Scaling Smarter: How Bluesight and Thoma Bravo Turned Vision Into Value

[00:00:00] Lloyd Metz: Get ready to peer behind the curtain of the private equity universe with each episode of best, but never final. Hi, I'm Lloyd Metz, joined by Doug McCormick and Sean Mooney. Together, we'll navigate the corridors of private equity, revealing the uncommon knowledge, challenges, successes, and lessons that drive the world of private equity and business forward.

[00:00:30] Let's go.

[00:00:37] Sean Mooney: All right. It is great to be back with Doug and Lloyd, Lloyd and Doug, how are you guys? Good. Hey, Sean. Hey, Doug. think things are great here. I'm super excited for this one. And for our listeners here to set the stage a bit, Lloyd and Doug and I were talking about, it'd be really interesting to get kind of the technology wing of private equity involved in the discussions here.

[00:01:01] And we were talking about how we should do that and I go, I know who we should talk with. We should talk with our friend Carl Press, who is one of the best of the best. He's someone that we've had another sister podcast episode with and thought it would be really interesting. And as we were talking with Carl, Carl goes, I even have a better idea.

[00:01:20] How about we bring in one of our top CEOs as well and we could have this really rich conversation. And so I think we all quickly said, that's even better. Let's do it. So. I'm really pleased to introduce our listeners here to Carl Press and Kevin MacDonald. Thanks for joining us, guys.

[00:01:36] Carl Press: Thanks for having us.

[00:01:37] Sean Mooney: So to further set the stage here, as we enter our conversation, I think it'd be really helpful to get a little bit more on the background and the backstories of each of Carl and Kevin. So Carl, can you tell us a little bit about yourself, maybe a bit of your history, the role you play with Thoma Bravo?

[00:01:54] Carl Press: Sure. So Carl Press, I'm a partner at Thoma Bravo. I've been with the firm for almost 10 years. I started In 2015, when we had one fund at Thoma Bravo, today we have many, one of which is the Explore Fund, which is our middle market effort that I founded and now co head. We started that in 2020, and Explore is entirely focused on investing in founder led middle market enterprise software companies, really world class, what we call emerging category leaders across the B2B software landscape.

[00:02:29] Kevin and Bluesight is a perfect example of that

[00:02:32] Sean Mooney: with that kevin. How about yourself? Can you share a little bit about yourself and Bluesight?

[00:02:36] Kevin MacDonald: Yeah. Thanks for having me. First of all, so Bluesight I started as Kit Check back in 2011. Bluesight provides the best operational software for pharmacy compliance And privacy officers and effectively what we're trying to do at the end of the day for the hospitals and health systems Is reduce costs and enhance compliance across a number of different areas You It's been a really fun ride.

[00:02:59] I started with my co founder in second bedroom in my apartment. We went through venture and here we are today with Carl and crew at Thoma and it's continuing to be fun along the way.

[00:03:13] Sean Mooney: I think this is going to be really interesting, Kevin, particularly since you've had the journey from literally the second bedroom to VC to private equity, and that's really, really rare.

[00:03:26] And so maybe to kick off our conversation, can you share a little bit about that journey? Like how did you conceive the idea and then walk us through what it was like to work with not only VC and PE, and then maybe we'll dig into maybe what are some of the differences and similarities.

[00:03:43] Kevin MacDonald: Yeah, I mean, I originally started with the idea based on a dinner that I had with a friend of my wife, who is a pharmacist.

[00:03:51] So my background is in technology and supply chain. And she was talking about her day and dealing with medications inside the health system, pharmacy, this awful, awful process. And I just knew it was a perfect fit for RFID technology. And based on that, we started what was Kit Check. The first few years really were tough, right?

[00:04:12] Everything is an existential crisis. I have self funding writing checks off my home equity line kind of thing. Selling to hospitals is really difficult. So I thought having sold to Fortune 500 companies and the banks and technology companies of the world, that hospitals would be great because what other industry has a billion plus revenue business in every town in the country?

[00:04:37] And I thought, wow, hospitals, it's a huge market. And then you realize it's like selling to state and local government. And it's a really difficult sales cycle. So figuring out not just what the product was, but how to get it to market and get adoption. Was really tough. And we went through six different business models before landing on something that worked.

[00:04:58] And once it started to work, we started to see rapid adoption of early customers. And that's when we got to the venture backing in 2013.

[00:05:09] Sean Mooney: And did you do that first stage all kind of bootstrapped or did you have some friends and family money in there?

[00:05:14] Kevin MacDonald: No, it was fully bootstrapped up until our series a, which is a bit unusual as well.

[00:05:18] Sean Mooney: Oh, I applaud you. It reminds me a little bit when I started BluWave, I brought in some friends and family money though. But very quickly in that first year, I just saw cash go down, down, down, down, down, down.

[00:05:29] Kevin MacDonald: Well, the thing that was really tricky for us, we flipped our business model from one where capital was spent up front to a recurring model.

[00:05:38] And that creates a sort of deeper hole in the J curve because people aren't paying you that big load of cash up front to fund the operations going forward.

[00:05:48] Lloyd Metz: Hey Kevin, I'm curious, did you decide to go find Venture Capital or did they find you?

