A conversation with Kevin O’Neil of Goldenhill International M&A Advisors, a boutique M&A firm.
Mr. Oneil has invested the last 15 years of his career focused on information technology M&A transactions. During his M&A career, he has worked both in corporate development roles and as an advisor with Goldenhill. He has successfully completed over 50 M&A projects in many different sectors of IT, including both US-based and international transactions ranging in size from start-up companies to over $100m in valuation.
JSD: It probably makes sense just to step back and tell us just a little bit about your firm, strategies, specialties. What does Goldenhill do?
O’Neil: We are a pure M&A advisory service, which means that’s all we do. We either work with companies that are looking to sell their business, or, in some cases, we work with, say, larger corporate entities that may be looking to divest at the vision of a subsidiary, and so forth. So, we work sellers of those two types, or we work on buy-side projects, where we would work with either public or private companies that are looking to expand to grow their business via acquisition. We never work on the same one at the same time. So, in other words, if we’re working for a buyer, we only work for the buyer. If we are working on the seller, we only work for the seller.
So, we do both buy-side and sell-side mandates, and that’s all we do. We don’t do any other type of fundraising or anything else often associated with our world of, generally speaking, investment banking. We are a small boutique firm. There are five partners and one of our unique points, besides the fact that we just do M&A, is that we are also international. Two of us are here in California, two of us in London, and one who was in London has recently moved back home to Buenos Aires and has opened a location for us now in Latin America. So, there’s five of us; yet we are international.
Many of our projects are cross-border, meaning that the buyer and the seller are in two different countries. That’s probably 60 percent or more of our transactions, is cross-border deals, and we also tend to focus quite a bit in the IT space, in the technology sector. We do work outside of technology, but that is kind of our core competence.
JSD: So, a typical, small firm, and maybe somewhat atypically, an international small firm.
O’Neil: Correct. Very few, at least that we have come across, firms like us that are small, focused like we are, have presence in now three continents. So, it is a differentiation that is a bit unique, and certainly does, oftentimes, lead to engagements for us, the fact that we have that presence on the ground in these regions.
JSD: Does your firm also use other firms? Are you partnering with other firms in these transactions, or possibly contracting with individuals when you’re involved in an M&A deal?
O’Neil: Not really. It’s not at all a norm for us. There are probably a very small number of instances where we may have someone on an affiliation basis, let’s say, that has been involved with us in a project for a specific reason. I could think of, for example, several times we’ve worked with firms in India when we might be wanting to determine if there could be Indian buyers for, say, a tech company we’re working with in Europe or in North American. But, generally speaking, no, we pretty much do it ourselves.
How M&A Has Changed
JSD: How, in your mind, has M&A changed over the last two or three years?
O’Neil: Well, in several ways. I think, certainly, for a period of time there, it was somewhat lean times in terms of a number of transactions, as well as in the size or the total valuation of transactions. So, it was tougher, I think, for many firms to find projects, and those projects that they did find tended to be of lesser value; meaning potentially lesser earnings, because the deal sizes were smaller.
I think, also, given the difficult period that the larger banks went through, many people exited the larger firms, and perhaps started doing more like what we do, a small boutique firm on their own. To some extent there is maybe more people that are in our size range now than there may have been a few years ago. Plus, certainly, the valuations are different now, and I speak mainly from a tech sector background. But I think valuations are certainly not as robust as they were pre-recession.
Life in a Boutique Firm
JSD: Are there any sort of parameters in terms of deal size minimum or maximum, or sort of a sweet spot for your firm?
O’Neil: Yeah. As a smaller firm, we tend to relate very well with owner-operated businesses or smaller corporates because, again, we’re the owners of the business. We relate well with other folks who are owners of businesses or the executives of smaller corporations, so we tend to work, say, even down in the several million-dollar range of small deals, but our sweet spot is probably between $5 million and $50 million, transaction value.
JSD: Now, yours is a small firm. That, obviously, means you wear a lot of hats.
