On this week’s episode of M&A Masters, we are joined by Ryan Milligan, Partner of ParkerGale. Guided by their principle – “products that matter, cultures that last” – ParkerGale is a small private equity firm that focuses on profitable, lower middle market technology companies and the convergence of private equity and software.
“Let’s just be transparent, and let’s just give everyone the answers to the test,” Ryan says of the empathy he has learned in the market – take the competitive advantage off the table and make it about the people.
We chat with Ryan about his journey to building a successful company and culture in ParkerGale, as well as:
- The excitement of working in the lower middle market
- The importance and art of measuring culture
- How a “Chief Worry Officer” can fit into risk decisions and dynamics
- Buyer diligence and reps and warranties
- The future of software post-pandemic
- And more
MENTIONED IN THIS EPISODE:
Patrick Stroth: Hello there. I’m Patrick Stroth, President of Rubicon M&A Insurance Service. Welcome to M&A Masters, where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here. That’s a clean exit for owners, founders and their investors. Today I’m joined by Ryan Milligan, partner of ParkerGale. ParkerGale, is a Chicago based private equity firm that focuses on lower middle market technology companies, and is guided by their principal: products that matter, cultures that last. And on a personal level, I’m especially pleased to have Ryan here today because it was ParkerGale’s podcast, which is entitled The Private Equity Funcast that opened the entire private equity world to me four and a half, five years ago. And I’m eternally grateful for that. So Ryan, welcome to the show.
Ryan Milligan: Thank you so much, saying thank you so much for having me. It’s always fun to hear. Hear that. And we get in the history of that a little bit. But no, this is a treat. So thank you for having us.
Patrick: Now, we’ll get we’ll get into the funcast and ParkerGale, and just a lot of groundbreaking things that you started doing years ago ahead ahead of other private equity firms on a lot of levels. So I’m really looking forward to it. But before we do that, let’s talk about you. What brought you to this point your career?
Ryan: Yeah, good question. Um, yeah, a lot, a lot of a lot of things along the way. But no, I mean, I’ve always I had always, you know, for us for kind of software, or things are software and private equity, you know, in the in the convergence of those things. And, and then, you know with ParkerGale became more and more is becoming more and more the convergence of how do you run, having a perspective on how you run a small software company as well. So, you know, kind of the convergence of those things, I always had an interest in software and tech, I mean, back to, I went to Boston College, and I worked at the help desk. So my job and my job and in college, just to pay for, you know, for meals, I guess I’d call it was cleaning out antiviral and anti spyware and all that stuff from you know, unknowing, fellow students’ computers and things like that.
But then, I was a finance degree and went into went into investment banking blindly, you know, not really understanding what that was, and that was drinking from the firehose, but, you know, kind of horrible at the same time, so that had that cocktail for a couple couple years. But then I joined it, you know, a group that became the software team at, at a larger private equity firm, and we were having fun together, over really, for me eight years, was kind of my tenure at that spot. And that’s really when we decided that, you know, we like this thing, we’re doing these small software businesses and how you run them and, and having a perspective on that, and how you how you build a company, how you build a culture, you find people you want to work with, and live with for five, six years, and hopefully do good things.
And that manifested itself in forming ParkerGale, and then those are the things that you know, he referenced the funcast, but that’s those are the types of things that we spend every day talking about in our walls outside our walls publicly, privately. And now we feel like we’ve got something going on at ParkerGale, that we’re just trying to do things a little differently every day and be really good at the types of things that we’re looking for. So that’s that’s what led me to this in a nutshell.
Patrick: Well, what really is striking is your first introduction with software is working on a help desk. So a lot of the goal of companies and folks both in and outside of technology, if you’re trying to help customers, you’re trying to solve problems. And you were at the granule granular level, then of solving people’s problems. And you’re, you know, a technologist dealing with non tech people. So that must have been real impressionable for you.
Ryan: Yeah, I get you know, we talk a lot about empathy. So, yeah, it definitely helped me build empathy for for people’s problems. And then also the people trying to solve those problems and things like that. So for sure.
Patrick: Well, let’s transition over at ParkerGale, and I always ask my guests, you know, to get a feel about culture of a firm and so for this kind of come up, find out why they came up with the name they came up with because unlike law firms and insurance firms that name their firm after their founder, there was no Parker and there has been no Gale at ParkerGale.
