The Exchanges

Q Which deal where you've had to create that you've got a buyer, and you're trying to get lots more in? Essentially my question is, what was the most competitive deal you ever worked on, and how did you drive the highest price?

A Yeah. All right. Well, you know, all these details have become public. And so, um, with LinkedIn, we, um, we had interest from several parties, but it really kind of came down to Microsoft and Salesforce. And I've never seen companies bid privately and come up with such close prices on every stage Like, 151 151 162 163. It was very, very close, and Microsoft, of course, had all cash, and Salesforce had a combination of cash, stock, and Salesforce had to borrow a lot of money to get to the same aggregate price. And so, it finally got to the point where we couldn't keep doing this. And again, George said, best and final, Whoever, uh, comes up with the best price on the next round, we're going to go exclusive with towards definitive agreement. And so again, very, very close, but the board decided to go with Microsoft. We won't tell everybody everything that they want to hear as a buyer, but we won't, um, we won't, um, be disingenuous with them, right? So when we say best and final, it's best and final. So some people think that the investment bankers say that, but yeah, they're really willing to go another route. So in that case, the board chose Microsoft. It was best and final, and they went down to the definitive agreement. So they went into like a 30 day exclusivity to try to get to definitive agreement. And during that period, Salesforce lobbed in Several offers that were high…

AI assessment note: “with LinkedIn, we, um, we had interest from several parties, but it really kind of came down to Microsoft and Salesforce.”

Q My, my team and my family are very bored of me hearing this diatribe that I have, but I'm terribly worried about the lack of liquidity right now. And I think the M and A environment is dead. Uh, regulations have prevented any M&A from Giphy to Plaid to Figma and everything in between. You're the OG of M&A. Am I right? And has regulation killed M&A?

A Well, I don't think it's killed it, but you know, last year and the year before were, uh, certainly not as good as twenty-twenty-one. Um, it's not necessarily regulation that's killing it. Uh, the worst M&A years we've had ironically are when there's been a market crash and you'd think that that would be the time that buyers really step up and go on a bargain basement hunting expedition. But it's, it's similarly a time when Sellers still think that they're worth what they were worth last year. And it's hard for them to imagine that they're not worth 20 times revenues. They're really worth eight. And it takes a while for that to sink in. Um, and so it's really kind of sellers not being willing to come to grips with the new reality. And, uh, during steep market drops, buyers, um, uh, have their shell shocked as well. And It turns out that buyers really are their most bold and imaginative during times when their own visibility and predictability is at their best. And so I think back to some of the best times that you could buy companies were right after the great credit crisis. I think companies like Cisco and IBM and the ones that all had two hundred billion dollars of cash, they could have scooped up every great emerging growth company In the world at that time, but a those companies weren't really anxious to sell at the lower prices and B the big buyers just were like deers in …

AI assessment note: “Well, I don't think it's killed it... it's not necessarily regulation that's killing it.”

Q Do you know this is crazy when it's happening?

A Of course. Well, you, you, you, it, it kind of oozes. It doesn't just jump, right? So it's like a spectrum. It gets to the point where you say, this just isn't sustainable. Like, more recently, when cloud software companies were trading at 30, 40 times revenue, some of the deals we did were at 30 or 40 times revenue. Like, you know, this is not going to be sustainable, but During the moment, what's causing it to happen? Well, interest rates are at zero for 14 years, which puts a premium on growth because when you discount five year out revenues and earnings at zero or like three percent or something like that, five year revenues is worth almost the same as today. So put a normal multiple in five year out revenues or 10 year out revenues because there, there's no cost of capital. And you know, at that point that, you know, this is going to end badly and, um, you just never know what's What's going to make it end? You know, normally it involves leverage of being over leveraged.

AI assessment note: “Of course. Well, you, you, you, it, it kind of oozes.”

Q Which deal where you've had to create that you've got a buyer, and you're trying to get lots more in? Essentially my question is, what was the most competitive deal you ever worked on, and how did you drive the highest price?

