Turnaround specialist and frequent Latka guest Derek O’Carroll, CEO, recently chatted with the GetLatka team about the whirlwind year at BrightPearl, a retail back-office software provider, that culminated in the acquisition by industry giant Sage. O’Carroll reveals his priorities during his six-year journey at BrightPearl, his recent acquisition, whose multiple nearly tripled in under a year, and the perfect storm that led to the unexpected acquisition by Sage.

When CEO Derek O’Carroll joined Austin-based BrightPearl in April 2016, the business was sinking quickly. The company had an $8m run rate, “on our way to $6m,” quipped O’Carroll. He quickly identified the challenges and got the SaaS back on track in 2 years.

$34.8m Series C secondary funds in December 2020
$10m used to acquire Inventory Planner in December 2020, 3x multiple
$360m acquisition by Sage in October 2021

Keys to a 6-year Turnaround

From the beginning of his tenure, CEO O’Carroll focused on cleaning up the cap table for BrightPearl so that its employees would do well in an exit. O’Carroll’s goal was to right the ship and then get BrightPearl back on track to growth. Before he arrived, BrightPearl had raised a total of $40m over 5 different rounds.

Difficult $4m Down Round

At the end of 2016, O’Carroll and his team did a $4m down round. “We wanted to ensure we could top up the option pool for the employees who came along for the ride and ensure that their shares were equal,” explained the CEO. He added that down rounds can be challenging for VCs to accept, but it was necessary in this case.

Another $15m Series C Round in 2018

CEO O’Carroll raised another $15m in 2018 to right-size the ship. “We had a great product pointed in the wrong direction,” quipped O’Carroll. “I was taking the staff to the valley of death and upping the charges for some low-paying clients from $6,000 per month to $140,000,” he added.

BrightPearl Broke $12m in 2019

Armed with an infusion of cash, employee alignment, and a clear direction, BrightPearl hit $12m in revenue in 2019 and returned to a growth business.

2020 hits $18m, 2021 $30m

Once BrightPearl hit its stride, it began experiencing 60% YOY growth, reaching $30m in 2021. $25.5m was attributed to BrightPearl’s organic growth. The other $4.5m came from O’Carroll’s end-of-year acquisition of Inventory Planner, a module that complemented the company and would accelerate its growth.

$10m paid for Inventory Planner at a 3X multiple

At the end of 2020, O’Carroll used 1/3 of his freshly received $34.8m Series C funding to acquire Inventory Planner. He realized that the Shopify tool with 2,000 customers had a great tech team, but they didn’t know how to scale and, like BrightPearl, were pointed at the wrong customers. “It was a better together story. The deal was good for all of us,” explained O’Carroll. BrightPearl paid about $10m for Inventory Planner, 70% cash, and $30% remediation, according to O’Carroll. “They had a tight, well-written code base. We wanted them to be successful and also were interested in strengthening our partnership,” he added.

Late 2020 $34.8m Series C at $160m Valuation

The $34.8m Series C round that helped O’Carroll acquire Inventory Planner included secondary funds from Cipio Partners, Verdane, MMC Ventures, and Notion Capital. Sage Group joined the group as a strategic partner, acquiring 17% of BrightPearl in the process. O’Carroll indicated that he felt the valuation was fair at the time, as it allowed the company to now have a flat cap table and that employees could do well in an exit. He explained that one original investor sold to Verdane, and much of the money went to the balance sheet.

Building a Strategic Partnership with Sage

O’Carroll explained that he sought out Sage because he wanted to improve the accounting solution inside BrightPearl. He quickly realized that building it from scratch didn’t make sense, so he decided to pursue a potential partnership. “I initially approached Sage from a corporate development perspective,” noted O’Carroll.

Plan for 2022: GTM with Sage, Get $130m in Funding

After clearing the cap table, CEO O’Carroll’s most significant concern was that the company “ran the risk of winning the battle but losing the war.” His 2022 plan was to go to market with strategic investor partner Sage to get to $100m, then get another round of funding to accelerate growth. Instead, things took an unexpected turn that led to the Sage acquisition.

4 Private Equity Firms Battle for Competitor in July 2021

According to O’Carroll, a UK competitor of BrightPearl went looking for funds in July 2021. Four large private equity firms became interested as they competed for the UK company. Each private equity firm spent $250-400,000 to reseach the market, interview customers, and validate the opportunity. All discovered that BrightPearl was the leading solution in the market. The competitor selected one PE firm, and the other three began making proactive offers to buy BrightPearl.

BrightPearl Forms Subcommittee to Manage Opportunities

O’Carroll explained that BrightPearl immediately formed a subcommittee led by Chairman Maurice Helfgott and their banking contact to field inbounds and direct them to the bank.

Sage Fills Retail Gap for $360m

Because Sage had no sector-specific solution for retail, the BrightPearl acquisition made a lot of sense, and Sage didn’t want it to go to a competitor, according to O’Carroll. He added that Sage plans to integrate the retail-centric solution into the Intacct ecosystem. Sage acquired the outstanding 83% of BrightPearl in the acquisition.

Accelerated Value Creation of 11x

Latka showed his enthusiasm for O’Connell’s accelerated value creation. “You bought $4mm ARR at 3X (Inventory Planner) then sold it a year later for 11X,” Latka reiterated. In that same year, Latka noted, you grew BrightPearl organically from $18m to $25m, then sold to Sage for $360m. O’Carroll wryly noted that it was the perfect storm of opportunity that BrightPearl could capitalize on.

Making a $30m Machine Relevant Inside a Massive $2.3B Machine

CEO O’Carroll describes his next steps as helping the BrightPearl team “land and expand” their pad within the big company. “While at Symantec, I focused on the land and expand. I oversaw 7 acquisitions that had to be integrated into the mothership,” quipped O’Carroll. “Small companies make decisions fast with data and instinct. It’s different when you plug into larger organizations,” he added. His mission is to make BrightPearl relevant inside the Sage system.

Continue to Accelerate 60-80% Growth

Access to the Sage distribution network excites CEO O’Carroll, as he sets his sights on 60-80% growth going forward. “The market penetration is still under 4%,” he explained. “We have a huge potential to bring a solution to customers and give employees the opportunity for career development that they really did earn,” he added.

Fast Five with CEO Derek O’Carroll

BrightPearl CEO Derek O’Carroll shared the book Breath: The New Science of a Lost Art by James Nestor as his most recent favorite book. He said it helps make decisions in a busy world. Derek’s CEO to follow is Frank Slootman of Snowflake Computing, who he believes is doing amazing things. Derek selected Microsoft Teams as his online tool of choice, noting that it’s newly innovated and “really good.” Derek still gets 8-9 hours of sleep per night. He’s 54, married with two children. Derek wishes he could have told his 20-year-old self not to party so much. “I partied too much. I should have been head-down and working,” he lamented.

Tags: SaaS