M&A Is a Muscle: Alex Feldman on Buying & Selling in Chaos

0:00 Alex Feldman: The first thing I ever invested in was the BHP Rio Tinto merger. What I was doing, I dusted all of my cash in the transaction. Obviously, the merger never had awesome experience because I learnt just how little I actually knew about what on earth I was doing.

0:24 Cheryl Mack: To it, welcome, Alex. We are pumped to chat all things M&A with you. But before we get into that, we always ask our guests the same first question, and I'm super excited to hear your answer. What is the very first thing that you ever invested in?

0:39 Alex Feldman: Hey, legends, thanks for having me. So the first thing I ever invested in was the BHP Rio Tinto merger. I just set up my share trading accounts in the early teens, whenever that was. And I read the headlines, got excited by these two big businesses coming together. I had no idea what I was doing. I dusted all of my cash in that transaction. Obviously, the merger never happened. I poured at the peak, both then collapsed. There was a bit of a mining lull thereafter and not long after that was some hiccups in the global financial system as well. So between all of that, that was an awesome experience because I learnt just how little I actually knew about what on earth I was doing.

1:25 Cheryl Mack: Oh, brutal. How bad did you feel at the end of that?

1:30 Alex Feldman: I felt awful, but it was an awesome experience in hindsight. I really needed that money at the time. But so be it.

1:40 Cheryl Mack: And how many years has it been since? It feels awesome now.

1:43 Alex Feldman: It feels awesome now. It took a little bit of time to lick my wounds and get over it. And I really remember like I remember reading all the headlines, remember getting excited about them, remember chatting to my father-in-law about share trading and sort of learning about what it meant and how to do it. And to be frank, we both got excited by the idea. I just went all in. And I think he had the sense not to go all in on that trade.

2:10 Maxine Minter: Amazing, amazing. I will say nothing educates the mind quite like a complete lighting of one's capital on fire really focuses the mind on the learning opportunity.

2:20 Cheryl Mack: What a great analogy, a complete lighting of one's capital. On fire, you just brought some escape into that.

2:30 Maxine Minter: I also I love that it's like completely on brand, right? Because now you support companies in M&A is the fact that your first ever investment wasn't into an M&A. And an absolute dud. I'm kind of surprised you still went into M&A after that.

2:46 Cheryl Mack: You were like, I'm going to invest in M&A. Ah, the M&A didn't happen. You know what? I'm going to go do M&A for a career. Well, I think I mean, maybe the irony is that it taught me how little I knew.

2:55 Alex Feldman: And so maybe there's a part of me that is still trying to work out what on earth it means and how to do it well and how to pick winners, right? How to invest in things, whether that's that's using your time or your capital or combination into things that are more likely to succeed than not. But probably also not losing that excitement factor to swing for the fence, occasionally on something that might just be a bit out there. It's still worth trying. And I mean, from what I understand of your career, you've done quite a lot of that, right?

3:27 Maxine Minter: So I'm like, pretty brave M&A. You've built a lot of value and a lot of companies through M&A, which we'll get into in a moment. But I think the first place I'd love to start is you are obviously so steeped in M&A in the Australian ecosystem that deeply understand that you spend all of your time in that space now through Tiger and Bear. And then prior to that, you know, in your operating roles in M&A CIM and its various conglomerations. So I feel like I'm sitting here in the ecosystem as it is today in what feels like unprecedented or I don't think it's unprecedented. There was a single other time that felt as volatile and that was COVID to me, but like nearly unprecedented, unprecedented volatility. I feel like every day I'm like, what is it going to be today? Like, which outrageous kind of substrate thing is going to happen today? And so what I'd like to start is just kind of doing M&A in environments of volatility. And I think you might be one of the best people in Australia to talk about this because you were buying and selling under a MACIM brand in 2021, like during the pandemic. So can you maybe educate us a little bit? Like, how do you think about buying and selling businesses when the market is doing crazy stuff around you?

4:48 Alex Feldman: That is a huge question. And as the probably the last bit, really, we should we should chat about, how do you do M&A in a fully locked down, remote environment? That was an absolute first for me because we ran three transactions at the same time in 20 across 2020, 2021 in a full lockdown environment with three deal teams going, an army of support, support infrastructure. And that was that was really, really unique and very special that we were able to pull it off. But, you know, the funny thing is the only thing that really feels different about today is I saw this in an artwork and so I'm quoting someone else who's far smarter than me.

5:30 Cheryl Mack: Are you doing a like motivational poster from your office, Alex? No. No, no, no, I'm not.