[00:05:56] Kevin MacDonald: We went through Rock Health, which was an incubator, and they also have a venture fund now.

[00:06:01] And the reason why we went to Rock Health back in 2012 was because we just were struggling to get traction in the market and getting people to buy. And we thought, hey, look, Rock Health has a lot of contacts in the industry. And we thought that would help get us to the next level. A piece of that was also thinking about funding.

[00:06:20] So when we switched our business model and we were at rock health, the connectivity to the VCs were there. And we just jumped on it.

[00:06:32] Lloyd Metz: This episode is brought to you by HCI equity partners, a lower middle market, private equity firm, focused on partnering with family and founder owned manufacturing service and distribution companies, ICV partners.

[00:06:47] An innovative private equity firm, supporting management teams of leading companies at the lower end of the middle market and BluWave, the business builders network, connecting the most proactive business builders in the world with the best of the best service providers for critical variable on point and on time due diligence and value creation needs.

[00:07:10] Now back to the episode

[00:07:15] Doug McCormick: and Kevin, am I hearing you right? This is, this has been almost a 15 year journey now for you.

[00:07:20] Kevin MacDonald: Yeah. So 14 years, it's been a ride.

[00:07:22] Doug McCormick: And as you think about that, I'm curious when along the journey, you're proving out a bunch of different things, market need, market acceptance, viable business model, how far into the journey did you go?

[00:07:33] Hey, I got conviction. I'm willing to bet the next 15 years of my life on this opportunity. When did you really get conviction? This is something you want to commit to.

[00:07:43] Kevin MacDonald: I think that the moment of most conviction where you had to take the biggest leap of faith was when I called up my parents. I said, I quit my job.

[00:07:53] I was going to start this thing and here we go. So really the early days, well, then once you get going, there were certainly moments where you wondered whether it was going to make it or not, but you need to persevere through and feel like just particularly those early days, if you didn't have conviction that it was going to be something, it wouldn't have worked out because there's many days where.

[00:08:15] It seems like something's going to kill the company.

[00:08:18] Lloyd Metz: That's awesome.

[00:08:19] Sean Mooney: Great journey. So you go through the bootstrapping. And that's kind of what we did here, and I also get that the scariest moment was when I left the job I spent my whole life working for. And then you make that jump, and I don't know about you, but I felt when I made the decision, this wave of relief, because I had just like stopped wrestling with it in my head and said, let's go.

[00:08:38] Did you have that kind of moment when you finally said, like, let's hit it?

[00:08:41] Kevin MacDonald: I'm not sure I'd call it a wave of relief, but certainly it was not as terrifying and bad as I thought it would be to take the jump. That being said, boy, things were really, really tight because you're both not taking an income and you're burning personal cash to go do things.

[00:09:01] Sean Mooney: I think that maybe is a better way. I felt a wave of relief at that moment, but then it was pure terror the next day.

[00:09:06] Kevin MacDonald: I

[00:09:08] Sean Mooney: spoke with my former partners. I was like, Hey guys, I'm gonna do a startup. Like, that's crazy. Okay. Maybe as you go through the journey here, Now you've gone through this, you've bootstrapped it, you've done product market fit, you're taking venture capital.

[00:09:21] What was it like? Cause it's a similar, but different business. One's not better than the other. They're just different. How did that process work? And what was the level of involvement that the venture capitalists had with you? And as you started beginning that kind of upward trajectory, the next phase.

[00:09:38] Kevin MacDonald: It's a completely different mindset, right? So it's much more speculative and it's much more pure growth oriented. So your freedom to take bets on things that are at zero is much greater. However, your expectation for year over year growth is also much greater. And that's eventually where we met Carl and crew was you get to a point where we had three products in market, they were growing well, but we were contemplating what is the next thing that we're going to bring to market and it takes time to bring something to market.

[00:10:14] Years, unless you've got an M and a capability. So trying to grow 40, 50 percent a year without that M and a capability. Once you get to a certain scale, it becomes very, very difficult.

[00:10:28] Sean Mooney: So you're like, if you can, they all want to 10 X, yeah. And if you can 10 X, great. Otherwise it's kind of like. We've kind of reached a crossroad.

[00:10:36] Kevin MacDonald: Actually, that isn't the case at all with our investors. In fact, our lead investor from our series a is on our cap table today and is very supportive of the business. He's very patient and. Always had confidence in the business and frankly would have been happy to continue to grow organically over time.

[00:10:57] We also had a couple of strategic investors on our cap table that were patient. So they were looking to me as the founder as to where I wanted to take the business and where I thought it would be best. And for me, I felt like we needed to grow in this. Market in the health system by bringing new products to market and accelerating our growth.

[00:11:18] Sean Mooney: Can you share a little bit? So now you're at that, you've gone through kind of the early venture phase, you're growing rapidly, but maybe in a different way. And now you're thinking about what's the next chapter of Bluesight? How did you get to that decision where like, we could do the next round? Or we could start thinking about partnering with a private equity firm.

[00:11:36] What was kind of the decision matrix there?

[00:11:39] Kevin MacDonald: Yeah, as we started to talk with the board, we just sort of thought about what is our next step, and it was really a question of, do we build another product versus do we try to buy other companies and create additional capabilities? And the math or the challenges, right?

