400 Acquisitions and a Failed Process: What Happens When You Don't Integrate

Hey, M&A scientists. Before we get started, we just launched the M&A Fundamentals Certification on DealPilot, and I'm really proud of this one. I was personally involved building it out with PhD learning development professionals. It covers the full M&A lifecycle, buy side, sell side, key terminology, and the buyer-led M&A framework. Over 60 templates and artifacts. So you're not just learning concepts, you can actually go execute. This isn't one of those certifications that charges you thousands of dollars to teach you stuff you can find on Wikipedia. This is how I've actually trained people. Practical, comprehensive, and built from real deal experience. It's all part of the M&A Science subscription, and the next certification track is coming up in a couple months. Check it out at mascience.com. All right, let's get into it. Hello, M&A scientists. If you haven't grabbed the State of M&A report from Dealroom yet, it's a good time to check it out. We're 3 months into the year, and this gives you a reality check on what you should be focused on. It's based on input from deal teams across different industries, and it shows the gap between where people think they should spend time versus where the real problems are. If you're trying to set realistic goals or get everyone aligned to what matters, this gives you the data to back it up. Download it for free today at dealroom.net/report or click the link in the show notes. That's dealroom.net/report. Now back to the episode. I'm Kison Patel and you're listening to M&A Science. Where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies, and what actually happened during M&A deals. Hello, M&A scientists. Welcome to the M&A Science Podcast. This show is part of our mission to rethink how M&A is done and build the operating standard for buy-side M&A. That old-school sell-to-let approach, it's dead. Buyer-led M&A is about strategy, alignment, and execution, putting value creation at the center of every deal. So it's not just about closing the deal, it's about making it successful. And that comes from learning from the best who've done it. If you want to go deeper, we got you covered. There's tons of free resources on our website. We got frameworks, guides, tools, all built from real operator experience. We also have the M&A Science membership, which gives you the full system. It gives exclusive frameworks, templates, expert Q&A sessions, direct access to me, and the AI-powered intelligence hub. It's the home of Violet M&A. Find all these resources at mascience.com. It's mascience.com. Let's jump into it. I'm your host, Kison Patel. Today I'm here with Matt James, EVP, CFO, and Chief Acquisition Officer at Oakbridge Insurance. One of the most active roll-up platforms in the insurance distribution space. He's closed 7 deals just this year with another one on the way and has built an integration function that PE buyers are now treating as a differentiator, not an assumption. Matt sits at the intersection of finance, deal execution, and operations in a way that most M&A functions never achieve. At a time when consolidators are getting consolidated and And buyers are scrutinizing integration quality harder than ever. This is a conversation with someone who's built a system from scratch and watched competitors who didn't pay that price go through failed processes as a result. Today, we're going to talk through building a clear framework for how to build integration into your roll-up process from day one, not as a back-office cleanup project, but as a value creation engine that makes your platform more attractive to the next buyer. Matt, how you doing?

Great. Thanks for having me today. I'm excited to join you.

Hey, thanks for taking a break from doing deals to have a conversation with me. Can we kick off with a bit about your background?

I spent the last 20 or so years in and around M&A, either as an investment banker, principal investor, and most recently operator across a host of different industries. But about half that time has been spent in insurance brokerage. Most recently been part of two different PE-backed insurance brokerage buy and build strategies. That includes my current role at Oakbridge Insurance, which I helped co-found in 2020. Coming out of school, early career, I wasn't really seeking an M&A or finance role. I was a history major during undergrad, but landed early career with an evergreen investment vehicle and just fell in love with, I'll say, the action and complexity around M&A. These last two roles where I've been more on the operator side focused on ground floor insurance brokerage strategies, really to build and lead those M&A functions. Those have been particularly interesting. Both I joined early on Oakbridge, I was employee number 1. Prior to that, I was part of the corporate team that came in within the first deal. A lot has evolved recently and the level of sophistication around the space, around quality has increased. And what we've seen recently is compression of multiple arbitrage and that's eliminated a lot of that key historical value creation lever.

How many deals have you done across your career?

Oh, total more than 100. We've done 60 just at OakBridge in the last 5 years and 3 months. We've been quite busy. 12 last year. So about 1 a month is our typical pace. And those vary from larger platform operations, new geographies, new specialties, all the way down to small tuck-in or roll-in deals to our existing platform. So pretty broad spectrum of size and scale, squarely in that middle market space.

Let's talk about the market. It's obviously, we've referenced it, it's changed, it's evolved. Buyers used to ask, can you grow? Now they're asking, how are you growing? What did you actually do with what you bought? When does that shift happen?

That sounds like an obvious question that any buyer would ask, but that level of buyer diligence and deep dive really started to ramp up, I'm going to say 5 or so years ago, right around the time that we formed OakBridge. I will say in the last 12 to 18 months, that's ramped up even more. The diligence processes, we've seen some of those that have broken down over the inability to disaggregate organic growth from inorganic. Today, I think these buyers, which includes us when we're looking at our latest add-ons, they really care about the components of that organic growth much more than they care about ability to prosecute M&A in a roll-up strategy, for example. When you think about the sponsor and investor community, the M&A muscle can definitely be built, but driving organic growth is much, much more difficult for a high-growth acquirer. Disaggregating that organic growth piece for us into a few key dimensions really leads to higher conviction on a transaction, particularly those where we're paying top-of-the-market multiples where there's an expectation that the seller has the culture and infrastructure to drive that organic. In our space, we break that down by line of business, recurring versus non-recurring revenue, specialty and program, region, geography, even all the way down to the individual producer or salesperson level. And that's really critical to proving out that organic growth engine, whether we're the buyer or we're the seller when we go through our periodic recaps events. On top of that disaggregation of those Key KPIs like sales velocity, lost revenue versus lost client count, market drivers that are outside your control around organic growth, like rate increases being passed through by insurance carriers. All of that is becoming much more critical to the diligence process, particularly as these roll-up strategies grow and mature and move up market. For us, it's all about that organic growth piece. Maybe the last piece on diligence on what are you doing with what you bought, It's really around the cross-sell potential. We buy insurance brokers across a lot of different lines of business, a lot of different geographies, and being able to support that cross-sell initiative, that's critical to proving those trackable KPIs, making sure you have a clear and simple incentive compensation structure that rewards that activity of cross-sell. And ours is both cash and equity based. So we're a pretty broad distributed equity model in our business. And then finally, that company-wide dissemination and training on that cross-sell piece, bringing to bear specialty expertise, unique capabilities that we've built internally, and then the right to win across those multiple lines of business is something that buyers care very much about in today's market.

