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WINNING WITH ELITE LEVEL INSIGHT ON MERGERS & ACQUISITIONS

November 17, 2022

S03 - E09

RSnake sits down with Curt-Simon Harlinghausen in Amsterdam, Netherlands to discuss M&A, positioning companies for sale, finding acquirers, setting and defending corporate valuations, and much more. They talk about the value of documenting everything for data rooms as well as positioning the company for a successful executive exodus when the time is right. Lastly they touch on some of Simon’s personal investment and M&A strategies.

Photo of Curt-Simon Harlinghausen
GUEST(S): 

Curt-Simon Harlinghausen

VIDEO TRANSCRIPT

Robert Hansen

Today, I'm off to Amsterdam, Netherlands to sit down with Curt-Simon Harlinghausen. Simon and I dig into M&A, positioning companies for sale, finding acquirers, setting and defending corporate valuations, and much more.


We also talk about the value of documenting everything for data rooms as well as positioning the company for a successful executive exodus when the time is right.


We also touch some of Simon's personal investment and M&A strategies. With that, please enjoy my conversation with Curt-Simon Harlinghausen.


Hello, and welcome to The RSnake Show. Today, I have Curt-Simon Harlinghausen. How are you, sir?


Curt-Simon Harlinghausen

I'm amazing. I had an amazing week. I'm very happy that you are here and that we have to show together.


Robert Hansen

I know. It's great. We're here for a conference, would you tell them a little bit about what that is?


Curt-Simon Harlinghausen

This is the second conference, actually, of this week we are organizing. This time we are hosting for our company, Miele, a conference where a lot of design companies or design-focused companies come together and exchange on challenges, developments, trends, technologies, and bring different perspectives into this group.


It's a very dedicated group. It's like a closed club environment. It’s a small conference but top-notch speakers, and I’m very happy that we are able to host that.


Robert Hansen

You’ve run out of room.


Curt-Simon Harlinghausen

We’ve run out of room. Yes. We had to change the hotel twice. So it seems like our topics were wisely chosen.


Robert Hansen

Yeah, I guess so. We are here in Amsterdam, in the Netherlands, at your house or apartment, rather. Will you tell them a little bit about the building? Because I think it's a spectacular building.


Curt-Simon Harlinghausen

Yeah. The time when we decided to grow into a different environment, we choose Amsterdam first place and got into a temporary place. We pretty much grew out of that very fast.


We're looking for a building which can combine an office, can combine community space, and also combine some housing for people coming from abroad for some expats but also fulfills our values like sustainability, innovation, design, high quality, which is for me, some core elements of the tradition and the heritage.


Robert Hansen

Not everyone's going to be familiar with Miele. Would you briefly explain what you do, just a little background?


Curt-Simon Harlinghausen

Oh yeah, that’s a fair point. I'm running the Miele X digital hub for Miele. We are responsible for all kinds of e-commerce data and customer engagement topics.


Miele is a home appliance company, 123-year-old, family-owned from two families, Miele and Zinkann, based in Gütersloh, Germany, produces most nearly everything in Germany from steel to washing machines to dishwashers, vacuums, ovens.


Robert Hansen

High-end appliances.


Curt-Simon Harlinghausen

Super high end. Yeah, we're on top of all appliances. Not only by quality, also by the lifespan you can expect from our products. We test them for 20 years.


Durability is key of sustainability, you don't want to learn every two years how to use an oven. So also that is something we take care of, the aspect of the UI/UX. Durability in terms of what is connected with each other so that this is working well.


We have predictive maintenance and all of that already in place. So it's a very future-oriented company with a long term strategy, not acting on short term hiccups or influences by any economics.


Robert Hansen

You just need to make it in black, and then I'll buy some.


Curt-Simon Harlinghausen

We have some black. The unfortunate part is that not everything is black.


Robert Hansen

Like my soul.


Curt-Simon Harlinghausen

I'm working on that.


Robert Hansen

There are probably a thousand things I could talk to you about, choosing a topic specific to you that I thought would be interesting. We've known each other for a decade or so. I don't know, maybe even longer.


What I landed on was mergers and acquisitions, M&A. Just the time period I've known you, you've had at least one exit, maybe even a couple of exits since I've known you.


I also had an exit recently. So we are now in a good position to actually have the conversation about that. We'll talk a little bit about mine a little later.


First of all, would you mind telling them just a little bit about the companies that you have exited?


Curt-Simon Harlinghausen

Yeah, the first big exit was an agency about social media or mobile and strategy, which was founded by someone else in a very early stage. And then we fused two companies together to come to a new proposition.


We always had the idea that an exit would be a good exit, also, of our partnership. Because we had different ideas of how businesses run, but we also had a good understanding that we can do that together and succeed together.


Then we sold it to a company in France, stock listed company, Publicis at this time, it’s still Publicis. Then I did my earnout there. He got a warm handshake on the day of the deal and left the company, and I took over a lot of different roles within the network from Germany and the UK and working globally in over 50 markets for them.


Robert Hansen

That's great. We're going to walk through the different aspects of M&A. If you were to say what a good board of directors looks like, what's the makeup? Or should you even have a board?


Should you run it just as a senior single executive and just authoritarian, “This is how it is.” and keep things simple, where you don't have worries about hostile takeovers. What are your feelings about that?


Curt-Simon Harlinghausen

Oh, wow. If it would be a lawyer, I would say it depends. But in general, it's always good to have a team, a team you can trust on, where you can build on, where you also can lean back because no one is a linear performer.


There are times where you face struggles in your life. So you have to rely on your team, on your partner, on your whole organization. I'm always up for a good team.


With that, my preference is, in most cases, to have a good board of pretty much diverse people. Not only from background and characteristics, also from their ambitions as long as they all feed into the same North Star goal.


There's only one reason where I would see that board of director could be hindering is when you're in really struggled time and you need to act fast to focus on the right things.


You need consultants to help you to find the right North Star, but then you have to be sharp like a knife to go through the organization and clean it up to make sure you get rid of whatever is a burden. But for growth, you cannot grow on your own.


Robert Hansen

I definitely have seen boards become extremely hostile before. Multiple companies have been involved with or tangentially involved with everything from hostile takeovers, to just advocacy for very weird things that are totally deleterious from the company's perspective or at minimum derating or deriding their strategy to a point where you're actually submarining the company. The whole company is going to go down if you follow this strategy.


How do you mitigate the downside of a good advisory board or board or keep them in their lane and not allow them to take over the company effectively?


Curt-Simon Harlinghausen

Again, it depends. But if you got acquired and you are on an earnout, you don't focus on the future of the whole company. Because that is what they suggest to you that you should earn out and leave.


You pretty much don't invest too much time into the board to mainly follow their orders or you try to make the best out of that situation for yourself. And that is often the case because it's really happening that the board integrates you. Like in my current role, where it's the first time I'm really employed by-


Robert Hansen

Congratulations on getting your first job.


Curt-Simon Harlinghausen

Pretty late got into the game, but the an executive board got me. This is why I mentioned it. It's a family board. So there's two members of the family of the founding family.


There are four board members, but they don't have a CEO. So they have to get along with that and come to a conclusion and come to one opinion, which they express.


It's not necessarily that everyone has the same opinion, but they at least have one vision together and one path. And that is where I said, “Wow, that is exactly what I believe is a good setup.”


Sometimes, of course, you wish there would be faster decision making or less politics. But in general, I have to say Miele is not driven by politics or individual futures. It's really driving and doing the best for the family on the long run for the grandchildren to deserve a structure and build a structure which survives.


Robert Hansen

Would you say that there's a structure, a certain number of board seats that you should have if you want to get acquired or certain makeup of a board if you want to get acquired?


Is there a certain thing that you're like, “You got to have these things. You have to have a lawyer. You have to have a banker or something.” What would you say is the makeup?


Curt-Simon Harlinghausen

There are five roles in a board. I always suggest to have an unequal number of members in the board. From the development side, we know that between three and seven is a good size to be managed also from meetings and come together and discussions and the overhead.


Five members for me is a pretty solid number and worked the best so far. Also to get more diverse backgrounds and perspectives in. So having an IT person understanding IT from the scratch and the broadness, having a financial person, not only as a financial and tax guy, but also from the legal side.


Legal is becoming more and more important for organizations. Especially when we come into tech and legal, that gets really tricky. But there are so many advantages, so many treasures you can gain and open up, which is amazing.


Then you need a marketing and brand person who knows, in the best case, also sales. It’s good for someone to have a product background, understanding what you're building, product or service, whatever it is. And then you need someone being radical, being out there and having the outside interview.


Robert Hansen

The innovative one.


Curt-Simon Harlinghausen

Yeah, the innovative one or the one who is challenging you or is giving you a different perspective. A lot of boards are so focused on their organization that they don't see what's happening in the market. And how is this affecting the whole organization?


I’ll give you an example. One board I was in, we were sitting together in a board meeting. Then everyone's like, “Yeah, we got 9.7% growth.” And everyone’s like, “Wow, yeah, just nearly 10% is amazing.”


I said, “Yeah, but we had 22% of the market. So we lost market share. It was significant. Even if we grew but the market grows faster than we do, what is the reason to celebrate? There is none.”


Robert Hansen

You effectively lost to your competitors.


Curt-Simon Harlinghausen

Exactly. I think you have to bring in this, not all board members can do that. But everyone should be open for that. As we know, the bigger a company grows, the more difficult it is to get all tasks into a board. This is something that I have seen in the past.


