The Power of Proactive and Methodical M&A

Corporate Development

NOV 17, 2018 - Josh Scherman

An Interview with Andrew Morbitzer, VP of Corporate Development at GoDaddy

Andrew Morbitzer knows a thing or two about M&A. Over the last 6 years as VP of Corporate Development at GoDaddy, he has helped transform GoDaddy beyond their core domains business to become a leading platform for people to get their ideas online and then enable those ideas to grow and thrive. He’s always happy to hear about a new technology, or a promising new service that could be the next headline-making disruptor, but that’s not the focus of daily activities. Instead, he’s looking for companies that can deliver exceptional value to GoDaddy’s 18 million global customers.

Morbitzer took a few moments out of his busy schedule to talk with us about how a huge company like GoDaddy approaches their M&A process, what they’re looking for — and trying to avoid — when purchasing a company.

Josh Scherman: You have an extensive background in technology and marketing, going back to IBM in the early 1990s, as well as 7 years at Intuit prior to joining GoDaddy, but I’m more interested in talking about your current role in M&A at GoDaddy. Can you tell me a little about what makes the company special?

Andrew Morbitzer: I joined the team just as the private equity buyers were coming into GoDaddy. The thesis when the buyers came in was that there were a couple of magical things about the company. The biggest of those is that we acquire small business customers at a super-high volume, and for a very low customer acquisition cost (CAC). That’s special within our industry.

The second thing that they liked about GoDaddy was that we had thousands of people in our care center who are hands-on with our customers. We’re always having conversations with small businesses. If we have a secret sauce, that’s it. Our first objective is to help our small-business customers with their problems.

At the same time, we also had a few things we needed to figure out. We were learning how to become a world-class products company, lead the world in small-business products, and go global in the process. But our primary mission, from day one, has been to provide tools for people to start, grow and thrive online. We want them to be far more successful than they otherwise would have been, all because they chose to work with GoDaddy.

How does that customer philosophy inform GoDaddy’s M&A strategy?

We have a relatively small corporate development team, and that’s on purpose. It forces us to be very thoughtful about what kinds of purchases we look at. The choices we make need to have a big impact, and that means that we have less of a tolerance for wild swings. Everything we do has to be strategic, and on mission.

This means that we focus on both strategic partnerships and acquisitions. Those acquisitions are either in product expansion, or on customer and market expansion. A good example of the latter would be Host Europe Group (HEG), which we acquired last year.

The HEG purchase gave us a top presence in a lot of key European markets. Europe is a market that is already very well developed, and by acquiring HEG we were able to gain a strong position much faster than we would have been able to do organically.

In a market like India, on the other hand, we’ve taken an organic approach. Four years ago, our presence was very small in India. Fast forward and this year we passed our millionth customer there. We’ve got a great team on the ground in India, and they are very focused on understanding the needs of the market and producing specific products and services on the global GoDaddy platform, but tailored to local customers.

You mentioned having a relatively small team. Who are the other internal stakeholders, and who else is looped in as those M&A conversations develop?

The typical, ivory tower-type approach would be that Corp Dev team identifies a need, and then they go out and shop it to the various business units. We don’t do it that way. Instead, our team works as an integral part of the business unit teams throughout GoDaddy. If GoDaddy moves forward with a deal, the business units are already onboard as are the sponsors.

The business unit is ultimately where your M&A resources come from. They have to decide that any purchase is a big enough priority to merit the time of everyone involved. You want everyone to understand the value, from the GM to the Head of Engineering, because they have to carve out time for it. Presumably, all of these people were working 110% on other things, so they have to de-prioritize something else to focus on this acquisition.

This means that you get buy-in very early, and it also allows you to maintain alignment throughout the entire process. There are no surprises. It also means that we’re doing proactive M&A, and not reactive MA. Proactive M&A has a much higher long-term success rate.

Working closely with the business unit is how you scale across the entire company using a small team. More importantly, it’s how you get successful acquisitions in the door.

That sounds like an approach that is driven by a long-term strategy.

It is. There are many different styles of corporate development. One of the stories that inspired me is how Pitney Bowes changed their approach to M&A. They did a strategic assessment a few years ago, and in the process they figured out that their position was not limited to selling stamping machines. They had great relationships with all these large companies, and they went on a corporate transformation centered around acquisitions. Those acquisitions could provide even more fuel for their business.

As a result, they became very methodical about M&A. They even developed a playbook. When you go back and look at that playbook, which they update rigorously after each acquisition, of the very top things they look for is to partner with business units. They won’t proceed in an acquisition without the sponsorship of the business unit.

Is it more often the case that the GM or business leader identifies a gap, and they bring it to Corp Dev? How do these ideas come across your desk?

M&A ideas are coming to us all day, every day. There are four of us involved in the leadership side of the Corp Dev team, and on any given day we’re talking multiple times with the different business unit leaders, the product leaders, and the marketing leaders.

We have a written strategy detailing how we’re going to grow across the next five years. As the business unit driver, you can see that there’s a talent area, a product area, or a market area where we would like acceleration.

We then build a deeper strategy for that area with M&A as the likely course of action. That is a very methodical process, and we have longer-term projects in that area. We then rigorously identify and evaluate candidates.

Many times they don’t know they’re being evaluated until we determine there might be enough for an initial conversation. And this doesn’t always end in an acquisition. Sometimes there’s a reason such as purchase price or lack of a willing seller that sends us in another direction. If we can’t find the right company to join us we’ll solve it another way which could include partnering but also could be that we decide to go build.

You also get things that pop up. And we definitely like to evaluate inbound opportunities. Sometimes we learn something unique about a specific market. Or we may have a set of customers from a specific area or market come in, and we then need to get a lot of knowledge about a particular problem they face. At a minimum we meet new people with diverse thoughts and form a relationship for the future.

For example, we closed a deal that originated from customer feedback. Three of the top five customer asks were in this problem category. There was enough volume that we needed to put a strategy together. We started by asking ourselves “What would this product look like at GoDaddy? What would be our unique differentiator in the eyes of the customer?”

Then, we started looking for the right solution to buy. This whole acquisition came from the needs of our customers, and it only happened because we were listening to them. Other times, we’re ahead of what the customers are asking for. That comes back to having a proactive strategy.

What role do inbounds play in your M&A process?

We do talk to plenty of inbounds. On average, I talk to at least one new company every day. But, again, our M&A process is methodical and proactive. There’s just not enough time to chase all of those down while focusing on the things we’ve already decided are important.

There are some pretty good statistics showing that the most successful M&A is proactive M&A. When you look at a three-year success rate, you can see it. This is for a wide variety of reasons. It’s the emotional support and buy-in from the inside. It’s the clarity of thinking that comes through the process of getting feedback.

As we discussed earlier though, people should still bring topics to us. Even if we don’t act on those topics, it allows us to build a relationship. Across time, you may see fits that happen. With GoDaddy, some of those fits can happen quite a bit further out. We have cases where a few years of relationship building in a likely category led to active deal discussions once we were ready to be proactive in that category. It’s a long game.

You mentioned the importance of sales tests in your M&A process. What are you looking for in those tests?

If we’re interested in going through M&A with a company, we like to do small scale sales tests of the solution and value proposition. We don’t usually reveal the company name as that’s not important. It’s just to see if solving the problem really resonates with our customers. In any of these tests, you have to be extremely careful in what you’re testing. You’re really testing for “customer love metrics.” Do customers love and need the concept of the solution? Will it change their lives enough that they’ll adopt and use it?

What we’re not testing are things like closure rates or funnel steps. Those are things that require months of iteration and need lots of customer feedback. To get anything close to an efficient sales funnel, you’re going to need at least 15 iterations at each step. This early in the process, testing for those kinds of pure numbers is the wrong approach. You’ll almost always get false negatives. What we’re really looking for are indicators of customer interest.

The other thing we do is survey the company’s customers. We’re looking for segmentation specifics, purchase behavior, product usage, and value. Did using this product provide life-changing value to the small business owner? If so, what is that company’s net promoter score? That helps us understand if the service or product that the company has built would be valued by our customers.

We genuinely look for companies that offer something that can change our customers’ lives.

What are some of the other big problems you run into when considering a company for acquisition?

A lack of traction. I would say that the vast majority of SMB product companies that approach us, like 9 out of 10, have a really good product. At the same time, almost none of them have found traction in the market.

If we can’t tell that customers, at scale, like the product, then even the most promising company is much less valuable to us. There are many different ways to value a company. In some cases, it can be much more of a judgment call. We see enough proof to give us directional guidance but not enough to be completely sure. We’re accepting the risk that this product is going to work for a large segment of customers, that it’s going to be cost efficient, and that the technology and architecture is going to be able to scale. The less confident we are in all that, the less a company is going to be worth to us.

That’s one of the reasons we liked Sucuri. Daniel Cid brought in Tony Perez as CEO with a focus on acquiring paying customers and building products very early on, and Tony had full co-founder status. That allowed Tony to run everything on the customer side of the business, and to lead the culture as CEO. Tony was able to put together the investors and the board, and it freed Daniel up so that he could stay super-focused on the product.

Together, those two had a successful exit. They built something that is great. That’s a model that few startups follow, but they should. It makes the company more attractive to buyers like us when you have a broader set of capabilities. Your company will be worth more when you’re able to prove that you can scale. It means that the acquirer doesn’t have to take on that risk.

Some other impediments to an acquisition include:

· It turns out some companies with a good team and good product are happy staying independent even if it means they’re playing at a smaller scale than they would with us. They’re just happy that way and actually don’t want to be big.

· Sometimes founders and sellers open with a negotiation-first approach rather than starting with what we can and should build together. Often this prevents us from getting to a shared vision on the big idea and keeps us from building the relationship. Both of which are mandatory.

· And then we occasionally see companies who have initially focused on our small business customer but end up going after larger customers. Often they’re conscious of that, but sometimes we have to help them see that in their own data and actions. Either way we try and figure that out sooner to see if there’s still a fit.

Any advice for companies on how to best approach and prep for a meeting with Corp Dev at GoDaddy?

When we’re approached by a company, most of the time they want to tell us about why their product is great. I make a point of asking them not to do that. Instead, I ask them to tell us what their product is going to do for GoDaddy’s customers. What’s better, different, and more valuable about their product for GoDaddy’s customers than what GoDaddy is doing on its own today?

I also tell them to spend some time understanding GoDaddy. Try our products. Call our customer care.. Then, put it into concept with us so that if it were to be at work at GoDaddy, it’s super clear to us how this idea changes our life. That’s what sparks conversations.

Josh Scherman
Written By:
Josh Scherman is the Vice President of SurePath Capital Partners. He draws from his experience on Wall Street as well as his successful work with early stage startups in San Francisco and New York to help lead every aspect of putting our clients in the best position to match with the right buyer at the right valuation.

About SurePath Capital

Based in Toronto and San Francisco, SurePath Capital Partners is the only investment bank focused exclusively on the global SMB software market. We work with sellers in this market to ensure they are funded for growth and positioned for meaningful exits. In addition, we work with buyers in this market to help shape their strategy and execute acquisitions.

Follow us on LinkedIn and Twitter for regular updates on deals and trends and in the SMB software market. Say hello: info@surepathcapital.com

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