Neuvottelija

Yrityskaupan sudenkuopat | Ervasti Miettinen | #neuvottelija 353 – Litterointi

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0:00 Eemeli Ervasti: All right, welcome to the Neuvottelija channel.

0:04 Today our guest is Sami Miettinen, the mean investment banker.

0:08 Great. It's a bit scary to be on this side. Luckily, we get to edit this episode together, so we can put this prosperity belly of mine below the camera frame. Yes, today we have a so-called special episode. So I've prepared a few questions for Sami, and this idea came from me thinking that I need Translein's consulting services, but I can't afford to pay for them. So then I suggested,

0:35 with a little ulterior motive, that I interview you for the podcast, and at the same time I get to learn myself. So yeah. Tell us again who you are.

0:42 ...with a few elevator pitch words. Yes. So, Eemeli Ervasti from Haaga-Helia, business administration student at the university of applied sciences and an entrepreneur, I'm also active here, and a silver medalist in a business competition like this.

0:56 Yes, exactly. And so, regarding this, I need these services of yours.

1:00 So, it was Europe's largest youth entrepreneurship competition, and there, with my business partner and classmate, we won silver. So that was the background, just this summer. All right.

1:14 Yep. It's funny, when I came here for the first time to your studio, you were like, 'well, I'm wearing a sweater,' so of course, as a good host, you also offered me a blazer, but I didn't use it this time. Luckily it's not a sweater, though.

1:34 Yes. Hey, now I have three topics and specifically related to your expertise and work, so I know that you've written the book Neuvotteluvalta with Juhana Torkki and you also work at Translink.

1:51 Mm. Also, so three topics. The first topic is how mergers and acquisitions work here behind the scenes and also some things from your client's perspective.

2:07 Mm. Then yeah. Do you want to comment at this point? Yeah. Maybe let's jump in. So you don't want to explain this and that about the whole agenda at this stage, but maybe let's go piece by piece. So indeed, Translink Corporate Finance is an international group that offers corporate restructuring in over 30 countries services. Often, for example, the company is sold, or it can be listed, or undergo equity or other recapitalization,

2:36 and often the clients approach us with some of these needs, and it could be all of these, as the client might not necessarily know what they want; they just want a change to the ownership, in a way, and I would perhaps start philosophically by saying that ownership is a scarce commodity in Finland, and in a way, we provide solutions for that ownership related problems, and one of those can then be the need to find a new owner and

3:05 change its current form of ownership or even convert its value into cash.

3:12 Meaning making a so-called exit. Yes. And just before we turned the video on, you said that there is usually this kind of misconception about business acquisitions.

3:23 Mm-hmm. So do you want to elaborate on that here as well?

3:26 Yeah, well, it's difficult because ownership is being sold, transferred, and the company's current owner might be perhaps the best owner for it, and they might also have a very intimate relationship with it. Like, they're an employee there or, well...

3:45 an active owner who, like, is constantly creating, actually reduces added value for that company. And if so, then this person is a big part of that value and, in a way, we then get to the discussion that should this owner then move into the service of the new owner and possibly reinvest in that company. And this often happens, for example, if there is a private equity buyer.

4:11 But I mean, there are really so many things here, as people might think that it's just like selling a used car, that you're selling used shares, but it's really not like that. So, the owning is difficult and, in a way, the transfer of that ownership is also, well, exactly that due to [it] being very difficult, and then those, well, potential owners, it's a scarce commodity, at least in Finland. Abroad, there is plenty of capital,

4:37 so if the company is good enough, then owning it can be easier abroad. Which leads us to Translink—that is, we have the ability to also find those potential foreign owners for this company. What kinds of different owner profiles are there then? Yes. So a financial owner is, in a way, in a certain way, private equity, because it specializes in ownership. It buys

5:06 these ownership rights, companies, and then potentially commits, for example, the management team with share incentives or otherwise to build that company with them.

5:17 an international giant in its field, growing and continuing to grow it, but then however they too have the objective to sell that ownership, for example, after seven years. This is the most professional buyer and often in these Translink deals, so also like a good exit partner. Then there is one like this, for example, and this kind of second buyer model is then, for example, a family-owned company, family

5:46 office, for example Translink linked this kind of SaaS service and HR management and on the accounting side, Hartwall Capital bought that ownership and is now growing the company, meaning a private equity investor and then this kind of family office, then there can be the stock exchange. So all of us can then invest soon in, for example, Posti, instead of the state owning it entirely alone.

6:15 So in that case, the potential owner pool is very diversified. So this is the third one. Then there could also be some wealthy private individuals or professionals in that field who could be owners. And then perhaps as the last category, another company in that field, meaning usually a larger company that then wants to buy a smaller one. So these kinds of categories can be found there. What are the other opportunities and threats

6:42 in this listing of Posti? Well, there, of course, the state as an owner is usually bad at it, and in a way, the postal industry as a field is this kind of logistics services are quite difficult, and then this kind of letter that you find there on the side of these logistics services is a dying product like this. So the business was kind of disrupted. And how well they have now managed this transition from traditional postal services to these logistics services,

7:12 so that the state, as an owner, hasn't bungled that value, remains to be seen. It seems there is now profitability and scale. So this is also a question of price. I mean, everything can be sold cheaper and then, in a way, when the price is low enough, there will be demand. So this pricing risk is definitely interesting, whether the right value can be found for it in a way that, at least like,

