It was one of his biggest companies. Yet, or perhaps because of it, he and his co-owner made the decision to "send it out into the world". To find someone to take the company a step further. A strategic partner. And volunteer to join his corporate structure for at least four years. See that his now defunct company gets to where they mutually agreed.
This is one of the stories of Vladan Hejnic, a serial entrepreneur, owning companies at different stages of the business cycle. This time, in our miniseries, we talked about VIVnetworks.com, which recently became part of the largest company in the area, Publicis.
Well, since I used to work in corporate purchasing too, I was interested in a few things. Like …
🔸 What led Vladan to sell the company?
🔸 How important is the corporate culture of a potential partner?
🔸 What does the sales process look like?
🔸 How to price a company correctly?
🔸 How did the sale affect his health?
HOW TO SELL A COMPANY TO A STRATEGIC PARTNER (TRANSCRIPT OF THE INTERVIEW)
Martin Hurych
Hello. I'm Martin Hurych and this is Zahžeh. Today's Ignition will be again with Vladan Hejnic. Hi, Vladan.
Vladan Hejnic
Hi, Martin.
Martin Hurych
Today, Vladan and I will continue our mini-series on how to run a business from the very beginning to selling your own company to a multinational hegemon in your field. Since Vladan is a serial entrepreneur, he'll be here today in his role as CEO of VIVnetworks. I'm never sure, because you have a bunch of companies. So can you tell us what you're involved in at the moment?
Vladan Hejnic
At VIVnetworks, I'm on the board of Targito, we have investments in selling Tokyobike city bikes, which are beautiful designer lightweight bikes, they have a showroom in Karlín. We also have our activities in Testuj.to, which is a review company that is already doing professional product reviews in several countries. We have an influencer marketing company, Contentiamo, and that's probably it.
What was the last tech toy you got?
Martin Hurych
So you must be aware that Vladan is most likely not here for the last time. Before we get into VIVnetworks, besides being an athlete, a biker, you also wrote in your preparation that you are a technology fan. So I was wondering, what was the last technology you enjoyed in your personal life?
Vladan Hejnic
I don't know if it's a joy, so far it's more of a struggle and an anguish, because I got a small photovoltaic plant that goes on the roof. The thing that fascinated me the most was that it worked relatively quickly and suddenly I didn't need any kWh of power from CEZ, so that made me happy.
Martin Hurych
They're building it for me right now. When I checked with my brother-in-law, do you also carry an app around in your pockets to see how much you're making?
Vladan Hejnic
Oh, yeah. That's my favorite app right now.
What does VIVnetworks.com do?
Martin Hurych
So I wonder if I'll get into it too, I hear it's better than Pokémon. Back to business, for those who don't know VIVnetworks, let us describe in a few sentences what VIVnetworks does.
Vladan Hejnic
VIVnetworks is the largest affiliate network in Central and Eastern Europe. Affiliate means a commission network for selling commission advertising. We run a technology, CJ, which is joined by advertisers, retailers, e-shops, and on the other side bloggers, review sites, coupon sites that use all those advertising elements from that technology. We then measure whether a given visitor has gone from that blogger to that e-store, what they bought, and then that blogger gets their predetermined commission for that particular item. We're not only doing the tracking, not only the business relationship that we're linking them, but we're also doing the financial settlement. Some people call it a purely transactional business.
What led him to sell the company?
Martin Hurych
Vladan works primarily in B2C, but we won't be doing B2C anymore, I invited Vladan for a completely different reason. Relatively recently Vladan has led his former now largest company into the arms of Publicis, the hegemon in the field. So from now on, I'll be interviewing him about the process and how he feels as a former private entrepreneur as a new corporatist. Why did you decide to sell in the first place? The reasons in the market I hear are so varied, what led you to sell?
Vladan Hejnic
To correct slightly, we are two partners, Robert Studený and myself, so all the decisions are of course joint. We knew that at a certain stage of the business and the size of the business, in order to sustain that growth and to give our team some additional perspective, we needed to team up with someone. We weren't really thinking about a sale, we were just thinking about joining with a strategic partner. I don't say investor because the business was profitable very quickly and we
we didn't need any investment for development. In the past, we have had financial investors come to us who were interested in the cash flow that we were generating, but that didn't have the solution for us to move the company forward.