Robert Hansen

When we sold, we had two board members. So exactly the opposite of what I'd recommend. But one of the nice parts about our board was because it was small, it was nimble, we could make decisions very quickly and very complicated decisions very quickly as was needed in that case. One of them was our CEO, and the other one was one of our investors, the largest investor we had. She was a woman who was entirely incentivized to get us to get acquired, which is fairly typical of a VC. That’s pretty simple. But on whatever terms we want, she didn't care as long as we were happy.


The way her VC was set up, the only thing that she checked the boxes on is, have we done something that has been impressive? Is the team good? Have we not made money yet? Which effectively means we've failed up to this point. My friend really put it the best, I think. We just failed before.


We're clearly good enough to start good companies. And we're clearly trustworthy enough to start the next one because we're hungry. But her terms were like, “I don't care what you sell for. Sell for whatever you want to sell for. Because I know that's going to be a good deal. Whatever it is. It's not going to be a large number necessarily, but you get enough deals like that. And it makes huge margins.”


That was nice to have somebody with that perspective. She was just helping us the entire time like, “Whatever you want, you're the boss. Let's get this done.”


Curt-Simon Harlinghausen

The underlying message is like, “I trust you.” With this trust, you also get a pressure, which is not too obvious. But you don't want to fail on the trust. It doesn't matter if you fail on the numbers, but you don't want to fail on the trust.


That is exactly if you have some principles and there's values in a company which everyone agrees on. These are rail guards. Then the trust is the fundament, and then you can build whatever you want on it. It will succeed. It's a matter of time.


If you say you have only two people and the board is not getting along with each other, that's a different story. But aside that, that was a pretty good formula.


Robert Hansen

Yeah, I agree. I thought that was interesting. I was always just waiting for them to get to the third board member so at least they'd have breaking stalemates or whatever.


What do you think about an executive team? What is a good makeup for an executive team? If you were hiring from the ground up, let's say you're the board and you have to hire everybody from the ground up, who would you look for and what makeup?


Curt-Simon Harlinghausen

I can only talk about my perspective here because this is where I have a real opinion on. I always would start with someone giving me the overview of what's going on in my organization. One hand financially, the other operative.


That would be the first executive person I would have in my company. It doesn't matter if it's CMO or CIO or CTO, whatever. I would start with that role.


If I said that right in the beginning, that would save me a ton of time and efforts because this transparency is going all the way while growing all the way down to the organization.


That will help me to show, what is the decision tree? Why did we come to this decision? So it's a different style. But with that style, I avoid micromanagement.


Then it depends on where you go, if it's a marketing company or if it's a product company or if it's a financial company. But having a product person in, having a tech person in, having a human resources person in for the executive board is key.


I need a lawyer for my humans, whatever’s in it. Maybe the board is seeing only numbers being pressured or whatever pressure comes along. Someone has to represent the human force and the team behind, and that is so key for succeeding.


The role I have now, I have a very strong HR person. She's a real lawyer. She's has six degrees or master's in law, and she's really fighting for them from all different perspectives. I like this.


We have good arguments, and I say yes or no. Sometimes I try to be hard, but her arguments are so good and so straightforward. But I really have to think over my decision and find a compromise. So that is good, what you need.


Also, a product person. You want someone who's able to focus on the right things on your product, doesn't get distracted. You want someone who goes straight away forward and builds the first foundation, builds the next foundation on top of that, which stays, then the next one.


Then you get exponential growth. This is the ladder of success. If you have someone getting fuzzy, you're lost.


Robert Hansen

Notice, kids, he did not say security. So don't get in security.


Curt-Simon Harlinghausen

Later stage. No, I agree. But security, we were discussing it today. It's underestimated what needs to be done for security, especially coming for the future as more and more kids, which we called hacker kids or code kids are getting into more serious stuff.


They also need more money now when they get older. So you never know what decision they make, if they go on the white or the black path.


Robert Hansen

It definitely happens, unfortunately. Something I was talking with my CEO about, former CEO now, a couple of weeks ago, Jeremiah Grossman, who I've interviewed on the podcast as well. A great guy.


He was lamenting the fact that the culture that he had to create inside the company was a lot of hard knocks. He'd run previous companies like WhiteHat Security, for instance, and learned a lot of lessons.


One of those was, you should be friendly with your staff and whatever. But at the end of the day, you have to be heartless and get rid of them when they're not performing.


Truly heartless just like, “Sorry, two bad quarters. I know you're our best sales guy up to this point. I know we're friends. I know we hang out. I know we have drinks all the time. You're fired.” And that's it.


If you tell them ahead of time that that's why they're going to get fired and you're like, “Well, it's your two quarters away. You're always two quarters away. Every quarter, you're just two quarters away.”


Then at least that's back to the trust thing you're talking about. I trust that you're going to try your absolute hardest not to fail for two quarters. And everyone has a bad quarter once in a while. It just occurs. But if you do it twice, you're gone. And that's non-negotiable.


Our sales guy that we had at the time was incredibly good and still is incredibly good. I know that if he had missed two quarters in a row, he wouldn't even be upset because he knew the game ahead of time.


Those KPIs were so well telegraphed at all times that he just knew what was required of him. I'm just using that as an example, what kind of culture do you think would be useful to get to the point where you're ready for an M&A? Or as you're staging your company for M&A, what would you recommend?


Curt-Simon Harlinghausen

As we said, there's no linear performance. Always someone has to struggle, and transparency is the key. This is why I say we always start with transparency in a company, and then we can see if someone's performing or not.


Then we say we agreed on that you didn't achieve it, do you have a solution for it or you only have an excuse? If you only come up with excuses, I cannot go on with you. Then we have to find a solution.


Always my purpose and idea is to find that people come to an intrinsic understanding of why this is. Of course, everyone has a second chance. I say, “Yeah, I foresee that this might come. There is an issue. But I also can tell if we don't get the issue solved within one or two quarters, then I have to have consequences.”


A lot of companies are afraid of consequences because they say, “Oh, then the rest of my staff will leave.” No, it's harming the company even more if there is some toxic staff or you're inconsequent because then people think you're weak. So you have to find the right balance.


Robert Hansen

You're weak, and your company will fail. So all of those people will be out of jobs.


Curt-Simon Harlinghausen

Yeah, especially on young people. They need very tight rail guards. They need the orientation. They have so many opportunities. But also if you guide them, they're very happy about that.


A lot of people when they come out of school these days, especially the last five years with corona even worse, they don’t know what to do. So they do here and there and test, but they don't need anything.


We're living in such wealthy time that people are not required to work hard because they get a lot of money from the home, often, one of them, of course. Or they don't need this much. They need just a bed and a computer and internet access in most cases. You see that, and that is changing dramatically the whole work environment.


Robert Hansen

I really like the idea of using the Socratic method as a cultural thing, which is to say, there are bad ideas, and you probably are full of them. But that's okay.


Come to me with your bad ideas as long as they're slightly well-researched, as long as you feel like you're not just spouting random stuff to me. I will sit there and beat them up. I'll be the contrarian until we both agree, “Actually, that's a good idea. We should do that.”


That, again to your idea of transparency, only works if they feel comfortable that you're always going to beat them up but not fire them. I'm not going to fire anybody over bad ideas. But I will fire them if they come to me and say, “I've just implemented something.” and they haven't told me what it is. And it turns out it's a bad idea.


Curt-Simon Harlinghausen

This is exactly the trends we have. This is the matter of being transparent. And if you are transparent, you also can fail. You talk about your fails, you talk about your bad idea, or you even ask if you don't know if it's a good or bad idea.


I told this a lot to not everyone but a lot of my managing team here, learn to play chess. Learn to think 10 steps ahead, learn to think of different perspectives of your opponents or the market situation or your colleagues. Bring that into perspective, and then question yourself.


Step one, step back. Look at the whole situation again. We all fail all the time. It's just a matter of how much you learn from it and how much you apply on it on the next situation.


Listening for understanding is what's missing often. A lot of people listen to react. But first you have to understand if you have to react or better you just say, “Yeah, thank you. It's a very valid comment. I work with that.”


Robert Hansen

One of the companies that I ran across out of Austin, I believe, or maybe just one of the employees was there. I'm forgetting the name of the company, but they had a dashboard where every single person had KPIs, whatever those were.


Everyone, every single person in the company, even the janitor. It doesn't matter, everybody. They all rolled up to people. So there was effectively a master dashboard for the manager who would see his team were all green or some yellow or red or whatever.


Some of those things were project-based. Some of them were just personal performance issues or whatever. And that all rolled up to a management where management could look across the entire organization and see if projects were going to slip.


They could see if people were personally performing bad in certain areas where, “Seems like this team is not performing very well.” at a much more holistic view without even knowing at all what any one of those KPIs were.


They could just, at a glance, look at any given day or week or whatever, however often this updated, and just see how the organization is going. So the transparency and granularity all the way down to the individual, especially at a larger company, is rare. What do you think of that?


Curt-Simon Harlinghausen

The company we are in, we're building exactly that. Yeah, there's the OKRs, the objective key results. It's not about controlling or measuring individual performance, it's more about exactly for me or the management team to get a better understanding if we're on track.


Maybe we can identify any pattern where we see there's a hiccup or there’s some slowing or whatever it is, and then we can support here on the stage. On the other hand, why we do it is we are running on an 18-month forecast.


It's not that we have to do that from our mother company, it's more that we are able to plan better and more precise in terms of where we can allocate our people and our capacities to protect our people not being overwhelmed by work so we can agree on what we have to focus on.


