Buyers and Builders
00:10:59 · Eric Tan, Mikk
And and kind of the offshoot of that is that quite often, we, from HCO would meet a lot of companies that we think he should buy, and then we would then have to go back to him and pitch a investment case to him. So by and large, this would be how we operate across all the, all the three pillars. Some are more active in bolt on, some are less active, but this would be kind of overall picture of how we operate, so, kind of just to summarize it, the, the capital location is centralized, at HQ, we manage treasury as a whole, we work with the operating company to, determine the future direction, but it's very much decentralized and driven by the management team of the respective pillar, and we try not to get involved. So the overarching principle is that we don't want to be the smartest person in the board meeting. It it should be the management of the of the respective company, and we support them as and when we we think we could help with capital, it could be... We could help with network relationship, or even kinda cross portfolio companies' synergies. But as much as we can, we try to get out of their way. [00:12:03] S0: And how is it to manage those three separate pillars? And what I mean here is that are you planning to add new ones if you see a good opportunity or you just kind of stick to those three and go and expand from there?
00:12:03 · Mikk, Eric Tan
[00:12:03] S0: And how is it to manage those three separate pillars? And what I mean here is that are you planning to add new ones if you see a good opportunity or you just kind of stick to those three and go and expand from there? [00:12:14] S1: I think I think for the near future between one to two years, we will seek to these three pillar, but internally, we're actively looking for for the fourth pillar. The the good the the good thing is that as we scale the pillars, it gets easier and easier to run it. So media today, sorry, like B2B expo is something that we went in last year. So today, it is like the media portfolio four, five years ago, where we're still trying to kind of find a good cadence. So today, our media business is quite skilled. It's quite stable. The team is quite experienced now and things gets easier. So, it's kind of like, we, we are trying to manage it such that, before we extend ourselves to a new pillar, the existing pillar are already stabilized and we can actually manage quite well. So but to answer your question, we do not plan to expand immediately, but we are actively looking for a third sorry, a fourth pillar. [00:13:05] S0: You said the CEO sometimes come to you with some acquisition opportunities. Yep. And at the same time, doing the research on you, you've said that you buy roughly one company out of every 100 you review. So two questions. What causes the other 99 to fail? And how do you generate such a deal flow?
00:13:05 · Mikk, Eric Tan
[00:13:05] S0: You said the CEO sometimes come to you with some acquisition opportunities. Yep. And at the same time, doing the research on you, you've said that you buy roughly one company out of every 100 you review. So two questions. What causes the other 99 to fail? And how do you generate such a deal flow? [00:13:29] S1: Primarily, it fails for a few reasons. So one would be... The the most obvious one is valuation expectation, I I would say, that often kills a deal. The second most likely would be people. I think it's quite easy to find good deals on paper, but it's quite hard to find companies with the right culture fit, and I think that has always been the trickiest part. So we have definitely walked away from many deals that is on paper looks really good, but actually, when it comes to culture fit, it is a big red flag. And how do we normally find find out other than just talking to them, talking to the founders is before we get into the sector, we would have spoken to everyone in the sectors, including all the competitors, and what we like to listen, look for in terms of sign of whether they are good kind of companies would be how the competitors are talking about them. And the single line that we love is that, Eric, we have competed with these guys. We absolutely hate them, but they are really good and we have huge professional respect for them. And that's what we like. Are competitors, but I respect you because you're just so good.
00:14:48 · Mikk, Eric Tan
[00:14:48] S0: It's such a great idea which you brought out. I remember when I was visiting those traditional business owners here in Northern Europe, every time when I was talking to the founder, I said, if you were me or if you were going after some of your competitors, who would they be and why? And you hear such great stories about your their competitors and how they think of of the business because they had sometimes fifteen, twenty years of experience. And they they just give you all the all the like, a great overview of of the market and the companies, and the the the pipeline is just getting bigger and bigger. [00:15:26] S1: 100%. 100%. [00:15:27] S0: Now, again, we met in Stockholm, and we were talking... You've been there for many, many years. So... And those companies there, some of them are buying 10, 20. They do 10, 20 acquisitions a year. They've been doing that for... Some of them for twenty years. What are the lessons? Why why you keep going back there? I mean, what I mean in here, when you're flying home, what are the conversations between you and Eric? For example, what was it this year which you learned? Because you have such a long trip back home. So what were the lessons and what you immediately start to implement in your own business and group?
00:16:12 · Eric Tan
[00:16:12] S1: I think that's a good question. The reason why we like going to the conference is it's just a congregation of all the people that have been there, done that, of various stages, and why that is great is then, we can kind of juxtapose ourselves against who have been in our shoes like a couple years earlier, because it's harder to look at, say, someone like a leaf code has been there, done that for the last twenty, thirty years, and try to learn from where they are today, but we could find someone that has been there, done it in the last five, seven years, it's a bit closer to someone like a chapters group, right? And learn from what they've been through in the recent years. In particular, I think over the years, there are many things, right, like, that we learn, being more disciplined and walking away from, you know, that deals that is too expensive, operating in a more decentralized environment, you know, accepting, accepting that, you know, maybe not every deals has to be integrated and all kinds of stuff. I think this year in particular, for me personally, is really building a culture in a decentralized operations. And why I say this is particularly pertinent is because we did eight deals in the last eighteen months. And I think by any standard is quite a lot of companies to to to be integrated into a group within a short period of time. And and and finding a balance between adding value as a new owner or new partner to the business versus letting people doing their own thing is a delicate balance, I think, that we're trying to strike. Right? Like, we don't wanna be a partner that doesn't do anything, but at the same time, we don't wanna be a partner that comes in and tell them what to do and finding a balance in a time where the world is more disrupted and more chaotic than ever, I find that quite challenging. So there's deglobalization that we see everywhere. There's war coming out. There's AI becoming front and center of work and trying to make sense of everything, but at the same time, not come in a way and telling people what to do and building a culture where everyone can navigate and be nimble in light of what is happening around the world. I find it in particular this year was quite important. So we're we're looking at some of the serial acquirers sharing their playbook. Everyone has slightly different variation of that.
00:18:27 · Eric Tan, Mikk
But I think that was the front and center of my learning earlier this year. [00:18:31] S0: Do you sometimes sell the portfolio companies? Because that's the organization we oftentimes have with the guests as well and people I talk to on on every every single day. Many of them are this... Towards this permanent hold. At the same time, they are all businessmen, businesswomen. And when a very attractive acquisition offer is coming, they are like, I'm not so permanent anymore, so they're willing to sell. What has been the experience for you? [00:18:55] S1: I think in general, we have never built in any exit scenario at our investment stage. We all assume that we're to own them forever. But like you mentioned, I think we all have to be quite practical and as directors of companies, our fiduciary duties to, you know, kind of decide for shareholders and recommend the shareholders what's the right thing to do, and when a very attractive offer come to the table, we will have to, very, honestly, and, and practically assess them, so, we have never had to confront a conversation today, but I think the general approach is that, you know, each time they will come to us and say, would you sell your portfolio companies, we will just say no, because that's not how we, how we do it, but we also have never had a situation where someone put a very attractive offer on the table yet. So all I can say is that we would have to assess it on a case to case basis, but the general principle is that we do not buy to sell.