[00:11:56] So if I said, go at the moment, I'm an idea that we've had high conviction around, we might release that product best case late this year, early next year, and even if it's a real winner. You effectively spend most of the next year sort of getting the initial customers that can be reference points. And then once you have that, the year after does a million dollars of revenue, if it's a winner, and then you go three, five, 10 million, but if you think about that timeline, right, so it's early 2025 now you're really 2027 before you're a million plus in revenue and 2028 before you're any real scale.

[00:12:41] So. If you're already at 30 million in revenue and you need to grow 10 million, 15 million more in a year, yes, you have the growth of your existing products, but those new products, it's just too long to go organically. So you need to be able to find opportunities that you can tuck in. And when you talk to your venture investors and say, Hey, who has some cash for M and a, everyone sort of raises their hands.

[00:13:05] But then when it comes time to write a check, everyone sort of goes off into a corner.

[00:13:09] Sean Mooney: That's really interesting. So. They're going to be along for the organic ride, but really, as you started thinking about the other big tool, M& A, that was something that just wasn't part of the model, and maybe this is a good time to bring Carl into the discussion here.

[00:13:23] Now you've made this decision, how did you all come to get to know each other?

[00:13:27] Carl Press: Yeah, so we got introduced to Kit Check, or Bluesight, through our ecosystem of bankers and advisors that bring us interesting ideas. And immediately we knew that this would be a really interesting fit for us. Founder led, had been around for about a decade or so, had raised a modest amount of capital, and had been reasonably capital efficient, and was a beautiful vertical market category leader in its space.

[00:13:57] And once we got a chance to meet Kevin and team, we knew it was a perfect fit for us right away. And that was probably three months before we ended up making the investment. So, it was a pretty quick process with Bluesight and with Kevin from the time we got to know the company to the time we made the investment.

[00:14:17] Sean Mooney: Was there a formal M& A process or was this something where you were able to get together and work out the relationship kind of directly with each other?

[00:14:25] Carl Press: There was a formal process through which we ended up making the acquisition. What was interesting was while we got to know Kevin's business, we started to get to know the broader ecosystem of software vendors that were serving the hospital pharmacy, which is the core market that BlueSite serves.

[00:14:42] And we got to know the different players in the category. And we started to think about, is there an opportunity to invest in BlueSite and to back Kevin for the next leg of the journey, but also to simultaneously acquire one of its competitors and to do some consolidation right away, right from the jump.

[00:15:01] And When we started to get to know Kevin, we presented him with this opportunity and he got excited about it. And that was another great sign for us that, okay, here's an executive who's thinking big, who's thinking about acquisitions, who understands the value of consolidation that gave us further conviction that we could work with Kevin.

[00:15:22] And ultimately that's what we ended up doing is we ended up acquiring Bluesight and simultaneously merging in a company called which was a small founder led business in Connecticut. that was competing with Blue Sight in the drug diversion market, which is one of the core markets that Blue Sight serves.

[00:15:39] And so right away, we were able to get scale, margin, market power, pricing power, more customers, all through that day one combination. And that's something that at Thoma Bravo we had done in the past. We've done some of these day one combinations. They're complicated. They take more time. They're certainly not straightforward.

[00:15:59] If, if one element of one deal changes, the whole thing has to change and that makes it really hard. But we felt like by doing this, we were able to create a really special company. Day one.

[00:16:11] Doug McCormick: And Carl, can you speak a little bit to. As you thought about the acquisition story, how much was driven by like first mover advantage benefits versus value prop to the customer versus overall cost and how do they play in amongst sounds like there's multiple criteria there that you guys were excited about.

[00:16:30] Carl Press: It was a little bit of all the above. I mean, Bluesight was undoubtedly the category leader in the spaces that it played in. And that's something we look for all the time. And Bluesight was no exception to that.

[00:16:41] And so we got excited about that. The market is big, certainly big enough to support. What Kevin and team were building and there was a very clear opportunity to do consolidation both with the Metasys acquisition day one But also we saw a longer list of acquisitions that we could make to further consolidate some of these markets To again gain more scale to gain more pricing power to gain access to more customers Which then in turn can allow us to cross sell some of our other products.

[00:17:08] There was a virtuous cycle We saw immediately with this company And we knew that this was the right platform through which we could go attack that opportunity.

[00:17:17] Sean Mooney: Hey, Best Bet Never Final listeners, this is Sean here. Wanted to give a shout out to our friends at Thoma Bravo and their Behind the Deal podcast, which gives listeners a rare view into the world's largest tech focused buyout firm. The hands have shaken, the contracts are signed, the deal is done. What went on behind the deal?

[00:17:37] Behind the Deal is a chart topping and Signal Award winning podcast from Thoma Bravo, a firm that has acquired or invested in over 500 companies, representing over 260 billion in enterprise value. And behind every deal is a unique story. Don't miss your chance to get the scoop on some of the best untold stories in private equity.

[00:17:57] Follow Thoma Bravo's Behind the Deal on Apple, Spotify, YouTube, or wherever you get your podcasts. New episodes drop every Thursday. Now back to the show.

[00:18:07] Doug McCormick: We do a lot of serial acquisition consolidation strategy work. Kevin, given you not done acquisitions before, how did you work with the team to decide, okay, how are we going to integrate?