We have an impact and effort model. That brings a scoring, and that scoring is applied on the different tasks. And those tasks come into an advanced roadmap. In our case, we use Jira.


We document everything in Confluence, which is pretty much common. And we help the organization to say, “Okay, this is what we have to achieve to make sure this rollout is successful.”


After the rollout, there are so many people working on that. So we have to make sure we hit the timing. Or if there is any hiccup coming in, we can inform people in advance, as you say and say, “Watch out, we will not manage this day. We’ll maybe have a delay of two, four, six weeks.”


It could be that one individual is sick or something is happening. Then you have to react on that. And this is why we do it. I believe it's helping everyone to get better.


Our claim of Meile is immer besser, forever better. This is since 1899, the claim. Better is the enemy of good. So we believe that we constantly develop without pressuring our organization to heart because we know what we all agree on.


Robert Hansen

Weirdly, I don't think this dehumanizes people at all. In fact, I think it really allows executives to hone in on the handful of individuals who are not performing well. And that's not necessarily a bad thing because the way they're not performing well might be their boss's fault or it might be a process’s fault.


It might be they're having personal issues at home, and they really need a little bit more distance from work for a while or whatever. That can allow management very deep insights into their people without having to spend as much time as would normally be required to accomplish that.


Curt-Simon Harlinghausen

On the other hand, when you can see there's deficits, you can train people. You know that they have the right mindset, the right ambition, the right passion, a good background. But maybe in this particular field or this task, they have a deficit or maybe they need a bit of more support. And then you can help them.


Robert Hansen

When they're bored of that job, give them another job in the company because they're about to exit, otherwise. You're going to lose a very valuable employee that you've had for two or three years just because they’re bored. Give them another job.


Curt-Simon Harlinghausen

This is why, by the way, we hire a comp shaper. And that is not very familiar in most of the companies. There are T shapers. T shapers have very broad knowledge about the business or about the environment and a very deep going understanding and knowledge about one particular topic.


Then there are P shapers. P shapers have broad knowledge in two streams. What we believe in, we need a comp shaper. Comp shaper have a broad knowledge and at least three different fields where to have expertise.


Why is this important? Especially in the younger generation, there is a boreout, as you said. After one and a half years, they finally have understood their organization, are productive.


They say, “I don't like this work anymore, all the rollouts, all the markets, it’s all the same. I want to do something else.” And we know, “Yeah, he was good in analytics. Now maybe he's good in implementing or he wants to get some more hands-on, get away from theory to practice.”


We have that set up and generally try these three. We go for five, and then we see a low churn in our organization because people stay with us. We can develop them, we can give them a development path on the knowledge.


Also, what happens and what we have seen in the past is people maybe three or four or five, they wanted to develop something totally different. They were doing it on top of the work because we gave them the opportunity.


That helped a lot also for the whole organization because people see, “Wow, I can develop in here. There are smart people that want to work. They develop, I have to develop. I want to develop. There is an opportunity, there’s a chance, and there’s support.”


Robert Hansen

In terms of the kind of company that you create, I'm talking about beyond an LLC or C-corp here, certain companies are going to end up becoming whatever. They are like lifestyle businesses or some will become acquisition targets or some will be going IPO or whatever.


What would you do to structure your company to be specific to M&A? Is there anything like, for instance, just to throw an idea out there, maybe not have a kamikaze business model where you're wildly spending and trying to raise another gigantic valuation every few months?


Or maybe that's a good idea. Maybe that would help. What would you do?


Curt-Simon Harlinghausen

It's manifold. First, transparency will help. So whatever you build with transparency, you can use that for any kind of acquisition because then it's easier to file for a data room.


You can feed into that, have everything structured. You should be set up broad enough from your customer base that you don't rely on only a handful or two or three customers.


That is something which is key and often is a point of failure because if one customer fails during an earnout, your earnout is gone or the M&A deal is gone, too.


The second is you have to make sure that you have a succession idea or plan in hand. So if someone leaves the company, whatever reasons, could be family reason, health, whatever it is, there is no hiccup so that the continuous development is guaranteed.


Be faithful and honest with yourself and what you can achieve and also to your numbers. Germany or in Europe, we tend to under promise and over deliver. So that is something always was good.


Also, it helps if you're already on this stage where you are an acquisition target and then you over deliver on nice multiple, that is something you will like, your investor will like. And that will help you over the years after the acquisition.


Don't think in the moment of the acquisition and maybe the upfront payment, think of the long term, the all-over money you can make if you feel confident that you will make it.


Also, what I've seen in the past is build an ecosystem around you so that you have several pillars where you stand on that you have enough reach and partnering that is not everything relying on you. That will help you also to have a good M&A process.


One last thing, for me for all M&A processes, the most and the best investment I've done was in a good lawyer, a lawyer who understands the individuals of the company which is going to be sold plus understands the business to really fight for you. But any money you invest in a good lawyer will come back for sure.


Robert Hansen

I think if I were to add one more thing, it's being ultra-consistent with the amount of money you're projecting to make and make sure you hit those numbers, the targets every single quarter. Ideally beat them, but never ever miss them.


You miss one quarter, you might get away with it with your investors. You miss more than one, they'll start looking for another CEO.


Curt-Simon Harlinghausen

Yeah, this is a very strong US perspective. In Europe, we’re not this black and white. It depends if it's a VC or if it's an institutional investor or if it's a family office.


Family offices are, in general, more relaxed. They have a longer perspective. VCs maybe go for 3x, 5x, best case 10x in a very short period. Long term or investors or family office, if they're not investing in funds or investing in companies, what they do is they go for 25-50x. But they say five or 10 years.


They go in with smaller money in a strategic spread. Often, they have a good portfolio, some favorite industries they're going in. But what I personally haven't seen too often what is missing and what I think from the investor side, which I've also got into that now, is why don't investors start acting and thinking in their own ecosystems?


That means, if you acquire companies, why don't you build your own ecosystem which is fruitful for every member of the ecosystem? So if you say your first target is a typical branding agency, the next target should be not another branding agency.


It should be an agency for performance marketing or should be a website or should be out of home or whatever so that those customer base can be used across the whole ecosystem. Also, everyone learns from each other.


Then this creates when someone wants to leave out of boreout or burnout to another company and you know he’s a good person, then you have stations where they can go to.


A lot of investors, what I've seen is they focus on a similar pattern because it’s easier to compare. Of course, it has an administrative advantage. But from the financial, the ecosystem idea is working very well.


Robert Hansen

What kind of companies do you think are best suited for acquisition? Are they software companies, hardware companies? Are they services? If you had to pick a company that's much more likely to get acquired than another industry, let's say, what would you...?


Curt-Simon Harlinghausen

Yeah, currently everything what's around number crunching and data and bringing real value out of data. Information enhancement I think this is something which has a huge chance.


If you go to the employment market, data analysts, scientists, hard to get. It's really difficult. Why? Because people start now diving and digging into this data world and these data lags and they see the advantage and the value in it.


As often they can grow as fast as they want, they have to come with an unorganic growth, which is acquisitions. That could be a talent acquisition.


This could be a knowledge acquisition. This could be a patent acquisition, could be a market acquisition, or could be only an additional field for their own capacities and capabilities.


Robert Hansen

Okay. How do you know that the finances that you are currently operating with, this company is going to be a good acquisition target? You've started it a couple years have gone by or however long, and you're looking at your books and you're like, "Yap." Or "Nop." What does that look like?


Curt-Simon Harlinghausen

People first, I always start with people. I want to get an understanding how long are they a company. What is their background and what they're working on. If I get an understanding, those values are right, then we get into financial.


Are those people really driving the right and what I can expect financials out of their work? After that I want to hear what is there vision and what part and what stage of their journey of their vision they are.


They're still in the build phase or are they already in a run and evolution phase? How much do they still need to invest? What could they cut off to still survive? Also, what is their fallback scenario? Are they only thinking in purple classes and everything is wonderful out there?


Also, are they aware of what's going on around them? The third thing, is the market ready? If an acquisition is only on a single market or a niche, you have to make sure that you are number one.


But only the number one is making real money. It's not the number two or the number three. So, the market is also very much key.


Robert Hansen

Do you have to be making like 30% per quarter or 10% per quarter on top of what you're making before? What do the finances have to look like where you're like, "Yeah, that company looks healthy and ready to be acquired."


Curt-Simon Harlinghausen

What I always say is, if a company has 100 employees, I expect 10% growth per quarter. If it's 50 employees, it's 20%. As bigger a company goes as smaller in general, the amplitude is of growing because it's more and more coordination and overhead.


I think the biggest growth per quarter you will see in smaller companies but the linear growth will happen when they reach a size of 150 a member because then they can predict.


Robert Hansen

How do you find a potential acquirer? Do you just phone up your banker and start asking? What's your process? That's why I'm asking. Well, because some bankers that they specialize in that.


They specialize in finding acquirers or at minimum if you already have a deal on the table. You can talk to a banker and oftentimes they'll find you counter bids and so you can drive up the acquisition price. That's a real tactic. I mean, that definitely happens.


Curt-Simon Harlinghausen

In my role as a VC or investor, my aim is not to sell it to someone who's probably paying five or 10% more, but where I believe that this is the best for the company.


I have some ethics which not every banker or not everyone involved in has. I rather don't sell before a sell it to a shark. Also, I need someone who's able to understand the business, and I have a very extremely conservative bank.


