The M&A Playbook

(upbeat music) - Welcome to the Appearance Podcast, a quarry here with Joe. And Joe, you like yourself some good M&A, don't you? - Mm, yes, yes, best of when you. - Get it over the line. - Here we go. - Yes, you like, yeah, yeah, yeah. Joe, if those that don't know, Joe likes a good deal. Joe, actually, I think it's on a constant deal hunt. I mean, the term deal heat, I think Joe lives in, right? - Yeah, go find me a good deal. - Yeah, I think I dragged you along a little bit there, Corrie, I think we did. - Which is why I know, which is why I know. - We'll back at it. - That's right. So today our guest is Jake Fashill from Rain. Jake, thanks for joining. - Thanks for having me. - This is terrific. Really excited to get to dig in. Big fan of both of you guys. (laughing) - Well, for those that don't know Rain, one of the many things Rain does is investment banking and M&A transactions in the ad tech space is one of the areas you focus on. So Jake, beyond that, can you help help those that don't know Rain, you get to know more about them? - Sure, so the Rain group is roughly a 17 year old firm. We started really with a global lens all around sports media entertainment and the broad tech media telecom, TMT space. And we had a couple of really anchor clients on the advisory side of our business in Softbank and Endeavor. So a lot of all the M&A deals that they've done over the last almost two decades we've been on one side or the other on. But we call ourselves a merchant bank which is kind of a fancy way of saying we both invest and advise. So a lot of firms do both. We as professionals live on both sides of that aisle. So we help companies in mergers acquisitions and capital raising endeavors. So that's sort of client-facing business. But we also put capital to work. We have roughly $4 billion under management under a handful of fund strategies. And we're mostly late-stage growth investors. So we will sit on boards and back great management teams and we return capital to our LPs. We'd like to think that one feeds the other. Being a good investor makes us differentiated as an advisor and vice versa. - And where's your day job? - Yeah, so my role at Rain, we have a handful of core verticals in the firm. Though we have a group that's all focused on sports. We have another group that's all focused on music and another in entertainment. My focus is a group that we call ads, brands and commerce. And we take a global coverage effort across investing and advising and all the businesses that connect brands to consumers. So certainly AdTech is a core pillar of our coverage effort, broad marketing services, elements of the creator economy, influencer marketing, and the associated data businesses. - So if you think about our listener base, it's a lot in the AdTech world, a lot of founders, a lot of companies. So let's start with, is there a lot of M&A traction right now? Is there a lot going on out there? What do you see in it? - Yeah, so it depends on what you want to bring the aperture. I think when you think about sort of with this new administration, obviously, I think a lot of the large hyper scalers have seen an opportunity to have a more M&A friendly environment. - Yeah, yeah. It's a reasonable amount. - Let's go right here, let's go. Do your deal, let's go. - And no question very different than the prior administration, where I think from our perspective with our clients and even companies who are invested in, we recognize that a lot of the larger players in the space were gonna be really boxed out of any meaningful M&A. That's no longer the case at the stage, right? I think we recognize obviously, alphabet and Amazon or is under some form of government, microscope. And yet they're still choosing areas to deploy capital and have a very active M&A program. Bar more than was the case two or three years ago. I think if you drill down into different areas and segments within digital advertising, there are a lot of companies that are scaled, have a great market position, deserve to exist, have really happy clients, healthy margins, and are trying to figure out what to do right now in this ecosystem where I think as fragmented as it all is, I think we all appreciate that the world's gonna look a whole lot different in terms of the infrastructure and the impact of agentic in the next 12 to 18 months, then the changes that have gone on in the ecosystem are the past five years. So I think a lot of boards have reached out to us and management teams ask us to present around strategic options for the business. And there are a lot of businesses that are looking for ways to have a sustainable equity story in this market right now. When the water is choppy, right? So I think people who have strong businesses, strong clients, they're gonna be the ones playing off-ents versus defense here. - I might ask you to go back both in the stream of questions here, but also in time, it's like one thing we do with a lot of prospective portfolio companies is that you like to hear the founder story, right? So how did you get here and what were the motivations and you touched on rain as a, effectively a merchant bag, which is a little bit back to the future, right? And so there you really were like a full service, you know, financial