When Ryan Tyler, not yet 40 years old, landed his first CFO job in 2020, he’d already been a key player in more than 20 M&A transactions for previous employers.
It’s not very surprising, then, that much of his time since joining AeroClean — a maker of air sanitation devices with a focus on the health care industry — has been spent working on more such deals.
Many young companies face the decision of “build, buy, or partner” when it comes to growth strategy. For AeroClean, which took the bold step of going public as a pre-revenue company in late 2021, taking the time to build its own technology to accommodate rapid growth was out of the question.
“The indoor air quality (IAQ) space is competitive and crowded, increasing the urgency to gain market share,” says Tyler. “This environment makes consolidation in the form of M&A more attractive.”
Secondly, the IAQ sector has never been more top-of-mind for government leaders. Regulatory bodies are working to develop and codify IAQ standards with the White House and Congress, which through public funding initiatives such as the American Rescue Plan have earmarked more than $500 billion toward improving indoor air quality and ventilation.
Even before going public, AeroClean and Tyler had their eyes on Molekule, a more developed air purification company that had focused on the consumer and e-commerce markets, while AeroClean had entered the industry through the commercial/B2B market.
The two companies in January completed an all-stock merger under which AeroClean shareholders hold 50.5% of the outstanding common stock in the combined company, while Molekule stockholders own 49.5%. With the deal, Molekule is now publicly held.
The combined company would have generated fiscal year 2022 revenue of approximately $48 million on a pro forma basis, according to Molekule. Almost all of that was from legacy Molekule.
However, as AeroClean had raised $25 million in its IPO and $15 million more through a private placement in July 2022, its market value was higher. Thus, in addition to the slightly larger ownership share for AeroClean investors, CEO Jason DiBona and CFO Tyler occupy the same roles with the merged company, now called Molekule Group.
Now, Molekule is working to close another stock merger, with Aura Air, an Israel-based publicly held provider of wellness products and solutions, whose technology and position in the government market are attractive. In that deal, anticipated to close in the second half of this year, Aura Air stockholders are expected to receive 10% of Molekule Group shares.
Tyler recently spoke about the deals and his experience-based perceptions of the M&A space.
This interview has been edited for brevity and clarity.
RYAN TYLER: The advent of special purpose acquisition companies (SPACs), what we call “blank check companies,” has really opened the door for more companies to go public pre-revenue. We didn’t use a SPAC, but they’ve given investors a different appetite for such companies.
Going public opened doors for us in M&A. Some developmental-stage companies will see our valuation and start thinking about how they could be part of [a mutually beneficial deal]. It provides the capital structure you need.
TYLER: Molekule had invested a lot of money in its brand and had around 400,000 installed devices. So there was an established customer base and other people who were aware of the product, whereas AeroClean was just at the beginning of its journey; I was just the company’s second employee in 2020.
There would have been a lot of execution risk in hiring salespeople, building sales teams, and hiring engineers, developers, and back-office support from the ground up. You may hire the wrong people or pursue the wrong strategy. But if you find a partner that already has all of that built, you avoid some of that execution risk.
We believe that with Molekule’s position in the consumer market, and AeroClean’s focus on the commercial/B2B market, we have the go-to-market verticals, strategy, products, and services to allow us to go after the entire market at once.
TYLER: For one thing, they were number one in the government market. They have a great process for going after governments and schools.
Second, they have a number of valuable partnerships and other distribution channels outside of the public sector. For example, they have a partnership with Delos, which created the WELL standard for healthy buildings. They have another partnership with Henry Schein in the dental market, as well as a foot in the door with the Detroit Pistons, so they’re going after the sports and entertainment markets.
But most important is their dashboard and software solution that allows a company to monitor, control, and maintain all of its devices remotely across its portfolio from a single location. An enterprise might deploy hundreds or thousands of these devices, and they need to be managed.
TYLER: Agreeing to the price and the other terms of the deal is obviously a critical moment, and each side wants to believe it got its best deal. But in reality, for it to be a fair deal both sides should feel they didn’t quite get everything they wanted.
TYLER: If I get everything I want on the purchase side, the seller is probably not getting their top value. And if I’m paying everything the seller wants, I might feel like I’m overpaying. You have to meet somewhere in the middle.
TYLER: There’s almost always at least one significant issue that pops up while negotiating the purchase and sale agreement. Both parties have to remain reasonable and pragmatic. You don’t want anyone’s feelings to be hurt so you don’t feel good about working together.
You know, a lot of potential [M&A partners] can have the right products and services to complement your own, but for the transaction to work there has to be an alignment of the management teams on issues around employees and culture. If teams can’t gel, it’s probably going to be a failed transaction.
TYLER: I think it’s important to get out of the data room when you’re doing an acquisition. You’re looking at a lot of files, a lot of data, but it’s vitally important to get out and visit with the management team. You should visit the satellite locations too and get a feel for the entire culture.
It’s like selling a home. At a showing, you’re seeing the best the house has to offer. Translating that to an acquiring company’s situation, on the first visit a lot can look right. But as you get under the hood and meet different levels of people throughout the organization, you get a feel for how they’re set up, how they operate, what their vision is, and whether there’s a good mutual fit and alignment.
TYLER: I’d say the integration piece. It starts right after signing the purchase and sale agreement when the respective companies start trying to run a business together and get all of their people, policies, and procedures integrated and aligned. The people part is the hardest to align.
But we had very little duplication of roles. AeroClean had only about 15 people. In scenarios where you’re merging two like-sized companies, inevitably a synergy evaluation must be done, and you have to say “unfortunately, part of the benefit of doing this transaction is to take out costs.”
We didn’t have to deal with that. On the other hand, we’re going to be in three very different time zones: California, Florida, and Israel.
TYLER: In the near future, we could live in a world where businesses have an “air quality score” similar to restaurant inspection and safety scores. Customers may be able to check a store’s air quality before stopping by, or businesses could be required to meet certain indoor air quality standards.
We believe this moment is just the beginning of adoption at scale, and we want to be the first to provide a comprehensive solution to monitor, mitigate, and report on indoor air quality.
We want to align the most advanced technologies, products, and solutions to help customers meet current and future IAQ guidelines enterprise-wide, while also achieving their sustainability and ESG objectives.