You have to know if we have the best team. I like to hire point guards, but they gotta be able to dribble. If you hire a point guard and every time they try to dribble, they kick the ball out of bounds. That's a problem.
And so you need to know the people, you need to know your capability, particularly your capability versus a competitor.
How do you assess that? I feel like that's a tough thing. And I don't know if you're pulling HR resources to do their own analysis, but how do you get the read on that?
Go on a sales call. It's not magic. It's the work, you got to go in there and see, all right, people know what you're talking about.
You're in there, go on. Oh my goodness. Oh my goodness. Hey, it happens. So you have really good people. They get really good opportunities. Sometimes they leave. That's the nature of this.
There's no iron-clad contract that they can't leave. So you need to know, your talent base is depleted and then you have to go rebuild and you've gotta be aware.
You need to be aware. You need to understand what artificial intelligence is and natural language processing or machine learning or any of those types of things.
If you don't know what they are and that's the deal rigor, you might as well be using a Blackberry instead of using an iPhone. There's nothing wrong with Blackberry, but Apple's got a $2 trillion market cap.
Any other sort of lessons or big challenges you've had to overcome on M&A?
We’ve done a couple that we wish we hadn't. We thought we did enough due diligence, but we did it for stuff that we found out late in the game. We decided it was not that bad. We could handle it, but we couldn't really, and that's a lesson.
And as I said, I don't care what time it is in the deal. You learn something that you didn't like, you better stop. You better make sure what else is underneath this?
How do you keep from doing that? Maybe some examples you've encountered would help to line that?
One time we were looking at a company and it was the first time I met with them and we were pretty far down the road and the company was based in this one town and we're talking to the COO and she didn't live in the town.
Right. So, okay. Where do you live? And she said another town. Oh, I said, isn't that like 80 miles away? Yeah. You commute 80 miles each way. And she said once or twice a week, the first time we knew that the COO wasn't on-site was in that week.
Maybe that's just an oversight but it wasn't a problem. And it was late in the deal and we wanted to buy them, but that was the tip of an iceberg.
They weren't that big of an acquisition that it didn't hurt us that bad, but rather than being a nice accelerant for us, it was more of a put Humpty Dumpty back together again.
Who gets the wound from it? Are there a lot of people issues that you have to overcome?
The people that you were thinking that you were going to be able to rely on. When they live 80 miles away, they got one foot out the door, maybe both feet.
So it's just those kinds of things. And it's one of my sayings too. People all the time found that life's about little things.
When it's a big thing, people have their best suit on, get their hair combed, shoes shined, they're ready. Big game, they're ready. And it's not the big game and hanging around and you hear a thing and you go, oh, I don't like that thought.
Those people don't realize that they said those things in front of you. What they were really saying is really important because it was their truth.
The other thing is the polished presentation where you can learn stuff from polished presentations, but learn a lot more when you observe, keep your eyes open and your ears open, try not to talk too much.
How do you preserve value during an acquisition? I think there's always a fable dip of performance after you buy a company. How do you manage that?
Mostly, it's making sure that you have evaluated the talent inside that company. But you're going to have some attrition. Some people just really liked being CEO, and they're not going to be able to be CEO. They're going to leave.
And others like being CFO, but they're not going to be CFO anymore. They're going to be CFO of a division and then they don't like that or a subsidiary. So you're going to have attrition.
The question is, do you have enough talent in that organization to overcome that attrition, and have you evaluated who that second-line talent is and what you're going to do? Because you already know, and they'll tell you hell no, I'm here for the long haul.
So you just have to be aware that stuff is going to happen and you have to have enough talent. And if there's not enough talent in the organization, you have to have enough reserves in your organization to send them to the deal team.
And don't be a fatalist about it. You're the leader. You gotta be upbeat. We can do this. You're capable. You know what to do.
Can you explain the strategy and how SS&C typically approaches integration?
What we try to do is it's the name or the product name has equity. So if people know it then we tend to allow that equity to play out and as it lessens, then we start to integrate it. And there's not a separate corporate name or so even though we don't use the name anymore.
A lot of our products have a lot of brands that, whether it's Geneva or it's Intralinks or as Eclipse, those are well-known names and their various businesses that they're in.