corporate, sometimes commercial support partner for a company. And over time, the things got specialized and quite siloed. You know, we see, by the way, in like the agency world, right? They used to be a full service agency and then it got media and creative and now people are trying to put Humpty Dumpty back together again. You know, rain was I think one of the first to kind of recognize not only that having all of those capabilities in one house was valuable, but then having the partner span, the functions as opposed to having sort of different complimentary teams was kind of the really the way to do it. We sort of contrary and how did you get there? Get us back in time a little bit. Sure. Well, I mean, there's two parts of that question. So my origin story within AdTech started of all places within AT&T. But you know, I work with AT&T in their acquisitions of direct TV and time Warner. Obviously assets they no longer own. So it's better for worse. A lot of learning in that discussion, but the transaction that they had done, which they had felt was really important to be somewhat of the adhesive of these gigantic acquisitions they had done was to look at something within the advertising space. And they really were starting from scratch. They ultimately got to acquiring a business called Appnexus and naming it Xander, that asset transition. But with working with an organization like that and trying to understand how media and entertainment and telecom data and customer data can connect into the advertising world, there are a lot of people around my organization and with AT&T that needed help understanding how to navigate that and other related assets. And so as a young whipper snapper, that was, I saw that as an opportunity. And so no one else wanted to deal with this space. So my as well jump in. I think the other pillar of that is, so range perspective and somewhat applying the rain merchant banking model to this space, we all appreciated within this space the traditional models within media were being disintermediated by the big tech players. And the advantage was data and bringing effectively add dollars in an informed way to these platforms. And so I think the best way for rain, which I think a lot of the core origin story of rain was really ran entertainment. And the sports and media world was, how do we, from that lens, participate in this space with the network that we have, the intelligence that we have, we made investments in the space that was sort of adjacent. So we invested in a business called Video Amp. We invested in another business on the board of called For Square. And we used M&A to drive the scale of these businesses and effect. Again, I think it's a different approach versus others. But one where I think we found an opportunity to tell, to have a different lens when we talk to management teams and boards. Makes sense that the history was both for you and for rain was sort of seeing it from the corporate's perspective. And it's a little bit like built by partner. How do you use kind of all those tools, fluently, and then when you kind of built it as a service, you kind of maintain that sort of appreciation for the fact they're all just kind of means to an end. I forgot that until you reminded me that our first meeting, of course, was in front of a whiteboard when you were at Lazard and you did have a career before that. But you didn't remind me that I try to say you have my sister at the time. So that's correct. She's good now, but she's doing well. But you use it. Who gone to, you know, very kids, so I'm glad I worked out for you. Thank you. (laughing) I think it's funny that you got into this through learning it through M&A. That's a lot of how I got into it too. I was at a company before and they're called a Roe v. We were looking to buy at tech companies and it was video at the time, right? We were like, "Hey, let's buy free wheel." What do you mean we're gonna compete with a Comcast? What? Anyway. So how many deals do you see a year, Jay? The stories that don't get told in the industry. That's why I didn't say finish. I said do you see? Exactly. I mean, across our portfolio that we evaluate situations where we have an opportunity to work with a company on a prospective acquisition where we might pitch and we might be one of several situations where we say, OK, well, we're interested, we're engaged, we're doing the deal and something happens at any ER line. It's probably between 40 and 50 every year. In this moment, I'm probably working on some of the between 10 and 12 live transactions. And those are deals that you are the representative for trying to get them in market, trying to get a transaction done. That's right. So is that normal load right now? Or are you seeing a lighter load? Or are you seeing a heavier load? What's the indicator? I think what we're noticing is some of this is calendar driven. I think we've recognized towards the end of Q1, management teams and boards have recognized, OK, we've had some stability in the market from a macro perspective on a relative basis. Certainly more than there was roughly 12 months ago. And when we think about strategic initiatives for a company, generally, you have to start these sorts of things with some planning that can take between six and 15 months. So