Achieving Business Growth Through Strategic M&A

People are asking for more M and A Science. We're giving it to you. We're increasing our production from once a week to twice a week. Look out for more M and A Science interviews. This is a conversation with Yohav Zeif, CEO at Stratasys. He has a PhD in international economics. He was teaching MBA students how to take businesses global, did a stint at McKinsey, few operational roles, then became the CEO of Stratasys the first week of the COVID 19 breakout. He saw this as an opportunity to shift their strategy and transform the business. In this interview, we talked about how they used M and A to accelerate their transformation. We discussed how they started their M and A journey, what M and A strategy framework they used, the evolution of their strategy, and how he works with his corporate development team. This episode is sponsored by Firmroom Searching for a data room that offers simplicity without any compromise Elevate your data room experience with Firmroom, the world's most intuitive virtual data room. From scalable storage to unlimited users, industry leading security features and flat rate pricing, Firm Room keeps it simple. No hidden fees, no per page billing, no surprises. Ready to revolutionize your virtual data room experience? Try Firm room. Free for 14 days, no strings attached, no credit card required. When you're ready, you can power up and sign up for unlimited users and 10 gigs of storage at a flat rate of $495 a month. Check out Firm Room, a tool built by dealmakers for dealmakers. Learn more@firmroom.com Again that's firmroom.com I'm Kisan Patel and you're listening to M and 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 and A deals.

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A Scientists welcome to the M and A Science Podcast where we learn from the best in M and A to uncover proven techniques for enterprise value creation. If you're interested in learning more about products and services to support world class M and A teams, or want to get involved with a community of forward thinking M and a practitioners, visit mascience.com you can get started by subscribing to our free weekly newsletter for the latest insights and events. Again, that's mascience.com I'm your host Kisam Patel, CEO and founder of M&A Science. Joining me today is Dr. Yohav Zaif, CEO at Stratasys. Stratasys is a global leader in additive technology solutions, otherwise known as 3D printing, for industries including aerospace, automotive, consumer products, design, education and Healthcare. Today we're going to talk about how to use M and A to drive positive business outcomes from strategy through integration. That sound like a good topic?

Fantastic topic.

Yoav, thanks for joining me for this conversation and taking a break from doing deals and having board meetings.

My pleasure. Thank you for visiting us in our Minnesota facility and for arriving in person.

I'm stoked about doing these interview in person and I'm absolutely fired up. Your colleague gave me a nice tour of the facility. I gotta check out all these massive commercial printers and your capabilities. I got my diligence done for this interview.

Great. I'm here to answer any question and to share some lessons from six acquisitions and six investment over the last three years.

Could we kick off with a bit about your background?

My name is Yoav zaif. I'm the CEO of Stratasys. I joined the company three years and three months ago directly from McKinsey where I was a partner in the McKinsey New York office. Prior to McKinsey, I was an executive mainly on commercial sides. Sales, marketing, product, but also R and D in two large companies. One of them was Netafim, which is the largest irrigation company in the world. What we call precise irrigation. So everything is computerized satellites irrigation. You fertilize and irrigate the crop or the field in a precise way. So it's called precision agriculture. And six years before, I was the R and D manager and product manager of the largest generic company in crop protection. I was also a professor in the university. Two universities in Israel. I was a faculty member in one of them in economics. My profession initially is International Economics. I have a PhD in international economics. But I was also teaching MBA students in Tel Aviv University. A course called International Business. And it's all about how you take a business and make it global. Part of it, by the way, is M and A. It's one of the tools to make a company or a great idea, a global one, to scale it.

And you're in the army too?

Yes, you take me till kindergarten. I see.

Here it all comes together. Your M and A Pro Jaj.

I was also an officer in the Israeli army for four years. Signal officer in infantry, also in the Reserve army for many years, till the age of 46. And also in the middle, between the army and my PhD. I was also a real estate developer. So practically I was building houses. So many different perspectives, but also a lot in common. How you take an idea and make out of it something that really works. Doesn't matter if you build a house or you make a part 30 years later through 3D printing.

