Unlocking Value in M&A: Insights from Ron Noden, Senior VP at Quorum | The Nearshore Cafe

Brian: Welcome everyone to another episode of the Nearshore Cafe podcast. I’m Brian Samson, your host. Before we get into it, let me thank our sponsor, Plug Technologies, PlugG.te. A great way to connect talent all over Latin America with growing US companies. If you’re interested in the world of, which is a very interesting topic right now, you are going to love this episode. We’ve got Ron Noden, the Senior Vice President of Tech M&A for Quorum. And his big focus is helping entrepreneurs unlock the value of their equity. This is especially interesting as we looked at M&A across Latin America, across the US, services, staffing, all sorts of stuff. So, without further ado, Ron, thanks for being here today.

Ron: Hey, thanks for having me, Brian. I appreciate it.

Brian: Ron, you’ve had quite the career as an operator, growing revenue now in the world of M&A. Can you tell us more, how did you get to where you are today?

Ron: Well, first of all, I don’t know where I’m at today, but I think it’s interesting. I was very blessed to get an opportunity to learn how to do a certain thing early in my career. In fact, when I was 13 years old, I had an idea, and it created an opportunity for me to sell bumper stickers in the back of one of those cartoon magazines that they used to have these little opportunities. I actually bought one of those kits pre-Internet days. And my parents were involved with an organization that had a national convention, and I decided I was going to show up and sell bumper stickers to anybody that wanted to be affiliated with their local group. I made way more money than I expected, and I realized that the stickers took a lot longer to dry than I would have realized at the beginning. So, some of those people had to get their stuff mailed to them.

Ron: But it created an opportunity to really understand a lot about how to sell and deliver and do commerce. And I went on to work in retail at a young age and sell suits at a young age. I became the youngest buyer at a “ret regional” retailer at the ripe old age of 19. I was going to school full-time, working full-time, and I got the opportunity to be a buyer, which is what I was going to school for because I loved retail. I worked at that company as a buyer, and then, a year and a half later, they fired 2,000 of us. They decided to wipe out a whole bunch of people, and it was a great thing because I learned a lot. I went through a series of things, went to another organization, learned some things. I became a buyer inside of another regional retailer, and then one of the three largest retailers on Earth called me. It provided an opportunity to go there and become one of the youngest buyers that they’d ever had.

Ron: That was exciting and fun. When I got there, they had a fantastic business; they had great systems. I’m involved with toy buying, but they didn’t have a particularly brilliant way of doing the allocation and distributions. One of my co-workers had some really great ideas, and we kind of looked at ways that we could make that maybe a norm of the company. So, I brought that to the attention of some folks in the technology area, and they gave me the “bum’s rush.” Then I figured out that it probably was going to save us somewhere between $15 and $20 million a year just in markdowns in my department. Incredible. Yeah, so I learned BASIC. I got that day, it was a Wednesday, I went home with a kit that I bought from, I think it was B. Dalton, if I’m not mistaken, ‘How to write BASIC.’ And the next five days I learned how to write BASIC. I actually fell asleep at my desk on Saturday and slept in my office accidentally. I created a 20-store example and, with my boss in tow behind me, dropped it off to the technology folks on Monday and said, “With my massive amount of experience, five days of writing in BASIC, I could do it for a 20-store sample with multiple distribution points. You guys, with all your smarts, should be able to do the same thing.” A year later, we had that system, a little less than a year later. That was encouraging, especially the fact that they kept the guts of that system for the next two decades. So, it was a very exciting thing to see, but it gave me an understanding of what technology can do and how it can drive a business, how it can change things, and how it can really level the playing field in situations where otherwise it would be very difficult to do.