How did they choose potential buyers?
Martin Hurych
So I am looking for someone to help me expand and grow. What made you and your partner choose this partner to begin with? What was important to you and what did that first screening actually look like?
Vladan Hejnic
We work in a relatively niche area in affiliate marketing, where there are several global players, so the closest thing to us is someone who understands our business. As I mentioned, we had financial investors coming to us, but they didn't really understand it, so they wouldn't help us. So one guy is the guy who understands you the best and either has a complementary product, similar coverage, or has clients that you're yet to acquire. I guess those are the main parameters if you don't even know the culture of the company yet, you're just looking for someone.
How important is the corporate culture of a potential partner?
Martin Hurych
You hit on culture, I've said here on the podcast a few times that I scouted technology for corporate at some stage in my corporate life and there culture was almost the first parameter that was checked. So from a culture perspective, how did you pick that future potential ally? Is it something that's important to you, or do you not care if there's some kind of fit with the company because business is a tough thing that a train doesn't run over?
Vladan Hejnic
Culture is very important. The problem is that you can't gauge it unless you've been working with the prospective buyer for a while. We've had the great advantage that Publicis Groupe, who now owns us 100%, has also owned CJ for almost three years, which is the largest affiliate platform in the world, and we've been working exclusively with them for 13 years. We've known these people professionally for almost 13 years, but we didn't know the owner, and of course the owner then brings in some of his culture, his reporting requirements and so on. So you can't really know that much in advance, we were lucky enough to have those people that we've worked with on a day-to- day basis for many years, we roughly knew.
Martin Hurych
If you didn't know, would you open more of those meetings at once, or would you take a chance on someone you liked best at first, stay for a while, and then close the meeting if it looked bad?
Vladan Hejnic
We didn't really know even with Publicis, and that's maybe why the negotiations lasted almost a year, although we said in advance that it would be a few months, because we know each other. We know the business, the evaluation was pretty clear from the beginning, we were in agreement on that, but that's why it took so long because we wanted the company to remain flexible enough. We wanted to be able to continue to grow at the pace we wanted and to be free to make the decisions we wanted to make when we wanted to make them. There were points in there that we didn't want to move out of our offices. Because we are in Jungmann Square, that's a beautiful place and from some feedback we got, the employees took it as a great benefit to have offices in such a place rather than moving to some glass hell. That's why the negotiations took so long, we were clarifying with them where they were willing to let us have that flexibility and where they weren't.
Martin Hurych
Was there anything else you couldn't get over?
Vladan Hejnic
If, during those negotiations, the terms were to change in a way that either made us more restrictive or had some hidden agenda. If somebody said to me at the beginning that we would cooperate in some way, and over time some condition appeared that negated what we said in the letter of intent, then something would be wrong. For example, we had been negotiating the letter of intent for four months, which is not usual, and they were already on the fence about whether we really wanted to sell. They are used to the fact that within two months the letter of intent is signed and it goes into the process. But we wanted to define a lot of conditions in the letter of intent just so that we wouldn't get caught up in the course of events and then, already excited about the future, we were relaxing our demands.
Martin Hurych
So do you feel like it was a clash of national cultures, or were you just being safe?
Vladan Hejnic
We were probably too conservative, too cautious, we wanted to have a lot of things cleared up in advance, even though it was not typical for that stage of the negotiations, or at least it was not typical for them. What I appreciate about them, for example, is that they were patient, that they kept things going as they should have, and that they gave us the space to let all the conditions be put in.
Who approached who first in the beginning?
Martin Hurych
At the very beginning, who was addressing who?
Vladan Hejnic
That's one of the advantages when a company comes to you and says we've done a tremendous amount of work and they want to buy the company.
Martin Hurych
That is, you were looking for someone, you were sending out signals, and by coincidence it happened to meet, or what was it?