5:38 Alex Feldman: I'm quoting an artist. I won't I won't name the artist, but the artist said we are in a post-truth world. And that artist said that about five or six years ago, which I think is really I mean, incredibly insightful because today I say that out loud. It probably feels obvious, even though we don't talk about it as much as we probably should. But at the time she said that it was a really unique statement. But actually, the volatility we're experiencing today, I don't know that it's that unique, right? So I was investing and working in M&A during the GFC and that was incredibly volatile. Then COVID was incredibly volatile and we're in another phase of volatility. I don't know this one is all that different to the previous iterations that I've encountered. And so I say that from the position of I hope that gives folks solace, right? In the sense that this isn't that different. Those that have got the muscle and that have exercised that muscle over time probably aren't finding this all that different. The pace has changed. That's there's there are thin characteristics that have changed about the way the markets operate today. But the fundamentals are still the same. I think the key the key to any M&A activity is timing. And all that's become more challenging is trying to work out how to get your timing rights in a faster paced environment is just more difficult because your windows of opportunity are a lot tighter. In the past, you'd have maybe multi-year periods of stability, maybe multi six month block periods of stability. And at the moment, and particularly with the way that that Trump's America runs, things do change very, very quickly. But actually, the rest of the world still moves at roughly the same pace. If you think about the European capital markets, you think about the Asian Australian capital markets, we're kind of the same to what we used to do. We just do it a bit faster. America is a bit of an outlier. And so I think it's really easy to to to get caught up in there in how much of an outlier they are. But if we step back from what happens over there, actually, the rest of the world is a bit more stable. And then timing is really important to think about both from two very different perspectives. The timing, the timing considerations for a seller versus the timing considerations for a buyer, they're just wildly different, right? For a seller, what you're trying to do is you're trying to align everything ready for a sale, but then having an amazing backup plan so you don't actually have to execute on the sale, you're not forced to, right? What you don't want to do is you don't want to be in a forced position because then timing could work incredibly against you. But if you've got, if you have a great fallback plan and you just operate into the fallback plan, but you're ready, then timing the market probably isn't that hard. What you're looking for is these moments of stability and you're trying to not transact in moments of instability. And the only reason the instability is an issue is from a buyer's perspective, if you're not quite sure what the cost of capital is, you're probably going to just hesitate. And that's the crux, right? So it's not about rising markets like rising interest rate markets or falling interest rate markets. It's not about the movement, it's about the uncertainty of where it's going to end up. And once that uncertainty of where it's going to finish passes, then everyone can price risk and price capital and therefore get deals done. From a buyer's perspective, it's about lining up all of your stakeholders and getting ready for opportunistic buying. And so you're looking for, you're looking for the inverse, you're looking for those moments where the thing you really wanted and that unpacks a different question, which is how on earth do you know what you want? But if you knew what you really wanted and knew that you were buying for the right reason or for a really logical reason, then it's about lining up all of the capabilities you need to be able to transact and then just waiting and being really patient with it and not getting a white-lined fever on the first thing that pops up. But I think the key that I see people do the least is that prep work, especially for a buyer around what on earth would I buy if I could buy anything and in what order? Totally, yeah, so I want to get into that because I think that is such a common failure mode for the companies that, especially at early stage and late stage tech companies, is kind of opportunistic buying as opposed to a strategic buying.

10:12 Maxine Minter: But it sounds to me like in the volatility scenario, actually, like the probability that those peaks line up is higher because both markets are changing, right? Like a seller's market is changing and a buyer's market is changing and then ideally, like in a much more stable environment, those two opportunity sets just aren't lining up and like they line up or they don't, whereas in volatility, they're constantly moving, right? Cost of capital is moving.

10:37 Alex Feldman: And yeah, you may find, that's right, and it depends on what that volatility does to your segment, right? In some segments, the volatility flushes folks to the surface and then if you then think about it from a buyer's perspective, the fishing is easier if you can see the fish. Whereas if you think about it in a market where it sends everyone down to the bottom of the ocean, everyone kind of sits in white submarine style, it's much harder to find, to identify your target and to be able to execute on it, particularly if you are opportunistic, where you haven't already got a plan and lays it in on your ideal target.

11:16 Maxine Minter: Super interesting. I wonder in a kind of seller, on the sell side of this, right, especially in like tech and venture, how many companies are you seeing in this current market actually starting to sell or think about selling? Like how many of them are actually floating to the top versus sinking to the bottom in that analogy? The reason I pause is the sass-pocalypse side of it. We haven't really spoken about that.

11:50 Alex Feldman: Sass-pocalypse? Is that a new term?

11:55 Maxine Minter: It is the market reaction to Claude 4.6. Sorry, yes, a lot of opus 4.6 when opus 4.6 came out. It was actually, Alex, I'm so interested to hear your thoughts on this because I found myself being like the market completely freaked out. I think Microsoft wrote down 35% in two days. Like it was bad. And everyone was like, guys, AI is going to automate jobs. And from my seat, I was like, what game have you guys been watching? Three years. And the operators in these companies are like, we're going to automate your jobs. We are in fact going to automate your jobs. Hey, guys, we're going to automate your jobs. Tomorrow, we're definitely going to automate your jobs. And then 4.6 comes out and they're like, oh my God, they're automating our jobs. And the part of that that we saw-

12:48 Alex Feldman: You never told us.

12:50 Cheryl Mack: Yeah, why didn't you tell me you were going to automate my job?

12:53 Maxine Minter: Yeah, the part that the capital market probably reacted most to is could you rebuild all of these businesses from scratch?

13:01 Alex Feldman: If, I mean, you've always theoretically could, but could you now do it from your laptop? Could I now rebuild Weistek from my laptop and all of a sudden Weistek is no longer a valuable business. The reason I raise that is, well, firstly, Cheryl, to educate you on a whole new term, but the the reason the other reason is that has meant that there are a, I think there are a bunch of technology businesses out there right now who are thinking, actually, it's probably not a great time for me to be selling, because my natural buyer is really struggling. And if my natural buyer is really struggling, so imagine, I mean, as an example, imagine you were building something that was logistics focused and you thought that Weistek was your natural buyer, I'm picking on them because they're obvious, they're acquisitive, and they're really well not in market. Just as an example, well, their share price is set 30 odd bucks at the moment from its 100 plus peak. You probably sit in there looking at them going, oh, they're still a fabulous business. They're probably not going to buy me anytime soon. But at least if even if they did, their relative values have shifted quite significantly, right? What was one of their one of their sort of levers to acquire assets was script. And so all of a sudden, the script is just a lot less valuable. The odds that they're willing to do a script based deal today are simply lower than they used to be because of the value of the script. And so all of a sudden, one of the levers has disappeared, which just means things are a bit more difficult to get done. The great irony is their script probably goes up from here, right? And so you probably would really, really like it, but they'd be disinclined to give it to you. Right, it'd be extremely dilutive. Which I think probably is worth while me naming

14:43 Maxine Minter: script here. Essentially what that means is you get stock. You don't get money. Right? For those folks who are not particularly familiar, who are listening, who are not particularly familiar with anything. Like you would get shares. And share based consideration.