[Speaker:TREY_LOCKERBIE] So one was the organic versus inorganic, that there's a lot more diligence on your actual organic growth, and that this means some real clarity on some KPIs that give you those indicators of how well you're doing organically. And then when you mentioned this cross-sell, which this is the big shift in the last 5 years, you have to have real synergies. You just can't consolidate a bunch of companies, have a high gross revenue that's going up in the right direction, and that's it, and you call it a day.

[Speaker:TREY_LOCKERBIE] Yeah, and it's not just expense synergies anymore. The buyers are focused on driving that organic because when you think about those levers on what builds value across that hold period for a sponsor. You used to get a lot of multiple arbitrage with these deals. You might buy something at 6 or 8 times, you get out for 12 or 14 times. The market is really closed on that. There's a much smaller spread on the multiple arbitrage side. So you're building the majority of the value through that organic growth engine over the hold period. And rightly, that's why sponsors are paying so much attention to this when they go through the diligence process.

So like these cross-sell revenue synergies, you would attribute that as organic growth at the end of the day?

[Speaker:IAN_CASSEL] Yeah. For us, once we bring the acquired business in, their producers work across our broader sales organization and bring their specialties to bear. We are based in the Southeast US, so we have a lot of folks that focus on agribusiness, tourism, hospitality, habitational, all the things that are demographically similar to where we sit. And bringing those across geographies, bringing those subject matter experts in to drive cross-sell across all of our lines of business, as well as product specialty is really critical. And yeah, we absolutely view that as organic growth.

[Speaker:TREY_LOCKERBIE] The other big thing is a lot of scrutiny around how well the business is integrated. Obviously, reference to cost synergies, but then I think there's more to it if, hey, are you just doing some quick cost synergies or is this really integrated and operating as a full unit?

That's absolutely right. We have the benefit of being a relatively new platform, so we were able to set the business up for integration day one. When you look at some of the more mature roll-up strategies that started 10+ years ago, the play then was multiple arbitrage. Aggregate as much revenue as possible, flip it to the next buyer based on that ARB. And today you're just not seeing that in the market. Being able to prove that integration out, and everyone talks about integration, but what does that really mean for your business? Being able to show those proof points on Obviously, there's the expense synergy side, but that revenue component that I mentioned is really critical today and not just getting that push from macro impact in the market, really proving out that there are other levers that you've built around that organic growth engine.

[Speaker:TREY_LOCKERBIE] We're going to take that apart in terms of building the system, but I want to first understand your lens on how do you evaluate deals. Before, you mentioned that you'll underwrite on 4 key criteria, which is strategic, financial, operational, and data readiness. Can you walk me through that framework and then maybe where even the integration thinking fits in?

[Speaker:TREY_LOCKERBIE] I would add cultural to that criteria. Cultural fit is binary for us. If we can't get past that, we don't move on to the other kind of key criteria from an evaluation standpoint, because in a people business like ours, that cultural fit is number one. Once we get past that, Integration shows up for us early and often from the pre-LOI process where our integration leader and then our key functional area owners are part of the conversation. They each kind of evaluate particularly the operational and strategic and data readiness piece of those criteria and how that's gonna impact their integration. And we integrate 100% of our acquisitions starting from day of closing and we wrap up virtually all the work streams within the first 90 days. So it's a pretty aggressive timeline. We think that integration makes us better as a whole, and we have a lot of levers internally that focus on building that integration engine so that our folks can get out of that frictional time period right after closing and get back to growing their business and tapping into the broader resource suite that we've built. Today, like as a business, we are closing in on $200 million of revenue. But we have a pretty small and nimble integration team, which means for those criteria, we've gotta consider not just getting the transaction closed, but also the impact of the business and our people after the fact. We've passed on deals in the past where we knew that it would be a significant uphill battle around the integration piece. And that was really around our first year at OakBridge is you're trying to get your first deal done as a new buyer in the market. But you think about the cost both direct and indirect of that difficult frictional integration processes. There's a number of what I'd say typical deal pillars for us around the integration piece. Obviously there's the people aspect, you're dealing with difficult people, but the big two for us are lack of up-to-date technology and then weak data standards. That data readiness is so critical in our business. As an example, we run a pretty robust data model, a single instance of our ERP, Any kind of lack of commitment by the seller to move to our data standards for us is a clear red flag on those potential integration issues to come. That to us is table stakes. And if they have an issue with that, they're going to have an issue with a lot of the other integration levers that we're going to have to pull during that integration phase.

[Speaker:TREY_LOCKERBIE] There's a lot that goes into this. First, culture fit. Then you mentioned that opera— understand the operations and their data readiness. And obviously we didn't touch as much on the, you know, there's a strategic fit of doing the deal and then the financial fit, I guess, as well. If we took the culture piece, how do you validate that? Is it just purely, I met the management team, it feels good, or is there something more objective to validate the culture fit?