And so we don't want to drop those names and then people go. So now you're back with Quintuple Pro or some other made-up name to figure out what's equity. It used to be Interlinks and it used to be Advanced and we just created a new name.
But we try to be wise about it. And I wouldn't tell you whether or not we were wise or unwise, except we have an $80 billion market cap and that's not too bad.
What about the back end? Is that a different approach in terms of trying to manage cost savings or whatnot?
We’re very quick on the overhead portions of companies we acquire. So we integrate finance and HR very quickly. Marketing it's pretty centralized.
The people that are in charge, if you want to measure them, they have to have numbers. You can't beat them over the head and they don't even know what you're talking about, right?
You have to agree with what the numbers are going to be and if they're hitting them or exceeding them. We don't want to gamble.
We have a number of businesses or three, four, or $500 million a year but you gotta be cognizant of it. SS&C is almost 5 billion in revenue. 1% is $50 million. We have customers that pay us 50 to $150 million. You have to take care of them. Be aware.
What's the hardest part of your job?
Cocktails won't start until 5:00 PM. I would say it is the most difficult thing. There's no real worst part. And the worst part is always when you have to let someone go or something with a personnel issue, that's always very difficult.
And it's also, we're a big place so everything that can happen to a human happens in our organization. And some of it's sad, a child could die or have accidents or do other things, and that's very difficult and you try to do the best you can and help in every way you can.
You're still the leader and you have to lead. You don't get to hide and you don't get to, you can weep but do it fast because the team needs to know you're still there.
The next play is going to get called and there's not going to be a drop in the efficiency and capability of the organization because they want to succeed, like you, they're young. So we're going to get your career in front of you.
If you want to keep the best people, they gotta be motivated and they also have to have the opportunity. And then they also have to have accountability and you have to celebrate the victories with them.
And yeah, you have to feel bad about the defeats, but you can't dwell on the defeat. You have to celebrate the victories. And pay attention.
I was going to ask what your favorite part of the job is?
I think about the victories. Now, they asked Tom Brady, when are you gonna retire? He says, there's nothing like running out of that locker room on that field with 70,000 fans cheering.
Whenever I retire, I'm going to miss that, but we don't have 70,000 fans cheering us, but victory is pretty important to us and we enjoy it a lot.
How's your time managed as a public company CEO?
I think you have lots of time because you have trouble making decisions. When you have trouble making decisions, you don't have as much time because you're contemplating on contemplating.
You have to get your facts together and you have to make a decision and you have to move on. It doesn't mean you don't go back and correct, sure. But nobody gives me a to-do list in the morning.
I'm much more kind of figure out where we're going next makes sense as an acquisition candidate, what doesn't make sense, who really knows what they're talking about.
Who's full of baloney, trying to make sure you have those things and trying to make sure that I like to call it a cadence, that there's a cadence of the company. There's a rhythm tempo. You don't want it to go too fast. And you certainly don't want it to go too slow.
So you have to have a kind of feeling and a measurement. How are we doing? I can usually tell when we have momentum and I feel good about where we are.
You have to trust your people, you have to hire really good people. You have to trust them. You got to give them the role. And then sometimes you have to change them, but that's your job.
I assign our financial statements and our internal control statements and representation letters. And we have offices in Shanghai, Beijing and Singapore and Hong Kong, Sydney, Melbourne, Tokyo, all over Europe, all over North America.
Do I know what everyone's doing every minute of the day? I do not. But I have competent people. We have a good system of internal controls. I have a lot of confidence in the accuracy of our financial statements and other financial data.
And I trust our people, sometimes, blows up in my face too. I don't like that, but what's the alternative? We're running around like a chicken with your headcount. No, we're not doing that. And I expect people to do their job.
What's the craziest thing you've seen in M&A?
We got offered to buy a bank in the Caribbean once by a really big investment bank. And we said no.
Three months later, it was out of business,fraud all over the place. Missing some of those opportunities. That's why you have to pay attention.
Exactly, I don't care what's on your card or who you work for. I want to ask my questions and I want to hear your answers, and I'm not just assuming that you're some superstar who rents a car.
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