In this podcast episode hosted by M&A Science Valsoft CEO Sam Youssef explains how Valsoft differentiates itself from private equity firms and dives into the world of roll-ups!
Sam starts the podcast sharing lessons he learned after studying thousands of reports, books, and deep dives into companies’ economic characteristics. He used his experience and business knowledge to be a better investor, and his knowledge of investment helped him manage businesses better. It soon became clear that of the roll-ups that did well their underlying businesses were buying companies that lent themselves well to a decentralized investment strategy or bringing the businesses together.
Taking this knowledge, he recognized that although they may have a tremendous competitive advantage, they still must earn the right to be an acquirer by managing the business better, including:
- Driving more growth
- Driving more profitability
- Bringing something new to the business that will make them better in one way or another.
This formed the basis of his investment playbook – buy companies that are intrinsically a good business and add value by trying to run them a little better than they were previously run.
Throughout the interview Sam shares Valsoft’s philosophy that has led to incredible exponential growth, illuminating how combined companies can conquer competition and fuel success.
Some key topics covered in the interview:
Distinguishing good acquirers
“Whereas a lot of other companies would just buy companies to grow their revenues, they really would not add any value to the shareholders, customers, or companies that were acquiring themselves. We’re looking for the capability to drive synergies off the revenues and an element around the operational efficiency.”
Identifying the right segment and deal size
“In the vertical market software, there are about 30,000 companies, and most of them tend to be in the two to $20 million range because the vertical markets themselves are small. The small and mid-sized markets have to be operated a lot more efficiently to bring value. And we felt within Valsoft that we would become a good exit strategy for these companies by learning how to operate those properly. We would provide something valuable for these entrepreneurs that have those companies and that want to move on, or the companies need to go to their next step. So, we would buy them, and we would help them make that transition.”
Valsoft difference from PE firms
“Basically, we buy, we hold the business, and we invest in the business with a 40-year horizon. We make investments that might not pay off for five years, and we buy businesses that we expect to stay around for a very long time.”
Driving value from synergies
“We constantly get better. If you’re running one company, you’re learning from one set of experiences. If you’re running 60 companies, you’re learning from 60 different sets of experiences. If you’re able to have a good strategy to share that knowledge, then your knowledge should compound much faster than the knowledge compounds at independence. And you should become stronger and stronger over time. This is something that’s true for everybody that acquires businesses, and learning from that for your future acquisition activities is very important.”
Getting the right people
“We have a culture at Valsoft, and we call it meritocracy. Our goal is to be fair. Our culture is a sports team. So, we’re going out there to win. We’re going to a marketplace, an environment where people compete with us every day and come to eat our lunch, and we’re out there to win.”
Sam’s Advice:
“Valsoft is acquiring a business because we will do something with this company that will make the overall company stronger and better and improve the forward trajectory of your company. Acquisitions for pure growth are usually not good either, so we put some thought into it. It’s not always obvious.”
“You’re not acquiring just to grow. You’re acquiring because you will do something with the target that will make your overall company stronger.” – Sam Youssef