[Speaker:TREY_LOCKERBIE] Our process is one that I'll say frustrates the investment bankers when we're in one of those processes because we want multiple meetings with the principals, hopefully the opportunity to meet other folks in the organization that are critical to the go-forward business. We almost always do in-person meetings to make sure that we're sitting across the table from someone pre-deal. That kind of comfort naturally evolves the more you get into it, but it does create a longer timeline on the actual transaction. Historically, about 75% of our deals have been proprietary. In other words, we've sourced them internally without a third-party intermediary involved. And that's to our benefit, that relationship-building aspect where you're not part of a banker auction process. And I used to be a banker, so I understand the value of that process. That sort of homegrown relationship building you can do offline creates a longer deal process, but really leads to a better outcome. And you have very high conviction around the cultural fit even before you get to the point of signing an LOI. The other thing is 12 deals last year sounds like high volume overall. There are other buyers in our market that are doing between 50 and 100 transactions a year. So we think of ourselves a pretty selective buyer. For example, we signed NDAs for 100 potential transactions last year. We only bid on 28 of those and closed 12. So that top of the funnel, making sure that all of those criteria are a good fit for us, starting with culture, is really how we end up with best fit partners for our model.

[Speaker:TREY_LOCKERBIE] Yeah. That's a pretty good funnel there because you went from 100 NDAs signed, 28, and then ones that you actually pursued. Pursue means actual put LOIs or?

Yeah. 28 LOIs went out and 12 of those were signed and closed. So we have a very good track record. Once we get to the point of signing an LOI, we've closed 100% of those historically. So we are very committed once we get to the LOI signing phase.

What percentage of these were banked versus proprietary deals?

Last year may have been a few more bank deals in the mix, but overall, over the last 5 years, 75% are proprietary. And those are sourced by myself, our CEO, and then really our partners once they come on board. We have a very good track record of generating new partnerships from recent partnerships. I think that speaks to how we treat those partners as they come in, as they work through the integration process, back to that culture and relationship building early on. That gets them on board sooner. And the other kind of aspect that I should mention is We're not looking for acquisitions where the principals are ready to walk away. Our weighted average shareholder age is high 40s. We are very much focused on folks that want to continue with the business, think about it as a buy-in model, not a sell-out model. And that gets great alignment for that next phase as they come in and access our resources for growth.

Yeah. So you got them keeping the management team pretty vested in. What does that look like in terms of those deal structures? Is it rolling over equity? Is it in earnouts? What does that look like?

It's both. We have, I'd say relatively strong conviction around a minimum of 20% of the upfront value being an equity consideration. Overall, over the past 5 years, the average is actually 25%, so 75% cash, 25% equity upfront. All of our deals also have an earnout component, 3 years, again, based on organic growth of the top line after the fact only. So revenue-based earnouts. But again, those are cash and equity. What we like to do, work with the principals, particularly over the earnout period, bringing more folks into that equity ownership pool to make sure that those folks that are the drivers of the value post-closing get to participate in that upside. Because we think about the business not just as an income and compensation piece, but also this wealth creation opportunity for folks that probably didn't have that at their family-owned, entrepreneur-owned business. That distributed equity model that drives that growth, we're over 50% employee-owned in our cap table, and that includes about 200 150 of our 600 employees, pretty widely distributed, not just former agency principals. It includes a really broad swath of folks all the way from back office accounting to service, middle office, and front office production. We think that is really critical to building a long-term business and continuing to perpetuate that weighted average shareholder age downstream.

I like that. So you about 25% of the deal rollover equity, and you're actually expanding the equity pool to a larger pool of employees that would otherwise have it.

Yeah, that's right. We've done deals where we brought every single employee that came over in as an equity shareholder. We've done that on a few. Often these businesses, historically, it's hard to move equity in a tax-efficient manner if you're not the owner of the business. So the time of the transaction is a great time to do that, sharing in that event with the employees. And then the earnout pieces, we see almost 100% participation in others than just the principals of that seller participating in these earnouts over that 3-year period post-closing.

What does the structure look like on earnout? What percentage of the purchase price gets allocated on the earnout?

When you look at upfront versus earnout, now our earnouts are uncapped, but on average, that's probably 80% upfront, 20% of the value in the earnout. So it's heavy on the upfront, but because of the uncapped nature of the earnout, we've had a couple deals that were smaller, Roll-in deals where the earnout payment was actually larger than the upfront simply because of how much they grew over that 3-year period post-closing. They tripled or quadrupled their business, which leads to a very attractive earnout payment. So we love paying those.

Awesome. Now there's a lot more to go into, but I want to keep moving here.

Sure.

The one thing I was curious about is like what you've seen in the market. I know we've talked a little bit before about just some of the deals, and I love hearing about deals. And in particular, you've seen situations where, like we talked about the trend over the 5 years where their process actually blew up. Can we talk through some of those deal stories?

[Speaker:TREY_LOCKERBIE] Yeah, for sure. Both of these were big billion-dollar revenue plus organizations, which had been built over the last 10, 12, 15 years. Those processes, when they got into diligence, the key factors that impacted them were lack of what I'll call true integration. They give lip service to the fact that they're integrated, but when you really peel back the onion, they're not really that integrated. They're using a data warehouse to pull in data from 15 different ERPs, a bunch of different payroll companies, and just aggregating that up at the corporate lens, which in today's world is not true integration. The other thing that is just kind of this inability to really illustrate the proof points, particularly on what you market the business as to these potential buyers. And this is really in the sponsor community, but sponsors are gonna do a lot of diligence, 90, 120 days of diligence on a, what is that, a $5 billion transaction. So When you get that deep into diligence and those proof points don't hold up that you've pushed out to the market, it's something that you're good at. That's what really leads to that broken process. And obviously then leads to a bad financial outcome for the shareholders. What we find, and we do this too when we're going through diligence on our side on a much smaller scale, we're going down the diligence list. Each time we uncover something that makes us second-guess the valuation, that makes us look harder at those remaining diligence items that are still open. In some of these cases with these really big platforms, the valuation expectation was so high, that issue list became so long that just buyers stepped away entirely. And then those businesses ended up being sold to a strategic. Lastly, on that overselling of the upfront, when you enter into these processes, the seller has to be really honest about what their organic growth is, how they're driving it. The other thing that we saw with some of these bigger platforms that didn't really get there was they oversold the specialty nature of their business. When it's not really there. Don't get me wrong, these are great businesses that obviously got the huge scale, but they were positioned too aggressively, which created this real disconnect between the expectation upfront on valuation and what you would find when you got into diligence and the reality that the buyers found once they got under the hood. And length of time on the deal, that will kill a deal more than anything. And getting into that deep diligence process and not finding what you expected All those kind of key drivers for a high-quality business makes a lot of those processes break down.