14:55 Alex Feldman: Yes, yes. So to come back to your question, do I think there are folks waiting on the sidelines? Yes. Overall, I don't think we've seen a material pullback in activity. At the end of the day, the venture industry is in the capital side of venture has created incredible amounts of businesses. The whole premise of the venture capital market is you've got to cycle assets. You cannot sit on them forever for a range of reasons, not least of which is that you need money to invest in the next fund and to invest in the next asset. And so there is a lot of pressure to move things on and not hold on to them forever. And so I think that that pressure, the existence of those businesses, the need to move capital, people's desires and personal aspirations, all of that creates a dynamic where you can't not be a seller. And so therefore, there are sellers in market. But frankly, if you didn't have to sell right now, you'd probably want to hold on for a little bit, particularly if you were not as exposed to the SASpocalypse style thing. So if your business could be recreated really easily, you'd probably be really anxious right now. But if your business can't be easily recreated, and particularly with deeply integrated into your customers, probably want to hold on for a bit longer. Yeah, you're holding on. Yeah, I mean, I think like if I think about, especially M&A markets,

16:22 Maxine Minter: they seem to be, as you said, like in the data that they have been responding, actually, like they are unperturbed by the SASpocalypse and similar dynamics, right? I think I saw that we are up on a deal value basis this year versus last year in the Australian ecosystem. And interestingly, more of that coming in from overseas. So you mentioned there like that's what we've seen is a beast unto itself, right? Trump's America operates in a completely different way. Has that changed behavior in the Australian ecosystem? Is that driving? Because I think I saw, you know, like 45% or something of M&A market is coming international investors when it's like 30 something more than half of our last dozen deals were overseas

17:10 Alex Feldman: capital, not American. Overseas, not American. Interesting. What are the dominant GOs that

17:16 Maxine Minter: that capital is coming from? Europe and Asia. Fascinating. Acquiring Australian companies?

17:23 Cheryl Mack: Yep. Yeah, Europe, Asia coming into Australia. A combination of tech and services businesses

17:32 Alex Feldman: and far less so from America, at least in the microcosm that we get to see day to day. Right. Yeah, that's fascinating. And that makes sense, right? If you were American right now, they're just the risk profile of moving capital out and the uncertainty of what happens domestically with, I don't know, even basic things like just tariffs on on respective countries and that tit for tat style warfare that's going on. Do you really want to get exposed to that if you didn't have to? Yeah, I also think there's probably a lot of domestic opportunities, right?

18:09 Maxine Minter: Like if you have a capital advantage in the US at the moment, there's lots of assets that are locally that you can take advantage of. And that's the signal like, I mean, that's the policy signal

18:18 Alex Feldman: you're being sent over there, right? So today you're being sent if you're in America, that is, you're being sent the signal of invest domestically and will give you breaks from tax as an example. Whereas invest overseas and you might get punished. Again, if you didn't have to, you just think local instead of global. Yeah, which I guess is the light policy that they've got going on.

18:41 Maxine Minter: It's kind of the point. It's working, right? It's doing exactly what it doesn't, whether we agree

18:46 Alex Feldman: with it or not, it's definitely working. Yeah. So I'm interested in what are you seeing?

18:53 Maxine Minter: What are you seeing in the Australian market in the kind of version that you get to see? Like what does M&A look like to you noting that you get a really unique tech and services perspective? What does M&A look like it's doing to you in the Australian market? I think we've built, I think we've built some amazing businesses. I think we've exported some

19:14 Alex Feldman: amazing businesses. And I think that's given the market a credibility that it probably hasn't had previously. I think there's more of a belief that an Aussie business can be an export asset that can go global. And it's full credit to the canvases and Atlassians and the yukes of the world and many others in the air. Well, it's that have created that platform of credibility on top of an existing ecosystem. So I think that's been really great. There are plenty of businesses actually making money. And that's really, really powerful. And it's powerful because it buys time. That's the most valuable part of that sort of characteristic of a business. And the flow on effects of it's profitable venture businesses are also more likely to be picked up by a strategic because then their non earnings dilutive, right? One of the big fears is that strategic turns around and says, I love what you've built, but you're losing money every month and I can't buy this because I get measured on a profit multiple and you want to be measured on a revenue multiple and that divergence is just a bridge too far. So seeing Aussie tech and service businesses get themselves into a state of profitability or a state of being break even when they're not reliant on more capital, I think it's really, really powerful. I think it gives them more options and gives them more time. I think it makes them more attractive to strategic money. And I want to emphasize the strategic money thing because the IPO market has been dead for a while and the ASX has frankly done nothing, not withstanding the headlines which are full of crap to spur more interest in it. I mean, you could blame the IPOs that are meaningful on one hand over the last few years and that's really, really sad. So one of the core tools of creating value from a venture was to potentially list that venture. That tool has entirely disappeared and that emphasis therefore on strategic capital is just much more important because it means that if you think about like, where do I take my business when I take it to a strategic or I take it to private equity, there's only two pathways, a third got closed. Therefore, thinking about what a strategic might be interested in is really valuable and of the businesses we see, if I'd sort of reflect five years ago, most Aussie tech businesses were not thinking about being profitable. Fast forward to today. That is a standard part of the conversation. In the first pitch meeting, you're going to hear, this is what my revenue done. This is my sort of size of market. This is what I'm chasing. And by the way, I'm breakeven or I'm profitable. And I think that's a really, really healthy shift. Yeah, super interesting.