You don't watch a lot of TV, do you?

Not really.

Your M and A background, when did that come in play? What does the actual M and A experience look like?

I have a lot of M and A, both from my McKinsey career, because I was both. I was an engagement manager and an associate principal in McKinsey. Then I left for almost 13 years. Then I came back as a partner and I had significant M and A experience, mainly on the PMI front. So post merger integration front, like the theory, but also the practice, working with really large corporates that acquire the business. And McKinsey came either through a clean team or as an integration team. And we led the integration and I had the privilege of leading a few of those projects. So when I came to be an executive, I had already the theory and some of the practice as a project manager of how to do M and A in the right way.

And you had some operational experience from your prior roles?

Yes.

Some of the practical from what you did before as a professor, then your consulting background, which it sounds like you did both strategy and integration.

That's true. I'm combining theory and practice.

And when you came to Stratsys, what prompted you to start acquiring businesses?

I started my current role in the first week of the breakout of COVID It's perfect time.

Like it's a great time to join a new role.

Absolutely perfect storm. But because of this crisis, also an opportunity to transform it into an opportunity. And we took the first two and a half months. The first two weeks was I literally managed the company from a quarantine from a small room. We said, okay, we are not selling because people stopped printing immediately because we are leaving from the consumables. People stopped printing. And we leveraged this time and the capacity that people had to run. I don't want to use adjective, but it was an amazing process of reframing our strategy. What we have done is that we run a diagnostic which was one of the work stream, then we build a strategy, then we construct a new operating model that will support the strategy and we resize the company in order to make sure that we are shifting resources into new things that we need, like M and A. We did all that in two and a half months internally, with our internal resources, with people that are within the company for years and knows the industry inside out. Part of it was a we need to acquire companies. And I'll pause here and I will explain why. Everything starts with the why Stratasys is one of the two pioneers of this industry. And it's a 30 years old company that in 2012 merged with. It's a merger of two companies. Stratosys, the American company, we are sitting in Minnesota here now and Objet, which was an Israeli company. And this merger created the new Stratasys, which was the indisputable leader in the industry. But unfortunately from the peak of 2013, 2014, which was the hype of the 3D printing, we started decline of six years till 2020. And this decline was not really explained. And that's what we have done in our strategic process. We found out that we were declining because we were not competing in the growing markets with the growing technology. So we were addressing only one third of of the overall opportunity in our market because we are focusing on two technologies where the other three technologies that are very common in polymers, we are not playing there. And then you ask yourself, okay, how do I, and this is number one question in strategy, where do I compete? And we found out that we need to compete on polymer 3D printing, focusing on manufacturing. But practically we don't have the tools to compete there. We don't have the tools because we are missing three technologies. What happened in those five years prior to 2020 is that other companies with other technologies were growing where we were declining. It was clear that we need to be there. And in order to be there, the fastest way to address those markets, the fast growing market, was to acquire technologies. And that's what we have done.

You saw this landscape and these other emerging technologies coming about, which essentially is creating new markets. That's where you had to change your strategy to be able to play in those new markets.

Yeah. And the nice thing is that Stratasys is a great company. When we run the diagnostic and this is how you identify the problem, what do you solve here for we found out that when we are analyzing the deals that we closed and the deals that we lost in those declining years, it appears that we have a fantastic conversion rate. Almost every deal. It's unbelievable, but almost 95% of the deals that we are bidding on, we were winning. And at the same time we were declining and competition were growing, but they were not growing because they were winning on our bids. They were winning because they were playing in markets that we were not exist there. So this was the obvious insight. We have to be in and cover the overall addressable market, not only two technologies. And the nice thing in additive manufacturing is that there is no silver bullet. It's not the car industry, you can go from here and you know, we are in Eden Ferry. You can go to the Minneapolis, the MSP airport with any car, with a gm, with a Toyota, with a Mercedes and with Audi. Each one of them will take you there in 3D. Printing is not the case. If you want to print a mic or you want to print cell phone, or you want to print a part for a car, you need a different technology. And if you don't have the right technology, you are not practically, you are not competing. That's the way.