So there's definitely how well a company's like a consolidation play has been integrated, and then how are they actually taking to market? Are they like overhyping what the business actually is? What are some of the specific things in diligence that you would find that would get you to really be turned off by the business?

Back to our criteria, and I think this is true for the larger sponsors as they've gotten more sophisticated, on the market is really that data piece. What are you doing with your data? This industry has a ton of great data that can be used to push cross-sell, can push your carrier partners on better commission rates, helps you further define your specialties and gain kind of revenue lift from those, take those out to market. When you peel that back and say, okay, they're not doing any of these kind of basic functions because they don't have control over the data, that's Usually the underlying issue, and that leads to a whole host of issues downstream where you're in a diligence process, you can't produce updated monthly results in a timely fashion after monthly close. You can't roll forward any of the data cube or any of the one-time exhibits that you built to take the book to market and put in the data room. So all those factors contribute. You'd be shocked at some of these businesses that are consolidating GAAP financial reporting on a host of individual spreadsheets at the acquisition level for each of their acquisitions they've done over the past several years. So when these platforms started and this was a new game 10 years ago, that was fine. It was revenue aggregation, it was multiple arbitrage. Today, the market has really shifted. It's hard for a platform of that size to catch up. You think about a large unintegrated platform to get to that full integration standard. To me, that's a big uphill battle. And think about what they sold those early partners on. They sold them on the fact that they would get to continue to run their business. They wouldn't have to integrate. They could maintain their legacy brand, their legacy systems, all of their legacy people, their legacy accounting standards or non-standards in some case. Then you suddenly come in and say, okay, sorry, by the way, we're gonna fully integrate you in the next 12 months because we have to clean the business up. You're just creating this disconnect with that culture that you built on the front end.

Data, the big thing's data. You referenced a deal that had hundreds of Excel sheets for their monthly financial reporting. I had actually heard about a situation where that was one of the things the buyer asked for updated financials, and I don't remember the exact— It took them 7, 10 days to turn around and they walked away. They were like, "This is obviously not integrated." [Speaker:TREY_LOCKERBIE] Yeah.

Those are the easy red flags you can't roll for the basic analyses that you should be using to run the business anyway. That's a huge red flag for folks is Particularly at that scale, we're talking about a billion-dollar revenue business. That is a massive organization and there should be very tight accounting, reporting, management data, KPIs around that business that you're using day-to-day to operate. Those are tough deals to see in the market knowing that there were high-quality people there, the underlying business was strong, but the lack of integration did not make it feel like a real platform operation.

Trey Lockerbie Let's talk about building the machine, the Matt James way to M&A.

Let's see, day one, it was just us and a checkbook for the first year. Over time, we've built a couple things into our deal process. To us, it have been a huge advantage, really around the people side. Insurance brokers, 90% of your assets are the people and those customer relationships they bring to the table. The one thing we added, and this interestingly came from a conversation we had with one of our operations folks at an acquisition we did during our first year, He came to us after the process, and this was a proprietary process. They didn't have a banker involved. And he came and said, "You guys could do that a lot better." There was a lot of friction on the closing. It was a relatively large deal for us. And we took that as him raising his hand to improve the process. So today he sits in this seat as our VP of new partner operations. And he really quarterbacks everything from that pre-deal LOI diligence process, the 90 days post-closing integration workstreams, Unfortunately for him, one of his primary job is managing me out of the process as quickly as possible so that our functional area leads and our internal experts can really start taking ownership of integration even before closing. He follows along, sits alongside me for pre-closing diligence workstreams, is on all the calls, has weekly calls on checking in on questions. And really it's that seller education piece, which is particularly important around our proprietary deals since they do not have an intermediary walking them through the process. Because remember, these folks are, they're going through a once in a lifetime sale of their business and they're also trying to run the business simultaneously. So he's really that quarterback and almost a seller advocate as we get up to the closing table. He can then translate that, all of those, the data, the workstreams, all of that sort of tribal knowledge that you build as you work through a diligence process to the broader integration group when it's time for them to step in. So That for us has been huge. What I'll say is about 2 years ago, we also moved away from the historical Excel tracker sheet, the deal room, as our kind of source of truth on the hard data piece. And we think of our VP of new partner ops as our source of truth on all of the qualitative factors and people factors, those nuances that come along with acquiring a people-heavy business, like an insurance broker. The combination of those two with our new partner operations team and managing that process has, has been absolutely huge in just getting new deals onboarded faster. And not just onboarded faster, but making them feel good about the decision they made to partner with us versus one of the other 50+ acquirers out there. Join Kison Patel and Gwen Pope at Master Your Mergers People Synergy Summit on April 21st. Their closing fireside chat explores why integration models break down after close and what buyer-led execution actually looks like when it's working. If you're running acquisitions or responsible for post-close results, this is the session to catch. Register for free at peoplesynergiesummit.com. Again, that's peoplesynergiesummit.com.

