One meeting set in motion negotiations between Mr Yum and me&u, creating a global market leader in its category. Innovation, customer-centricity and robust support systems helped the group successfully merge governance and culture.
Famed for their classic Italian fare, Justin Hemmes’ Totti’s upmarket eateries have grown to become an institution in Australia’s culinary scene. In February 2023, one of the restaurant group’s Sydney haunts played host to an intimate dinner that brought together for the first time the founders of the nation’s largest ordering and payments platforms for the hospitality industry.
Until that evening, entrepreneur Kim Teo and her husband and business partner, Adrian Osman — founders of the Melbourne-based QR code menu ordering platform Mr Yum — had never seen the point of meeting with their arch-rival, Stevan Premutico. The Sydney-based Premutico had founded his own electronic on-table ordering platform, me&u, in 2019, after making millions from selling his Dimmi (The Fork) online restaurant reservation group to Tripadvisor, the world’s largest travel platform.
Premutico brought along to dinner the me&u CEO, former Trafalgar Tours, Contiki and Virgin Group executive Katrina Barry.
“I liked Stevan and Katrina a lot more after that dinner,” Teo now says of the evening, which turned into a three hour-plus affair. “You make up stories about them because you always tend to demonise your competitors in business. You tell yourself a bunch of lies about what they are like. I remember walking away thinking how much I had enjoyed the time with them.”
The meeting would set in motion negotiations, which ended late last year, for a merger between the two groups, creating a global market leader in its category, processing over $2b in dining transactions annually. The deal was a pivotal moment in the evolution of the sales and marketing tools sector for the hospitality industry, ending a four-year rivalry that transformed the competitive dynamics of the sector.
Doing the deal
Under the leadership of Teo, the CEO of the merged firm — now known as me&u — the deal was navigated with a vision of innovation, customer-centricity and robust support systems. It was also supported by an eclectic group of big-name shareholders.
Mr Yum was backed by global hedge and venture-capital fund Tiger Global, AirTree Capital, Atlassian co-founder Scott Farquhar’s Skip Capital, Kogan chief Ruslan Kogan, Australian NBA star Patty Mills, Grammy Award-winning artists Rüfüs Du Sol and even Tennis Australia’s Wildcard Ventures.
The me&u investors included hospitality entrepreneur Justin Hemmes, ASX-listed Tyro Payments, celebrity chef Neil Perry and Business Council of Australia president Tim Reed GAICD.
Teo says the real trigger for the merger was the overseas expansion strategies of both firms. They had, coincidentally, picked the same markets in the UK and North America. At one point, during different periods, they even both took space in the same co-working hub in Austin, Texas. “It became clear to us there were two Aussie businesses, which had built the best products in the world, and had somehow chosen the same locations to be based offshore. The irony of two businesses fighting for opportunities in the US and UK was a real ‘what are we doing’ moment,” she says.
Importantly, the deal would not have happened without the founders being actively involved in the negotiations. “In a company that is founder-led, or where the founder remains heavily involved as Stevan was, the thing that gets in the way of these transactions is emotion and ego,” says Teo. “On paper, it makes a lot of sense, especially from the revenue and cost perspective, but it can feel like you’re giving a part of your baby away. The biggest thing that knocks deals over is not being able to agree on the leadership. Adrian and I made it clear in December 2022 that we wanted to continue running the business. So getting that conversation early and getting alignment from Stevan that this would be OK was crucial.”
Teo adds that even with shareholder backing, if the founders don’t want to get it done, it can fall short. “By the time of that February dinner, we already had a lot of shareholder support for the transaction. We just needed to get together, face- to-face, and put the negotiation tactics away. If the intent from the founders doesn’t start at a high level, transactions like this fall away quite quickly.”
The money trail
Mr Yum had just 12 staff members before the onset of COVID-19, but its growth exploded during and in the wake of the pandemic and in 2021, it raised US$65m in fresh capital, including maiden support from Tiger Global.
Just a year later, the firm was cutting staff. One in five were let go in August 2022, which Teo claimed at the time would “extend our runway while capital markets remain uncertain”. Nine months later, another 40 staff were made redundant. Teo then said reaching profitability had become the primary goal of the business.
Their arch-rival was not immune to the chill winds sweeping venture capital markets, either. In December 2022, me&u quietly raised $30m in a series-C round led by Acorn Capital, but only after cutting 20 jobs. In April 2022, Barry publicly imposed a profitability deadline on the business.
“In moments, it was really hard, but overall, in hindsight, it needed to happen,” says Teo. “Not that valuations had to crash, but the way we were as a tech industry, growth at all costs wasn’t sustainable. The industry needed a huge wake-up and the way we were spending essentially free money was not sustainable. So, it has made our business better. We’re operating like a sustainable business should, not the way we were in 2021. It was too easy to raise money at crazy valuations.”
The advent of 2023 brought a personal delight for Teo and Osman — their first daughter, Harper, was born. Thankfully, by having a leadership team that had remained intact for two years, they had plenty of support. They also had an actively engaged board willing to get its hands dirty.
“Harper arrived three and a half weeks early,” says Teo. “The deal closed around the same time. I remember I went on a call with my board a day or two after we got home from hospital. All of the directors were, ‘What can we do to lean in to get this over the line?’ Each of them took the lead on a different challenge and became quite hands-on and operational for a period of time.”