All right. And that's where that shaped the strategy for you to build your case on executing M and A. Yeah, we had.

A strategy and then we said, okay, in order to execute the strategy, we need to do a set of things and we have a very. We build a very detailed plan, how to execute the strategy, step by step. And the strategy had three phases. One of those work stream was about business development activities. And we built a framework and presented it to the board more than two years ago. So just a few months after the strategy, we presented to our board a framework of business development and M and A. And we said, there is a strategy. One tool to execute the strategy, a major one is business development and M and A activities. Here it is. We are going to bring to the board for approval many different opportunities. But we promise one thing. Everything will be within the framework. That's what we have done. And that's where we also initiated the search for targets. Because once you have a strategy and a framework, everything is much easier. You're not opportunistic. You have a plan and you want to fill holes or to accelerate some of the initiatives or the projects in your plan.

Yeah, I like that. Tell me more about this framework. What does it entail?

So it's a very cool framework. It's about what do you do in M and A and why do you do it? So the way we build it, it's a three by three table that was derived from the strategy. I will not go into all the nine boxes, only three of them, because it would be too complex. But in general we said, okay, what do we need to do here in order to fulfill our strategy? And our strategy is polymer manufacturing. We lead the industry into real manufacturing with 3D printing in polymers. That's a strategy, very simple one, polymer manufacturing. In order to be there, you need core technologies, which are the machines. You need material and software that support the machine because it's a trade off between material software and printers. In order to get to the Best part. And you need a full workflow. What is a full workflow? I'll give you an example. Because we are addressing different applications. A full workflow. For example, we are printing one application. Anatomic modeling and surgical guides for surgeons. Before you go into the operations room with a complex surgery, you print the anatomic model, for example, separation of Siamic twins in Israel. We made many different prints of the anatomic model of the head where the Siamic twins were connected and with some surgical guides. And the surgeons are practicing prior to the operation. Okay. But in order to be there, there is a full workflow. You need to scan the organ, you need to translate it into a 3D printing file. A file that you can print. You need to interact with. It's called segmentation. You need to interact with the surgeon, with the doctor. You need to send it to printing, to send it to the surgeon. He will decide on surgical guides where he can drill or cut and then he's practicing on it and go into the operations. It's a whole workflow. So you need to make sure that there is the software, the ability to interact, the ability to transform the file, the ability that someone will print it, to send it back, to have quality control. This is the workflow you have an example of.

Specifically that workflow context to M and A.

Park it for a minute.

Okay, sure.

Get back to the framework. The framework. We are now Stratasys. We have a strategy to go for polymer manufacturing and really to transform this industry from a prototyping industry into a manufacturing industry. And we focus on polymers. We said, okay, what do we need? We need four technologies, which is a combination of something we can do internally because we had two technologies plus technologies that we will acquire. That's the first layer. The second layer is about add on technologies, material and software. So I need something that will strengthen my position. For example, if I am printing with a specific jetting technology, I need some visual recognition. But I don't want to produce it or to develop it internally. But I can invest in a company that have some capabilities and I can adopt the add on feature into my core technology. First layer is core technology. Second layer is investment in add on features, software and material. And then the third layer is partnership. I don't need require, I don't need to invest, but I need to partner with someone that will help me to build the full workflow. Those are the three layers. The way to look at it is that if I want to achieve my strategy, I need a combination across those three layers. That's the only way to have full use case across different application without losing focus and without putting too much resources into it. So that was the framework. Two and a half years ago put the framework and we started to populate it with targets and the rest is history.

You turned your strategy into a framework which made it easier for your leadership to follow along.

