The Happy Exit

Transcript

Disclaimer: Transcripts may contain a few typos. With most episodes lasting 60+ minutes, it can be difficult to catch some minor errors.

John Warrillow:

I think you’re going to like this episode. It’s with a guy named Prantik Mazumdar who built a digital marketing agency called Happy Marketer. What a great name. He describes a lot of the mechanics of selling, some of the legal ease of selling, how to deal with an earn-out. In particular, if you run a service company, buckle up because this episode is packed with real life lessons and business insights from somebody who’s been there and done that.

John Warrillow:

I think you’re going to really like this. He talks about something called acquisition readiness and in particular, the four attributes, Prantik looked at to make sure he was acquisition read. Listen for that. In the beginning, they used customers to finance their business as opposed to getting investment from private equity or venture capitalists. Great lesson there for folks who want to hang on to equity, which I’m sure you do.

John Warrillow:

He’ll also talk about how he used partners like Boston Consulting Group and Google to instantly give his company credibility. He’ll talk about timing your exit and how to think through that. Again, lots to choose from in this episode. In particular, some of the sticky details around earn-outs, which are a great, great wisdom here that you’re about to listen to from Prantik Mazumdar.

John Warrillow:

Prantik Mazumdar, how did I get that? Did I get it right?

Prantik Mazumdar:

Absolutely. Spot on. Thanks, John.

John Warrillow:

Hit it out of the park. Nice to meet you. It’s great to… I’ve heard of a little bit about your company. We did a little bit of back and forth before we got started. It’s great to welcome you to Built to Sell Radio. Thank you for doing it.

Prantik Mazumdar:

It’s a pleasure. I’ve been hearing a few episodes and I’m so glad we could meet and we can do this.

John Warrillow:

For folks who don’t know Happy Marketer, describe the company that you started. What did you guys do?

Prantik Mazumdar:

It’s been 12 years since we started Happy Marketer. Rachit, the original founder and myself, we happened to go a long way back. Literally, 20 years ago when we stepped Singapore, we met each other on day one in our lives in Singapore, we were university batch mates but our lives took very different paths after college.

Prantik Mazumdar:

He’s the true blue entrepreneur. He actually stuck it out. He did different things to pay the bills. Before the 12 years is actually a good four, five year story where he tried his hand at various things, from website design, logo building, et cetera. In the parallel I was basically… I took the safer route, to be honest. I joined the Singapore civil service. I worked with startups on the other side, helping facilitate their growth and internationalization. I then worked with a couple of small startups or SMEs in the brand marketing and digital marketing space before Rachit and I got together and we said, “Hey, I’m doing something similar, let’s join hands and build this.”

Prantik Mazumdar:

I guess the interesting part of the story in retrospect is both of us are not marketing trained. Both of us don’t have marketing degrees. I think that worked out really well because we believe, genuinely believe that being misfits in the industry, because we came from a tech and data background, albeit prior to data driven marketing became the flavor of marketing in itself, I think that kind of helped us.

Prantik Mazumdar:

When we began, it was all about building websites, doing the analytics, driving search engine optimization, doing the tech, geeky stuff, which at least marketers back then one weren’t doing. We were early in the game, we were different, just by design or by our background. That’s how the journey started. Long story shot, we obviously deep dive into various aspects, but pure services business, bootstrap. Our belief was always that the best money raised is money from customers.

Prantik Mazumdar:

We had no debt. We had obviously no venture capital, no one was going to look at a services business. We kept pivoting and experimenting. Over the 12 years of our life, we started off purely as an agency, without even knowing what an agency was, like I said, because we didn’t come from the marketing industry. But thereafter we pivoted to a training company.

Prantik Mazumdar:

When I say pivot, we didn’t completely pivot, we added that as a business unit. Training was fantastic. Eventually, we set it up as a subsidiary called Future Marketer. Happy Marketer implemented, Future Marketer train. Then we had a third sort of a pivot where we added consulting, digital transformation, where we went beyond marketing. Then we started looking at digital as a lever to transform various aspects of your business.

Prantik Mazumdar:

The common thread amongst all of this is we did this with the help of partners. In our 12 year journey, a lot of it was on the back of, or on the shoulders of giants like Google, Salesforce, Boston Consulting Group. That was a game changer for us-

John Warrillow:

I know you’re one of the big Google analytics trainers. When you talk about partnerships, you’re talking about that, where you trained other SMEs on how to use Google Analytics, how to analyze their website, and you’d been certified to do that through Google. Is that right?

Prantik Mazumdar:

That’s how it started. Absolutely right. Google, everyone obviously knows, as consumers, we use Google, the search engine on Gmail, for example. But 95% of their business revenue comes from ads. In our market, there are dime dozen advertising partners. We were one of those dime dozen advertising partners. But the three other areas where we partnered Google and we still do till date is one is analytics, like you said. We are one of the two Google Analytics 360 resellers and partners. We’re the largest in Singapore and Philippines.

Prantik Mazumdar:

But there are two other areas. One is training. We train people across all sorts of Google products; G-suite, SEO, SEM, you name it. The fourth, which is, their burgeoning, their fastest growing unit right now is the Google Cloud. Is how do you take Google Cloud and build marketing use cases such as predictive marketing? Most of analytics is typically rare view mirror, what did my customers do? What did they read? But now with Google Cloud, I can look ahead, I can predict. Okay, this particular customer is likely to churn, so let me give them a promo. John’s a loyal customer, let me not waste a promo dollar, let me take him into my loyalty program.

Prantik Mazumdar:

It’s that entire gamut, and we happen to be their largest partner in Southeast Asia. For sure.

John Warrillow:

Love the partnership with Google. Obviously, that gives you credibility as well, instant credibility because of the Google brand. What was the relationship with Boston Consulting Group?

Prantik Mazumdar:

Around 2015, 2016, we started connecting. They reached out saying, “Look, we are driving a lot of digital transformation, large scale transformation programs with family owned businesses in Southeast Asia.” If you look at Asia, specifically Southeast Asia, most emerging markets typically have anywhere between five to 10 family businesses that pretty much around the country. That’s the case in Indonesia, in Philippines. It started-

John Warrillow:

Booze, the media.