[00:18:17] How are we going to diligence this? How much interplay was there between the sponsor and the team?

[00:18:23] Kevin MacDonald: We were really tight with Carl's team upon acquisition. To be frank, they did most of the diligence for the day one combo. And then we then jumped in and had a plan that we discussed sort of between signing and closing and we executed on that plan.

[00:18:39] And then since then we have a full integration team that deals with both pre acquisition, what the diligence looks like as well as post acquisition. And Carl's team, it's like an outsourced corp dev team. We. Get information and it gets really bubbled up in a way that's super easy to digest. And a lot of times the companies learn something about their own business through that process, because it's such a great team that he's got.

[00:19:07] Carl Press: Great.

[00:19:07] Kevin MacDonald: Yeah.

[00:19:08] Carl Press: When we brought the idea of doing the Metasys combination, simultaneous with our investment in Bluesight, I was a little bit nervous. What's Kevin's reaction going to be? Is he going to say, Oh, we're going to complicate this thing. We're going to introduce a lot of complexity into our business.

[00:19:21] We've never done acquisitions before. I'm not sure how to do it. Kevin was on board right away. He thought it was, this is the right move. We've been wanting to do this for a long time. We know exactly how we can migrate their customers onto our platform. Let's go. And that was an opportunity where we gained a lot of conviction that this was the right investment.

[00:19:42] Lloyd Metz: Just curious, Carl, how long did it take you all to figure out that this niche space, this vertical was ripe for consolidation and that consolidation would actually improve the economics for the consolidator?

[00:19:57] Carl Press: That was pretty early in our diligence. One of the things we always do is we do a really deep market landscape map whenever we're looking at a new investment.

[00:20:07] And we started to see. There was a handful of kind of what I'd call businesses that were about half the size or less of Lucite. Kind of market texture lines up really well with the consolidation. So these are businesses that are digestible, but their customer bases that we can over time migrate to our platform.

[00:20:30] Doug McCormick: Yeah, Kevin, I would just say kudos for being able to be strategic in the context of a financing solution like that. I think most advisors would have said, don't entertain that transaction simultaneous, it introduces risks to your deal and for you to have conviction and be able to navigate that obviously turned out really well for you.

[00:20:49] Kevin MacDonald: Yeah. I mean, for us, as Carl said, for us, it was a no brainer, right? This was going to create value out of the gate. The reason we wanted to do a deal with PE was to do M& A and we weren't having to wait around for six months or a year to do it, we were doing a day one. We were proving it out. We knew how to work with partners.

[00:21:07] So. It just made all the sense in the world.

[00:21:10] Lloyd Metz: And it sounds like it was a real litmus test of you, Kevin, for Carl and the Thoma Bravo team, right? They kind of hang it out there. You react so positively and lean into it. I think that's where you want them over is what it sounds like.

[00:21:27] Kevin MacDonald: Carl. Yeah, I guess you can comment on that, but I'll tell you from my perspective, I just go back to, I didn't want to be sitting around and waiting for stuff, right?

[00:21:34] We want to get right after it. And this was the best way to get right after it.

[00:21:38] Lloyd Metz: That's great.

[00:21:39] Carl Press: Yeah, he asked us, when do you think we can start doing M& A? And we said, funny that you mentioned that. We've got an idea.

[00:21:46] Sean Mooney: I love that. I mean, that's every once in a while in life, there's serendipity, right? And I think When you get that situation, it's really interesting to hear the story kind of evolve from both sides in our conversation here, where you have Kevin saying, listen, the one thing we need is M& A.

[00:22:01] And then Carl, you're saying, well, we think there's a huge M& A opportunity. What was that moment where you kind of both put your cards face up and you said, Whoa, we're both thinking the same thing.

[00:22:12] Kevin MacDonald: Well, I think Carl came with that idea of, hey, we're going to do MetaSys. What do you think? And presented the sort of high level of what the plan looked like.

[00:22:22] My team looked at it and said, yeah, this makes sense. And as we then looked at not just that deal, but then what did the next few years look like? We came to agreement that this is a plan that really could create a lot of value and created something that was very, very different to the market that the market frankly needed.

[00:22:41] And we got excited about it.

[00:22:43] Lloyd Metz: So Kevin, Carl, I would love to hear about the honeymoon period and how y'all figured out how to work together beyond M and a, how did you sit down and start to really flesh out and craft a value creation plan or not sure what y'all call it at Thoma Bravo would love to hear something about that.

[00:23:03] Carl Press: I'm happy to start with that. So we presented Kevin and the team, the Medisys acquisition opportunity. And then we started to pencil out what is a four year plan going to look like inclusive of that acquisition. And so we start mapping out what's growth, what are margins going to be, how are we going to integrate this acquisition over what time frame.

[00:23:27] And then one of the things we did that we always do, which maybe is a little bit different from The experience that Kevin had with venture capital is we started to identify constraints on the business in a good way. What are we really good at and what are we not so good at? Where are we going to say yes and do more of that?

[00:23:45] And where are we going to do less? And by virtue of having a four year plan, by virtue of introducing financial targets, introducing a little bit of debt onto the business, you put these constraints onto the platform. And now we operate within those constraints. And the best companies operate really well under those constraints.