Exactly.

Every deal or opportunity had to fit in within the framework. Yeah, I still don't understand the workflow. Do you have an acquisition that fit into the workflow part?

We have a strategy to go to polymer manufacture. In order to be there, you need five technologies because then you are agnostic. When you are in front of a customer, you need five technologies. As I said, no silver bullet. That's one, you need hardware. That's the technologies. That's the hardware. But you need also software, material and unique added value features, which is not core technology. It's something that you add to the technology so you can deliver the best parts and the best product. Okay, that's the second layer. And the third one is building a full workflow. What is a full workflow? If I need to build a part for an helicopter or an airplane, I need to make sure that I have a whole thread from pre processing to post processing and everything is traceable and I can capture the data. So that's what I need. Now how do I fulfill it? We said okay for technologies, full acquisition for material and software and add on technologies like the visual recognition, quality control investment with option to acquire in the future. And the third layer is only partnership with some type of investment in order to have an end to end workflow.

I understand it. Okay, thank you.

Let's go layer by layer from the framework. First of all, we identified that we lacking three important technologies in polymers. One is called DLP direct light processing. The second one stereolithography and the third one which is the most suitable for mass production is high speed sintering in powder bed. Those are three technologies and we'll not get into the details because it's mna discussion, but we were missing the technologies. And then we said, okay, let's identify good targets and go for it. And that's what we have done. We acquired three companies that were in early stage developed very unique IP protected technologies for those three areas which in practice almost triple our addressable market as a company. What we have done is that we acquired them. All of them were at early stage. We made out of them a real product and we put this product into our channels because we have the infrastructure. So you are buying technology, but we have the infrastructure and the coverage globally to make this a success. That's an example of the acquisition in.

Terms of the strategy evolving or changing. How does that come about? Is that built in to do some periodic check ins iterations?

The fact that we have developed a strategy three years ago doesn't mean that we stop. It's still evolving. We developed a strategy, but we also developed a process how to assess the relevance of the strategy and the need to adjust it year over year. So we put in place a five years plan that we are adjusting every September, just one month before we start the annual operating budget. It's crucial for the success both of the strategy, but also the M and A strategy because things are changing. And I would say that many three things. One, there are market changes, macro changes, but many industry changes. I give you an example. Some technology can catch up faster than the other. And then said, okay, I need to shift resources from one technology that I have to the other. Because here there are more. There is more excitement and more traction from the market side. You want to make sure that you are shifting resources into something that is more promising and will generate more return. That's market change. The second one is about assessing your progress and based on your lessons from a certain from the year, adjusting your strategy. And the third one, I would say it's customer and partner feedback. Those are for me the most important three things that really push the change in the strategy. The market is changing and maybe you are running after a goal that is not any more relevant. It happens a lot, especially in industries like us, where to develop the machine can take years or a solution every year you need to check yourself. We do it twice a year. If the market didn't move to another place, that's number one. The second one is we are doing something and you need to have two feedback loops. One is internally, we had a target, we achieved it, we didn't achieve it, we have done better or not. And then to say why? What have we learned? What can we do better or what should we adapt? That worked well in one place and it didn't work in another place. And the third one is about the second feedback loop is from customers and partners. You're doing something, they are the one using it. Be that you are completely theoretical. And then your customers are coming back to you and say, hey, we need something else. And that's what we have done. We took those three as part of the five years plan and we changed. A great example of our change is that we shifted our strategy from being focusing on technology because at the beginning what we were missing is technology. We shifted after a year the focus into use cases because we added technology, because we progressed. As I said, we already progressed. So what, you stick with the same strategy, the same North Star. We want to be in product, in manufacturing, with polymer. The Star, the North Star has not changed. However, the first step was to have new printers. Then second step was a our customer told us, you have great printers, but we need a full workflow that will be tailored to our application, our use case. So now we shift the mindset and now we are focusing not on having only the best machines, but having the right solution. So this is the evolvement of the strategy toward the same North Star.