ideally, you work on things-- we get a lot of calls this time of year with the idea of getting something done before the end of the year. So some of that's in play. I think we're certainly getting more calls and more requests to work with us this year versus last year. That's for sure. Maybe I want to keep at the altitude that Corey's had us in terms of the big strategics and how they think. Sure. It's because for a lot of the listeners here often, they aspire to be in those rooms, at a certain point. And maybe a little bit of the psychology of how a strategic thinks about things and maybe in a long answer, for example, private equity thinks about things, and we'll skip IPOs for a while. As these things are coming to fruition, how do you evolve the conversation? How does the mix of personal and corporate-- someone wants to get a deal done by end of year for some reason? Getting the heads of how decisions get made at that level. Joe, this is the best part of my job, because every situation is different. These are still humans, no matter how technically a product oriented a lot of the businesses that we spend time with are. These are humans making decisions for very human reasons. So we're working on potential assignment right now that we're about to lean into where there are two co-founders and one co-founder has some personal issues where they need liquidity. And it's really a phenomenal business, and there's going to be an opportunity here. But just the management team is ultimately the ones who have to drive this and arguably one year sooner than they should. And so sometimes it could be things as simple as that. When you think about, I'm going backwards, Joe, I guess, in your list. But in terms of venture capital and private equity, I think we've certainly seen within the digital advertising space parties that may or may not have the same sophisticated eye as a perium does in entering cat tables, or if they did it five, eight, 12, 15 years ago, and oftentimes, these are either sort of written off or deemphasized by these investors, and they're just looking for liquidity. So there is less of a lens on really nailing the timing of when it's best from a macro perspective and where the company is in its life cycle towards an exit. And there's a lot more rushed to sort of what private equity calls DPI, driving a distribution to their LPs. There's certainly a lot of that. And I think there's more now than there's been several years ago, and some of that's just the dynamic of private capital. But I think as you move upscale, I think what is really interesting is within-- let's call that the defense within private capital. There are more and more now than ever. What we call them, the hybrids, the sponsor back strategics that have back real winning teams grown within their particular part of this advertising space and have more capital to spend some of the largest private equity firms in the world that are looking to consolidate actively in this space. And I think for us in terms of our strategy, obviously, those are areas where we index towards because maybe obvious, but those are going to be situations where both-- you know there's going to be more M&A within that situation. But for that private equity firm, there's also the opportunity. Obviously, for them, they're going to need to eventually return capital to position yourself well to sell the company down the line. I think that's an area where I think relative to several years ago, there's more and more opportunities for hyper growth companies within this space. There are a lot of pools of capital of strategics that have sponsors ready to put capital to work that I think are a priority for us and it by extension a priority for a lot of our clients. And so the large large strategics-- and there's a lot of different divisions. And then we talked about the large tech companies. The big holding companies are obviously we spend a lot of time. That world-- you could argue, I think all of them are going in various different directions. There's a lot of transition that's going on within that space. M&A's a really important part of what they're going to be doing. And they don't know to what extent they're going to be able to continue to do that down the line. So I think we see certainly the window being open to build advertising marketing solutions that differentiate themselves in the market. And I think for the companies that measure their market caps and the trillions, really opportunities to shore up a lot of the big parts of their business where they can be really opportunistic and make bets that I think they can pay dividends because they're bringing in a technology or a particular product and then pouring a ton of resources on it. Well, I was going to go back to ask you to sort of name some names on who kind of occupied that class of PE. But I'm envisioning it's like the Providences. And it's the VISTAs and people that have done well in this sector and have more of a value growth sort of agenda than pure financial engineering. Francisco, maybe I'm out of this. But actually, I wanted to test this theory of ad tech and ads because obviously it's something that team Aperium is obsessively focused on. Sometimes that leads to the myopia. Like, hey, don't ask us about clean