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Unknown
You.

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Unknown
Welcome back to the Mazing podcast, where we explore the world of mergers and succession with acquisition entrepreneurs, holdco builders and search fund investors in the UK, Europe and beyond. I'm your host Gareth Wilkins, co-founder and CEO of crunch, one of the AI powered tool suite, for turnkey small business succession. Today's guest is also in this space and has had a front row seat to M&A activity across four continents over the past two decades.

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Unknown
Andrew Stace has worked in Auckland, Sydney, New York and London for some of the world's leading advisory firms, including PwC, Mizuho, Greenhill, Evercore, Luminous Partners and has advice on over $60 billion worth of completed transactions. And after 20 years of doing deals, the traditional way. Andrew's now disrupting the very process that he knows so well. He's the CEO and co-founder of recce AI, an AI powered due diligence platform that's transforming how data rooms are assembled and analyzed, particularly for mid-market and lower mid-market transactions.

00:01:08:08 - 00:01:28:21
Unknown
So, Andrew, welcome to the meeting. Thank you very much for having me, Gareth. It's great to be here today. It's a delight to have you with us. Given your depth of experience and wealth of knowledge on M&A in general, but also with what you're doing, the bleeding edge, exciting kind of coalface of bringing AI to to deal making and deal diligence.

00:01:28:21 - 00:01:52:20
Unknown
So let's get stuck in, shall we? I'd love to understand a bit more. I'm sure our listeners would about, your 20 years in M&A across the four different markets. Quite the career. What drew you to the space initially, and why did you stay in it for two decades? Oh, good. Good question. And I think my experience when I started, I guess my internship first one was probably 2005, which was pre financial crisis.

00:01:52:20 - 00:02:16:11
Unknown
And I started work in 2007. My my experience was probably a lot different from a lot of people going into M&A today. And at the time, I think I took a role at Pewaukee in New Zealand, the corporate finance team. I didn't really know what I was getting into. And New Zealand is a sophisticated market, but a small market.

00:02:16:11 - 00:02:35:30
Unknown
So you didn't have the depth of financial firms you might have in London or New York or some of the more global markets. So coming out of university, I'd studied law and commerce, and I had an opportunity to go and work for a range of firms. Oh, and he chose to go into finance because it sounded more interesting than the alternatives.

00:02:35:32 - 00:02:56:13
Unknown
And I had a, some personal connections to the business that I was joining and, respected some people who were inside the corporate finance team. So I did that for the internship. At the end of the internship, one of the parties took me out for lunch and said, would you like a job when you graduate? And I said, yes, please.

00:02:56:13 - 00:03:17:26
Unknown
That means that I don't have to interview again and don't have to go through that process. And and the money was good more than I'd probably ever expected to be making straight out of university. And it was an easy decision. But going into it, I'd always thought that this might be a 2 or 3 year thing, and then I'd be off and traveling, which as it went, was the case.

00:03:17:26 - 00:03:45:04
Unknown
So I took a year off for most of 2010 and spent that traveling round New Zealand, doing a lot of exploring and then a lot of time in Africa doing some travel, some exploration, and also some some work with the NGO there. And then coming out of that, it was post the GFC and from when I started my career in 2007 to what the world looked like in 2010, was it was a very different situation in finance.

00:03:45:07 - 00:04:14:09
Unknown
So I looked around, said, do I want to go back to New Zealand? At that time the economy was was pretty weak. Went to Sydney, ended up getting a job as an analyst in the Grain Hill business there and really enjoyed what I was doing. And as I went through it again, I don't think I went into it saying, this is going to be a 20 year journey for me, but it was a case of every time I was reaching a promotion milestone or reaching a different hurdle, I'd have an opportunity.

00:04:14:17 - 00:04:34:32
Unknown
So I was I think I was the junior VP at the time. The opportunity came up to go to New York and looking around and everything available, spending some time in New York seemed like a like a very good idea, very exciting idea for a guy that had grown up in New Zealand, spent a bit of time in Sydney, but had never really spent meaningful time in the US.

00:04:35:01 - 00:04:57:21
Unknown
That was meant to be a two year deal, and then back to Sydney, and I'd always thought that I'd go back to Sydney and then and then reassess. About 18 months into that, the the CEO of Greenhill. So sorry, CFO Greenhill came into my office and said, how would you like to go to London? And that just had a complete clean out of EVP and an ad layer, and I had a British passport.

00:04:57:21 - 00:05:22:17
Unknown
So there was an opportunity to move across the London, jump in there and, continue my adventure around the world. And that meant spending a bit more time doing M&A. And it was also a great opportunity to spend some time in Europe, which I always wanted to do. So I came across to London and then one thing led to the next year, and the bonus cycle was year into probation cycles, and I was actually doing work I found really interesting.

00:05:22:20 - 00:05:53:03
Unknown
I'd become a, become part of a very successful consumer team within Greenhill. We were doing global coverage, global leadership of of the consumer practice within the business. And I was spending a lot of time with really exciting clients, doing some big transactions and then working with two senior MDS who I had a huge amount of respect for, and as well as teaching me, helping me develop client relationships and build my own business, they're also fantastic mentors.

00:05:53:06 - 00:06:16:22
Unknown
So a very long winded way of saying it, but I think it was a case of opportunities kept on coming up that seemed and were very exciting to go and pursue, and that just kept me locked in and moving forward for the best part of 20 years now. Sounds like a great journey and one that spans several continents with with one, you know, major investment banking, you know, household name almost.