A Yeah. All right. Well, you know, all these details have become public. And so, um, with LinkedIn, we, um, we had interest from several parties, but it really kind of came down to Microsoft and Salesforce. And I've never seen companies bid privately and come up with such close prices on every stage Like, 151 151 162 163. It was very, very close, and Microsoft, of course, had all cash, and Salesforce had a combination of cash, stock, and Salesforce had to borrow a lot of money to get to the same aggregate price. And so, it finally got to the point where we couldn't keep doing this. And again, George said, best and final, Whoever, uh, comes up with the best price on the next round, we're going to go exclusive with towards definitive agreement. And so again, very, very close, but the board decided to go with Microsoft. We won't tell everybody everything that they want to hear as a buyer, but we won't, um, we won't, um, be disingenuous with them, right? So when we say best and final, it's best and final. So some people think that the investment bankers say that, but yeah, they're really willing to go another route. So in that case, the board chose Microsoft. It was best and final, and they went down to the definitive agreement. So they went into like a 30 day exclusivity to try to get to definitive agreement. And during that period, Salesforce lobbed in Several offers that were high…

AI assessment note: “with LinkedIn, we, um, we had interest from several parties, but it really kind of came down to Microsoft and Salesforce.”

Q Frank, can I ask you, I was four or five in the dot-com bubble. Um, sorry. Sorry to ask me to age you. But, um, what was it like? Cause I read and I'm a historian and student of this business, but what did it actually feel like being in it and being so in it like you were?

A Well, you know, it's interesting because a lot of investors kind of missed out on PCs and PC software. They thought Microsoft was too expensive because it was at 25 times earnings, and, um, uh, a bunch of them had bought Apple, but, you know, they, they really weren't too sure about this PC industry because the big computer companies were calling it toys, and, uh, everybody figured IBM would ultimately win this game. These startups didn't have a chance. And they all really got burned by not being part of Microsoft, literally all the way up to ten billion dollars. Everybody thought it was way too expensive. And so when Netscape came along, they thought this was the next platform. The internet was the next platform and no one wanted to miss it. It was the most serious case of FOMO that you have ever seen in your life. And, um, and there were a couple of phases to this, you know, Netscape, Netscape came public in 1995. And it was literally the most popular IPO at Morgan Stanley since Apple in 1980. And when we took Netscape public, the Morgan Stanley, uh, telecom system almost got broken. They had to add a new PBX to handle all the incoming calls of all the people that wanted to buy Netscape. And it was at the point where, you know, if you got in a taxi in New York, uh, the, the taxi driver was asking, you know, how can I get a little Netscape? And they're all starting to talk abo…

AI assessment note: “It was the most serious case of FOMO that you have ever seen”

Q My, my team and my family are very bored of me hearing this diatribe that I have, but I'm terribly worried about the lack of liquidity right now. And I think the M and A environment is dead. Uh, regulations have prevented any M&A from Giphy to Plaid to Figma and everything in between. You're the OG of M&A. Am I right? And has regulation killed M&A?

A Well, I don't think it's killed it, but you know, last year and the year before were, uh, certainly not as good as twenty-twenty-one. Um, it's not necessarily regulation that's killing it. Uh, the worst M&A years we've had ironically are when there's been a market crash and you'd think that that would be the time that buyers really step up and go on a bargain basement hunting expedition. But it's, it's similarly a time when Sellers still think that they're worth what they were worth last year. And it's hard for them to imagine that they're not worth 20 times revenues. They're really worth eight. And it takes a while for that to sink in. Um, and so it's really kind of sellers not being willing to come to grips with the new reality. And, uh, during steep market drops, buyers, um, uh, have their shell shocked as well. And It turns out that buyers really are their most bold and imaginative during times when their own visibility and predictability is at their best. And so I think back to some of the best times that you could buy companies were right after the great credit crisis. I think companies like Cisco and IBM and the ones that all had two hundred billion dollars of cash, they could have scooped up every great emerging growth company In the world at that time, but a those companies weren't really anxious to sell at the lower prices and B the big buyers just were like deers in …

AI assessment note: “Well, I don't think it's killed it... it's not necessarily regulation that's killing it.”

Q Can I ask you, do you agree with the sentiment that companies are bought and not sold?