tech. But feel free to talk all day long about ads and marketing. Great. To what extent is the ad tech sector kind of more variable? I have this sense of you have sort of high flyers in categories. There's sort of a seven year macro cycle, a two to three year micro cycle. You've got people that are trading at astronomical valuations that wake up down 75% in a year. And then of course, up again, surely thereafter. Is there an especially clear sense that there's, in one moment, you might be out there aggressively acquiring and then a year later, you're thinking you're the target because there's always a bigger fish to use the phantom menace reference, I think. Luxor, how much is that true in ads relative to other verticals? And then how do companies, especially when at the stage where they might be acquired or be a positive, how do you sort of navigate the Schrodinger's cat problem? It's such a great question, Joe. And where do we start to unpack this one? I mean, I think when you think about-- First of all, ad difference or not? Every vertical is the same thing or is there something different about advertising? Specifically this ad tech world, again, what is pretty differentiated relative to other parts of, it's a adjacent markets and competitive dynamics, is just the fact that you have these multiple trillion dollar companies that exercise a fair amount of market power around what they're doing. How much of the market is non-Google and meta and now increasingly Amazon? This has been fundamentally for Google and meta. They are advertising businesses. They drive significant ad revenue. They are not interested in changing their take rates on YouTube. So all of these things are their great businesses. I think when we look at this ecosystem and recognize, try to understand why companies are trading the way that they're trading, whether they're multi-billion dollar ad tech businesses or sort of the small-to-mid-cap companies who've gone public over the last five or six years, what we can best deduce reading all that there is from all the equity research, that there isn't that much equity research, and that most people don't really understand the market and the businesses. Yes, truly. There are quarterly reports, there's quarterly calls, but there's not a lot of liquidity. in these stocks and the prices are sagging in some regards. There are multiple companies that have literally negative enterprise values because of the cash that they have as a business relative where they're trading. That should underscore just how fundamentally the market doesn't understand these really good businesses that have found their way to the public markets because of what they've been able to build over a period of time. That is a dynamic that I think is more within the ad tech world than others. Again, there are a lot of other really smart, accomplished bankers in and around this digital advertising world. Part of how we conceivably help companies and generate fees as we help them to a liquidity event like an IPO. It may work against our incentives to say things like this, but it's a tough time to be a public company. I think we'll probably see fewer public companies in the space versus more into the three years time because of these dynamics. The fact that the secondary market is pretty vibrant and you can get some liquidity in a secondary without going public starts to help those founders make that choice. That's 100% right. We have found and have varied sizes. We've recently did a deal for a company that was potentially going to do a sale to a strategic and they ended up doing a 100% secondary deal to a private equity firm. That was, I think for them, effectively got to a much better outcome without having the deal with all the public company red tape. That's one key takeaway. For your audience, a particular founders who are building really exciting things in the space and thinking about the exit is there's probably more direct and value maximizing solutions in the private markets versus the public markets. At least right now. And again, I think this world's changing so fast that we might have a very different answer in three to six months, but that's what we see. It feels like that's been the answer for a while now. That hasn't that stayed up at least held for the last 18, 24 months. It's been secondaries in private sales or better liquidity than the IPO. So think about the a period portfolio. What they're thinking about is how do they get a bank like you to represent them when they want to go strategically, go sell their company, find a strategic to do it. So, you know, a series of questions here start with, what do you look for in a company you're willing to represent? Like you walk in and go, yeah, I can get a deal for them. What do you see, you know, high level characteristics? I want to go buzz word light. So you can just buzz me every time if I hit if I somehow stumble on one, right? Because we can talk mode and competitive advantage all those things. Yeah, sure. And yet, you know, some of it is a multi-variant sort of thing, right? So when we get an opportunity to meet, you know, a company for the first time and get to know their story and their positioning and why they're thinking about considering a transaction. Like again, it does go back