How SS&C Conducts Acquisitions

Text Version of the Interview

SS&C's Strategy for Business Growth 

Well, aside from our very talented development team, we also have large sophisticated customers who don't want to wait. If they want some particular functionality and we can find and acquire that organization and deliver that functionality to one of our clients, great. Otherwise, we can always build. It is a win-win.

Plus, we like to buy things that we can sell into our 18,000 client base because that's a very nice leverage point. 

Lastly, we also like to take what we have and sell it into their client base so that you get chances to grow the revenue and almost all companies that you acquire.

You get a chance to streamline that, which improves profitability. That's what we think the formula is. And that's what we've executed. 

What Triggers Acquisitions?

When you have an excellent product that you can buy from legacy companies, we upgrade their products and give them white-glove treatment they'll upgrade to your brand new, good products. 

With that, we can move their customers onto our new product, which was very effective. We have had that view ever since. 

Do You Only Acquire Companies with End-of-life Cycle Products?

The first couple of deals were. Then we went into product extension because we're trying to have complementary things. . 

Even more so now, it's accelerated ever since. The complexity around technology and the functionality these organizations need to operate on a day-to-day basis is increasingly sophisticated.

They want as few vendors as they can have. But SS&C is not going to be able to be all things to all people. So, you have to pick your spots and be the best at it. It is a great service that will give you leverage. 

That's not always easy. You have to train motivated people who are not tone deaf. 

So you have to be sensitive to that. You have to realize it's not what you say; it's what people hear that is important about having a successful anything is pretty much being able to listen as much as talk. 

Evaluating Companies with End-of-life Cycle Products

Generally, if you're buying a product from a company, that company is primarily interested in how well you can service that group of clients because they want to sell other things to them. So, you have to take care of them both from a sales company who sold it to our company, to those customers. 

And taking care of those customers makes us a great acquirer. That message goes out that if you want to get rid of something, SS&C is a good home. They'll take care of the customers and they will have a better experience. Your employees that are going to go to SS&C will have a new lease on life. 

And that allows you to stay in the M&A game when you might not be willing to pay the prices that are in the M&A game.   

Moving Customer Bases to a Different Product.

We don't do it precipitously. We listened to those clients, and you've got to move quickly depending on the numbers again. Otherwise, they're all leaving, and it's just a mess.

But when it's a good business and the products work great, what generally happens is they don't have the latest database, they don't have the latest interface, and people get frustrated; they want to move. 

More often, it's not economical. If it works and it's cheap, why would you switch? Price is a pretty big motivator, but it's not the only motivator. 

Then, we'll get priced out. We're not chasing that, but if we lose, somebody paid a big number and they may be over-leveraged or they may be something else that's going to cause them heartburn if they try to integrate that acquisition. 

How involved are You in M&A?

I'm pretty much involved, especially with pricing. I work with business leaders, especially on their compensation regarding the success of the acquisition.  

Leaders have to understand that this isn't other people's money. This is our money, so treat it that way, but if you don't treat it like it's our money, you're going to make less money.

Besides, you have to be honest with people. You have to be upfront and have difficult conversations, which aren't particularly fun but are necessary. 

For example, why would we pay that nine times sale when we can just go build it? How are we going to make any money? This is business. Let's make a decision based on the best available facts.

Changes in Public and Private Growth Strategy

Primarily, it's the same. If you're running a good company, you run a good company for whoever your owners are.

That's how we ran SS&C, and that's what we focused on. What can you do if you can finance acquisitions with low-cost debt? The sun is shining on M&A, making hay. 

That's why you see some of the evaluations because that is so cheap, and it's technology. And if it works and you have lots of maintenance streams coming in, or SAS streams coming in awfully profitable, you can really handle a lot of debt. 

Changes in M&A strategy between Private and Public?

Not really. On the private side, they had a broader spectrum of what they would want us to acquire than what we were particularly comfortable with.

Whatever kind of company you are, it's really about understanding the numbers. If you work at SS&C, you have to know your numbers because investors have unlimited choices.

They invest based on those numbers, growth rates, profitability, cash flow, EBITDA, EPS, there are all kinds of different criteria, but ultimately it comes down to numbers. What's the TAM, total addressable market?

And then what's your market share? Can you double it? Who's your competitor? What's their market share? So it always comes down to numbers. When the more numbers, the more confident you can be and how you're operating your business. 

Economics in a Public Company

If you look at the size of the private equity firms now, they're an enormous source of capital.

The only challenge about being private is that it's hard to use equity as a binder of talent to the company. When you're public it's right there in front of you. You have 10,000 stock options. 

The market's telling you what you're worth. You don't have to believe it. You can decide if your are undervalued, and you can buy back your stocks. 

Mechanical Differences between Private and Public Deals

It's not as independent when you're private.

When we have disagreements, we vote. And we just have to recognize the results. If we can not live like that, well, we shouldn't have sold the company to that private equity firm to start with. 

If someone makes an offer for us and the board accepts it, you're in play. Now, when that offer came in, I thought I would stay as CEO, but somebody else came in and tops that offer.

Generally, whoever comes in with the highest price tends to win, and you have to be aware that it doesn't frivolously put your company in play if you don't really want to lose your role potentially. 

There should only be one CEO but if that is not the case, you need to have clear lines of responsibility and authority and accountability, and you can't bore them.