Ron: I then went on to… I worked there a considerable amount of time, and then I really understood that I wanted to be on the other side of the coin. When you’re at one of the largest retailers on Earth, one of the things that happens is the people that call on you are some of the best in the business at selling. So, I got exposed to, the President of Mattel was our rep. Crazy to think that you have that kind of access! So, it was interesting and it was fun, and I learned a lot. I ended up going into an organization and deciding that I was going to be involved with marketing and sales. I grew as a salesperson, then as a sales leader, and then I kind of blended that with that technology background and took a very entrepreneurial approach to things. So, I ended up growing and fixing companies and spending my time on the ‘rev gen’ side, but always in tech companies: always IT consulting firms, nearshore sourcing, software firms, a lot of different tech-based firms. I got a nice rounded experience by doing that. And then, about, I don’t know, five and a half years ago, our company that I had gone to, we had some massive growth. We had two great years that I was there. The first year we had 32% growth, and we were on track for 101% growth the second year, and we sold the company. The company that did the transaction was Quorum, and I realized how brilliant they were at their approach to doing it because until you’ve sold a company, you don’t know how difficult it is to run a company while you’re selling the company. It’s a lot of work. So, I had a great appreciation for what they did. And magically, it wasn’t much longer after that, after I completed my tour of duty to do the transfer and I did a little bit of soul-searching on what I did want to do, I ended up at Quorum. I’ve really come to love doing what I do. So, that’s kind of a roundabout way of getting there, but that’s my background.

Brian: Yeah, tell us a little more about, there’s all sorts of companies that are looking to exit, all shapes and sizes. Is there a particular area that you’re focused on?

Ron: So, the company I work for, Quorum, is all tech software. We don’t deal with anything except tech and software. Part of that is because software firms are often misunderstood from a valuation standpoint, and certainly for an understanding of how to get the best possible transaction. A lot of times organizations that maybe are more brick-and-mortar or have a facility and they have assets that are heavy, they have different ways of valuing that. In software, it’s really about the product itself, the revenue that you drive, and how that grows. So, I focus on a lot of software firms. I do work with a lot of IT firms because I have a lot of background with IT, particularly not just IT but nearshore sourcing-based things. It’s kind of difficult to put it into one little ‘pin’ because sometimes it’s a FinTech, sometimes it’s a really cool product that hits a certain type of technology. It just depends on the situation. But tech companies, in general, intrigue me. They’re interesting, and I think they really are different than other businesses and need to be really handled by people who get it.

Brian: Ron, do you focus on firms that have already been VC funded or more bootstrapped, and they’ve reached a certain size?

Ron: So, we do both. We’ve done all kinds of variations. There are other versions of that, too. Sometimes, when you do a VC route, you end up having a bit of distance between the time you can do the VC route and get an exit that is where you want to be. Everybody expects to have a round that goes as an uptick, not a downtick. So, it depends on the situation, but we’ve done virtually any of those. The key on it, really from an M&A standpoint, is understanding the company, understanding what the financials look like, because the financials paint the baseline of the picture. Then, what they do in the marketplace, that affects how they operate, who they deal with, maybe some of the particular strategies or niches that they’re involved with, that really allow them to have a different kind of value based on who’s buying them, and it becomes much more strategic. So, the financial piece will give you that baseline, but how they fit really drives the value up and is a more fair representation for owners of equity. So, it’s very important to understand that, and it’s really important to have a team that does the research. You know which buyers are going to be most likely to be involved with that, what kind of thesis they have for their buying thesis for companies, and really helping them understand how it fits and can be a real value, because the goal here is one plus one should equal nine, or whatever it is.

Brian: Yeah, yeah, I was going to ask, with your comment about up rounds and down rounds… We’re only a few years removed from the Wild West of ZIRP, and everyone raises with optimism, right? Nobody, very few people, raise with ‘ism’. Most are raising with optimism that they’re going to have a huge uptick in valuation. So, we’re a couple years removed now, and I’m sure valuations have, in many cases, fizzled. I’m curious what that means for M&A for a lot of these companies today.