For them, I'm already free radical out there as strange what this guy's doing and where's connected and all the business. They don't get what's happening on my bank accounts. No, my banker would not be the person.


What I would do is I reach out to organizations like YPO Networks or EO or other entrepreneurs networks or talk to friends on my personal networks and see if there is anywhere a match or something happening in a network.


Because then, I don't do a cold step in, I get a warm introduction and it's a different talk on a different level of trust. Then I can make sure, yeah, it works and it works not. Sometimes it happens pretty quick. I say, "This is exactly what I'm looking for." I had this just recently and then things happen within six weeks.


Robert Hansen

Do you research the buyers ahead of time or do you kind of interview them on the fly? How much reconnaissance do you do when you're thinking that might be a potential acquirer? Do you research the people? Do you research their customers? Do you research other acquisitions they've made?


Curt-Simon Harlinghausen

All of that. But first I'm not active in those companies anymore. The people who are co-investor or co-founder or co-shareholder, they come up with an idea. Sometimes they say it's too early or we are not ready for that.


I listen to them and try to find the right timing and timing is key. Then I do a lot of stuff to be honest with my gut feeling. All the different parameters are pitching together and this makes totally sense from a logic point of view...


Robert Hansen

It will be a good example of a good strategic fit. Where would you find like, this company and this acquirer, they should meet? How do you find that peanut butter and jelly?


Curt-Simon Harlinghausen

I'm a shareholder of a company which is doing e-commerce software development. They have developed through OKRs, through their full transparency process, through pretty solid business. Good numbers, good client, long-term relationship, a lot of SDA.


A lot of re recurring revenue. When we are looking or when the time came up that those companies get acquired because the market got consolidated, we were looking for someone who exactly does not have that, where we can enhance the whole group or on whole new setup with that capability and knowledge and experience.


Because with that, the whole group will profit from it and will grow in revenue and in margin and in a different way of working. But also, on the other hand, we were able to access different resources, different customer bases or even different markets, which we're not.


So, this came together, but it's not a match-match, it's more finding exactly the opposite of us and then bring that together.


Robert Hansen

One of the things that we focused really heavily on at my previous company is, we did not want to compete with our potential acquirers.


There was a line of business we could have easily gone into, and it probably would've been pretty profitable to do that, but it would've absolutely blocked us permanently from getting acquired.


None of the acquirers would've touched us because they're like, "You guys are too much trouble. You're competing with is with our own contours."


What we noticed is that many of our competitors did go into that business. They were kind of eating our lunch a little bit because they found this same thing that we intentionally avoided, but we got acquired. I think that's very telling. I think they're going to have a hard time getting acquired because of that exact reason.


Curt-Simon Harlinghausen

I totally follow this idea, but what you should do is, you have to be present outside. If people are looking for targets, how should they find you? They're not Googling and say, "I'm looking for this cool company. How should they know you?"


You have to go on conferences, be present, present, win awards, make sure that you show yes, the pride is right, we are ready to be taken here come to us. You really have to be out there.


Robert Hansen

Subject-matter expertise. You're going to have to do conferences, blog posts. Funny, I think grand total and the entire history of the company, I think we spent $3,000 in marketing the entire time.


The rest was just grassroots. It was us running blog posts and public speaking and which is all free. I mean, just whatever your airfare costs to get there kind of thing.


Curt-Simon Harlinghausen

Or you have customers talking about you. I don’t know, maybe in the security business, maybe it's not a good idea. In our business or in the business on the ecosystem, I'm acting, it's good if customers recommend you and then you get a footprint, and that will end up when customers work with other agencies or other partners, say, "Who's this company?"


They say, "Oh, wow, it's interesting. Maybe that would be a good addition." It's more opportunistic. Often you have an issue when you go into the market and say, "Acquire me." Because people think "Something must be wrong if they want to be acquired. Why?" So, create the opportunity,


Robert Hansen

It's like going on a date. Like, "I really want to date you." You're like a little needy.


Curt-Simon Harlinghausen

But the best relationships are just happening. I believe in this opportunistic part and I believe there is the right time and moment where it just happens, but then you have to identify it and then you have to act on it very focused and fast, is not like there is so many chances.


Robert Hansen

Agreed. When you're trying to pretty up the pig or dress up the bride for the wedding, what are the things you're going to start doing to get your company looking or sounding from a marketing perspective, using the right language on their blog posts, for instance?


What do you do to kind of fluff up your feathers a little bit and make yourself look pretty?


Curt-Simon Harlinghausen

As I said, words is one thing. That there is confidence in the consideration phase. Get some more testimonials out there. Of course clean up everything, what might be suspicious or maybe could be misunderstood.


If there is something in the books, you had a wrong accounting structure or whatever and people might think this is all party money by the end it was a trade show and you had some.


Robert Hansen

What about the value proposition? There's many different ways you could structure trying to explain your company. I'll give you an example. I had this company outside Intel which was going along and not doing anything, and I could not get a single customer, and it was just failing.


Then I had a conversation with you and a friend of a mutual friend of ours, and you told me the piece of advice that ended up getting that company acquired by Bit Discovery, which eventually got acquired by Tenable. Which was looking at your software as software and start looking at as an API. This just an example of what you can do.


That fundamentally changed both how I talked about it, but also how people perceived it. Suddenly their imagination went wild with all the things they could do with it, and it really changed the whole picture.


I guarantee you that that company would be not even functional at all if I hadn't had that conversation with you. How do you talk about your value of proposition or get it to the point where people are looking past it to the future?


Curt-Simon Harlinghausen

You said one thing, which is key. It's not the value proposition is giving a potential acquirer the space for the fantasy what they can do with the company. If you are too narrow and too sharpened in your proposition, this is limiting them.


If you open it up and say, all we could do with that with opportunities are still out there, we just trigger those and tease those. You can see the excitement and emotion happening during the talks. When they start, we can do this and we have to talk to this client and we should do this during the due diligence.


Then you know, okay, they're on the hook, so now we have to make the most out of it. Well, it's not getting narrow, getting broad.


Robert Hansen

What about marketing? Should you say different things as you're kind of getting yourself prepared? Are there certain keywords that kind of stand out to acquirers? I always thought it would be kind of fun. I never ended up doing this, to market our company specifically to the M and A teams like Facebook and Twitter.


Just find the M and A teams that the companies I think would acquire and just market like crazy. Every single thing is about us, just so we're top of mind. I realize it's a little excessive.


Curt-Simon Harlinghausen

We thought about that as well but on the last deal, we decided not to do that. On the other hand, what we did is we gave them something to talk about us.


Little stories, private stuff where they could really bond and they could go to a colleague say, "This company, this guy this client and this project." Those highlights in the conversations and how we brought it to them made a difference.


It's not like there's another company as XYZ or developer and do this project with this cool client. Now, it's this little part that they look good. We made them look good in the whole process. They felt confident and happy, and this was a very easy win with that.


Robert Hansen

Okay. Let's talk about the due diligence process. Let's say we've found an acquirer, we're now talking to them, and they've even started talking about certain amount of money being transmitted, and you're happy with that offer. We'll get back to that evaluation in a minute, but what should people expect about the due diligence process?


I think of it like a colonoscopy, it is murderous. But kind of give people your perspective on what the process looks like. Other than just being hard, what should they expect?


Curt-Simon Harlinghausen

To the moment you have signing, you die, probably three to five times.


Robert Hansen

Well, I've heard that about pretty much every enterprise sales deal. Any really good enterprise sales deal, you'll lose it three times or at least twice, and you'll get it the third time. I think the same thing is true about acquisition.


Curt-Simon Harlinghausen

Absolutely. I sold a big company to Publicis. I was New York and they said, "Yeah, the signing, you don't have to be on place." Great because then can be in New York then my lawyer called me and said, "The deal is done, but we didn't close it. They canceled it." I said, "What? We worked like two years for the deal."


Everyone was in the morning, "Yeah, let's go in there." Then it canceled. Some little text minor problem popped up. Stay calm during the whole process.


Be confident in what you have built and what you believe on. Don't get off the path and don't get distracted. That is key for the whole due diligence and be faithful and straightforward.


Of course, you don't have to tell everything what is there, but whatever you tell has to be true. Don't hide something obviously, or don't hide anything but you don't have to tell everything. That is something totally different, but whatever you tell it has to be true and has to have a foundation.


Curt-Simon Harlinghausen

Due diligence is a process where people try to get an understanding of your business. They don't try to pick your brain, so you overthink a question of them 100 times more than they do. Maybe they have something in the back of their mind, what they want to achieve, but you come up with 100 stories what they want to achieve.


You are worried so much at the end that you're like, "Totally great." You cannot sleep at night. "What did they want with this question?" But actually this question was not this important to them, but you made it up for yourself a mountain of, "Wow, what could that be?" So stay calm, stay on what you have built.


Robert Hansen

I like that. During ours, we almost killed the deal on our side due to one tiny little deal tournament. I remember that was actually, I think maybe even one of the very first podcasts I did. I was right before the Podcast.


I'm just pacing back and forth. "Damn it. We got so close, this is really annoying, but yeah, we're going to have to kill this deal. It's over." We went to them and said sorry because of this deal term. They're like, "Whoa, whoa. Okay, we'll change it. No big deal."


Curt-Simon Harlinghausen

Also, we had a deal with the French company and French culture is a bit different to German culture, and with that we had a lot of clashes, not because of the real content itself, but because of the cultures and the communication and misunderstanding.


