This podcast is for informational purposes only. Views expressed are those of the individuals and not necessarily the views of Thoma Bravo or its affiliates. Thoma Bravo Funds generally hold interest in the company's discussed. This podcast should not be construed as an offer to solicit the purchase of any interest in any Thoma Bravo Fund.
Transcript
NARRATOR:
This podcast is for informational purposes only and does not constitute an advertisement. Views expressed are those of the individuals and not necessarily the views of Thoma Bravo or its affiliates. Thoma Bravo funds generally hold interest in the companies discussed. This podcast should not be construed as an offer to solicit the purchase of any interest in any Thoma Bravo fund.
HUDSON SMITH, HOST:
So I was looking at the numbers. I mean, we've basically quadrupled the size of the company. We've done three acquisitions since the original deal, and in terms of profitability, I think we've five 5X'ed the profitability of the business, which is pretty incredible track record in our typical kind of four or five year period.
COLBY LANE, GUEST:
Yeah, we've certainly done some extraordinary successful M&A. The organic growth profile of the business is also really, really strong, and so I think we should give a shout-out to the Thoma Bravo operating team for the value that they have delivered and helped us deliver.
ORLANDO BRAVO, HOST:
This is Thoma Bravo's Behind the Deal. I'm Thoma Bravo Founder and Managing Partner, Orlando Bravo. And today, you'll be hearing from one of my partners, Hudson Smith, about the merger of two companies, PEC Safety and Veriforce, and how he worked with CEO Colby Lane to expand the merged company now called Veriforce to almost five times its size in under five years.
Veriforce is a global provider of contractor management software for industrial markets resulting in safe, smart, and sustainable supply chains for its users. After becoming a market leader in the US with the original merger, Veriforce has since acquired businesses in Canada and the UK to satisfy the needs of multinational customers. For me, this is an excellent case study on how an entrepreneur with such amazing success can then subsequently partner with Thoma Bravo and do it again in a much bigger way.
I'm also partial to this one because Colby comes from the Stanford Graduate School of Business where I graduated from as well. And while finishing up at Stanford, he raised a search fund which is hard to do. Upon raising that search fund, he then acquired PEC Safety and made so many changes and turned that into a high quality software company. The return from that deal made his search fund, as I understand it, the second best search fund deal ever done.
Now PEC at the time was rather small for Thoma Bravo, but we approached Colby with the idea of turning this into a very large company and acquiring Veriforce, and Colby was open-minded and he worked with us almost on an exclusive basis to buy PEC Safety with a purpose of later combining with Veriforce and now Colby with our support is running a large network service business that goes under the name of Veriforce that's also a rule of 70 company.
So today, you'll hear the story Behind the Deal of Veriforce from Thoma Bravo partner Hudson Smith, followed by a conversation between Hudson and Veriforce CEO, Colby Lane. Here's Hudson.
SMITH:
This is Hudson Smith. I'm a partner at Thoma Bravo. I co-lead our Discover Funds which is our mid-market buyout platform. I've been in private equity for about 14 years, and about half of that time has been at Thoma Bravo. Veriforce really gives hiring clients, OEMs, and owners kind of visibility into their contractors and supply chain that perform critical services for them.
So think of higher risk industries where employee safety is really important, and going back in time, there was really a trend to outsource a lot of this work, especially the higher risk work to contractors with a theory that you're potentially shifting the risk to contractors away from actually the company that, you know, needs to perform the work. And something that changed that in the industry was really one of the big oil spills where it was really contractors doing all of the work that created the problem that created the spill and the buck stops with the ultimate owner and the ultimate big corporation that that ran it.
And so effectively, even though they had kind of pushed all the work to contractors, they didn't really have any employees on the rig. They still kind of own that risk and that liability, and that's when the, the shift of mindset of boards and corporations started to, to think about their contractors actually as employees because, you know, the trend was to outsource all this work and have this mixed workforce of both employees and contractors. And they started to realize that, "No, these contractors are effectively, uh, working on our behalf, so therefore we're responsible for them and we need to make sure that they're also as safe as our employees." And so that's kind of the background for how Veriforce and the whole industry really got started.
Thoma Bravo has a history with these supply chain network businesses and you know, what's the supply chain network business? It's really one where you're selling to both the hiring clients and the OEMs and the contractors and suppliers. And what's awesome about these companies is there's a network effect so that as your coverage improves, as you get more clients and more supply chains, then the next customer becomes easier to sell because they like the fact that you're already working with all of their contractors and suppliers.
