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Sarah Rowell & Scott Mackenzie, Kantola Training Solutions

The Sale of Kantola Training Solutions: Maximizing Exit Options for an Ideal Outcome

By: Sarah Rowell & Scott Mackenzie

CEO & President, Kantola Training Solutions

The Sale of Kantola Training Solutions

Transaction Details

  • Company: Kantola Training Solutions
  • Vertical: GRC & EdTech
  • CEO & President: Sarah Rowell & Scott Mackenzie
  • Transaction Type: Full Sale
  • Investor: Traliant
  • Location: San Francisco, California
  • Financial Advisor: Vista Point Advisors

The offer that came back was just that much better than the other offers, not just valuation, but it was a clean deal with a very high likelihood of closing. All these things that made it the best outcome for everybody.

All the work you put in, the risks you took, the passion you had, has tangibly led to a nice outcome for your team, your company, yourself, and your family.

Kantola’s Origin & Growth

Our founder's story is a little bit different from other ones because we raised a special purpose vehicle investment fund and went looking for a business to buy. We were looking for one that was small but had a market leading product in a defined niche and a reason to believe we could build something out of it. We found Kantola.

We’re married co-founders who had been operating businesses together for 10 years at that point. We worked in East Africa, running different businesses in telecom power, and light manufacturing. When we returned to the U.S., we wanted to continue working together, running a small business in something we were both passionate about.

It was around 2017, and a couple of macro things were happening. One, social media was changing the dynamic in the workplace. If you didn't get the resolution you wanted from internal sources, you could post it somewhere and expose what you thought was unfair. And two, a younger generation was entering the workforce with different expectations of what a workplace should be - they were generally less tolerant of things that had existed in the workplace before.

We thought those two things were going to lead to significant changes and create more opportunity for fairness. We came across e-learning to create a scalable impact that touches a lot of people in a helpful way. So, we went looking for an e-learning company involved in harassment prevention or inclusion training.

Most of the founders we talked to were focused on the numbers, "It's a great opportunity. Here are the numbers." We met the founder of Kantola, and he didn't focus on that. He was a passionate filmmaker and behavior-change advocate who told us to, “Come to Hollywood. Sit on set. See what I do.” All he cared about was the product. That was promising because we were buying something that had minimal infrastructure and a very small team, so the question was: did it have a product that we could build out from? And it did, so we acquired it.

Over the next five years that we owned the company, our recurring revenue increased 5x, net revenue retention went up ~40%pts, profits went up and we were able to engage with millions of learners helping change perspectives and make workplaces better, for everyone.

Deciding to Pursue a Transaction

What prompted us to seek a transaction was largely the market. When we started, we expected that there would be consolidation three to five years down the road. Our thesis was, "This business is a very interesting niche. We think it's going to have lots of tailwinds. And at some point, that niche will start to get acquired into bigger entities, broader portfolios."

We started feeling like that consolidation was happening. And even though we had years of runway, we felt that with our current funding levels, we would eventually be a standalone player in a less powerful strategic position.

We needed to change that, either by raising capital to acquire others and invest more in products, or by getting acquired. When we went to market, we were open to both. We were looking for what was going to be the overall best strategic and financial fit for Kantola and our shareholders.

Choosing to Work with an Investment Bank

We had historically raised money on our own to cut out the middle person and avoid fees, so we considered running our own process, but we’re glad we didn't. Ultimately, the three things that a bank, or particularly Vista Point, brought us through the competitive process were:

One, the increased probability of closing. When you do it yourself, buyers will push you into exclusivity and then you're stuck with one person who’s always at risk to bail. If you run a competitive process, you could have multiple parties at the end. You get to know potential buyers and make sure you select the one that is the best all-round fit, while maximizing your chance of closing. One or two could drop out and you're still going to close.

Two, the competitive process clearly increased the price. Our final offer was two times the initial price, and the terms completely changed throughout the process. We ended up with a walk-away deal with a high integrity and trustworthy buyer. One that felt like the right "home" for our team and company. A walk-away deal wasn’t what we planned at the start, but the process allowed us to explore our options and to get a much better deal, across many dimensions.

The third thing is just the reality of perception. If you rep yourself, you position yourself as a bit "mom and pop" or inexperienced. If you're represented by a reputable bank, a level of vetting has already occurred: you're smart enough to use a bank and the bank believes in you enough to choose you.

Years ago, we were approached by a big private equity fund asking if we’d be interested in acquiring another company and integrating it with Kantola. But when the PE fund found out that Vista Point was representing the company they said, "Never mind. Vista Point always gets high multiples. They put crazy prices out there. It seems unbelievable, but somehow, they get them. So, this deal is going to end up too expensive."