Prantik Mazumdar:

There is a joke that you land at an airport, the airport’s by them, the planes by them, the petrol’s by them, the roads are by them, right? They were working with a very large… I believe the second or third largest family owned business in the Philippines. They said, “Look, we are helping this massive group figure out how best to collect and centralize data. How do we leverage data across the group? How do we activate data? How do we drive marketing automation?”

Prantik Mazumdar:

They said, “Look, while it’s been doing all of that, we need domain experts who can actually walk the talk and convert PowerPoints to profitability.” We were their domain experts. This is not a subcontracting deal. We struck a deal where we said, “Look, we need to have a seat on the table. We need to hear customers and their pain points and we’ll implement.”

Prantik Mazumdar:

That’s how the partnership began. It’s been mega fruitful, at least for us, because we have their brand, their credibility, we could latch onto their pricing model. It took away a huge amount of our sales costs because they were doing the heavy lifting of sales and account management. We were there to understand and implement. Even for our staff, just to have the opportunity to work with the tier one consulting firm, learn the rigor of the consulting process, that part of the benefit is hard to quantify, but I think was gigantic.

John Warrillow:

Prantik, I want to ask you about specifically those partnerships and how they were viewed by your ultimate acquirer, Dentsu. Let’s get into that. When Dentsu was into your business and really trying to understand it, what was the reaction to learning about the Google partnership, the Boston Consulting Group partnership?

Prantik Mazumdar:

That’s a good one. I think it did two things. Firstly, I think it’s probably one of the reasons why a large entity or conglomerate like Dentsu even got to know about us. Because during that partnership, especially the training element of the partnership, by the time we got acquired, we must have trained at least, I don’t know, 5,000 odd marketers in the region, including staff from Dentsu.

Prantik Mazumdar:

They had seen us, they had experienced us. I think the partnership definitely helped the visibility, pre-acquisition. But I think when it came to acquisition, it helped these partnerships lend credibility, they could do some reference check as to are these guys real? Do they do their job well? I think fundamentally, I think two other points that I would add is, when they started looking at the P&L, what they also realized is there is a tangible value that these partnerships add, is the fact that a lot of our sales and marketing was happening through these partners.

Prantik Mazumdar:

Actually, we were able to take off those line items from our cost structure, because, if Google recommends us anyway, there’s a 50% chance of us making the deal. We realized we didn’t need to have additional sales folks. It was a huge combined benefit when Dentsu looked at these.

John Warrillow:

But I guess the other side of the coin that Dentsu could have looked at was, if this partnership fades away, breaks up, doesn’t make the transition over to Dentsu, then Happy Marketer’s easy funnel of new deals dries up. Did they have that conversation directly? Did they put a covenant or some sort of legal protection there about that?

Prantik Mazumdar:

Yeah. Fundamentally, that’s the risk of any services organization, because at the end of the day, we are all about our people and our relationships. We had that conversation across the board that, how many of our staff comes over? Obviously, we put our foot down saying one of our biggest non-negotiables was no one gets touched. Because at the end of the day, we put in a lot of heart in our business. There were people who have committed five, seven, 10 years.

Prantik Mazumdar:

People was one. The other is, yes, whatever was contractually agreed, obviously, we had to serve those clients and partners, But I think they baked in that risk that there could be a possibility that post-acquisition, these relationships don’t fly. It hasn’t happened that way. But what matters also is the fact that under the hood, I think we got to look at the structure of the acquisition.

Prantik Mazumdar:

The entity that was really interested in buying us is a Dentsu subsidiary called Merkle, which started 30 years out of Baltimore. If you look at the Dentsu story, the reason we were of interest to them is because Dentsu is 120 year old ad agency network. It’s the only network that went east to west, it was a creative powerhouse, which acquired Aegis, the media company in the UK in 2012. Then they went to the US to acquire Merkle.

Prantik Mazumdar:

Now, Merkle is more like an Accenture than an ad agency. In fact, when we connected with Merkle, it felt like we were mini Merkle because they were data-driven, very much into analytics, CRM, loyalty, and they have a huge partner ecosystem with Google, Salesforce, Adobe.

Prantik Mazumdar:

When they looked at it, they were like, wow, this seems like a great… There are a lot of parallels… This is probably mini Merkle in Southeast Asia. That helped us as well, because we knew that given the way Merkle manages Alliance partners, we knew that this would be a good fit, because they would understand how this business model works.

Prantik Mazumdar:

I think Dentsu got a lot of comfort just looking at the parallels between Merkle globally and Happy Marketer in Southeast Asia.

John Warrillow:

Interesting. Let’s get into the actual acquisition itself, since we’re there. How big did you get your company before you wanted to sell, in terms of number of employees or whatever proxy you want to use for size?

Prantik Mazumdar:

To be honest, when we Rachit and I started the business, the intention was never to sell. Our intention or… We idolized a services business that scaled to billion dollars. Both of us having grown up in India, Indonesia, Singapore, back in the ’90s or early naughts, we always looked up to IT services companies like the Tatas, the Wipros, the Capgeminis, et cetera.

Prantik Mazumdar:

We actually had a business plan which said, over 30 years, can we get to a billion dollars? That was the original game. But in 2017/2018, we got approached, we got connected with a gentleman called Ted Gray, who was leading Merkle in APAC. That’s how the acquisition conversation got seeded, because when we met Gray, he was very open. He said, “Look, I’m here to grow Merkle through acquisition, because no one knows Merkle, there is no Merkle.”

Prantik Mazumdar:

He had picked up a company in India, a couple of deals in Australia, and he was very, very clear that he wanted to work with Happy Marketer in Southeast Asia. That’s how the conversation started. But it took us a while for us to get convinced that we are acquisition ready. This is something I would want to tell the audience that it’s important to be acquisition ready and not just sell, just because someone approaches. Because we’ve fielded acquisition offers since 2013 and 2014.

