Road to the North - Part 5: What We Did Last Summer: Acquisitions

Schoolchildren are often given the essay topic “what I did last summer” in their first language class. Our answer to that is “a slew of acquisitions”. In three months, we had to build a coherent group with a unified ownership structure for the IPO. This is challenging on any timetable, let alone when you squeeze it into three months.

We had many companies with fragmented ownership. In addition to the parent company, Mavericks Software Oy, New Things Company Oy and the Norwegian company Talented Norge AS. In this context, the growth consulting and recruitment business was separated from the parent company into a separate company, Talented Growth Oy.

The rush came about because the launch of the IPO project required the ownership structure of the group to be clear and resolved. This is the bottleneck for the continuation of the project. If this fails, all other deadlines would be postponed and we would not be able to list the company in line with our target for H1/2022. That’s why this had to be ready by autumn 2021.

To do that meant, in addition to the transactions themselves, getting all the background work done, the valuations, the bureaucracy, everything. We still have to get all this through the Patent and Registration Office and wait for the processing times. The rush is on.

I gave this project to my most trusted person, CFO Teemu Tiilikainen. This is how Teemu’s summer holiday turned into three acquisitions and sunscreen turned into oiling the wheels of bureaucracy.

Many would have been up in arms when a bomb like that was dropped in their lap, but not Teemu. He just said that that’s all right, “holidays off, at ease”. He rolled up his sleeves and got to work. He’s quite a character.

Teme is Mr. Zen. He’s the last of us to show any signs of stress. We could all learn from Teemu about coping and well-being.

I’ll let Teemu himself tell us how it went. Teemu, if you please, the blog stage is yours now.

How does four become one?

Harri and I have always had a division of labour where he paints the horizon in front with the biggest brush possible and I am responsible for filling in the details, documentation and fighting with bureaucracy. I planned to spend the second corona summer as relaxed as it could be, boating, fishing and travelling around the country. Very quickly, however, it became clear that the whole summer was going to be a long day and the fishing rod would remain in storage. Holidays can take place at a later date.

But that’s what working in a growth company is like. When you need to do things, you roll up your sleeves and get on with it and stop wondering. Although the situation was stressful from the outset, I had no major concerns about the success of the project. We had a tight, albeit clear, schedule, a great team and a lot of trust in all the stakeholders on this project. In all likelihood, the summer would be like any other IPO project: laborious, but not difficult.

It was a tricky puzzle. A further twist to the corporate restructuring was that we wanted to involve the staff in all the companies and carry out a staff share emission scheme. Another company might have skipped this turn because of the tight schedule, but not us. Ownership of a company brings not only a sense of ownership and commitment, but also financial value - especially after a potential IPO, when the market value of the company and the shares owned by the individual becomes tangible. We wanted everyone to be in the same boat, rowing in the same direction.

Every part of the summer project depended on each other. For emission of shares to be successful, firms must have a valuation, and on that valuation depends the exchange ratio of share swap. The exchange ratios must be approved by the owners of all four companies, so the methods used to determine the value must be the same and fair for all. Rewinding backwards, to determine the valuations of emission of shares, we first had to determine the share exchange ratios between companies and sell these internally to all shareholders.

The Price Is Right (Eventually)

For listed companies, the market determines the company and share price, but valuing unlisted companies is a kind of magic and requires at least three crystal balls. In our case, it was not helped by the fact that each company has a slightly different cost structure, there may be some differences in the business, some have a history of several years while others are at the beginning of their story, some are growing very aggressively and some are “just” significantly ahead of the market. My colleague and Excel wizard Antti Hynninen quickly built about 20 models based on different variables, from which the best - or actually the least bad - option was chosen.

It was always the case that a specific model simply didn’t work or wasn’t fair to one of the companies. It was bloody painful, but in the end we ended up with a combination of 12-month adjusted turnover and net working capital, which was a bit painful for everyone, not perfect for anyone, and therefore the best possible solution for everyone.

Based on this model, exchange ratios were proposed for each company, under which employees of each company would receive shares. This was actually an otherwise traditional acquisition process, where several shareholders had to be persuaded to agree on a vision for a common future, but in practice three interdependent acquisitions were carried out simultaneously. Of course, every shareholder would have wanted a bigger slice of the cake, but in the end all shareholders accepted the arrangement. Valuations were agreed upon, emission of shares finalised, share exchanges completed and all changes registered with the PRO. One massive burden fell from my heart.

114 rowers in the one boat

The whole exercise was completed on the 10th of September. It was quite a project. Loads of board meetings, general shareholder meetings and signing of deeds with new shareholders.

The result of all that hassle was that we had one big common ownership, shared by 114 owners. Everyone is in the same boat and rowing in the same direction, regardless of the business ID under which the contract is signed. One big Witted Megacorp was now complete - at least from an ownership perspective.

The project was completed on time and the journey towards First North was able to continue as planned. The only one whose schedule was delayed, was me and my summer holiday. And in the end, I was fortunate enough to have one. Instead of the summer in Helsinki, I was able to get me some holiday tan later in the autumn in Lisbon.

The story continues in two weeks again. Follow Witted on LinkedIn, on Facebook or Twitter, and we’ll tip you off when new parts come in. This story is also told (in Finnish) as Witted: Matka pohjoiseen - a podcast you can find on podcast services such as Spotify Or Apple Podcasts.