A For the most part, it's much, much easier, um, to advise a company where there's buying interest on the table. Uh, but sometimes we actually have to create the buying interest. Um, you know, I'll give you an example of, you know, Ryan Smith Qualtrics, right? Um, great company in Utah. It's not part of the Silicon Valley fabric. Yes, they have a few Silicon Valley VCs, but not a whole lot of people know who they are. And so what we tell our companies who are in that situation is, you know, You spend so much time and effort getting ready for the IPO, right? You hire a CFO, you get a great auditing firm, you start building a board with people who have public board experience, you start practicing, you know, getting quarterly revenues to meet and meet expectations. But only 10% of companies go public. Like back in the eighties and nineties of 50%, but since 2050%, no, 90% of companies get liquidity through mergers. Why don't, why don't private companies spend the same amount of time creating that option and perfecting it? Even if you never sell, why don't you go through the same hygiene? And so that hygiene is, you know, working with an advisory who can help you understand the ecosystem of who the potential buyers are. And it's not always obvious because strategies are all always shifting. So knowing who the buyers are and building trust with the people who are going to make the de…

AI assessment note: “For the most part... but sometimes we actually have to create the buying interest.”

Q Frank, how do you feel buying boards feel today? Do they feel, hey, there's a great amount of assets that we can buy cheaply, or do they feel, oof, markets are bad, cash is tight, let's be conservative and not add?

A If you compare this market to twenty-twenty-one, there are a lot more bargains. I mean, a lot of the indices have come back too close to their all-time highs, but It's been concentrated, and now it's the Magnificent Seven, because Nvidia is part of that, and Tesla, and, um, a lot of the, a lot of the comeback has been in those stocks, but if you look at the average cloud, um, software play, which is where a lot of the activities happen in M&A, we're kind of back to that six to eight times revenue area that it's traded up for, for most of its existence, and so there are relative bargains Um, but the financing environment's harder, the, um, uh, regulatory environment is harder, and, um, strategics are now more focused on buying private companies. A lot of the activity in buying public companies are, um, are private equity. A substantial percentage of the public deals have been private equity. I've seen numbers like 60, 70, 80, Maybe even 90% in recent years of public companies have been bought by private equity firms. And, um, I think with strategics, they, they have to recognize that sometimes it's better to buy a private company before it gets public and has a, a big, uh, aftermarket premium. Uh, even if you're paying a higher multiple when it's private, you're paying a lower price. I don't think that buyers view this as either a bargain phase Or a crazy phase like 2021. I thin…

AI assessment note: “I don't think that buyers view this as either a bargain phase Or a crazy phase”

Q Frank, have you changed how you do deals over the years? Before we move into a quickfire, people change enormously over time. Has the way in which you do deals changed? And if so, how?

A I really don't think so. I mean, George and I learned together at the very beginning of the M&A market for tech, Um, you know, there really wasn't much of an M&A market for tech in the, in the eighties and nineties, uh, because there were so much proprietary technology. There were a few companies, there were a few buyers that could afford acquisitions. The deal sizes were small, but the hardest part was like, if you had a, a market where the technology of IBM and digital equipment and a data general and Apollo and Sun, They were all like incompatible technologies and deals are hard to do because you couldn't integrate, uh, acquisition candidates. But, but when things started to standardize, we learned how to do deals back then and we're doing them largely the same way they were in the nineties and early 2000. Um, but the, there are way more companies. The valuations are much larger. Uh, the number of, uh, buyers and sellers for each category are much broader. So in many respects, it's, it's a much easier environment for us. Because deals were rare as a hen's tooth back then. And again, most companies went public and didn't do deals back then. And now, 90% of companies, um, achieve their liquidity through M&A. So, um, I, I think it's an easier environment and, uh, there's not much different about how we are doing deals.

AI assessment note: “I really don't think so. I mean, George and I learned together”

Q Do you know this is crazy when it's happening?

A Of course. Well, you, you, you, it, it kind of oozes. It doesn't just jump, right? So it's like a spectrum. It gets to the point where you say, this just isn't sustainable. Like, more recently, when cloud software companies were trading at 30, 40 times revenue, some of the deals we did were at 30 or 40 times revenue. Like, you know, this is not going to be sustainable, but During the moment, what's causing it to happen? Well, interest rates are at zero for 14 years, which puts a premium on growth because when you discount five year out revenues and earnings at zero or like three percent or something like that, five year revenues is worth almost the same as today. So put a normal multiple in five year out revenues or 10 year out revenues because there, there's no cost of capital. And you know, at that point that, you know, this is going to end badly and, um, you just never know what's What's going to make it end? You know, normally it involves leverage of being over leveraged.

AI assessment note: “Of course. Well, you, you, you, it, it kind of oozes.”

Q Frank, have you changed how you do deals over the years? Before we move into a quickfire, people change enormously over time. Has the way in which you do deals changed? And if so, how?