Prantik Mazumdar:

When we looked at the market, we realized that most of the successful deals, or most large deals happened when agencies had crossed about $5 million in this region. I think the first special-

John Warrillow:

In revenue?

Prantik Mazumdar:

In revenue, that’s right. In revenue. The threshold that we wanted to cross was at least 5 million in billings and revenue. When we decided that we want to go down this path, we were inching towards that double digit in terms of revenue. In terms of staff, we were about-

John Warrillow:

Sorry, what do you mean by double digit?

Prantik Mazumdar:

It’s about double digit in millions. It’s about $9 million to $10 million range. We wanted to hit that. We wanted to hit that in this part of the world, which again, is rare because most agencies, if I look typically again, in Singapore, I think I would say 5 million to 6 million is a sweet spot. Is a time when founders start either looking at new founders to take the business ahead or start looking at acquisition offers. But we wanted to stretch that a bit.

Prantik Mazumdar:

Next was about staff. At the point of acquisition, we were 55 people. I think as a business, we were structured with about half of those folks in India. That’s where our delivery center always has been, and the remaining others were in Singapore and Southeast Asia.

Prantik Mazumdar:

50 plus was a good size to be at, in terms of a fairly decent org size that could support a post-acquisition business. That’s where we wanted to get at, John, in terms of just being ready. We wanted to have good partnerships. We wanted to have obviously a strong pipeline. We wanted to have a near double digit revenue business and about 50 plus people.

John Warrillow:

Got it. Partnerships, pipeline, 10 million plus and 50 people. That was your definition for acquisition ready.

Prantik Mazumdar:

Yeah.

John Warrillow:

Got it. That’s super helpful. In terms of the equity partners, Rachit was your partner and original founder. Then anyone else at the table on the equity side, or just the two of you?

Prantik Mazumdar:

No, that’s a good one. Prior to the acquisition conversation, it was 60-40, Rachit and me. But there are two other partners in the business; Awadesh and Sanchit, who have been with us for a long time. Sanchit has been there for a decade, Awadesh has been there for about five, seven years. If the acquisition had not happened, they were on path to equity anyway.

Prantik Mazumdar:

But as we approached the acquisition conversation, we decided it’s only fair that we have have the equity transition as well. Prior to acquisition, as we prepared the deal structure, we brought them onto the equity structure as well, so that they have a skin in the game. Because in a services business, there is an earn component. We wanted to ensure that Sanchit and Awadesh are heavily incentivized to take the journey forward. It’s worked out pretty well. Today, Sanchit’s transitioned very well. Sanchit’s the current CEO of Happy Marketer, Awadesh is the Chief Operating Officer. Rachit and I have =, over the years, passed on the beacon to Sanchit and Awadesh.

John Warrillow:

Fantastic. What was Ted’s posture when he first approached you? He was pretty candid. He said, “I’m looking to acquire companies. You guys look like a good one.” Where did it go from there?

Prantik Mazumdar:

Over a couple of sangrias, he made it very clear that not only was he here to acquire, he wanted to acquire us specifically. But I think what I really appreciated about Ted was two things. I think A, upfront candor. B, a slower approach. He was very quick to get to the point, but he said, “Look, I understand these things take time.” To be honest, year one was a lot about Rachit, me and the team sleeping over the idea. We were not acquisition ready. We were just not even emotionally sure that we wanted to go down this path, since we had larger ambitions. Ted-

John Warrillow:

You just said, year one. A lot of people said, “Wait, it takes more than a year to sell a company. Are you kidding me? I thought it would take weeks or months.” Year one of your courting by Ted, you’re talking about. How many years total was the courting?

Prantik Mazumdar:

That’s the name of this episode, year one of the courting with Ted Gray. It took us two years. Right from courting to signing the deal on Feb 19th or Feb 20th, 2019. To be honest, it could take a month to three months. But I would tell you this, that I think, one of the biggest, and this may sound like a [inaudible 00:20:54] cliche, but one of the biggest lessons we learned is the best time to sell is when you don’t have to or don’t want to sell.

Prantik Mazumdar:

I think if you don’t want to sell, time is on your hand, you can shop around. Because this is the founder’s baby. You’ve put in heart, sweat, blood, mortgage, everything into it. You want to get this right? You’d rather take your time.

Prantik Mazumdar:

In our two year period, year one, I would put it as us being confused, acting pricey, perhaps, or being naive because we didn’t know what this would mean. Year two is where the heavy lifting of financial numbers and, legal negotiations took place. For people listening, it could, I’m not saying it does, it could take up to two years.

John Warrillow:

Prantik, a lot of people are wondering about selling right now. Either getting approached by private equity groups or getting approached by strategics. Hopefully after knock wood, this pandemic is beyond the worst of it, it’s been an emotional toll for a lot of business owners. I think a lot are thinking, okay, maybe now’s the time.

John Warrillow:

It sounds like you guys did some heavy soul searching, you and Rachit in particular, but also the two other partners. Help people understand how you worked through the decision to sell. Took a year, what was that journey like for you? What were the conversations? How did you get there to the decision that, yes, it’s time.

Prantik Mazumdar:

After that first sangria conversation, there were a few more. I don’t think Rachit and I were convinced that we were acquisition ready. But on Ted’s part, on Merkle’s part, I think what was really good was they took it slow.

Prantik Mazumdar:

The courting was slow, we dated many times. I think we even started doing partnerships, project partnerships. We said, “Look, let’s work on a few projects. Why don’t I get to know your people? Why don’t do you get to know my people. Let’s have joint conversations.” That really, really helped. It really helped that Ted’s a sales guy.

Prantik Mazumdar:

I think he knew that if he could open doors and show us actual deal value, obviously it would be exciting. That was one. Next is, I think their posturing was great, in terms of there are a couple of occasions when we had the opportunity to meet the founding team of Merkle. David Williams… Their story is fascinating because, they grew from zero to a billion dollars when they sold to Dentsu over 30 years.

Prantik Mazumdar:

It all started from Baltimore, from a small little team, and grew up. When we met the founding team, I think they sold us the entrepreneur dream, the founder story saying, “Guys, we get this, we have been there. We want to work together to help you accelerate growth.”