Vladan Hejnic
Let me set the record straight. We considered something similar ourselves back in 2019, we even went around to all the competitors and CJ and found the exercise quite interesting. We had both a lawyer and an advisor, an M&A advisor, and even the clash of cultures of those other companies was immediately apparent. So today I can say that I knew that there was no way that this was the way to go. CJ said he was interested in it when it wasn't owned by Publicis at the time, which was in the fall of 2019, but then suddenly he said he couldn't negotiate and a few weeks later I found out that the whole their group was sold to Publicis. So they were locked into a period where they were not allowed to negotiate any acquisitions at all. But that's when Covid started, and we took off, and in two years we were twice the company we were before, which was good for us.
What does the sales process look like?
Martin Hurych
You cost them dearly. Anyway, going back to the process, somehow you reached out, what did the process look like for you from start to finish before you signed the sales agreement?
Vladan Hejnic
The first thing you want to know is how much the company should sell for. Robert and I said what's the minimum amount to get us interested and I have to say that Publicis also offered a very interesting incentive model to calculate that and to motivate us on future results. It went hand in hand, we were looking for a strategic partner to help us sustain growth of around 30%, 40% and they came up with a model to motivate us to do that. Even during that meeting, we agreed to stay in the company for one more year. So the first part was financial, where I would say we were relatively quick to agree, there wasn't much to discuss. The second part was just the conditions, what will happen to our employees, what we will have to comply with, what they will order us to do and so on. Some areas weren't fully disclosed in detail, I guess so they wouldn't scare us, but I had some experience with the corporation, so I knew what was going to happen. For the next x months there were negotiations on the various chapters of the SPA, which is the share transfer agreement, the sale agreement. Then due diligence came into it at some point, where we had both legal and financial due diligence, where Ernst & Young and PRK did it. There we ran into a lot of Ernst & Young not knowing the transactional business and it was quite a long process explaining to them why we were doing things like that and how we were in arrears. It's a pretty specific business and they don't often examine it that way. That's where we got a little bit stuck, that's where it was longer than I think everybody expected. Then they were checking legal things, whether we have the right contracts, how it is for example with people on HPP versus IČO, which is a Czech specialty, that everyone and especially in marketing works on IČO. That was one of the great advantages that we really have most of our people on HPP, we have it ethically set up like that with Robert. I think that's the way it should be, it protects the company, but I would say it's also fair to the employees, so we have 90% of our people on HPP. We got some initial offer at the end of 2021, the whole process was going on during 2022 and then the summer period started. The first part of July is usually a holiday for lawyers and other people in the Czech Republic and August is a French holiday, so we were stuck there. It was important for us to be able to bring the news to market in the early autumn, when the budget negotiations are starting and to take advantage of the synergies and the Publicis market. But unfortunately, it dragged on into some November 10. In hindsight, I was told by many lawyers that every good deal takes a year to make, but no one prepared us for that. I have to say that there were times when Robert and I said screw it because it was never going to happen. The longer it went on, the more we lost energy. In September, we even started pushing the lawyers, who were then great because they would send me documents in the evening and in the morning they were back on the mark. So I was pushing every day until it came together somehow and I think if I hadn't done that, the process would have been much longer.
How did the sale affect his health?
Martin Hurych
How did it affect your health?
Vladan Hejnic
That's the dark side, which I'm only learning in retrospect. I used to think, and I've had a lot of coaching and training on it, that I can handle stress, but because I'm very focused on making sure everything is perfect, that everything is on time, it's rubbed off on me. I have to say that since the end of the year I started to feel some changes, bad blood, bad readings and suddenly today I'm taking three pills because I'm having bouts of full blown civilisation illness. I'm sure half of it is just the stress that's been built up. I've been almost abstinent since January, eating almost no meat and trying to get this body into some sort of shape.
How to price a company correctly?
Martin Hurych
So if you want to smoke a cigar and drink red wine all the time, don't sell companies. Going back a bit, a lot of startups dream about this moment and almost every business owner has thought about it in some way. However, when you're doing it, you're very likely doing it for the first time in your life, maybe even the last time, how do you value a company?