22:06 Maxine Minter: Are you seeing maybe kind of for my context and our audience's context, when is a company big enough to start to acquire other businesses? And when is a company too small to be acquired? Like, what does that value of debt look like between those two ecosystems? Then I'm going to avoid giving, I'm going to try to avoid giving numeric answers

22:36 Alex Feldman: because it's so sector and product dependent. As an example, you could be making no money, but you could have an amazing sort of R&D patented idea that someone says, hey, I just want to buy that. And that is a value to me, because I'm a big strategic that has power lines and I want to buy a widget that helps my power lines be better. And I'm happy to pay for that because it's just saves me time and effort. So you could get a business that's purchasable for things other than the financial metrics. But the typical rule of thumb and I'm about to break my own promise, which is not to give metrics is we're here for, we're here for numbers. So if you are sub like well sub 10 mil of revenue, a strategic will find that really, really small. And therefore the love factor they need to identify in your asset is just a lot higher. And what I mean is they're not buying it for the numbers, therefore they must be buying it exclusively for some other characteristic. And they're just so deeply in love with the technology that you've created or the brand that you've created as possible. And that happens. But that's less probable. The more probable is that they like the thing you've built, maybe even love it, but they also love your numbers, or at least they like your numbers, or at least your numbers aren't a detractor. So if you then play that out, what does that mean? So let's say you're a 300 mil market cap listed strategic. That's not particularly big in the Aussie market, but it's definitely not a small business either. To spin up a deal team to run out an asset that's worth, let's say in revenue terms, sub 10 million bucks, the cost of that deal team relative to what else they could be looking at might make that deal almost cost prohibitive to do in the absence of them being in love with it for some other reason. So I think, look, I think that's really important. And then from a buyer's perspective, depends what you're buying for. So if you're buying for bulk, then I'd say a good litmus test is could you borrow money? If you could borrow money, that means you have enough operating profit in your business to sustain debt. And if you can use that form of capital to buy bulk, to buy scale into your organization, you're, you are much more likely to create value, inequity value for your existing shareholders than just using equity, equity injection for that type of transaction. If you're buying for reach, if you're buying for some strategic components, if you're buying the missing piece in the puzzle, maybe debt, maybe sort of debt sort of raising ability is a less relevant metric. Maybe there are other metrics to use like, you know, simply how big is the thing relative to you. And then the other interesting thing we see in these, and you described it earlier, the sort of volatile market moments. If you happen to get your timing such that your big strategics are not that interested, because it's in the height of volatility, it's a height of uncertainty, what we tend to see is more mergers of equals more businesses that are similar shaped coming together. Because they're not being purchased, but they still need to do things, they still need to change their business, they still need to try and break out of their status quo. And if capital markets get a little bit weaker, if buying activity gets a little bit weaker in their particular segment, and we saw this during COVID, and we saw this during the GFC, businesses that are similar shaped similar size coming together saying we'd be more powerful together. And we don't have to buy each each legally one of them has to buy the other. But in commercial terms, we can smash these two things together, extract some value, and be bigger through this difficult time. We've seen a bunch of that in the last 12 months in the vendor ecosystem

26:37 Cheryl Mack: specifically, right? That makes sense in this market where we're seeing people who are looking at this and going, actually, we made some bets during 2021 to 2022, that maybe the market isn't as big. What did we see, me and you, and... Mr. Yam. Mr. Yam, come together. That's the one I had in mind. Yeah. Yeah, I was actually thinking we see a surprising, at least small amount of that

27:05 Maxine Minter: happening in the venture ecosystem. And maybe it's a maturity thing in the Australian ecosystem. Like, we just happened to have had the two biggest players in QR code ordering globally that were domiciled out of Australia competing against each other. And so that felt like it was a merger that made more sense. But I think historically, the Australian ecosystem has been not deep enough that there is those kinds of mergers. But even if I think about in the US, right, like growth stage businesses, that's not a lever you see a lot in the tech ecosystem of them merging together. Or maybe I'm just blanking on the examples. I think they're just less advertised.

27:43 Alex Feldman: Do you have more examples, Morris? I do. But in many of those cases, they don't really want to advertise that two businesses came together. Because those transactions are not perceived as coming from a place of strength. They're perceived as coming from a place of weakness. Because what what you're ultimately saying is, I needed to do something about the capital structure of the business, I needed to do something with the business. And it wasn't run organically, and it wasn't sell to a big strategic and get a great headline number and be able to advertise my deal. And so often they just go into the radar. So interesting. Yeah, I mean,

28:23 Maxine Minter: it's often not seen as like a success, right? Like if you're like if you're an investor in

28:30 Cheryl Mack: Mr. Yum, and like it wasn't necessarily like, yeah, amazing, we got this big exit, like as an investor, you're not really seeing that as a huge win in terms of portfolio. Like sometimes it's good script for script, but more often than not, it's that doesn't help. And why