Ron: Well, the market definitely cycles. It definitely goes through ups and downs. In an up market, the deals are much more cash-oriented, and in a down market, they’re a lot more structured with, whether it’s earn-outs or stock opportunities or whatever it is. A really down market might be all stock, and it might not always be the stock that’s really got a lot of mobility. It might be something that’s kind of landlocked; it might not even be public stock. So, those things come and go. What’s interesting is, right now, even though there’s a lot of geopolitical disruption going on, a lot of elements that are potentially impacting the value of things in the marketplace, we’re seeing unbelievable activity, and the valuations haven’t really suffered. If you think about it, there’s $4 trillion in the marketplace that doesn’t have a home yet. That’s a boatload of money that’s going to go somewhere because nobody really wants to give that money back. So, there’s a lot of opportunity, and whether the market is perceived up or down, there are always places where good companies that offer really good opportunity, they’re going to do well, they’re going to do very well. Sometimes you think, “Oh, well, I’m going to time the market.” I don’t know that anybody can time the market particularly well. You might think you’re doing it well, but I think the key is knowing what your value can be in a given market, taking the time to really figure out what the possibilities for me are now and get real data and real information. I always laugh when people say, “Oh, I’m going to go get a valuation done by an expert,” and they, they go pay $50,000 to have somebody do a valuation. The truth is, your company’s worth what somebody who is knowledgeable and understands your space is going to pay for it. The valuations sometimes that come back, sometimes very high, sometimes very low, all of them are really just not all that relevant as much as maybe a guideline. The CEO of our company, he actually wrote the majority of the information in a valuation textbook for software firms that’s used in colleges all across America. You look at that, and it’s a different kind of valuation. I think people get caught up with, “Is it an up market? Is it valued for this? The next round has to be this because the last round was this.” In reality, in the real world, your company’s worth what somebody will pay for it. If I get a good baseline with financials, and I can drive that up because of the strategic fit or the market fit or the company fit, we win. Everybody gets to win.

Brian: How is the nearshoring element coming into play with valuations and M&A today?

Ron: So, M&A is a global exercise; 60% of the transactions involve two countries at least. It’s crazy how that works. When you think about it, there are businesses where that can, it makes a radical difference. I think the key with nearshoring that’s, to me, interesting is a lot of times people don’t realize the real value of nearshore work. Some of the facts that really stood out to me, especially with Latin America, what I noticed was there’s really good work ethic. We can find unbelievably talented people, and we can do it at a reasonable price and have reasonable margins. But more importantly, it’s in the same time zone. If you have people that can communicate well, you’re in the same time zone or close to it. You’re not producing a lot of things that you have to do over again tomorrow because you didn’t have lifetime feedback. I think the speed of feedback, the ability to be close enough to fly there that day, is incredibly valuable. Those are really important things. In Costa Rica, where I was involved with a nearshore sourcing operation, it was amazing to me; hundreds of people in the building, and maybe four or five of them didn’t have a master’s degree. Wow! I mean, that was incredible, the amount of talent and the knowledge and the capabilities that existed. It was such a joy to have people that love what they did so much that they just couldn’t let it go at being okay; they had to get it great. So, that was very encouraging, a lot of fun. Yeah, that, to me, is value that’s going to bring value. Yeah.

Brian: I wanted to ask, for founders coming up today, software founders that are building their teams, do you have any advice on, maybe some of them have reservations about putting their IP outside their country, or if they think about it in terms of, “Is it outsourcing or nearshoring and embedded teams?” Any advice on how they should think about that, or properly structure their team, or mitigate their risk, or things like that?

Ron: Sure, sure. Well, first of all, again, we’re in a global market, so I don’t think you look at the lines of countries and continents with the same lens as we might have 30 years ago, or 20 years ago, or even five years ago. So, that’s one piece of it. Second thing that’s important, though, is in a great staffing arrangement, you might look at your core needs and say, “We know we always need these functions, and we have the ability to hire to 60% or 70% of our peak, but it never goes really below that.” By really figuring out your strategy for how you do your employees versus your contracted work or your project work, it really allows you to make sure you don’t overhire from your team. And then once you complete the project and you don’t need those people, you’ve got people hanging around you don’t really want to get rid of them necessarily.