We got a lot here to unpack now. So I like it. One is like literally looking at your whole process from LOI through integration. As one continuous process. There's going to be a lot of buyer-led themes over here. And I like how you brought what you call it, the partner operations.

[Speaker:ELLIOT_BISNOW] New partner operations.

[Speaker:TREY_LOCKERBIE] New partner operations. You literally have a role and a piece of that role is not only optimizing this whole throughput process end to end, but you mentioned the seller education piece. And I'm curious too, because when you mentioned, hey, if it's proprietary deal, it's important because they don't know the process, but I'm like, even if it's a Comparing a bank process through proprietary, I feel like a lot of times the bank process just, "Here, let's optimize for getting the best price or need to close." But when you mention all this activity hinges around how well you can integrate, you got a 90-day timeline that you're targeting to integrate, but is there a piece of that seller education that actually lends more towards the integration or preparing them from integration? Is that part of it or is it more that comes later?

[Speaker:TREY_LOCKERBIE] No, it's definitely part of it for us. We often, even to the point of even a first meeting we're having with a prospect, we share our integration guide. It's a 50+ page document that details each component of our integration process, has all the key people that lead those different processes internally for us, and really just shows the seller what they're up for once they get over the wall with, through the transaction process, because we think that Transparency and consistent communication about what's gonna happen is really the key to making that process smoother. If there's not an unexpected that's coming their way, even if there's things like technology conversion, a lot of people, they don't love that part of the process, but they know it's coming and have clear visibility and line of sight on what that's gonna look like. So we think that level of transparency, in some cases, it probably makes us look a little bit more heavy-handed on the integration side. But again, going back to when you see some of those larger failed processes, that disconnect between expectation and reality for the seller on what life will be like post-closing, we don't want any daylight between those two concepts. We want to be very transparent with folks as they come over the wall and know what to expect as a part of the OakBridge family.

[Speaker:TREY_LOCKERBIE] That's the big piece that gives them a lot of heads up of what's to come and get them prepared for it. Anything else? You have the role, they really are basically supporting the whole process. The big thing I always hear about is this fallout between diligence and integration. Where do you see your ability to bridge that gap?

[Speaker:TREY_LOCKERBIE] Yeah, I was the primary culprit of that before we had this new partner operations role. Year 1, I was focused, heads down, let's get these transactions closed, we need to grow. I would close it, throw it over the wall to our different functional area leads, HR, accounting, marketing, basically say, "Figure it out." That leads to a very inefficient process. Tons of questions come back. Even though we're buying the same type of business every time we do a deal, there are nuances that make these deals look very different. That inefficiency, chaos, all the rework of translating that key diligence information to our broader team, just way too much of that critical knowledge, that tribal knowledge set only with me and disseminate it out to a larger group, was really critical for us. So that evolution of our process, it was a big factor on getting me out of the sole owner of that. But now we're at the size and scale where we have plenty of folks around the deals day to day where everybody has a good sense of what's going on. So we don't have that breakdown post-closing.

[Speaker:TREY_LOCKERBIE] So it's all about building that continuity basically of that whole process. So it's not things are just completely handed off and disconnected.

[Speaker:IAN_CASSEL] Yeah. And we have a relatively consistent process, that integration guide combined with our source of truth in Dealroom. We use that as a project management tool as well for our different functional area leads. They understand the process. And none of our folks came from an MA background. Most of them came from one of our partner acquisitions. So they sat in an HR seat or an accounting seat, but they've come in, they've been through a process, they understand it fundamentally, and they are constantly thinking about how to make that better for the next partner that comes over the walls.

[Speaker:TREY_LOCKERBIE] Somebody that's kind of been burned from the process coming in, put them in that role. So that they can help everybody else have a better experience.

Yeah, we did that last year. We did a pretty sizable platform deal down in Florida. They had a great leader on, she wore a lot of hats for them, CFO, COO type role. She's now our new talent partner on the M&A side in our, on our HR team and does a phenomenal job just being able to connect with those employees because she's been through the process and understands when she had to translate what was happening down to her employees. And they had about employees that came over, relatively large group. And having been through that and then understanding the value proposition of joining our team, she's an amazing connector of bringing those concepts together, particularly when you get down to the non-principals that are really just being dragged along in the deal process.

I like this approach. You mentioned source of truth and Dealroom. I never heard of Dealroom. Tell me about it and what does it do?

No, as you know, great product. Again, we were managing everything via the old folder Excel sheet. You get an Excel tracker, we'd have internal one, you'd have one from your third-party accounting diligence, you'd have one from your third-party legal. We consolidated all that, made it live real-time in Dealroom. We use Dealroom for the entire M&A process, all the way from our prospect pipeline, all the way through post-closing project management checklist. Those dependencies you can build in around, around that project management piece has been huge for us because again, we have a small team. We're often integrating anywhere between 3 and 5 deals at a time. If we're doing 10 or 12 deals a year, that keeps us organized. Again, keeps me out of having to revisit deal terms and things like that. So that source of truth has been huge and not just as a database for all of the diligence work we've done, all of the contracts, all of that, but really that project management piece for us has helped us take our process to the next level and not have this drawn out disconnected process between, okay, we're waiting on our database admin team to scrub the data before our it team can go in. All that now is very seamless because of having these dependencies in the system and having our new partner operations lead really manage that as quarterbacking that process.

You're getting rid of the series of trackers that you had and you get rid of that. You have it all in one system, which acts as your single source of truth, and you can track your dependencies. Keep things better organized and essentially you run it end to end. I guess part of the thing is you're also managing the integration here as well.

Yeah, absolutely. The integration process for us, again, all of the kind of functional area items, they're done by 90 days in, but still making sure we maintain that database and source on what we bought to understand how that's evolved after the fact. That's a great way to go revisit 2 years, 3 years down the road, particularly when they're through their earnout period. And just understand how that business performed based on what you underwrote at the time. Early on, you could just think back on the thesis around underwriting these individual deals, but with 60 deals that we've closed, you lose track now of what the thesis was at the time. You're 3 or 4 years after the fact.

