Relationships And Transparency Drive Successful M&A, Says TriNet CEO
Recently public company TriNet may not be the most well known tech acquirer in Silicon Valley. But the San Leandro, Calif. company has acquired 10 companies since 2006.
TriNet, founded in 1988, provides HR outsourcing services, including payroll, health benefits and compliance for the SMB market–and went public in March 2014 (NYSE: TNET). The company has ridden a wave of growth in enterprise software-as-a-service and works with more than 9,000 companies.
The key to any acquisition is relationships, says Burton Goldfield, TriNet’s CEO. Developing close relationships with executives and companies is key to knowing whether an acquisition will work and having the trust to push through what can be difficult negotiations and integration processes. TriNet tends to avoid bankers to do acquisitions and instead focuses on buying companies where TriNet has a long-term relationship.
Goldfield and TriNet had known Ambrose Employer Group for six years before TriNet acquired the company. “We did (the deal) over dinner with a handshake. It was quite a large acquisition,” Goldfield says. “I believe you acquire companies to get great people first and foremost. By having relationships and understanding the people dynamics you have a much better chance of success.”
TriNet’s largest acquisition, Gevity HR, Inc., was a public company at the time in 2009. That was a more complicated process with bankers and lawyers involved. Goldfield did not know the team personally, which made it critical to build relationships with key Gevity management after the acquisition.
TriNet’s corporate development team works closely with other parts of the company to analyze the different needs. Then it determines the best way to create that product or technology—through acquiring technology or people or by building it internally. “They do a lot of product work. It doesn’t have to be just M&A. It’s buy or build. The focus is on enhancing our product – ultimately keeping the customer at the center.”
The team is constantly on the lookout for companies. “We’re always looking at acquisition opportunities. It’s not something you stop and start.”
Valuations and Transparency
While some major acquisitions have gotten headlines, due to eye-popping valuations, TriNet tends to keep its acquisitions within its own analysis of valuations. “We try to stay focused on what we’re looking for and building our own models of valuations. You can’t want something bad enough to pay too much,” Goldfield says.
Some venture-backed startup valuations have shot up to outsized levels–at companies such as Uber, Dropbox and Pinterest. While TriNet looks for top technology and talent, it is careful with acquisitions outside its price range. “We stay focused on the principles that made our ten acquisitions successful over the last six years. We try not to stray too far from our principles. That may mean we don’t participate in certain things.”
While corporate development teams in general sometimes get criticized for lack of transparency, TriNet tries to be straightforward with companies it talks to, Goldfield says. Of TriNet’s ten acquisitions, the company has never done serious due diligence and not closed a deal. “We don’t want to waste anyone’s time,” he says. “If the sell side feels like they’re getting jerked around, at that point the seller has to realize they have more control than they believe. You can’t be afraid to walk away just like you can’t be afraid to walk away from a job offer.”
Advice for Founders
For founders considering a sale, Goldfield says it’s great to shoot for the massive exits. But he suggests staying grounded about what they can get for their companies and also consider the other benefits of an acquisition.
“The biggest thing is to really understand what you want. I find a lot of people get caught up with the Whatsapps of the world being sold for phenomenal amounts,” Goldfield says. “I try to advise younger people that money is less important than they ever believe. Not everybody and their brother makes $19 billion.”
Goldfield is not a fan of milestone earnouts in acquisitions. It’s often difficult to tease out the line between who is responsible for success between the acquiree and the acquirer, he says. “I’m not a big fan of long term payouts. That’s counterintuitive to some people who do a lot of acquisitions. I believe you bring people in who can impact the bigger pie, not just their own project.”
He has seen this from the other side of the table, having worked as SVP of the Americas at Rational Software, which was acquired by IBM in 2003 for $2.1 billion. He then became vice president of worldwide sales for the Rational division at IBM after the acquisition. “Rational software was acquired by IBM and in the first year Rational generated significant additional revenue,” Goldfield says. “I’m not foolhardy enough to think it was just because I’m so great. IBM had a lot to do with it. You have to be realistic about what you can impact and compensate them for that.”
Ultimately, integrating acquired companies is key and TriNet puts resources to making sure new teams are happy. “What’s really important is the best ideas win whether you were acquired yesterday or you’ve been here since the founders started the company. When a 2,000 person company reaches out to a 100 person company they can smother them. It is delicate balance. They need to feel welcome and listened to and if they have a good idea they can act on it. If not people shut down and we don’t get anything back.”