[00:24:08] And so in this case, there were some products that Kevin and team had started to work on that we said, let's put those on the shelf for now and revisit those. And instead let's double down on the things that we're doing today that are working really well. And then let's really nail this acquisition. And if we can do that in the next six to 12 months, we'll be in a position to make another acquisition or take one of those products that we put on the shelf back off and then reinvest in it.

[00:24:35] And that's exactly what we did. So within call it four to six quarters, we were ready to make another acquisition. Or in our case, we've made three since that initial one. Uh, we were able to double down on some of our product areas that we had pressed pause on. So Kevin, I want to get your perspective, but.

[00:24:55] It feels like relative to what we had penciled out on day one, we're at or exceeding probably all of our expectations.

[00:25:04] Kevin MacDonald: I think that's right, and Zooming back out to the venture versus PE, right? So the venture is constantly pushing for growth and really in some ways was afraid of profitability. So go ahead and spend more money to grow more.

[00:25:18] And a lot of times you didn't have necessarily the most productive way to spend it. Having those constraints that Carl talked about has actually driven both more growth and more productivity at the same time. And Carl mentioned the Metasys acquisition and the four year plan aligning on what are we going to accomplish up front, and we had to do that before the deal closed because we needed to be aligned on what were we doing with this acquisition, what are we doing with all the various products.

[00:25:46] Was really helpful. And then once we jumped in being super crisp on, these are the things that we need to accomplish and being very open as to where we have gaps in the business, both from a leadership perspective, as well as a capability perspective, or just process perspective. We did a deep dive with the team and it was really important to me that everyone was super clear with where do we have issues that need to be solved and Carl's team and the broader TV team were able to really help out and get us the right people and the right processes so that that acquisition integrated very well and We were prepared to do the next three.

[00:26:30] And as Carl mentioned, we've been launching more organic product than we have in years and it's been great.

[00:26:39] Sean Mooney: Can you talk a little bit more Kevin about kind of this purposeful power of constraint and how that changes your decision making process?

[00:26:49] Kevin MacDonald: There's always a want to do more, but a lot of times doing more is actually more effective if it's just.

[00:26:56] Focus. And if we are doing three products rather than four products, right, it's easier to set very specific goals as to what those three products would do. And that's effectively what happened, right? We're doing less pure new things that were speculative that you could kind of put some loose goals around, but maybe not such strong goals around.

[00:27:17] Here's what we're going to book. Here's what we're going to bill. Here's what kind of profitability we're going to drive. So being able to focus on the ones that you can drive those metrics allows you sort of this double benefit of not only are you doing less, but you understand what you're doing more.

[00:27:34] And that's really been energizing for our entire team as well, because they feel like we're hitting goals, we're exceeding goals, and that momentum then builds more momentum to then go and further accelerate. Can

[00:27:49] Doug McCormick: you guys speak a little bit to, you've had a really productive partnership, really complimentary skill sets.

[00:27:55] Talk to like where you may disagree and how you resolve that or where it's not exactly clear what the right answer is so you find a way to fail fast. I'd be interested in like kind of how you work that tension.

[00:28:08] Kevin MacDonald: I know there have been a couple of times where we've had perhaps a slight Disagreement of opinion on things, but I think it all comes down to we get together, we discuss the data and ultimately I feel Carl and team have empowered management to manage the business and they trust us to manage the business and want us to be the one managing the business.

[00:28:31] And if we have the data that shows that something is the right path, been very collaborative on those things.

[00:28:40] Carl Press: When you're aligned on what the North star is, where are we trying to get to? Um, Then it's a lot easier to navigate some of the disagreements about how quickly do we make an executive hire or not?

[00:28:52] And how much do we want to invest in our go to market this year versus new product development? And how quickly do we want to Ingest and consume M and a, all of these decisions can be worked out and all the disagreements can be worked out pretty quickly because we know what we're trying to get to from an operational perspective, from an enterprise value perspective, from a growth and margin perspective, it's all totally aligned at a very fundamental level.

[00:29:19] And that helps.

[00:29:20] Lloyd Metz: And so to that point, when you said, if I heard you, right, You and Kevin sat down, it sounds like before close and hashed out the four year plan. Did that include some of those elements that you described, enterprise value and so forth?

[00:29:37] Carl Press: It's a four year plan that maps where we're trying to get to organically in terms of growth, margin, profitability, et cetera.

[00:29:45] And that's kind of it. That's the roadmap. It represents the contours of the investment and then the details get worked out as we go along. And of course things change because we make an acquisition and then it kind of changes all the numbers, but it doesn't necessarily change the trajectory and it doesn't necessarily change the philosophy of what we're trying to get to.

[00:30:04] We're trying to get to a 20 percent growth business with 35 plus percent margin. As an example, that's going to be true whether or not we make that extra acquisition. That's going to be true whether or not we decide to invest in product A versus product B. We know where we're trying to get to. And so now, since we're agreed on that, making the decision of A versus B becomes a lot more straightforward.

[00:30:30] Sean Mooney: It sounds very familiar, right? You've got your destination and you're going to be taking lefts and rights along the way to get to the same place, but the fastest road to Rome isn't always straight, right? And so. As you're working towards that, I'm curious, kind of, what is your operating cadence with each other?

