How did they become a match?
Treebo Hotels, one of the largest budget hotel chains in the country, has been targeting a threefold increase in its portfolio size as it enters newer segments, a strategy that could potentially drive its top line at a similar pace. Treebo’s reach is across 75 cities and they are now targeting young travellers. Adding on a partner in the events and travel space makes perfect sense to them.
Events High is present in eight cities, and enables users to discover and book curated experiences and events, including trekking and camping, plays, concerts, group activities and meet-ups, among others. Experiencing local activities is a core part of people’s travel plans. It was how it all started.
Nikesh, lots of things could go wrong with an M&A transaction. You have just concluded a successful one. Based on your experience, what should a founder watch out for?
Hi. Thanks. Yes, we have had a solid start at Treebo and it has been great to work with a team with whom we have established a cordial working relationship.
I have two pieces of advice for founders:
1) Establish a working relationship with your acquirer
2) Managing paperwork and due diligence
1) Establish a working relationship with your acquirer: In our case with Treebo, we were lucky to spend enough time with their team on the synergies before making the final decision. If you already have some companies in mind, my advice is to have some kind of working relationship/partnership with them and when you have an offer coming in, you already have those relationships. It is important that the confidence is developed.
We spoke to quite a few people, we then narrowed down the list and that itself takes time. Another point to anticipate is from the point of reach out and then finally down to making the decision takes about 2–3 months. It is important to develop mutual trust during the process.
Tips for founders:
- It is good to always have exit options. These can change every 6 months to a year. Have a roadmap of an exit, as part of your overall set of good outcomes to plan for.
- Have a list (example the top 5 companies who can be interested in my business). They may be interested in your technology or value you can provide to them. This planning should start early.
- Always remember, once you have made the decision, then commit! I have seen how this can take a toll on some companies. As a founder, you have high aspirations and will get several thoughts, but it is very important to remain focused through the process.
2) Managing paperwork and due diligence
To break it down, there are 3 types of due diligence conducted:
1) Legal due diligence: Company incorporation documents, trademarks, branding and logo, ESOP documents
2) Financial due diligence: Financial statements, data about how you have arrived at these financial statements, transaction documents, audit statements.
3) Tech due diligence: What kind of open sources licences you have used? Every piece of code you have written…
What would have helped us is if we knew of this before. Then, when you build the company, you also keep these documentations ready (or at least periodically take a stock).
My recommendation to all founders is to maintain a checklist of these documents and take stock every quarter.
It took us 3 months to get all the paperwork in order and a total of 6 months from the point of starting a conversation to closing due diligence. That is a long time indeed! It is good to have an investment banker in place and have a checklist. Axilor recommended us to a few.
The Investor’s Role — How did Axilor help?
Lot of the value comes from deciding and figuring out options.
Investors can help in the outreach, from portfolio, other investee companies. Not only that, we also have to run the business and investors can help in that and a lot of planning, thereby taking off a lot of load from the founders.
In our case, Axilor helped us connect to various companies, got an investment banker on board (Merisis), helped us prepare the deck and data (when you are initially reaching out, people only see a deck). In terms of evaluating options, in a detached way. Investors’ can help remove founder bias. Also take a pause and evaluate options. We divided tasks among us. You are doing 3 things at the same time.
1) talking to companies
2) continuing to run the business and keep the employees motivated and informed
3) accelerating growth
This is an important period to push harder on growth. Fortunately, we were able to achieve good growth line organically and could show value. We worked with Axilor as one team.