We wrote that down: "Vista Point gets super high multiples." That sounded pretty good, hearing that Vista Point represents good deals, and if they rep something, it tends to do well in the market. What we really liked about Vista Point was the idea they are selective about who they work with, and then they are aggressive about valuations and trying to get higher multiples.

We also really liked Jeff Koons. We had met him long before the transaction and he helped us think through when the right time was to start a process. Of course, we knew that a banker was going to want us to sell at some point, but originally, he said we needed to wait and improve certain metrics. We felt he was giving us a fair and realistic view of what was going to help maximize our outcome – we trusted him.

The Process & Creating Competition

That realistic view became important in our process. We didn’t know how to position our business as well as we thought we did, and early on, we had arguments around certain metrics. The Vista Point team explained that we had to calculate certain metrics in certain ways, and we thought that didn’t accurately describe our industry. But they told us, "I can promise you the buying set will ask about this. And if we get ahead of it and figure out the story, we will be prepared, and it will be fine."

And sure enough, all of the buyers honed in on a couple of these metrics, but Vista Point had found the best, truthful way to tell the story. And so, by knowing what buyers are looking for and presenting it in a way that is accessible, we controlled the narrative which allowed an accurate picture of the true strengths of our company.

Initially, the Vista team reached out to around 92 companies, maybe 40 showed interest, about 20 set up management meetings, and 10 put in bids, allowing us to get to three serious competitors. The sheer volume of that funnel was something we could never have done on our own.

Jeff understood who these people were and what kind of valuations they are comfortable with. He could advise us on how to narrow it down to the ones who were much more likely to be buyers that we wanted to work with and who would maximize our valuation. The insight into how different buyers work allowed us to push forward the right folks and to create competition.

Throughout the process, Vista Point drove the CIP (confidential information presentation), how we were pitching our company to the markets, management interviews, how to best position our story and what people are looking for, all the data analysis, and getting the right information to the right people when they wanted to look at it and in a way that they were used to seeing it.

They also coached us before the management meetings, so we knew what the questions were going to be, how to answer them, what to answer, and what not to answer. If you’re doing this by yourself, you might not anticipate all the key questions and you just won’t be as well prepared.

A banker can also jump in as a buffer when needed. When we had the offers, Jeff would be the one to say, "What you've offered will not get you to the next round. Which might be fine by you, but if you want to move forward in the process, you need to do better." And because of Vista Point’s reputation for being straight-shooting, buyers believed them. Vista Point is very good at making it clear that, “This is going to be competitive, and if you want it to stop being competitive, you need to offer these things…” Ultimately, that’s how to run a process that works.

The Outcome

We had three finalists, almost on a spectrum, from raising a bunch of capital and continuing to expand the business, to selling part to an international company and staying on to run their North American division, to doing a full sale to a strategic and transition out entirely.

We were looking at it from the perspective of: what's the best return for ourselves and our investors and what is the right outcome for the company and the team? And what do we want to do in the next phase of our careers? It was hard because we love the business. It has tons of potential and we would have enjoyed continuing to run it. The strategic that ultimately acquired us initially made an offer that wasn't quite good enough to put us over the edge, but when Jeff told them so, they effectively asked, "What's it going to take?"

The offer that came back was just that much better than the other offers, not just valuation, but it was a clean deal with a very high likelihood of close. All these things that made it the best outcome for everybody. All the work you put in, the risks you took, the passion you had, has tangibly led to a nice outcome for your company, your team, yourself, and your family.

What also feels good is during the due diligence process, we really got to know the acquirer and worked with them to plan the transition in advance. And post-acquisition, the acquirer has been exactly who they said they were, and it's been a very smooth transition. The CEO of the acquiring company is very committed to ‘best of breed’, and it feels good to see our team, our vision, and everything we've built not just being absorbed, but truly being integrated to create a better company. It was a great outcome.

Founder-to-Founder Advice

Don't do it yourself. We've done deals by ourselves way more than with a banker, and the net takeaway was to use a bank.

It's just the way the game's played, you could do way better using a bank. When we signed the check to Vista Point, it was with a smile (and we never thought signing a check of that size to someone was going to feel great). It felt like money well-earned because they helped create a lot of value.

Also, take the time to make sure the banker is a good fit because you will be spending a lot of time together. It's a big emotional and financial thing to go through, so make sure it's a partnership you want to be in. It's worth figuring out if it's the right fit for you.

This is for informational purposes only and is not intended to replace the advice of a qualified professional. Nothing contained herein should be considered as investment advice or a recommendation of a course of action in any situation. Opinions contained herein should not be interpreted as a forecast of future events or a guarantee of future results. Outcomes will vary depending on individual circumstances.

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