Sanjay Chadda, Canaccord Genuity

In this episode of "Agentic Shift" we talk to Sanjay Chatta, Managing Director of Canacor Genuity, a leading investment bank. Sanjay tells us how to prepare for the marathon of selling. Why M&A is like a marriage, how a sale changes the way a founder runs his business, and how selling his own business helped him become a better banker. Enjoy the show. Sanjay, thanks for joining us today on "Agentic Shift." Thanks for having me, David, as you know I always enjoy talking to you. Awesome, same here. You're a font of knowledge about this world that we're going to delve into. Happy to help in any way. Awesome. Okay, well let's start out if you would. Give us a little bit of your background. How did you get into investment banking and tell us about where you are today at Canacor Genuity? Yeah, happy to. So I started my career at G Capital doing some unrelated things around strategy and finance, and then I actually joined a boutique investment bank called Petski Purnier early on in the foundation of the firm and had great partners and probably about 10 years or so into it really started taking a hands-on approach to the direction of the firm and really became one of the larger producers of the firm and the origins of the firm really focusing on the broader marketing sector. And fast forward we built a great and credible boutique firm that I felt had lots of opportunities to expand beyond what we could as an independent investment bank and in 2019 sold the firm to Canacor Genuity or I'll just say CG for ease in this conversation and really built an incredible practice across technology, media, marketing and information services. Personally I've advised close to 250 companies in my career. The vast majority of them have been companies across the continuum of marketing and technology, technology services, digital transformation. As you know, lots of businesses in and around the technology-enabled agency space and we built a great practice. Today I co-head our team and I'm happy to talk about our firm a little bit more if it's helpful for context, but I'd say also one thing is that having advised lots of companies up until 2019, pre-selling our firm, going through our own set of discussions and leading those discussions, selling our own business was eye-opening and I would say that I'm probably more sympathetic to our clients than I used to be. It's an interesting process you go through when you're selling your business and meeting lots of interesting people, figuring out what's the right best thing for you and your employees and all your stakeholders and I think that's maybe actually frankly a better advisor than I even used to be because like I said, much more sensitive to our clients and what they're going through during these sale processes. Yeah that is a differentiator for sure being able to be on both sides of the table. And I guess that you would say I mean that would be part of your elevator pitch if you will to potential clients that you've been there done there been in their shoes. I mean how would you round out that discussion? I mean when you're talking to a potential client, what are the things that differentiate you and CG from other bankers? Yeah it's a good question. I mean as you know, a professional services firm there's not necessarily like a technology platform or something that you could just point to the differentiates you so it's typically not one silver bullet but a number of different things and like we're global investment bank. We're in 10 countries. We have a one-pinal approach. We're heavily integrated versus like a partnership or some of these firms out there that have different firms around the world that they work with which is definitely a big differentiator. We've been expanding our firm. We actually just expanded our whole team by adding 50 people in the UK, partnering with a firm that we bought merged with called Results International. But that global perspective is extremely helpful given the coverage areas that we're in from a vertical market focus. We are very industry focused and so we've built the largest and most active practice across the marketing sector. We've got over 115 people around the world in that group. Last year we did over 100 transactions. Given that level of activity we just tend to have more regular dialogue than other investment banks with the relevant buyers and private equity firms and also just given the number of transactions. We just have a lot of insight like RIP besides our focus around specific sectors is also knowing who lost out in the last process that we ran for our next client that was very relevant. So who is number two bit or three bit or four bit or etc. that relevancy gives us just a competitive advantage as we serve our next clients in even better manner. On the private equity side we have a pretty substantial team that just focuses on covering private equity relationships. A lot of the smaller boutique firms don't have that infrastructure that we bring to bear for our clients. And then I'd say that we are very sizing not stick which is I think people sometimes surprising to them given the broader footprint of our firm. We work on small transactions, large transactions, we put the same resources against them. If we're taking on a client it's because ultimately we're really excited about working with them and I think we can see it through a great outcome. We will not sign up a client unless we can put the proper resources and attention to it and so hundreds of references would signal that. And obviously lastly which is probably a harder thing to put your fingers on. We have a very hard working culture. If somebody is not responding to me in our firm in day or night regardless of the actual time of the day or the day of the week. Someone doesn't respond to me I'd say within 30 minutes or so I probably think something's wrong with them. And I think that our clients find our responsiveness is a very very big differentiator and our counterparties know we're taking it seriously because we're so responsive and you add all that stuff together we I think have a very dominant