7:38 I would bother to invest in it. I'm a bit cynical myself regarding these IPOs, so I don't very often invest in them myself, but you also do IPO offerings. Yes. Yeah. And that's exactly when you have to think like this, that the world is full of cynical people and you have to build the process and the company's description and valuation so that it's a fair deal for everyone. For example, in the latest listing, this excellent Tampere-based firm called Tamtron makes these kinds of

8:06 weighing solutions and is really strong in that, and they have now through acquisitions grown quite a lot since this IPO and, well creating value for the shareholder and having, for instance, Mika Heikkilä of Proprius Partners then along the way as a kind of co-investor for this in addition to these and Ensto, it sounds interesting. I believe,

8:34 that this will be a long episode as long as there is interesting content. I have a small battery of questions here, and now I'll go through the topics, meaning what really happens behind the scenes. In addition to that, I am interested in what your view of the future is; as a 22-year-old, it’s particularly interesting. Mm. And then at the end, advice for owners, meaning buyers and sellers in this context.

9:04 when building a business and acting as an owner, tips for that as well.

9:09 Yes. And if we start with what happens behind the scenes—the mean investment banker—so when a client contacts you, how does the process start moving forward? Often we get new clients through recommendations from former clients, which is the most natural way, because they often discuss without us, in a way, how the Translink team handled things and if

9:37 they kept their promises, and they sort of transfer the trust from the success of the previous deal to these new clients. This is quite good, because then they know what they're getting into and they've also received a bit of that description of us being reliable and sensible and also a good negotiating party. Sometimes people come along who don't know anything about us and then might get in touch. 'Aha, these guys probably

10:05 do these corporate restructurings,' and then the worst part is the kind where a group sends a letter to, like, ten advisors, stating that you are now solemnly invited to make a very cheap offer on this process of ours. Often we don't bother with those if they fall into this last category. Yeah, this is interesting. Juhana Torkki in 'Tarinan valtakirja' made this claim that a company has two

10:32 ways to create its own story. And I've been thinking about this from a marketing perspective. I mean, the fact that the customers tell the story, in other words, recommend it forward, versus the company doing the marketing work itself and saying that we are like this, that we offer these services. So, a question related to this, have you noticed a difference when they come through a recommendation

11:00 versus through your marketing?

11:02 Mm. So is there a clear difference in these customers? There is. Yes. The one through a recommendation is like immediately warmer, because in a way, they're often okay with us then also talking with this recommender, and then the recommender often so you've gone through the process with us, so just share your own story, you were in the process, so, regarding the non-disclosure agreements and limits of disclosure, tell us about your experience and maybe give some tips,

11:30 so trust plays a big part. I have this 'trust account' concept in this book, where you kind of draw from the previous client's and successful process's trust account, so there is at least a few dozen [units] for the new relationship, whereas if it comes in completely cold or, for example, through inbound marketing, then that trust might just be based on pretty pictures and convincing references. We do have text references there as well, like

11:59 of all those deals where customers then praise our professionalism and highlight something, but it's still a colder relationship. I mean, generally, building this kind of confidential space is important in almost all transactions and especially in M&A it's really important and it involves—it includes—meeting as human beings, that even though during COVID deals were made where

12:26 no one met anyone physically, it's still quite rare.

12:31 Have you somehow consciously decided that you will, say, focus specifically on customer satisfaction and then this is the marketing?

12:37 Yes. So, this kind of reference marketing. I remember when I once went through this mandatory 'guru phase' where we went through these...

12:46 Brian Tracys and others, and there was this one...

12:51 referral marketing guru, and I somehow became convinced that...

12:56 it is by far the best. A...

13:00 recommendation from a previous customer in the same industry making the same transaction, is completely superior, at least in this case, as...

13:10 this investment banking is so significant or, in a way, so intimate, that it requires...

13:15 that. In something more generic, like if you sell phone plans, then you don't necessarily need to collect that many references from previous...

13:25 Elisa customers.

13:27 So there's a continuum, but in this kind of demanding, expen- small-team, high-stress process in investment banking or some similar strategy consulting or other field, reference marketing simply prevails.

13:45 Do you have any specific criteria for not taking on certain types of clients?

13:50 Yes. Since we are focusing at the moment, for a couple of years we've focused on these kinds of recurring-billing business-to-business software services, or B2B SaaS as the industry term goes, and the enterprise value is often somewhere between 20 and 50 million euros, so this is quite a specific strategy. They are like by far the majority of our transactions.

14:17 So then it's a bit like if it's not that segment, then there must be almost a special reason for us to do it, then maybe from there software or AI or e-commerce or others, if there is a sufficiently close industry or media or something like that, then it's like quite okay, but we are actually very focused focused. And then if it's something like

14:44 a deal outside of that focus, then there would have to be, for example, like a years-long personal relationship, which we have anyway, so we want to do it, because we are just such good friends that we'll do this deal then. Some people really do just about everything that comes their way, but I think it's a bad strategy, in that you inevitably end up making bad deals.