00:06:16:28 - 00:06:46:12
Unknown
But I'm really interested to know you must have got involved in some some pretty exciting deals, along the way. Yeah. Are there any particular transactions that helped shape your thinking or stood out as, you know, being formative for you on that journey? Yeah, I was I was very lucky to work on some fantastic transactions. I think when you when investment bankers introduce themselves, they always like to talk about the, the biggest deals they worked on.

00:06:46:14 - 00:07:09:08
Unknown
And that's very much a, an instinct instinctive thing. And those were, were good that were challenging working on very large global transactions. We, we helped when GSK before they spun up Hayley on, we helped them sell their Indian Horlicks. I spent a lot of time in India working on that, which was fascinating. Exposure to that market and spending time in India.

00:07:09:08 - 00:07:32:30
Unknown
You really are at the coalface of entrepreneurship and see just how much hustle there is in that culture, just how much people are working to build businesses, to create, even from from pretty small basis. So seeing that up close was was really cool. And how, and how a global brand has been had been so successful in establishing and building in India.

00:07:32:33 - 00:08:00:12
Unknown
The other things I really enjoyed were some of the smaller deals where you were actually working much closer with founders, and I'll come back to this a bit later. But if you look at large ticket M&A, it's generally a very formal process. It's all quite closely choreographed. As a general observation, the bankers and this is particularly so in the US, the bankers have got their lane, the lawyers have got their line, the consultants have got their lane.

00:08:00:15 - 00:08:25:15
Unknown
And it's quite formulaic what you're doing at the very senior levels. You are doing a lot of relationship, a lot of advice. Once you start being slightly to below that, the most senior MD on a deal, it is very formulaic. And that's not a bad thing, but I think it's just means you're, you're you're kept pretty tight in your lane.

00:08:25:18 - 00:08:57:04
Unknown
What I found when I was working for smaller companies and found to lead businesses was he had a huge amount more scope to talk to them as people advise them, get involved with what's going on and really develop the relationship as a trusted confidant for them as they think about much more than just the immediate issues around investment banking, selling the business, buying a business, the corporate finance piece you find you get drawn much more into their business and actually learn a lot more about what it looks like inside a business.

00:08:57:12 - 00:09:24:14
Unknown
So there were several smaller deals that I did that were probably not as newsworthy for the Ft or some of the other financial publications, but at a personal level, I always found very rewarding to work closely with founders and see them get a great result from a generally from an exit transaction. Yeah, I think many professionals can say so similarly that they've learned more and they've enjoyed more and found more kind of intellectual reward.

00:09:24:17 - 00:09:45:19
Unknown
I guess maybe sometimes emotional, reward from from dealing with those more agile kind of, lower mid-market type opportunities rather than being one of an army of professionals that sort of take to a corporate deal. So, yeah. Really interesting. So, you know, 20 year career doing that, advising on deals, executing, through investment banking.

00:09:45:22 - 00:10:02:25
Unknown
At some point there's been a light bulb moment that that's made you decide that actually there's something broken here that I need to go and fix you. There's an opportunity here to to do things differently. And I imagine that's how Ricky was born. Could you could you tell us a little bit about how you made the leap and why you felt motivated to do so?

00:10:02:27 - 00:10:25:25
Unknown
Yeah. Happy to I, I don't I wouldn't, I wouldn't go as far as to say that investment banking is broken. And if I look at my career. So if I said the very first transaction I worked with on as an intern, a data room was was literally still a data, and it was a, a windowless room somewhere in a basement with a bunch of binders in it.

00:10:25:28 - 00:10:45:25
Unknown
And as an, as an intern, I got to put together a deal where I was doing the photocopying and filling up five sets of binders for the different bidders, leafing through lots of continuous feed dot matrix printed paper. Yeah, I think I'm not that old. Sorry, that's just my career experience, but I'm not quite a dot matrix guy.

00:10:45:25 - 00:11:03:11
Unknown
I was, I was, I was, I was probably a bit of a laser printer, black and white was that. But. Yeah, but you young buck, young buck, very young. And I, and I sort of saw that investment banking quite quickly adopted virtual data rooms and the same in data provision. I think my first couple of years we were on the Bloomberg screen.

00:11:03:19 - 00:11:33:12
Unknown
But very quickly you saw products like cap IQ and FactSet come in. So investment banking does move. It does adopt different products. But there's there's a, there's there's always opportunity to introduce new technology that will streamline the process. And ultimately if you look at where we are, what I was focused on within investment banking, similar or similar to consulting, is you have generally very expensive people.

00:11:33:15 - 00:12:02:09
Unknown
And the model of scaling simply by adding more people has a it has a ceiling on it. Investment banking scales by the size of transactions you work on, but also by the number of people you've got working on working within your your franchise. So tools that allow you to spread that talent across more transactions and more revenue potential are always going to be a, an exciting opportunity.

00:12:02:12 - 00:12:25:30
Unknown
And I, I was at an inflection point with my family, with where we were in the world and ultimately where we wanted to be long term. And I was not, at the time, working full time in the city. There was an opportunity to do something else. And I looked at where I was going. I looked at where I believe the landscape is going to shift across.

00:12:25:33 - 00:13:10:17
Unknown
I think most professional services, frankly, over the next two, three, 4 or 5 years, there's a huge opportunity to deploy AI into professional services. And investment banking is a is a key place to look. And I looked at what our LM based AI is good at. And I looked at what are the the more time consuming parts of the M&A journey, where often it's it's work that needs to be done that often doesn't add a huge amount of value reviewing or doing summary reviews of data rooms and said, that's, that is a very good application for a land based AI to go and help you organize a data and help you understand what you've

00:13:10:17 - 00:13:45:10
Unknown
received and start creating useful summaries of what you've been provided, and also allow you to sort through that information. Find what you need much faster. And if I, if I look around at a lot of firms when a data remittance, you'll find people that are sitting there and very well-paid people, and they'll still spend the first day in a data room going through control, effing clicking on a few documents, skimming through an affiliate fairly unstructured way and radius of seeing what's in there.

