After building their own companies, the entrepreneurs behind Toronto’s PlanetCorp have turned their sights to a model of acquiring a portfolio of tech firms in the artificial intelligence (AI), 5G, digital transformation, and blockchain sectors.
Founded in 2020 by CEO Siva Vakalapudi, PlanetCorp is a Toronto-based holding company building a merger and acquisition (M&A)-focused business.
Amid a recent surge in M&A activity in Canada’s tech sector during COVID-19, PlanetCorp’s team sees a path to growth through merging with and acquiring other firms, and working closely with the companies to help them scale.
“For us, it was really about, where do we believe the market’s headed.”
-Mudit Rawat, PlanetCorp CRO
In February, PlanetCorp bought its third company, Toronto’s Nugget.ai, an AI “people analytics” platform that helps companies hire and train talent. The financial terms of the deal were not disclosed. PlanetCorp’s two other acquisitions include Toronto-based firms Planet4IT and e-Cubicle Partners.
“For us, it was really about, where do we believe the market’s headed,” Mudit Rawat, PlanetCorp’s CRO, said in an interview. “We were thinking ahead and going, ‘well, what do the next 10 years look like, and what are the technologies that will really change the way companies do business and people interact with each other.’”
“Our thesis really is that the world of 5G, AI, and blockchain is going to be huge in the next five to 10 years,” said Rawat. “We want to acquire interesting companies that are building mostly enterprise tools for that segment.”
PlanetCorp currently consists of a team of three people based in Toronto. The Canadian holding firm invests in tech companies building software solutions and providing professional services for enterprise and mid-market customers.
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The firm’s founder, Vakalapudi, is a serial entrepreneur with over 20 years of business and technology management experience. Vakalapudi is also the founder and CEO of Indian adtech company Citimedia, a 5G-enabled digital advertising platform that services India’s railway transit system. At PlanetCorp, Vakalapudi oversees the management of the company’s subsidiaries and spearheads its AI and cloud transformation efforts.
As CRO, Rawat has been tasked with leading PlanetCorp’s M&A practice and acting as fractional COO for its portfolio companies. Prior to joining PlanetCorp, Rawat founded Toronto-based grocery delivery startup Urbery and consulting firm Nexus Commerce, which was focused on helping brand and innovation teams develop, deploy, and scale their e-commerce strategies. Nexus was sold to Tompkins International in 2019.
Rawat is also an active angel investor, being an early investor in Toronto-based digital logistics startup Swyft, which recently closed a $22 million Series A led by Inovia and Forerunner Ventures.
From operator to holding company
“We started our journey with acquiring a couple of professional services companies because we want to understand how M&As work,” said Rawat. “We’re not M&A people, we’re mostly entrepreneurs and operators who have been … either building or selling our company. So, we thought, why don’t we start this holding company.”
“Because of COVID, there is this weird phenomenon that’s happening [where] a lot of capital exists in the market but people panic and they decide not to deploy it,” said Rawat.
“What’s happening is, a bunch of operators … who have had experience building companies … have become VCs or switched over to the investment side.”
Rawat argued this has created an opportunity for “quality, experienced operators to get access to capital and then do interesting things with it,” such as launch a company, a fund, or a holding company, as PlanetCorp did.
PlanetCorp is deploying a similar model to Victoria-based WeCommerce, a TSXV-listed holding company focused on investing in, buying, and operating a portfolio of Shopify ecosystem companies. Controlled by Andrew Wilkinson’s Tiny Capital, WeCommerce’s goal is to be “the acquirer of choice in the Shopify partner ecosystem.”
Other Canadian firms in the space include Emerge Commerce, which takes an approach of buying, building, and operating e-commerce brands. Both WeCommerce and Emerge Commerce went public on the TSXV earlier this year via reverse takeovers.
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Like PlanetCorp, Emerge Commerce and WeCommerce are run by operators that have taken their previous experience building companies and applied it to the holding company investment model.
“I think what’s happening is, a bunch of operators … who have had experience building companies, failing, succeeding, doing mediocre stuff in some of them … have become VCs or switched over to the investment side,” said Rawat. Rawat sees the holding company model as a mix of investing and operating. “The majority of our focus is M&A, but we’ll also get our hands dirty.”
Since acquiring Nugget.ai, Rawat said PlanetCorp has integrated the company into its operating model and helped it launch a SaaS product called Super Talent. To support its goal of becoming “the leader in helping companies understand their employees better,” Rawat said Nugget.ai is in the process of launching bots on communications platforms like Slack and Microsoft Teams to help employers gain insight into employee well-being, productivity, engagement, and satisfaction.
PlanetCorp targets companies with a strong balance sheet, at least $2 million in annual gross revenue and a consistent gross margin of at least 35 percent. The firm seeks companies with an established customer base, including operations of at least three years, a diverse customer base, and a high retention rate.
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Rawat said PlanetCorp’s current portfolio consists entirely of cash-positive companies. PlanetCorp takes some of the cash generated by these firms and redeploys it in other M&A activities. The holding firm typically does not take over the day-to-day management of its portfolio companies, opting instead to support them with capital allocation, sales scaling, and back-office support.
PlanetCorp’s funding, to date, comes from private backers and capital from its cash-generating portfolio companies. Rawat said some of PlanetCorp’s backers, who he declined to disclose, are high-net-worth individuals and ex-entrepreneurs.
“We’ll slowly start thinking about raising external capital either through a private equity fund route or an RTO or SPAC of some sort,” said Rawat.
If all goes according to plan, PlanetCorp will execute three to five more acquisitions this year. Rawat said the firm is currently conducting due diligence on two more potential acquisition targets.
The Toronto-based holding company views Canada as a starting point. Rawat said that although PlanetCorp is “very focused” on North America right now, the firm expects to have a global focus by the end of 2021.
With files from Meagan Simpson
Image source Unsplash.