[Speaker:TREY_LOCKERBIE] Yeah. So you got this basically archive that you can reference this data back any point in time. When it comes to scalability, obviously tech and software is a piece of it. Is there anything else beyond the tech that really helps when you're running these concurrent deals at different stages?

The tech piece was huge for us, just getting out of email and emailing spreadsheets around. That was our weak point with our team overall. The other piece is a little more qualitative, but that view on being really transparent with the seller on the whole process. And we have the advantage on all of our proprietary deals because we are walking them through the process a little bit as their advisor, at the same time being the buyer. That transparency, Clarity on timing, on what the key gating items are, all of that project management for the deal process and constant communication. One thing we did about 18 months ago for all deals that are in flight, which means post-LOI, our VP of new partner operations has weekly calls. It might be a 5-minute call some weeks, it might be a 30-minute call depending on where we are in the process, but that constant and consistent touchpoint where the seller sees the same people, same faces every week, and has the opportunity to ask questions in that forum. We feel like that transparency and visibility straight into our team has really built just a lot of goodwill with new partners as they come in.

[Speaker:TREY_LOCKERBIE] That's a key part, really over-communicating, building those relationships, making sure it's a good experience for incoming team members. The other piece of the tech you mentioned, we looked at integration is how well the data's put together. I know one of the things you invested a significant amount is building a data lake so you can have real-time dashboards. Can we talk through that? Because I feel like that's another big piece. We talked through your process flow and tech on the execution side, but then what are the things that ultimately land that allows us to be a valuable asset when things are said and done?

A couple things there. One, as part of the integration process, we move everyone to single instance of our ERP, even if they're on a different instance of the same system. We move everybody over, our database admin team scrubs the data before it comes into our environment.

What does that tech stack look like? Which ERP system you guys use?

Or so we use it specific to insurance brokerage called Applied Epic. There's really two big competitors there. Every industry, Applied Epic, call it a customer record system. It tracks revenue and commission. That tech, it's built off of an older platform. So we have to then pull that out. We've got Databricks on the backend for our warehouse build. And then we pull that through Power BI for a Microsoft shop. So we pull that through Power BI and what that's done for us, and this project kicked off about 2 years ago when our new sponsor Audax came in. One, they were very supportive of wanting to get through this initiative on the build of this data platform. And we already had the fundamentals where since day one, we were already integrating and moving everyone to our native ERP, so that the data was pretty clean. This was just taking that data to the next level, bringing in other dimensions around payroll, around market data, around data from our carrier partners on pricing and things like that. So overall, that has transformed the business from being more reactive to much more proactive. That's what you really want to get out of this data analytics build platform, whether it's the revenue side of the house, expense side of the house, that data and dashboards allows our key leaders in the organization to self-service, whether let's say they're a regional leader, they can self-service their own P&Ls, understand their employee metrics, understand their productivity, their organic growth down it all the way to the individual branch level. And then right now we're pushing through the ability to look at individual producer level. There's a lot of granular data there where it's just so much easier to go find the low-hanging fruit. And then when there's an issue, there's a headwind in the business, we can immediately go and look at the analytics package and understand where to go look to uncover those issues as we're running the business. So it's been huge for us. The spend always sounds high, particularly when you're sponsor-backed, but I think the risk today of not doing that is future valuation degradation versus that cash spend today.

How do you enable that? I feel like You're doing a lot of system changes. You got different leaders across organizations spread out regionally, getting them thinking about the same way of utilizing this data. I feel like I've been in businesses where you struggle with it. You spend, invest, and you get the system there, but then the people and how they use it, it's a whole other thing.

[Speaker:TREY_LOCKERBIE] Though that's true. I mean, one, we have a great group of folks that are culturally aligned. So back to that cultural piece, if you have that cultural alignment day one, that makes the buy-in easier. We also have the distinct benefit of being majority employee-owned, meaning which includes ownership for all of our key leaders, whether they be at the region, at the corporate level, in our functional areas in the field. And that alignment through our distributed equity model allows our leaders to— we often ask them to put on their shareholder hat and approach those business decisions, particularly when they're tough business decisions, through both the lens of the shareholder and the P&L owner. And that creates great buy-in. And sometimes a little bit of competition among different regions too to drive those metrics. So that distributed equity model is really fundamental to our DNA. It resonates with everything we do and helps create that buy-in with that shareholder mindset versus a push down from the corporate level, trying to hit these targets with no context. We don't take that approach of top-down management style.

What would you say are the most valuable KPIs for an acquired business?

For us, it's a revenue per employee right now. That speaks to efficiency. It also speaks to their ability to scale. If you look at historical revenue per employee over the last 5 years, have they been able to scale with a smaller employee base? Are they implementing technology? How are they managing those costs within the business? So to us, that is the headline KPI that we're always looking at. We don't have all the data integrated. And then from there, it's a very granular breakdown of revenue, expense, People metrics, kind of everything across the board, but that revenue per employee for us is critical.

Big emphasis on data. Make sure you get the data integrated. That's the key part. It sounds like the rest isn't that bad. You follow through. Obviously there's a people aspect, which you structure the deal for a lot of the retention. You're giving them equity. So you got alignment with the people, you got the data in place so that everybody's on the same page, the way we look at the numbers and build our goals around it.

Yeah. I feel like if you lead with culture, And get the cultural line, you'll get buy-in around the data piece. From there, everything else is just execution. Culture first, and then making sure that the data can come over in a way that's useful to the broader businesses is our kind of two key focus areas when we're thinking about the integration lens.

Give me some stuff I don't know. I'm just wondering the things that you learned in terms of surprises that come out after close or— The hidden operational issues that you find out the hard way. Teach me that stuff.

