Business

TOTVS's CEO: M&A strategy is an important focus of the business

According to Statista, the SaaS sector in Latin America is expected to reach a market value of $5.3 billion dollars in 2022. TOTVS' CEO, Dennis Herszkowicz, talked to LABS about this potential

TOTVS' CEO, Dennis Herszkowicz. Photo: TOTVS/Courtesy
  • RD Station is a Brazilian marketing automation SaaS platform with more than 25,000 business customers in 25 countries;
  • According to Statista, the SaaS sector in Latin America was expected to reach a market value of $5.3 billion in 2022.

Months after losing the battle to acquire the Brazilian retail software Linx to Stone, TOTVS, the largest retail management platform in Brazil, announced this week that it has acquired 92% of the digital marketing SaaS platform RD Station‘s share capital for BRL 1.8 billion. 

RD Station is a Brazilian marketing automation SaaS platform with more than 25,000 business customers in 25 countries. In talks with LABS, TOTVS’ CEO, Dennis Herszkowicz, stated that the firm wants to gain scale through mergers and acquisitions.

This big pairing is a formidable deal for the SaaS ecosystem in Latin America, which exit ended up valuing RD at BRL 2 billion. As reported by Bexs, the SaaS market in Latin America is a complex one, since many of these companies have no offices locally and hence they offer international credit cards or invoice payments as the payment methods for their services, which is a major obstacle for many companies in Brazil. “Due to the sharp foreign exchange variation and all the taxes and charges, the purchase ends up more expensive after currency conversion,” it said. 

READ ALSO: Brazilian TOTVS acquires 92% of RD Station’s share capital for a BRL 1.8 billion deal

Jesús Hoyos, customer engagement and Latin America advisory services analyst on CX2advisory, on a LinkedIn post said that to operate in Latin America, SaaS companies need to understand that each country has a different set of laws for selling SaaS solutions with different tax structures that will impact pricing. “Fluctuations in the market, exchange rates, invoice terms, and purchasing department policies will also demand different billing strategies from local billing via resellers or direct transfers.” 

Also, local teams need to sell and build relationships, and in Latin America it can’t be built from far away. Marketing content, for example, needs to be localized. That is why RD Station acquisition “is unprecedented in the global market,” according to Herszkowicz. 

READ ALSO: Brazilian SaaS platform RD Station announces ‘shopping spree’ for 2021: BRL 100 million to R&D and acquisitions

If the amount of the deal is huge, it is paired with the market prospects. According to Statista, the SaaS sector in Latin America is expected to reach a market value of $5.3 billion in 2022, up from approximately $1.5 billion in 2017. 

$5.3 billion

That’s what Statista estimates the SaaS sector in Latin America is expected to reach in 2020

“The union validates the potential of the Latin American software market where companies of all sizes have an urgent need to modernize their operations and use new technology to fight inefficiencies and accelerate growth,” added Manoel Lemos, managing partner at Redpoint eventures, RD Station’s investor.

READ ALSO: Brazilian retail platform Linx says it is still analyzing rival TOTVS’s offer

The following is Herszkowicz’s interview with LABS.

LABS – Does TOTVS have enough cash for the transaction with RD? Why didn’t you acquire 100% of the shares?

TOTVS does not comment on the operation’s funding structure. The control of 92% of RD’s share capital by TOTVS is related to the complexity of the negotiation. RD Station had widespread shareholding control and this deal involved the withdrawal of all funds from the company, in addition to the partial purchase of the participation of the founding partners.

How will the two large companies operate, how will they work going forward?

We will maintain the autonomy of operations. In its vast experience with M&A, TOTVS has learned to adjust its modus operandi and adapt it to the specific characteristics of each transaction, always respecting the governance of a company listed on B3 (Brazilian stock exchange).

In the case of the acquisition of RD, we focus on maintaining the autonomy of operations, valuing the company’s know-how. The entire negotiation took into account the RD’s portfolio and operational capacity, and we will continue to value this throughout the process.

In a second step, we will look at the overlapping areas to adjust them, but the focus at the beginning is on maintaining operations and, consequently, the success and opportunities on both sides.

What does TOTVS gain from this acquisition? What are the plans? Is it just expanding the number of customers, the portfolio, or are you also looking at other verticals that you don’t work with today?

This is a movement for the unique expansion of TOTVS ‘capabilities in the Business Performance segment. With the acquisition of RD, TOTVS takes a significant step in building an even bigger ecosystem of B2B technologies, something that is incomparable with what exists not only in Brazil but worldwide. 

We will strengthen our relationship with customers, supporting management, but also the growth strategy – and this is one of the points of synergy between TOTVS and RD. Also, it reinforces the growth strategy developed through three main pillars: Management, Techfin, and Business Performance.

Both the platform and the RD ecosystem have a strong connection with the management, integrating back-office, sales origination, and conversion into cash. Thus, with this deal, we will strongly boost the innovations we take to the back-office, transforming the way companies sell, understand, and relate to their consumers.

What does a company of this size mean for the Latin American SaaS market?

As I mentioned in the previous answer, the acquisition of RD by TOTVS is unprecedented in the global market. We are honored with the opportunity to start offering the most complete portfolio in the global SaaS market and are excited to continue offering transformative solutions to our customers in 12 sectors of the economy, such as manufacturing, retail, agribusiness, logistics, health, services, among others.

Are you looking at other acquisitions ahead?

The M&A strategy is and will continue to be an important focus for TOTVS. The company has a history of more than 40 mergers and acquisitions in the Brazilian market and, with the latest follow-on, carried out in 2019, more than BRL 1 billion was raised to further speed up this strategy. 

Growth through mergers and acquisitions is based on four pillars: 1 – reinforcing the company’s core business represented by ERP; 2 – deepen participation in key segments for the company; 3 – strengthen the capacity of cross-sell offers; 4 – expand the capacity to operate in new markets, focusing on Techfin and Business Performance.

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