Chair of the merged group, former me&u chair Damian Smith GAICD notes the two boards “rolled their sleeves up” to help complete the deal, highlighting how pivotal it is for directors to understand and oversee the complexities of a merger to achieve a harmonious, productive union.
Getting governance right
Premutico now sits on the board of the merged group as a non-executive director.
“We’ve always been conscious about the line between management and the board, but in an early-stage environment, that will always be more blurry than in a large public company,” says Smith.
What has been critical in the integration, he says, has been a clear understanding of a small number of objectives for the merger. “There was an absolute recognition it would allow us to unlock significant cash through operating cost improvements and delivering synergies. The business moved promptly on the first stage of that. That is complete. The second stage is about product integration. There has been absolute clarity around the metrics we’ve established for customer retention and revenue growth this calendar year, alongside unlocking synergies. There are also clear metrics around staff satisfaction and engagement. We look at that every month at board level.”
In establishing the revised leadership structure, Teo says the senior leadership of both groups went through a selection process before other staff. Where there were similar roles, interviews were conducted before a balanced panel, which sometimes included Smith.
The same process continued with employees across the merged firm. Outside of product roles, there is essentially a 50-50 split of Mr Yum and me&u employees in the new business.
“It was a remarkably clear process,” says Smith. “I was very impressed with the calibre of leaders from both sides and we ended up with an appropriate blend. No-one was seeking a ratio and no-one measured it. The speed with which people have stopped talking about their former employer has impressed me.”
Walking the board walk
As a merged entity operating under the rejuvenated me&u brand, the December-January holiday season served not just as a test of operational efficiency and customer satisfaction for the integrated team, but also presented a significant governance issue for the directors.
According to Smith, it was crucial for them to closely monitor the merger’s execution during such a high-stakes period, ensuring that the strategic integration of resources, cultures and technologies was conducted effectively.
“We’ve been disciplined about knowing the objectives and sticking to them,” he says. “At the board, we have had what I call very supportive scepticism — we support the management 100 per cent, but recognise that integration projects are incredibly hard. If we start with that as the assumption, we can predict problems earlier. The board will be heavily engaged from here with clear reporting metrics for management.”
Smith stresses the board had been clear to look for prospective and leading indicators, “not rear-vision metrics”. He also notes the board was upfront with investors at the outset about “what we were focused on and, most importantly, the things we were not focusing on in the first year. The latter was really important.”
He says management is intensely focused on customer service and expects that to continue. “I’m on some of the roadshow meetings with key customers and am confident the board is getting the appropriate view of the customer and any of their concerns.”
In terms of employees, Smith says he is keen to ensure senior leaders at the top levels outside the board continue presenting to the board. “We also have a strong relationship with our head of people and culture to ensure she is completely empowered to report to the board,” he says. “These systems will ensure the board never gets too far away from the business, while empowering Kim to manage the team.”
When cultures combine
While mergers can often lead to cultural clashes, Teo already sees strong evidence that the distinct cultures of Mr Yum and me&u are being integrated to create a cohesive, unified company culture.
“The biggest concerns around cultural clashes come where people hang onto the old ways, thinking they are better,” she says. “Our teams have been great so far in sharing ideas, picking the best way to do something, trying to make it better and moving forward. There is a consistent and concerted effort to pick the best option. We aren’t keeping a tally about which decision went our way and which went their way. It’s about making a quick decision and moving on.”
The merged group now has an integration workstream steering committee charged with maintaining financial and operational transparency with all stakeholders, including employees, customers and investors. Board meetings are also now monthly, while new budgets and financial targets were set last January.
“It is quite a lot of work to combine financial and operational metrics,” says Teo. “Different stakeholders like customers and employees have different priorities to investors. We have tried to make sure we’ve prioritised the right things for the right stakeholders. Change can be difficult for employees and thankfully we have team members who are quite resilient when it comes to change. The number-one thing is over-communicating. We have regular ‘Ask us anything’ sessions in the diary. We have had good culture carriers from both teams who have told us if they felt people were not hearing enough. That has been very important.”
Future focus
Mergers often lead to a reassessment of strategic priorities and Teo says the merged group is not missing the opportunity to stop and think about the way they do things.
“The real focus at the moment is on not slowing down our work on innovation,” she says. “International growth is still a real focus. me&u has built an awesome flex product in America, which offers open tabs and allows waiting staff to add to those tabs. It has been amazing to see our team from Mr Yum getting excited about having a great product to sell in the US.”
While she expects the international business of the merged firm will be as large as the local arm one day, Teo stresses it will always have a big base at home in Australia. Reflecting on the lessons of the merger process, she says speed is paramount. Decisions don’t need to be perfect — a near-enough call is better than not making one, as teams are hungry for clarity from their leaders when experiencing times of change.
“From a shareholder expectation point of view, make sure your financial models are conservative,” says Teo. “It is easy to overstate things going into a deal. It is easy for investment bankers to build a really shiny model, but if you’re the person delivering it, ensure it is more conservative. Essentially, you want to set yourself up for success.”
This article first appeared under the headline 'Guess who's coming to dinner?’ in the May 2024 issue of Company Director magazine.
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