practice in this space. Absolutely yeah and I would say as a client of yours twice over I've certainly experienced if you don't hear from you in five or ten minutes I think something must be wrong. And so the fact that we're doing a 30-minute podcast interview may mean that many of your clients are going to be freaking out because you can't be texting while you're podcasting. So I'm going to try not to though I'm getting anxiety was exactly well I apologize to all your clients for having a conniption this afternoon. I will say one thing you said that I think is a really good point is you mentioned how you're part of the ecosystem and you know not only who's winning but who's losing the deals and from my experience the first time we sold 3Q that was exactly what happened I called it jilted lovers that was RKG that sold to Merkle and a bunch of people had lost on that deal and we knew that they were all looking for a digital marketing agency and so sure enough those were the companies that came on the strongest to make bids for 3Q so I think knowing the ecosystem is really important. Yeah no for sure and we see that in every process and at this point after 22 23 years of sold companies and almost every single segment of the marketing and the technology services ecosystems and so if you think about that some of that stuff from several years ago might be less relevant but in the course of a group that does over a hundred transactions globally across the tech and marketing and related services and you're going to see lots of patterns lots of people show up in those processes who lost out and it's not just about who lost out from an economic perspective as you know like in some of these businesses it is very people driven organization and you've got to pay attention to the culture and who's going to be a good partner and like what someone's values and who may be a good partner for one company may be very different for the next one and so we spent a lot of time getting to know our clients and figuring out who might be in that short list and you know I got to run a process the same way every single time like your reference when we were working with you the first time we didn't go out and talk to a hundred people right we talked to ten or so parties that might be very different than selling another business where we're going to talk to 125 people and we can do that given the infrastructure and our private equity sponsor coverage team but we also want to think about like what is the right outcome for our clients specifically what are they trying to accomplish because look I mean nine out of ten times like the economics are going to trump lots of things but those other things really do matter quite a bit and you know that you've had a variety of different experiences yourself and I'm sure that you would do things differently each time and we would do probably say the same thing at times and learn from those experiences and that really matters now I think that's a really important point I always have said that whenever I'm thinking about selling there's three things I ask myself is this right for the team is this right for clients and is this right for shareholders and if you only asked if this is right is this right for shareholders you're setting yourself up for a world of hurt I mean number one you could alienate your staff and your clients which can cause problems number two is you end up having to work with people that you may not like for anywhere from two to six or eight years and then number three is if there's really not a meeting of culture I mean there can be all sorts of bad consequences that happen I mean I've heard this said that one of the number one causes of litigation and M&A is urnouts and if you don't work with people that you trust you run the risk that you get to the end of the urn out and someone says yeah I'm not going to pay you that you consume me so not everyone's money is the same colored green I guess is the way to say it 100% agree by the urn out comments it's very interesting because the world has changed when I started my career you would see these long urnouts you know five years that's really gone away by large and you see lots of different structures that we can talk about but the main point is that I always say to our clients like regardless of what it says in your purchase agreement if you don't trust the counterparty you shouldn't do the order you just shouldn't because that's a bad setup of course for a M&A process but ultimately this is a marriage and that marriage may not have the same length of hopefully personal marriages with spouses but you are entering a time where you're going to be spending a lot of time with people and less too short to spend it with people that you don't trust and so that's a very critical component of any transaction M&A is not confidence it's about trust and living with those people post transaction it's really important to trust them regardless what it says in the contract whether you have the ability to to litigate or not and I think the good thing is across the couple 100 transactions I've done the vast majority of them have gone well and there's been no litigation or anything but you do this long enough you're going to of course see those types of situations yeah at the end of the day all you can do is work with people you trust and hire good lawyers and I always tell people as my rabbi told me trust in Allah but watch your camels which I don't fall that entirely but I trust you on that one yeah just no the dutch did is just that like you want to have trust in the people you work with but at the same time you also want to back it up with a good contract I mean it's yeah no that's fair I mean like you said something else for those interesting which is a different constituents that you have to manage and it's really interesting because ultimately CEOs are people and people at times in many cases we'll be thinking about what's best for them and maybe what's best for the closest people around them and that's not a bad thing or an unnatural thing but CEO has got a responsibility to look out for their shareholders