A I really don't think so. I mean, George and I learned together at the very beginning of the M&A market for tech, Um, you know, there really wasn't much of an M&A market for tech in the, in the eighties and nineties, uh, because there were so much proprietary technology. There were a few companies, there were a few buyers that could afford acquisitions. The deal sizes were small, but the hardest part was like, if you had a, a market where the technology of IBM and digital equipment and a data general and Apollo and Sun, They were all like incompatible technologies and deals are hard to do because you couldn't integrate, uh, acquisition candidates. But, but when things started to standardize, we learned how to do deals back then and we're doing them largely the same way they were in the nineties and early 2000. Um, but the, there are way more companies. The valuations are much larger. Uh, the number of, uh, buyers and sellers for each category are much broader. So in many respects, it's, it's a much easier environment for us. Because deals were rare as a hen's tooth back then. And again, most companies went public and didn't do deals back then. And now, 90% of companies, um, achieve their liquidity through M&A. So, um, I, I think it's an easier environment and, uh, there's not much different about how we are doing deals.

AI assessment note: “I really don't think so. I mean, George and I learned together”

Q What are the most common reasons why they die?

A Um, a lot of times it's really, um, valuation. Um, sellers have a very, very high view of themselves and are very optimistic about the future and buyers are worried about precedent because if they, if they, you know, pay 50 times revenues for a company, all of a sudden that will become the floor instead of the ceiling. And so, um, but companies will say, but if I wait two years, I can go public at You know, a lot more than 50 times the current revenues, and so mostly it's valuation, but sometimes it's cultural fit to companies get to the point where They think it's good on paper and strategically it fits like a glove, but they just can't stand each other. And one that I have in mind, um, is where, um, the deal was literally on the goal line and a CEO asked the seller, uh, how long do you think you're going to have to stick around, um, for this integration to work? And the seller said, I think Probably at least two years, and the buyer said, thanks very much for telling me that. There's no way this deal is going to happen. So, and that would have been maybe one of the largest deals in the history of the industry, but it's, it's really mostly valuation and cultural fit, uh, that, that, that, uh, present the barriers.

AI assessment note: “mostly it's valuation, but sometimes it's cultural fit”

Q What are the most common reasons why they die?

A Um, a lot of times it's really, um, valuation. Um, sellers have a very, very high view of themselves and are very optimistic about the future and buyers are worried about precedent because if they, if they, you know, pay 50 times revenues for a company, all of a sudden that will become the floor instead of the ceiling. And so, um, but companies will say, but if I wait two years, I can go public at You know, a lot more than 50 times the current revenues, and so mostly it's valuation, but sometimes it's cultural fit to companies get to the point where They think it's good on paper and strategically it fits like a glove, but they just can't stand each other. And one that I have in mind, um, is where, um, the deal was literally on the goal line and a CEO asked the seller, uh, how long do you think you're going to have to stick around, um, for this integration to work? And the seller said, I think Probably at least two years, and the buyer said, thanks very much for telling me that. There's no way this deal is going to happen. So, and that would have been maybe one of the largest deals in the history of the industry, but it's, it's really mostly valuation and cultural fit, uh, that, that, that, uh, present the barriers.

AI assessment note: “mostly it's valuation, but sometimes it's cultural fit”

Q Frank, if Trump, if Trump wins, how does that impact M&A environments?

A Honestly, I don't think it's going to impact it much because as we talked about earlier, Well, Trump is not a classic, um, free markets Republican. He's a populist. He has personal vendettas. Uh, he doesn't like big tech, uh, because he views them as all, uh, you know, run by a bunch of liberal people who hate Trump. So I don't think we're going to see much of a difference in the antitrust environment. If some of his economic policies result in some of the economic growth And, uh, stock market conditions that we saw in the first few years before COVID. I mean, you think about it. Trump had, Trump's policies had the economy in a pretty good place, and it was only really a pandemic that could have cost him probably to lose, uh, the second election. And, um, uh, so if he comes back, I think, It might be viewed positively for, uh, economic conditions, but I don't think antitrust will change very much if at all.

AI assessment note: “Honestly, I don't think it's going to impact it much”

Q Can I ask you, do you agree with the sentiment that companies are bought and not sold?