00:13:45:13 - 00:14:25:03
Unknown
And if you multiply that across several people on your team, all doing the same thing quite quickly, you've got tens of hours of very expensive people doing roughly the same thing without a lot of process behind it. So we're recce jumps in, is it systemize is that it uses AI to do that initial review. So rather than having multiple people on a team skimming at random and opening a range of documents for a couple of days, you actually just can put everything through the AI and get that summary back that everyone can read and have in front of them without having to put together in a in a manual, an often semi random way.

00:14:25:05 - 00:14:45:06
Unknown
I'm really intrigued by that because I mean, obviously AI is a massive enabler now. And, I think you could argue that that data and technology went through a bit of a vintage, some of it's still partying like it's 1999 in Java and things like that, where it's very much, you know, just just a just a glorified Google Drive, the, you know, needs lots of manual navigation.

00:14:45:06 - 00:15:02:19
Unknown
So I think it's, it's due a rejuvenation, which is due a disruption. And I think AI is a great way to do that, particularly if you're saving people that heavy lifting of having to sift through, you know, knowing where to, to direct their attention is really critical. So love how you're doing that. But what we through, what happens.

00:15:02:22 - 00:15:21:20
Unknown
Yeah. How you guys are differentiated from from others tackling this problem. But what happens specifically when when a user uploads some data, say it's a seller, they've been asked to populate a data room by the, you know, their lawyer or broker or whatever. What what happens what is what is he going to do at that point?

00:15:21:20 - 00:15:45:08
Unknown
Yeah. So I think first off, we're not Ricky is not trying to be a data room platform for sellers running a competitive process. And if I look at the tools out there, you've got a plethora of platforms where you can run a sell side process that what Q&A functionality they can do. Some they use AI for things like production.

00:15:45:11 - 00:16:23:08
Unknown
One of the platforms that uses AI to try to predict who your successful buy might be, for example, is not. It's not so much focused on making the buyer's life easier and accelerating the buyers due diligence. It's that those platforms are centered on allowing sell the sell side to run an efficient, broad competitive auction process. Whereas Ricky's more of an analysis tool than a data in platform per se, then what Rahe does is if you if you feed it a data room, then there are the three three main pieces of functionality.

00:16:23:11 - 00:16:42:09
Unknown
The first is it will review everything that's been provided and that could be provided in any language, any major language or any common common file format. Ricky will review it so it can go and completely disorganized. Ricky will still be able to read and interpret what it's been provided, and then it will produce what we call the insights report.

00:16:42:12 - 00:17:22:02
Unknown
And we've built a standard insights report that we believe is a good common size due diligence report for a initial review of a data room. And we've built that with input from lawyers, bankers, investors, C-suite executives. That's the first main pace. If you if you want to customize that, then we can we can build you a custom insights report for you that addresses your 50 or 100 questions that you want to deal with, and every data room you go into and make a know me do that, build that, and then test that for accuracy within 2440 eight hours maximum for you.

00:17:22:04 - 00:17:48:17
Unknown
But that insights report means that whole control thing, that whole skimming through a data room has been dealt with. You can click Refresh Insights, go and grab yourself a coffee or go and grab lunch when you come back. Ricky has read everything and produces insights, report. You can sit down, read that typically, several hundred document data. Remove or condense down to 30 to 40 pages of of summary.

00:17:48:20 - 00:18:13:11
Unknown
You can read that summary and straight away have a really good understanding of what you've received by default, what you haven't received, and also what some of the emerging key risks are for the for you to focus on as you then think about the rest of your due diligence. The tool then has a chat function which will be very familiar to people that have used things like chat or other AI powered chat.

00:18:13:12 - 00:18:40:14
Unknown
You can ask it any question and Ricky will come back and answer with reference only to the information that's been provided. And then the final main piece of functionality is the ability to summarize documents. So if you needed to get the summary for 15 lease agreements, then you can just click through those and Ricky will generate more or less instantly a summary of the key terms of that lease agreement that you can then stack out and compare.

00:18:40:14 - 00:19:07:09
Unknown
So you've got a good handle for what the lease portfolio might look like. So that's that's really what the tool does. So it helps you set the roadmap. It does that initial summary. And then it gives you smart tools to very quickly go and dig deep into particular areas and come away with the, the more detailed insights you need, it might be your be focused on contract with change your control clauses.

00:19:07:11 - 00:19:28:09
Unknown
Ricky can find those clauses very quickly, and then give you direct source references and the ability to download the the the base document. So you can then go and dig into those in more detail. So it's a productivity tool. It's an enhancer. It's not a we're not trying to compete with intra links. Rents are out of what we're doing.

00:19:28:09 - 00:19:51:29
Unknown
We're very much complimentary to to people that may already have a data driven platform going. So so it's it will plug into third party tools. Will it it will it will go into other people's data rooms. Or do you need to copy the data room into, into Ricky. It depends on the security settings as a, as a general rule, most of those platforms have very strict data control and data protections.

