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When Wauwatosa-based insurance technology firm Zywave was acquired by Clearlake Capital Group last year, Zywave chief executive officer Jason Liu said the deal would accelerate the company’s pace of acquisitions.
He wasn’t kidding.
Zywave announced two deals in November 2020, just after the Clearlake deal closed. More transactions followed in April and May. Speaking with BizTimes in mid-June, Liu noted the company had done four acquisitions already and planned to continue on that pace. A fifth deal was announced by the end of the month.
The company had also announced three other acquisitions since Liu became CEO in 2018.
“We anticipate that we will continue that pace, there’s no slowing down,” Liu said. “We have the right investor, we’re growing exponentially, and the market is huge.”
The market for Zywave is the insurance industry. More specifically, it is the people and companies who help consumers get insurance. Zywave offers a variety of cloud-based software solutions for sales management, client delivery, content and analytics. Its products are used by thousands of brokerages worldwide.
But Liu and the team at Zywave see opportunity for more.
“What we see is the insurance industry is the last big vertical that is yet to go through digital disruption,” he said. “There’s this massive opportunity to be a breakout player in the space.”
Wanting to be the breakout player, Zywave set about building the needed scale and identifying core areas where it would bolster its capabilities.
One of those areas was digital quoting.
“Up until recently, all insurance has been done manually: You call your agent, they give you a quote,” Liu said.
He pointed to research from William Blair that suggests 50% of all insurance quotes will be digital by 2029. Zywave’s goal is to be the enabling technology that makes that happen.
Several of the acquisitions, including Insurance Technologies Corp., or ITC, have been aimed at adding Zywave’s digital quoting capabilities. ITC alone does around 30 million quotes per year in the personal lines insurance space. Zywave itself has also grown to be the leader in digital quoting for benefits, Liu said.
Zywave also invested in acquiring more data assets.
“We purposely decided that the more data that we could aggregate and provide to our customers, who are brokers, insurance agents and carriers, it’s a very valuable offering to provide,” Liu said. “It also makes our software smarter and more automated.”
Being aggressive in the M&A world comes with its challenges, especially in a hot market.
One challenge is the rising importance of the selection process.
“You have to be very thoughtful about what assets you’re going to pursue and how much you’re going to pay for them, because inevitably the price is going to be pushed up and so making sure you have your business case and a clear qualification on the assets you’re buying is really critical,” Liu said.
In the past, there may have been room to make a mistake.
“Now, you’re basically paying premium price and so you have less room for mistakes,” Liu said.
Zywave also talks with sellers to encourage them to look at the whole offer beyond just the sale price.
“Helping them understand that they should pick a partner that not only pays a fair and good price but also is the best home for your company is critical,” Liu said.
A third strategy is to focus on acquiring companies with proven technology.
“It’s very easy for yourself to get caught up in the startup that seems really sexy, but making sure that when you do buy an asset it has a proven track record of customers and success is key,” Liu said.
It may seem that Zywave would have to strike a balance between finding a proven technology and paying too high a price, but Liu said he is comfortable waiting for something to have a track record.
He pointed to the acquisition of miEdge, a provider of lead generation, data analytics and prospecting solutions, in 2019 as an example.
“We could have bought them at a lower price, but we waited until they got to be more proven and we paid a higher price,” Liu said. “I don’t think we’re unwilling to pay a higher price as long as it’s proven. What you don’t want to do is pay a high price and then you find out that the company was too early or their products didn’t really work. Ultimately, you’re going to have to pay a high price, but I’d rather pay a high price for something that’s more established than pay a high price for something that’s unproven.”
Of course, acquiring companies is one thing, integrating them into the existing business is another.
Part of how Zywave is tackling integration challenges comes from its structure. After being named CEO, Liu hired Matt Warren, someone he had previous experience working with, to lead corporate development efforts.
“Matt owns both the deal side and he owns the integration, so he has to not only help us buy the asset, but he has to make sure that it gets integrated,” Liu said. “It’s kind of a check, because he knows that if he buys it, we have to integrate it.”
The actual integration requires a focus on product, process and people, Liu said.
On the product side, he said integration requires a thoughtful approach to developing a common user experience.
“What we don’t want to do is have a Frankenstein company where there’s all sorts of different parts and products that don’t integrate,” he said.
On process, Liu emphasized working early on after a deal to instill a base set of processes, including using Salesforce for customer relationship management, running the sales process in a certain way and having a common approach to customer support and service. He described a desire for the system to be strong but flexible.
“Each company is different,” he said. “We don’t want to be too bureaucratic, but we make those the exception not the rule.”
The people front is where Liu said companies often make mistakes in integration. He said Zywave looks to retain the best and brightest, regardless of which company they worked for prior to the acquisition.
“Whoever is the best person who is a great culture fit is who ultimately … we want to keep,” Liu said. “It’s easy to get caught up in just going without maintaining that high bar of excellence, so that creates political dynamics where people that you acquired don’t feel like they have a chance and it’s a fair chance.”
Helping to fuel Zywave’s recent run of acquisitions is California-based private equity firm Clearlake, which acquired the company in 2020. Founded in 2006, Clearlake has $25 billion in assets under management.
“What makes them very unique is they certainly have the capital, but they also have the growth mindset,” Liu said. “Not every PE fund truly embraces growth, so they embrace organic growth, but they also really embrace acquisition growth. What that means is not only do they fund it, but they help us source deals, they also really have an appetite. ... So they’re willing to be forward leaning on taking aggressive positions or taking some risks in order to grow.”
Zywave has certainly been growing, from 350 employees a few years ago to more than 900 now. Liu said the company’s global presence is growing too and is now reaching the limits of what its Wauwatosa offices can support.
“Our biggest issue is recruiting talent,” he said.