15:07 Mm. Are these usually buyers or sellers who propose sellers? So, we have these acquisitions sometimes, specifically with these international partners of this group, so there might be really massive acquisition chains. Like this Swedish Miss Group, which is owned by a private equity firm like Perwyn, it has made like dozens, I recall about 30 acquisitions with us globally, and

15:33 some of them have been in Finland too. So, there are those exceptions, but well, or then there's Smartwatten, which does this kind of water management, well, alarm system, pre-warning services in properties, so we have done for them acquisitions on the buy-side as well. One last question regarding this

16:00 transaction side? How are your services priced and why is it exactly like that? Yes. So it is, um well, I can't say exactly, but the price is like, um hundreds of thousands of euros, so there's no point in hiring our team unless unless you are ready to pay hundreds of thousands for it, and what it's paid from is the purchase price, if the company is, for example, 25 million

16:28 with a purchase price where someone pays 25 million, then from that money that fee is paid. Then, if in a way no new money comes in, then for example, it's more difficult to pay, because then it would have to be from the pockets of these individuals or from the company's pocket, and such sums aren't usually found in individuals' pockets, so it is, or from the current owners' pockets, which is why it requires

16:56 actually a transaction where money also moves, from which this fee can be paid, so is it specifically just this kind of commission, or is there also a fixed part? There's a fixed part. We have, so this kind of, well, material fee. We don't do this so-called retainer business. Many competitors do it so that you have, for instance, a rolling monthly fee, which is paid all the time for, like, the work being done. So we have these, well, milestone fees

17:23 for this material preparation. That is, when we get all the info memos and sort of, well, preliminary data rooms and others set up, then a certain fee is paid for that. And then for the signing of the LOI, there's another milestone or landmark fee, you could say, so they are like somewhat like, well, fixed and not commissions, but they are also sort of against a clear achievement. But then the hundreds of thousands, like

17:51 success fee, so it is only paid if there is a transaction, and it is fair play in the sense that if there is no transaction, nothing is paid.

18:01 So it has been, in a way, in terms of opportunity cost, a really expensive project for us. I mean, we have had a team working for maybe over half a year, and then we are left empty-handed.

18:14 Yes, those sound like large sums, and I am also interested in the team side, what kind of people succeed in this industry.

18:23 Yes, for example, we have an 11-person team here at Translink's Finnish office. It includes partners like me, and then for instance Tero Nummenpää and Jari Lauriala. Uh, and then, well, at this level often we are, in a sense, in that sort of client responsibility role and in a way in that lead negotiator role for the project.

18:47 Then there are, uh, younger academic interns.

18:51 there might be another partner there as well, doing that project work and the client's daily work, and then there is this kind of analyst, and then we often have, well, you could say, or we call them analyst interims. They are, uh, students in the final stages of their studies who, in a way, like, sacrifice half a year of their studies so that they don't do any

19:19 studying, but rather work a fixed-term half-year stint with us.

19:25 work and and gets a proper monthly salary for it. So that kind of guy we often have in these projects and for them this is like a total jackpot, well, in a way they learn about real deals, real things, so it's really meaningful and highly competitive, but our permanent team is 11 people and with that we get about five to ten transactions a year

19:52 out. You said it's a jackpot, this kind of internship, so when you get these applications, what is it that you specifically look for there? Yes, we have this very structured process. They have a lot of very well-thought-out so, processes in this investment banking work too, and and ready-made templates and operating instructions.

20:17 But in this recruitment, we have a system where, first, we announce in these student associations that such a position is available. Then there's a deadline in a few weeks and [send] the CV and the like transcript of records, and then we look at them, and then we invite about ten of these, sometimes even more, to do a case study,

20:45 where we give a real company and say, 'do a valuation of this.' So, and then also describe this company's industry and competition, and then they do it there and then present it, and So, based on this, in a way, we're already very close, like, if...

21:06 it's been done well, then there might be very good chances...

21:09 to get in based on that, but then there's still another...

21:13 discussion then, where all the possible partners, for example, get...

21:17 to join that discussion, and then based on that, usually...

21:22 uh, four, about four people per year are chosen for these...

21:28 interim roles. Yes. Now we'll move on to a slightly...

21:32 future-oriented topic. So, how has AI changed your work so far?

21:37 Yes, it has. This week I founded the Translink Corporate Finance VBA coding...

21:41 society. So, this isn't a joke. I mean, we now have this...

21:47 for example, GitHub, which is like a repository where you save the code, and we have been, like, vibe coding with Python here now like, while filming this here this week, actual programs, and uh, well, this is now a bit of playing around, but we have, for example, ChatGPT, the paid version for everyone, and it has the security settings set so that customer data is not used as training material. Everyone knows how to use it. It just got this code block feature that lets you

22:15 run, like, this Python code. So you don't need to use, for example, local environments or other things if you want to vibe code. I mean, I'm referring to this vibe coding part. Then, well, I have used it myself, for example, in these in video productions, I use that Adobe package's Firefly image AI. So, when I edit images, I use AI quite a lot. Then I have all these LLM

22:43 models, like Gemini and Grok. Then there's Perplexity, and I've built quite a lot. Three weeks ago, I installed Comet as my main browser—the Perplexity thing with Jeff Bezos's money in it.

22:59 And it has this feature where every window you open in this browser is its own AI instance, which is absolutely wonderful. You can basically delegate tasks across the room, and it's like a miracle of God when it gets things done.

23:17 when you look at that. But we also have these experimental systems in use, for example HubSpot also has like an AI assistant. So often in these, like a CRM or customer data system, they all start to have, like, AIs. We also have Microsoft's Copilot, but it's so bad that hardly anyone uses it. So we are very quality-conscious.

23:43 Then service providers offer us things. We have this one AI that kind of builds infrastructure, but it seemed to be so bad that I was half-joking that we should code a better one ourselves, so we do have AI is used very extensively, and we are in a sense AI natives, such that our people actually know how to command the

24:09 AI; it's not just a matter of 'here's a PDF, summarize it,' but we have these small tasks. I myself, for example, last year coded a better OCR when I had a magazine article with poor text that Adobe couldn't read, so I ran an OCR using a Python library, because I didn't feel like typing it out myself. It's not that we are exactly coders, but we are smart people, so

24:38 we make these kinds of small fixes using AI.