Prantik Mazumdar:

I think the language, the posturing, that helped. The third was, when we looked at their framework, like I told you earlier, Rachit and I, because we come from the tech analytics background, we were always fascinated by the Wipros, the Accenture, the KPMG, the Deloittes. When we saw Merkle, I think we saw a lot of alignment. That, hey, you know what, here is something very similar. I think those conversations were like, okay, you know what, we’re not saying no, let us think this through.

Prantik Mazumdar:

Then two other things, important things happened. We spoke to a few other founders who have had good and bad exits. I tell you, we’ve learned a lot from those. I really would like to thank them for opening their books. There’ve been some very, very sour stories of earn-out.

John Warrillow:

Like what?

Prantik Mazumdar:

I’ll get to that. I’ll tell you a couple of sad stories. One was, founder A runs a company for 10, 12 years sells it to a very large network. But he doesn’t negotiate the cost structure post-acquisition very well, and that was a big, big, expensive lesson for him. Because, at the end of the day, if it’s an earn-out, typically earn is a function of your profit after tax.

Prantik Mazumdar:

If you don’t negotiate cost, it should, by a post-acquisition could load you up with their cost structure, their expensive offices, their lawyers, their fancy technology and tools, and suddenly your profit could shrink, and the deal may have no meaning or value for you. For folks listening, negotiating cost structure off your earn-out is probably the most important thing. There’s another case where-

John Warrillow:

In the case of entrepreneur A, did he, or she walk away with nothing? Did they get some earn-out? Did they negotiate some sort of settlement? Do you know any of the details?

Prantik Mazumdar:

Yeah. Typically, the earn-out process, the way it works is, your company gets valued at X and you get, again, depends on the deal, anywhere between 30% to 50% of X, upfront. This is another lesson, at least from our perspective is, entrepreneur B, let’s call him B, he said, “Look, even if you negotiate hard, push for a higher upfront, because again, the simple analogy money in hand or money in bank is, obviously sacrosanct, because you never know what happens after you announce.”

Prantik Mazumdar:

I would typically say, negotiate on the overall valuation of course, but negotiate how much you’re going to get upfront. If you can get a decent chunk that takes care of your life, I think you’re at a much better place mentally. But thereafter, you also got to negotiate, A, what’s the tenure of the earn-out. Typically, it can be anywhere between two to five years, usually. I think three is a sweet spot. Ours is four. You’ve got to be very, very clear as to what are the earn-out components? What are the multiples? What are the revenue and profit targets?

Prantik Mazumdar:

You’ve got to negotiate as much as possible that you control your own costs. These carve outs are critical. These are just two instances of just conversations that were eyeopening. Rachit and I don’t come from a financial background. This was great, great insight. In hindsight, these are deal makers or breakers.

Prantik Mazumdar:

We said, given how important this is, we wanted to hire a strong investment banker that does deals in our industry. We went to the market, we scouted three or four. We eventually decided to work with this company, a UK based company, which has a strong presence in Singapore, Hong Kong called SI Partners.

Prantik Mazumdar:

I tell you, there are three things that they did for us, and without them, this deal wouldn’t have been successful. One is, they know what the industry wants at that point in time. They are very good at shaping the narrative. I can tell you as with most things in life, it is so much about brand perception and narrative. You think of a Mercedes versus a Toyota. They’re automobiles taking you from A to B.

Prantik Mazumdar:

When you and I buy a… For example, if you buy a BMW, very unlikely that we are opening the hood and testing the engine, et cetera, we are there for the experience, for the narrative, for the prestige. They were very good at figuring out what buyer A wants, versus buyer B, versus buyer C, and they would stitch our narrative accordingly.

Prantik Mazumdar:

Two, they could take us to market. As you rightly said, there are various kinds of buyer. I’ll do the surface level, and we can come back to this. Through the process of two years, we met agencies, which we eventually settled for, but we met private equity, we met consulting firms, we met individual family-owned businesses. We met high net worth individual businesses who had no interest in digital, but there are other reasons as to why they wanted to buy a company.

Prantik Mazumdar:

Point being, if you are really selling, if you’re selling a company you’ve built up with your own hard effort, money and sweat, go to the market. Don’t say no first, just go and figure out what are the different, different buyers and business models out there? That’s again-

John Warrillow:

A couple of things I want to drill in there. What was the narrative that SI Partners stitched together for you? Let me ask you a different question, what was the most surprising way they changed the narrative? How did you and Rachit present the company and then what did they do to make it sound different to an acquirer?

Prantik Mazumdar:

I think two fundamentally difference. I think [inaudible 00:29:21] Like I mentioned earlier, we were marketing misfits. I think the very thing they said is, “Look, we are not going to pitch you as an agency. Because the moment I pitch you as an agency, especially to agencies, there is a standard template. Agency revenue X, profit Y. Here is a multiple, here is an Excel sheet. Let’s go.”

Prantik Mazumdar:

But the reality was, if you looked under the hood of Happy Market, there were three business models blended together. There’s an agency, a training company and a consulting firm, as well as, here’s what really changed the game, as part of our Google partnership, we are a software reseller company. We are official resellers of Google Analytics 360.

Prantik Mazumdar:

Now, each of these four business models have different multiples. A software reseller has… That’s like a SaaS business. The multiples are much higher. We strike a five year contract, and the margins are high. Suddenly, a SaaS multiple applies.

John Warrillow:

What kind of multiple would you expect on that?

Prantik Mazumdar:

On that could be anywhere between 10X to 12X, if not higher.

John Warrillow:

10 to 12 times EBITDA.

Prantik Mazumdar:

EBITDA. Yeah. If you’re on the pure agency side, it could be as low as three to four, depending on what’s out there in the market. Training helps, because the cash flow is very good, because training is one of those business models where just like in school, you are expected to pay before you enter class. In agency, you’re struggling to change your clients for 30, 60, 90 days even. When we blended it, we figured that there’s a good narrative for maybe a 7X of EBITDA, for example.

John Warrillow:

Sorry, what would a typical training company trade at?

