The M&A opportunities in SaaS and fintech with Trintech’s Omar Choucair

In July, Trintech, a global provider of cloud-based financial close solutions for CFOs and their teams, announced the acquisition of Fiserv’s reconciliation businesses in North America and EMEA. 

The deal comes at a time of relatively low M&A activity in the broader software vertical and, of course, sustained high interest rates. That said, it’s also happening within a segment that has an estimated value of over $20 billion.

Join me, Tearsheet's editor and chief, and Trintech CFO, Omar Choucair, as we discuss why his team chose to make this acquisition now. We also chat about the opportunities and challenges of M&A in the SaaS and financial tech spaces, and the market outlook he has for the remainder of this year into 2024.

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The following excerpts were edited for clarity.

Omar Choucair, Trintech, CFO: Trintech is based in Dallas, Texas, and we're a global business. We're a SaaS software company that provides services to the office of the CFO. And as a lot of people know, the Office of the CFO has really been under a lot of intense pressure since COVID and the lack of competent personnel. We offer software solutions to streamline a lot of mundane and manual tasks that companies go through each week and every month trying to close the books.

We have two segments: one is enterprise and the other we refer to as commercial. We have two products. One is a Cadency. And that's really focused on large enterprise. We do business with about half of the Fortune 100 companies across the world. We do about 70% of our business in North America, and the 30% is in EMEA and Asia Pacific. The enterprise business is about 80% of our revenue, and about 20% of our revenues is from commercial. We typically break that out -- between $2 billion of revenue and higher is enterprise and $2 billion and less is commercial.

Acquiring Frontier from Fiserv

We're owned by two large, very high end technology investors on the PE side. We've looked at dozens of deals over the last four years -- before COVID and after COVID. We just couldn't find the exact right fit. They were in adjacent markets to ours but they weren't exactly what we were doing or looking for. And then actually there was this Frontier business that we acquired. It was a company that we identified maybe a year, year and a half ago. And we were able to monitor that company.

We went to the Fiserv team and said, hey, we'd be interested in looking at this asset. These two particular assets were not necessarily on the market, if you will. So we sourced those ourselves. And we looked at them and realized that the banking, the financial institution, insurance market is a great vertical for us. It's a vertical that needs a lot of processing and automation, just given the regulatory needs that they have. And the fact that a lot of them are public companies, and have Sarbanes Oxley. And if they're not, they all have very highly controlled environments.

So this one worked out really well for us. And it turned out that there were actually two entities. One was Frontier and the other one was Accurate. And we were able to negotiate a deal with the Fiserv team and we're ecstatic that we were able to get it closed about three days ago.

Acquisitions in this environment

A lot of people look and say, Well, hey, you know, there's been this dearth of M&A deals over the last 18 to 24 months, given the valuations, the uncertainty, the volatility in the market and rising interest rates. Our view is that you just cannot time the market.

These businesses are exactly in our fairway, this is exactly what we do, we do it in and out, we've done it for 15 to 20 years. So it was a blue chip customer list, great technology, great employees, and it just fits perfectly into what we're doing. Granted, the interest rates are a little higher than what people would like, but we were able to get some very well regarded direct lenders to come in and invest with the company. So, they saw the benefit of the business model, they saw the benefit of the acquisition.

There's always opportunity for us to refinance in the future. I think this high interest rate environment that we're in, it is what it is, but won't always be this way. We think that it will calm down at some point.

Challenges in M&A

At the onset, the most important piece in the deal is your relationships. And it's your relationships with your investment bankers, it's the relationships with your investors, and it's the relationship with your attorneys. We needed lots of help. And this was a pretty complicated transaction in the sense that it was what they call a 'carve out transaction'. We got the customer list, and we got 80 really great and competent employees, but a lot of the back office work is now going to come on behalf of the company. Anytime there's a carve out that is involved, it just adds another circle of complexity to the diligence and to the legal work.

We like to think we have a really good tech stack. Salesforce and Zuora and all our order to cash and our ERP and our FP&A tool, so we were ready to digest and integrate a business like this, because we had made those investments in the past in terms of being ready to take on additional revenue and additional people.

Targeting CFOs

CFOs have now realized that there's really ROI to the investment. We're able to play out the ROI in spades. And that coupled with the fact that it's just very difficult to get competent accounting folks. Just as an example, there are a couple of large companies just in the last 30 days that had to report a material weakness, because they were unable to find competent accounting and FP&A personnel. So I've never seen that happen. That's a very sobering signal that it's really hard to get people in -- there's fewer kids going into these college programs in accounting and finance. So it just makes it more difficult for the office of the CFO space and controllers. But that's why I think they need our services, because we can automate and help them get through the mundane and manual tasks.

M&A market out and investor appetite

If you go back 18 months, there's been a couple of really high profile PE firms that have bought companies in the office of the CFO. There's company called Anaplan and various companies and some of the best PE technology businesses had been pretty active over the last 24 months. Many of them have have looked at the larger bulge banks, whether it's BofA or JP Morgan. But there's a separate group of banks called direct lenders, and these direct lenders come in. They're not regulated, so they don't have to go into a big room with their credit committee and answer 350 questions about this or that, and they just have different capital requirements.

So as a result, these direct lenders have really carved out a niche market for the private equity groups. And typically, those are businesses that are cashflow. They've got good business models, they have good EBITDA margins, they've got cash flow metrics, and it's a solid business model, especially on the SaaS side. And that's the reason why they've been active and have been successful. And that is the group that we were able to tap for this funding.

Looking ahead in the business

We are a January year end. So we're almost through the first half. We had a good first half, and we look to have a good second half. The one item I would say about the demand environment is that CFOs and procurement departments are taking longer to look at these transactions and validate the ROI. A result is making the sales cycle extend a little beyond maybe where we had seen in the past. But at the end of the day, the good news is they are looking at it. And I think once we have the opportunity to talk to them, and they can see the ROI, I think that'll be fine.

I think people are very concerned about earnings, and where those earnings are going to come in the second half of the year. There's been a lot of cost trimming and cost analysis. I think that'll continue all the way through the end of this year and probably into next year. But I think at some point, I think the M&A market will probably open up sometime next year, just given that it's a presidential election year. There's just been such a dearth of transactions over the last 24 months -- I think the the backlog is pretty, pretty big.

There's just a tremendous amount of opportunity with all the digital banking and all these technology companies that are coming in. So we're thrilled to have this opportunity to grow with Frontier and Accurate.