to the origin story just as you've, you know, you've talked about a lot of the companies that you meet and management teams really matter. Even for the most technical, you know, IP patent driven business solutions, software, SaaS, whatever that are in this space, the people who drive this in terms of whether they're the, you know, the leaders of at the CEO and CFO level, or they're, you know, they're leading the sales effort. The people here really matter, right? So this is not an Excel scoring system that we do, right? When we, when we spend time, I think we really want to get to know what's driving these people. And I think, yes, the financial profile matters. Product market fit matters, right? I think we, we get to see a lot of presentations over the course of a year. I mean, hundreds of presentations over the course of a year. And we're fortunate we get to try to synthesize a lot of both the market story that you're telling, the equity story, and also the financial profile. And of course, companies accentuate some of their most important clients and where they're positioned. You know, I think what we're really focused on is going to be less the big client that you got from zero to one on. And more have you figured out sort of the pricing of your business on a unit economic basis, either be meaningfully profitable or clearly going to be profitable in the near future, right? So I think, you know, yes, high growth businesses, really exciting. You're growing for a reason. Can you do it in a profitable way? Which is a bit of a change. A lot of companies are growth that all cost. So you say, yeah, profitable growth matters. No question. Right. If we were, you know, in this sort of zirp era of 2020, 2021, there is a high degree relaxation on the old EBITDA multiple, right? And a lot of revenue, multiple deals. And great to get if you could get it. If you got out in that time, it's terrific. But I think looking at where the market is now, there's a lot of focus on both fundamentals. And, you know, I think within the digital advertising world, one of the things that I think we find most important when it comes to a potential deal, even at a smaller scale, with a potential strategic or strategic is the strength of those relationships. But that's what we really nailed down to, right? Who would be your champion? Whether it's one of the hold co's, whether it's one of the big tech platforms, and how senior are they, and how well do they know this business, and how long you've been working with them? Because I think when we start trying to stretch the, you know, the strategic rationale into telling that story when we pick up the phone and do outreach and the process, of course, there's going to be new strategics that are worth having a conversation with. But I think from our perspective, if we're telling every person on our list a new story, that's a problem, right? And I think, you know, generally, you wouldn't want to embark on a process unless you had at least one or two parties in your process who you felt for any number of reasons were poised to want to do the deal. Companies are bought and not sold. I've been not to either blow smoke or glaze. The current term of art is the latter amongst the youth. But I've seen your reaction, right? I've commented before that I've been sort of impressed. I'll watch you say, can you encounter Party and they will say a word, and that will unpack for you into a whole backstory. And you know, what conversations do they have to get there, et cetera? Part of that just reps and pattern match. I'm going to put you on the spot a little bit because I'm being too kind. And folks are like, yeah, I'm hearing chatter about the trade desk, you know, not in terms of being acquiring, but in terms of, you know, potentially being acquired. You probably, you're not going to see anything that you know or don't know. But like, how often is there, when there is smoke, is there fire? You know, how do you read the tea leads on some of this chatter of like, hey, the circumstances have changed enough that there's like activity in a particular name or a particular company. Like, when you hear things, what do you, what is it? Unpacked for you and how do you like, how's your brain work? You got minute. Oh, here it is. Here it is in short. And I don't think that this is particularly novel, but I think it's important. Look, we all have people we trust and you do a lot of work to gather intelligence in this job one way or the other. And again, thinking about some of the things we've worked on together, that was so critical. That like getting anywhere is understanding things that aren't obvious to the broader group of parties involved. Generally, when you're hearing something, it's too late. And sometimes, you know, I think I just look back over my career when I've heard something from this. Sometimes a report calls and says, have you heard something? And we, you know, it's our general, we just don't comment, right? But we'll receive a call, we hear that or, you know, people in the industry that you trust. And, yeah, I think where we generally fall out is it's hard to really move on these things because if I'm hearing it, even from a trusted person, you have to just assume there's so many more people. Six months