Ron: So, hiring to do projects, hiring to do work that’s going to morph over time—that sourcing piece, whether it’s inside the country, outside the country—is always an interesting thing to look into and make good sense of. And then when you couple that with being able to do it in a way that you’re able to improve the cost and, in many cases, improve the timeline for getting work done, that can be a really terrific way to grow the business and get some of that infrastructure in place that otherwise, you just can’t hire enough people fast enough to get it done, and you certainly can’t afford to do it at the level that sometimes we’d like to. So, being able to be a little more pragmatic, “When I need this portion of the done, I’m going to go nearshore or outsource this piece. When I need this portion, I’m going to go do that,” and maybe keeping more of your project management or some of your elements that you want to keep internal that are going to be consistent. But the strategy, a hybrid environment there, really does work well.

Brian: Yeah, are there any risks in terms of valuation, or maybe upside, that companies aren’t thinking about if part of their team is in a different country? You said 60% of transactions have two countries. I’m going to guess maybe the initial thesis is, “I need to keep all my workers in one place because my valuation might be affected later.” Are they thinking about that the wrong way?

Ron: Nobody cares about that. No buyer I know of cares about that. It’s interesting, I looked at an org chart of a company that we’re working with, and they had 12 developers still working out of Ukraine. “Here’s the 12. Here’s what they do. Here’s the functionality of it. Here’s how successful they are.” Why would you do it any other way if it’s working incredibly well? We have another company that I worked with that’s sourcing out of Latin America, and you go look at it, and you go, “They have six or seven developers, whatever it was, that are in Latin America. They’ve got four that are over here in California, and they’ve got six employees that are sitting in Minneapolis, and they’ve got three that are sitting in Barcelona,” or wherever it was. It doesn’t matter where it is. What matters is getting the right talent, doing the right things at the right time for the right price, so that you get what you want built. If I have that, and I’m working through it, and I’ve got a great team, I don’t care where they are if we’re performing and hitting the mark, and if we’re able to really blow it out of the water in terms of the ROI that we get because we did it that way. You’re going to be more ‘dinged’ in M&A for spending money and not finishing, and not having the right products, and not being ready to go to market. They’re going to appreciate and they’re going to see. Wherever you have people, it’s really not a factor. It’s, “Is it working well for you and is it efficient and effective?”

Brian: Ron, I want to go back to your career in Latin America, in particular, Costa Rica. Can you dive a little deeper there, and if there are any stories you want to share?

Ron: Well, yeah, I’ll try to keep them clean. I love Costa Rica, first of all. I have to just tell you, I love Latin America, but I particularly love Costa Rica. Spent a lot of time there, spent a lot of time on the coast. Really beautiful. I worked for a nearshore sourcing organization both as a consultant and then as a board member. It’s interesting to me, just the level and quality of people we were able to attract and the level of ‘finishing,’ kind of, that things got done well. I always appreciated that. There was kind of something kooky, though, that the first couple times that I showed up in San Jose, and I walked into the building, culturally, they want to come greet you. So, if you have a few hundred people working there, and they all get up from their job and come stand in line to come give you a hug, it could really cut into productivity. I started, when I came in for the first time during a week, I started coming in early in the morning at 6:00 or 6:30 or 7:00 in the morning so that I wasn’t disruptive, but it was always entertaining. That particular company, they had a great American staff, and they had a great Costa Rican staff, and they did a lot of pitch-and-catch work, where you might have one person working in the US, and they’re coordinating with a whole bunch of people that are working in various places in Latin America. But you ended up with a very connected team as a result, and because of the time zone capability, it really added to that function as well. So, I love that aspect of it.

Ron: The other thing that’s interesting, and this is kind of, I think, one of the things I really liked about, and always liked about, Latin America in particular, is it has a little bit of a vibe to it that, from a personal standpoint, is very enjoyable. The people that I’ve run into and been exposed to are some of the best people I’ve ever met in my life, and that makes it entertaining and fun. But what I found was as we started to find people that really fit us, and talent selection is everything, and if you have a team that can help you really pick the right talent and the right temperament and personality, it really makes all the difference in the world. What I found was they were hiring people who really understood the goals we had and really understood how we wanted to approach things. As a result, every day was just fun to go into work. It was fun to work with the folks we had. It was fun to go do each of those things because you’re dealing with knowledgeable people who really want to be successful, and their idea of success is, “What you want me to do?” That’s a really phenomenal vibe. I didn’t experience that in a lot of areas that we did sourcing from that weren’t in Latin America, frankly.