Vladan Hejnic
Although I searched all over the internet for different models and talked to other entrepreneurs, I didn't really have a model because I couldn't find the information to find out. What the buyer offered was transparent, clear, motivating, and the offer was higher than our limit. The first disappointment that happened to a lot of my friends is when you have an idea and someone offers you half, that's really frustrating. The other party is letting you know that they don't respect you, they don't think you've accomplished anything and that's a terribly bad start. So the lesson is that it's good to get some kind o f a feel for where we're probably going to be, because that disappointment is frustrating for anybody who's made something out of nothing. The second answer is that I think we were also in a situation where the company was profitable in the long term, we were successful, we didn't need to sell the company and that wasn't our goal. We just came to some stage that it was good for the company to fall under somebody who would continue to help it. If the main goal is financial, it usually ends in disappointment.
Martin Hurych
In retrospect, the way the price negotiation went, you didn't sell cheap?
Vladan Hejnic
I don't think so. We were afraid we'd regret it. We were afraid that we would not reach the final amount after some years, or we would not move on and grow, which did not happen.
Martin Hurych
You said part of the price, which I won't pull out of you here for obvious reasons, is the incentive component. Is it possible to say how big that incentive component is as a percentage? You said you have it at this point for four years from the time of sale. How big was the incentive component?
Vladan Hejnic
The incentive component can be up to 2/3 of the total amount according to this model. Imagine that you have an evaluation of that company according to some model every year and that's deducted from what you've already been paid. I'll add to that that even though we appear to be a technology company, which we are in service delivery, but we're not developing the software. We're a service company, so the model we use is for service companies. We have other companies, like Targito, who develop the technology and quite often they are in the red, because they invest in development. So Targito is not, Targito has always been profitable, but the evaluation there is definitely going to be very different. It separates out the part of what technology you have developed, how you can apply it in the future in the market and how much profit you generate from the services that are associated with it. So you still have to think about the nature of the business.
What options does he have to deliver the agreed results?
Martin Hurych
I've scouted companies so I know what it looks like from a corporate position, but I was interested in your opinion. I'd also be interested in the incentive scheme. You said you wanted to stay with the company, you believe in the business, you think you can achieve it, you want to be there, you love it, after all you started it and they believe you can actually achieve it. What levers do you have within an €11 billion company to really deliver those results and what are the guarantees that someone won't start messing with you?
Vladan Hejnic
One of those safeguards may be the veto rights that are in our treaties, I think they are publicly available on Justice. That's more the part that has to do with sort of maintaining the culture and a little bit of that independence of the company. Then you have no de facto leverage other than some of your personality skills to be able to deal with these people. But again, I'll say it's easy for us because we've known CJ for 13 years, I know these people, and our team knows them. On the other hand, even after these 6 months, I can say that even though I have no guarantees, the culture of that meeting surprised me. I didn't expect that the organisation would be so open and it must come from somewhere above, as they say, the fish stinks from the head, that the CEOs of the different branches in those countries are people of the same calibre. So they've been very warm to us, they wanted to build a joint pipeline and they're already pitching us to clients, we've already got our first projects with them, so that's positive. Of course, you are asking about the negative things, which I am sympathetic to, but there is such a huge structure of companies on the stock exchange and they need to have very fast and quite precise reporting. We almost do double accounting, one for that quick reporting and one for our legislation. That's a lot of work and there's less than 60 of us, so there's nobody there that's a third of the time that doesn't know what to do with it, everybody there is doing more than 100%. So we struggle with that a lot and we have to explain to them that they bought a company that has 55 people and not a company that has hundreds of people, so there's not that kind of fungibility. The other thing has to do with hiring new people, because they allow us to do that based on whether we meet the budget. So then sometimes we have to be clear that we see some potential in somebody and we want to approve them so that they can grow. But those people on the other side are not blinkered, they understand the business and they are incredibly focused on the business for the client. We don't take advantage of that, but as soon as you say I can't provide as good a service to a client in that case, or my revenue might drop, or I might lose a client, they're willing to address that right away. It's a very rational and fair discussion.
How important is intra-corporate diplomacy?