And so that's why it's a good business from, from a Thoma Bravo's investment standpoint. And then secondly, once you build this network, there's a lot of value you can create to both sides in terms of new products and services to make the network more effective. And so we had actually had experience with this business model with GHX in the healthcare space and lemec- the chemical space. And then as we were tracking kind of the two largest players in this space, that's actually where we got to find the original platform investment here which was PEC Safety.
We realized PEC was a very unique asset and very strong in a certain segment. And then we said to ourselves, "Well wait, how could you transform this business? Make it much bigger?" Because the deal frankly was a little bit small for us.
So we found Veriforce which had a very complimentary product in an adjacent space, plus a competing product that had some nice synergies and we said, "Hey, what if we could put these two companies together and really create, you know, a market leading franchise in the market?" And so even though it was a small deal PEC, we kind of saw, had the vision of, of getting Veriforce and we immediately engaged on both companies to try to make the combination happen.
So when we got the phone call from the investment banker about PEC safety, and we tracked down Veriforce and found some willingness to engage there and thought that this combination could make sense, the first thing that came to mind for us is we need a leader of this company and someone that can manage a company now twice the size of it. And so the first thing we did was we begged for a fireside chat and dinner with Colby Lane, the CEO of PEC, safety to get to know him to determine, you know, could he run a much bigger company?
And so we flew down to New Orleans to see Colby, had a nice meeting and dinner and it became very clear to us that he had very big ambitions and he was certainly capable of building a great team and managing a much larger business. And so that gave us confidence to keep pushing on the Veriforce deal and think about bringing the two companies together. So coming out of Stanford Business School, Colby was an entrepreneur and he basically said, "Hey, I want to go buy and run a business."
And so he tapped into the search fund network at Stanford, went out and had to go find a business to buy, and convinced the founders of PEC to let him buy the business through this search fund, let him run the business as CEO and take over for them and ultimately grow the business and when we bought the company in December of 2018, it represented the second biggest return ever for the search fund industry overall, and that's a pretty big testament to Colby and the business that he ran and was able to generate.
So after the meeting and dinner with Colby, I remember the flight back with our team and we said, "We absolutely need to buy the company and back Colby in building a much bigger business." And the main things that differentiated Colby in our mind and was really unique was he thinks more like a business owner than almost any CEO that I've met, and I remember he was going through different things of, "Hey, if we did X, Y, Z, you know, and created this much EBITDA, then down the line that would be worth X and someone would pay us a multiple of that and we have created X million dollars of value."
And he was just doing that math in his head and it just, it gave this sense that every business decision that he's making at the company is both how to optimize growth and how to optimize margin, and what is that gonna then mean for the business later in terms of what someone's gonna value it at. And it was just an, it's an incredible skill that not a lot of business leaders have.
A lot of private equity people think that way, but not a lot of CEOs kind of have that lens to thinking through things, and that's one of the big factors of Colby that's pretty unique. And then I would say the other thing about Colby is his ability to attract incredible talent and win over people. You know, as we wanted to go do future acquisitions, you really need a CEO who can sell that vision to the other team that's gonna be acquired.
And in this case, it was Veriforce and convincing the founders of Veriforce that this was a better home for the business, they could potentially roll their stake, make more money with the combined company and pull that together and, and Colby was a huge factor in selling them on that vision and the fact that he could actually lead and create more value for them over time. When we sat down with Colby in our second meeting, we walked through kind of an operational plan just for PEC safety originally in terms of what we thought it could do.
And there were some concrete things and changes that we could make to some of the packaging of the products, some of the way they do things operationally that we felt like could potentially double EBITDA in a pretty short period of time. And so in the original deal, we got Colby to kind of suss out that plan, make it his own, develop it himself, he changed it, made it better, made it something that his team had confidence in, and then we partnered with him to kind of execute on that team. So we really had a path to kind of get close to double EBITDA, just with the business on its own. And then as we bought Veriforce, the plan then changed a bit in terms of really bringing these two companies together, merging the technology platforms, and making it truly one network. Capable of, of serving, you know, both companies, clients. So this was an incredibly fast timeline for a deal.