look out for their people look out for themselves look out for their future partner and so it's a lot to manage especially when you've got competing interests in these cases we're trying to close a transaction on Monday and you'll appreciate this because I know you're very technical but you know like attacks and indemnity issue came up and the counterparty wanted to have a monascro and my client was jammed up about it for a variety of reasons including just the fact that it's by a large no indemnity deal it's more guaranteed sure it's policy deal and just didn't agree with the tax position that the big four accounting firm was taking on the other side of the table and I said to him like well look they have a point around this next issue you agree he does agree but maybe one tactic here is to go back to them and say instead of an escrow let's take a much smaller amount as a small deduction to the purchase price because we're going to be aligned that way right we're not going to be aligned if we've got an escrow because I'm going to try and fight to get that escrow back and you're going to clean these taxings and like both parties actually came to the table very quickly like the last thing we ever want to do is have a different purchase price but the dollars actually were end up be a lot smaller and it will start the partnership off with 100% of the same goal versus having this issue out there for six to 12 months which is going to create a lot of friction yeah that's smart I mean that's another big issue that a lot of the choirers have I think which is they don't want to create a contract that creates adverse incentives the purpose of the acquisition is to have emerging of companies that work well together and not be fighting in different directions for the first six months or even two or three years depending on the terms yeah for sure I'd be clear like this was the buyer saying it was a several million dollar issue and we took a couple hundred thousand dollar ahead of closing which probably would have been a lot worse if we actually had this escrow out there but the alignment was the right focus and I actually give a lot of credit to the potential purchaser in this case a private equity firm because they were very much focused also on the same thing which is we want to be aligned with our future partner here yeah that's fantastic that's a good sign I guess one question I would have for you let's say that somebody's considering selling what's the sort of advice you give to someone they call you up and say look I'm thinking about selling I don't know if I want to sell how do you work them through that process I mean it's very interesting because the answer isn't really depends and the reason I say that is that it depends like is this a business that's owned by a private equity firm has there been already liquidity for the management team or founders what are the actual goals that you're trying to accomplish right it's a lot more simplistic if the business is 70% owned by a private equity firm the manager team has got their role over equity plus their options typically speaking in that case in the middle market at least that team has had a liquidity event people are aligned they're looking to either go out and find you private equity firm or sell to a strategic economics are going to drive a lot of that decision it's a lot different when it's a company that has no institutional capital they've never been to this before and they're really thinking about this as a life changing event and that in some ways is a more complex initial discussion because the reality is is that it's a very personal thing and the questions start with of course the business what are you doing how are you adding value what's the business model what's the size what do we think the growth opportunities are in the next six 12 24 36 months and I will tell you a significant portion of the time we are not the people to say you have to go to market now you have to sell etc I think that's a mistake good growing companies which is basically 100% of our practice don't have to do anything and we tend to say that up front like it's a business that's growing you don't have a lot of outside capital you know outside capital the world is your oyster in a lot of ways and good growing companies can always wait it's really hard to like perfectly align with the market timing and market conditions so we tend to ask lots of questions about the business first but then about like what are you trying to accomplish and I would say that you know this you've been involved in lots of M&A transactions saved selling your own businesses I would say that when somebody has a meaningful liquidity then and I think the world's gotten perverse so meaningful can mean lots of different things to different people they sell those dollars when the government threw at us in 2021 it's now five times more than it used to be yeah yeah exactly I might again do a political discussion but exactly I mean look at the end of the day like that event tends to change how people run their business and so one of the things I will say to people is that have you taken some meaningful liquidity have you taken money to take care of your family the next generation etc and I will say to them that some significant portion of the time people who do that tend to run their businesses in a better way because they're not watching every single dollar they're thinking about the business in a way where they're going for much more growth they're taking more calculated risks in their business and I would say that that's where a lot of those conversations with companies that have not taken outside capital tend to go and so I don't think I answered your question but it's a myriad of questions on the business but then also person what people are trying to accomplish the ones that are much more straightforward are private equity firm that has been in the investment for two three years at a minimum they've accomplished their playbook and it's time to ring the bell and move on to the next thing then it becomes much more about market dynamics who's out there what's the relevant