Yeah, I like this example. And it sounds like it's a pretty proactive approach. Annually, but just as much effort as you did to build the original strategy. You're benchmarking it, gathering the feedback, internal, external, and then also looking at the market, how it's changed.

Very proactive. We are not sleeping a lot.

How do you work with your corporate development team?

Corporate development is pivotal. When I joined, we put together a very strong team of corporate development with very clear goals and we divide and conquer. Some of them we are focusing on searching for the core technologies, some on the material, software and add on technologies, and some of them on partnership. We divided it practically to two, three groups each one very small one, by the way, the whole team is, I would say six, seven people. But we divided them. Each one had a very clear goal. Some of them were on the full acquisition, some of them were on the venturing. Those are the investments, the second layer. And some of them were on partnership. And I personally is involved in it. Every beginning of the week we have one hour corporate development update. But we don't start anything if it's not part of the strategy, the framework. And we always prioritize. That's why we have this meeting. It's a weekly meeting. We prioritize because there are so many opportunities. You have to prioritize because otherwise you lose sight and you don't close deals. Because if you run after everything, no way you will be successful. So all the time we are prioritizing. We are prioritizing both in terms of the opportunities, but also if we agreed on an opportunity. We also prioritize in terms of what are the issues we need to address. Because every acquisition or investment or partnership has some issues and the ability to identify the make or break or the ones that move the needle is Critical in M and A. Not boiling the ocean because it's very easy to send a list of due diligence and boil the ocean to miss the most important things.

It sounds like prioritization applies throughout the life cycle. Doing the deal from prioritizing the opportunities as you execute the deal. Prioritizing the issues that blow up.

Yes.

Now let's say I'm on your corporate development team. Give me some advice and what's the best way that I should be presenting deals to you to make sure I'm hitting on those particular things to make sure it's going to fit into the framework. Obviously I think of the key things, right? Here's my case on why the financials make sense and things like that. But give me more beyond that. What are those real key things that you expect to learn about as the corporate development team pitches you? Opportunities. Teach me how to pitch to you.

Historically and I did many M and as even before John Stratas, I was always looking at three things, but it evolved since I joined Stratasys. The first thing was is there a real need? Because you are acquiring something and you want to make money out of it. You want to make sure people really use it. So you have to ask yourself, is there a real need in investment and in acquisition? So this solution, there is someone on the other side that you deliver to him value that no one else currently can deliver and he really appreciate this value. That's must. Then you ask yourself, especially in our business, is there a technology or something that is unique? And last but not least is who are the people? Because people is everything. Everything. That was my preconception when I joined Stratasys. I always check those three. But when you're leading a company, I think that I a bit adjusted the framework. The first thing that I'm asking and also I would like that my business development team will ask is that part of the strategy is this acquisition or investment or partnership will accelerate and will make us more successful on the strategy, number one, otherwise you lose sight. The second one, remember manufacturing. This is the strategy. I don't do anything that don't take me to manufacturing. If I do it, it means that I'm not following the strategy and then I'm starting to spend resources not in the right direction, which are not taking me closer to the North Star. The second thing is, and by the way, in the strategy you have also you check the need and if there is value and the value proposition and everything. The second thing, by the way, in this order, first, if it's within the strategy. The second thing, it's the people. Can I work together with those people? Because M and A especially the type of MAS that we are doing, we are not acquiring something, an asset. And people are not it's our technology or an ip. We are buying businesses. When you buy a business, it's all about the people. And there are two aspects here. One, can I walk with them? And if I cannot, won't walk. It's a soft question, but it's so important. And the second one is, can I structure the deal in a way that those great people, talent will have the right incentives, but if they don't have the right incentives, you will fail. That's the second one. The third topic is about post merger integration or the execution of the deal. It's so critical from day zero to try and envision can we execute on this. Because if you buy something and you don't integrate and you don't in a very disciplined, fearless way try to capture the synergies, you will fail again. And last but not least, be honest with yourself from the beginning. Because practically and your team knows where are the issues. And you need to know in advance before you sign the deal how you make it a profitable business. You know it, but sometimes you fall in love with the deal and you are not addressing it. You need to know in advance where are the issues? Prioritize them. Say okay, I know what I'm going to do. It doesn't mean that always you will be successful, but at least you are honest with yourself. That's the framework I'm trying to convey to my business development team.