Prantik Mazumdar:

Probably around that, 7X, 8X-

John Warrillow:

Got it. The execution stuff, the commoditized stuff, three to four, the software, 10 to 12, the training, seven to eight. You’re thinking blended, maybe seven times EBITDA is a realistic [inaudible 00:31:21]

Prantik Mazumdar:

Absolutely. What happened was, the benefit of having that two year stretch, A, was philosophically, we were fine to walk away and we have walked away from many deals. B, it gave us time to organically grow our revenue in the narrative, in the direction of the narrative that SI Partners advised us. They said, “Guys, look, in market right now, there are very few resellers. There are very few training businesses. Can we skew your business in the coming year, in that direction?” We also use that time to shape our business more and more towards the narrative of the sale.

John Warrillow:

I really want to just press pause and underline what you just said, because I think a lot of business owners, when they’re approached by an advisor, whether it’s an M&A professional, or we call them certified value builders, regardless, advisors, they give them the Heisman and say, “I don’t want to talk now. I’m not ready to sell.” Is the classic rebuttal.

John Warrillow:

What you did is you sat with SI Partners early, they coached you on what the different multiples are, how to position your business to increase what was going to be more attractive to acquirers and less. That coaching sounds like it was incredibly valuable.

Prantik Mazumdar:

Spot on. I’ll tell you, you’re very right to say that, when advisors approach you, in fact, many of them typically only work on a success fee. What I liked about SI Partners in hindsight is, it was a blended structure. We had the flat fee and a percentage of the overall deal.

Prantik Mazumdar:

The reason that’s beneficial is because automatically, that’s an alignment with the principle that you don’t have to sell. I can’t tell you, and I can’t emphasize enough… There are two people, Sam and Hattie from SI Partners. After every meeting, they would categorically remind us, “Rachit, Prantik, remember, you don’t have to sell.”

Prantik Mazumdar:

Now, they wouldn’t have been able to do that, if it was a pure success fee. It’s a very small thing, but it went miles, because it just strengthened our confidence during negotiation. Because remember, in the negotiation, very likely, it’s a David-Goliath situation, and the seller is a small person.

Prantik Mazumdar:

I can tell you, in many, many cases, in many conversations that we’ve had in the market, companies who buy regularly, it’s their job to strike a good deal, and to squeeze… Your buying side, it’s just like the way you’re buying a house, you’re always trying to negotiate. They’re doing their job. But on the selling side, you got to know your narrative, you’ve got to be confident, you’ve got to be okay to walk away or buy time because that’s your strength.

Prantik Mazumdar:

That only comes if you have partnerships that are structured and aligned that way. To everyone listening, I would say, being open to advisors because they know the market. Of course, you got to be confident that they’re the right guys, it really helps. Because at the end, Rachit and I told ourselves that, even if it did sell, we were happy paying the retainer because they really opened our eyes, they coached us, they changed the way our narrative looked. Absolutely-

John Warrillow:

I’m curious about something, because Ted had romanced you guys, the sangria is flowing, he’s a sales guy. Then all of a sudden you rock up and say, okay, we’ve engaged SI Partners. What was Ted’s reaction to this, now he’s got to negotiate with these professionals, suddenly. He doesn’t have so much access to you anymore.

Prantik Mazumdar:

I think what we did was, we’ve always enjoyed speaking and talking with Ted, and that’s the beauty of Ted, he is very, very founder friendly, and he’s a great salesman. That combination, he knows that, look, if you really want to get this done, we’ve got to let the founders and Happy Marketer guys be comfortable, let them follow their process.

Prantik Mazumdar:

We still continued working on projects, meeting for sangrias and drinks. All we said is, look, if you are going down this route, we will go through a professional. We will meet a few buyers. In fact, Ted comes from the tech world, from Oracle, Accenture, et cetera. He said, “Look, if I were you, I would do the same.” He’s a very, very empathetic person.

Prantik Mazumdar:

He said, “Look, guys, do this only if it makes sense. Go and speak to other buyers.” That’s the irony of that sort of dating is you get drawn to it when the other person is not pushing you too hard. I thought the relationship with Ted, I think it’s a huge part of why the deal happened. I think we took it nice and slow, nice and easy. We kept the conversation open. He let us do our thing.

John Warrillow:

How many offers did you end up getting, like formal letters of intent?

Prantik Mazumdar:

The way it works is, in most cases, at least in our case is, we could go to the market, we could field offers, but once we signed an LOI, a letter of intent, that’s exclusive. We wanted to ensure that before we signed an LOI, eventually obviously with Dentsu and Merkle, because each process it’s a tedious, long drawn due diligence process.

Prantik Mazumdar:

Like I was sharing with you earlier, there’s a huge emotional baggage because you’re running a business by day and you got to do all of this by evening or night. We said, look, we don’t want to flirt with too many partners, but before that, we want to at least meet. We met, maybe, I don’t know, about 10 odd serious potential buyers. We got a sense of, are they interested, not interested? If so, what the business model or the multiple is going to be like.

Prantik Mazumdar:

To be honest, there were a couple of family-owned businesses from Indonesia, China who probably had a much cleaner and larger deal structure. There were two entities who wanted to buy us upfront at 2X the offer that we finally had from Dentsu. But there was no earn-out. It’s pretty interesting. We were like, wow, we already have an offer where someone’s willing to give us more money, someone doesn’t want us to have an earn-out. Why are we not saying yes right away? It just doesn’t sound included.

Prantik Mazumdar:

We, again, Rachit and I sought for advice from some very senior VCs and PE firms saying, “Guys, you do this for a living. What’s the catch?” I remember one of our senior VC friends saying, “Guys, look, if it’s purely about math, even a grade five student can tell you that, go with the offer that gives you more money.” But he said, “Guys, ask yourself, why are you doing this? Ask yourself what’s the narrative or intent.” He said, “Look, typically in those deals, the reason they are buying it is because they want to buy it for two reasons, and those buyers were very candid.”

