How to Pull Off a Merger When Failure Isn’t an Option
David Boris and Marshall Kiev talk SPACs, boards and BHAGS
SPACs (special purpose acquisition companies) sound like the business enterprise in a cyber thriller — a publicly traded company on the Nasdaq with no business, offering no services, making no goods, but has massive growth potential.
Like much science fiction, dig a little deeper and it’s not as strange as it sounds.
SPACs, like Co-CEO and YPO members Marshall Kiev and David Boris’s Forum Merger Corporation (Forum), are created as “blank check companies.” The idea is to raise money and go public without any business, but the mandate is to find a private company that wants to go public, merge with them and enjoy synergetic benefits.
“In a traditional private equity fund, you have five to 15 companies in your portfolio which you know are not all going to work,” explains Kiev, “but if your winners outnumber your losers, your investors benefit. In a SPAC, you have one arrow in your quiver, you do one deal and then it’s over. Failure is not an option.”
“We took all of the lessons we learned from our experience in private equity investing, investment banking and evaluating general investment opportunities to get it right,” says Boris, then pauses and laughs. “I’d say it’s been pretty exhilarating.”
YPO + IPO
Boris and Kiev, who have known each other since meeting through YPO in 2000, have spent years sharing investment opportunities and discussing deals. It made perfect sense that in 2016, when Boris was ready to create a SPAC for himself after years of doing them for his investment banking clients, he looked to Kiev to come aboard.
Together, the two entrepreneurs drew up a business plan, formed a board, raised USD172 million for their IPO and went public last April. After looking at more than 200 companies they merged with ConvergeOne — a leading global IT service provider of collaboration and technology solutions for large and medium enterprises — in a USD1.3 billion deal and since February are a publicly traded company on the Nasdaq.
“It was really my YPO forum who convinced me to go out and do this,” says Boris. “The company name is more than a nod, it’s in deference to YPO.”
Following are Boris and Kiev’s top lessons learned from Forum’s first merger, building the company’s board and the retroactive effects of leveraging YPO.
Consistency and growth
Look for companies with histories of consistent financial performance. If someone has experienced a downturn, which can happen for any number of reasons, they need to be able to explain why. Overall, companies that are either leaders in their industry or are acquiring other businesses for growth are the most attractive.
A company’s culture comes from the top down — if you’re impressed by the CEO and CFO, chances are, they will have a first-rate team. The most important thing when considering a merger is the management team. In sports parlance, you want to spend more time thinking about the jockey and do a lot of diligence on the horse, aka the industry. “It’s a lesson we learned from YPO,” says Boris. “You can have a wonderful business but if it’s managed badly you’re going to fail. Conversely, great managers tend to have the ability to manage anything.”
“Unless you have an experienced management team able to grow the business, instill a corporate culture, work with the board and help with the strategic vision, businesses tend to fail,” Kiev adds.
Experience and walking away
Knowledgeable partners, a shared vision, a detailed integration plan and a strong board of directors are the pathways to success. If the interests of the acquirer and the management team or shareholders are not aligned, it’s best to walk away. Or, as Kiev puts it, “I always say the best deals are the ones I didn’t do because I didn’t lose money.”
Fill your board with people whose opinions you really value, who are going to take the process seriously. “You need board members with the ability to create BHAGS (big hairy audacious goals),” says Kiev. “That’s one of my favorite sayings … a board member’s job isn’t to micromanage, but to help formulate the vision and a strategic plan. Oftentimes, leaders of companies have too many direct reports and spend way too much time dealing with them and not enough time driving the business. That’s where the board can come into play — ensuring the leader stays focused.”
“In our case, two of our board members are from my YPO forum,” adds Boris. “You can’t get more added value than that.”
That said, what happens when a leader doesn’t want to listen or when they’re used to making every decision on their own and taking only their own advice?
Boris and Kiev are quiet for a moment and then they both laugh and Kiev says, “It’s one of the greatest challenges.”
“For the board and the business leader!” adds Boris with a perfect coda.
Honest advice from two people who cannot fail. For more information, visit forummerger.com