00:19:51:29 - 00:20:24:16
Unknown
And it's it's rare that users would let plugins go and access them. But the the way around that is you can bulk download a, an entry link so inside a data room and then just drop that into Ricky as is at file. And Ricky will do its work. Brilliant. That's really really great game changing. I'd love to drill in a bit more to the insights report because that sounds, like a super shortcut to, knowing where to direct your attention and where the, the challenges or opportunities might be in the deal.

00:20:24:19 - 00:20:56:10
Unknown
How many insights as standard is the report surfacing and on what sort of topics? Yeah. So we've looked at, it's got 11 categories of information and those are all your core headings. So you've got commercial, you've got strategic, you've got legal property tax technology and then under that layer of 11 categories, the Ricky will recall and return answers against 68 separate specific data points.

00:20:56:13 - 00:21:23:08
Unknown
And then behind that there's a library of prompts we've built and tested. And that's what will generate the The Ricky Standard Insights report. Like I said, if you want to customize that we can customize that. There are a lot of firms that have a pretty set checklist that they might have developed over a number of years, when they're doing due diligence, if they're prepared to provide that to us, then we can build prompt sets that will yield and answer their questions and then test those for accuracy.

00:21:23:15 - 00:21:42:19
Unknown
So they've got confidence that they can run the same set of questions that might be their standard set of questions over any data room they want to once it's inside. Ricky. Amazing. I should imagine, there'll be some sort of tech natives that really love this and want to adopt it and, you know, a fearless about it.

00:21:42:19 - 00:22:02:17
Unknown
And then there's must be others that are a little more, tackling it with, with trepidation. Normally because there's this general concern about, well, am I, am I making my sensitive data available to training LMS and you know, what you're doing in the public realm, etc.? How do you safeguard for that? Make sure that, you know, those fears are laid.

00:22:02:19 - 00:22:37:31
Unknown
Yeah. So we, we work with, external LM party partners where we have a, they offer terms of business that don't require the information to be moved into their systems and to train their, their models. Not all models offer that or not all foundational LMS offer that some require. The information is submitted. So when we looked at the, the the partners for us, from an end point of view, we said terms of business are really important.

00:22:37:31 - 00:23:05:02
Unknown
We need to ensure that we're not leaking information into their models to train them and have it retained in their in their, in their data sets. We also needed them to be accurate models. We also needed them to be models that performed quickly and went out. Were able to answer questions quickly. So we use a a panel of providers and they've all been selected to ensure that they hit the criteria of what we need and what we need for our users.

00:23:05:05 - 00:23:34:17
Unknown
Great. And how do you train it such that it doesn't, you know, getting to overreach and start making, you know, massive commercial recommendations to the, you know, to the way that like, here's what you should do in your first hundred days, for example, which might attract liabilities for you. Yeah, it was a it's actually quite an interesting thing from a design decision, which is you can have I can do a huge amount that the more it does, the greater the compromise around accuracy and auditability of what it's done.

00:23:34:20 - 00:23:57:31
Unknown
So the design decisions we've made with Ricky were it will only only review information or provided. So we're trying to minimize hallucination risk. The recce tool will only refer to what's in the data room that's been provided. And that does mean that it can't go out and do benchmarking analysis against the wider market. And that's a that's a trade off.

00:23:58:04 - 00:24:16:05
Unknown
We took the view that people want accurate answers based on what's been provided and not have, and not have the agent go out and explore the intent at large to find to find answers. But even within the even in the data set, you're giving it like, yeah. Is it prone, is it prone to speculation? Have you had to kind of curtail its enthusiasm?

00:24:16:05 - 00:24:38:16
Unknown
Because I tend to fine with LMS. Generally. They're quite they do want to be helpful. And you have to give them very clear parameters to say, no, no, just I want to understand there's not but not have you speculate for me. Yeah. So when we were building all the, the recce report and we were building the problem sets and we were working out how to get the, the right answer from, from information.

00:24:38:18 - 00:25:05:08
Unknown
We did spend a lot of time on this question, and we also spent a lot of time doing manual testing. So actually testing what they are produced and then going back to the source documents and making sure that what came through was accurate. And as you can imagine, that was a fairly tedious process. But what what it does mean is that where we're highly confident, the answer you get from recce will be accurate, will be based only on what's been provided.

00:25:05:11 - 00:25:50:17
Unknown
And it won't. It won't be trying to please you or give you an answer if none exists, so that the product is built very specifically that if if the information doesn't exist, it will just come back and say insufficient information provided cannot answer which if you spend a lot of time in, for example, ChatGPT, where the tool is naturally built to try to please you, naturally built to try to be as helpful as possible, Ricky will will give you a slightly different experience, but if what you're trying to do is get facts on a business correct, the last thing you need as a as an AI tool that is using its own imagination to fill

00:25:50:17 - 00:26:23:27
Unknown
in blanks, completely agree. I mean, the the much derided sycophancy of, opium AI yeah, I think is definitely has no place in this professional service. Kind of but obviously there are there are numerous other elements that are far more safeguarded and geared towards professional services. So yeah. Good. So I think in some of your brand positioning, you, you what's interesting is you're focusing on these questions of like, how deals get passed on due to lack of bandwidth in order to really conduct full, deep due diligence.

00:26:23:31 - 00:27:00:19
Unknown
That was a surprise to me, because normally I my expectation is when people get that far, they want to see it through. But actually. So time kills, deals and all that sort of stuff. So this rationing of questions that you elaborate, that, refer to. I'd love for you to elaborate on that, please. Yeah. So that, that, that came out of my experience doing sell side transactions and it was something you saw a lot of in 2020, 2021 when you had a very hot market and the mid-market, low mid-market PE funds are actually a lot more sensitive than you might expect.