A For the most part, it's much, much easier, um, to advise a company where there's buying interest on the table. Uh, but sometimes we actually have to create the buying interest. Um, you know, I'll give you an example of, you know, Ryan Smith Qualtrics, right? Um, great company in Utah. It's not part of the Silicon Valley fabric. Yes, they have a few Silicon Valley VCs, but not a whole lot of people know who they are. And so what we tell our companies who are in that situation is, you know, You spend so much time and effort getting ready for the IPO, right? You hire a CFO, you get a great auditing firm, you start building a board with people who have public board experience, you start practicing, you know, getting quarterly revenues to meet and meet expectations. But only 10% of companies go public. Like back in the eighties and nineties of 50%, but since 2050%, no, 90% of companies get liquidity through mergers. Why don't, why don't private companies spend the same amount of time creating that option and perfecting it? Even if you never sell, why don't you go through the same hygiene? And so that hygiene is, you know, working with an advisory who can help you understand the ecosystem of who the potential buyers are. And it's not always obvious because strategies are all always shifting. So knowing who the buyers are and building trust with the people who are going to make the de…

AI assessment note: “For the most part, it's much, much easier, um, to advise a company”

Q Frank, can I ask you, I was four or five in the dot-com bubble. Um, sorry. Sorry to ask me to age you. But, um, what was it like? Cause I read and I'm a historian and student of this business, but what did it actually feel like being in it and being so in it like you were?

A Well, you know, it's interesting because a lot of investors kind of missed out on PCs and PC software. They thought Microsoft was too expensive because it was at 25 times earnings, and, um, uh, a bunch of them had bought Apple, but, you know, they, they really weren't too sure about this PC industry because the big computer companies were calling it toys, and, uh, everybody figured IBM would ultimately win this game. These startups didn't have a chance. And they all really got burned by not being part of Microsoft, literally all the way up to ten billion dollars. Everybody thought it was way too expensive. And so when Netscape came along, they thought this was the next platform. The internet was the next platform and no one wanted to miss it. It was the most serious case of FOMO that you have ever seen in your life. And, um, and there were a couple of phases to this, you know, Netscape, Netscape came public in 1995. And it was literally the most popular IPO at Morgan Stanley since Apple in 1980. And when we took Netscape public, the Morgan Stanley, uh, telecom system almost got broken. They had to add a new PBX to handle all the incoming calls of all the people that wanted to buy Netscape. And it was at the point where, you know, if you got in a taxi in New York, uh, the, the taxi driver was asking, you know, how can I get a little Netscape? And they're all starting to talk abo…

AI assessment note: “It was the most serious case of FOMO that you have ever seen”

Q Why would they go public with this new market of late-stage capital that is so big now, and sovereigns entering pre-IPO like they've never done before? If you are a big prestigious company, why would you go public, face the scrutiny? I agree with you. We need them to But why would you? It's a bit of an idealistic world, no?

A You're right. You're right. Um, the trend since the end of the credit crisis, it was that even since the end actually of the internet bubble is that companies waited a lot longer to go public and investors demanded that they wait longer to go public. But you remember during the time of Facebook and LinkedIn, these companies would be waiting until, um, there were several billion dollars of revenue before they would go public. Some of the IPOs in the last few months that we've seen are companies with like two billion of revenue or more. And so, yes, they wanted to wait longer, but at some point employees need liquidity. Yes, you can get it through privately held deals, but, um, and, and also they need a currency for acquisitions. That's a lot of times what, what really, uh, drives the company to ultimately face the test and go public. And also some of the, some of the times that they're the valuations of their options that they just have to get to the point Where they, they offer investors the public route for, for liquidity. So yes, they can wait longer than they did in the past, but at some point they need a public currency. If they're going to be serious about, uh, acquisitions, they need access to public debt markets. This will take time. What, what needs to happen is as long as there are hundreds of ways for public investors to play a trend and valuations are reasonable, the…

AI assessment note: “at some point employees need liquidity... also they need a currency for acquisitions.”

Q Did you feel the same way in COVID? We've spoken a lot about zero interest rate environments. Did you feel the same in COVID?

A All of a sudden companies that help you do things from home became the new platform. Zoom has always been a great company, right? But all of a sudden Zoom's evaluation seems like it has no end. And it was insane because, you know, like ultimately it's going to come back to the norm. But, um, the best year we've ever had in any of my businesses in M&A was 2021, where by the way, not a single one of us saw any of our colleagues face to face or a single client face to face. Was our single best year in history. And the valuations were, um, were, were very, very high, but there was a new type of buyer who had even higher, uh, valuations. And so you saw a lot of stock for stock deals, which by the way, we hadn't really seen since 99 and 2000.