24:44 Does it come from the transactions, when you perform them, something like very concrete, some processes being automated or something similar. Well, you have to be a bit careful with data security. There are indeed those, for example, when this data room comes, meaning the company's entire database, you could run run them through these AIs. You have to be a bit careful that the company's confidential data doesn't leak into the LLM, so you have to, well,

25:12 we have strict bans on those, but well, document summarization and then translation is done, so if there is, for example, a Finnish-language source, it is indeed done with AI nowadays. So so these are the kinds of things, then, these buyer candidate pur- -chase tracking. Yes, it is done, like, saying that these six have been identified, uh, as likely buyers, so suggest similar ones

25:39 in these and these countries. That is done. And then, well, some people do format their emails using AI. Personally, I don't really bother with that sort of email automation, because I don't really want to put much effort into email anymore, as it feels so antique, that email. And so I think in terms of interface, we've had Slack, for example, as a common discussion platform for five years

26:06 both within Trans and with customers, so it feels somehow these old-world wonders felt really stiff. So what would a dream world be like, where when you perform transactions, what else could you utilize AI for? Well, it could certainly be automated and it is also being done. This manual work won't disappear because it's so extremely confidential and intimate, this transfer of ownership, that

26:36 one doesn't want it to leak under any circumstances.

26:39 These are processes that take place under non-disclosure agreements and it's not a desired situation for them to be discussed, but then if there was a slightly more cynical owner who doesn't have such matter, that everyone knows that, well, you're interested in exiting, then you could pretty much just dump this into all databases, saying that this is available and people can get in touch and

27:04 maybe put out media, like the kind of content that would make people see that this asset is for sale. So then that kind of like, uh, its, its sort of sales event like increasing the probability, that could be automated by like sharing information about the asset quite openly.

27:28 Then actually, of course, you could try to automate the process, so that you could kind of see a future where AIs negotiate a purchase agreement among themselves, so that an investment bank or lawyers aren't needed.

27:42 Do you really see this as the future? I mean, in a way, you can model everything, so you could have, like, 100 real M&A deals and their negotiation processes step-by-step, so well, you can model that, and then the bots just talk and you watch from the sidelines, but then things can go wrong and then comes the delegation problem—and this is actually interesting,

28:07 how much you want or dare to delegate to AI and whether you still want to do a human check on them. An M&A deal is just it's like, pretty much every damn thing has to have the right decision-maker specifically sign off that this is how we'll proceed.

28:27 So, that kind of 'closing your eyes and hoping for the best' while process agents talk to each other is still quite far off. But then there can be something like bringing everyone to the same level of information. So in this acquisition, the current owner usually has very good information about the target being sold, and for the buyer it's like

28:53 peeling an onion. First, you give these teasers and info memos and management presentations, then comes the data room and finally In a way, in principle, you give all the information that the buyer wants to know, and once nearly the same level of information is reached between the buyer and seller, then in a sense trust is maximized, and when the deal is made, the current owner's entire

29:22 know-how is transferred to the new owner, so then you don't have to pay a sort of risk premium for the possibility that something was hidden, so this is generally the philosophy behind this business acquisition; that you really try to share as much as possible about the business to reach the same level, so that there's no need to discount the price for the potential risk that it...

29:47 the seller, like, scams or withholds information. Mm.

29:50 The same principle applies to, for example, real estate deals or car sales, that in principle, a good car salesman or real estate agent lets you take test drives or actively tells you about the flaws, so that there won't be a dispute later. You mentioned that you specifically sell these SaaS companies, so how do you see the future of SaaS software developers yourself?

30:13 Yeah, well, that is currently the Finns' perhaps best expertise, meaning this business-to-business SaaS, so a software service for a specific need, such as this payroll processing specialized expertise.

30:33 expertise as kind of a software module and or it could be something like Profinder, which provides Ilkka Oja, who does this kind of business information, so you can look up the company's revenue, decision-makers, profitability, and other information, and compare different industries. So, these software tools are made for various needs.

31:00 They collect data and then, through some user interface, they are used for specific functional purposes. So, some of these use cases are, in a sense, easier to disrupt than others, and we produce this kind of quarterly report the Translink index for these SaaS companies and there is a sort of two-way split, meaning there is a horizontal

31:28 SaaS and then vertical. Horizontal means that you have a specific function, like payroll or ERP or accounting or some other sales database like HubSpot, and then vertical means it is for a specific industry, for example Admicom, a listed company that focuses on software services for the real estate industry and in a way

31:58 it is in that real estate vertical And these vertical SaaS companies, their valuation multiple is currently about five times this, like, recurring billing ARR, while the valuations of these horizontal SaaS companies have currently actually dropped, like, below just over three times the recurring billing. So, well, from that you can already

32:24 see—and these were the same figure for a long time—so from that you can already see that it's better to be in that focused vertical than in a generic horizontal SaaS. This is now one clear trend that has occurred this year. Then there is this AI disruption, meaning you can take any software nowadays and reverse engineer it with AI. So if I can now whip up code as an old investment banker uncle for some

32:54 like, quite well based on my 30-year-old programs, so imagine that if you are like a real software developer, you can use that AI to sort of take it, like, 'that's a nice program making a lot of money, let's' sell this same thing, but maybe usage-based, instead of charging a monthly fee, but so that you pay for what you use. And like as an extreme example, Elon Musk announced here that he has founded a company called Macrooin, whose task is to disrupt Microsoft. So, well,