Ryan: Yep, that’s correct. No, it’s funny, and I appreciate you asking us because it’s actually been it’s probably been three years since since we kind of told this. I’ve told this story. So takes us back. So a nice little trip down memory memory lane. But yeah, we did have a few rules. You kind of already went there. You know, we said no bodies of water, no ski, ski hills, no cross streets, you know, things like that. And we actually, you know, we had a lot of internal discussions. There’s, so story a little bit, but one of my partners so Jim Milberry, who you know, well, was the godfather of the PE funcast and and then Devin, he pulled Devin in and they kind of got that whole thing started. But Jim is a boxer.
So you know, we were, Jim is I was a professional boxer, I boxed on the amateur level. But you know, we were thrown around things like Dempsey Capital for Jack Dempsey, and lots of different names. But what actually exists in our bones is, you know, we do these personality tests, and actually a lot of us like in aesthetics, of all things, if you can believe that. And Devin, actually, my partner kind of came up with this idea, but it was based in Chicago, and Frank Lloyd Wright, the architect has Chicago roots. And he had a career that was going well, but he kind of saw what he was doing. He wanted to do more of it and do it independently. So he kind of branched off and started his own thing.
And we were looking at ways to kind of play off of that. And in Chicago, in the Chicagoland area, there’s a couple houses still even two are ones called the Parker House. And then there’s one called the Gale House. And those names kind of jelled off each other well enough, and ParkerGale.com was available. That’s always important to check before you solidify your name. But we kind of made that our thing. And it was it was a little bit of the attitude, a little bit of the aesthetics, a little bit of the Chicago roots. And all that kind of came together that said, this was something we came up with together, not on the backs of just one name, or one idea and things like that. And it’s kind of stuck with us ever since. So that’s that’s where we came in. That’s how ParkerGale was born.
Patrick: You know, I think is a great iconic reference because is homage, to your area of Chicago. And also, I mean, I would tell you coming from California here that is the most trendy style of architecture now by state of California in the last maybe seven, eight years. So you went from, you know, the mission style to the Mediterranean style, you know, and and now it’s a Frank Lloyd Wright, which which is there and I would say that the little history note nugget for you on Frank Lloyd Wright is he designed the city hall for the city of San Rafael people outside of California called San Rafael but it’s San Rafael. So it was highlighted in the movie Gatica. So I know you guys like doing a lot of movie references in your thing. So that’s mine, to Jim Milberry is getting that good.
Ryan: No it’s great. It actually and it paid off. So I’ll expand on the story a little bit. It’s already it’s already paid off. You know, you talk about karma and stuff like that. So I grew up in Iowa. I grew up in Des Moines, Iowa. I was born in Chicago grew up in Iowa, though, and we were looking at we own a company called DealerBuilt now. DealerBuilt is based based in Mason City, Iowa. Like 10s of 1000s of people not very small town. Okay. My dad had a lake house in Clear Lake which is attached to Mason City. So I’ve been to Mason City. Nobody’s, been amazing city. Well, so I go to visit DealerBuilt, Jim and I drive to DeakerBuilt offices. Turns out the only hotel in town is the last Frank Lloyd Wright standing hotel in the country. So we’re meeting with the founder and the CEO. We breakfast in the restaurant at the last standing Frank Frank Lloyd Wright Hotel in the country. So that was like, we’re just everybody sitting there. Both sides like huh, okay, like this, this is probably supposed to happen. So anyway, it’s fun when things like that come together.
Patrick: It is really nice how they circle around. Give me a little bit more background with regard to ParkerGale. You’ve got the passion and in capability and skills, and the appetite for technology, you can get a hardware software. Why the lower middle market avenue because you’ve been around for a few years, you haven’t ramped up, tell me about your commitment to the lower middle market and your targets there.
Ryan: Yeah, it’s just yeah, we like again, it comes back to the convergence of software, which we like and we think that’s a trend that is just a good one, it’s a good space to be involved in. Obviously, the last 12 months has pushed the world to a place where we’re relying more and more on software every day, to do the work that we’re all trying to do. So that existed, you know, we do like getting involved in these, you know, it’s for us, it’s either a founder own situation where there’s a transition, or corporate carve outs, or maybe a consolidation and bringing things together. But for all of those there’s a certain level of business building and scaling and kind of work that needs to be done where there’s products you know, it’s products that matter cultures that last we’re kind of adding process sticks to that as well because we’ve been expanding our our ops team.