Brian: Yeah, kind of cool. Now, Ron, you’ve had such a great experience in Costa Rica. You got a place there? Tell us more about that, how that came to be, where you ended up, and daily life when you’re living there.

Ron: So, yeah, we, during COVID, we actually bought a place sight unseen, based on a transaction that took place on the company we sold. Beautiful. Just a stunning view of the ocean. Couldn’t be prettier. One of those things where we bought it sight unseen just off of pictures and videos, and we showed up and we’re standing on the balcony. If you can imagine this: a 38-foot wide balcony and about a 175-degree view of water. You’ve got the Gulf of Papagayo on this side and the ocean on this side, and it’s just stunning. In the background, with my telescope, I can see Nicaragua on a clear day. It just took our breath away, really, just stunning. Then, over time, what we got to realize was that even more enjoyable were the people that we met there. There were Costa Ricans, expats from Canada and the US, and all kinds of places, and just an enjoyable environment to be in. The vibe in the country is not driven off of daily political disruption, like you get some places that rhyme with ‘us’. It just… we just would tune out to that. I’d read up about it, but I didn’t fixate on it. You’re working away, and you get up at, from your work at noon, and you take a 45-minute break to go swim in the sun and enjoy the 85-degree weather. Have a little light bite and go back and work five more hours. Not a bad life. Just a beautiful place to be.

Ron: The other thing I think is fascinating—this is the other thing I think is great about Costa Rica and really a lot of Latin America—is I find that the people that I run into, there’s a richness of character and there’s a richness of kind of origin, if you will. So, oftentimes, they bring a different perspective than I might have, and they ask different questions. I noticed this when we were in the nearshore sourcing world: sometimes their view of it forced us to think a little differently, and it became a little bit more wider in our thinking than maybe typical Americanized thinking. I found that both personally, but I also found it from a business standpoint, and it made us better, frankly.

Brian: Ron, if anybody listening wants to learn more about you, connect with you, or learn more about Quorum, what’s the best way to do that?

Ron: Well, there are a bunch of ways you can do that. Probably the easiest way is, it’s very simple: rn@quorumgroup.com. It’s a very difficult email! That’s probably the easiest way. If you go to quorumgroup.com, you can see our website. The company I work with, nobody sold more technology businesses on Earth than them, and it’s a great operation. We have lots of researchers. Happy to talk to anybody. It doesn’t mean that we’re going to be involved with you; happy to guide you where you need to go to find the right information. One other thing I was going to mention to you, Brian, and I don’t… I don’t know… Sometimes people wonder, “What’s the best way to approach what I want to do with my business? Do I want to sell it now? Do I want to wait? Am I going to try to market time? Do I want to sell part of my business? Do I want to take some money off the table, get some more money?” There are a lot of questions that people have. One of the best ways you can really get through that is to get real good information, real solid information. We put on hundreds of events every year; we do several, I think 300, live events a year at Quorum. We just completed a series of those in India. We have them all over the world. That’s one way you can learn a lot: go to that events page on quorumgroup.com and find an event that you think will be valuable and go check it out. There’s a lot of great information you can get for no cost, just a little time investment, and it’ll really help make you smarter on what you’re trying to accomplish.

Brian: That’s great, Ron. Thank you so much. This has been a really great episode. I personally learned a lot about the 60% of companies that do a transaction in two or more countries. That blew me away. Yeah, that’s so interesting. That’s amazing. We’re in a global market. The other thing that’s interesting to me, before we go, I want to just share with you, I love the… the sponsor is Plug. I love the concept of, no matter where the talent is, find the right talent and make the pricing reasonable. That, to me, is the secret of figuring out how to grow businesses without breaking the bank. So, I’m intrigued by what they’re doing. Appreciate that. Thanks, Ron. As Ron said, we’ll thank our sponsor, Plug Technologies. That’s PlugG.te, a great way to find talent all over Latin America, connecting with growing companies. You’re listening to the Nearshore Cafe podcast. Thanks again to our guest, Ron, and we will see you next time. Take care.