Profile of an Acquisition: Entering New Markets

Investing in a new market is often a test of one’s investing prowess and management skill. As you face the challenges of unknown players, new trends, and industry secrets, successfully acquiring in a non-core industry can be extremely difficult.

Still, firms do it all the time. CAPAS, Inc., a Detroit-based private equity fund, recently expanded into the e-learning space with the acquisition of E-Learning Mind, an ed-tech company that provides online training and courses.

To learn more about the transition, we spoke with Andrew Fayad and Simon Casuto, two Partners of CAPAS and the new Managing Partners of E-Learning Mind, who told us the story of their acquisition.

Finding the Deal:

Attend Industry-Specific Conferences
As Fayad and Casuto began the search for the opportunity, they wanted to become as knowledgeable about the e-learning space as possible. They feared that if they were too inexperienced, they would risk missing valuable opportunities.

To expedite the learning process, Fayad and Casuto conducted comprehensive industry research, established new relationships, and even explored some alternative learning techniques. “One strategy that really helped us to learn the e-learning space and key players was to attend an industry-specific conference — the Learning Solutions Conference,” explained Fayad.

He continued, “We went there as investors, which really opened everyone up. Many companies were willing to tell us their story, their business model, and their perceived value add. Some people were even giving us their revenues since it is so rare for investors to go to an industry-specific conference.”

Although Fayad and Casuto ultimately sourced their deal through Axial, these conferences gave them a snapshot of the industry, the major players, and the investment opportunities.

Closing the Deal:

Synergy with the Seller is Crucial
Since acquiring E-Learning Mind and expanding into the e-learning space, Fayad and Casuto have learned the value of having a synergistic relationship with the seller. “Shortly after discovering the opportunity, we met with Jack Makhlouf, the former CEO of E-Learning Mind,” explained Casuto. “It became evident during the meeting that there were clear business and personality synergies present between us and Jack.”

Casuto added, “Not only did the synergies allow for a congenial and easy deal process, it also allowed us start growing the business from day one.”

According to Fayad, “We are bringing sales, business development, and strategy experience to the table, while Jack is showing us the ropes of the e-learning space and of the business in general. Even if we were experts in the space, Jack’s wealth of knowledge and experience has proven invaluable in helping to develop the new future of the company.”

Running the Company:

Not all Competitors are Bad
Another surprising source of knowledge for Fayad and Casuto has been other companies in the e-learning space. “Everyone in the ed-tech space seems to be really friendly,” Fayad explained. “They like teaching people and if you are new to industry, they are happy to explain.”

While the disposition of teachers and educators may be congenial, the dynamics of the industry and e-learning space may also contribute. “Although there may be relatively low barriers to entry in the e-learning space, the amount of available capital is enormous,” explained Fayad. “There is a $56.2 billion global industry for corporate learning with only a few hundred competitors. We noticed that there is so much money out there and profit margins are so high, so it is not too competitive.”

Hire Industry Experts
While having Makhlouf on board has helped with the transition, Fayad and Casuto have also begun planning for the long-term. “As we look to grow the company, one of the biggest challenges is determining the type of person to hire,” explained Casuto. “Besides the basic considerations of personality match and skill level, you need to consider whether or not they are experienced in the industry.”

The two have opted in favor of those with relevant industry experience. “We believe hiring industry experts is important to the growth of our business,” explained Fayad. “When you combine our knowledge of business and sales with insider knowledge, you strike a right balance. Instead of overemphasizing one knowledge base or skill, you are able to establish a brain trust that spot checks itself.”

Hiring those with industry experience has proven a worthwhile investment for both the short-term and the long-term. In addition to helping inform business strategies, “Having insider knowledge has been particularly important in maintaining customer satisfaction during the management transition,” added Fayad.

Balance Old Customers with the New
To generate awareness and business for E-Learning Mind, Fayad and Casuto immediately began employing their sales and management expertise. “One of the first strategies we have adopted is re-engaging with previous customers — it was such low-hanging fruit,” explained Fayad.

Casuto continued, “We began reconnecting with past E-Learning Mind clients by pitching our service in innovative and nontraditional ways. These alternatives to traditional training resonated with the past relationships and we were very quickly able to drum up some new business.”

However, the new owners are continuously looking for the next major client. Fayad explained, “The main challenge comes in landing the first Fortune 1000 company and then getting referrals.” It is critical to use old relationships for new referrals.