00:27:00:22 - 00:27:32:13
Unknown
They don't have they don't have the same level of operating or management fees coming in that the larger funds might. So they're actually the smaller the PE funds, the more they are sort of a traditional fund where carry return is really how they pay their people, not salary and bonus on the way through. And a lot of them will say, well, and this was a US thing when a very hot market where they would look at it, I am it doesn't take very much to take an OEM, have a flag and put a number, and it's quite easy to put a bid in.

00:27:32:15 - 00:27:54:25
Unknown
You just take the the forecast EBITDA and apply an industry range multiple putting it that far for the seller. Yeah. And see how you go. And at that stage you probably haven't invested that much in a process. All you've really done is ensure you get through to the next gate and the chance to take the deal more seriously.

00:27:54:28 - 00:28:20:03
Unknown
And what you saw in 2021 was a lot of funds were getting through to that stage, and then they were saying they had so many transactions on. They were saying, we don't actually have the time to go and do proper diligence on this deal. And if we actually go ahead with it and start hiring lawyers and external advisors to help us very quickly, you're throwing tens of thousands of dollars or pounds onto your fee clock.

00:28:20:06 - 00:28:40:12
Unknown
And in a number of cases, I saw the fund would actually just pause, tell you that that is hanging around the hoop and not move forward with the transaction because they either didn't exist or didn't have the fee budget or didn't have a team bandwidth. So it wasn't like we never expected it to be so complicated. Yeah, I think it's more just.

00:28:40:15 - 00:29:00:23
Unknown
A transaction you want, you only really want to commit to a deal once, you know, you have a very high chance of winning it if you want it. And the what you saw sell side advisors doing and you almost had a negative circle feedback loop going where sell side advisors would say, well, a lot of these bidders are flaky.

00:29:00:23 - 00:29:30:21
Unknown
So rather than moving 3 or 4 into the next phase, we're going to take through 6 or 8. And the bidders or knew that they were now rather than one of one of three with a pretty good shot to win. They're now one of six, right. And it gets a whole lot more speculative. So you just saw a, the preparedness to invest heavily in a, in a transaction before you had exclusivity or before you had some better sense you might win this, drive a lot of thumbs.

00:29:30:21 - 00:29:56:00
Unknown
I saw to slow walk once there and hang around the hoop for a while and actually try to see what's happening in the process before they really charged in. And I it's interesting. I think in turn, though, they must be almost opting out of more deals as a consequence of that behavior. So they then have to have more deals as a sort of more broader funnel in order to make sure that they actually are able to get, you know, some of them closed.

00:29:56:00 - 00:30:18:31
Unknown
Truly. Yeah. Okay. Gets a high conviction on enough. It's a classic thing on the sell side, which is you always want more competitive tension and that's always what you're trying to achieve. But there are actually times where it can become counterproductive if there's too much noise around an asset. And that is take the view that the so unlikely to win, it's not worth going after.

00:30:18:33 - 00:30:46:02
Unknown
If I extrapolate that through to where we are now in the cycle, and if I look at private equity funds again, mid-market mid-market funds or investors, you're seeing a lot of fun struggling to reraise. You're seeing a lot of funds with some very starved inventory of assets. You're seeing a lot of funds where they are losing their investment talent, and they're becoming more, almost just holding pens for style assets.

00:30:46:05 - 00:31:21:08
Unknown
They haven't been able to exit. So you do have a huge amount more fee sensitivity in that universe. And actually, you went from a world where spending on external advice was generally not questioned as long as the deal had been supported by the IOC, to a point now where before an icy or before, a fund might commit the tens of thousands of dollars to start doing due diligence, they actually need to get higher conviction that they have a good chance to win at higher conviction that they, this is a deal they want.

00:31:21:11 - 00:31:46:04
Unknown
So if you look at that and say, well, what can I do there? I can help them get a much higher level of conviction by doing all that heavy lifting, doing all the review of a data room, and then they can go back to the investment committee or the CFO of the fund and say, if we want to go at this, we've looked at the data room, we've got a good sense of what's in there, sign off the budget.

00:31:46:13 - 00:32:03:18
Unknown
Let's really go up this now. So that means that decision to invest the time and the money is a much, a much more qualified decision than than what it might have been before you had AI tools. Yeah. But that that cost and time saving, which is obviously inherent in what I can deliver that makes makes a lot of sense.

00:32:03:25 - 00:32:25:27
Unknown
But the behavioral changes, I guess, that you're getting as a consequence of this sort of a little bit less expected. And so I'd love to understand a bit more about what you're seeing, how this plays out in practice. You know, particularly in small PA funds, or in, you know, corporate finance. Like, how is there maybe deal origination and deal execution changing as a consequence of having access to this kind of tools?

00:32:26:00 - 00:32:51:17
Unknown
If you've got any examples you could share? Well, I think with jail execution, a good one is quite recently they were they, they had M&A budget to do one transaction, but they had three that were live at the same time. And small team would not be able to deal with three assets separately in parallel. Even with outside help.

00:32:51:20 - 00:33:18:04
Unknown
And what they were able to do was use was use recce to, accelerate the due diligence and look at more assets at the same time. So when they with me said, this is the one we're really going to go for and this is the transaction we're going to focus on that had a chance to push more deals through to a later stage of assessment before they actually really went for the one they wanted to win.