[00:30:45] Are you meeting daily, weekly, monthly, quarterly? What's the, kind of, the cycle counts as you're kind of iterating?

[00:30:52] Kevin MacDonald: I'm in contact with different parts of the TB team multiple times a week, and I know my team members are as well, my CFO, my CRO. We have weekly flashes that we give them on key metrics. We have monthly board meetings.

[00:31:06] But I think everyone on my team feels that if there's something urgent that requires the board to be involved in the TV crew to be involved, they're there. And in things like M& A, we talk on a biweekly basis and really are constantly moving the ball forward. I think it's important that we're not only aligned, but everyone is aware of what's going right and where there's challenges in the business at any given time.

[00:31:34] Carl Press: We've got some formal structure, as Kevin mentioned around touch points. And then there's a lot of quick phone call, five minute phone call on, Hey, how is this part of the business going? Or how are we getting along with this executive that we just inherited from this acquisition? How are we feeling about this big whale deal in our pipeline?

[00:31:53] So there's a lot of kind of informal communication that happens and kind of evolves organically in any investment. And every partner at Thoma Bravo does it a little bit differently. I'd like to keep it a little more informal and that works for us.

[00:32:09] Lloyd Metz: And Carl and Kevin, did I hear you say you have monthly board meetings?

[00:32:13] Carl Press: Yes.

[00:32:14] Lloyd Metz: Is that typical for how you manage your investments? Or is it because the business is growing just that fast? You need to check in? More frequently than quarterly.

[00:32:26] Carl Press: It's a monthly cadence for all of our companies. The quarter ends tend to be more structured, long form in person. And then the intra quarter ones tend to be shorter over the phone or over zoom.

[00:32:39] Just the quick run through of where we're at, where we're tracking.

[00:32:42] Lloyd Metz: Got it. Thank you.

[00:32:43] Sean Mooney: I really liked that approach as I'm thinking about it because it's, as you think about your board meetings are almost in some ways probably happening every week, and then it's more about having the. More structured tactical check ins twice a quarter.

[00:32:57] And then you get this opportunity to maybe purposefully pull the altitude up on those more strategic quarterly sessions. Is that kind of how it works?

[00:33:06] Kevin MacDonald: High level. That's how it works. And then of course, if there's something strategic and urgent, we get the team together and we talk about it.

[00:33:14] Doug McCormick: Yeah. Carl, I'm curious how you think about the balance between operational excellence and strategy, as I reflect on your guys conversation.

[00:33:22] I'll contrast HCI a little bit. We're Industrial services, technical services, distribution. And so we lay out a strategy like you guys do like an end state. And then we spend a lot of time on the tactical operations because we don't have the same intellectual property and some of the market dynamics are very different.

[00:33:41] It feels to me like as I hear the conversation, you're engaging across that entire spectrum, but like it's strategy and end state first and the other parts of like how you could create value are almost secondary. Is that a fair characterization or am I oversimplifying?

[00:33:58] Carl Press: It's identifying end state first, to your point.

[00:34:02] It's having a four year plan. It's having that roadmap. And one of the beautiful things about working with founders in the Explore Fund, in particular in the middle market, is we never lose sight of that customer perspective and the end market. That has been with the company since day one. We have that in the boardroom, in a leadership role for our company.

[00:34:22] And as a result. We can bring some of the tactical components to the table, which are pretty common across many of our companies. And Kevin can bring the really unique industry insights, product insights, customer insights. And that's a really powerful combination.

[00:34:39] Sean Mooney: I think that is a theme or a perspective that probably rings true with a lot of people in PE is I would look back probably every deal I ever did in PE.

[00:34:48] We usually got to the place that we wanted to be. But we got there for reasons that we could have never fathomed in that 80 page sim in the beginning. And it's even here in True BluWave, where it's like, I kind of know where we wanted to be by now, and we've gotten to there, but for very different reasons.

[00:35:05] And I think it's having that openness to be not so rigid in how you get to that end state, but know at least where you want to go as you're kind of tactically tilting and ABing your way there. Is that kind of the way you all think about it?

[00:35:17] Carl Press: I think that's right. One of the nice things about being a specialist is there's not a lot of Challenges in enterprise software and in the business model of enterprise software that we haven't seen as a firm yet.

[00:35:28] They come in different shapes and flavors and sizes depending on the company and depending on the market that that company serves. Generally speaking, we've seen some flavor of that challenge. And so there's someone within our ecosystem, within our four walls that we can speak to that can help us navigate that problem.

[00:35:49] And that's the beauty of being a specialist focused on one market. It really helps.

[00:35:54] Sean Mooney: And maybe with that in mind, Kevin, can you talk about, we talked a little bit, and you maybe alluded to it, where you've got different people in your organization accessing different parts of Thoma Bravo on a weekly basis.

[00:36:05] How else are you interacting? What resources are they helping you out? In addition to kind of the C suite.

[00:36:11] Kevin MacDonald: The data that Thoma Bravo has across the portfolio, they've done so many investments and so many acquisitions, the ability to benchmark, if we have a question about almost any piece of our business, we can say, Hey, how do our commission stack up versus someone else?