[Speaker:TREY_LOCKERBIE] There's such a wide spectrum of things that would be like, I would've sworn we should've covered that during the diligence process. It's headwinds that are macro in nature. For example, right now in our business, great news as a consumer of insurance, but there were no big hurricanes, no big cat events last year, so pricing is soft. That means we feel the pressure on revenue there. So that puts more emphasis on that new business engine, that organic growth piece for 2026. That's part of the normal cycle, but understanding where that is across the different pockets of the business. The thing that always surprises me the most when we have a new partner coming over is just the level of buy-in that we get from the non-equity holders. You think about all the friction that's created for that employee that sits at the desk level, their day is getting more complicated. They have to learn a new system as they come over into our environment. They have higher data standards, but being able to really show them the path on why that's going to lead to a better outcome for them long-term, and then really educate them on what it means to be part of our business. We get such great feedback and buy-in a lot of our folks after the fact on that. That's always surprising to me because They're not receiving any economics from the deal. That near-term friction is pretty high for them, but 6 months down the road, we have a lot of folks come back and say, "My opportunities from a career pathing standpoint, the level of professional development that we get as a part of a larger organization, the ability to work across multiple geographies and offices, all that leads to really strong culture building for us." [Speaker:TREY_LOCKERBIE] Big, invest big on culture. [Speaker:TYLER_WRIGHT] Yeah.

[Speaker:TREY_LOCKERBIE] You mentioned earlier, a lot of your deals come from acquired businesses. Tell me more about that. How do you build pipeline that way? Good, healthy, or proprietary deals, baby. That's what we want.

[Speaker:TREY_LOCKERBIE] Yeah. You get one of these banker processes and you're one of 20 bidders, it feels like, and they are certainly driving price. That is the main goal.

[Speaker:TREY_LOCKERBIE] That I don't like. I don't like doing all the work with uncertainty that you're going to get a deal out of it. I hate that part.

[Speaker:TREY_LOCKERBIE] Back to that sort of employee experience and experience that we try to build for the sellers on our proprietary deals. That makes them feel really good early on about their choice as a partner. Look, there's 50 private equity-backed buyers in our space, and then another handful of publicly traded and kind of private buyers. So let's say 60 buyers total. Anybody can sell their business to anybody in the market anytime and get that market clearing price and value for the business. We want that experience to be high quality for them. They're incentivized and thinking about coming over day one as a part of the organization. And really buying into what we're building. A couple things maybe that helps us build that referral engine with recent acquisitions. One, and this has been more recent in the last 2 years, but bringing that VP of new partner operations in has been a huge upgrade on the process, which makes those sellers more confident on our capabilities, just supporting their transaction process and seeing what it's like and that transparency I talked about. So that gives them confidence that they have a friendly competitor, somebody in another geography that they would recommend to us. That's something that's been huge. Again, high degree of transparency and that communication and education piece on what's going to happen, being honest about the things that will change, that's built really strong connectivity with those sellers. And then finally, and this is back to my last comment, is treating those new partners and their employees with respect, as those folks are our greatest asset in the business. We don't feel we can ever be too high touch with employee onboarding, onsite visits. We often take the entire C-suite for onsite visits, being super responsive as we lead up to closing. It puts a big burden on the executive team and our new talent onboarding folks, but we think that leads faster adoption, stronger buy-in, that those sellers really pick the right partner. It also helps that we have economic incentives for those folks that bring new deals to the table, but What does that look like?

Is it like percentage, a kicker?

Yeah. Yeah. Typically a percentage of acquired revenue up to 2%. So it can be meaningful.

That's probably not bad.

Yeah. It can be meaningful for larger deals. The challenge in our space is almost any deal over $5 million of revenue has a banker behind it. Those are hard to find.

Fair enough. I know what to do in my spare time now.

I'm going hunting for you.

In marketing, they would call this, Matt, a flywheel. You really nail the customer experience and they go out and they do like word of mouth and then it comes back.

It's been interesting to watch. The first couple years we were out pounding the pavement on telling the story. We were a new acquirer. There's all this competition out there that at a 10,000-foot level looks very similar to what we were trying to build. As we've gotten more mature, as people have gotten to know us better, the other thing that helps is we're very geographically concentrated. So we're only in 8 states in the Southeast. So building that brand value, building that knowledge base for potential new partners, We've seen a lot more inbound interest than we have ever had in the last 12 months. So that's been really helpful in filling that top end of the pipeline too.

All right. So a little more personal here, but like you're the CFO and the Chief Acquisition Officers, and I know most platforms would separate those roles. Is it because you guys just adopted AI and they make you do all those things? What's the reason for rationale behind that?

I'd say day one, it was just, hey, do we want to spend the money on this new startup where, and we were all wearing a lot of hats, you've been in the startup world, like you understand what that looks like. As the business has evolved, it's certainly gotten more challenging, but the interesting thing is M&A and that CFO seat, if you're a strategic CFO, I'm certainly not an accounting person by trade, it's pretty closely connected. I think that CFO seat has really become increasingly strategic as a position over the last several years. When you think about how that integrates with M&A, it really puts one, a spotlight on the financial an economic piece of the evaluation criteria as you're underwriting, also helps have that more broad and earnest view when you're speaking to the potential sellers. I'm often at the first meeting along with our CEO for many of these acquisition targets, which having my CFO title first, people might think that's a little bit odd, but when you think of it in the sense of that corporate development function, makes a lot more sense. Maybe the other advantage that I have for running M&A is the benefit of being a part of Oakbridge since our founding. I'm employee number one. That unique perspective really helps me speak more intelligently about the challenges of building the business to where we are today, all the issues we've solved for on the operations side. And then also just highlighting folks where we're not as fully developed, what we still need to work on as sellers do their reverse diligence on us. So today it's still doable. It feels like there's a lot of advantages to sitting in both seats, but as we scale, we've had to build a lot of folks underneath me on the accounting side, for sure. We have a 20-person accounting department that handles all of the reporting and all that stuff. It's interesting though.