33:21 Microsoft is the world's most valuable SaaS company. It provides each of us with, like, email from Microsoft, and PowerPoint and Excel and so on, well, Elon Musk's, like, nasty vision that these, this types of services you could buy on a usage basis from this Macrohaara developed by AI. Is this some kind of new trend? It is this kind of raw disruption, so the idea of the SaaS model is,

33:48 that you charge a monthly fee for a service and then user-based, so if you were working for me, I would then have to buy Gmail for you, and then Microsoft and OneDrive so we could share it, but Microsoft's billing might, for example, increase by 1.5 times when you start working, then it could be, that in this Micro hard model we would just buy for you only usage-based service for it when you use it maybe once a month

34:15 you send that one file, then it would only cost like that tenner a month instead of maybe like 15 cents. So, this is like a trend that will break through at some point. But doesn't this sound just really risky, I mean a big risk, now from programs you'd get an opportunity too, but yeah. Well but then you can, then it's in a way focusing and this kind of concentration is, however, always like

34:42 the kind of thing where you don't have the energy for every single industry or language area or even LinkedIn's payroll management, no one wants to really know anything at all about Finland's stupid labor regulation, which was developed among some old-timers, so it's not at that point, even the AI starts to have smoke coming out of its head, letting them handle it. So there are these 'moated' things, like

35:09 culture and language and special legislation and, well, that 'we're doing this now exactly according to working hours and collective agreement terms' approach here, and collective agreement appendices must be in order; people aren't bothered to do those, and then there can be industries that are quite unique, so they won't really be disrupted, but this kind of disruption or, like, flipping

35:36 the prevailing business model of an industry, you can do that with a bit of this sort of vibe-coded minimum viable with a product, so you can sort of test if it starts selling, and then you actually put resources into it, and it's kind of a great time because these dinosaurs can fall, so that suddenly a giant company like Microsoft or SAP or something else is no longer

36:03 protected. When did these things first start to emerge?

36:08 Well, it's this AI that's been here all the time.

36:12 So, as I said, even though Translock has also been using AI, ChatGPT 3.5, for like over two years, it has to be done smartly, because many people wasted a lot of money last year developing something own, like, modified language models, so in a way that's now completely pointless, that we never went into that kind of money-wasting, that

36:40 it needs to be done for these functional practical needs a bit like an app, but these are being made all the time and Finns have been a bit slow in this, but for example I've had Mikko Alasaarela here as a guest and he founded this Agentics Finland, which got like a thousand people in a day, a group like that, so people who also in Finland take this AI revolution seriously. Can you join it, yeah, I'll send you the link again, so

37:07 well yeah, it's a WhatsApp group and we have a meeting there soon there then, and then there are these VIP coding types and people who know how to build, and specifically build practical applications and not just some nonsense; all of us know how to code some philosophy bot for the LLM, but you don't really make any money with that.

37:30 Now I'm shifting the topic a bit away from AI and technology.

37:34 Yeah. I'm personally interested, as a 22-year-old, that if you were my age now, and you have 10 years ahead of you, let's say, with Finland as the market, what would be an industry where you personally see potential in the future—and I mean no AI or tech. Yeah. Well, there are these physical real-world services will always exist. In other words, we all need

38:02 some kind of warm home and in that sense, well, this kind of living there will always involve services. Then, well, then this kind of you can think of Maslow's hierarchy of needs, well, you need a home, need food, need a relationship, sex, that sort of thing, then you need a job in general, and then

38:29 well, then the highest needs of self-actualization start to emerge, where we start thinking about philosophy and visiting art exhibitions and educating ourselves through literature or art, and in all of these, the spectrum of humanity will remain. Of course, they can be then like develop with AI and in a way bring that transaction cost down and it's going to stay there. I

38:57 would say that if AI and data aren't allowed, then robotics is like really interesting. I mean, Elon Musk has been developing this Optimus humanoid robot for a couple of years and they're already frighteningly good. So now we are kind of getting human substitutes into physical spaces, in these coming years, those humanoid robots will arrive, and in a way that if no one in Finland has really started leading that, it could

39:25 be quite interesting in a way, playing with these physical robots, as now those Wolt ones, like, they delivery boxes go around Helsinki over there, but in a way from that the next step is like bringing humanoid robots here.

39:41 to this physical space. They will of course have those AI features as well, but this is something where I don't see much of a business, so I think if someone was, like, a reseller for Optimus in Finland, that could be a pretty big thing.

39:58 Well, what if we say that we don't tie this to any industry. Mm. But that I'm starting a company now and my goal is that within 10 years I'll build the business brand, make it profitable and then I want to exit it.

40:15 Mm. So if this is the goal, then what would be those important things to keep in mind right at the start?

40:24 Well, in a way, ownership is a scarce commodity, and only the kind of internationally interesting ownership is truly liquid, meaning it's feasible for a large group of people. So, in negotiation power, there's also a kind of struggle, where if you don't have options, you only have conditions. So, in a way, regarding the will, if your exit

40:51 depends on a single card, such as a company in the same field buying you, then that's not good. You should be able to have many paths to that exit, and it should be possible to make it, like, on an international level interesting. For example, on the SaaS side, it means, uh, preferably over 5 million in annual recurring revenue. Then it attracts interest abroad as well, and it's large enough.

