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Interview with Sébastien Cuvelier

We are interviewing Sébastien Cuvelier, lead M&A partner at the Connor Group.

DEALCOCKPIT: Could you introduce yourself and your company Connor Group? 

Sébastien Cuvelier: I am Sébastien Cuvelier, the lead M&A partner at the Connor Group. I started the M&A practice roughly 10 years ago and now lead a team of approximately 20 deal professionals spread across the Boston, New York, Washington D.C. and Charlotte markets. Our M&A team focuses mostly on lower-middle and middle market transactions in the healthcare, technology, business services and manufacturing sectors among others. 
Connor Group as a whole is a specialized professional services company providing a robust offering of accounting advisory services including IPO readiness, technical accounting, financial operations, managed services, and digital solutions.  

DC: Connor Group is one of the most known and respected companies in the world when it comes to complex situations concerning IPO, Pre-IPO, and M&A. Why? 

Sébastien C.: First off, our firm has worked on over 250 IPOs and SPACs and 1,000 M&A transactions. We have a deep expertise working on large-scale, high-profile IPOs and provide unparalleled expertise in managing the complexities of best practice accounting and system needs for high-growth companies. 
Furthermore, our firm prides itself on hiring the best accounting professionals. The majority of the firm is recruited from the Big 4 and generally rank in the top 10% at their respective levels.  

DC: Can you elaborate on the typical company profiles and types of transaction that your M&A team focuses on? 

Sébastien C.: As I mentioned earlier, our team focuses mostly on lower-middle / middle market transactions in the healthcare, technology, business services and manufacturing sectors among others. We are also used to smaller; founder owned companies and have a great deal of experience in working with messy fast-growing businesses.  
We have a healthy split between client types (strategic vs. financial) as well as buy and sell-side transactions. 

DC: In your opinion, what are the differences between the US market and the European market? 

Sébastien C.: In the financial diligence world, the US middle market companies are less structured than the European market. There is no mandatory audit requirement, and a lot of fast-growing companies that are preparing their financial statements for tax purposes, have no robust financial organization and system.  

DC: What are the most common challenges businesses are confronted with when preparing for an M&A process, and how does your group address them? 

Sébastien C.: Most companies struggle with financial information that is not deal ready (i.e. accrual basis, consistent accounting policies applied year over year, etc.). Our sell-side quality of earnings analysis aims to restate company financial information such that it is ready for potential buyers. Our work adjusts for cash-to-accrual considerations, GAAP accounting and other one-time or non-recurring adjustments needed to present a ‘normal’ view of a company’s financials.  

DC: What best practices would you recommend to companies to strengthen their corporate governance? 

Sébastien C.: I think one of the most valuable tools in corporate governance is to get constant feedback from employees. This ensures that overall governance is effective and makes all employees feel like they have a voice. 

DC: Have there been some particularly trying challenges you have encountered during M&A operations? 

Sébastien C.: Each deal we work on usually has its own unique set of challenges. The main obstacle we seem to encounter is data reconciliation issues. In these circumstances we find it best to talk through these issues directly with the company’s accounting team and make the process as informal and conversational as possible. When clients feel comfortable with us, they typically become less defensive and more willing to work with us to find the best possible solution. 

DC: Can you share some examples of delicate situations that your team managed to successfully resolve for its clients during a selling process? 

Sébastien C.: We recently had a healthcare deal (traumatic brain injury clinic) where there were some obvious tensions between the buyer and seller over the treatment of the net working capital mechanism, as the valuation of the net receivables was very subjective. In this situation we worked hard to make the conflict between the buyer and seller less emotional and more focused on the numbers. Our reserve analysis ultimately helped the two parties ‘meet in the middle’ and find a compromise.  

DC: Are there any particularly interesting projects on which you have worked recently? 

Sébastien C.: We recently worked on several deals in the MedSpa and wellness space including plastic surgery, medical spa, anti-aging clinic, massage, skin therapy, yoga studio and dermatology space. The space is very fragmented and growing fast in the last two years.  
We have also worked on 50 clinical research deals since Covid-19. It was great to work with companies that participated in the development of vaccines. 

DC: What are the key performance indicators you follow to evaluate the success of an M&A operation? 

Sébastien C.: One key metric comes to mind as an M&A advisor – time. M&A transactions are often very fast paced with incredibly tight timelines and many parties involved. Our goal is to be as efficient as possible during our financial diligence workstream to ensure the overall M&A timeline is not impacted. As such, we like to retrospectively look at how long our diligence took relative to our initial estimated timeline.   

DC: What are some indispensable elements for a successful M&A process? 

Sébastien C.: Communication – As I mentioned in my previous response there are many parties involved in the M&A process. A good advisor makes sure to communicate to the respective parties with a regular cadence to ensure everyone is on the same page. 

DC: You have been trusting DealCockpit for your M&A operations for four or five years now and we thank you for it. How is DealCockpit different from other Data Rooms you have worked with? 

Sébastien C.: One thing we all enjoy with the DealCockpit is the simplicity of the tool. It is overwhelmingly clear how to find and extract information. We have used many similar tools in the past and it is surprising how other providers missed this basic premise.  

DC: In your opinion, what can we improve? 

Sébastien C.: One feature that we would like to see refined is adding folders in the Data Room. When a client (or non-administrator) adds a folder in the Data Room the administrator needs to check the new folder in order for other parties to see the information is uploaded. We have run into issues where the client added new information in a new folder that was hidden because the administrator was not notified. It would be great if this could be resolved. 

DC: Thank you for your feedback! In fact, the administrator must verify the content before its diffusion. We are taking it into account! 
Lastly, what emerging trends are you currently observing in the M&A and IPO landscape in the US in 2023 and how do they influence your decision-making and strategy? 

Sébastien C.: 2023 is almost over and overall, it has been a slow year for IPOS and M&A.  
Though the notable IPOs of recent past (ARM, Instacart, Klaviyo, Birkenstock) have not been performing at the level needed to fully re-open the market, the IPO landscape for 2024 is poised for activity with nearly 900 Unicorns collectively eyeing the market, boasting a staggering combined valuation of $2.7 trillion. A robust pipeline is anticipated to extend from 2024 into 2025.  

We anticipate a gradual and measured improvement in IPO activity in the first half of 2024. The IPO market will likely feature top-tier companies demonstrating both growth and profitability, often defined by the “Rule of 40.” The "Rule of 40" criteria, where the sum of growth rate and profit percentage exceeds 40%, has typically been an important benchmark in evaluating a successful company and listing, and this cycle will be the same. This metric will continue to guide the selection process for these next few quarters. We expect to see the most IPO activity among growing and profitable companies, although the IPO pipeline will likely also feature some companies that do not meet the “Rule of 40” criteria but are in need of market access and liquidity. 
We expect the IPO market to pick up considerable steam in the back half of 2024, trending back up to run rates for an average IPO year (about 250-300 IPOs per year). This improvement is attributed to more companies boasting improved 2024 earnings and more favourable economic conditions. 

M&A middle market will continue to thrive and we expect larger transaction to increase as the interest rate and valuation decrease.