Founded in 2015 by Mark Catherall, Oliver Watkins and James Thurley, Canopy Simulations is the only commercial simulation supplier in Formula One, and the leading supplier to Formula E. Its motorsport platform provides lap time simulation, vehicle modelling and setup exploration in record time, using the power of cloud computing and its proprietary colocation server.

Canopy's simulation software had proven itself in the world of motorsport and was showing significant growth in customer subscriptions. However, its unique capability for optimising dynamic systems went far beyond motorsport; with one example being sailing where it was utilised in both the 35th and 36th America’s Cup campaigns.

Shaw & Co was tasked with finding a buyer that would present new opportunities and technical challenges for both the software and its founders.

Through a full marketing process that garnered interest from a number of major businesses, French tyre manufacture Michelin emerged as the ideal home for Canopy thanks not only to its keen interest in motorsport, but also its many wider initiatives that could benefit from Canopy’s advanced simulation technology.

We caught up with Oliver Watkins to see how the deal came together and What Happened Next…

Tell us a bit about Canopy and how it developed…

Canopy was originally founded by Mark, James and myself as we'd all worked together at McLaren Racing in the Formula One team. In F1 you have something like ten teams, all of whom have a team of people writing simulation software to find out how fast your car is going to go around whatever track.

In the highly secretive world of F1, no-one outside of the team ever sees the simulations or their outputs. McLaren made a couple of disastrous attempts to commercialise the software we were writing in-house, but it was always clear from the outset that these were doomed to failure. However, after we left McLaren we looked again at whether, with a really focussed effort, it was a technology that could be commercialised. Could we, in effect, write it once and then sell it as many times?

Initially, we were actually unsure as to where it could go. We thought that if we could pick up a few client teams it could become an interesting little business for a while. Of course, it ended up being far more successful than we ever thought possible, and by the time we sold the business we had something like 50 racing teams subscribing to the platform. It was wildly successful and certainly far beyond our early imaginings.

In terms of people it had started off with just the three of us and we made a conscious decision to grow organically, both in terms of our client roster and the people on our team. We only hired when really needed to, and even by the end we had a tight team of just 13.

When and how did you decide the right time to really move towards selling the business?

I think it's something that we had had in mind from the off but our plans were very fluid. Nevertheless, there came a point around about 2022 - when the business had grown and was self-sustaining, profitable and successful - where we thought we’d really established a stable enterprise and that it was time to hand it over to someone else to take it even further.

Of course, I think it's fair to say we really didn't know or understand the process of how to sell a business, other than hoping someone pops out of the woodwork to snap you up. We were lucky enough to be introduced to Shaw & Co by one of its former clients who encouraged us to get in touch.

The founding and development of Canopy was characterised, at various points, by some outrageously good luck and we were again very fortunate to be directed towards Shaw & Co. We’d spoken to some other advisors who just weren’t aligned with us and the sort of sale we were looking at. Shaw & Co understood who we were, what we wanted to do, and how we wanted to do it.

What did you learn from the actual process?

It’s really interesting as we were just engineers and had spent the best part of a decade at Canopy intently focussed on engineering. We’d never taken any finance or investment into the company so this was our first brush with the corporate finance world. There was a lot to learn.

Perhaps the first thing that took us by surprise was Shaw & Co’s development of an astonishingly long list of potential acquirers. We never thought the list of companies who could potentially buy us would be that long. We thought it would be a few specific firms but it was a huge list with a number of companies that we’d never have thought of.

Shaw & Co then put together the information memorandum and teaser and it was fascinating to see who responded and what they said. The list was whittled down and we seriously engaged with about seven or eight before we had five genuine offers or expressions of interest.

For us it was relatively straightforward as we were in no rush. Failing to sell the business would not have been a disastrous outcome as Canopy was profitable and it paid our salaries. This meant that when offers came in we could be quite choosy with regards to terms and price.

What had been useful was the fact that we really thought about what we wanted from the process – a fair deal, a decent multiple of revenue, and that any earnout conditions should not be onerous or extremely difficult to achieve or to hint at conditions of extreme stress in the future!

We’d also already thought about due diligence. Very early on in the business we got our legal requirements, structure of the company, ownership of shares etc in order. At the time it seemed crazy to be spending money to protect IP that didn’t exist, or to protect ownership of a product that didn’t make any revenue or have any clients, but that paid us back massively when we came to due diligence. The legal and financial paperwork required was trivial by comparison (although it’s perhaps easy for me to say that, having had very little to do with it!).