41:16 There start to be dozens of people working there, so that, well, ownership is transferable. So, in a way, raising that scale to a level where it starts to be internationally interesting. It brings those exit options. Then, in a way, your own role, in a way, reducing it, if you want to, like, turn it into cash so that you are no longer working at that company or having to reinvest in it, so Well, then, in a certain way, you have to make yourself a bit like

41:42 unnecessary. Meaning, you might be an active owner, but perhaps no longer the CEO or that most important person, because if you are the CEO and the key person, often the new owner will say that we can own this together, but well, you aren't going anywhere. So, in a way—but it can be okay, maybe you want that and you continue there, but if the goal is to be a serial entrepreneur, to grow a business large and

42:12 sell it and jump to another, then that won't work. So, in a sense, forming that ownership structure at the beginning. At the start, in companies, ownership and management are always the same thing. So, well, there the owners are hands-on.

42:29 I would say that especially if you're not doing it alone, if you have business partners, then the shareholder agreement is extremely important, so that it is well thought out and also takes into account things such as, if things don't work out, like happens in marriages sometimes, that you might need to part ways, then on what terms and how, and are there mechanisms that enable this, and you should by no means trust that the future will remain the same in, say,

42:58 five years' time among the owner group.

43:02 Um, these types of things. Of course, the business model should be the kind that can, like, generate its own cash flow and fund it, or then from the start there must already be some kind of external funding channel that brings in the cash flow for that growth. And that has to be thought about, because if the business naturally, sort of, consumes cash flow for growth and then you end up running it in a mode, like, where it has to earn its own money for that

43:31 growth, then it inevitably leads to, like, slower growth. And then again, this first goal—a large company that is internationally viable— slows down. So those five years might stretch to, say, eight.

43:44 for a year. But do you mean there aren't good opportunities, like, right within the Finnish market? Well, there are, yes, and in a way, there is, for example, Hartwall Capital, which is a purely Finnish family company, so yes, they do exist, and one shouldn't in any case be pessimistic, but then in a certain way, you shouldn't start a company just to exit it; you should start a company because it's a good

44:08 company and it generates shareholder value for you as well. So, the idea that shareholder value could only be created through an exit, that is like the wrong way to think about entrepreneurship or starting a company, that in principle, you should run the business as if it could be yours your ownership, perhaps even forever, so that we don't think in a way, that I'll just run this for a five-year stint to an exit and then I'll throw

44:37 in the towel. So, this mindset doesn't necessarily result in a good company. And what about, is it visible or have you heard that, now that the population is aging, there would be somehow an especially high number or that ownership changes have increased because of this?

44:57 We have this really unfortunate problem where this right-wing government cowardly backed out at the last minute; it was very close that we would have done like other civilized Western countries, Sweden, Norway and others. So, we haven't changed the inheritance tax into a capital gains tax, but we we chickened out and this is like a terrible mistake and if we now get, well, a blue-red or SDP-led government, then we won't fix this for, like,

45:24 six years, this problem. So we have like this terrible period where, well, this sort of 'death tax' remains. I mean, well, these heirs would have to pay for a potentially completely illiquid, like, company, like 7% well, or more, it rises over 20% if you aren't a very close relative, then, well, tax in advance to the state, and then when you get the shares, then you'd have to somehow figure out if this company can pay

45:52 maybe dividends to me or something else to cover those taxes, and/or whether you can sell it so that you at least get those, like, taxes covered, so So this, this is a kind of fear, meaning that as people age and usually the good companies, it has required these 10–20 year growth pipelines, so the owners are often near the danger of death, meaning over fifty years old, so they have to consider

46:21 how the heirs will be able to own and pay this inheritance tax, so it logically creates a need to exit. This kind of need doesn't exist in, say, Sweden or Norway, because you can die anytime, from a heart attack for instance, and it won't trigger inheritance tax. So you can die without worry, but in Finland, because it is... and this applies to everyone

46:50 Vaisalas and even large listed companies, that this seven percent is a lot. Especially if it's a growth company that doesn't pay dividends, it's like a really big incentive to exit.

47:01 And then other similar people who would have money, like those over fifty, it's not worth it for them to buy either, because they know even less about the company. They die with the same probability as you, so they won't buy.

47:12 But then again, like a Swedish elderly person can buy it because once again it doesn't matter, because well this dying doesn't trigger the inheritance tax, only selling does.

47:26 Could there be a market niche here for an active private equity investor? If Think of a company where the owner is currently the manager.

47:34 Yeah. And the owner wants an exit, so a private equity investor buys it and recruits a new manager, for example as the CEO.

47:43 Yeah. You're absolutely right. And this is exactly what these capital owners, investors do, meaning they provide a solution for this. Then we had, for example, this great Tampere-based company Aurora Yhtiöt, and they do this kind of serial acquisition, where they also buy smaller companies and possibly combine them under certain industry umbrellas. These kinds of compounders, and it's good that these have emerged.

48:08 In Sweden, there are dozens of these, meaning Sweden has...

48:11 private equity investors, then even those wealthy individuals can buy and, well, you don't have to fear death, and then they still have dozens of these compounders.

48:20 By the dozens. So the Swedes are like an incredibly lucky country in that they have this ownership in like the best corner of Europe. And in a way, Finland is only just now starting to even slightly appreciate that ownership, because we have this kind of hatred for ownership. So, in a way, a perfectly current narrative in the press seems to be that, oh, if only those rich people were fewer. So, so, I mean, purely just

48:46 purely because it's not understood that, well, in a market economy ownership is a scarcity good and, well, if we don't allow Finns to to own, so then in a way, the ownership of those smaller businesses can end, and with it, market-based employment also ends.