Prantik Mazumdar:

They said, “Look, some buyers said, look, by doing this, it allows us to put in wealth into Singapore, which is going to give us an equivalent of a green card or a citizenship.” They were doing for personal reasons. They’re wealthy families, they just wanted access to Singapore. Some of the people were doing it to create an amalgamation of companies, a package and then list it on the market. They were not really interested in helping us grow the business in what we have built, they were just doing it for pure commercial reasons and nothing wrong because they were willing to pay a very good price for it.

Prantik Mazumdar:

But what the advice for us was that look, you guys are young, chances are, you might have another one or two businesses in you in the next 30 years, you want to have a good story, you want to have a good exit story. You also want to do right by your people. There are 60 people who have given their lives to you, because if you sell to the parties who are going to give you more money, they’ll shut the business on day one, all 55 lose their jobs. Do you want that narrative?

Prantik Mazumdar:

We thought very, and we felt, that’s true. Yes, we can make more money there upfront. But I think there is a responsibility, there’s a story that we want to build here. Through the earn-out process, we do still have the opportunity to make it to that 2X valuation, eventually. We said, you know what, time is in our hand, we’ll choose the path of the earn-out.

Prantik Mazumdar:

We fielded 10 odd offers, three different kinds of business model, but eventually we felt very comfortable with the Dentsu Merkle offer. Again, they have been very, very thorough and professional in the way they’ve gone about the business.

John Warrillow:

What was their structure? What was the multiple they were offering and how much of it upfront versus earn-out, that kind of stuff?

Prantik Mazumdar:

Like I said, in our case, eventually the blended 7X of EBITDA worked out. The typical deal for us was, we get about a 40%, 45% upfront and the rest is obviously variable. It’s a function of a four year earn-out. It’s a PAT multiple.

Prantik Mazumdar:

I guess the good thing is, we had visibility of the formula upfront. Obviously, the destiny is in our, as well as in Dentsu Merkle’s hands because, it’s a joint business plan [inaudible 00:40:33], it’s not just Happy Marketer, but it’s a collective effort. But at least, we knew what we are getting into, we know the formula. We’ve literally earned what we sow sort of a thing.

John Warrillow:

I just want to make sure I understood, did you see packed multiple?

Prantik Mazumdar:

PAT, P-A-T, profit after tax

John Warrillow:

Profit after tax. Okay, that’s helpful. Got it.

Prantik Mazumdar:

Again, this is not sacrosanct, there are different models we have seen in the market, which could be revenue based, which could be profit before tax. Because again, the tax jurisdiction matters a lot because Singapore is a low tax jurisdiction. But if you’re in a high tax, maybe, in the US or India, et cetera, you may want to negotiate otherwise.

Prantik Mazumdar:

That’s, again, where it’s critical… These are details where you need advice. Apart from SI Partners, we had an accounting firm that helped us on the tax accounting side. We had a very, very good law firm, something, again, I would recommend all our listeners to consider. We finally got a law firm, which is a very big name in the US, they’re a large law firm. We’re lucky to have a friend there who helped us strike a deal, which was part retainer. Because most law firms only work in a retainer, but we were lucky to get a part retainer, part success fee.

Prantik Mazumdar:

But again, I can’t stress the importance of that because a lesson learned was beyond the point, all the legal negotiations were not legalese, but literally posturing. That, you know what, it’s my word. This is how we do it, take it or leave it.

Prantik Mazumdar:

You’ve got to be able to have a law firm that has a good standing, that has a good perception that can hold its ground, and ideally, hopefully precedence based on experience. I can go into, if you’re interested, go into a couple of clauses.

John Warrillow:

Yeah. Go ahead.

Prantik Mazumdar:

For example, a couple of clauses that took a long time was, you want to negotiate very clearly and very hard on non-competes. Because the buyer would typically say that, “Hey guys, you’ve sold business. Now, for the rest of your lives you’re not going to be doing an agency.” Now, that’s the extreme case. Most companies won’t do it because the law of your country most likely will say that you can’t prevent someone from earning his or her bread or butter.

Prantik Mazumdar:

But they would probably put a large tenure saying for the next three, five, 10 years, you can’t do something. Again, thanks to our lawyers, we created some carve out saying, okay, you know what, at least for us, we can’t be doing an agency selling the same stuff in the same markets that we operate in. Which means tomorrow, if you want to start an agency in Canada, fine, because Canada is not very operated, or at least currently operated.

Prantik Mazumdar:

The other also is in terms of good exits and bad exits. Because typically, when you sell, in most cases, the company may reserve the right to ask you to leave the very next day. Which is fine. Obviously you’ve become an employee, but you may want to carve something out saying, “I’m quite critical to the business. Maybe I need at least a minimum one year period.” Otherwise, even you as a buyer may not really benefit, because we are a services business. You may want to negotiate that.

Prantik Mazumdar:

You may want to negotiate a two-way fair exit. Meaning, look, as much as you can fire me or ask me to leave, I may also reserve the right to leave the organization. There, there are two specific carve outs you can negotiate, good and bad exits. Which means that, for example, if I’m charged criminally, if I’m convicted, that’s obviously a bad exit. Which means, I suddenly lose all my rights to an earn-out, it’s all gone. But if it’s a good exit, which means, you know what, I’ve done my handover, I’m just moving countries or I’m leaving, that’s fine.

Prantik Mazumdar:

As long as someone else is running the business, professionally, I as the shareholder should reserve the right to the earn-out. I think these are small nuances, which could take two, three months to negotiate. But I would say, stand by your principle, stand what makes logical sense? Because once you sign the line, once you sell, the deal’s done, you can’t really go back.

Prantik Mazumdar:

The other thing, for example, you may want to negotiate very hard is the upfront amount, it can’t be clawed back. Once paid, it’s paid. I’ve seen a couple of cases where that wasn’t the case and that the founder of the company, unfortunately went into litigation because the company wanted to claw it back for whatever reason.

Prantik Mazumdar:

I think these are things that you want to get that in writing upfront and hence this takes time and hence this takes a good law firm, because they need to have this experience, this precedence, to be able to negotiate on your behalf.