But we just like that work that we you know, we like we like the space we like companies that are doing well but need resource. And that’s what we bring to the table resource in a perspective. For companies that are succeeding, but to continue to succeed, there’s a certain either level of resource and some perspective that they need to continue on. And we’re looking for the convergence of those things. So we think we’ve built a firm that knows how to find those, how to engage in those conversations the right way, in a way that is received while on the other end. And people feel like, we care. And this is all we do. And this is what we’re looking for, that we have credibility, to get that deal done, we have credibility to make that transition the right way. And that gets into how you do it in the culture that you’re building and how you take care of people and things like that.
But then also, like harder skills, perspective about products and how products are built and what customers are looking for, and how you learn from your customers and build that back into the product and all those feedback loops. So we do come into this with an operational bend that we think is fun to engage in and and help and and bring all those things to the table. So and then for us, yeah, we it’s hard to do all that stuff. If you get too big, because there’s, you know, private equity firms, private equity, by its nature is kind of their the incentive is to get bigger and bigger and bigger, because there’s fees and things like that. So there’s kind of a gravitational pull out of this space. And we, because I think we’d a lot of conversations about it in the formation of our firm, are we ever religion to stay where we’re at, within reason, and keep doing just more of this thing better? That makes sense. So yeah, that’s kind of where we’re at why we operate where we do?
Patrick: Well I appreciate how you fight that temptation to scale up as things get bigger. And I also appreciate the commitment you have to the lower middle market, because quite frankly, if you’re an owner and founder, you’re not doing this, I’m gonna we’ll talk about this over and over again. But they’re not experienced in doing M&A they’re experiencing experience in doing what they do. And when they come to some inflection point, they don’t know where to turn. And unfortunately, what will happen is, if they’re uninformed, they don’t know where to look, then they’re going to default to either a strategic that may not have their best interests at heart, or they’re going to look at an institution, and it’s just brand name, I heard about them, let’s go there.
And they will, you know, be underserved. They’ll get overlooked. And I think they’ll get overcharged. And the more that we can highlight organizations like yours, that it not only, you know, know what you’re doing, you can deliver on execution. But you’ve got the passion, you really want to do this. And you’ve had the experience, because I’ve heard this on your podcast, where you’ll have recommendations, you’re dealing with owner owners and founders that built something from nothing, but they did it their way. And that’s that whole learning curve and new experience they have as they bring in outsiders to come and get them to that next level. And you’re so experienced in that.
Ryan: Yeah, I think and and that is yes, that’s and it’s finding that balance of understanding what got them there. And then Brent, how you how you bring your perspective to the table in that way. But even before that point, I mean, that is a good that you kind of just described why the funcast exists. And if you look at our website, we try to be we try to do a lot of writing. And when it really comes down to is transparency. So yeah, we do think our strategy, our approach to all that was, you know, I think private equity was getting to a point where it was trading, you said it, they haven’t done this before, they don’t understand what it is they don’t understand what they’re getting into, necessarily, because they haven’t been through it before.
And some private equity folks, I do think treat that information gap as a competitive advantage. Well, we kind of said, let’s just be transparent. And let’s give everybody the answers to the test. Like just put it out there. The lemons problem, the fact that you understand more than the person you’re selling to and all that like that, just put it out there, explain to them what it means explain to them what it how it’s going to be have, you know, forecast what a tough conversation looks like. Forecast what you’re trying to accomplish, and why. You know, the more people have heard exactly what the deal is, before a decision is made, the faster you can go because there’s no surprises and people know what they’re getting into.
So it’s kind of do that lead with our lead with our implied you know, competitive advantage. Just take that off the table. Talk about what we’re going to do and and then you got to be able to back it up and then do that do those things over five or six years and then you know, we’re now you know, we’ve been doing this for a while so then we can refer back to the people that heard it at the beginning. They’ve now been through a full cycle and a success story and say they call them. So that’s that’s kind of been our approach.