We first went down to Louisiana on October 30th and signed the deal November 30th, and it was incredible what happened in between those steps because we had two meetings, two dinners, and effectively after our second meeting, three days later, we worked all weekend. We presented an offer to preempt the process. Just after Thanksgiving two weeks later, they were expecting to get bids from a number of parties who had evaluated the materials. Some had had a meeting and and others had not. And you know, we came in and said, "Hey, we're done with our diligence. We will sign over the Thanksgiving weekend and move forward with the strategy, move forward with the potential purchase of repair force and get the deal done."
And it was a very challenging situation for Colby and the shareholders to be in because, you know, they had found a great partner. They had developed a good strategy, they had a good price. But you know, it's also attempting to understand what the bids are for the company. But they were sophisticated enough to understand that those would've been very preliminary bids with ranges of values typically, and a lot more work to be done to kind of get those parties to the finish line.
Where with us, they kind of had a, a certain deal and so we ended up working all Thanksgiving getting the deal signed on Sunday night so that they could notify those other parties who most of which were going to investment committee on Monday morning to present the deal, to determine what value to bid in an initial round bid. But meanwhile, we were behind the scenes actually signing the deal, and then the banker notifying all of these parties that the process had been shut down and that they're not accepting any bids.
So it's a pretty rare case where we were able to kind of preempt the process where you're so close to them getting price discovery from other people. Usually people wanna see that process to the finish. Up next, my conversation with Colby Lane, CEO of Veriforce, Thoma Bravo's Behind the Deal will be right back. Welcome back to Thoma Bravo's Behind the Deal. Here's my conversation with Colby Lane, CEO of Veriforce. Hey Colby, good to see you.
LANE:
Yeah, good to see you too Hudson.
SMITH:
When we first started talking back in 2018, why was that the right time for you to work with someone like Thoma Bravo to take PEC Safety to the next level?
LANE:
You know, the business PEC was at an inflection point. We had run the business and done, I think, some things reasonably well from 2014 to 2018, but to take advantage of the, the opportunity we saw on the market, to execute on our mission, to bring home workers safe from high hazard jobs really, uh, in broader markets and around the world, we knew we needed a partner that could help take us to the next level.
Thoma Bravo had a stellar reputation for doing so. We talked to a lot of people about who we should partner with, and I thought there was real alignment from the first meetings, and the partnership has been incredible since then.
SMITH:
And just to add a little bit on the process, it was an incredibly tight deal process, and I remember back, I, I was looking at some dates, we flew down to New Orleans like October 30th for that fireside chat and dinner, and we ended up signing the deal November 30th. So it was an incredibly fast process that accounted for two dinners, two meetings, a proprietary plan together that we built, and then also the plan to hopefully buy Veriforce, and all of this was done effectively the finals over Thanksgiving to get it done before bids were coming in. I think it was probably one of the fastest deal timeframes that we've done in terms of start to finish.
LANE:
Yeah, it was a whirlwind for sure, including very abbreviated Thanksgiving dinner on Thanksgiving, I remember that. When you're talking to firms, I mean, I think one thing that Thoma Bravo has a reputation for is focusing on what's important and focusing on partnering with management to deliver, you know, really good opportunities, and I think one of the things I learned about Thoma Bravo in that call it 30 day process is you couldn't have gotten done what we were trying to get done, and ultimately, you were trying to get done if you didn't really just focus on what was important. And it has been actually the case since we have partnered with Thoma Bravo.
SMITH:
Yeah, and we passed the dinner test of eating the frog legs which was-
LANE:
That's true. That's true.
SMITH:
Critical, yeah, for, uh-
LANE:
I actually told that story this past weekend as well, so that, that comes up a fair amount. You did eat frog legs.
SMITH:
We will do anything-
LANE:
And you got the deal.
SMITH:
To close the deal. Yeah. Tasted like chicken.
LANE:
They did. (laughs).
SMITH:
So we finished the acquisition of PEC Safety in 2018. What do you remember about our next steps?
LANE:
You know, during the process when we were selling PEC to Thoma Bravo, I mean, we were very clear and transparent about what we saw as a significant opportunity. And Thoma Bravo came to the table really seeing the same opportunity of combining what was then PEC and, and what was then Veriforce. And I would say the rationale for it was both businesses were focused on helping hiring clients execute on their safety and compliance mandate and their supply chain.