AI assessment note: “Zoom's evaluation seems like it has no end. And it was insane”

Q But as a venture investor today, you know, we need the spigot to open on the other end. We put dollars in and we need them to come out. It's quite simple. And I'm sitting here going, I don't know how that coming out is going to work. What would you say to my worried mind?

A Okay. Well, what are the things that caused it to freeze? I don't think it's so much regulation. We've had tough regulation for a long time. We had the Obama administration. They were tough. And then Trump comes along. You'd think that a Republican would be a little softer on regulation, but honestly, he was not the traditional conservative Republican free market. He was a populist and he hated the big tech companies because they were so critical of him and they almost steered the election to his competitor. So he clamped down even harder on big tech cause he hated them personally. And now we've got another, uh, uh, Democrat rate, uh, regulatory regime. And some of the, um, you know, leaders of that are taking more, um, uh, you know, imaginative approaches, but you know, a company like Microsoft, it took a long time. It took 18 to 24 months, but they got Activision done. And so we're not having trouble getting 80% or 90% of our deals done, it's really only 10%, but a big factor in M&A in tech, uh, over the years has been sponsor deals. And sponsors benefit from the fact we had Zero interest rates, which meant high yield bonds were very cheap to issue and plentiful because investors were looking for a way to get something other than zero from their bank accounts and high yield bonds were like, you know, they're inched out on the risk reward spectrum to buy high yield bonds at fi…

AI assessment note: “what are the things that caused it to freeze? I don't think it's so much regulation”

Q Why would they go public with this new market of late-stage capital that is so big now, and sovereigns entering pre-IPO like they've never done before? If you are a big prestigious company, why would you go public, face the scrutiny? I agree with you. We need them to But why would you? It's a bit of an idealistic world, no?

A You're right. You're right. Um, the trend since the end of the credit crisis, it was that even since the end actually of the internet bubble is that companies waited a lot longer to go public and investors demanded that they wait longer to go public. But you remember during the time of Facebook and LinkedIn, these companies would be waiting until, um, there were several billion dollars of revenue before they would go public. Some of the IPOs in the last few months that we've seen are companies with like two billion of revenue or more. And so, yes, they wanted to wait longer, but at some point employees need liquidity. Yes, you can get it through privately held deals, but, um, and, and also they need a currency for acquisitions. That's a lot of times what, what really, uh, drives the company to ultimately face the test and go public. And also some of the, some of the times that they're the valuations of their options that they just have to get to the point Where they, they offer investors the public route for, for liquidity. So yes, they can wait longer than they did in the past, but at some point they need a public currency. If they're going to be serious about, uh, acquisitions, they need access to public debt markets. This will take time. What, what needs to happen is as long as there are hundreds of ways for public investors to play a trend and valuations are reasonable, the…

AI assessment note: “at some point employees need liquidity... and also they need a currency for acquisitions”

Q But as a venture investor today, you know, we need the spigot to open on the other end. We put dollars in and we need them to come out. It's quite simple. And I'm sitting here going, I don't know how that coming out is going to work. What would you say to my worried mind?

A Okay. Well, what are the things that caused it to freeze? I don't think it's so much regulation. We've had tough regulation for a long time. We had the Obama administration. They were tough. And then Trump comes along. You'd think that a Republican would be a little softer on regulation, but honestly, he was not the traditional conservative Republican free market. He was a populist and he hated the big tech companies because they were so critical of him and they almost steered the election to his competitor. So he clamped down even harder on big tech cause he hated them personally. And now we've got another, uh, uh, Democrat rate, uh, regulatory regime. And some of the, um, you know, leaders of that are taking more, um, uh, you know, imaginative approaches, but you know, a company like Microsoft, it took a long time. It took 18 to 24 months, but they got Activision done. And so we're not having trouble getting 80% or 90% of our deals done, it's really only 10%, but a big factor in M&A in tech, uh, over the years has been sponsor deals. And sponsors benefit from the fact we had Zero interest rates, which meant high yield bonds were very cheap to issue and plentiful because investors were looking for a way to get something other than zero from their bank accounts and high yield bonds were like, you know, they're inched out on the risk reward spectrum to buy high yield bonds at fi…

AI assessment note: “what are the things that caused it to freeze?”