Yeah, the crypto team's got their work cut out for me. They got to build how the value is created against your strategy, how this opportunity is going to drive value against your strategy. Yeah, then they got to clarify the people component and how they're going to fit in with your organization and be incentivized to continue. Continue creating value for mine companies. Then your post merger integration, which needs to be thought of from day zero. That's a lot. Can we talk about how you ensure that the integration translates into positive business outcomes?

I'm a big believer in processes and system. If you will ask me a question and I would not have the answer in terms of content, I can always talk about the process. Process is everything here. You need dedicated team. We have what we call Transformation Office. From day one that I joined the company, I established a Transformation Office. This Transformation Office was leading the reframing of the strategy project, but also all acquisition all investment and the two organizational change that we have implemented over the last three and a half years almost. So there are people dedicated for that. There is an opportunity. We build a plan. We build a plan for the due diligence. We build a plan for the post merger integration. We build a plan for the time between signing and closing and we have regular meetings and we know exactly who is responsible. They are work stream. We understand exactly where are the issues and we are addressing them. So structure and a system that support the M and A from initiation till the end of the integration is crucial. And the nice thing that we have done so many. So we build also the muscles in terms of forum work plans, structures that will make us successful.

I feel like this is such a painful part of M and A that you don't learn this up front. You learn it through repetitions and costly lessons.

They are costly lessons.

Tell me about those. What were they for you?

So luckily enough, I had an experience of M and A before joining strategies which is helpful.

Did that incline you to hire consultants or not hire consultants?

We did not hire consultants. Consultants are great. I was a consultant. How can I say something else?

You didn't mention recruiting McKinsey to help you the strategy.

So consultants are great, but for specific tasks you need brain power. You don't have internal capacity. You have a crunch. You can do something with consultants and you will gain a lot of value. But if you are able, if you have a strategy and this is not a one off M& A but that's part of our strategy to reach our North Star then you need internal skills. That's what we have done. We build a fantastic team that can take us forward. We have done it. We have six investment. You also need to manage them. We have internal team that knows how to do it. We have an internal team that can run strategy which is a great advantage because they know the industry. And we also build these muscles of that consultant has which is the ability to make decisions based on data, to analyze, to have the processes in place. But as you said, you build it brick by brick. Then you have functioning business development and transformation office team.

What were those big lessons learned in the beginning?

Many. But I would focus on three. People is everything. The biggest success and surprises and satisfaction will come from people. But also the biggest disappointments and issues will come from people.

Take that one apart for a little bit. How do you mitigate that? I hear this often.

There are ways to do it. It's part of leadership combination of on one hand is really seeing people and have the right empathy. Because usually acquisition and M and A involve a lot of emotions. Doesn't matter if you are the acquirer or usually when someone acquire you and you are a founder or something. It's much more than just money, a lot of emotions here. And you need to have the empathy to understand what is important for the other side. You have to be there. You need to have this level of empathy and understanding what is really important for the other side. In many cases, by the way, it's not the money. And then once you understood it, you need to put the right incentive. So it's a combination of empathy but also clear management in terms of putting the right incentive. The legal part of it is important how you create this fence or protection to your shareholders because you are taking risk. And part of the risk is the ability to be successful with the people that are part of the acquired organization. You need to see the people, you need to understand the teams, you need to understand their concerns, you need to understand their aspirations, really hug them in the sense that they are joining your culture.