49:09 that's kind of what we're experiencing here, this 10% rise in unemployment and the fact that even though it's really hard for your age group to find these entry-level positions, like it's partly because we haven't understood that ownership is a scarce resource. But think about this, Sami, that for our generation, it's hard to find these entry-level positions now, as you said. So and I was at Haaga-Helia University of Applied Sciences last semester, we had this course called the Year as an Entrepreneur program, where you start

49:37 in the eyes of the tax authorities, it looks like a hobby activity.

49:41 So, we start this kind of company that operates with real money.

49:46 Mm. And it involved these 'Dare to Try' competitions, where the winner of the Finnish end went to Europe, like to the EU finals, which you mentioned at the start and guess how many. Well, you know the answer, but the listeners can guess for a moment how many competitors there were at the university level. Mm.

50:08 There was a big fat zero. I mean, our company was the only one that participated in this program, so then I was just thinking that if those starting slots don't exist, then what does my generation do if there aren't any mm, it's like a great opportunity, but then maybe it just hasn't been marketed enough or whatever the reason is, but yeah, yeah, I mean, this is, for example, Finland's, like, Sanna Marin's and

50:35 the 2023 YEL reform made by the tripartite was a catastrophic error, and I mean, like, uh, the fact that the entrepreneur starts being like, pre-billed based on the pension insurance company's estimated earned income at a rate of 24.8%, is such an incomprehensible brain fart that I don't know how

51:03 something like that got through, other than just these people being so alienated from business operations that they thought, they'll manage to scrape it together from somewhere. But anyway, this just came at the worst possible time, with the stupidest possible system.

51:17 Just when ownership became a scarce commodity in Finland due to small capital and anti-business and anti-ownership, like, tax systems, so regarding this YEL, about running a business with, say, a one-man or one-woman firm, it was then made unreasonably difficult and, like, a total cash flow risk.

51:38 So, in a way, now this pension contribution is an enforceable expense, and this really needs to be fixed as a matter of urgency, because this is, in a way, the natural refuge, perhaps for those whose lifestyle is already a bit well, for an alienated young person, it's like, well, they end up in the unemployment registry or as a perpetual student, or well, they don't start a family and such, they somehow become paralyzed, or then they take—this is

52:08 like, they don't dare to take a risk, and then it's really awful to hear how these like, opportunities are not communicated or they don't even bother to look, so even these should just be pushed through with AI, like, search for all possible competitions like these, and here is a site like this, and from there you can see, and well, sign up for these, because it could just be that nobody knew that these exist. Yeah, well, that's very possible, and it felt a bit bad to be there in the finals of the Finnish end when it isn't

52:35 anyone else competing. We then got to Athens and there came silver. There were like 23 others besides us. I had, by the way, before you ask, well, back in the stone age when Juha or, well, Jyrki Katainen was the Prime Minister, I got to meet him, and I pitched a suggestion to him that there should be, well, in addition to the social security number, like, for everyone to have that Business ID. So in a way, making it like

53:02 equal, because this system in Finland is like a sort of very repellent one, so if you have that Business ID, you become like a welfare state outsider. So returning from there to be a sort of well, beneficiary and recipient of social benefits and such has been made tricky. I don't—I, I don't know about this. Can you tell more? Yeah. So, so, like, if you have like, own a company, then, well, in the eyes of these, like, social benefit schemes

53:30 and others, you are then like an entrepreneur who should, like, be able to earn a living through that entrepreneurship better, i.e., through that limited company's, well, income generation, and then you're not allowed to, well, maybe like shut it down even, so that you could get into, like, the employee category.

53:46 So then, in a way, the safe, like, solution is to never start owning anything, because then at least you get, well, social security and unemployment benefits and other things like that, so can people there is like a huge demand to be just an employee and avoid entrepreneurship. And now that things like YEL bombs have been loaded there, it has been made even more repulsive. But if everyone had a business ID, i.e., in a way, everyone would basically be entrepreneurs, then

54:13 the system could not play this game like this, that 'aha, entrepreneur, earn your own social security or, like, uh, unemployment benefits by just earning better from some gig work. So, like, I think this would be a healthy thing. Similarly, the equity savings account should be mandatory for everyone, and you should put, like, 300 for every child born, so that everyone is made into, like capitalists from birth. Then we would have, in a way, these

54:42 hygiene factors, or these basic building blocks, like a Business ID, an equity savings account for securities, and then of course a social security number, then we would be able to have all kinds of equal opportunities, and the system wouldn't be able to, in a way, discriminate against you if you have, well, from its perspective, such a convenient ground for rejection, like a Business ID.

55:08 Well, I've had a Business ID for four years now, since high school, so this isn't a familiar concept to me. I mean, what have I missed, since it's possible that if there is business activity and a company has been closed, that if you then register as unemployed, the employment office says that you are an entrepreneur or unemployed. No, we won't pay you anything. We can pay you some support. But are you quite sure that you couldn't like invoice the company for something and well, that way earn your cash flow? Okay. Well now then, I have never

55:38 ever been a wage earner, so if I am a wage earner and this happens, then what? Well, for a wage earner it's like this, that, er, then you register as an unemployed jobseeker, you're put into the employment office and then well the system tries to force you to find work and first you have earnings-related benefit, which is based on like, well, the previous employment's like salary's like, well, multiplier value and then well, then after a certain time

56:06 it ends and you drop to, like, basic unemployment allowance. But then if you have a business ID and are an entrepreneur, the system might say that you don't deserve this, so try to invoice something through that business ID, so we won't let you into the employment office system.

56:25 Okay. Well, luckily I don't have to worry about these things myself.