JSD: So, what are some of the roles, responsibilities that you have at Goldenhill?
O’Neil: Well, we all do our share in the projects, from finding potential clients to working with them to go from prospects to clients, and then executing the project. But, in addition, we’ve kind of parsed out some of the other responsibilities. So, for example, I take the point on many of our marketing initiatives, so I’m responsible, if you will, for our website, and some of the other things from a marketing perspective, globally or broadly speaking, right down to designing the business cards and sending the files to them to print in their local countries. One of the other guys is a finance guy by background, so he looks after a lot of the finance stuff.
JSD: So, from an infrastructure standpoint, you’re breaking out into folks’ backgrounds and saying, “Do what you do best, or do what you bring to the table,” but from deal perspective it is, “Eat what you kill”?
O’Neil: Not really. One of the things we do is have at least two of us on any project. Again, many of our projects being cross-border, that’s a natural. If we have a client in the U.K., one of us in the U.K. probably originally found that client or acquired that client or was key to that, and manages or is the day-to-day person they can talk to locally. But then one of us over here may be spending a lot of time on the ground in North America working with buyers or with sellers. So, there’s always two, sometimes more, maybe three or even four of us, depending on the project.
Stories from the Front Lines of M&A
JSD: Now, from your experience, tell us about a big success. Tell us about a deal that you’ve done that was really fulfilling from a professional perspective.
O’Neil: Well, most of them are. Given that, especially as a small firm and the fact that we do all the work ourselves, we don’t have any employees, we don’t have any other people, we don’t have any junior people that we hand the real work off to; we actually do it all. In that model, you can only do so many a year, so each victory is a big victory to us, and fulfilling.
But one, perhaps, that might stand out is a client not that long ago that had originally been approached several years ago by a major corporation that was interested in acquiring them. The board recommended that they engage a professional advisor, which he did, so I worked quite closely with him to see if we couldn’t bring that to fruition, and it turned out that that deal did not happen, the buyer ultimately kind of backed out, and, really, it wasn’t a bad thing because the business needed to be improved. There were some things that the owner really needed to do to maximize the value of the business. So, going through that process gave me the opportunity to work with him and give him those thoughts and ideas for what to do to make his business more attractive to more people, and potentially more valuable. He had a board of advisors that felt the same way, and so he did that.
And then we took the business to market in a proper sell-side process, where we went out, identified a number of potential buyers, and ultimately sold the company for a very good valuation at a tough time during the recession, and sold it for I think a good valuation, and he was very pleased, very happy, so that was very fulfilling. It’s always a bit difficult or, you know, you’re not necessarily always going to get the best deal if you just deal with one buyer who approaches you, as opposed to going out to market and potentially having multiple buyers considering you. So, it was fulfilling to see him go from the disappointment of that original approach, and then to see what he did to really take the company forward, and then to see a very successful sale, which he was thrilled with.
JSD: Now, how about the other side of the coin? Are there any painful lessons or transactions you can talk about that you might be able to share some of those lessons learned?
O’Neil: Yeah, probably. One I can think of….
JSD: You said, “Yeah,” almost like, “Yeah, we’ve got a few scars to show.”
O’Neil: Yes, yes. Well, I mean one of them, or just a broad scar, is sometimes we’re very persistent, and we’ll stick with a client for a long time trying to really find them the best deal, or to find them a deal that really is going to work for them for quite some time. So, it’s an attribute of ours but, also, it can be painful.
I think back to a transaction a few years ago. It was a buy-side deal. I was working with a client that we were helping to identify and acquire a business, and it was a business that we worked on, and we got very far down the road, made offers, it was basically accepted. It was a single owner business we were looking to acquire. We got quite a ways down the road, and then the owner one day called me up and said, “You know, I just can’t do it. I just can’t sell my business,” so he backed out.