From my own perspective, I was one of the technical guys, so having to turn over my code to an acknowledged expert in the field as part of the process was quite nerve wracking. I've read a lot of other people's code and sometimes you think: “This guy really knows what he's doing” and other times you think “My God. This is a horrible mess!” You just wonder if they're going to turn around and declare, “Your output of the last eight years is horrible and we think it's a load of crap”.

The stress of this situation wasn’t helped by the fact that we were on a family holiday at the time and my poor wife had to put up with me obsessively checking my emails until the technical due diligence report turned up and gave us a clean bill of health.

Throughout due diligence, you don't know if there's just one little thing you've overlooked somewhere, or one clause in one contract with one client, that could bring the whole thing crashing down.

How were those last few days before you signed the deal?

Nerve wracking and anxious, largely because you're in sitting in silence. Shaw & Co were handling things on our behalf with Michelin, their lawyers and our lawyers so we were just waiting for a call and a stack of papers to sign.

Rather than being like a glorious victory in a tight fought race the end of the process was much more like a marathon where you know from a few miles out that you’re going to finish but that it’s also going to hurt a lot to get there. There’s no wild celebration when you get to the end, you’re just really really tired!

What did you do next?

Looking back at it, it seems completely nuts but I’d entered an ultra marathon many months previously and thought it’d be great as the deal would be done and I could just focus on it as part of recovering from the process. Unfortunately, the deal timings kept sliding so, just one week after completion, I found myself going off to North Wales to run 100km in the mountains. It seemed surprising at the time, but looking back I don’t think I should have been surprised that it was a complete disaster!

However, when the deal had been signed we had gone out for dinner with Michelin in London, and that was really nice because we got the whole team there - everyone who contributed. There were also some of the minority shareholders were there and they’d received a load of money so that was really great. And then we really just did nothing for a few days!

So how was the next stage, the transition to being part of a global entity?

I think Michelin handled it really well. There was no ‘big bang’ with a new management team charging around telling everyone what to do which was obviously very sensible on their part. In the very beginning, things carried on almost exactly as they had been before.

In terms of the operation of the business, we began a series of meetings with the leadership team within Michelin Motorsport and the technical team before we started to fire up new projects in order to align what we were doing with what Michelin wanted to get out of it.

There then began a gradual process by which we would deliver these technical projects, but also that the three founders would start to step back from leadership positions into a somewhat more advisory role. But I think it's really to Michelin’s credit that it was done in a in a quite a gradual way so Canopy was never heavily disrupted. Our clients didn't notice any big changes and that enabled Canopy to continue being really successful which is great from the perspective of a seller as someone else is now in charge of your life’s work.

For you personally, what was it like becoming an employee once more?

It was pretty good. We remained part of the leadership team and still retained a certain layer of autonomy but you also get drawn into the operational structure of this absolute behemoth that's acquired you. But, again, Michelin handled this really well. We agreed on a plan, they listened to our advice and our expertise and then we put it into practice. At no point it did it feel like that you’re back in a cubicle being told what to do. It was a great environment and they were a very friendly and smart team.

Is there any other advice you’d business owners looking to sell their business?

I’m reminded of the old Irish joke about the chap who says to a local in the countryside: “How do I get to Dublin?” and the response is “Well, I wouldn’t start from here.”

One of the things which paid us back most spectacularly was this whole business of getting all the paperwork done and having all of the legal structures we needed in place right from the outset. If you're thinking of selling a business then definitely get in touch with a corporate finance advisor as they’ll tell you exactly what you need to do to prepare. Trying to get all of it done during an already fraught sales process would be extraordinarily stressful.

It's also important to recognise the importance of good advice. We just didn't have the skills or the knowledge to tackle that sales process without a lot of external help.

How important was Shaw & Co’s advice?

Massively important. One of the keys to unlocking the sales process was us recognising that were a host of things we didn’t know. Getting Shaw & Co onboard to advise us and tell us some home truths was integral to the process. An advisor can also say things to potential acquirors that you cannot say yourself, especially to people with whom you could be working with in the future. Shaw & Co’s fees were paid back many many times over.

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