28:45 Alex Feldman: not? Because it doesn't help the underlying challenge, which is funds put money into those businesses and those the LPs and the funds need their money back to be invested in other things. They can't just sit there and be stuck forever. So the on the one hand that the pitch is, well, I just rolled my equity from one stuck private position into another stuck private position. It's not a great that's not a sexy story, even if the underlying core of the business got better in the process. I think Maxine, maybe to your other the other reason we probably see a little bit less of it here is I think the venture funds have actually been pretty good at not backing lots of identical things. That's true. Yeah, we often see that. Well, yeah, like we'll see the

29:31 Cheryl Mack: big funds will say things like, oh, we've we've invested in this and they plan to do something similar in the future. So we can't even touch you, which I think is not the same. Like Maxine, maybe you can add a bit of color there. But I don't I don't recall hearing a lot of that in the US. Whereas I hear a lot of that here. Is it? Yeah, there is at the fund level. And I think it is

29:51 Maxine Minter: largely driven from a belief that in most markets, to create the kind of outcome that they are trying to create for their funds, they need to be in the in a better common top company. Right. And so they can't really from a mandate perspective, or from an ego perspective, be like, we were in the top company. And now we're also in this other top company, right? If they're like, yeah, but like, what about we allocated to this one, and then we're going to allocate to this second top company, they're effectively being like, we got the first one wrong. The only people that don't that are different in the way that they do this, but I'm aware of is a 16. A 16 approaches where they will invest in a particular thematic and take like multiple positions around the thematic if they're really convicted on it, because they're trying to invest the thematic, and then they try and pick the best company in like various strategies in that thematic. Like an example would be, I don't know, the one that comes to mind is like, is it the Silicon Valley one, where like, it's Peter Teal being like, yeah, you're just one of

31:03 Cheryl Mack: our middle outplays. No, that is not the example that came to mind.

31:11 Maxine Minter: That was the example that came to my mind. Yes, yes. The example that comes to mind is like, the horizontal play versus the vertical play. So they might believe that there is a particular platform shift that's happening, and they might invest in like, Bland, which is like, let's say, voice AI is the new interface, and they will invest in Bland as a horizontal play across the entire voice interface transition as a picks and shovels business in that transition, and then they will invest in like, spectre and like a bunch of the tools that are specifically using voice AI in a vertical, right. And so they're kind of covering both from different angles, whereas in Australia, they would be more likely like, sorry, we're horizontally invested, so we're just like, out if we think there's going to be competition. And I think at Aussie VC funds, I mean, I don't

32:07 Alex Feldman: know if it's for a fact, but I suspect that if there was already a great portfolio company in one of the funds, and you had a terrific pitch of a similar business, but with your own nuances, and you went to another fund, knowing that the first fund wouldn't back you because they already have exposure, I suspect that the second fund you'd go to would say, well, how are you different to them? Am I just building a competitor to someone who is already in the sector that is that, you know, they have a head start on what you'd be building? I think there'd be some reticence to back something that is a direct competitor to something that already exists in an venture market that isn't, that's good, and it's become a lot bigger and a lot better, a lot more vibrant than it's been in the past, but still is a reasonably small market.

32:52 Maxine Minter: Totally. Yeah, I think that's right. They prefer to try and just get in on that company, the one that's doing well, then try to back a competitor like two years, three years later, which I think actually overall, saying it out loud, maybe that's not true, but I don't think that's an optimal strategy, right? Like, Australia, because we are a feeder ecosystem into the US, sizing these markets domestically, as opposed to sizing them globally and believing that there could be two winners. Is he asking why not? Yeah. I don't know. The one part of the reticence that

33:27 Alex Feldman: I appreciate is just because you could build a great business in Australia doesn't mean that your business will work in the US. The US isn't one market, whereas Australia is one pretty homogenous market. And so the mistake I see over and over is, oh, I made it work in Australia, let me go raise some money to go to the US. And the problem statement then gets broken into a couple of components. The first is Aussie funds don't usually write the sort of checks you need to be able to go to the US. Completely forgetting that the US is a whole bunch of different states. Yeah, it's like so 50 different economies with their own nuances. And then they're not just nuances, they're quite significant differences, right? I'm good luck telling a Texan person that they're pretty similar to a Californian person. That's a great way to start a war. And because they're so different, the capital you need to be able to attack those markets is so different. I don't know that the Aussie capital market is right for that. There are very few that would play in that I'm going to take this business offshore with enough capital to really make it work. And the feedback you get from American funds is that you're not here yet. You haven't got traction in the American market. So we're not going to give you money. Why don't you come over here, prove yourself, and then we'll give you some money. And of course, that you get stuck in that cash 22. So whilst I think we could be a much better feeder market to global global markets, I don't know that we are great at that today.

34:55 Maxine Minter: Yeah, I think, I think it's new ones, right? Like, I think that there are, that is true for large established companies, like if you're Series B, and you're trying to do LC, and you're trying to do expansion to the US at that point is super hard. If you're doing it at seed, not hard, right? Yeah, a lot of our portfolio companies are just

35:16 Cheryl Mack: like, I'm going to book a trip. I'm going to the US this week. And all of our customers already in the US. So we may as well just like, go spend some time there. Agreed. I think it's stage dependent. Like if you're just doing it early stage, super casual, then it just grows organically from there. And then all of your customers are there. Then it's a lot like it's, it's just a lot less of a hassle later on. You're not really expanding. You're just putting up some operations. And those are founded sales in each of those examples, right? And there's a core difference

35:44 Alex Feldman: between that, right? The founder is getting remunerated in lots of different ways, not just the salary. Whereas what happens in later stage businesses, they're so rarely founded sales. And the classic is, oh, well, I've done it in Australia, and I've done it through this particular sales motion, including the group of people that do that. I'm going to go hire my group of people in America. And more often than not, that leads to a dusting of capital. That same image that we started with of the dollar bill being burned. Yeah, yeah, yeah. It's super hard, of course, stage like expanding with that, with that DNA.