I've learned enough from doing enough of these interviews mainly to understand how do you do this on the front of the deal? Right, because if I'm going to work on a deal, the executive, a lot of this makes sense to come and play, really understand. And again, those things that may be beyond the money, what are you looking for? And then align these incentives. How do you scale that? Because as this deal progresses, more people on my side, more people on your side get involved. How do you keep that same fundamental.

So we learned from our mistake. You learn a lot about through the due diligence, but usually within the due diligence time period, exposure is limited to most of the people in the acquired organization. Because you do it with a group of people. But then between signing and closing, it's an opportunity to learn about the organization as much as you can, to meet many more people, to plan the absorption or the integration with a new group of people with new culture. It's a project. It's not a you are here and people need to feel that for you. It's a project.

It sounds like you make this part of your playbook so you can scale it out.

Exactly. And again based on our mistakes. So that's the first lessons.

Now there's a big difference if you're doing that between a banked process and a proprietary process. What are your deals usually proprietary? You sourced it yourself versus a banker, brought it to you and said, hey, I got a deal, I want you to check out.

We did both. Well, that's all.

You don't have control of your timelines on a bank process and you don't get access to nearly as many.

Well, it's not so true. We participated in a process with a banker, and part of what we insisted on is to give more attention to the people part of the deal. And by the way, it was important also to the other side.

Do you think that fell back on that company recognizing the value of being acquired by your company with the brand?

Definitely. People want to be identified with success and also with company with good culture. And I believe we are building a great culture within Stratasys because people are important and we see them, we see our people, and we see also the people on the other side of the deal. So I believe it's a. It's a major factor in being able to close deals.

Right? That's a good point.

Yeah. And I think we covered the other key two lessons, by the way, the second one for me, it's every day, every week, every day. Prioritize. You cannot touch all the due diligence issues, but you need to make sure you are prioritizing and touching the most important.

Use any tools to do that.

A lot of problem solving. We invest in problem solving as a team, saying, okay, this is important, this is not important. Why is that?

A lot of meetings? Or do you actually use any products or any tools to help you manage all that information?

And mainly meetings. You need to think. You have to take the time to think. And the third lesson? I think in every deal you have to think about the worst case. It will always be more difficult than you expect. Always. At least from my experience.

Yes.

Will always get more difficult, become more difficult than you expect.

You run a formal exercise. I've heard of concepts like pre mortem or Charlie Munger talks about inversion.

We are just running scenarios of what can go wrong and try to address it in advance. Because you acquire technology, you run 10,000 different checks and benchmarks and print parts and you think that you covered everything. And there will always be a surprise, Always. So you have to have in mind in advance that it can't go wrong. It will be more difficult. But I have the tools and I have the resources. And not that it's important. I'm ready that something will not go as I planned because it will always be the case.

That's a good one to emphasize. Think about Murphy's Law, everything that could go wrong.

Yeah, but it's okay as long as you know that even if it will go wrong, it's not the end of the world. It's just another obstacle that you need to overcome.

How does that expand? So if you look at a deal and say, hey, keep people risk. If this person ends up not sticking around, we're going to have a big problem, then what? It's not going to be a showstopper, is it? Just consideration about what are you going to do if that happens and have at least a rough outline of a plan.

The way we handled it is that if it's in technology, it's a key person that we don't have a product without it. We make sure that he doesn't see the rewards of the deal if he does not deliver. So we build it. Usually with milestones. Any situation where you need talent, founders or talent to stay in some positions, you have to align the incentive. You have to align the incentive because just goodwill is not good enough. You have responsibility for your shareholders.

How do you know when you got that right? Sometimes it may seem right, but how do you know this person's not going to change their mind?

Business comes with risk. Otherwise you can analyze forever.

Okay, fair enough. Is there something you validate and saying, hey, I want to make sure this is what's going to make you happy?

Definitely. You have to ask.

Just ask.