[00:36:29] How does this plan stack up versus someone else? It's an amazing thing that we can go and ask that about. What's happening on the engineering side? What's happening on the product side? We have the finance folks that, of course, are working on budgets and plans. They have technical folks that work on high level.

[00:36:49] How do we migrate data centers? For example, there's folks that help out with vendors and making things less expensive. So there's a whole array for virtually every common piece of the business. And then to Carl's point, We then have the customer specific and market specific knowledge that is unique to Bluesight.

[00:37:10] Doug McCormick: That's a really powerful model. I'm curious, do you facilitate interaction amongst counterparts across the portfolio, CEO to CEO, or CFO to CFO, just in the context of like a peer that's going through similar experiences?

[00:37:25] Carl Press: We do, we have functional summits across the portfolio where functional leaders will all get together for one or two days at a big conference room somewhere and talk about their problems.

[00:37:35] And Usually they're all facing similar types of problems, whether it's how to scale your go to market, how to get more velocity on sales, how to get more efficient on marketing spend, how to increase your R& D cycles. These are all challenges that every enterprise software company faces. And so we found those summits to be a good way to air out those problems and then to share insights and best practices.

[00:38:02] Doug McCormick: I see a lot of value in that kind of activity and it's not just the content. I think it can be lonely out there in the portfolio company as a CEO or CFO and just having somebody that you can kind of commiserate with and have that shared relationship, I

[00:38:14] Sean Mooney: think is valuable. Yeah. It's the ultimate team sport and you've kind of compounded it throughout, not only your relationship together and everyone wins together, but then also the, almost like this expert network that you've built within the Thoma family as well.

[00:38:27] Kevin MacDonald: Right. Well, there's some, but also like the operating partners and operating advisors are on. More company there on 10 companies, right? So they're seeing pattern recognition within their own base as well. So that's super helpful, particularly if there's something that's of the times rather than just a general problem, you see that pattern very quickly.

[00:38:49] Sean Mooney: And particularly as it relates to the benchmarks, both Carl and Kevin, I might be calling you right after this, because if you figured out the benchmarks on what software development and product should be doing in this agentic LLM world, I'd love to know it, we can't find it anywhere. It's just like, just be better and faster.

[00:39:05] And so if you have something more thoughtful than us saying be better and faster, I'd love to get your advice on that.

[00:39:11] Kevin MacDonald: Maybe ask DeepSeek for the answer.

[00:39:15] Sean Mooney: But that's just chat GPT 4. 0. I already pay 20 bucks a month for that. So, Kevin and Carl, you all have accomplished a ton so far. And like always, there's always more to do and more to come and some exciting things in the road ahead.

[00:39:32] What's maybe some of the, or one of the big things that's ahead for you all that would be good to keep in mind and see into the future here?

[00:39:40] Kevin MacDonald: Yeah, we're really excited because in Q4, we actually acquired three companies and the latest one was our biggest acquisition ever. It not only helped us with the consolidation play that we were talking about earlier, but also added privacy to our bucket and allowed us to access a bigger part of the health system and really expand where we're reaching.

[00:40:04] So now as we look out, what do we do next? We have more areas to go and further expand our base and further do some consolidation.

[00:40:12] Sean Mooney: Yeah, I love that. In some ways, that's the name of the latest best, but never final. You're continuing to go and go and it keeps on getting better each time, but you're never done taking the pencil down.

[00:40:23] I used to drive some of the associates I worked with crazy because I always had more red ink, but in this way, it's very positive.

[00:40:30] Lloyd Metz: Hey, congrats on the recent acquisition. That's sounds like a pretty big step change in the, in your business.

[00:40:36] Kevin MacDonald: Yeah, it was a transformative one for us. We're super excited about it.

[00:40:40] We got some great people and products out of it, and it really just furthers our value proposition to the health system, which is the most important thing.

[00:40:50] Carl Press: In a lot of ways, our portfolio companies have to earn the right to do an acquisition as big and as transformative as the one we just did. And Q4 and Kevin and team have absolutely nailed that.

[00:41:02] The first acquisition of Medisys when we did the deal in combination with Blue Sight, they nailed that one and have demonstrated the ability to migrate customers and integrate management teams and cultures. It's a blessing for us as investors to be able to say, okay, well then let's go do this next big one.

[00:41:18] And then what's next after that? And we know that we can

[00:41:20] Kevin MacDonald: absorb these things. Carl and I are talking about what's the next big thing to go after potentially this year.

[00:41:27] Lloyd Metz: That's great.

[00:41:28] Kevin MacDonald: Best, but never final.

[00:41:30] Sean Mooney: Absolutely. All right. So as we bring our conversation here, full circle, one thing I think we we'd all love and really on all sides of the table here is if both of you were to give a piece of advice to a CEO who's about to kick off a relationship with a new private equity partner, what would be one of those pieces of advice to make it so it.

[00:41:57] Flows like water, as Lloyd has said before, and it kind of is a smooth and easy.

[00:42:02] Kevin MacDonald: Yeah, for me, it's clear expectations, right? So having that four year plan, understanding where do we need to be day one? Where do we need to be each step along the way and being aligned on what does that plan look like? And what does that mean in terms of product and bookings and profitability?