Q Frank, if Trump, if Trump wins, how does that impact M&A environments?

A Honestly, I don't think it's going to impact it much because as we talked about earlier, Well, Trump is not a classic, um, free markets Republican. He's a populist. He has personal vendettas. Uh, he doesn't like big tech, uh, because he views them as all, uh, you know, run by a bunch of liberal people who hate Trump. So I don't think we're going to see much of a difference in the antitrust environment. If some of his economic policies result in some of the economic growth And, uh, stock market conditions that we saw in the first few years before COVID. I mean, you think about it. Trump had, Trump's policies had the economy in a pretty good place, and it was only really a pandemic that could have cost him probably to lose, uh, the second election. And, um, uh, so if he comes back, I think, It might be viewed positively for, uh, economic conditions, but I don't think antitrust will change very much if at all.

AI assessment note: “Honestly, I don't think it's going to impact it much”

Q Frank, how do you feel buying boards feel today? Do they feel, hey, there's a great amount of assets that we can buy cheaply, or do they feel, oof, markets are bad, cash is tight, let's be conservative and not add?

A If you compare this market to twenty-twenty-one, there are a lot more bargains. I mean, a lot of the indices have come back too close to their all-time highs, but It's been concentrated, and now it's the Magnificent Seven, because Nvidia is part of that, and Tesla, and, um, a lot of the, a lot of the comeback has been in those stocks, but if you look at the average cloud, um, software play, which is where a lot of the activities happen in M&A, we're kind of back to that six to eight times revenue area that it's traded up for, for most of its existence, and so there are relative bargains Um, but the financing environment's harder, the, um, uh, regulatory environment is harder, and, um, strategics are now more focused on buying private companies. A lot of the activity in buying public companies are, um, are private equity. A substantial percentage of the public deals have been private equity. I've seen numbers like 60, 70, 80, Maybe even 90% in recent years of public companies have been bought by private equity firms. And, um, I think with strategics, they, they have to recognize that sometimes it's better to buy a private company before it gets public and has a, a big, uh, aftermarket premium. Uh, even if you're paying a higher multiple when it's private, you're paying a lower price. I don't think that buyers view this as either a bargain phase Or a crazy phase like 2021. I thin…

AI assessment note: “I don't think that buyers view this as either a bargain phase Or a crazy phase”

Q Did you feel the same way in COVID? We've spoken a lot about zero interest rate environments. Did you feel the same in COVID?

A All of a sudden companies that help you do things from home became the new platform. Zoom has always been a great company, right? But all of a sudden Zoom's evaluation seems like it has no end. And it was insane because, you know, like ultimately it's going to come back to the norm. But, um, the best year we've ever had in any of my businesses in M&A was 2021, where by the way, not a single one of us saw any of our colleagues face to face or a single client face to face. Was our single best year in history. And the valuations were, um, were, were very, very high, but there was a new type of buyer who had even higher, uh, valuations. And so you saw a lot of stock for stock deals, which by the way, we hadn't really seen since 99 and 2000.

AI assessment note: “best year we've ever had in any of my businesses in M&A was 2021”

Q So I think actually rates will stay high for a prolonged period of time with a huge amount of underlying inflationary pressures that people don't often think about. If they do stay high, does M and A and do we still stay frozen or does sentiment just become familiar with the new environment and progress as normal?

A Yes. By the way, I agree with you. I think there's a lot of optimistic people that believe that rate cuts are going to happen much earlier. And I think, you know, the central banks were fooled, especially the U S fed, you know, and they came out with this temporary inflation business and, you know, it was shame on them and they're not going to let something like that happen again. And by the way, five percent, like we had five percent treasuries, you know, uh, in the, uh, right before the credit crisis, we had seven percent in 1999. These are not unusually high rates for someone who started his career when treasuries were 16%. And so five percent is pretty still, you know, I think attractive, but I think you hit the nail on the head when you said what you really need is a period of stability. When either valuations are coming down rapidly, going up rapidly, when interest rates are, uh, going up rapidly and, and the valuations are coming down because the markets are just, you know, wrapped with this, uh, new environment where there's actually a cost of capital, that's when things freeze up. We've now, I think, had several quarters where things look like they're stabilizing. Of course, we have the U.S. election coming up. That's another unknown out there, and, um, it, You know, no one really knows who the candidates are going to be, even though they appear almost certain to be Tr…

AI assessment note: “We've now, I think, had several quarters where things look like they're stabilizing.”

