The world of mergers and acquisitions and the associated risk assessment that precedes either is generally unknown to the public. The bits and pieces that make it to the daily news tend to be summaries, bottom-lines condensed to who purchased whom, and for how much. This summer in particular, we’ve been witnesses to multiple major deals, especially in the entertainment industry. We had AT&T’s acquisition of Time Warner for $85.4 billion, as well as Disney’s purchase of Fox for $71.3 billion.
But this simplified reporting leaves hidden the extensive intricacies of the work that takes place long before a deal is reached. Truthfully, only a select group of individuals actually knows what goes into shaping a price point of an acquisition or merger, what goes into researching the tangible value of a specific company or multinational corporation. Saurabh Rajwade is among this small group of individuals. He delights in the nuts and bolts of this business, and his work includes research into EU emissions management, projects with Deloitte consulting, Volvo Powertrain, as well as many other assignments we can’t mention here due to confidentiality agreements with these well-known brands. Suffice it to say that Mr. Rajwade has secured a space for himself among the top operators in his field.
Rajwade spoke to us about what the field of mergers and acquisitions looks like nowadays, in this rapidly-evolving environment where nearly every company is constantly looking to eat or be eaten.
Let’s start with a deeper dive into what risk assessment actually involves. When asked about the subject myself, I usually point to episode 14 of season 6 of The Office, titled “The Banker.” It’s the one where an investment banker visits the infamous Scranton branch of Dunder Mifflin to assess risk prior to Sabre’s purchase of the company. The gang then proceeds to elaborately lie about their lack of inappropriate and dangerous shenanigans over the past few years. The banker goes through different categories of risk: safety, sexual harassment, miscellaneous liabilities. Sure, it’s just a framework for a clip show recycling moments from old episodes, but these 22 minutes do in fact introduce the basics of the process, albeit while omitting many of the financial components.
“Valuation is an integral part of M&A and you need to perform valuation analyses from multiple standpoints to advise the client on the fair value of the business. Each firm is unique and presents a set of valuation challenges. I use the standard valuation techniques recommended: discounted cash flow analysis, precedent transactions analysis, and public comparable analysis. Valuation is an art, with thorough analysis of financial metrics.”
These are the tools of the trade: hyper-detailed financial models that consider a staggering number of factors to predict the company’s future in terms of potential growth, revenues, changing costs, and many, many more. They’re somewhat similar to the risk models used by insurance companies to determine your monthly coverage payment. And all the information that these models spit out has to then be considered from a wide variety of perspectives. It’s like buying a car: you have to consider how it will perform and hold up in a huge number of hypothetical situations. How fast will the tires wear out? Will the paint job hold up in harsh weather? Would it be able to fit multiple children’s car seats, when the time comes? Will it maintain any significant resale value?
As Saurabh Rajwade confirms, it’s ultimately about the big picture, and different company executives have their own idea of what that should look like.
“You have to use the right ‘currency’ while dealing with different stakeholders of the firm. Although profitability is the goal of any firm, different stakeholders in the firm seek different outcomes. A person focused on operations desires investments to improve production and enhance production capacity. A sales person will want to enhance marketing to generate more leads. As an advisor, you need to find a balance and look at the overall picture before making suggestions to the senior management.”
Then we rolled around to talking about the more contemporary edge of the business, namely, applying M&G efforts to technology companies. The goal of many startups today is only to grow their client base to the point where the company will appear to be a viable acquisition for one of the top dogs: Google (Alphabet), Facebook, Apple, et al. And since these monster tech companies have their hands in such a huge range of industries and interests, viable acquisitions could be found in any sector.
“I think technology is the most dynamic industry and it impacts everything you do in life, whether it’s entertainment, travel, communications, almost everything. Working in technology-industry M&A exposes you to early-stage startups to mature technology businesses. You can see and understand how investors look at and value the companies at different stages. You also get to see how they’re in convergence in different industries and technology with deals such as Amazon buying Whole Foods or Walmart buying Jet.com.”
Assessing tech companies also requires a slightly different skill set because tech companies are, themselves, often non-traditional in their structure, business model, and even earnings.
“Valuing a tech company I think is more challenging as the transactions many times involve companies with negative net income. Also within technology, the valuation metrics can be very specific such as value per active users, value based on subscription or recurring revenue, etc., which is not the case in more traditional industries. Also technology is impacting all the industry sectors and thus there is constant growth in the sector with new entrants and new technology entering the market.”
Rajwade has been able to handle these nuances with skill, adapting to a slew of unique industries. And not only that, but the work has taken him across the globe. And of course each country has its own business etiquette. The human element is extremely important as well, says Rajwade.
“Working in different countries poses its own challenges such as adjusting to the culture, getting comfortable with topics of small talk. I have always found that meeting people outside the work environment helps you to connect and make the transition easy.”
It doesn’t come easily, this ability to change to match every situation. It’s hard earned, and Rajwade can testify to that.
“Aside from the technical skills, an individual needs to have the right attitude to learn while working long hours. Ability to tell the story through a presentation and numbers that address the client concern is important as a senior banker.”
It’s difficult work, but Saurabh Rajwade clearly loves every bit of it. It’s hard to disregard that kind of passion. And in the midst of an acquisition fever that spans entire industries, entire economies, mergers and acquisitions technicians continue to be critical for the success of any serious company.