Patrick: All now since you’ve opened ParkerGale. I learned about private equity and mergers and acquisitions. Well, I mean, the number of PE firms has just exploded. We’re we’re an account of north of 4000, private equity firms in the US. Majority of them are targeting middle and lower middle market. And so they’re as, as more competitors come into this space, what I like about a space filling up as it becomes sustainable, because you have to have innovation, and services, quality wise go up, costs go down, things get more efficient, a lot of good benefits come out, you know, for competitive advantage. And ParkerGale is unique in this and that you have made some innovations in focusing years ahead of the competition. I’d like you to talk about this, because in this modern era, now, people are talking about the importance of culture.
And they’ve been paying lip service to culture, you know, the last 10 years, but there’s a competitive advantage to it. And so now, people are talking about it more, but it’s still more art than science. And your organization, you’ve spoken about this. I invite you to go and take a look at private equity funcast episodes with you’re actively working to measure culture, and not only identify it, or define it, but measure it. And so why don’t you talk about that, because that’s something that you bring to the table that, you know, everybody’s all into closing a deal. But it’s it’s the it’s the post acquisition, you know, that’s where real magic needs to happen. And so talk about the efforts you have done in the strides you you’ve taken.
Ryan: Sure, yeah, I think it for us, yeah, it comes down to yeah, it’s taking care of your people, which are really the assets of the company. And, you know, and we’ve we’ve invested in that we, you know, I talked about the the taglines that we come up with, you know, we have, you know, two full time resources basically just focused on the talent practices of our companies and bringing more of those talent practices into our companies. But, yeah, culture is kind of a stew that’s created from a whole list of things that we’re doing that wouldn’t you know, what it comes down to is, you know, within companies communication, you know, consistency, feedback, alignment, you know, all these different things.
But yeah, culture specifically, you know, the combination of communication and the consistency and then listening to your organization, I mean, that just comes down to a process that you put in place that goes out into the company on a regular basis, we use a tool called culture IQ, that full disclosure is a portfolio company of ours. So that’s fortuitous, you know, creating this listening organization, that you create a baseline, it basically comes through a survey process, that you go out into the company, and you invite them to respond to a bunch of different attributes and react perspectives and things like that about the company. And that ends up in scores that are baseline metrics for the company and how you’re doing on different parameters.
So that might be alignment, that might be communication, that might be innovation, you know, things like that. And you can look at it by team and by a group or manager and things like that direct reports. So if you open up that conversation, and you measure it, you’re listening, and then you look at it, and then usually the best practice for companies is to then look at where you’re strong look at where you want to be stronger. And then they basically commit, create committees to address those things. And a lot of times, we would recommend that the executive team, you know, not even make it it’s not like the CEO is the chair of each committee, you kind of push some of the control of those decisions further down in the organization. You got committees to give some of your star people some authority to work on how do we improve this thing? And what are the actionable insights that would come out of this to increase those scores?
And then you do follow up, you know, pulse, checks, from time to time, and you measure it. And our CEOs, actually, it’s kind of fun. Sometimes we’ll put, you know, line graphs of how they’re doing on different attributes, and you show them how they’re doing versus the other leaders of the companies and things like that. And it just turns out that turns out the CEOs tend to be a little competitive. And that’ll get their attention. But then you can ask yourself, Well, why is this one doing this? Why is this one doing this? And you can start to you know, apply pain medicine or things like that to, to each company situation. But yeah, that’s that’s, that is kind of like an overall management, or just measuring tool of the ether that exists in a company, I think.
Of all the things that we bring to the table, whether it’s leader, you know, org design or leadership development or manager training, or how you hire, you know, how you onboard all those things are in support of culture as much as the analytical side of measuring culture, I think. So that’s been something that and we’ve been doing this long enough where eventually, you know, I think, through time, then we can actually start to look at some harder data because we haven’t really gone through the exercise yet, but we will have, you look at a p&l and try to Is there any correlation between these improvements and how that performs or this margin or a top line or and things like that. So overall, that’s just kind of been our approach. And the nice thing about that is the intangible that I think is a tangible benefit.
But the intangible is that if you are focused on that, you’re actually making those companies a better place to work for the people that are in. So if that’s not, you know, if, as a backdrop, the rest of your career, if all these things that you’re doing to try to generate better returns for your investors, I also happen to make the 40, 60 hours a week that everybody takes away from their family to go spend it a company more enjoyable and better and more fulfilling. Then, you know, I don’t know what’s better than that. If we can kind of converge those two things. So that is a fun and nice thing that we kind of have in the back of our mind. And try to live to is we’re as we’re doing this work in private equity.