One part was funny that we misunderstood because of language barriers in English. Their offer. They thought we didn't like the offer and they give us a better offer. We didn't even ask for that, but they put up the multiple of 1.55 times higher only because we were not understanding them.


We're like, "What happened here?" That was good. We were not even thinking about that. It's just a misunderstanding. There had so many things happening, but you really, like, if you go into kind of communication with them, even if it's an email, make sure you write, breath, step out, come back and then send it.


Don't rush. Really think as a chess player, what could that mean from their point of view.


Robert Hansen

What about policies and documentation, source code? Any thoughts around that or what you should do to prep for it?


Curt-Simon Harlinghausen

Yeah. If you build a software and you have a good documentation of the source code, this is a hover end. So, with you win the deal way easier. First they believe you are the creator of the code, if you have a full documentation. They know what you have done. They know how you're structured. That is a big thing, if you do software.


On all the other part is it's whatever you document is helping you, it's like McKinsey, it's not like they will look all at that, but they believe that there is something happening and is taken care of in the past. That gives them the trust and confidence that this is a good deal.


No one is reading 1,200 pages of a McKinsey concept, but they read a management summary and believe the rest of it is fitting into that.


Robert Hansen

Interesting. I remember distinctly having conversations multiple times with my developers, like, "I need an ongoing list of every library you use." They're like, "Well, we don't like doing that because of XYZ reasons." I'm like, "I don't really care what you like or don't like."


I've got to have it. if we get into M and A and they start asking me about this stuff because I was firmly believed that we were going to get acquired at some point they're going to ask. I don't want to have to come and rush and try to get you to do this in a hurry. I want it ongoing.


They fought me and fought me and then we went through this acquisition and I'm like, "Okay, here's the day that we were all regretting they're not doing this."


They're rushing around and trying to figure it out. It was really bad because the one thing that they care about in the whole process, they don't really care what all these libraries are. They couldn't care less, but they do care about copyright issues and copy left issues.


The problem with that is, open sources full of copy left issues and so you really do have to know what the software liability looks like. So, I would recommend highly making sure you keep an ongoing inventory and just make sure that you understand what the licenses are for all of that stuff.


When the day comes, you either already have a plan to get rid of the couple things that use that particular library or have a very good explanation why you don't need to worry about copy left.


Curt-Simon Harlinghausen

Yeah, it rarely happens that you have a good explanation.


Robert Hansen

Yeah. I know.


Curt-Simon Harlinghausen

This is why I say start from the beginning. It's all about transparency. It's all about project management, it's all about the knowledge, what's going on.


If you grow, especially on a software case you would probably have more teams working on a piece of software with different purpose and background. Which is good because also you protect your IP on one hand. On the other hand you can challenge teams against each other also for documentation.


You have a documentation award for the best documentation of the month because there is really good. That was kind of triggered. We heard and with that we were kind of pretty good set on one deal.


I said, "Wow, this is documentation we have never seen before." The good search with solo search behind the documentation on a confluence structure. We were really good.


You were looking for a hiccup or whatever it was after deployment, you found it. Our solving time was tiny.


Robert Hansen

That's fantastic. I love that.


Curt-Simon Harlinghausen

One more remark on that. You need a dedicated person taking care of that. If no one has the responsibility for say I am the master of documentation and you keep it to the individuals, then the quality of the documentation stays with the individual capacities will and motivation.


The same, what we have now here in this company is we have a team, it's called knowledge success team, which makes sure that whatever comes on learning knowledge piece documentation is on a high standard. Visual terminology completeness, correctness, all of that is guaranteed.


But with that, we document everything. It's not only an acquisition. If there is a tax audit coming in, say, "What are you building there?" You say you're building that. "Show me." Then you show them and say, "Wow, this is super professional."


Any harm from any authorities will be minimized by the way when you say, "We document all of that." The work, the hours, the time, spending.


Robert Hansen

And why we made these decisions.


Curt-Simon Harlinghausen

Exactly. Yeah.


Robert Hansen

How scared do you think people should be about their dirty laundry? I mean, this is an investigation of both corporate malfeasance or potential corporate malfeasance or tax evasion or just software liability. How scared should you be?


Curt-Simon Harlinghausen

If you started very transparent at the beginning of your organization, probably not too much because then you can say, "Okay, we know that this should have been done different, but over the last two years we optimized against it and we have changed it."


If you know that there are some dead bodies in in the basement you really have to be thinking of if you mention it and say, "Yes this could be a liability issue." The problem is if it happens after deal, I think it's gone. The whole work you've done, whatever your complete recommendation or the reputation is gone and that is broad.


Personally, I want to sleep at night, so I don't want to have any dead bodies. If there is any cuts I had here and there I go for the risk and say, "Yeah, but this is normal." There is no super clean sheet in any company.


I try to be as transparent as possible, but I cannot guarantee that I have not forgotten this or that. But then it's so minor that it has no impact on the business.


Robert Hansen

Yeah. I feel like for the most part, companies don't care because they kind of expect you're a smaller company, you're not going to be as mature as they are. There might be some outdated things here and there or broken things here and there.


Yes, we understand there's some technical debt and you could have done this five other ways and you chose the cheap way and whatever.


Robert Hansen

But ultimately what they see as the vision they see is what they're trying to accomplish, which is acquiring you and using you to do X.


Curt-Simon Harlinghausen

But plus there's one thing is, the vision from their perspective and they see the success to the moment they have acquired you. That is something that you must have done something right.


You wouldn't have got there if you haven't achieved those goals so that they have some confidence that you have done it right in the past because they believe if your company is maybe it's 2, 3, 4, 5 years old, there is an audit.


There has to be something done in the past from any authority or any customer. If you're on a certain size, they have approved that this is valid and solid.


Robert Hansen

Do you think there's any value in doing a third party valuation before you start talking with the acquirer and say, "Well, such and such big company claims that they think we're worth half a billion dollars." Do you think that's worth spending the time and effort to do?


Curt-Simon Harlinghausen

I recommend that to get to even do that with two or three different companies to get different perspectives and arguments for yourself. From a size of 20 million up often those.


Below that, in general, what I would do is I talk to some people out of M and A and see what they think and what would be market value at this stage but above 20 million we have seen that this is a good investor.


Robert Hansen

Okay. Well, how do you justify multiples? How do you say, well really it's 10X or 50X or should you try to tie your multiples to how much revenue you're making? How would you do it for the best, try to get the best exit possible?


Curt-Simon Harlinghausen

It depends on the stage of your organization. If you're still in a very early stage on the revenue or even a margin, a multiple would not work. But if you say what is the potential in the market and how early you are in that field, then you can put the multiple as a fantasy but you have to have a best business case why you believe this fantasy can come reality.


As old company gets as more mature, the financial model and the market and the environment is you can come to a multiple, which is revenue-based or even better margin-based.


In most cases, long term integration and not another business case or another VC case, a margin is the better structure. It's EBDR then starts from five to 20, in between. Depends if you have tech or patents or what, what values you bring in.


Robert Hansen

I've seen even higher than that, 30, even 50 in certain industries.


Curt-Simon Harlinghausen

It can happen. 50 is very rare.


Robert Hansen

Extremely rare.


Curt-Simon Harlinghausen

I've seen 27.5, which is the highest I've seen, which I thought, "wow." But on EBDA. But also because there were some other value behind like a pattern for example, which was not monetized or a data set which was not monetized.


Robert Hansen

Sometimes like oil rights or something, they can go for fairly high multiples. Specifically very rare mineral type mines. There's some cases where this all makes sense.


The only reason I know this is because I did an analysis on every single publicly traded type of organization across. thought it would all be somewhere between one and 10 approximately. It was actually pretty wide variety.


Consultants down at one and some bizarre other industries that I have nothing to do with were much higher like 20, 30 or even higher.


Curt-Simon Harlinghausen

Yeah. You see that in software as well. When you see that there's only a small team is able to manage the software, which can reach a broad scale and a lot of clients and turnover.


Then you can see multiples from 2025 up even because this is what the future brings. They're exactly in that stage where they are in the turnaround of from the build now to the run and this is then efficient.


Then it's more harvesting and professionalizing and the being more efficient in operations than just building. The building is the expensive part.


Robert Hansen

That was exactly where we ended up landing. It was right around that 2025-ish times multiples. Purely because we were so small and fully automated. I could add 50 people and it doesn't actually change our cost to our customer at all or I could reduce it down to nothing and the customer's not affected.


There's no humans behind the keyboard. But once you have services that do require humans, that's where things fluctuate a lot.


Curt-Simon Harlinghausen

Yeah. But there's also a high risk and rarely, you see something above 15. If there's a good text tag in, you can reach up to 15, but in general you see it between five and 10.


Robert Hansen

Also, unique selling propositions, transferability, growth opportunities, I think these are all potential selling points for your company. Try to pump up those valuation numbers a little bit.


Any talent, intellectual property, these are all good sort of selling points to kind of keep the people's dreams going. That this is really worth something much more because really, you're pitching yourself to a person. This is selling, you are selling yourself.


The sales process is all about getting people excited and thinking about how they make their lives easier or better. Are you solving a problem or you creating some net new awesome thing that they would like to go and engage in.


Curt-Simon Harlinghausen

They even look better. It's not always like solving a problem. It's not always a negative. It's always like showing that this company is going to the next stage is developing further. Which is not only a fact for the company acquiring you or for you, it's more that for the whole workforce.


They get a motivation, say yeah, that they're doing something. We see the progress, we want to be part of that movement. We want to be part of the progress. Also what often happens, which is underestimated in acquisitions is, even if you'd say, "Why would that make sense? This company is not making this much of profit."


