When Sudheer Bhayankar sought out his first acquisition, he was seeking something much deeper than a financial investment. For Sudheer, acquiring his own business meant an overhaul in his work and his life path, as well as leaving the comfort of his corporate world. With so much at stake, Sudheer wanted to get the acquisition right and looked for a trusted partner in the deal process.
This case study delves into Sudheer’s unique acquisition story and how he leaned on Rapid Diligence to provide the necessary due diligence support to make his first acquisition. His story highlights the unique needs of an international acquisition and serves as a sterling example of how to leverage your personal skillset to unlock the perfect acquisition.
This case study features excerpts from Sudheer’s full interview, but for more of his story and actionable insights, click the link to his story above.
Sudheer Bhayankar, an experienced leader with a tenure at Amazon, nurtured a vision to own a business. He credits Amazon’s “scrappy environment”, tight deadlines, and exposure to varying business models within Amazon as the right training to acquire his own venture.
While Sudheer knew he wanted to acquire, the kind of business he aimed for changed in the acquisition search process. At first he focused on potential ecommerce acquisitions, but after several discussions with sellers and brokers, he realized the fit wasn’t quite right. Still wanting exposure to growth in the ecommerce sector, he transitioned to SaaS businesses that had an ecommerce focus and found this to be his sweet spot.
His journey led him to the doors of ML Veda, a decade-old SaaS business catering to ecommerce store owners. Sudheer found a few key elements that matched his acquisition criteria: established profitability, a skilled team with low attrition rates, and a trustworthy owner with solid rapport.
ML Veda seemed to fit the bill as the right acquisition target but it had an unusual challenge for the average acquirer—the business was headquartered in India.
An international acquisition would usually be out of reach even for experienced acquirers but this was a unique opportunity for Sudheer to leverage his skills. Sudheer had grown up between the US and India and understood the language and culture well enough to consider an India-based business. Seeing the potential of ML Veda, he decided to go through with due diligence on the business and put the initial pieces in place to take over the business himself.
To navigate the intricacies of this acquisition, Sudheer enlisted Rapid Diligence to guide the due diligence process and to ensure that the investment in ML Veda would be sound.
The Role of Rapid Diligence
Sudheer knew the importance of this investment and wanted to get the due diligence process right. Here is how he looked for us for support:
“For me, I have some level of understanding from a tech standpoint and a financial standpoint, but I just didn’t feel confident in my skill set alone. I could deconstruct the financials and reconcile accounting entries and such, or look at the company’s tech stack…[but] I really needed someone to go in and both from a tech and a financial standpoint to go in layers deep and understand are there any flags? And if so, what those flags are.”
Uncovering potential red flags is a critical part of the due diligence process. To fully understand every facet of the business, Sudheer partnered with Rapid Diligence in the following areas:
Our team stepped in to go “layers deep” to fully map out the potential upside and challenges of the business. This involved understanding the business’s intricacies from an operational, technical, and financial perspective.
To tackle the operational piece, Sudheer utilized our Live Verification Report, which allowed the Rapid Diligence team dig into all facets of the business including the day to day operations, the current team structure and where there would be deficiencies post-acquisition, the scalability and sustainability of current marketing and outreach efforts, and more.
As with most deals, not everything was perfect and there were areas of concern and improvement that our team highlighted to help Sudheer understand any of the potential risks associated with the acquisition. We did this by breaking down the various operational risks and labeling them appropriately as critical, high, moderate, and low and worked with Sudheer on proposed solutions to mitigate some of these risks.
The Rapid Diligence team also worked with Sudheer as part of our Live Verification Report offering to help him understand areas of improvement, from low-hanging fruit that we felt he could take advantage of right away, as well as more long-term, ambitious improvements and areas to expand on that could really transform the business.
Financial Due Diligence
The acquisition of a company based in India posed unique challenges, particularly in aligning different accounting principles. To ensure the business’s financials checked out, ML Veda’s accounting history had to be reverse-engineered and structured as if it were a US entity.
Our CPA team worked tirelessly to reconstruct the business’ P&L, which included ensuring all of the revenue numbers were agreed to the existing P&L, current expenses appeared accurate both on an individual level and based on other, similar deals we had worked on, and add backs were justified.