John Warrillow:

I’ve heard it in North America, I’m not sure if it’s the same in Singapore, but lawyers have referred to market. Well, that clause is not market. That’s what I think you’re referring to, is someone with enough experience to be able to push back and say, that’s like a 25 year non-compete is not market. That’s not-

Prantik Mazumdar:

Absolutely spot on. We used to joke with our lawyer friend that… We’re literally in the boardroom negotiating, but when the legal terms come, Rachit and I are just sitting like an observer, like an audience, seeing the lawyers fight it out. Over lunch, when we take a time break, I’m like, “Mr. Lawyer, this doesn’t seem legalese, this seems too… ” I’m just joking, “Two teenagers fighting over what they want.”

Prantik Mazumdar:

As you rightly said, it literally, eventually when all legalese fail, it came down to, hey, this is not market practice. But then the other one would say, “Hey, by the way, this is not what I see.” It’s literally at the end, who would blink first? Spot on.

Prantik Mazumdar:

Having that gravitas, that experience, even their brand name, I’ll tell you something very small, and to founders here who I’m sure of very experienced is, it was really, really not about the legalese as much as about that posturing. Because the other side, the bigger boys, they obviously have big, large global law firms. If they don’t see a law firm on the other side, which is of the similar caliber of pedigree, you probably lost the battle before the battle begins.

Prantik Mazumdar:

Yes, it’s not easy because you may have to pay top dollars. But I think if you’re going down this path, you’d rather get good advice, folks with good precedence and experience and the ability to negotiate what market is. Because we’ve seen it make a huge difference. We’ve probably taken four extra months to negotiate this, but we’re finally very happy with the way the contract paned out.

John Warrillow:

Yeah. Sounds like it. What was the emotional experience for you? You guys had been friends for a long time and business partners and friends in life as well. You’d sold your business for a lot of money, but a four year earn-outs. You’re still connected to the business and had a number to hit. What was the emotional side of selling like for you?

Prantik Mazumdar:

A rollercoaster is the right word, very draining is the other right word. It took two years. In those two years, like I said, Rachit, and I would need to grow the business, manage people, manage clients, manage revenue, the usual stuff that every founder has to do during the day. Then every evening or every few evenings, we would sit together and say, “Okay, where are we? Do we really want to sell?”

Prantik Mazumdar:

We would literally start the conversation asking us, are you ready? Are you really sure? Rachit has this very good habit of, even if I had said, yes, let’s sell the last night, he would say, “Hey, let’s sleep over it. You never know.” We would literally start from ground zero and question our beliefs, our decisions. It’s hard because you would get emails from the accountant saying, “Guys, I find this mistake in your due diligence. You know what, the valuation doesn’t look that good.”

Prantik Mazumdar:

Or a buyer would come and say, “I don’t think you guys are good enough.” Posturing actual stuff. It’s very draining because it does hurt your ego that, you know what, I think we are doing good, but you have to grapple with so many that you don’t know about. You’ve got to be prepared professionally to have these open-hearted conversations with your business partner. Because by the way, there could be a phase when one party says, “No, I’m not ready.” The other party says, “No, I want to sell.”

John Warrillow:

Did that happen to you?

Prantik Mazumdar:

In our 12 year journey, we’ve actually had one major instance where, in fact, it’s from Canada. One of our original partner, David, he’s a Canadian-Chinese, he at some point wanted to exit the business. That was very hard, it was just four years into our business. We knew little, but we learned the hard way that equity once given, it’s a very difficult thing to part with, because how to decide what’s the valuation? Once you agree, even if you do agree, how do you figure out cash?

Prantik Mazumdar:

We had a very difficult time in 2013, 2014 when we had to part ways, because, A, it’s emotionally difficult to part ways with a friend who’s a business partner. B, to figure out the cash and the valuation. Yes, we had gone through that earlier in the decade-

John Warrillow:

How did you do it with David?

Prantik Mazumdar:

It was tough. Once we came to an agreement that he is going to exit the business, the next step was okay, what are the terms? We were young and naive. Literally, we went to google.com, we read 20 articles. Obviously, the selling side had a lower evaluation, the buying side had the higher valuation. But the funny thing is when we reached a compromise, and now when we look back, it’s funny, back then, the valuation that we finally agreed on is not too far away from the final valuation of our deal.

Prantik Mazumdar:

At least, in hindsight, we now feel that we had a fair deal. But what was tough was paying him back. Because obviously, we had a fair value agreement, but we didn’t have the cash flow, but we agreed on a time period of X months, and we’re going to pay you every month. We were just lucky that luckily our business grew, we had cash. But it was a struggle because we hardly took any money back, Rachit and I, after paying staff and after paying David.

Prantik Mazumdar:

You’ve got to go through that. I suppose, many founders go through that. I guess the only caveat there to anyone listening is negotiate equity in a prudent manner, in a don’t be too haste in parting way with equity because once you lock in, it’s hard.

Prantik Mazumdar:

Now, fast forward to the time when we are discussing the sale, there have been many occasions where Rachit wanted to sell, I didn’t want to sell or vice versa. I’ll add some more complexity to this is, once Rachit and I are ready to sell, what people have to factor in is your family and friends. When we spoke to our respective spouses and parents, it was a mixed bag.

Prantik Mazumdar:

Like my parents and even Rachit’s parents, they were like… For people in our generation, the word exit has a positive connotation, but to our parent’s generation, I remember even Rachit’s grand mom who lives in Singapore, emotion was as though we were shutting a physical shop. In Hindi, she would be like, “Wait, you’re closing the shop?” The analogy was rather sad. Like wow, what’s happened to my grandson? Are things not going well?

Prantik Mazumdar:

We had to paint a positive picture that no, you know what an exit or a sale actually means money. There’s a grandma analogy. Then the parent analogy is, “Wait, kids, what are you going to do after selling? Are you guys going to sit home. That’s not fine.” In most Indian households and I’m sure in other households, sitting idle is never an answer. It doesn’t matter how much money you make.

Prantik Mazumdar:

We had to go through that parent discussion saying, “No guys, look, we’ll sell. We have an earn-out. At least for four years we’ll work. By the way, I’m not saying we’re going to sit idle at home, we’ll do something, we’ll figure it out a next startup baby.”