If you come into kind of network structures, you pay a network fee being part of the network, which is maybe 10% or 12% or 9% or 5%, whatever it is. But that is the revenue. This is the interest for the network.


As long as you are bringing profit and you are able to pay your network fee, they make the profit and they find other ways to get the money out of you. You have to book flights through a certain travel agent and of course a travel agent puts five or 10% on you for the network.


So, with all that, they take all the money out of you here a bit there a bit. They make their margin pretty much, then they take off the overhead cost, but it's still a solid margin, and they really can calculate on that.


Robert Hansen

What about the value of someone's pipeline? Let's say, they're kind of going along, they're growing at whatever rate they're growing, but their pipeline's enormous. Is that something you can sort of hang your hat on to pump up those multiples?


Curt-Simon Harlinghausen

It' always the question, where does the pipeline start? Does it start on the day of the acquisition or start 10 years back in five year?


Robert Hansen

That's what I'm saying or maybe different people. People who are further along in a pipeline, expect to close within the next 60 days or 90 days.


Curt-Simon Harlinghausen

There's a propensity there often. You have some evidence and you show why it is, and then you have to proof point, if it's a big deal. You have to show there's an LOI or there are contracts sent and there is feedback on the contract, then you can build a confidence on those pipelines.


But often there is a lot of fantasy or it's not even a pipeline. It's not even a lead. It is an early stage of a conversation maybe showing interest and that's nothing you can build on.


But whatever is written, whatever you have in your hand, this is something where you can build on and then you can come up with a propensity scoring on that.


Robert Hansen

What is something a customer testimonial or brand worth? How do you say we have a good brand and leverage that for multiples? How do you even measure what a good brand is?


Curt-Simon Harlinghausen

Brand health index. There are different organizations like GFK or Content Media. Whatever they are, they can give you a good idea of how healthy your brand. It's not only in the main country but also maybe international.


That helps a lot if you have a strong brand, which is in the target group and not off target of course you have low cost on marketing. We know all brand terms are the cheapest terms.


It's easier to acquire new employees. A strong brand can help you with a lot of things. Sometimes can be a burden because you have to stick with it and you cannot just change business models as fast because there is a story behind it. But in 99% of the case, I see a strong case with a strong brand.


On customer base, it has to be a good mix, a good balance of income from different customers, not relying on one or two customers. It has good spread, also long-term customers. What is recurring revenue from those customers?


Do you have an SLA, even if it's an agency? Do you have a subscription model maybe in place? Do you have access or do you have a long-term content to interact with a customer up in cross sell? You still have the opportunity or it's a single sale because you only have one product. All of that has to come into play.


Robert Hansen

After the acquisition happens there's usually, or in the process of it, you have to set some money aside, reps and warranties, insurance or in an escrow account. Is that a common thing in Europe as well or is that primarily US thing?


Curt-Simon Harlinghausen

It's strongly in US. You see that in some part of Asia as well to have kind of intermediate structural escrow?


Robert Hansen

Somewhere around 15, 20%, somewhere in that range.


Curt-Simon Harlinghausen

Yeah. That's the same. But in general you have more earn out. In general, the upfront is not as high, and then the earn out is bigger. And if you fail or have any kind of liabilities taken off your earn out in shares of your company. So they protect themselves by saying in general there shouldn't be after the due diligence any dead bodies. But if there is still, we at least we get the company for free, some kind of.


Robert Hansen

Or a chunk of it.


Curt-Simon Harlinghausen

Or chunk of it exactly, yes. that’s one thing, the other thing is, it rarely happened that companies want to take over the majority in one goal. Often the goal is, hey, we want to have barely the majority in the rest of the year and out but with that we have full saying over the company.


Not all founders are going with that path, because I want to have the say. There is the critical pause and therefore often if there's not the common sense of it, there is often an escrow built for exactly covering that case.


Robert Hansen

Then reps and warranties are supplemented with RSUs, reserve stock units, which effectively get paid out at a certain rate usually. So if the bad thing happens, and it turns out you're a bad actor, not only do you not get the reps and warranties in escrow, or insurance or whatever, but you also lose whatever you would have made in RSUs when they fire you. So it de-risks the deal pretty heavily.


Curt-Simon Harlinghausen

Absolutely. But RSUs are not this common in Europe. So you see that a lot on US companies.


Robert Hansen

So how does it typically work in Europe?


Curt-Simon Harlinghausen

Whether you have options and then options can be converted during maybe an exit order, certain time period.


Robert Hansen

Discounted options or?


Curt-Simon Harlinghausen

They're discounted often on the day when you close the deal, plus a discount. And then they guarantees such growth on it, or they show that, you bring the growth into the organization with that your option gets more value.


Robert Hansen

So it's mostly cash then.


Curt-Simon Harlinghausen

Mostly cash, yes.


Robert Hansen

Well, that's nice. As my friend Gabe, from New York likes to say, “I like my cash in cash.” Which is nice. You don't have to. So in the post-acquisition process, how much do you personally value in reducing the company's dependence upon you as a leader??


Because eventually you're going to leave and presumably you want your options to be continued to worth something after you leave and continue to grow. So it’s worth keeping them around after you leave. How do you start that process of removing yourself from the day to day critical decision making?


Curt-Simon Harlinghausen

Starts from day one when I'm finding a company, exactly. Good companies when the leader is not required, and the structure and management is able to work on their own, the same ambition I have here.


So my ambition is not to achieve a certain amount of money, I want to make sure that this organization can run without me or having a successor for all the different key roles. So being independent and working as an ecosystem in itself, not depending on only one or two or five people.


So that is also the story and the due diligence you often have to explain how the company survives without you and you have to prove upon that. I think there is a huge opportunity to win in a deal if you have that in place.


Robert Hansen

So how do you go about telling your team? I think this is a funny question for number a number of reasons. I was asking this question of somebody, another friend of mine the other day, “How did you find out that this acquisition was happening?”


And he's like, “Well, we found out because we suddenly got shipped all these laptops, from the acquirer.” Everyone's looking at these laptops, and they've got the company who was acquiring their name all over this box, and they all just kind of showed up. And that's how they found out.


So they weren't supposed to get up until that night when the deal had been totally verbalized, or whatever. But everyone obviously found out a couple hours earlier, which is a really kind of shitty way to find out you've been acquired. So how do you go about telling your staff?


Curt-Simon Harlinghausen

In general, what we do is we ask the acquirer if we can involve some of our key management, and we're made pretty much early stage to support, not to look too suspicious. And then we talk about partnering with other companies, and bringing this partner maybe change during a diligence, also, maybe another partner, which brings in a better offer. So that is not too suspicious.


Robert Hansen

Because the companies for some reason, I never really quite understood this, they really don't want the staff to know.


Curt-Simon Harlinghausen

It’s an NDA district. It brings some uncertainty or insecurity, what's happening? They're acquiring us, will I have my job tomorrow? You think of the site of your team, you don't want that, you want to have a continuous process.


Then you can tell, “Hey, cool, we got acquired. And this is our vision.” You want to have a story forward, that's what you need. But before that, you have to be confident, and you have proof of that.


Robert Hansen

Yes, but I think there's something about all day long, we're talking like we normally talk and then suddenly, one day, I'm asking for a lot of documentation. I'm asking you to fill out spreadsheets that I've never asked to fill out, because of the due diligence process.


If there's anything that's going to make someone feel uncertain, it's that sudden, new, crazy amount of documentation about what they do all day. It’s like, wow, these people are definitely firing me or something.


Curt-Simon Harlinghausen

But this is why I say start from the beginning, implement transparency from day one, then you don't have that. we have the documentation in place, you can shift it into a data room. People don't ask why you want the documentation, which is coming from day one, I started here, they always want the stuff.


So it's not this suspicious anymore. If you start in the beginning and have a good process, and you have a good repository, where you do your documentation, financial and workwise, it's in ease. It becomes a habit.


Robert Hansen

I think that's at least partially true. Or maybe even all true if you do it really well. But I found that a lot of the questions they asked, we really needed very specific staff members to answer because it was about what they did in their day job, and that there wasn't really a great place to document that at least, it wasn't well observed by the executive team.


They don't know where that document lives. Maybe the core team who works on that part of the product understand what's going on. They haven't documented but it hasn't trickled all the way up to executive team.


Curt-Simon Harlinghausen

The Trojan horse would be you have a tax audit.


Robert Hansen

All right, so lie.


Curt-Simon Harlinghausen

Yes, it's not a full lie. You don't have to say who's doing a tax. It's not a full lie, because the due diligence also does a tax audit if you're paying all the tax, if it's helping the audit is another question. But they are yes.


Robert Hansen

So let's say now they know about it, how do you stop them from wanting to leave, because a lot of people, they're going to be looking at that I like I liked working for a small company, I enjoyed working with this team.


Now the deck has been shuffled, I've got a new manager who I'm reporting to, and I'm disappeared, I used to make a big difference. And now no one's going to even know my name.


Curt-Simon Harlinghausen

Again there is the human factor, if you get acquired, bring those humans in which you think is relevant for the organization that they can start, learn about them, get in touch with them. See, okay, there's also humans, that are not financial guys or infrastructure so that there's something happening where this can grow together.


Tackle and trigger their fantasy and the potential why they can grow in this new environment, and why this is better for everyone. And that's the human factor. You can tell whatever story you want, there's no human involved. People not get to buy into that. That's the emotional part happening.