[Speaker:TREY_LOCKERBIE] Can you just give me purely the CFO cap and help me think through the way you would think financially? I feel like we— and we talked about this before— of doing acquisitions, there's obviously the deal structure we already touched on, but then what does that impact make on the business valuation, share price, and how do you even think through that as a privately held company?

The advantage of wearing both hats is as a corporate development officer, you're very focused on deal count, acquired revenue, growing the overall business. The perspective you bring from the CFO seat is a little bit more measured on what the impact of that capital outlay looks like relative to the other options. It's all always about capital allocation. Where do you spend that money? Is it on acquisitions? Is it on development of new technology, new training programs internally? Should we go organically hire a bunch of new producers and see how they fare in the system? So that perspective on not just purely the M&A lens, thinking about what that does to the overall business and what levers we have to drive shareholder value. Like I said earlier, there's just not a lot of multiple arbitrage anymore. So when we go into a modeling exercise around M&A, we're not really building in that much multiple arbitrage. All about organic, about how the selling business, how they can tap into our existing platform and our resources for that cross-sell that we talked about. What other levers can we pull on the revenue side around, maybe we have better carrier contracts they do due to our scale. Maybe we can better serve some of their employee benefits customers with some of the resources we've already built out. So that perspective is less focused on the pure M&A volume lens and more about how M&A fits into the overall growth strategy of the business.

Thinking big picture, baby.

Yeah.

Okay. So this is where we got to summarize some of our lessons that we talked through. Let's say hypothetically OakBridge had a big exit, you cashed out, but you're still motivated to do something else. And I like bring you in and said, hey Matt, here's this roll-up that I found that's already at a good pace doing, let's say 6+ deals a year, but they're truly operating like a revenue aggregator. I'm putting you there in charge, same role, Chief Acquisition Officer. What would be the first thing that you would change?

Number one, clean up your data. Clean up your data, get your tech stack in order.

Would you pause though doing deals to go back and do that?

I would. And we've seen some of those larger acquirers do that. A couple years ago, there was one that really shut down their whole M&A function for, I'm going to say 12 to 18 months and solely focused on integration. Including that transition of the data, the system, the people, the brands of all the legacy businesses they acquired. So yeah, I would hit the pause button on that and get the house in order. Those parameters you gave, it's not so big that at that stage that you can't clean it up in a quarterly fashion. The bigger you get though, the more difficult that becomes, particularly if you don't have geographic concentration, you've got a lot of small offices out in the field. That cleanup process has to happen, particularly before you go out to market for either a recap or a sell process. That lack of ability to provide proof points is such a big differentiator as part of that diligence. I would put that behind, probably second behind organic growth as driver of overall value. Can you validate these proof points on your investment thesis? The sooner you get done with that hard work of integrating, I think the better position you'll be to sell the story to the next buyer. I would do it day one, come in, get the data cleaned up, get the tech stack in order, Get everybody rowing in the same direction from that perspective. Our business is so data heavy, it's clear if you're not working down that path today.

[Speaker:TREY_LOCKERBIE] I would agree, and I'd say pretty much every business nowadays is very data heavy. Any other takeaways, things you've learned over the years?

[Speaker:MICHAEL_SCHMIDT] Like I said early on, I didn't come into M&A intentionally, but got a taste of it in my first role and just really loved the dynamic nature of it. Anyone that is thinking about a career in M&A, whether it's on the corporate development side, on the integration side, it's super dynamic and something that really engages you day to day. I'm planning on staying in the space for quite a while.

Hey James, this has been good. I gotta ask you before we wrap up here, what's the craziest thing you've seen in M&A?

Oh, craziest thing. There's nothing that beats this. We were doing a diligence engagement when I was a buy-side banker on a deal We were advising a big strategic. They were looking at a fucking acquisition, going through diligence, tying out the tax returns of the seller and all this work. The seller was deducting their mortgage at their house under the argument that they parked their work vehicle there. So it was really a parking expense. So there was this line item of parking expense that was several thousand dollars a month that was his mortgage payment. So we opted out of that deal. Let's put it that way.

Wow.

Very, very aggressive tax position. Wow.

And the fact that killed the deal, it killed the deal indirectly.

That makes you question the quality of the people you're partnering with.

Well, and it goes back to that thing where it's like you get one red file, so you're putting way more scrutiny on everything else.

Yeah.

How you operate.

Yeah. Without that, that deal would've probably died anyway, but that definitely put it over the edge. That was an interesting call to make.

Hey, this has been a great conversation, Matt. Appreciate you taking the time. Schooling me, helping me become a better M&A scientist.

I appreciate it. Love the conversation and appreciate being asked to join today. So thanks so much for having me.

Those of you still tuned in, my fellow M&A scientists, I'd love to hear from you. I'd love to hear feedback, what you thought about this podcast. If you got ideas for topics that we haven't covered yet, if you got some feedback and criticism for me, all welcome, take it. I'm always trying to improve and get better. Feel free to reach out to me on LinkedIn. I got my filter thing down, so I get a bunch of spam. So make a comment and say, hey, I listen to the podcast, so I know you're an actual listener and not just somebody that's going to pitch me another service that we don't need. Till next time, here's to the deal. Thank you for taking the time to explore the world of M&A with our podcast. We love hearing feedback. Tag us on a LinkedIn post, add a review on Apple Podcasts. We'd love to hear from you. If you need help standing up an M&A function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email, Kison, K-I-S-O-N, @mascience.com, or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter. Again, that's mascience.com. Here's to the deal. Views and opinions expressed on M&A Science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual. This podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions.