Growth Through Acquisitions As An Expansion Strategy: Ackroo Learnings

What Have Been the 3 Growth-Through-Acquisitions Deals in 2019-2020?

Going into last year, we were a marketing company. Full stop, full-service marketing, gift, loyalty, promotions, email marketing, all that good stuff. So what we were missing is we had kind of two services we offer from a marketing perspective, though, we sold email marketing as a service and we sell direct email marketing as a service as well – Growth through acquisitions just made sense for us.

To email marketing piece, we always had an interest in it because we could actually get it into the tech. How do we take an email marketing service that we use? MailChimp had actually embedded into our technology, when we bought Win Win marketing, a super small deal, like 100k, it was a really small deal. But they had that, this integrated marketing hub that actually allows them to do digital marketing through it.

So we were planning to go there anyhow, we thought the valuation was good, that made sense to us, we paid I think 1.5 or 2x ARR (annual recurring revenue). So it made sense for us, there were no carrying costs, it was 100% contribution to the bottom line of the business. There’s no HR costs coming in and faster return on investment.

But we didn’t instantly have clients we could learn from about this marketing hub. With this integrated marketing piece, we can move away from manually providing a marketing service to having the technology provide that marketing for us. So that’s what why we did that deal, so as to help enhance our marketing products.

Then we want to get into payments. We bought a payments company and it was with one of our current partners global payments, it was one of their resellers. So we instantly got them as a client.

But now all of a sudden, the rates we had before buying them got better.

Because you get a commission by buying a portfolio and processing more, your commission rate is higher. So we instantly started making more money through our customers by having more revenues coming. As we buy more payments companies, we actually start making money on the other customers because we actually make a higher commission each time.

Then the third growth through acquisition deals was a Point of Sale business we did at the very end of the year. But as I was mentioning earlier, we wanted to get into point of sale, not just because we saw it as a good complementary piece, because from a defeating the competition standpoint, but it’s a necessary operational item. It’s why you see companies like Shopify and LightSpeed so well, it’s a critical component to a business.

It’s a critical piece, just like payments, a critical piece, a lot of businesses looked at marketing as somewhat of a nice to have, as opposed to a need to have, even though there’s tons of value in it. But we really wanted to bolt on these “need to have” products. So we wanted to do an acquisition on all three as well as for our future verticals and solutions.

With COVID, that’s one of the benefits, our M&A funnel doubled last year. Yes, the organic business had a bit of attrition, and it was a fight, but our inorganic growth strategy, holy cow, we doubled the acquisition opportunities that we’re working on.

What Are Your Acquisition Plans For This Year (2021)?

I think, never mind this year but for the next two years, I don’t think you’ll see us go to a fourth solution. At this stage, we already have three full solutions: we have a marketing solution, we have a payment solution and a point of sale solution, we’re going to double down in all three of those areas over the next 24 months.

Before we even consider a fourth solution set. We believe we have enough and these are full, we could have just a payments business and be successful and do really well then we’d have just a marketing business be successful do well. We’ve already got a lot on our plate, that doubling down there is more than sufficient for us. So that’s our focus for the next at least 24 months, it’s just doubling down on those three areas.

What’s Your Organic Growth Strategy for the Portfolio?

Organically, it’s more features taking more of the services we do manually into the tech on the marketing side and on the POS side. It’s having more verticals. Our first vertical is Golf courses, because we thought as a safe vertical with things like COVID we thought let’s get really niche and go after golf court sales. But a golf course has a restaurant, you’re getting the restaurant point of sales next, they have a pro shop, it’s a retailer.

So you can start to see a path to other verticals over time but we see it as a good niche entry point into that whole point is that ecosystem.

Can you Share any Learnings or Failures That You’ve Had From Previous Deals And Acquisitions? 

There are lots of learnings and we’ve done 10 now. We’ve done 10 deals so far. I always say my worse was the first my last was the best. It’s always like as you’re learning, It’s a whole iterative learning thing. That’s why it’s its trial and error. Again, what worked for me may not work exactly for you guys. But I can tell you, there have been some key rules that we’ve learned over the years. So a mistake that we made early on was we did one deal where we didn’t buy the tech.

We did one acquisition, we bought the customers and the team, but we didn’t buy the tech. Well, why do we buy the tech? When we already have our own tech. Well, yeah, but that tech kept evolving, we had a license agreement those customers have to move on. What we do is when we buy a company, we create product parity. We go to the customer and say: “Hey, you’re using these 10 features, you need all 10 of them do you only need five, great Ackroo already has three of the five, we’ll build these two and we’ll move you over.”

But that works in principle if you own the technology because you’re not advancing it further. But when you don’t own the tech, and the tech is kind of a moving target, you’re chasing your tail. So it took us twice as long to normalize that deal. Because of us not buying the tech, we just bought the team and the customers. So important in the technology community, buy the tech as well. That’s one key learning.

The second was around effectively and efficiently normalizing these businesses has such an important impact. If you read my investor deck and talk about our goal is 12 months, if we can’t normalize a business within 12 months, or believe we can, we shouldn’t do the deals, if you can’t get them to integrate into your business normalize, like at least operating what you thought was going operate at, never mind the growth, just what you thought you bought within 12 months, you probably shouldn’t do it.

We ask ourselves that every single time and it even actually helps dictate how frequently we do deals. When we did a deal in April of last year, it was super small. So we thought that’s all right, within 12 months, we get this done. We got the payment deal, we’re like, won’t be too disruptive, we can do that one within 12 months to the second. but then you get to a point where like, we couldn’t do it in 12 months. So we shouldn’t do it, because anytime it took us longer than 12 months, it hurts the business for the organic business or other inorganic business. That 12 months normalization was another critical lesson for us that we hold true to.

And then the third rule is around ownership. We don’t ever keep the owners of the businesses. We’re not like a Constellation Software or other consolidators that just own the companies and the services and they operate them. We’re the operator.

If we’re the operator, if we’re in there running the business, operating the business, having the owners there that had different opinions, the founders, is tricky. They may come in for 90 days, maybe even a year or two. But really, it’s not a long-term relationship. It’s critical for us for those owners to realize that that there’s for sure a transition that needs to happen and that here is an end because maybe our theories about business and the direction we’re taking are different than theirs. You don’t have too many cooks in the kitchen, love the number two and number three players, but the founders we never keep.

About Steve Levely

Steve Levely is the CEO of Ackroo,  a platform that provides marketing, payment, and point-of-sale solutions for merchants of all sizes.  As the CEO of Ackroo, Steve leads the company’s corporate strategy, where he transitioned into this role after previously serving as the company’s EVP of Sales & Marketing and currently leads the growth through acquisitions strategy to increase revenue of the SaaS portfolio.

Ackroo’s self-serve, data-driven, cloud-based marketing platform helps merchants in-store and online process and manage loyalty, gift card, and promotional transactions at the point of sale in order to attract, engage and grow their customers while increasing their revenues and margins.

Steve brings over 15 years of successful sales leadership and business development experience from various small and large organizations.

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