36:18 Maxine Minter: So I'd like to pull one of the threads you mentioned here is you're kind of like telling us what you're seeing in the Australian market. You wrote an amazing piece, which I think is awesome about how to not just opportunistically be like, oh, I'm just going to invest in this company because it arrived, right? As a growth stage business or larger business. They're like, look at that. Like when babies land on your doorstep. You should keep them. So I'm wondering if you can kind of run us through that framework a little bit. Like, how do you advise companies to actually prepare to be a high quality buyer, especially for kind of growth stage tech companies? Because my observation is there is an accelerating number of companies that are starting to meet that kind of middle company stage where actually they're inorganically growing, meaning they're buying other companies in order to accelerate their growth. And I'd love to just open source for early stage investors who are listening to you founders, how they think about how to think about actually doing that strategically, as opposed to the version where you obliterate a bunch of capital. Awesome. MNA is a muscle. You have to work the muscle. And if you think about what that means,

37:27 Alex Feldman: there is a to do MNA, you need capital. So you need to work the muscle of raising and having capital readily available. The most likely thing for reason for a deal to fall over is you haven't yet got the money. You think you'll get it and you're trying to raise and do the deal at the same time that is a recipe for disaster, getting those timelines to align. Sure, maybe, but odds on you won't. And there'll be a mismatch. And that mismatch will either mean you'll end up with too much capital and no transaction or a fabulous transaction that you don't have the capital for. So you've got to work that muscle. You've got to work the muscle on the capital side. You've got to work the internal muscle. You've got to get your team bought into the idea that we will be buying stuff as a growth lever. And I say that because it is such a it is such a not natural movement for a business that started with their founder led sales motion. And then the second person was probably similar to the founder led sales motion and the third person and so on. And these businesses have grown through this organic movement, which is just great. And it works. And there's nothing wrong with it. It's just very different MNA. Everything you have done is your own. And now you have to look at the way someone else does it. And you have to suspend that moment where you go, well, mine is better than theirs. Therefore, I'll never be able to buy them or I shouldn't buy them or I want to buy them and break it all into pieces without that that lens of but actually they did a really good job here. They just did it differently. And how do I put that together? And that leads me to the third part of it, which is even if you got the capital right and you had the internal muscle and the buy in and your motion is good, the integration is what makes and breaks the question of did it make you money? If you didn't integrate it well, and well means different for different businesses and different situations, there are some things that shouldn't be integrated. There are some things that should be tightly integrated from the very beginning. But if you don't do that, well, you just end up as a loose collection of brands and systems and business units, often with no synergy extraction and no industrial logic for them to coexist. And if what you're trying to do is build one unified business, you have failed. If you wanted to build a conglomerate of brands, you've succeeded. It's just often not what people are setting out to do. So it's that constant motion and it's being ready at all points in time to be able to transact. And then the last part of that is, why are you doing it? And so few businesses, and that's probably one of the reasons we exist, are able to internally describe why it is that they would do a particular deal. And then even the me and harder question is, if you had two deals to do, which one would you pick? And you can't say I'm going to do both. So you got to pick one and you got to transact it and then you got to integrate it and you almost, it's almost impossible to do two at the same time. And so stack ranking forces you to come to that articulation of why am I doing this one? What's special about this one? And why is this the right order in which to do it? So being really conscious about that planning process to say, this is the one I need. And once I do this one, it'll unlock this further chain of activity. Some of it might be organic, some of it might be in organic, and being able to answer that really crisply. One of the things that strikes me there

40:56 Maxine Minter: is actually like on the buy side, having like, if you're a company buying these businesses, actually a necessary precondition is that you understand the levels of your business sufficient that you can answer, okay, if I buy this business, it drives. It's going to turn this one. Yeah, if I buy this business, it's going to turn this one, which almost necessitates that we're talking about series B plus businesses. Actually, in this market, it's often like series C and later. You need to be much more mature. You need to have a really good understanding of what your

41:28 Alex Feldman: business is before buying makes any sense. So you're saying like, absolutely no opportunities,

41:35 Cheryl Mack: because I've like a lot of our portfolio companies, I feel like are like from your conversation now I'm thinking like, man, all those, all our portfolio companies that we're thinking about buying things are probably actually way too early to start buying things. And maybe next time they come to me and say, hey, we want to buy this, I should be like, maybe not. Like, are you saying there's no scenario where the baby lands on your doorstep and you're like, this is a great baby, let's bring it inside?