00:33:18:07 - 00:34:05:13
Unknown
So I think you're going to see now funds taking more deals through to a later stage because the the opportunity cost and the financial cost of moving into a data room, having a decent look at a business, learning more about it before they make that stop, go, that's now a move from being a expensive decision because of time and cost of the people that are involved to, a very cheap decision if you can, if you were to run your, your data room and material through AI agents so that I guess, will lead to, you know, more deals getting further but then stalling because actually there's a, there's a, there's a deeper triage going on,

00:34:05:13 - 00:34:27:25
Unknown
I guess, like that these these funds, these investors have the ability to get really deep into the data room without necessarily having to fully, use that as a sign of commitment that they're going to take the deal, you know, to fruition. Yeah. And I guess, you know, but maybe sellers would steal themselves a bit more for the fact that probably they're going to get a lot more.

00:34:27:28 - 00:34:50:31
Unknown
I don't want to say tire kickers, but, you know, speculators getting to that later stage who don't necessarily themselves have the highest conviction. So maybe does that mean that seller needs more, you know, is this going to just breed more competitive processes because the the advisors behind those sellers need to make sure that they don't be left with nobody at the altar for the for the marriage to, to happen.

00:34:51:00 - 00:35:13:26
Unknown
I think for sellers, certainly advising on the sell side, the challenge of taking bidders through to a data room and investing time and then was always, how serious are they? How credible are they? And one of the signals you always use was have I employed engage lawyers have engaged accountants. Are they spending real money doing due diligence.

00:35:13:29 - 00:35:40:20
Unknown
And generally until a bit it was investing real time and and and cash to look at a transaction. You take the view that they perhaps aren't serious about following through. So so that's going to happen later. Now, you know the commitment of time tools like recce, you're going to confuse that. And those signals I think now will be harder to pick up because you can you can see that people will get into a data room.

00:35:40:20 - 00:36:02:07
Unknown
They'll be active. They will be able to do a lot of work, but they won't necessarily have the same dynamic where they've started putting real dollars down to investigate the transaction. So I think that's an interesting dynamic. And the sell side is going to have to look for new signals. So how do you actually know if someone's a serious bidder.

00:36:02:10 - 00:36:29:02
Unknown
But what I what I think it will mean though is you're going to have less attrition through a process where less parties will drop out simply because of bandwidth issues. So from a sell sell side point of view, you might be able to push more bidders later in a process and get to a stage where you're getting a large number of final binding bids with with, that are now no longer conditional on diligence.

00:36:29:05 - 00:36:54:10
Unknown
And from a sell side point of view, that always having more unconditional bids is always, always going to be better than less. So that's how I would look at it changing from a from the seller's point of view. Well, that's important too. And it's got quite a nice kind of, but maybe unintended positive consequence of that. Wherein, you know, the, the that's happening should be more expeditious.

00:36:54:13 - 00:37:14:01
Unknown
And the offers that come straight after that shouldn't, shouldn't be scuppered by any kind of, you know, sudden, skeletons in the closet or anything that was unexpected because there's more thoroughness being done earlier. You know, in the surface, these these blockers. Yeah. And I think that's true across, across the whole the whole workflow flow of M&A.

00:37:14:01 - 00:37:49:10
Unknown
Now that, if it's not recce, there are other tools out there that help you build valuation to much faster, to help you model much faster. I don't I don't think that the, the number of transactions is going to increase markedly because of, of AI technology, but I think the speed with which firms can look at deals, do all their work, value things, build virtual models, complete due diligence, get to a position where they're ready to go forward with a binding transaction no longer conditional.

00:37:49:13 - 00:38:20:31
Unknown
I think that window's going to compress because, a focus team using a full toolbox of AI tools can do the full suite of work for an M&A transaction in a fraction of the time it used to take. And I think the firms that are able that are going to win out of the cycle are the firms that are able to turn AI tools and AI powered enablement of their process into speed and deals.

00:38:21:00 - 00:38:54:16
Unknown
Because all things equal, if you're the seller of an asset, faster is always going to be better for you. So AIS that are really harnessing the power of AI tools or in a process and using that to to shrink how long it takes them to do their full work up, do the diligence, do their modeling, do the valuation, get funded, then that is going to make the the seller's life easier, and it's going to reward the buyers that can be decisive, can move fast, and can actually harness these tools.

00:38:54:19 - 00:39:18:31
Unknown
So maybe not more deals, but just faster, more efficient, more cost effective deals as a consequence of these tools, I think. So if you go back to manual diligence, full process, maybe you maybe it was taking you 3 to 6 months to get a transaction done. Maybe there was 8 to 10 weeks of due diligence. Maybe there was six weeks of building and, reviewing it.

00:39:18:31 - 00:39:44:01
Unknown
And I am building a model and putting in an indicative bid because you just need the time to go through and and do that work. If I start shredding those timeframes, then the the time period you need from, an asset coming to market to completing a transaction shortens markedly because you're, you're still going through all the same gates.

00:39:44:01 - 00:40:08:21
Unknown
I don't I don't think we're going to see that the standards of diligence drop. I don't think we're going to see the, the the benchmarks drop, but the, the speed at which you can get through the different gates, you need to get through to satisfy all your stakeholders to support a transaction is going to it's going to it's going to be a step change in that I'm very confident that I should like to think so.

00:40:08:23 - 00:40:26:15
Unknown
And, glad to hear that Ricky is, well, place to be to be driving that, just just as a slight aside, you're a man that's seeing the world. You've you've worked on several continents. You've you've, you've thankfully decided to to launch and, form Ricky in the UK. Anything in particular that led to that decision?

00:40:26:15 - 00:41:00:08
Unknown
Is this being a jurisdiction for this product? The UK has a very strong fintech ecosystem. It has fantastic talent density. It has, a timezone that allows you to serve as most other places in the world. If I look at the if I sit there and I look at my piece of world clock, London actually has some some level of overlap and work hours with pretty much every jurisdiction with which you might be working.