Patrick: And I think with most of the target companies, you’re dealing with owners and founders, how, what percentage maybe, are just looking for an exit? And what percentage are rolling over and saying, hey, I want to I want to see this story play out. So I’m staying I’d like to stay what’s what’s the ratio?
Ryan: Yes, it’s it’s across the board, it’s probably seven, I’m going from gut 70. Like 75% are maintaining some participation, and to go forward. Oftentimes, an ongoing advisory board type role. In some instances, there’s either a family situation or just something going on where they want a clean break, and there’s a transition usually do an heir apparent that type of thing. But yeah, when we can, we try to at least maintain relationship and contact in contact with the founder. And that’s probably the split.
Patrick: I think it’s just another value add that you’re you’re delivering, as it look, owner and founder you’re rolling over, we’re not changing your company, you know, ground wise, we’re gonna sit there and we’re going to watch as the culture, we’re going to maintain it, protect the good stuff, and just see how it evolves. And that’s gotta give them peace of mind. Gives you an advantage over other organizations that may be sitting there saying, oh, we’re the best we’re gonna get you big, you’re gonna make this kind of returning, you know, come on with us because we’re bigger, faster, wider, all that other stuff.
Ryan: Yeah, we can’t we kind of, we relieve the burden of we caught. Somebody came up with this phrase, the chief worry officer. So there’s a point where you build a business and you’ve kind of done it, you lead the way you lead by example, you’re doing a couple different jobs, you’re now making 10, 15 million in revenue, and it’s profitable. And it’s a good thing, and you feel like you made it you did. But there’s a point where then you start every opportunity you chase feels like a risk to you, you know, every new hire giving up some control, and you start feeling like every of every, then every risk in your mind that you take is yours.
Like I’m taking this risk. So that’s the chief worry officer. And we come in and we say, well, let’s, what if you just took that, what if we took that burden on we’ll call it opportunity not risk. And, you know, companies at a point need a hand at their backs and keep going, keep going got to progress. Got to make that hire, make the wrong one, we’ll do it again. You know, that’s, yeah, try to push that train forward. Because if not, there’s somebody else hungry. That was where they were 10 years ago, they’re gonna try to get you know, get back to where you are. And if you’re not pushing that train forward, then then something’s gonna happen.
So, so yeah, that’s, that is a dynamic that we kind of sell into and say, hey, you want you wanna just go off into the sunset, we will, you will convince you that you’ve left it in good hands. If you want to maintain involvement. You can put the bag of worries down and ride along and do the stuff you enjoy doing, and have some fun with and not feel like every incremental investment we make is from your pocketbook, you know, that type of thing. So yeah, that’s that is a dynamic that we we often see. And then I think we built our firm well to work with.
Patrick: I think, I think that that post integration focus that you have here is a real competitive advantage for. Profile wise, give me give me the profile of what your ideal target company is. What are you looking for?
Ryan: Yeah, I mean, there’s, it’s, it’s kind of, you know, I mean, so software, right, so that’s tons of those that are out there. We’re control investors. So that just means we buy majority only. So that can be 51% in a buy out. Buying out a founder that’s a partial buy can be 80%, it could be 100%. So that’s kind of a buyout. The smaller ones are more but you know, it can be kind of a recap. We can do carve outs from you know, sometimes businesses get embedded in in lost in larger companies. We’ve done carve outs as well. But that’s kind of what we’re looking for. Size wise, you know, 10 to 30 million in revenue, you know, you reference the amount of private equity firms out there.
So we’ve started to think through more, hey, should we work with an executive and put a couple things together out of the gate, you know, starting to play play more in that regard and try to create a formidable companies, that might be a couple smaller ones, before they come together. And we’ve kind of built our ops team to be able to support that type of initiative. But anyway, those are the overall parameters for our business they are, they’re probably number in a lot of cash, or at least profitable, they can be loosely profitable. But we don’t want to have a big burn position. They’re nice products that are standing on their own. And there’s a situation where there’s some sort of transition needed transition from a fall founder transition to a CEO, passing it down to an heir apparent.
Transition, where somebody wants to step out and somebody else needs to come in. Transition to a carve out that needs a company stood up and needs a lot of resources brought to the table to then have that kind of operating on its own without constraints and doing its own thing. So at the end of the day, that’s what we’re looking for. And then we kind of do our thing with it. And, you know, hopefully have a fun next five or six years.