[00:42:20] If you can align on those things, then a lot of arguments go straight out the window because we know what we're marching to. Where you get yourself in trouble is PE partner signs up and doesn't necessarily have a clear set of expectations. And then you're arguing over, Hey, that plan is 40 percent different than we were talking about.

[00:42:40] Sean Mooney: That makes a ton of sense. How about you, Carl?

[00:42:42] Carl Press: Yeah, I'd say two things. One is culture and the second is track record. So on culture. Is it the right fit for that executive and for that team? Is there a dynamic where you feel like there's trust? You feel like you can push back on one another? You feel like they'll be supportive even in the in the dark days of underperformance?

[00:43:02] And they'll be patient in those times? That's super, super important. You're going to spend a lot of time with that private equity firm and with that partner and with their operating partners. And so if you don't feel like that fit and that alignment is there early, that's going to be a long and difficult road ahead.

[00:43:20] So that's one. And then I'd say track record matters. If I had to give that advice to a founder, I'd say, look for firms and sponsors that have been there, done that, understand both those end markets, the size of company. Understand and have done the things that you want to do. So if you want to be a consolidator, well, you should go find a firm that has done that before many, many times and done that very successfully.

[00:43:45] We always recommend to prospective CEOs, go reference us and don't take our references. Go call whoever you can find in your network that has worked with us and ask them about us and then come back and see if you still want to work with us. I think that's just super, super important.

[00:44:01] Sean Mooney: I think it's great.

[00:44:02] I mean, both of those, it's like the, we used to call it, just be cards face up, you know, like culture, alignment, clarity, and using your words with each other is just so important, but not necessarily easy. It's the uncommon common sense, I think, that is difficult to concisely and articulately convey as you all have.

[00:44:22] And so I think it's great advice for anyone that aspires to. Be backed by a private equity firm and certainly any private equity firm that wants to also similarly in partnership work well with the executives that they partner with.

[00:44:37] Lloyd Metz: Yeah. Well said,

[00:44:38] Sean Mooney: Carl.

[00:44:38] Lloyd Metz: Well said, Kevin.

[00:44:40] Doug McCormick: Congrats guys.

[00:44:40] Carl Press: Great run. There's also a little bit of fate and serendipity in our partnership between Kevin and I in that at the first dinner we did together in Miami, About 45 minutes in, we realized that we grew up in the same hometown outside of Chicago, and we went to the same high school.

[00:44:59] Sean Mooney: No way.

[00:45:00] Carl Press: A few years apart from one another, so we didn't overlap, but, and then we later found out that Kevin's mom, who was an elementary school teacher in that community, had taught my older brother in second grade.

[00:45:14] Sean Mooney: What

[00:45:15] Carl Press: are the odds of that? When we pieced all this together, it felt like destiny.

[00:45:20] Lloyd Metz: It's a different kind of reference checks too.

[00:45:26] So Kevin, did you call your mom and say like, what are these guys like?

[00:45:30] Kevin MacDonald: I did. I did. Although as Carl mentioned, we didn't discover the second grade teacher aspect until we were six or nine months into the investment.

[00:45:39] Lloyd Metz: It

[00:45:40] Kevin MacDonald: was while we were at dinner. Carl was asking what my, my mother had done and we narrowed it down to a particular elementary school and then he sent a text to his brother and it came back that the teacher was Mrs.

[00:45:55] MacDonald and it's kind of crazy.

[00:45:57] Sean Mooney: That's wild. She's probably even more serendipitous because I don't know, but maybe she said, like, Carl's brother was a terror. That might have, like, derailed things at the beginning, so more serendipity that that came, like, six months in. No offense to Carl's brother. All right, well, gentlemen, this has been a lot of fun.

[00:46:19] I think we've all learned a ton here, so thanks so much for carving some time out of the day and kind of demystifying the world of, How private equity has done really, really well.

[00:46:29] Doug McCormick: Thanks for having me. Thanks for having us.

[00:46:31] Sean Mooney: Thanks guys.

[00:46:32] Doug McCormick: Congrats guys. Yeah, absolutely. A lot of fun. A special thanks to HCI equity partners, a lower middle market, private equity firm focused on driving transformational growth through consolidation strategies by partnering with family and founder own manufacturing services and distribution companies.

[00:46:51] Learn more at HCI equity. com. ICV partners, an innovative. Lower middle market, private equity firm, supporting management teams of leading companies at the lower end of the middle market. Learn more about ICV at icvpartners. com. And finally, BluWave, the business builders network connecting the most proactive business builders in the world.

[00:47:15] With the best of the best service providers for critical, variable, on point, and on time due diligence and value creation needs. Learn more about BluWave at BluWave. net. For further information on HCI, ICV, and BluWave, And relevant topics discussed during the episode, please see the episode notes for links.

[00:47:37] Sean Mooney: The views and opinions expressed in this program are those of the individuals presenting and do not necessarily reflect the views or positions of any other persons or entities, including those referenced herein. No representations, warranties, financial, legal, tax, or other advice are made herein. Consult your advisors regarding any topics discussed during this episode.

Join Doug McCormick from Oridian Capital Partners, Lloyd Metz from ICV Partners, and Sean Mooney from BluWave as they explore timely private equity topics and offer their seasoned perspectives on crucial areas of focus within the industry. Gain valuable insights from these industry experts in this engaging podcast tailored for PE professionals.