Myself, and my client, especially, had put a lot of time and energy, so it was very disappointing, but there you go. But then again, about eight months later, the same guy calls me up and says, “I wouldn’t blame you if you didn’t take my phone call, but I’ve changed my tune. I really would like to sell the business now, and if your client is still even willing to talk to me, I’d like to pick up and see if we can’t get the deal done.” I said, “Of course I’m gonna talk to you.” We tried to check that he was serious, and he said, “Look, I went through an illness,” and so he had a very good story about having gone through a near-death illness, and he was an older fellow now, and to say, “I need to do this.” So, my client said, “Yep, let’s do it.”
We went all the way through again, we got almost to the end and, this time, he used his CPA to be his advisor, which isn’t always the best thing, but his CPAcalled me up and said, “You know, he has over the weekend decided to basically do it again, to back out again.” So, the lesson learned there was don’t believe them the second time.
JSD: So, what would you do differently, either the first time around with him, or the second time around with him?
O’Neil: Well, that’s a good question because the reality is it’s very difficult. The reasons why my client wanted to acquire him the first time were still there the second time. In fact, the business had gotten a bit better, so it was even more attractive. So, it’s very difficult in the real world to just hang up the phone on a situation like that, but perhaps what we might have done differently would have been to really have tested his resolve sell the business, and it may still not have made a difference. He may have really believed that he should sell it. I think sometimes the stark reality of almost putting pen to paper causes people to say, “Wow.” It’s one thing to talk about it and go through the process; it’s another thing to, “There it is. Sign.”
So, trying to really test the resolve in a situation like this up front, and then, number two, perhaps having him, it would be very odd, but to have a seller put up some kind of a nonrefundable deposit.
JSD: A breakup fee of sorts, eh?
O’Neil: Yes. You do see it from time to time, usually when it’s further down the line, but given the experience there, maybe we should have done that, because that’s a good way to test the resolve. It’s unusual to see a seller put up a breakup fee, but in this case….
How Important is Pedigree in M&A Advisory?
JSD: Now, from a career perspective, we often will see the advice that you must have a certain pedigree — it’s got to be this school, and if you’re early in your career, you need to have had internships here, or you need to have worked later in your career at one of these particular top 20 firms, or something along that line. In your mind, how important is pedigree to success in M&A?
O’Neil: You know, I don’t have a pedigree, and I’ve been able to survive. I’m kind of thinking about my mates. They have varying degrees of pedigree, but certainly not the Harvard or Stanford variety. I think that in the real world, like many other professions, it doesn’t really matter. If you can do the job and you have the enthusiasm for it and the skill set, you’re going to do fine. If you’re trying to get into a larger firm as a young person, it might be a requirement, but I certainly don’t think to actually have success that it makes any difference what your pedigree is. But I do think that the tough part probably, especially for either a younger person or someone who hasn’t really done much M&A but wants to get into it, I think it can be tougher without some level of pedigree.
Breaking into M&A
JSD: How did you get into M&A?
O’Neil: In my case, — which is pretty much the case for all of us — my history is relatively similar to the others in our firm, which is I started out in business, after graduating from university; in my case in IT companies. I wound up being a business head and got involved with M&A and, ultimately, I moved out of the operational side and focused just mainly on strategy and M&A at a corporate level. So, my last job was for a company where I headed up corporate development and strategy, in which most of my time for a number of years focused in M&A, and I really enjoyed it, and, ultimately, then met one of the guys that became a business partner in the U.K, and we, essentially, started our own firm.
JSD: What is it that attracted you to M&A?
O’Neil: For me, it was a couple things. One is each project is totally different. A project will typically last, say, four to nine months to go through the entire cycle of a buy-side or a sell-side engagement, but then, once that’s over, then there’s another one, and it’s a completely different company, a completely different situation and all new people. So, I really enjoyed the variety of not doing the same thing every day, every week, every year in the sense of being the head of marketing or the head of development, or even the president of a company. So, that attracted me, as well as all the different disciplines you have to understand to do M&A from soup to nuts. Everything from finding and acquiring customers and customer relationship, to doing research, doing detailed financial analysis, writing information memorandums and negotiating, and then completing the job. So, it’s the variety of both the projects and the variety of what one has to do to perform the functions.