Patrick: So and yeah, you’re based in Chicago, but you’re looking at things, opportunities all over the country.
Ryan: Yeah, really North American. Our headquarters are all currently based in the US. But we do have a lot of satellite offices in either Canada or Europe today. And some effort, you know, there’ll be satellite things that could be overseas and things like that. But yes, really domestically focused for us.
Patrick: Well, I want to circle around to something you’ve mentioned, where and what’s crazy, we’re talking about the transparency, which is really important to me, because for the longest time, private equity was a members only type of sector and the financial, institutional sections, because if you didn’t know about it, it was really hard to learn if you weren’t in the club, I mean, forget about learning, you couldn’t even reach out to people. And you could, you could demonstrate that by looking at websites and private equity firms where the old days, you couldn’t get any information about team members or anything. Now at least you’ve got not only pictures, but the contact information and stuff like that, which, you know, is a nice development out there.
But you also talk about transparency when you’re in negotiations with, you know, these inexperienced M&A counterparts. Yeah, you know, I, I believe that I mean, they’re not, they’re not naive, and, and just not experienced in doing deals, particularly when it’s their own, you know, their own firm, and you can’t remove the human element from M&A is not in a vacuum, there are risks out there. And, you know, you’ve got to lay those out. And there are a lot of times, if you can understand you’re dealing with an inexperienced owner and founder who’s just gone through a very rigorous due diligence process, we will call a thorough, but you know, they go through that process, and then they’re there through that. And then their attorney sits down with them, they have to talk about the indemnification provision, and not everybody explains to them upfront what that is and how it works.
But essentially, it’s in to be very simplistic is where the buyer tells the seller, I’ll tell you what, I know, we’ve done this due diligence, but in case we missed anything, and it costs us money, you got to pay that tip. And the response from you know, the very understandable responses. Well, wait a minute, I’m selling the company, you did the diligence, you can’t hold me responsible for something I didn’t know about, particularly years after this happens. And then the experienced buyer is going to have an immediate response is just going to say, yeah, well, I’m betting 10s of millions of dollars, that your memory is perfect. And you’ve told me everything, just not going to do that. And immediately that collaborative environment is at risk of becoming, you know, adversarial and worst case scenario. And the tragedy about that, is that all that can be avoided.
And the way you can avoid it is if there’s some risk out there, why don’t we put an insurance policy, the insurance industry came up with a product called reps and warranties insurance, which essentially looks at the diligence the buyer performed over the sellers reps. And for a couple bucks, the insurance company says I’ll tell you what, buyer, if you have if there’s a breach and you lose any money because of the breach, come to us we’ll give you a check. So the buyer has certainty that they can collect seller, two major benefits. Okay, first of all, the policy comes in and is going to replace it some if not all of an escrow. Those are the money that was going to be held back at purchase time, you know, and held for 12 to 18 months. Well now that’s released because you got an insurance policy there. So seller gets more cash at closing. Even better though, they get the peace of mind knowing that they get to keep all their cash because there’s no risk or variable Little risk of a clawback because if something bad happens, buyer goes to the insurance company, not to the seller, and that’s what we call a clean exit.
And I would tell you that if it’s done, right, this costs zero to a buyer, because the buyer simply offers this up, you know, this process rather than an escrow or reduced escrow. And the seller 99 times out of 100, in our experience, 99 times out of 100, they’ll go with it, and they’ll embrace it. And that speeds, you know, the process and negotiations, it lowers the temperature in the room, and you will avoid, you know, they may forgive the process, but they’ll never forget that feeling. And you can avoid all that, you know, but I you don’t take my my word for this. Ryan, good, bad or indifferent? What’s been your experience with rep and warranty on your deals?
Ryan: Yeah, it’s been, you know, it’s a tool, it’s kind of part of the, you know, it’s it’s just part of the process at this point for us, honestly. And I would say overall, in a good way, for sure. It’s, I mean, you described it, well, I’ll kind of just take it from the top and give my perspective on it. Because yeah, I think, so much of the time, and attention and angst, in a negotiation does come through these reps and warranties. And my experience has always, they seem like a big deal. In the negotiation, you know, once you’re in the legal docs, and have spent 60, 70% of your time on them, and money, and worry. And just thinking through hypotheticals, and honestly, in our experience, outside of like, you know, certain taxes or things like that, that come up, they’re not ever really touched again, or used to, like, but at the time, it seemed like a really big deal. very stressful, and just gets a lot of time and attention and all that.