Martin Hurych
When we were integrating someone into the structure, the person who sold the company to us was primarily responsible for diplomacy and representing the company within the corporation for at least the next six months. Tell me how many corporate parties and meetings you've been to.
Vladan Hejnic
Only a few parties. We sold the company in November, so I had to attend the Christmas parties, so I went to some. It's one of those key roles that Robert and I have agreed that I'm the face and maybe the more patient one, dealing with colleagues from abroad. So maybe that's why I withdrew more from Targit and the handover to Martin Stepanek took place, because I saw that I would need time to do that. It was no problem at all to meet relatively immediately with any of the CEOs of Publicis or some of their companies where we felt we had common clients or common business. Each of those markets is different, somewhere Publicis is more focused on creative marketing, somewhere more focused on media, somewhere more focused on performance, so those markets and those collaborations evolve accordingly as well. Of course, it all goes down to the teams, and we have to work it out, and my colleagues have to work it out. If I set some rules, some agreement, they have to work hard with the counterpart.
Where should VIVnetworks be in 4 years?
Martin Hurych
When you two started talking, you said you didn't want money, you wanted a strategic partner. Come tell us what you've mapped out, what's going to happen in four years, where you're going to take VIVnetworks together from that baseline.
Vladan Hejnic
I'll say it's purely financial, which we said internally, we don't have any agreement with Publicis, they don't even ask us to do it. Our goal is to turn a company that had about 380 million in sales last year into a billion-dollar company by 2026. We want to have that number there, to know what steps and through what markets we can get there, and then communicate those individual steps to Publicis. For example, it can be information that Poland will be our biggest market in two years. Today we have 65% of our turnover from the Czech Republic and Slovakia, so we have to turn that around, Poland is about 12%. Publicis has 55% of the complete media market, it has about 1,900 people in the office there, we have some very important clients there, but we have a lot of growth potential there. There is also strong foreign competition there, but we believe that by working together we can develop Poland. There is something similar in Romania, and then we are investing in other markets like Bulgaria, Greece, Hungary and the whole of the former Yugoslavia. As I mentioned at the beginning that Publicis bought VIVnetworks for CJ, we are the most business connected with CJ, but in Eastern Europe we have a great cooperation with Publicis because it is very strong here. CJ has one great thing, you appreciate it from corporate, CJ has one PnL across the world. That's a great thing because it means you don't have to argue in advance with another affiliate what part you get from a joint client. Now for example, we had a call with Groupon, Groupon is now run by Dusan Shenkyple and the PFC people, Dusan and I had a call to see how we can help them and we've sort of worked it out. In the meantime, 2/3 of the business is running in North America, so we're going to team up with a colleague in America where they have a great relationship, they provide great service and we're going to create an international team where we're going to help that Groupon in a great unified way. This is a big problem in other and competing global companies when they are on extra PnL.
Is he planning to leave the company or is he planning his future in corporate?
Martin Hurych
Then everyone plays in their own pocket. Vladan, one last question, you've got it lined up until 2026, what made you make that decision? You said you enjoy it, you believe in the business, it will grow, why are you planning to leave?
Vladan Hejnic
I didn't say I was planning on leaving. It may be implied, but we have an agreement with Publicis and we are discussing other collaborations in other areas. If those cultures work, those people trust each other and see the value in each other, then Robert and I are also agreed that nothing has to end after 2026. We can continue in another area, it can be further in VIVnetworks and so on.
Martin Hurych
I understand. In that case, I wish you the billion euros. Thank you for visiting me and when things happen in your companies again, I will humbly hope that you will come and tell us about them.
Vladan Hejnic
I'd be happy to.
Martin Hurych
Thanks a lot, have a good one.
Vladan Hejnic
Thank you, Martin.
Martin Hurych
This was the third episode with Vladan about business, now in a slightly larger size. So if you're looking to sell your business, hopefully we've shown you how it can be done very elegantly and what to look out for. I hope we've inspired and informed you a little bit, if so, be sure to share, like, let your friends and acquaintances know about us, lose the word, because otherwise the world and the algorithms won't know about us. All I can do is wish you success and keep my fingers crossed, thanks.