00:41:00:11 - 00:41:36:26
Unknown
So there are huge advantages about being in the UK. You've got the proximity to Europe, you've got the, language into the US. So from where you sit, you can access the major markets and you've got a fantastic talent density coming out of the universities, coming out of, companies that have been successful, that maybe have been exited, coming back, and you're now getting into the second or third generation of people that might have already been to a couple of exits and are now back in the market, often with some money in their own pocket, which they're investing and or founding new companies.

00:41:36:28 - 00:42:00:15
Unknown
So I know there's a lot of discussion and there's a lot of talk about where in the world and people are always going to have their own view on that. But I think the UK has a a number of very good advantages for founders, and the ability to get things done is, is better than most places of then.

00:42:00:18 - 00:42:26:33
Unknown
In terms of your administrative processes and the other the other piece is the evolving, depth of capital market here, the speed at which the UK is now generating capital, generating VC investors, funds that have done very well out of some very, some globally significant exits. That money is all now being recycled back into the UK tech ecosystem.

00:42:27:02 - 00:42:48:09
Unknown
So the the funding dynamic now versus where it might have been 5 or 6 years ago is is totally different. Yes. There is a gap still to what the US might have. That certainly for the for the vast majority of companies that are starting out, there's, there's, there's definitely capital available. There's definitely a supportive investor base.

00:42:48:09 - 00:43:09:04
Unknown
And there are lots of advantages of being here. Wow, what a refreshingly uplifting, review of The State of the UK. Thank you so much for that. Andrew has high praise and, really delightful to hear. And particularly amidst, you know, the, the, the, the naysaying and the doom mongering that went on around the budget and, you know, I mean, I was guilty of it too.

00:43:09:04 - 00:43:40:18
Unknown
But actually, when we look at it through a pair of eyes like yours, how wonderful to hear the opportunities that exist in the UK. Thank you for for sharing that. I think it's very easy to sit somewhere and look at the US or look at the Middle East, or look at somewhere else and say that it seems better and your natural inclination is to look somewhere else and think about all of its good features and not actually look at any of the trade offs you might be making.

00:43:40:21 - 00:44:09:19
Unknown
And if I look at the UK, a lot of people in business here and around the budget, there's a there's a very strong sense that people were always finding what was better somewhere else but didn't spend enough time, at least in my view, saying, well, what does the UK really bring? What does it have to offer? And if I look at the journey of AI, no doubt some of the US companies are better funded and and making bigger headlines with bigger numbers.

00:44:09:24 - 00:44:29:18
Unknown
But if you look at the foundational science behind AI, if you look at some of the more innovative startups coming through that the UK definitely holds its own. Definitely punches well above its weight in terms of what the what the ecosystem is really starting to generate here. Yeah, I mean, let's not forget that Demis Hassabis started DeepMind here and there.

00:44:29:18 - 00:44:58:17
Unknown
And a lot of the, you know, the science behind Gemini, and is is, you know, grown out of King's Cross London. So, you know, I think that this huge talent here, my, my hope is that team sport and the sort of, well, world leading future data center that's going to appear on our coast is actually going to give us more sovereignty over some of our, AI technology, because I think we are a little bit heavily dependent on the valley at the moment, from a perspective of foundation models.

00:44:58:17 - 00:45:26:05
Unknown
Anyway. Yeah. My my own personal view on this is the, the the commit. A strong commitment to cheap, abundant energy would be one of the more powerful things that could happen. And if I look at where things are evolving, you look at data centers, you look at how much energy they consume, and you look at where that's going to go.

00:45:26:05 - 00:45:57:11
Unknown
And the implications for for an economy that's already, facing some of the highest electricity prices in the world. A resolute, strong commitment to ensuring that UK power prices are going to be as low as possible would do a huge amount to support data center activity, would do a huge amount to support innovation, would do a huge amount to support the the AI ecosystem in its growth.

00:45:57:14 - 00:46:21:33
Unknown
So I've just spent quite a lot of time saying, talking about what all the good things were. But I do on the other hand, I do definitely believe that the that the energy prices and the electricity prices will hold back the development of AI because it comes down to a basic competitiveness issue when you're looking at large data centers, where to locate what it cost to run those things.

00:46:22:01 - 00:46:42:05
Unknown
This is where the, the legacy of being a first mover in electrical infrastructure now comes back to bite us because we've got all that rejuvenation, regeneration cost that has to be borne somewhere. Long on small modular reactors myself, I think, they're going to they're going to change the scene here anyway, we digress. So fast forwarding 12 months.

00:46:42:08 - 00:47:00:03
Unknown
I'd love to get your take on, where you feel recce might be, what your kind of personal hopes and dreams might be for it, but also how it might have impacted this M&A landscape beyond due diligence. You know what? What might you next be disrupting? Yeah. So we're we're focused on the for the time being on on bootstrapping what we're building.

00:47:00:06 - 00:47:31:17
Unknown
And we are steadily adding customers, steadily growing and ensuring that the the two we've built is is properly useful to our audience. And if I said who's our an audience here, we're going after the mid-market, the large mid-market because the the preponderance of of AI and finance that I see and there are some fantastic tools out there. There's been some great headlines recently in the UK about some some homegrown talent.