Helping the world's supply chains be safer and more sustainable, helping bring home workers safe from high hazard jobs. So in the PEC business, had a, had a really strong offering in what we call contractor management, our SaaS business, as well as connected training. The Veriforce business had a really, really strong offering, software offering focused on worker competency. And at the end of the day, where we see the marketplace going is a desire to be able to impact safety and compliance at what we call the company level, the worker level, and the work site level, and the combination better enabled us to execute on that value proposition at the company worker and work site level.
And so it was a very logical combination, PEC and Veriforce. We had had conversations before. There had been conversations, honestly, even almost a decade ago, there had been conversations about combining the business. So the value proposition we thought was really, really clear.
SMITH:
Yeah, and so one of the reasons Colby that we had to move so fast on the original PEC deal was to set ourselves up for Veriforce because we had been hearing rumblings that one of the other strategic acquirers in the space was potentially making some expressions of interest to that business, and so wanted to lock down the PEC Safety deal in a way that worked for your shareholders and you, and then position us to get right to work in picking up where we had all left off on that deal and getting it over the finish line.
And you were just instrumental in convincing Louie who was the CEO of Veriforce that together the companies had a much brighter future and potentially more shareholder value could be created by bringing them together, and that transitioning that business, you know, under PEC would make a lot of sense. And so it was a very tight timeframe where I think looking back, it was only three months from when we closed PEC to when we were signing Veriforce and bringing the companies together.
LANE:
Yeah, it was a busy first quarter and I remember Hudson in those first couple of meetings with Louie, I, I think one of the things that, you know, we talked about, you know, the speed of the PEC deal, and I remember thinking that it was, it was really powerful for me to be able to say to Louie how fast we had done the PC deal and to represent with 100% conviction that Thoma Bravo is the kind of firm that's gonna focus on what's important and when they have conviction as to getting an opportunity across the finish line, they're gonna work really fast to do that.
And so that was really important for Thoma Bravo to get PEC. And so I thought that speed execution that we were together able to present to Louie was really important. And of course, Louie's gone on to be on our board and be a great partner which I think is another thing that Thoma Bravo has a really good reputation for as well.
SMITH:
That's a great point. Yeah, speed and certainty was a big factor in winning that in addition to kind of the vision in the relationship. I mean, anytime we bring businesses together, getting to the right culture and merging the, taking what's best of both cultures is always critically important. What do you remember about bringing Veriforce and PEC Safety's cultures together?
LANE:
Well, you know, I, I think one of the things that helped a ton and, and has also helped in subsequent acquisitions is I think we've done a good job at picking businesses, and it was a case of Air Force that had similar missions and so our mission which we articulate as, you know, our job is to help companies bring home workers safe and to make supply chain safer and more sustainable.
You know, we think that's an extraordinarily powerful mission and it, it motivates everybody, it motivates our team. It motivates all of our people. We had a town company town hall meeting this morning. We spent a significant part of it talking about our mission, and I think with, with Veriforce also had a similar ethos. And so I think if you can get aligned on mission, that's really, really, really important. And from there, I think you had two businesses that were aggressive in the marketplace that had big ambition and that were trying to do things fast.
And so I think we were able to relatively quickly align our cultures around kind of a common ethos. And I think Thoma Bravo does a really good job of, of recognizing that you absolutely have to buy the best software companies and you have to have great software. People are pretty important into bringing that success to fruition, and so it's something that our board and Thoma Bravo spent a lot of time asking and helping us execute on as well.
SMITH:
Yeah, I remember that, the town halls we did together for both companies in terms of painting the vision, talking about the common mission, talking about the cultures coming together, offering co-invest to all employees, which I think was actually a pretty high participation rate here across the two businesses all played a factor and got things going in the right direction from the start.
I mean, one of my favorite things about private equity is just kind of working with incredible founders and business leaders and really partnering on that journey. And you know, we get to meet so many people and then we filter that down to the very, very best. And then once we find the very, very best, we then have this four year journey together where we truly partner and roll up our sleeves together and spend a lot of time together.
LANE:
I agree with that Hudson, and I think one of the things that I've been really impressed with the Thoma Bravo team, there's, there's no gotcha. It's, it's solution oriented. It's this is the problem, now what is the solution? And that builds a tremendous amount of trust from a management team, from my team at the management level. And so I think it's been, you know, an extraordinary partnership on the operating level. And I would say Hudson and George and team are, have also been really instrumental in what we think of as some really, really strong M&A that we've done as well. I think it's a partnership mindset. I think Thoma Bravo says that a lot and I believe, you know, our experience has shown that that partnership mindset really is what it is. So it's been really fun.
