Mastering M&A: Insights from Bill Stone of SS&C Technologies

Introduction

Bill Stone, founder, chairman and CEO of SS&C Technologies, has led the company through over 60 acquisitions since 1995, growing it into an $18+ billion market cap leader in financial technology. In this interview, Stone shares key insights on M&A strategy, value creation, and operating as both a public and private company.

Bill Stone's Background

Stone's path to M&A success began in Evansville, Indiana. As one of nine siblings and captain of his high school football team, he developed a competitive drive early on. His career started on the CPA track, giving him valuable financial and accounting experience that would later prove crucial in M&A.

SS&C's M&A Philosophy

SS&C's approach to acquisitions is driven by several key factors:

• Ability to deliver functionality to clients quickly rather than building from scratch
• Finding products that can be sold into SS&C's existing 18,000 client base
• Acquiring new clients to cross-sell SS&C's 100+ existing products and services
• Streamlining overhead costs of acquired companies

Stone explains: "We can always build it, but often we have large sophisticated customers that don't want to wait. If we can find an organization we can acquire and deliver that functionality to a client, it's a win-win."

Early Acquisition Strategy

SS&C's early acquisitions focused on end-of-lifecycle products where they could migrate customers to SS&C's newer offerings. Stone notes:

"We had a product that we bought a couple of companies or products out of a couple of companies and then were able to move their customers onto our new product and that was very effective."

This evolved into acquiring complementary products to create a more comprehensive offering for clients.

Evaluating Acquisition Targets

When evaluating potential acquisitions, especially end-of-lifecycle products, Stone focuses on:

• Ability to service the existing client base
• Potential to upsell other SS&C products to those clients
• Building a reputation as a good acquirer that takes care of customers

He emphasizes the importance of not moving too quickly to migrate customers, unless the business is "really hemorrhaging."

Bill Stone's Involvement in M&A

Stone remains heavily involved in SS&C's M&A activities, particularly around:

• Pricing and multiples
• Tying business leaders' bonuses to acquisition success
• Challenging overly high valuations

He pushes his team to justify acquisitions, asking questions like "Why would we pay 9 times sales for this company? Let's just go build that functionality."

Public vs Private Company M&A

Stone sees more similarities than differences in M&A strategy between public and private companies:

"Primarily they don't [change]. If you're running a good company, you run a good company for whoever your owners are."

Key differences include:

• Focus on different financial metrics (e.g. EPS vs EBITDA)
• Ability to use equity as compensation in public companies
• Less independence in decision-making as a private company

Mechanical Differences in Public vs Private Deals

The main mechanical differences Stone notes are:

• Different disclosure rules
• Less independence in private deals (e.g. needing private equity owner approval)
• Challenges in valuing equity compensation in private companies

What SS&C Looks for in Acquisitions

SS&C prioritizes acquiring expertise and knowledge. Stone emphasizes transparency about SS&C's demanding environment:

"This is not a place for the faint of heart. We have very big customers, they're very demanding, the work we do is very detailed."

He looks for people who can handle complexity and think quickly.

Culture vs Numbers in M&A

While many emphasize cultural fit in acquisitions, Stone focuses more on financial metrics and transparency:

"I think people that try to create a culture is a mistake. I think you have to be who you are."

He believes aligning around financial goals and building confidence in execution is more important than forcing a specific culture.

Value Creation Post-Acquisition

Stone measures value creation through metrics like:

• Cash flow growth
• Revenue growth
• Margin improvement
• Customer satisfaction
• New product development

He emphasizes the need for urgency and performance to participate in equity upside.

Key M&A Lessons

Stone shares several key lessons from SS&C's 60+ acquisitions:

1. Be wary of overly complex deal terms
2. Do thorough due diligence
3. Trust your instincts if something seems off
4. Know the numbers inside and out
5. Understand the people and talent

He advises being ready to walk away if red flags emerge, even late in the process.

Preserving Value During Acquisition

To minimize performance dips after acquisitions, Stone recommends:

• Evaluating talent thoroughly, especially the second tier of leadership
• Preparing for inevitable attrition
• Having enough internal talent to fill gaps
• Staying positive as a leader while being realistic

SS&C's Integration Approach

SS&C's integration strategy involves:

• Retaining brand equity where it exists
• Quickly integrating back-office functions like finance and HR
• Maintaining some independence on financial metrics
• Agreeing on performance targets upfront

Challenges as a CEO

Stone finds personnel issues to be the most challenging part of his role, especially having to let people go. He also notes the difficulty of maintaining leadership during times of tragedy or loss within the organization.

Time Management as a Public Company CEO

Stone doesn't use to-do lists, instead focusing on:

• Strategic direction
• Evaluating potential acquisitions
• Assessing people and their capabilities
• Maintaining the company's "cadence" or rhythm

He emphasizes the need to trust competent people and have good systems of control in place.

Craziest M&A Experience

While Stone hasn't seen anything particularly "crazy" in M&A, he recounts dodging a bullet by declining to acquire a Caribbean bank that turned out to be fraudulent:

"We got offered to buy a bank in the Caribbean once by a really big investment bank and we said no we didn't want to do it and three months later it was out of business, fraud all over the place."

Conclusion

Bill Stone's approach to M&A at SS&C Technologies demonstrates the importance of financial discipline, thorough evaluation of both numbers and people, and maintaining a consistent strategy whether operating as a public or private company. His insights offer valuable lessons for any organization considering growth through acquisitions.

Article created from: https://www.youtube.com/watch?v=7mq460dK-1Y