Robert Hansen

So how do you continue to grow and innovate when you're in that sort of due diligence process? Because what I found in our case was, we were really unable to do anything while we were in that period, everything we did have to be documented.


So every change we made had to be documented. So effectively, we're ended up working for them, as opposed to working for ourselves. So how do you maintain autonomy while you're in that process? Or should you just expect that you're going to be working for them, during that entire process?


Curt-Simon Harlinghausen

It’s pretty much high commitment you gave there. In the past, what we have done is we kept the company running as much as possible on the same speed and structure. Because what happens if due diligence fails, and then you lose three months, or whatever, on time, and work and awareness, and maybe also some customers, because you focus so much on the diligence or on the acquisition.


So we tried to minimize that to whatever and if it takes three months longer, it took three months longer, but later, the flow was still there. So that was a good process in the past. Also, I believe that if someone wants to acquire pretty quick, they'll just say, “We cannot do that, we want to be quick.”


Let me know what is the most important part that go and only on the most important documents, and then the rest will be happening between signing and closing. Because what is the good part of that phase is you come to a financial decision together, all the framework is set, and then you have time to come up with those documents, which you were not able to work on.


But everything is set in stone it’s hard to push the stone over again. So that gives you the confidence and you can talk to your employees. And this is a different story. But definitely you have the signing and closing phase where you can really stretch it a bit.


Robert Hansen

If you're planning your exit, you and I'm sure, multiple executives after their RSUs vest or whatever time period lockup they have, reps and warranties insurance sometimes might be tied to that or whatever. How do you plan a graceful exit?


Because you're not trying to hurt the company, when you leave necessarily, you're just off doing the next thing. Maybe if you're an entrepreneur, you're probably starting another company. Or just buying your yacht or whatever you're going to do.


Curt-Simon Harlinghausen

Or your farm.


Robert Hansen

Or your farm, right, exactly. So how do you structure your exit in a graceful way so you're not hurting the company in the process?


Curt-Simon Harlinghausen

Documentation again, so what have I done? What did bring value? What is the economy around me and the ecosystem and the stakeholders should know what information? So if you document that helps a lot. The second is to involve people at early stage.


That they accompany you during the process, that you are a single source of knowledge so that you transfer the knowledge and also that you share the vision you had to a new leadership team. Also to support the leadership team in their transition.


So I'm stepping out. I'm only here for making sure the team feels good and is understanding your story well. I'm the advocate of the new organization, but you have to trust from the past so that I think you're kind of the mediator in between those and this can take three, six months.


But then you should do a hard cut and get just get out. You can consult on a freelance base to the management team, but you'd not be involved in the business anymore.


Robert Hansen

Yes, I actually liked that consulting, I ended up doing that when I left White Hat security. I continued to consult with them for quite a while, maybe six months later, or whatever, kind of allowed them to save face when I went to conferences and like, I'm still part of the company, but it wasn't really.


So that's interesting. So we talked about this before, but just for the audience's perspective, it's making sure they're caught up on this conversation. So one of the cool things I did with my company is, we found out that one of the companies, who had used our software had been using it to identify corporate malfeasance from the public Internet.


So effectively, you could go to our software, get a snapshot of what this company looks like, from an infrastructure perspective, and then continue to get snapshots over time. And one of four things happened, nothing was one thing, two was a lot of changes.


But there was no change in the assets like going away or arriving, or very minimal, it was more like services were being updated. So you could tell there was a lot of IT hygiene issues, because some guy is running around with a CD installing stuff real quick, which means you're going to have to do a lot of work when you get in there because they don't have the software maturity.


So that kind of benevolent, you realize you're going to have a little bit of problem when you get in there. The next one is they saw that there was this one particular company that suddenly their asset count was enormous.


Right after they told them that they're potentially acquiring them and this is a very, very large company. So these are billion dollar deals I'm talking about here. And it turns out that they were basically cooking their books to make it look like they had a whole bunch of customers that they didn't actually have.


So obviously, that was a done deal. And then another deal, in the inverse, they saw a massive drop in the amount of assets. And what they realized is when they went back in time, and saw what those assets were before, there are a whole bunch of gambling sites.


So that's where the real revenue was coming from. So again, books were cooked, and it made it look like they're making all this money over here when it was really coming from gambling. So the only reason I bring that up is I know you have some strategies around M&A that I thought might be worth talking about.


Curt-Simon Harlinghausen

Absolutely. What I see is we talked to in the early stage about the ecosystem idea. I think that is one strategy, which is totally helpful to think of how many acquisition targets could fit into such an ecosystem that this can be managed wisely.


So that this is supporting each other, the growth of the ecosystem is driven by the ecosystem itself. And that could be x growth. I believe that is one idea. The second is if you invest International, so you start building a network of the same capabilities, maybe with different backgrounds and different strategies, but on an international base.


So one in Germany, one in the US, one in UK, maybe, wherever you want to grow it. But if you have two similar companies, they will fight about who is the leading company. If you have complementary companies, they will learn from each other, it's easier to connect.


So especially on internationalization, you should have a good mix of complementary assets in your portfolio. The third idea is finding companies which are under a certain size 25, maybe 50 people, maybe 100. Depends on the industry.


Where you believe you saw them struggling, but mainly because of organizational reasons not because of market or product. Then acquire them and then nurture and harvest them on a later stage but nurture them first and bring them together and standardize your processes across all the objects and assets you have in your portfolio.


Then you have their scale effect standards, which everyone learns from, and you will see a huge impact on your assets. So we see in some of those investments we have done, that there is I think the biggest growth potential in. Because also if you have 10,12 targets in that investment structure, that if there are two failing because they were really not good and your diligence didn't show that.


So the other 10 can cover that easy. And you have really good key people and you bring that in a different structure. I take over maybe one or two clients, but like it's not a total fail.


Robert Hansen

Yes, Jake Moilanen and I talked about this a week or two back. And he said, you need about 15 On average investments before you before it seems like you're going to make money pretty much consistently. And they have to be diverse. So that sounds about exactly correct.


Curt-Simon Harlinghausen

Yes.


Robert Hansen

You pick good ponies, it could just be one.


Curt-Simon Harlinghausen

How could you know? Everyone tries to pick good ponies. But it depends on the size. You cannot have 15 big ones, you probably will have three or four big ones. And then you have 10 middle one and two, three smaller ones where you say this long-term bet or this could be whatever.


Robert Hansen

Or pet project, it's complimentary.


Curt-Simon Harlinghausen

Yes, it's just a challenger in your portfolio.


Robert Hansen

All right, I need you to retell a story you told me once about your wine cellar. This is a really funny story and I think it's worth talking about.


Curt-Simon Harlinghausen

Yes. When I sold the wine company, my wife at this time liked one bottle of wine in particular. I thought it was a good idea to acquire all available bottle of the year of this exactly wine.


Robert Hansen

So you went out and found every bottle of wine of this particular vintage.


Curt-Simon Harlinghausen

Yes, I don't know if it's every but I tried my best across Europe, which was reasonable logistic effort to bring that in. And then they came and delivered, delivered, delivered.


Robert Hansen

Pallets of these.


Curt-Simon Harlinghausen

Yes, we had to even store them somewhere outside because cannot have them just outside. And one is sunny day, one delivery, so we have to get them quickly off the road before the wine dies. And it's not like a two or five year old bottle is was a 30, $40 bottle.


We stored them in our agency in the basement. Yes, so there were a couple of 1000s. And then a friend of us, both of us, Marcus Tober. I told him, we were sitting in Berlin and I said, “I just did this crazy stuff.” And he said Oh, then he went on the platform said, “Yes, the value of the wines like skyrocketing went up like wow.”


Then I started reselling the wine again and I refinance my wine with that. I thought wow, this is nice arbitrage model I was not aware that this exists. I could finance my wine cooler and the wine we bought and I went down to the winery and told them this story and then acquired some years after some of the productions as well and not totally but as particular size of bottles and wine.


I really liked that and then one year was not so easy to sell and it's too much effort, but with that I understood wow, there's business models out there I've never heard of. I still have some wine.


Robert Hansen

I would love to get a bottle one of these days. How much the end up being worth after it's all said and done you remember?


Curt-Simon Harlinghausen

How much are made out of it?


Robert Hansen

Know how much did any individual bottle go from 30, 40.


Curt-Simon Harlinghausen

I acquired around 38 Euro, 217. So this was the max price I received. If I was selling more like a couple 100 bottles, I got, I don't know. I would say 85 to 90 Eurodollars.


Robert Hansen

Double your money.


Curt-Simon Harlinghausen

Doubling money, yes.


Robert Hansen

So then you were able to restock your wine cellar for everything you sold for free basically.


Curt-Simon Harlinghausen

Yes, I repeated that twice again. The first time worked again very well different winery, different wine type. The third one failed.


Robert Hansen

Failed like you lost your money or just didn't make any?


Curt-Simon Harlinghausen

Little loss. I did a lot of happiness to a lot of people because I gave it away. Because it was a burden. Keeping that wine at that temperature for such a long time and those wooden boxes and make sure that there's nothing happening. It's quite an effort, I was on the move.


Robert Hansen

How many bottles are we talking about here?


Curt-Simon Harlinghausen

First time 17,800.


Robert Hansen

My God, I love that story. So funny.


Curt-Simon Harlinghausen

Couple a hundred are left, not a couple of 1000 anymore.


Robert Hansen

You got one buyer here.