00:47:31:20 - 00:48:04:10
Unknown
They're generally focusing on the largest funds, the largest banks, the the largest customers for long term enterprise deals. And that will be a phenomenally successful business for them, I'm absolutely sure. But the flip side of that is I think they they're not doing as much or they're not as focused on the smaller funds, the smaller advisors, the people doing smaller transactions because they those those sorts of customers can't do $25,000 a seat for a year on long term contracts.

00:48:04:13 - 00:48:36:20
Unknown
So what we're trying to do is build a tool that is is responsive, that is priced at an accessible price point and is flexible enough that funds that are not or M&A advisers that are not spending all day, every day looking at data rooms or not spending all day, every day using AI tools, they can actually use our product, understand it, get a huge amount of value out of it, and generate a very high ROI versus what the product's going to cost them.

00:48:36:23 - 00:48:58:01
Unknown
And as I look forward to what's going to happen next year and where I is, I think you've had a huge amount of hype and and discussion the last 18 months. You've seen a huge number of firms go out and buy a bunch of products, bring things in and start testing. Those budgets have been spent, in many cases stretched.

00:48:58:08 - 00:49:24:03
Unknown
I think what you're going to see next year is a lot more scrutiny on on tools, on ROI, on. We're spending this much money on on this tool for every single user. We've really getting the returns from this is the team really using it or actually in practice, are they still just using their their own personal chat subscription, or are they still just using the basic tools?

00:49:24:06 - 00:49:57:04
Unknown
So we're trying to ensure and what we're trying to do with recce is ensure that the, the ROI for the tool is always going to be very strong, even if you're a relatively small firm or you're going after relatively small deals. That's that's like the yeah, I love it. You're seeing a similar kind of pattern and maturity or maturing playing out in the adjacent legal tech space where things like LeGarrette and Harvey, where, you know, firms rushed to embrace them but then maybe didn't get the immediate return on them that they that they set out to.

00:49:57:11 - 00:50:14:11
Unknown
So now there's this like renewed kind of hang on a minute, how can we can we ensure we really use them to the fullest? So I think that's going to happen. You know, it's very early in the M&A space. You're you're probably one of one of a few that are really innovating here. Yeah. Look, I think we're very comfortable where we are and what we're doing.

00:50:14:13 - 00:50:46:29
Unknown
But if I look at where, some of the foundational model owners are going to go, don't forget they've taken an tens of billions of investment. They need to get a return on that at some point, and they can't get a return on that. Doing consumer AI for people, helping with LinkedIn, posting those things easily when they're not in for for a free subscription, what they really need to get the return is either plug directly into the shopping in the consumer journey, in the way you're now saying, or chat.

00:50:46:29 - 00:51:11:20
Unknown
If you got a direct ability to to to buy something straight out of your your chat or they need to start going into places which are much more enterprise focused. And my expectation is that the big the foundational albums are going to start going after higher value services like low or higher value services like finance, and start moving into those markets pretty aggressively.

00:51:11:23 - 00:51:35:02
Unknown
You know, sure, you saw the headline that chatted hired or I've been I had hired a couple of hundred investment bankers to sit there and train models on. What does an analyst do? What does an associate do? They know so that they don't they're not doing that to offer that to people for free. And that's that's going to come out, I'm sure, as a open AI for finance type product, which will be expensive.

00:51:35:05 - 00:51:54:31
Unknown
That's still cheaper than what some of the bespoke solutions being developed might be. Yeah, I'm still very bullish on anthropic. I think they've done a great job with Claude of of of already tackling financial services, you know, professional services, tasks. Really well, good. Well, we could talk all day on this one, Andrew. And I and I would be delighted to, I'm sure.

00:51:54:31 - 00:52:16:23
Unknown
Would you appear at some point? But, let's, let's just sort of maybe finish on a, on a high with, maybe one piece of advice you might think about giving somebody to conducting due diligence in the mid-market, M&A space. You know, if they're still sitting on the fence about adopting new technology in their processes, what what kind of nugget could you give them to think on over Christmas?

00:52:16:26 - 00:52:41:22
Unknown
I guess sitting there on a sell side, the speed and certainty was always what you wanted, and you might get half a dozen relatively undifferentiated bids on value. They all generally congregate towards a similar place. The party that one transactions was almost invariably the one that got onto an early, move fast and got conditions out of the better soon as possible.

00:52:41:25 - 00:53:01:28
Unknown
So if you're if you're looking at assets, if you're looking to win competitive processes, the faster you can get through that diligence phase and the faster you can get a an unconditional bid in front of the seller, the more likely you are to win a process. Beautiful grab. That's that's a certainly a motivator. Andrew, it's been fascinating.

00:53:01:28 - 00:53:21:32
Unknown
Thank you so much. For our listeners who might be curious about Ricky. I want to learn a bit more. Perhaps even take it for a test drive. Where might you direct them to go? Just go and look at our website where it, Ricky's. I, there you can see more about the product. You can see some testimonials, some some screenshots of the tool in action.

00:53:22:00 - 00:53:43:31
Unknown
And if you're keen to to book a demo, you can either, book an appointment through that and share the product, or you can jump in and create, a demo account and have a play with the tool. Awesome bit of sales, led, bit of product led love that. Okay, so, Andrew Stacey of co-founder of regular AI, thanks so much for joining us on The Amazing.

00:53:43:31 - 00:54:10:12
Unknown
We'll share all those links in the show. Notes listeners, if you've enjoyed this episode, please subscribe, leave us a review, share it with anyone in your network who's involved in or interested in S&P M&A. We'll be back soon with another fascinating conversation from the world of dealmaking. But until then, keep on crunching. Thank you very much, Gareth, for.

00:54:10:15 - 00:54:10:29
Unknown
You.