41:59 Alex Feldman: Not at all. No, no, no, there's, there's opportunistic deals can be fabulous. But you're often going to be feeling they're probably slightly less likely to generate the return you thought they would than the highly disciplined deal. And the reason I say that is because when it lands, what will naturally happen is you'll, if you're really disciplined, you'll still do the exercise that I described, which is trying to work out why you're going to do a deal and what you're buying it for. And you'll do all of those component parts of the muscle, but you probably have confirmation bias. And you're probably going to convince yourself that some of those reasons are a bit more important than others. And through that confirmation bias odds on, you're going to eat away at little bits of value in that chain. And that doesn't mean that you might not stumble upon something that's fabulous and just happens to beautifully fit. And then it's, you know, it's literally the universe is aligning, but statistically more likely that you've, you've picked it because it landed on your doorstep and then you're going to grab it and there'll be bits that don't fit. And you haven't yet thought through what you're going to do with the all fitting components. And it's the, it, there are two sorts of decisions you have to make in every transaction. When you buy something, there are bits that the other side does better than you. There are bits that you do better than them. Ironically, it's where you do things better than them as the easy decision, because all you're going to do is you're going to go, that's rub broken. This works. I'm going to apply this to that. And hopefully you don't break their culture in the process. Let's assume you don't. But when they do things better than you, do you really have it in you to go, that's awesome. I should probably let my version of that go and let them, the business that I'm acquiring, run that for me or do that for me or inherit their bit and throw my bit out. And there are lots of examples where the, where this goes wrong, but it's ultimately a human question, right? Are you willing to put ego aside and let, let truly let objectivity drive and imagine you come to two engineering teams, both who have slaved away at a particular product or a particular way of doing things. And you have to say to one of those teams, your way of doing it is good, but theirs is better. We're going to put yours in the bin. We're going to apply theirs. And we'd love you to be brought into the integration project of torching your thing and using their thing. And, and you, you might pull that off, but you can see how difficult that is because you were telling someone that they're, that there's a prettier baby out there. Totally. It's super hard, especially when you're being competitors, like on the murders and I,

44:45 Maxine Minter: you know, like, you have, I saw this quite close was my partner was working at Mr. Young. Like the fight between me and you and Mr. Young and then having to merge those two, it would like be, it would be like merging like Microsoft and Intel in the late 1990s, you know, like they had played Smackdown. Last week we were competing today, we got to figure

45:08 Cheryl Mack: out how to work together. Yeah, yeah. And to Alex's point, like also torching certain bits and

45:14 Maxine Minter: like integrating certain bits and my hat goes off to Kim and the team to like do that well. Um, I'm wondering maybe this is just from me, but one other thing that's kind of still lingering for me is like, okay, if 10 million ish is the revenue number or this like maturity stage is the, well, I guess that's on the buy side, but 10 million ish in revenue is the point at which you start being interesting to strategic. There's lots of early stage investors that work for companies or founders who are building businesses and operating businesses that are significantly below that. How does that group participate in the M&A ecosystem? Do they? Should they? There is still, there's still, so should they be buyers? Probably not.

46:01 Alex Feldman: But will they be sellers? Yes, of course, they'll be sellers. They'll need to realize some version of the capital stack at some point in time. And there are definitely buyers for much smaller businesses. Just the pool of buyers opens up when you hit those sort of, those rough thresholds. And the simple maths is if you are strategic and you bought 10 million revenue and you already do that same activity, that same thing, that same product, you already have that. And if I just take the telco example from my past, we were a big telco. And if we bought a little telco, we would say, well, we do what you do, but bigger. So can I do what you do, but with less people or with different resources or with resources that I've already paid for, that I can apply my platform across what, what you already do in your business, and I can immediately rate those costs or even maybe remove those costs altogether. At 10, it's really obvious. You don't have to think too hard that there will be costs you can remove to make the business at least break even if not profitable. At five, you have to look much harder. You've got to get the magnifying glass out. At three, you need more than a magnifying glass, right? You need a microscope to work out what surgical changes to make to a really skinny business. And, and then it, there is a, there's a question of what are you buying, right? If you're buying a business that's only making a couple of million bucks of revenue and still, is still run by the two or three founders and doesn't have any infrastructure about it, then you're buying the people. You're really hiring the people and maybe buying the brand, but there isn't a core there that can sustain itself. And so really my point is that, at certain scale, you open up a universe of buyers that you find it really, really hard to transact at the micro. But at the micro, there are, there are definitely buyers for those sorts of businesses that are much, much smaller. It's just a narrower pool. So an example would be, you might have a three, four mill revenue business, and you might sell that business to a search funder. You might sell that to a, if you're a software business, you might sell that to a software aggregation play like a constellation or many versions of their business model that exist. And it's a good business model, right? There's, they make lots of money out of amalgamating as much smaller tech businesses.

48:23 Cheryl Mack: On that point, like a lot of the snares that we see come up, especially as investors, is like your portfolio company goes out to raise series A, series B, and just aren't able to get that away. And so then they can't fund their growth and they go, okay, well, then, you know, it's either, we couldn't raise, but now we either shut down or like realize that we're going to run our money eventually, or we go and get acquired. What's your advice for like, at that stage, what are they doing? What are the, what's, because it feels like a bit of a mess at that point. So it's like, oh, we tried to raise, now we're looking for acquisition. Yeah, now we're a seller. I've got a few things to say. So the first is, raising and selling is

49:05 Alex Feldman: almost the same activity. You are selling shares. The question is, are you selling lots of shares or all the shares or many of the shares? So my encouragement would be park some of that stigma attached to raising is good and selling is bad if you're not selling for a great price, because in both instances, you're selling shares. And if you break it down into that, should you be emotive about selling some or lots? Probably not. So that would be step one, step two would be never waste a crisis. And this is just good business advice. What have you been told? No one wants to give you any money. That's a crisis. That's a lovely opportunity to go and look really deep internally and probably cut costs really, really hard. Why would you do that? Firstly, I've never wasted a crisis. But secondly, what you're going to do is you're going to buy a runway. And by trimming those costs, you're going to create optionality that you might just go, this is a lovely little business that I'm just going to hold forever. And there is nothing wrong with owning the local launch remat. And I say that because actually PE thinks local launch remats are awesome at the moment and they're rolling about everywhere and they become this kind of the sexy. There's a whole bunch of PE launch remat rollouts happening across Sydney in particular. We're talking about like,

50:21 Cheryl Mack: you know, like laundry, not like money laundering. Not money laundering. Yeah,

50:25 Alex Feldman: just good old fashioned washing machines and dryers. Didn't you know Cheryl,

50:29 Maxine Minter: PE in Australia is deep on money laundering. It's like the mattress store, right? Like every

50:34 Cheryl Mack: mattress store in the corner is actually just a money laundering.