So yeah, I do think, you know, I was probably a little skeptical at the start when it came up, because I was a little worried about, you know, seller then not feeling like they have skin in the game or, you know, for what they’re saying or doing and that type of thing. But you know, it’s been around for five, six years now, pretty ubiquitous. And I’ve never had an issue. It’s not, I mean, it’s not something I think a lot about, you know, once the deal’s done, it’s part of our process and things like that, and it does exactly what I think you do. You’re talking about you want to if you want to have a tough conversation, let’s have it be about what’s your role is going to be what’s your compensation going to be? What’s this going to be? What’s that going to be?
How are we going to work together going forward, you know, tell us a lot of political capital on a knowledge rep for some mundane, you know, employment law, or exhaustive diligence around that this thing that I didn’t even know what it was until the lawyer explained it to me, and why this three page paragraph, you know, needs to be adhere to having that the risk of that spread across kind of every deal, which gets the cost of these things down pretty meaningfully and take all of that stickiness out of what is the deal, which is a lot of work and angsty and a big, emotional moment for a seller and a big commitment on a buyers part.
Yeah, yeah, removing all that, from the conversation, I think has been, you know, a nice enabler for M&A transactions in particular, in my sector of the market, for people that are learning about these things for the first time.
So anything you can, you know, it’s kind of like a big release valve on the pressure on a seller for sure. For all that type of thing. So now we have good experience, we use them pretty much pretty much in every deal. And and yeah, why would why should somebody have to let millions of dollars sit still for 12 or 18 months when, you know, is when when you look at I think the history of reps being paid out on the the actual risk is quite low. So that’s, that’s just kind of my general perspective on it’s been positive.
Patrick: Yeah, I think the great development in why you’re really trying to speak about this from the rooftops is that rep and warranty was not available for deals under $100 million 18 to 20 months ago. And there are so many of these lower middle market deals, I mean, as low as $13 million, $12 million that are now eligible for rep and warranty and that’s a real big deal if you can save somebody a million dollars on a $15, $16 million deal and and the only way the word gets out about that is through the these kinds of conversations. And so I appreciate what you have there. And that’s the next you know, foray for us is not only just getting on the checklist for acquisitions, but for add ons and now it makes sense when not only you’re doing the big you know, platform but then you get the add ons and so that it you know, people don’t know about unless we put it out there.
So you know, I appreciate your perspective on this. Now Ryan, as we’re, you know, talking about now we’re getting I mean, we’re blinking it, we’re going to be in the mid part of 2021 where Clearly, I think at the beginning of the end of the pandemic, I probably won’t be eligible for a shot for another four months, the way things are going California, but, you know, give me a perspective on what trends do you see out there for the rest of the year? And this is technology, ParkerGale, what do you see?
Ryan: Yeah, I think so I’ll start with just kind of the software side of things. Yeah, I think software has been a good place to be. You know, it’s more important than ever, for everybody to do their jobs, you know, at the end of the day, so. So that’s a good thing. And that’s gonna sustain. Now with that, there’s gonna be more competition, more capital, more firms and all that. So it’s a good time to be a seller of a software business, you know, as well. So that’s something that we need to get navigated. But underneath all that, just talking about what, what I think, is interesting, you know, people want data at their fingertips.
And that’s kind of right data at the right time. So I think there’s been more, we invest a lot in b2b enterprise software, those are a lot of there’s a lot of data and systems of record, and you have to go find it, things like that. But I do think just thinking about right data, right place, right time, and the efficiency and getting to that whatever it is, you need, you know, even in your even you can tell Microsoft even as Apple, you know, people use email and phone every day, when you see autofills and it guessing about things and stuff like that, like that, that all gets and that’s not easy stuff that’s going into long histories of databases and things like that, kind of bring it into the surface. So that’s that really is kind of an analytic trend.
Patrick: Real helpful for passwords, though.