experience who do we think can show up and what type of process can we run because as we talked about earlier our processes are going to be very different and out of case by case basis sometimes we'll talk to one party sometimes we'll talk to two hundred and there's lots of as you know numbers in between and the strategy might be very different in between we represented a business I'm not sure if like so it's a name name so you'll edit it out if you need to but a company called Bounteous is great business in the digital transformation space the mountain gate was a business that company I believe yeah just it did an incredible job as investors through the business the managing did a great job we were fortunate enough to get the assignment we ran a great process end up being a record return for the mountain gate capital team the management team at Bounteous had lots of options both strategic and private equity they decided ultimately that we were at evaluation range that we'd already surpassed anything that we had pitched our other investments have pitched and so the mountain gate did a great job of saying to the team like we're going to let you think about what's best for you guys and we ended up doing a private equity transaction the point I'm making is that well we then turned around and represented hero digital for the second time and hero digital was one of the biggest competitors well that process we ran for hero digital was very different than Bounteous because we just had all this knowledge of who just bid on Bounteous and so well we turned around to the next bidders who lost out and we gave them a running start in the course of the process we still talked to a lot of people the time we got to the first round bid a handful of people had already done all their work and so the point is like we're going to think collectively in a situation like that what's the right strategy but ultimately we will tell people all the time you shouldn't go to market or you could go to market this is what it looks like but you have the option of waiting because you've got a good growing business and we're not going to be the people to push people to say you have to do something today yeah I mean I think this is stating the opposite a little bit but like private equity companies are mostly unemotional sellers if you give them a mathematical case for this is the time to sell this isn't the time to sell and they're going to make their own calculus not to say that they're heartless people because they're not there's great people in private equity and they can be wonderful to work with but it's much different than a founder who has maybe has no liquidity and for whom this is his or her baby it's a much different conversation I would imagine I would ask along those lines I mean part of the time it sounds like you're telling a founder hey you don't have to sell if you don't want to you can if you want to sometimes you are telling them outright you shouldn't sell but that this is a very long question by the way I apologize but when you tell a founder you shouldn't sell I assume sometimes that's because the market demand isn't there but is there also a time when it's like you can kind of sense that the founder maybe isn't emotionally invested in selling or some other reason other than just market dynamics yeah for sure I mean one thing I make a comment in the previous discussion really quickly is that you're right like by a large I mean private equity firms they are especially in the market like the great people they focus and help build businesses they have to be a little less emotional because they're investing other people's money and so they have to look out for as we talk about four other constituencies which are going to be their investors and their management teams and so yeah they've got to be a little less emotional by nature entrepreneurs who haven't been this before their blood sweat tears are in their business they're in a lot of cases the vast majority of their net worth their wealth is in these businesses and so they're going to be more emotional from that perspective there are business reasons why sometimes it doesn't make sense right you might have a business where you've got incredible client concentration and that's going to really be a huge deterrent to valuation but also just interest in the company and so you might give people feedback like you've got to go fix these things or you might have we're advising company once and they had too many people who were like third-party contractors versus full-time employees and it was like more than 50% of the business and they actually run a process before that failed with another investment bank and they said look we never got that feedback for and they went out they spent six months actually converting contractors full-time employees and we went to market six months after that we had a great successful outcome for them and so they're always going to be very specific reasons sometimes look you have a business that's growing so fast and it's going to be hard to capture the full value today but there's an inflection point where they cross a certain threshold or we know that there's a couple of things that are going to come to fruition in the next couple of months that we want them to get credit for and so again without naming names like there was a business we were advising in 2018 and we were hired I think the six months before that calendar year we told them to wait and the value ended up doubling and we can't take full credit for that at all team did a great job executing against their plan the advice was good they took it and that business was a hundred and twenty each million dollar transaction and that business sold for over a billion dollars four years later and so like there are lots of reasons to wait there's lots of reasons to go look sometimes we give people advice like you should wait and they don't like that advice and you go out and they hire somebody else and that's totally fine right it's got to be a good match at the end of the day with people and you want to be aligned with your clients like not being aligned it's