50:41 Alex Feldman: And so I would say go buy yourself the option to just have a great business that you can hold on to forever and park the capital story for a moment and just focus on that because why not? And coming out of that, you'll have time. You might make some profit. You might use those profits to reinvest back into things like buying out those folks on the register that can't hold on forever. And then you might make yourself more enticing to someone else out there. But the one thing I wouldn't do is I wouldn't do the ostrich trick, right? So at that point, when you've heard the negative message of not going to give you more money, do not put your head in the sand and hope that that activity is going to lead to a better outcome than the capital markets telling you that there's no more money. So don't do the ostrich. Don't waste the crisis.

51:31 Cheryl Mack: All right. Don't waste the crisis.

51:33 Maxine Minter: Amazing. I'll say, I mean, from what I've seen, those like sub $5 million sales processes, like mostly they're found to lead mostly they are like first time ever going through a transaction. And so they are minor chaos. But I really like that. Like, let's not lose sight of the fact sales process, sales process that you have done when you're capital raising, like when you are fundraising, you're doing essentially the same thing. I think the like aquire motion is slightly different. You're like selling yourself then as opposed to shares in the business, but at the very similar motion. Great. And remember that in that moment, you the founder of that business, you

52:17 Alex Feldman: know your market better than anyone else who bets are in your market to call the relevant strategic who's the most obvious buyer and say to them, I am for sale. It's you. You're hanging out at industry events, you're going to conferences together, you bump into each other in the hallways of those of all of those industry style events. You've been doing it for a long, long time. You probably bump up against each other in competitive processes. That's the next phone call after going and trimming costs to make sure you've got all the time in the world. Totally. Yeah. I have to jump off Maxine. Can you just finish because I actually

52:54 Cheryl Mack: have to leave? Oh, sure. Yeah, amazing. Thank you, Alex. Bye. I probably will just This has been so educational. We always ask people the same last question, which is

53:12 Maxine Minter: what is your biggest big bonus moment, a moment that you have felt really brave? I'm going to go back to the GFC. So after having dusted all of my money on Rio and BHP

53:29 Alex Feldman: sometime before that, during the GFC, I would have been in that transition between uni, lots of part-time jobs and full-time work. And so in that transition, I had just moved out of home or was just about to move out of home. I was saving up money. I was then renting a place. I was trying to build my own life. And I was even at the end of uni working 60 hour weeks across a range of different jobs to try and make ends meet. But I was always able to pull apart about 500 bucks of spare cash. And that was the marketable parcel that I could buy through CompSec. And so what I was doing during the GFC was every time I'd get my 500 bucks out of one of those jobs and have it as spare money, having paid the rent and bought the food and done all the things I needed to do, I was putting that in the stock market. I was just averaging down as the world was coming to an end. And the reason that for me was the big kahuna's moment is firstly each of those dollars meant a lot more to me than their equivalent today. Those were food checks. Those were rent checks. And if I couldn't work the next week for whatever reason, things would have been really, really dire. So the consequence was extreme. But I also had no idea what I was doing. And I had never lived through a crisis before. And so I didn't know where the crises end. I didn't know whether we would ever come back to any reference point that was more like the old days, having never seen one of those down cycles. And the pinnacle of that are a member of Macquarie Bank shares at 30 odd bucks. And this is a bank, right? And I just watched banks in America collapse. And looking at an Australian bank thinking, well, you're not one of the guaranteed banks. You're outside of the pillars. What will happen to you if the banking system collapses globally? Well, frankly, I have no idea. But I think you're a great business. I've learned my BHP Rio lessons. I've tried to understand what it is that you hold as a core asset outside of the headlines. And I kept buying and I kept buying all the way through to the bottom. And I was lucky enough to have the time and the patience to ride that wave on the way up. And those moments were terrifying. And whilst they didn't pick any unicorns, I just invested in great businesses. I tried to understand their fundamentals. I learned heaps of good stuff out of it. I lost an unbelievable amount of sleep through that experience. And that helped us, you know, that helped us sort of set up our life and pay for our first deposit for a place and put us in really good stead. But it was terrifying at the time. Yeah, I can only imagine. It is incredible how counterintuitive

56:19 Maxine Minter: it is to invest the bottom and sell the top. It physically hurts. And you've fallen in love

56:28 Alex Feldman: with these things, right? You've watched these businesses through their darkest moments. You feel like you're on the journey with them. You then have no idea how much better it could be from here. And I remember selling Macquarie shares at about $100, thinking, I've got to be missing the top here, right? Surely it's going to go up from here. But the hardest part is the sell, second only to, yeah, and the next hardest was just sitting at the bottom of the market and being prepared that if it went below that $30, we'd give you up buying some more.

57:06 Maxine Minter: Yeah, yeah. I love it. Thank you so much for joining us, Alex. This was really great. Thank you. That was awesome.