Curt-Simon Harlinghausen

I can get you one for free.


Robert Hansen

There you go, even better. So we talked to I don't know, maybe a couple weeks back or something about what's going on with China, I'll let you tell it but what's going on with investors with regard to China right now?


Curt-Simon Harlinghausen

I see a lot of institution and family office pulling out of China. It's not one or two, it's a movement. One and the financial situation as pretty much declining on the highly regulated and government controlled market.


So there is a lot of uncertainty where this is going along, there's a lot of tension. We don't know what's going to happen between China and Taiwan, we didn't know what's going to happen between China and US, even if there's agreements.


But agreements are strange these days. On one and the Ukraine is receiving a lot of drones to fight the Russians. On the other hand, the Russians do a gas pipeline deal with Turkey. How is that fitting together? And it's not only China, it’s the whole Asian region, it’s getting some tension.


It's not everyone is in the best shape. And we don't know where this is going to, especially China. Seems to be a closed shop for a lot of stuff on long term investments. You don't know if you keep your investments, because the government can just take your investments and close the borders, what then?


It gets so powerful, in an economics point of view, influencing markets by delivering key assets and goods, and more and more investors are questioning their strategy.


Robert Hansen

That's really interesting. I had a conversation with Jennifer Richmond about China. One of the things I thought was bizarre and interesting and horrible was, Canada had guidance for their citizens, that basically said, if you're worried about what the government is going to going to do with regard to Sesame credit, which is their social credit score.


You should hire somebody within China, who can tell you whether what you're going to be doing or not, is going to run afoul of the government.


So basically, get a government employee on staff, and the government employee will tell you whether you're going to lose your shirt or not. And the scary thing is, that's totally correct, that is the right guidance.


It's just terrible, because now you are fully beholden to the government. And you are really doing what the government tells you full stop at that point. And they control these Canadian companies. That is the strategy.


Curt-Simon Harlinghausen

You can see that elsewhere. In Germany the government decided that two acquisition targets of Chinese investors are not allowed to go to China. The government said, “No, you're not allowed to sell.” So in harbors, and all the big sea freight harbors, you will find Chinese investors in.


If you go to Djibouti, which you think this tiny country, a very strategic point in Africa, is owned by China. I think, at this time when I was there was 1/3 of the population was already Chinese. Was all workers in the harbors. 1/3 of the population.


So taking over a country, and this is happening all around the world. So we will see China growing everywhere. It's just a pure size, very stringent 50 years plan. It's not like opportunistic for four years for a period of a president. So this is something changing.


This is why to be honest, I don't want to compare that with China, but what I like in my company now, there's a family behind it. They have a long term plan, this gives confidence for the organization, gives confidence for the people, gives confidence for our customer, for our partner, for our retail, that we stick with our word.


That is what's happening is in China, this is why they keep the people calm. They have a long term investment strategy outside of China, to build their pillars out there. And then they will take over here and there. And as much as you may dislike or disagree to Trump, in that particular point, he's totally right.


It’s the way he expresses it is also very particular.


Robert Hansen

Not everybody’s cup of tea.


Curt-Simon Harlinghausen

Not everyone’s cup of tea. But I used to live in China, I spent a lot of time there. There are a lot of smart people with great education with strong focus on economics and money and programmatic because they have to survive.


But as you say, the social scoring is driving this transparency. So this is a behavioral mechanism to make sure that one point x billion people 1.345, I don't know how many there are now can be controlled. And we can be happy they're controlled. If they would not be controlled if they were out in the world, and with their ethics of working, a lot of people here would be like, “Oh, what are they doing?”


They work harder, longer. for less money. Why? This would be scary.


Robert Hansen

Economically.


Curt-Simon Harlinghausen

Culture wise would change complete countries, societies.


Robert Hansen

So to round this out. You had a pretty crazy near-death experience in a car, handful of years ago.


Curt-Simon Harlinghausen

Oh yes, a couple of those, actually. But I know what you mean.


Robert Hansen

The one I'm referring to?


Curt-Simon Harlinghausen

Yes.


Robert Hansen

First of all, it'd be good to know, just to have them to tell the story a little bit, but my actual question is, how do you think that's changed you? I feel like it's got to have, you were in the hospital for quite a while.


Curt-Simon Harlinghausen

Yes. The one that you're referring for was a car I picked up which was my midlife crisis compensation car. Of course, it was a Porsche. I picked it up and I thought, “Okay, this year is 2015.” I lost my mom after 10 years of cancer. I sold my company.


I had a lot of other hiccups and private issues and fighting with that. I came from Cologne on the way home. It was my first ride with a car. I had semi slicks on the car, got into Aqua planning car, turned around, got hit by x c 90 Volvo. I got all smashed and broken.


Robert Hansen

The car was unrecognizable.


Curt-Simon Harlinghausen

Yes, it was like, zipped and rowed in full compression.


Robert Hansen

If you didn't tell me that was a car. I wouldn't even know, it's really rubble.


Curt-Simon Harlinghausen

To find out what color it was, yes. I have to say, thank you, Portia, for doing such great cars. Agent airbags popped off and all of that, so it saved me. But yet, as this was not the only accident, I lost my arm once on a car accident when I hit a deer on the motorway. Germany they not always have speed limits on. So in general, I'm more on the faster side of driving.


Robert Hansen

You lost your arm.


Curt-Simon Harlinghausen

Yes, you can see there.


Robert Hansen

Wow, that's not great. Clearly, they gave it back.


Curt-Simon Harlinghausen

Yes, they gave it back, nearly to full function, nearly. But what has changed, I get more cautious. But it's not like that I now don't like to drive cars anymore. I drive a very small car, which is a polo, which is in US, for a bit smaller rabbit or golf or whatever a Volkswagen, VW.


Can run about 350 kilometers per hour, I think it's 170, 180 miles per hour, which is pretty fast. It gets me where I want pretty quick. I like to go this fast. This hasn't changed.


Robert Hansen

What about in business, has it changed how you look at the world or look at business or?


Curt-Simon Harlinghausen

No, not in a business sense. what has changed, when I was living in China came back and I got sick. I lost a lot of money. I know I'd love time to think in a hospital and had a lot of pain. That changed my whole business attitude. I learned how it is about negotiations, my positioning of getting prepared.


Wisely enough, ask questions deeply enough. Think about it. Don't do a decision, in the evening. Do it in the morning, sleep over it. Have a look on it. That was more like this. This was traumatic, I was closer to death when I came back from China with all the illnesses I had then through the car accident, to any car accident.


But with that car accident I drive slower in rain, yes, that has changed. What I do since then I valuate my life way more. I get more humbled, I'm more thankful. I'm less angry or worried. I am very happy about what I have achieved in life. This is a change.


Now I have five kids with my second wife and we have wonderful small kids.


Robert Hansen

A farm.


Curt-Simon Harlinghausen

A farm, yes. But like what my kids, this is my wow, if I see them my heart is like, why did I deserve to go this path? So this understanding and the thinking of karma, what do I do pay in and what do I give and not expect back?


This has changed, yes, it gets even more obvious to me and more visual in my life and I look way more back.


Robert Hansen

So what's next for you?


Curt-Simon Harlinghausen

I want to be successful with this endeavor here, I want to make Miele look great. Greater as it is already, I want to make sure that I can be replaced in this organization. That I give the family what I promised, the family of Miele and find the right balance to juggle with my family.


So work life balance, get this in place. And then my dream and my vision is to grow my farm to a sustainable, self-sufficient environment where I can invite people to have conferences. We have guest rooms, we have wonderful conferencing area, one up in the hill where the farm is, one down in the town.


To make a positive impact on the society and sustainability aspect. So that is our aim. Give my kids a bright future, great education, great confidence in developing and also giving my wife the ability to do something for her after she's now investing into the kids.


Because I'm gone, so that we can switch positions because that is something I should have done with my previous wife, was a different life situation. You have to see it as a holistic, this is something what was missing and where we got disconnected.


Robert Hansen

Well, Simon, this has been great. Really appreciate it. Where can people reach you? How can they find you? Do you want to be found?


Curt-Simon Harlinghausen

Yes, you find me anyway, if you put my name on your podcast like Curt.


Robert Hansen

Simon Harlinghausen, going to take the whole thing.


Curt-Simon Harlinghausen

It’s not too many people out there.


Robert Hansen

Are two other Curt-Simon Harlinghausen?


Curt-Simon Harlinghausen

There is one Simon Harlinghausen. I used to Curt-Simon. And he was complaining about because he owns the Harlinghausen.de and I own the harlinghausen.com. And that he received emails, which are meant for me.


Robert Hansen

Yes, probably vice versa.


Curt-Simon Harlinghausen

Not this often. He has not such a broad network or extensive lifestyle. Not expensive, but extensive. But I use an email address, which is called S@mde, which is very short. So message to Sam, if you want to reach out to me, I'm always up for advisory roles or any kind of exchange.


I'm not looking too much into business or financial opportunities at this stage. I want to close more than I open up new endeavors. I want to focus more on my family in my life and the future and especially on this role I have currently.


Robert Hansen

Great. I really appreciate you doing this, especially at this conference. I know you took time away to do this. I really appreciate it.


Curt-Simon Harlinghausen

Thank you very much. Thank you for your time and great conversation, great questions and looking forward for some adventures we may have together.


Robert Hansen

Let's hope.


Curt-Simon Harlinghausen

Let’s hope yes.


Robert Hansen

Thanks, Simon.


Curt-Simon Harlinghausen

Thanks.


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