Prantik Mazumdar:

It’s those emotional… Suddenly, if you add, it’s not Rachit and me, there are eight other people in the equation; spouses, parents, in-laws, grandparents. You’re like, wow, geez, this is not what I signed up for. But eventually, when people came around, they understood why. I think we always went to Simon Sinek’s first principle of start with the why.

Prantik Mazumdar:

We wanted to tell them that, look, this liquidation event, A, there is liquidity, and somewhere in our 30s, it’ll help us from a cash flow. Also, I think it’ll help us accelerate our business. It’ll help our staff. I think when we started with the first principles of why and the objective of this, more than the mechanics, I think it became a bit easier.

Prantik Mazumdar:

To anyone who’s going down this path, expect anywhere between six to 24 months of late nights, of just emotional conflict internally, as well as externally. It’s not a rosy time until you actually cross that line. In fact, there’s another anecdote, I’ll leave you with a close friend of ours, he was at the finishing line, on his way in his car to the hotel to sign the deal.

Prantik Mazumdar:

But here’s what happened, the buyer, and I presume this is a common place for shrewd buyers. The buyer calls and says, “By the way, the deal’s off the table.” The friend tells us that… He said, “I’ve only cried twice in my life. One when there was a bereavement in the family, the other, when this happened.” Because when you’re all set, you’ve probably, in excitement booked a holiday, bought a house, but the buyer knows.”

Prantik Mazumdar:

Again, as the saying goes, till the cash hits the bank, please don’t celebrate, the deal is not done. Because what buyer did, the buyer called back two hour later, because he knew the founder would be emotionally crossed. The buyer said, “By the way, you know what, we can do the deal, but at half the value.” But I’m glad my friend… Yeah, it’s so unfair.

John Warrillow:

At half the value.

Prantik Mazumdar:

Half the value. You’ve given two years to negotiate, you’ve come to an agreement of X. One hour before the party, you’re ready to pop the champagne, they say half the value. I’m so glad my friend didn’t sell at that point in time, he continued growing the business. Eventually, he sold it at a much higher value to a much better buyer.

Prantik Mazumdar:

All I’m going to say is, till the deal is done… In fact, in our case, just the funny anecdote, we signed, all was good, we are celebrating, but because of a bank glitch, the money took an extra couple of hours to hit. But in those two hours, your heart is pounding. You’re like, I know I’ve signed it. I know the other side has show as the receipt that they’ve done their bit. But sometimes, banks take time to clear the transaction. Please celebrate only once the money is in your bank account.

John Warrillow:

How did you know the money was in your bank? Were you refreshing like a mobile bank app or-

Prantik Mazumdar:

Yes.

John Warrillow:

Refresh, refresh, refresh.

Prantik Mazumdar:

Refresh fanatically. Absolutely. I would be lying if we didn’t do so. Rachit’s doing it, I’m doing it, buddy, what’s happening. Where’s this… Because normally, you would get an SMS saying, money is in your bank. We actually obviously have a screenshot of that SMS and that notification that okay, money’s in the bank, let’s go drink. Until the money’s in the bank, your heart’s pounding, then, what have I done?

John Warrillow:

Oh man. I am so grateful for you sharing in such candor and detail because this is going to help a lot of entrepreneurs. In particular, service companies, where oftentimes there’s an earn-out component and you’ve just shared an enormous amount of really great tips for folks. I’m really grateful for you doing that. Where can people reach you? Listeners wanted to reach out and do you want to send people to a website or what’s the best way for folks to say hi and thank you personally.

Prantik Mazumdar:

Firstly, I want to say thank you, John, A, for running this podcast. I wish in hindsight, before our deal, we had access to this resource because it’s only through these sort of conversations, and I only had privy to three or four personal friends. But many people may not be willing to share, but I think this is how the industry or the market, we got to build confidence and capability on the sell side as well.

Prantik Mazumdar:

Thank you for doing this and thanks for everyone who’s listening. Happy to have detailed chats. Best way for anyone to reach me is on LinkedIn. If you search my name, which I’m sure might be on the podcast as well, Prantik Mazumdar, on LinkedIn, just drop me an invite or a note, and yeah, we can carry on the conversation from there.

Prantik Mazumdar:

Really happy to deep dive and discuss specifics. All I’ll tell anyone at the end is really, you’re building this with so much hard effort, blood, time, et cetera, be acquisition ready. Tell yourself after every meeting that you don’t have to sell. There are tons of different business models. In the Western world, I see sites like MicroAcquire, if I’m not wrong, which are platforms that help you sell. There are advisors that you should reach out to. There are different kinds of private equity, nowadays PATs, different models emerging.

Prantik Mazumdar:

Please entertain all sorts of options before signing onto the one that you kind of feel comfortable with. Fight for your upfront as much as possible and negotiate the legal contract as well as you can, because this is once in a lifetime of an opportunity.

John Warrillow:

Well said. We’ll put your name, because it’s got a unique spelling. We’ll put that in the show notes, which will be at BuiltToSell.com. Prantik, it was awesome. Thank you for doing this.

Prantik Mazumdar:

Thank you, John. It’s been a pleasure. Thank you so much and wish you all the very best.

John Warrillow:

Hey, if you like today’s episode, you’re going to love my new book, The Art of Selling Your Business. The book was inspired by the cohort of my guests over the years, who have been able to negotiate and exit far better than the benchmark in their industry. Sometimes two or three times more than I would’ve expected.

John Warrillow:

I was curious to understand the tactics and strategies of these entrepreneurs and what they do differently from average performers. The result is a playbook for punching above your weight when it comes to selling your business. To learn more, go to BuiltToSell.com/Selling, where we put together a collection of gifts for listeners who order the book. Just go to BuiltToSell.com/Selling.

John Warrillow:

Built to Sell Radio is produced by Haley Parkhill. Our audio and video engineer is Denis Labattaglia. If you like what you’ve just heard, subscribe to get a new episode delivered to your inbox each week. Just go to BuiltToSell.com.