Q So I think actually rates will stay high for a prolonged period of time with a huge amount of underlying inflationary pressures that people don't often think about. If they do stay high, does M and A and do we still stay frozen or does sentiment just become familiar with the new environment and progress as normal?

A Yes. By the way, I agree with you. I think there's a lot of optimistic people that believe that rate cuts are going to happen much earlier. And I think, you know, the central banks were fooled, especially the U S fed, you know, and they came out with this temporary inflation business and, you know, it was shame on them and they're not going to let something like that happen again. And by the way, five percent, like we had five percent treasuries, you know, uh, in the, uh, right before the credit crisis, we had seven percent in 1999. These are not unusually high rates for someone who started his career when treasuries were 16%. And so five percent is pretty still, you know, I think attractive, but I think you hit the nail on the head when you said what you really need is a period of stability. When either valuations are coming down rapidly, going up rapidly, when interest rates are, uh, going up rapidly and, and the valuations are coming down because the markets are just, you know, wrapped with this, uh, new environment where there's actually a cost of capital, that's when things freeze up. We've now, I think, had several quarters where things look like they're stabilizing. Of course, we have the U.S. election coming up. That's another unknown out there, and, um, it, You know, no one really knows who the candidates are going to be, even though they appear almost certain to be Tr…

AI assessment note: “what you really need is a period of stability... that's when things freeze up.”

Q Final one, which is when you look at M&A markets today, where do you think they, and where do you think Catalyst will be in 10 years time? Actually, fuck M&A markets. Let's just plot out Catalyst. Where do you want Catalyst to be in 10 years time?

A You know, we're real, I'm happy with where Catalyst is right now. Uh, and for us, we are going to try to continue to understand what are the themes that are driving change. So if you keep looking at the world the way you did five or 10 years ago, you're going to fall behind. Our first lesson in that was cloud and mobile, where we didn't do some of the first, uh, cloud software M&A deals, but we did the next three that were the most important. And all of a sudden now we're, we're the banker of choice in cloud. Same way with mobile, uh, when we did Motorola mobility. And so, and now it's like, You have to recognize which trends are fake trends and which trends are real trends. Because as a small firm like Catalyst, you know, we have less than a hundred people. I don't think we're ever going to be a lot larger than that. And so you have to organize the world in a way that makes sense. And so now we're grappling with artificial intelligence. Now, some people might think artificial intelligence, it's really new. Artificial intelligence was coined as a phrase the year I was born, 1955. And there was some work done before that, eight, 10 years before that, that you could have called artificial intelligence, but artificial intelligence needed its killer app, and it didn't have one for 50 years or 60 years. All of a sudden, we have generative AI, and that was what opened up my eyes, and…

AI assessment note: “I don't think we're ever going to be a lot larger than that.”

Q Final one, which is when you look at M&A markets today, where do you think they, and where do you think Catalyst will be in 10 years time? Actually, fuck M&A markets. Let's just plot out Catalyst. Where do you want Catalyst to be in 10 years time?

A You know, we're real, I'm happy with where Catalyst is right now. Uh, and for us, we are going to try to continue to understand what are the themes that are driving change. So if you keep looking at the world the way you did five or 10 years ago, you're going to fall behind. Our first lesson in that was cloud and mobile, where we didn't do some of the first, uh, cloud software M&A deals, but we did the next three that were the most important. And all of a sudden now we're, we're the banker of choice in cloud. Same way with mobile, uh, when we did Motorola mobility. And so, and now it's like, You have to recognize which trends are fake trends and which trends are real trends. Because as a small firm like Catalyst, you know, we have less than a hundred people. I don't think we're ever going to be a lot larger than that. And so you have to organize the world in a way that makes sense. And so now we're grappling with artificial intelligence. Now, some people might think artificial intelligence, it's really new. Artificial intelligence was coined as a phrase the year I was born, 1955. And there was some work done before that, eight, 10 years before that, that you could have called artificial intelligence, but artificial intelligence needed its killer app, and it didn't have one for 50 years or 60 years. All of a sudden, we have generative AI, and that was what opened up my eyes, and…

AI assessment note: “less than a hundred people. I don't think we're ever going to be a lot larger”