SMITH:
Yeah, I was looking at the numbers. I mean, we've basically quadrupled the size of the company. We've done three acquisitions since we did the original deal. And in terms of profitability, I think we 5X'ed the profitability of the business since the original deal which is pretty incredible, pretty incredible track record in our typical kind of four or five year period. I mean, now that we have kind of a rule of 70 company, which is pretty rare in software, maybe you can comment a little bit how we got here and where we're taking it from here.
LANE:
Yeah, I think the management team and Thoma Bravo have, have really partnered on two fronts. One, the business, we've certainly done some extraordinary successful M&A. The organic growth profile of the business is also really, really strong, and so when I think of that, I think of, you know, the products we have built. Uh, the professionalization of our sales organization and Thoma Bravo is really, really good at helping with that in the continued pursuit of operational improvement. And so, you know, organically, this business is growing very well and it is very profitable and I think we should give a shout out to the- the Thoma Bravo operating team for the value that they have delivered and helped us deliver.
SMITH:
Yeah. If I think back to like the biggest value creation levers here, obviously M&A was a huge one because we've done three deals, but in terms of what you and the team have driven, it's kind of redoing the complete business model from a pricing and packaging standpoint really drove significant value, creating new products and services to this two-sided network that create, you know, better retention and better products and better service levels, but also new revenue opportunities has been pretty interesting, and then I think one thing you've done an incredible job of is just redesigning every process and you've kind of trained your organization to constantly reinvent the way they do insurance verification or whatever it is, just do it more efficiently, do it in a more automated way, dealing with the exceptions, et cetera. And so just incredible amount of operational efficiency that's kind of been rung out of the business as well which is pretty interesting.
LANE:
Yeah, yeah, I 100% agree. I also think we've brought on a ton of really, really talented people. I mean, there's certainly some extraordinary talented people that have been here a long time. They've been here a decade, but I think that's another area where the collaboration and, you know, the reputation for success and enabling real career development that Thoma Bravo has in the marketplace has absolutely helped us to recruit top talent.
And, you know, Hudson and George and others have participated in interview processes and participated in helping get key people across the finish line, and that's also been really, really instrumental to our success. I'd also just say like, you know, the, from the beginning, we talked about this vision of the opportunity to expand our addressable market and expand globally, and that's been a huge part of our success.
You know, so from the beginning, when Hudson and I sat around and ate frog legs and talked about what we could do with this business, there was alignment. Then going and do the hard work to execute on that alignment has been a big part of our success for sure.
SMITH:
Yeah, expanding into those other end markets, expanding geographically into new international locations. Some of that's organic, some of it was acquisition related, but, you know, that was a, a topic that was frequented in our board meetings and really from the strategy from the beginning of what we thought we could build, but then actually doing it over the long period of time has been quite a journey. Well, Colby, thank you so much for spending time with us on this podcast. Look forward to seeing you hopefully at our next board meeting.
LANE:
Well, thanks Hudson. Appreciate you taking the time as well, and appreciate the partnership with the Thoma Bravo team and excited about what we can do next. We're not done yet, right? So let's, let's keep going.
SMITH:
Thanks for listening to my conversation with Colby Lane. If you wanna learn more about how Veriforce maximizes supply chain efficiency for enterprises all over the world, visit veriforce.com. Check out all of our episodes for more stories Behind the Deal wherever you get your podcast. I'm Hudson Smith, thanks again for listening.
BRAVO:
Thoma Bravo's Behind the Deal is produced by Thoma Bravo in partnership with Pod People. Stay tuned for more stories Behind the Deal. I'm Orlando Bravo, thanks for listening.
NARRATOR:
Certain statements about Thoma Bravo made by portfolio company executives are intended to illustrate Thoma Bravo's business relationship with such persons rather than Thoma Bravo's capabilities or expertise with respect to investment advisory services. Portfolio company executives were not compensated in connection with their podcast participation, although they generally receive compensation and investment opportunities in connection with their portfolio company roles, and in certain cases are also owners of portfolio company securities and or investors in Thoma Bravo funds. Such compensation and investments subject podcast participants to potential conflicts of interest.