Looking After for Acquisitions

We have very big demanding customers who want work to be very detailed. So, there's a lot of knowledge that it takes, and thinking quickly is pretty important. 

It's understanding that it's a lot of minutiae. People have to be willing to understand that we have to deliver every day when we have $2 trillion in funded administration over 1700 heads funds or 17,000 management companies. 

Numbers Versus Culture

The approach is just being transparent, upfront, friendly, and nice to people but let's hit those numbers.

When you're succeeding, it's amazing the comradery that gets created. Everybody knows they have an order, and we roll in the same direction. I think people trying to create a culture are a mistake. You have to be who you are. 

I don't believe our customers are perfect human beings, nor are we. We just have to have a relationship that is based on trust and belief, and execution. 

The strategy takes about half a day, but execution stuff takes a lifetime.

People go into business to make money. People get to work because they certainly can make money, and depending on how ambitious and talented people are, at SS&C you can make a lot of them. 

How Do You Think About Value Creation?

What was cash flow when you bought it? What's cashflow now? What was revenue, what's revenue now? What's the margin? What's customer satisfaction? What's new products about? 

Sometimes I can buy companies and it's difficult for the people to understand we're in a hurry because they may not have been in a hurry. But there is a race. Somebody can run faster. 

Same thing with ideas and service to customers and all those things are the things that make a business successful really are pretty identifiable and you can pretty much evaluate.

Key Lessons 

Do your due diligence. And if you get a whiff that they're not shooting straight with you, don't walk, run. 

Know the people and the business. You have to know if we have the best team. I like to hire point guards, but they gotta be able to dribble. If you hire a point guard and every time they try to dribble, they kick the ball out of bounds. That's a problem. 

And so you need to know the people, you need to know your capability, particularly your capability versus a competitor.

How To Know Your People

Go on sales calls. It's not magic. You got to go in there and see if the people know what they're talking about.

So, you have good people who get excellent opportunities. But, sometimes, they leave. That's the nature of this. There's no iron-clad contract that they can't leave. You need to know, your talent base is depleted and then you have to go rebuild and you've gotta be aware. 

You need to understand what artificial intelligence is and natural language processing or machine learning or any of those types of things. 

Overcoming Big Challenges

We thought we did enough due diligence, but we did it for stuff we found out late in the game. We decided it was not that bad. We could handle it, but we couldn't really, and that's a lesson. 

And as I said, I don't care what time it is in the deal. You learn something that you didn't like; you better stop. You better make sure what else is underneath it.

Preserving Value During an Acquisition

Mostly, it's making sure that you have evaluated the talent inside that company and expecting that you're going to have attrition. Some people just really liked being CEO, and they're not going to be able to be CEO. They're going to leave. 

The question is, do you have enough talent in that organization to overcome that attrition, and have you evaluated who that second-line talent is and what you're going to do.

You have to be aware that it will happen, and you need to have enough talent or reserves in your organization to send them the SEAL team.

Lastly, don't be a fatalist about it. You're the leader, so you are capable of knowing what to do.

SS&C Approach to Integration

What we try to do is, the name or the product name has equity. So if people know it, then we tend to allow that equity to play out. And as it lessens, then we start to integrate it. And there's no separate corporate name even though we don't use the name anymore.

A lot of our products have a lot of brands that are well-known names. And so we don't want to drop those names, and then people go. 

We try to be wise about it. And I wouldn't tell you whether or not we were smart or unwise, except we have an $80 billion market cap, and that's not too bad. 

How About Managing Cost Savings?

We're very quick on the overhead portions of companies we acquire. So we integrate finance and HR very quickly. Marketing is pretty centralized. 

The people that are in charge need to have numbers if you want to measure them. You have to agree with what the numbers are going to be and if they're hitting them or exceeding them. We don't want to gamble. 

We have a number of businesses or three, four, or $500 million a year but you gotta be cognizant of it. SS&C is almost 5 billion in revenue. 1% is $50 million. We have customers that pay us 50 to $150 million. You have to take care of them by becoming aware. 

Hardest Part of Your Job

The worst part is always when you have to let someone go or something with a personnel issue; that's always very difficult. 

And also, we're a big place. So everything that can happen to a human happens in our organization. And some of it's sad, a child could die or have accidents or do other things, and that's very difficult and you try to do the best you can and help in every way you can. 

You're still the leader and you have to lead. You don't get to hide. You can weep but do it fast because the team needs to know you're still there. 

If you want to keep the best people, they gotta be motivated and they also have to have the opportunity. And then they also have to have accountability and you have to celebrate the victories with them. 

You can't dwell on the defeat. You have to pay attention to victories and celebrate them. 

Time Management as Public CEO

You will have a lot of time unless you have trouble making decisions. You have to get your facts together; you have to make a decision and move on. 

There's a cadence of the company and a rhythm tempo. You don't want it to go too fast. And you certainly don't want it to go too slow. 

You have to trust your people. We have offices all over the world. But do I know what everyone's doing every minute of the day? I do not. 

But I have competent people. We have a good system of internal controls. I have a lot of confidence in the accuracy of our financial statements and other financial data.

Sometimes, it blows up in my face. I don't like that, but what's the alternative? We're running around like a chicken with your headcount. No, we're not doing that. And I expect people to do their job. 

‍