Just ask. That's so important. Don't need to guess, just ask.

Any other.

It doesn't mean that they will be successful or you will get the right answer, but at least you ask.

Yeah, that's where a lot of this is. Being candid, being forward, asking the tough questions.

Yeah.

Thinking about what could go wrong. What are the things I can learn from a public company CEO?

M and A is not a goal by itself. You have a strategy. You need to find those moves that will accelerate the strategy. And any M and A that you are doing that is within the strategy. You have to be able to leverage your core strengths. If you acquire technology, you have the channels for it. If you are acquiring a channel, you have the technology to put into this channel. Number one rule, don't go for an M and A just because there is an opportunity. Go for an M and A only if it's part of your strategy. It is accelerating your strategy if it gets you closer to your North Star. Rule number two, you have to do this M and A in a way that you leverage some of your strengths. If you have channels, buy technology. If you have technology, buy channels. But you must have synergies there, otherwise it doesn't work. And last but not least at the end, people, the way you treat people will determine if it will be successful or not.

What percentage of your time do you spend on M and A?

Depends on the time. But on average, average for the year. You know, it was unique situation over the last three years because we did six investment and six acquisitions. But I would say on average between 15 to 20%.

Oh wow. You're still spending a lot of time still dealing operational with the rest of the business.

Yeah, of course. Because they have a great business development team.

How do you get involved? I know you have a full corporate development team, but even the relationship development with that other CEO.

I'm doing it.

You're doing it even on the front end like sourcing some of these opportunities because it takes a lot of time to foster relationship.

But I believe those relationships are not M and A driven. If you are in an industry, you need to have relationship with other industries.

You have those relationships no matter what.

It's not part of an M and A activity.

Yeah, it's not strictly a pipeline. You're building the relationships. To know your ecosystem, you need to know your industry. Know who your friends, family, enemies are.

All of friends. No enemies.

Fair enough.

Fair enough.

That's a good way to think about it. You don't have competitors. They're all friends.

By the way, in 3D printing, it's true. We are all friends because we are such a small industry and the opportunity is huge. We want everybody to be successful because everyone that is successful and penetrate manufacturing increase. Enlarge the cake for all of us.

What's the craziest thing you've seen in M and A?

The craziest thing I've seen in M and A. It's not my own experience, but I'm reading and I'm looking at it. The craziest thing. And I'm checking myself every day when the driver is the ego, not the strategy nor the value.

Give me an example. You don't have to name any names or dates.

No, I'm not going to give any names.

No names or dates.

I'm not going to give any. There are so many examples like this.

Are we talking about Google IT people overpaying for a business?

People are buying just to be big.

Ah, that's. I see what you mean. When they buy companies that aren't for.

The strategy, they're literally just to be big.

Yeah, that's crazy. But that happens a lot. I almost feel like there's a. You can come up with some medical diagnosis for that, but it's a mistake.

It is a big mistake and you need to ask yourself to have this introspect because it's very easy to convince yourself that it's not the ego, it's the business. You need to make sure that you are listening and that you take conscious risks and not driven by hey, there is an opportunity or I can be bigger. Let's do it.

Don't let your ego get the best of you.

Exactly.

You have this has been a great conversation. Thank you so much for taking the time, taking a break from your day to have this conversation.

Thank you Kison. I enjoyed it. It's good to have some type of retrospect on so much work and I want to thank my team because I was just the conductor but people that have done it is across all strategies the business development team, but not less important the business units themselves that really run the post merger integration, adopt and hug the new employees and made it successful.

I'm looking forward to following the continued growth.

Thank you very much.

Great interview those of you still us. Thank you. Till next time. Here's to the deal. Thank you for taking the time to explore the world of M and A with our podcast. We love hearing feedback. Tag us on a LinkedIn post. Add a review on Apple Podcast. We'd love to hear from you. If you need help standing up an M and 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 Kisan K I S o n a science.com or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit MA 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 and 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.