JSD: And your advice for somebody who’s looking to break into mergers and acquisitions?
O’Neil: Well, if they want a piece of advice, it’s go the traditional path, you know, work for an investment banking firm, get a bit of a pedigree, get some experience, and then launch from that point. That’s fine, but that’s obviously only a path open to a certain number of people. Another idea that I would offer is either to get yourself connected somehow to a small firm like ours to see if you can’t get in as a starter, even as an intern or something else, where you can get some experience and exposure.
Again, I think that one is a tough one because you’ve got to find the smaller firms, you’ve got to hope that they have a need at the time you’re looking to join, and that they like you, and so forth. So, that’s another path, but probably also a bit of a difficult one. Another idea is to go the corporate route, which is what I did, I got into this through being in the corporate world. And, ultimately, I did hire people, younger, not very experienced people to be in my M&A corporate development team, and once they would get that kind of an experience, then I think it makes it much easier for them to move into smaller firms or midsize firms, or to even start their own, like we did.
Another avenue, which people may not always think about it, is many companies have an internal corporate development firm, or a corporate development group. It may not be very big, but all you need is one chair.
JSD: So, what you’re suggesting is if somebody’s got the interest specifically in M&A, from a corporate perspective there’s plenty of opportunities out there. They can search the larger corporations because most of those corporations are going to have some M&A function, although it might be called something else.
O’Neil: Corporate development, usually.
JSD: Also, do you find there’s any relationship between the business development and the corporate development side of things?
O’Neil: It depends on the company. Most companies, as I find it, use the word business development as sales, generally speaking, sales or partnerships. It’s really on the revenue generating side.
JSD: I guess when I refer to business development, I think more of the corporate partnership side of things as opposed to selling a particular customer or client on a product or service.
O’Neil: Yes, so that sometimes comes under the business development function in companies, that partnership strategic alliance function. Sometimes, and depending on the company, business development actually includes M&A. There isn’t a rigid definition that’s used out there, although if you see corporate development, it almost 100 percent of the time is going to mean or include the M&A function.
So, yes, even if someone can get involved in the business development side of a company, especially if that business development function includes partnerships, strategic alliances, joint ventures, that is a good entrée to potentially moving into the mergers and acquisition side.
JSD: I really appreciate the time you’ve invested here with me, and I guess, as a parting question, is there anything else that you’d like to share with our readers?
O’Neil: I guess I would say that there is a whole set of companies like ours, be they industry-specific, as we tend to be, or generalists that will cover any kind of sector. But there’s many of us, and so there is a potential pool out there for people to consider, and it can be very rewarding working in a smaller firm. From the fact that you have a tremendous influence as a person in the firm because it’s small, to the fact that you’re able to set more of the tone of your philosophy of the business and how you operate, and the way that you interact with clients and others. So, it can be a rewarding way to go as an alternative to, say, the larger investment banks or other private equity firms. And also for business owners who get involved with M&A, too many times they think they can do it themselves, and unless you’ve gone through these things many times and seen many different situations, I think you’re well served to get somebody working with you that’s really been through the process before and can really help you to get a deal done, and to get it done in the best, most advantageous way.
JSD: So, just one more thing. How do people find out more about Goldenhill? Do you want to give us the website?
O’Neil: Yes, I think that’s really our main marketing vehicle. It’s gtallp.com, which stands for Goldenhill Technology Advisors LLP.
About Goldenhill Technology Advisors, LLP
Goldenhill Technology Advisors advises technology business clients in merger and acquisition engagements. Engagements include services to Sellers or Buyers in M&A projects in the UK, USA, Europe, Latin America, Canada and Australia and with specific focus in software and service businesses. The firm maintains offices in London, California and Buenos Aries.