not a good setup it's the same reason why we're not going to come in and tell people their businesses worth X just to get hired like that gives people in our business a better reputation a bad name and we've done this for a long time I've been doing this for a long time I plan to do it for many many more years God willing and so you have to think about the long term view here not just the short term view absolutely lifetime value or play for sure one thing I want to follow up on you mentioned the example of the agency that had a bunch of third party contractors and that was the reason why they weren't ready to go to market I mean in a perfect world how far advanced do you want to talk to or how far an event should an agency retain you to prepare to go to market I mean I guess it depends but I mean it sounds like there's often like six months or more of work that needs to be done before an agency is really ready to sell and get top value yeah I mean look our preference and this is a little bit of old school we tend to have long term relationships with our clients some private equity firms have now hired myself and our team seven or eight times over the course of my career we got entrepreneurs who built multiple businesses get to get one person that sold five companies for him over the course of the last 15 years and so at the end of the day like we tend to take an old school approach about having long term relationships and there's a company I once talked to for nine years and I'm not suggesting we meet someone today we want to sell their business in 2032 but at the same time we get call some time hey we want to hire you or can you come meet with us and we're like within days we're hired and we're starting a process I would say that that happens all the time it's totally fine those tend to be companies that are buttoned up and but probably have done some prep or has some institutional capital I would say for business has no outside capital there's tends to be more work that we're going to want to do around the positioning around the numbers look frankly you want to make sure that what you're talking about the business is aligned with how people are talking about their business and their press releases in their marketing materials in their websites and so I would say ideally it's at least a quarter but like we just got hired on something we're not going to market at a minimum for a year but they just want us on the team they want us to give them perspective and we very much enjoy those relationships yeah that makes sense yeah someone told me that sort of the number was six months before you go to sale and obviously like you said it depends a lot on yeah I did come button up I mean 45 days is usually the kind of minimum prep period I remember once we were hired by this really cool company and New Orleans and they had like two term sheets at the table it was a technology business in the research space and we were in the market in less than two weeks because we just kind of had to be and we knew the space really well so we just jumped on it put a SWAT team together and flew down there and spent a week building the materials and we just kind of had to because we had to react to this really serious and about interest but that is not the ideal scenario yeah that makes sense just stepping back a little bit have worked with as many founders as you have what are the aspects of the sales process that are most of surprising to founders yeah I would say that we try and do a excruciating job upfront of telling people where they're going to need to be involved and where we can take time off their hands or have them focus on the business because ultimately that is the most critical thing they can do to help facilitate a great outcome and we tend to put big teams on things you know many hands make light work as my parents used to say and so I would say that the thing that they're surprised about is that there are some very key moments upfront with they got spent a little bit of time with us but I would say like during the process what a marathon it is right the fastest these things go are a couple months and they're typically going to be about four to five month processes sometimes they go longer as you know and so for them I would say what they have a hard time fully appreciating upfront is what a marathon it is because you're juggling basically a brand new job while you're running your business as much as we can take off people's plates like there's going to be times where they're going to have to be involved and then also the emotional aspect right you're a bit in limbo is the truth right you don't know exactly where you're going to end up during this period of time and as I referenced at the top of this discussion I went through that myself and we sold our firm and that's where my sympathy comes in because I think that most people who run businesses have a certain type of personality they want to be in control they're typically type A in some capacity and they are out of control in some fashion during this period of time and there's as much as we can explain that nobody really appreciates that until they go through it what was the emotional roller coaster for you going through selling what were the highs and the lows it's very funny because I would say that it's interesting I'm not trying to make this too long a story but I had to present to the board of cg and fly back and they're a public company and tell basically tell our employees before I hit the wire and there was a snowstorm up in Canada and I had to fly back and you can imagine the nerves that people were actually going to hear about this on email without you telling them and we're doing some type of town hall and so that in itself was just this big emotional thing and you're keeping this amongst a growing circle as you're getting closer to it but still not everybody and so get to the town hall we make this announcement and I think as you know like I spend basically a hundred percent of my time advising companies so doing stuff outside of that is frankly less interesting to me and so doing this stuff on behalf of our employees