We also worked closely with Sudheer to ensure the valuation of the business was reasonable and he wasn’t overpaying for the business, including assessing the health of the business, current risks and opportunities, and market comps. This tactic allowed our team to get a financial picture of the business that would help us identify missing information and verify existing numbers.
Because the business was based in India but would be operating out of the United States post-acquisition, our team ensured the historical INR to USD conversion was historically accurate.Ultimately, we delivered a Quality of Earnings that helped Sudheer gain an accurate historical and forward-looking understanding of ML Veda’s financials.
Verifying ML Veda’s Tech Stack
Inheriting a business with dated, legacy code was a concern of Sudheer’s. SaaS businesses in particular are prone to future issues for acquirers if potential issues aren’t discovered early on.
Thus, partnering with him to uncover the strengths and weaknesses of the existing tech stack became a critical part of the technical due diligence process.
Our team started with the basics: We reviewed any and all code documentation to understand the existing codebase and architecture, as well as the reasoning behind certain design decisions.
Once we had an idea of what that looked like, we performed a deep dive into the frontend and backend components of ML Veda’s tech stack by reviewing the various code repositories. There were a few underlying goals here:
- Get a better idea of the repository structures and ensure they are in good standing. This would allow us to locate any security vulnerabilities, issues with scalability or security in the future, and catch any unsustainable code practices that would not scale well post-acquisition.
- We wanted to understand what code contributions and frequencies looked like. This would allow us to advise Sudheer on what to expect from a resource allocation perspective and how “complete” or active a particular project really was. It would also help us to understand if there was personnel dependency. For example, is there a single developer that contributes 70% of the company’s code? If so, it would be critical to retain this developer post-acquisition.
Once we reviewed the codebase, we dug deeper into what the release processes looked like. This included understanding whether there were sufficient systems in place when things went wrong during a production release (rollback process), Continuous Integration / Development, ample test suites (including unit, integration, and regression testing), the division between various environments (development, testing, production), and sufficient systems in place such as production error logging to ensure problems would be caught by the development team before they became an issue for end users.
In the end, while there were things we found worth flagging — which is expected as no tech stack is perfect — our team and Sudheer felt comfortable with the overall health of the company’s technology stack and we presented our findings to Sudheer as part of our Codebase & Tech Stack Analysis.
Establishing a Foundation for Growth
Understanding all the varying “flags” of the business was important to identify the growth potential of ML Veda. Sudheer was comfortable with the idea of encountering red flags in the due diligence process, as long as there was a compelling reason for that red flag to exist and there was a plan to mitigate it.
If there was sound enough reasoning, Sudheer said he could build a contingency plan around any potential challenges. Ultimately he wanted to identify any broken parts of the business so that he could assess if it would impede operations. Since he would be at the helm of the business post-acquisition, he wanted to fully understand that there would be a solid foundation to build off of; one that would be optimal for scaling the business.
Since his acquisition, Sudheer has taken over running ML Veda full-time. Steadily the company has launched new ventures that could be a force multiplier on top of the 25% month-over-month growth they’re already seeing. Even with the momentum ML Veda is experiencing, Sudheer has committed to implementing change at a slow and steady pace.
The acquisition of ML Veda was much deeper than financial investment. It was a life dream that represented Sudheer’s personal commitment to growth.
With so much on the line during the acquisition, he explained the importance of having support from Rapid Diligence during his acquisition journey:
“I keep using the word trusted partner and that’s the relationship that we developed, because there are a number of diligence firms out there. And for me personally, I prefer if I can build a relationship with someone and it’s not transactional… I spoke with a number of different teams before I settled on Rapid Diligence. I just felt that this individual, Ahmed, he cares, he wants to make sure that I succeed and he’s in it. He’s in the fight with me.”
Sudheer hopes to acquire more in the future and looks at ML Veda as the stepping stone to building a meaningful portfolio.
Thinking of Buying a Business?
Taking the leap into your first (or hundredth) acquisition? Our team at Rapid Diligence is here to offer a wide range of due diligence services for your small business acquisition. If you have questions or are still trying to figure out where to begin, set up a free call with our team to discuss how we can help you find your perfect business.