ago. Yeah, yeah, yeah. Right. Yeah. And so, yeah, like, you know, companies that are public companies in this space that are, are they acquirers? I mean, I think there's a lot of noise. I think there's generally everyone has, I think, again, this is where the lens from the traditional media space and from, you know, spending time with the companies like Comcasts and AT&T and Liberty and Charter going from there to this space, there's a lot of pattern recognition here too, right? Because now, you know, if you look at where these tech companies who've taken over AT&T, they're really taking over the content and entertainment space as well. And what is, what's happening? These gigantic companies who, no one would talk about these big, I'm not going to name any of them in particular about any of these gigantic media companies as like being sold, they wouldn't be sold. That's impossible. It's happening because of how quickly this market's changing. And so, no surprise. I think all of the companies in the digital advertising space, again, there's personalities at the heads of all of them that matter as well. So I'll ask a loaded question and now try to wrap on this one is, how is AI changing the M&A market? Yeah, it's great. I love this one. And I think the best way that, again, try to give your audience something that's not a canned answer is the best way when I think about reflection just over the last 12 months of how AI has impacted this business and the entire ecosystem. Tremendous companies in the summer of last year, more than one that we've worked with, are on a glide path to a pretty transformative transaction. There was this "oh no" moment among multiple strategic and financial buyers saying, "AI risk, discovery risk. If search is connected to this, well that's gone because there's no such thing as Google Search anymore. This is June, July of 2025." By October and November of 2025, that story has dramatically changed. All that happened now it became clear that Google wasn't just going to give up search. Right? And look at that. Right? Shocking. Right? Shocking. Imagine that the user interface was going to be this blended search AI mode world. Lo and behold, all the businesses that were connected to that were now suddenly viable again. And we transacted by the end of the year. So that is a fascinating microcosm of just how dramatically being in market through this year, this past 12 months, we've seen that entire cycle happen. Usually those cycles happen over two, three year periods. This was like a three month period. I think if you want to look forward, the pattern I'd ask you guys in your audience to think about is when you have those skies falling moments, how long are they really going to last for these multi-trillion dollar companies with gigantic businesses at risk? Do you think they're really going to do nothing? Yeah. I'll pile on there. I remember in the days of COVID in operating business, it was done. Right? The whole ads business corrected by 35 to 40% in a week. And everybody was extrapolating from that into doom and gloom. And obviously created a whole bunch of overreactions at a bunch of places. But the Y-Shade Recovery was also very clear by three or four months in. And the fundamentals of people are massively driving toward e-commerce and change of consumer behavior. The fact that people were spending more time in front of screens, suddenly had the ads industry rebound. People, the extrapolate from the current trend, perhaps too sharply. Another point here is take everything and sort of appreciate that within three or four months it may change yet again. 100% and from a large strategic point of view, we have an opportunity with our platform. We spend time with companies in the middle market, but we also spend time with all the large CEOs in this space. And part of the dialogue when we talk to the large hold co-leadership across the ecosystem, this year amount of the market that they see, they're less worried about AI as a threat. They don't see it as a threat. They see it as again, back to pattern recognition. Well what happened with the internet? We were able to use some efficiencies to gain margin. And then over time our clients took that margin back and AI will be the same. We're going to be able to gain some margin through efficiencies. And then over time, we'll give it back to the client. And I think that's a really important sort of macro way to look at sort of this space. And an important, I think, factoid for knowing that that's, I think, how a lot of the leaders in this space think about this, right? It's not this sky is falling situation. And I think down to those in your audience who are starting a business really excited about the team that they have in building, I think the thing that's really cool about not just this ecosystem, but even how we think about our kids and what we want to orient them to is the creators are going to win, right? Like this is, you know, these LLMs and all these, like these tools available for people who want to create are going to create, right? So I think that's maybe an optimistic case to leave this. All right. And I will, yeah, that's a great point to end on. Well, thanks for your time, Jake, and look forward to talking to you again. Thanks guys. Talk soon. [MUSIC PLAYING]