and all that kind of thing it was the right thing to do but it was a little bit of distraction for a couple months so for me when we did this we had this like big dinner that night with some of our key people and with the folks at cg and I got home and I slept so hard for five or six hours it wasn't a long period of time it was just like very very deep sleep and I will tell you I had a little of the opposite effect the next day when I was in my office would this behind me just working on what I like to do best which is advise companies I was so happy I was just so happy for this to be over have a direction and be back to work and so I think that speaks to the thing we were talking about before which is like being in limbo is I think for tough for certain personalities definitely my own and so that was probably the biggest challenge and the stress of that announcement how people gonna react and we say this to our clients a little time 9.9 times out of 10 people are fine they're like if you're so confident and you're happy about the decision and it was the right thing and your heart of all hearts you felt is the right thing for you and your employees and all your stakeholders and you can say that sleep at night people tend to follow along and be very happy with the decision and that was my experience but you always conjure these things in your head about like how are people going to react and is this going to be a disaster or whatever it is and so me like having that behind us and just in my desk working was just like a best moment ever yeah I 100% agree with the reaction comment I used to say in job interviews when someone asked you why did you leave your last company the answer could be blah blah blah as long as it wasn't I was in prison or I stabbed my superior as long as you give them a reasonable response they're fine with it and that's kind of the same with I think actually selling your company it's like like this is right for everyone this is a good decision we great cultural fit people accept it and clients accepted too by the way there's always that worry that a client is going your biggest client is going to say well fine then we're firing you that's very rarely happens the other thing I was going to say was there's a rule that I learned from a YPO the young president's organization when you have a business forum with other executives they have this rule tell no one nothing never so it's how you define confidentiality in an ideal this is very crucial because if anyone starts to find out that there's a potential deal happening it can cause all sorts of uncertainty and distrust and whatnot and so I guess my last question to you on this point is you work at an investment bank where everyone involved in that bank is used to the deal process and inevitably when you were selling the company you were out of the office you were flying places how did you keep it secret I mean you're working with people who know all the signals of a company paying a soul so how did you do it yeah that's a good question I mean first of all I travel a lot and I'm with clients basically all the time so from that perspective it probably was no surprise having me out of the office etc but I did this probably a little bit differently we did this very differently then maybe what we would advise our clients in part because I didn't want to give up one ounce of spending time with our clients and doing our day job advising our clients and I'll tell you the number one reaction I got from our existing clients we were working with was I had no idea you were doing this like we felt like you're giving us 110% of your attention which to me was like the best compliment because that was the goal and so I would say that we did this over a little bit longer period of time because we're a professional services organization and I wasn't worried about our business something happening to the business or anything like that to me was about really finding the right partner and we were flattered we had a lot of interest from people who were interested in partnering with us but we felt really great about the culture and the decision of partnering with great people at CG that's turned out to be a home run on every single front can't say that about every single acquisition we've done of course and I would say that because of the fact that I do travel a lot and tend to be with clients and the fact that we did it over a little bit longer period of time then we probably advise our clients to do so I don't think people figured it out and as we got closer to this it was really important we decided partnership to bring some other key people under the tent and make sure that they had buy-in and ultimately because this was not just about the ultimate financial transaction economics it was about the next continuation of our firm and taking a boutique firm and making it a much bigger opportunity for ourselves and our clients it just was a very natural thing and I wanted to make sure we had our key people on board before we made any kind of final decision so I don't know it was probably not perfect from that perspective and not what we would advise our clients to do in every single facet but it for us it was the right thing to do yeah no it sounds like a good outcome for everyone and you have definitely a scale of the business so I think CG is very excited to join forces with you well Sanjay as I said you're so good at responding to clients that just this interview has probably gone on too long and I've made some clients angry at you so I really appreciate the time I mean you are one of the leaders in this space and this is going to be really valuable to all the founders who are listening to this who are contemplating a sale so really thank you so much for the time today well look I know you have a lot of choice to be able to bring on here and so thanks the opportunity and as you know I'm always happy to talk to about anything and I do have a little bit anxiety I've now responded to some folks in about 45 minutes so I am going to back to that let my Friday night doing so so I'm sure thank you really appreciate it thank you