Consolidation has always been a business strategy. It’s easy to see how various companies with overlapping technology and customer bases could be more powerful and profitable as one… when looking from a 10,000 foot view. The reality is that it is tough to make the deals work when the companies are early stage, private concerns with investor and employee stakeholders.
This is why I am very proud of the deal that was put together to combine water management software company Aquatic Informatics of Vancouver, with Watertrax (also of Vancouver) and Linko Technology of Denver. It was not easy to put the various pieces together to make the transaction work. XPV Water Partners of Toronto was the key to making the consolidation work as they supplied the very necessary capital. They, like others in the water management industry, could see that the combination of the companies made a terrific amount of sense. But Ed Quilty and team at Aquatic Informatics as well as the management of Watertrax and Linko knew the reality of attempting such an amalgamation of private companies and all the stakeholders would be tricky, especially when they all were growing companies investing most of their cash into further growth.
How many of you CEOs or Board members out there have looked at the landscape and seen terrific technology, people or customers in other competitors or closely adjacent companies and wondered aloud, wouldn’t we all be better off together? Can 1+1=3 or 5? The breakdown for deals involving early stage private companies merging together usually occurs around valuation and/or liquidity. Everyone has outsized expectations of value based on growth and opportunity. And some shareholders want to cash out, while others want to stay in and go for the ride. That is why the private equity sponsor, like XPV, makes a ton of sense. They provide capital and the valuation temperance to help get a consolidation play off the ground.
Some private equity sponsors are looking to consolidate within a vertical or focused area. Famously, Golden Gate Capital used 40 steadily bigger acquisitions in ERP and supply chain to create Infor, a $2.8 billion a year company. Some companies consolidate as their main business strategy, like Canada’s Constellation Software. In each case, the private equity sponsor, or the consolidating company, the plan is always to roll up a sector or sectors of an industry.
As a technology company CEO, if you want to play the consolidation game, you need that sponsor. We would be happy to help you figure out who that might be among the hundreds of technology focused buyout firms or consolidators out there. And maybe we can help your firm get that deal done as we did with Aquatic, XPV, Watertrax and Linko.