Ryan: No passwords, that’s a whole other topic. Well, I’m gonna stop talking about passwords. Everybody needs to, yes, security is a big thing. Um, but um, that gets also into automation. So, machine learning, and AI is an overused term. But it is becoming much more practically important. I do think and necessary. So loosely speaking, automation, automating tasks, having things just happen in the background, things that happen again, and again, taking the human element out of it, and having a machine do something for you learn and then do it again. Building that into your technology, I think can really help a user and that’ll be all finished up with kind of my lap. But that that theme of a user is a big theme, I think for software as well. Dashboarding. So that’s another way of just saying like bringing to the surface.
So having one place to go to just see the things that you care about. That’s something that we’re trying to embed a lot into, into a lot of our software solutions, and things like that. So I think dashboarding is is a big topic around how you present data in an eloquent way. But really what all these things are, there’s a theme here, what it kind of comes down to, I think, is UI and UX. So you know, user interface, user experience, how it looks and feels, and the front end of that is just more and more important. And then so late, that’s where the pandemic really comes in. So, quick aside, my dad’s in his 60s, and he was one of those holdouts that he probably didn’t have his email on his phone until about two years ago, okay, like he fought it tooth and nail.
He had a flip phone, all that stuff. Well, he uses zoom now. Okay. So he’s familiar, and usability and that interface. And so it basically did a couple things. One that is becoming more and more important every year as people that are used to phones and how how easy that is to use, get graduated and, you know, leadership positions. At the same time, we just forced people that were less comfortable with technology to get comfortable. So I think there’s like this big convergence of people who care, we’re going to use more technology and care more about usability. So I’m less focused on like new uses of software, but more of the execution of the software that I bring into market and how users experience that software, if that makes sense.
Patrick: So you’re going there going from can we do it to? How do we make the experience better?
Ryan: Yeah, how do you do it? And we do like that, because that’s an that gets into an exit. So we don’t need to like recreate the world, or do sciency stuff, we can bring some science elements into it, but it’s really about understanding how that is how they want. It’s not creating new technology. It’s it’s changing the way people interact with it, which is less revolutionary, but it is, I think it is making people’s experience and their lives better and how they interact with that. So those bringing that into older spaces, or more tired spaces are ones that weren’t given attention. Because it’s kind of boring and stuff like that, I think is an interesting trend.
For us to go re examine and think about how the companies we own even that’s a big topic is how do we listen to our customers, learn from our customers, not guess what they want, or just let them figure it out? How do we create that feedback loop, filter that into our product owners and our developers and then give that back to them in a better way. I think that’ll be important. So those overall, those are the big trends. We like to space overall. You know, I wish there were less people like me looking at it. But we like where we are. And that’s how we’re kind of playing.
Patrick: Well, there’s no shortage of opportunities out there, because there’s a lot out there. And there’s, you know, everything is easier. I mean, you see is the website and they were tracking that when you did, you know, ecommerce, and purchasing online and so forth. So yeah, that’s gonna keep evolving. So you know, very, very well done. Ryan Milligan of ParkerGale, our audience members find you.
Ryan: Yeah, we try to be easy to find. Yeah, I mean, anybody can send me an email to ryan@ParkerGale.com. Our website is ParkerGale.com. We do have blogs, and we publish on our LinkedIn, you know, our perspectives and thoughts and things like that. So we try to be open to receive people however they want to reach out. Don’t be a stranger. We tried it, we say, you know, karma, like we try to just be I’ll take any conversation, we try to be as helpful as we can to as many people as we can. Because we all view ourselves as having at least 20-30 year careers left and something I do today, might pay off in 15 years. So if we can be helpful down the road, even if it’s not, you, we’ll get introduced to somebody that helps us get introduced to somebody and that’ll be cool for us too. So happy to help, happy to listen, happy to engage and reach out anytime.
Patrick: If anybody wanted to go in an anonymous low profile insight to really get a feel for this organization, its members, its culture and everything. Highly recommend Private Equity Funcast and is everywhere that the podcasts are available, but highly recommended great stuff. There’s no shortage.
Ryan: Yeah, it’s on Apple, and Google Play and you know, all that stuff. And yeah, there’s a fun one going on right now. It’s that date this but the there’s a March Madness, business books edition, where our ops team are all debating the best business books and people can engage with that. So yeah, check us out. We try not to take ourselves too seriously and have some fun from time to time as well.
Patrick: Fantastic. Well, Ryan, thanks again for joining us and best of luck to you guys the rest of the year.
Ryan: Thank you. You know, I appreciate you being a listener and engaging with us. So best of luck to you.