56:29 Hey, I still have a few more questions that I'm interested in hearing your answer to. What are the typical mistakes when you carry out ownership changes, transactions?

56:40 The kind that people don't usually realize to think about. I mean, the most typical mistakes.

56:45 Yeah, every transaction is of course unique and then maybe like you could think about the kind of deals that didn't end up going through, that why they didn't go through, well, a poor shareholder agreement is probably the number one reason. So basically you have the current group of owners, and they have agreed in the shareholder agreement on the ground rules, like who gets to decide when the company is sold and why, and if those are poorly thought out, then basically

57:15 even a small minority owner, who might not even work at the company, might block the acquisition just because they're having a bad day or something else like that. So these should be prevented, and in a way, they can be changed before an exit, but Then, it’s definitely worth doing them properly right from the early stages, like carefully using good contract templates. That is like a

57:42 well, quite a lethal issue, and there might be situations where, for example, management salaries are below market rate, and then at the exit stage, they might want to negotiate better pay right there, but this discussion happened too late, and that increases the company's expenses, reduces profit, and affects the purchase price, so

58:07 this sort of thing is a major risk. Of course, now that we've done many of these, we never fall into traps like that.

58:16 So we really do check the management salaries in the shareholder agreements, like in good time and discuss it directly, whether you currently have market-rate salaries and whether there's a need to change them, and if so, then they are adjusted right there as part of that process. Well, from those you get already two, meaning the terms of employment and the problems with the shareholder agreement. Then there's of course just people's, well, unrealistic expectations, that there might have been, for instance,

58:44 some, uh, potential buyer who tossed out just offhand a figure that isn't based on anything, perhaps a high one, like we'd like to buy you for, well, 20 million, and then looking at it completely objectively, the company value even if it was 13 million, they might still be like yeah, yeah, but since surely they probably knew what they were talking about, that they definitely need to get 20. So meaning this kind of quite irrational expectation, which then becomes

59:10 a sort of millstone for the process, and it might be entirely driven by emotion or ego, that I won't sell, for example, unless I get that 20 million, and even if objectively the value might be lower. It could also be the other way around, selling too cheaply to the first person, just because they were nice people. In those cases, we usually wouldn't be involved in such a process, because we would say that

59:37 Don't take it that way, let's make a real process out of this and ask many people, because as I said, if there are no alternatives, only conditions, then well, uh, there might be a mistake in the other direction, where we sell in a way, too cheaply to just the first nice guy who who came to make an offer. Hey, I heard some good news, that now the Negotiation Power book is getting more emphasis, right?

60:04 Yes, we did another print run of it this year, and it has now already sold over 30,000 copies in various formats, which is nice. It is indeed the overwhelming market leader in Finnish negotiation literature, though it's quite a low bar, as we don't have much competition in this genre.

60:21 Hey, if I go buy this book and read it, what can I get out of it?

60:26 Well, there's perhaps the philosophy. Of course, it has these Finnish classic negotiation history examples, such as how Risto Ryti tricked Hitler to get the Germans to help in the Continuation War, or for example how Nalle sold Danske Bank at an overprice—I mean, sold Sampo Bank at an overprice to Danske, or how Risto Siilasmaa negotiated with Alcatel-

60:55 Lucent and things like that, or Martti Ahtisaari's thoughts on peace negotiations, or Bengt Holmström's game-theoretical thoughts. But then there's the one developed by me and Juhana theoretical framework, in that there is this, in my opinion, quite robust or like time- tested thinking, that a good negotiator uses these four basic levers. Namely power, analytical skills, sociability, and being principled. Then for all of these, there is like

61:25 an analysis of why exactly these four are important. And for example, in that principledness, building a 'trust account' is like one of those, well, main concepts.

61:38 Hey, finally at the end here, what do you say? Can you tell the viewers here now, like from your perspective, how I've ended up here?

61:47 Yes, well, through activity of course. So, so, a bit like that like, you blasted through with a cold call. I mean, I usually filter calls so that if it's an unknown number, I just say my first name and check if it's some Indian phisher or someone who just happens to be Finnish, but you got through this filter with some energy and then you already pitched it—by the way, there always has to be

62:15 a goal in every interaction, what the next step is, so then you managed to sell that low bar, which is like this Google Meet. And then with this 'Yes Ladder', we moved on from there to a meeting, so like, a classic cold call, then to Teams, and then to a physical meeting.

62:36 ...through that to the studio here. Yes, it was very nice, it's been nice getting to know you, and I have nothing else to ask at this point. Yes, great. And it's fun to be on this other side of the table, by the way, so leave some comments about how, like, er, we did here and if we should do more of these grillings. And since you've watched this far, be sure to subscribe to the channel. And actually, one more thing

63:03 came to mind. If anyone has questions, should they throw them into that comment box, and if we do another similar episode, we'll take questions from there. Yes, that works very well, er, sold this kind of closing here at the end this kind of, er, closing, and and, er, actually if you want, then you You can also provide your contact details if people want to brainstorm with you on these things; so, where can people reach you?

63:27 Isn't that only for the inner circle then?

63:30 I don't know. It doesn't... well, you can find the contact info online. Yes.

63:34 The name was Eemeli Ervesti. It was a pleasure to be here. Yes, and since you've made it all the way to the end, please subscribe to the channel and we'll naturally include Eemeli Ervasti in the inner circle, and we'll, actually, chat a bit about that transition into working life from the perspective of a 22-year-old, whether you go the entrepreneurial route or into an organization, and how to tackle this AI challenge.

64:01 and human working life skills are then combined with AI. Would this work? That sounds very interesting.