Agile Value Capture from Initial Deal Prospecting to Integration

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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. This interview is a rewind from our Virtual Summit. Hope you enjoy it. If you want to see the full version with video, visit massachusetts.com.

I'm here with Carlos Esta, Vice President of Corporate Development at Presidio. Carlos has over 15 years in corporate development experience executing and leading strategic initiatives. His expertise is in merger and acquisitions, joint ventures, direct investment alliances and partnerships. Today we're going to talk about connecting and what happens between making a deal and integrating a deal.

Integration is a value capture play that not many have been able to actualize. By connecting and validating the deal thesis, early deal teams can improve their success rate. Our learning objective is how to connect the overall transaction process and optimize the value created. