Important: Please note that any suggestion of a “transformational transaction” related to the SnapAV acquisition are pure speculation and extrapolation on the part of this author, based on an intense understanding of the home-tech industry in general and SnapAV in particular, along with exhaustive online research of H&F and its past transactions. Some very slight modifications were made to the story for clarification. JJ
To understand what the acquisition means to the home-technology industry, you have to understand what Hellman & Friedman does.
In an interview with CE Pro, SnapAV president and co-founder Adam Levy says H&F buys market-leading companies with strong management in developed industries.
“They don’t buy to replace the management team,” he says.
More telling, though, is that H&F doesn’t buy successful companies merely to “accelerate growth” organically or through modest investments, according to Levy.
Instead, they play big. Really big.
“Growth could come from big strategic moves,” Levy says, like in the form of a “big transformational acquisition.”
As such, traditional SnapAV dealers – independent companies that configure and install custom home-technology solutions for consumers and other end-users – probably shouldn’t care much about the acquisition.
Levy suggests most of the world probably won’t care about the acquisition, save for H&F and the financial community.
“In the scheme of things that matter to dealers, this should be of very low importance,” he says.
So What does Hellman & Friedman Do?
H&F’s Website explains:
We specifically target already outstanding businesses where we believe deep sector expertise and bespoke value creation plans can make a significant difference to the trajectory of the company. And because our deal team is the oversight team, we’re working on a value creation plan together from the start of the relationship.
Here’s my translation:
H&F buys great businesses. When they do so, they already have ideas for really big deals to follow – deals that would “make a significant difference to the trajectory of the company [SnapAV here].” H&F wouldn’t have acquired SnapAV if they weren’t already working on some big synergistic thing – probably a large merger or acquisition. Furthermore, the same H&F folks involved in the original deal (SnapAV acquisition) also oversee any future “transformational” transactions, so they’re involved in the entire mission. Finally, these plans (or ideas) would have been articulated to SnapAV leadership at the get-go. The team would be “working on a value creation plan together from the start of the relationship.”
Take a look at H&F’s past deals and you can get an idea of where H&F might go with SnapAV.
Example 1: Change Healthcare and McKesson
Merging financial and administrative tools in the healthcare industry with patient-care tools
H&F portfolio company Change Healthcare is a leading provider of software and analytics that optimize communications, payments and “actionable insights designed to enable smarter healthcare.” The company’s Intelligent Healthcare Network comprises the “largest financial and administrative network in the U.S. healthcare system,” including payers, providers and pharmacies. These customers can tap into this network to efficiently process financial transactions, maximize reimbursements (from patients and agencies), manage clinical workflow and communicate with patients.
In 2016, the company formed a new $3.4 billion business (combined revenues at the time) by combining with McKesson Technology Solutions.
Like Change Healthcare, McKesson provides software and analytics tools to the healthcare industry, but with a significant element of patient care – “from prevention and wellness to chronic-care management to acute medical or surgical interventions to post-acute care.”
Our user-friendly applications enhance your ability to perform clinical assessments, share diagnostic laboratory and imaging results, make accurate diagnoses, determine treatment regimens and care plans and track and monitor clinical outcomes.
Combining Change Healthcare’s financial and operational tools with McKesson’s patient-care systems will allow the new company “to deliver a broad portfolio of solutions that will help lower healthcare costs, improve patient access and outcomes, and make it simpler for payers, providers, and consumers to manage the transition to value-based care.”
Example 2: Genesys and Interactive Intelligence Group
Leading provider of cloud-based call-center solutions gets top provider of locally hosted call-center solutions
H&F portfolio company Genesys is a market leader in cloud-based contact center solutions (formerly known as “call centers” before “omnichannel experience” came along). In 2016, Genesys acquired Interactive Intelligence (ININ) Group, “a global leader of cloud and on-premise solutions for customer engagement, communications and collaboration.”
While both companies had large omnichannel customer-support and engagement operations, ININ had something Genesys didn’t: “on-premise” hosting – that is, software that can be hosted locally at the customer’s own premises, rather than the cloud. Apparently, ININ was the only significant customer-engagement provider to offer both cloud and on-premise options at the time. Now Genesys is.
That's the kind of transformational stuff that H&F does.
Why SnapAV is Such an Attractive Acquisition
SnapAV itself has had a transformational impact on the home-technology industry – creating the first impressive e-commerce site for dealers (and today still leading the pack); selling mid-market solutions only to authorized dealers, thus protecting their margins; designing and manufacturing products “in-house” (using overseas factories) to protect SnapAV's own margins; and offering a one-stop shop that makes it so simple for dealers to purchase (and track and return and get support on) a wide range of products from loudspeakers to connectors to cameras to pricey outdoor TVs.
As such, SnapAV dealers can’t help but patronize vendors acquired by SnapAV, including SunBriteTV (outdoor displays), Visualint (surveillance products with video analytics), and Autonomic (media servers).
By the way, SnapAV products happen to be really good, consistently topping the list of most-specified brands among CE Pro 100 dealers.
But that’s beside the point; where SnapAV really thrives is data. The company is nothing if not a data-driven machine.
Everything is measured and analyzed – how products perform, how dealers navigate the SnapAV website, what dealers buy from other vendors, and of course the usual things like hold times (40 seconds for 90% of callers), and net promoter score (91%).
Here’s a telling example from Levy: SnapAV noticed a higher-than-desired product return rate for certain HDMI extenders. Multiple tests could not reveal the source of the problems. Examining the geography of who was returning products, SnapAV realized most were coming from the South … during the spring.
Turns out, the products were failing from major power surges. So SnapAV reengineered the products to withstand bigger surges – twice as big as required by CE standards.
“We couldn’t do that that if we were going through distribution,” Levy says. “It’s only because we’re vertically integrated that we can connect the dots.”
About the Deal
SnapAV was partly owned by General Atlantic since 2013, when the firm made an equity investment in the distributor.
But the H&F deal wasn’t just an equity swap between itself and General Atlantic – not if H&F tells us it acquired SnapAV. Levy tells us SnapAV management still owns some stock, but H&F picked up a “slightly larger share” than was owned by General Atlantic.
Terms of the deal were not disclosed. H&F is currently investing in its eighth fund since 1984, with $11.1 billion of committed capital. SnapAV is the first acquisition from this fund.
SnapAV does not provide revenue information; however, Inc. magazine pegged the company’s revenue at $166.5 million in 2014, or 219% growth over three years. Maintaining that growth would give SnapAV roughly $531 million in revenues for 2017.
We would be foolish, however, to think SnapAV merely maintained this growth rate, what with the acquisitions mentioned above (perhaps modest in the scheme of things), along with the new OvrC remote-monitoring platform that drives incremental sales of multiple SnapAV products.
Levy tells us SnapAV enjoyed “significant growth” under General Atlantic. “They had a very good outcome. It was a good investment for them.”
So 219% growth since 2014 is probably an understatement. [UPDATE: Revising estimate downward]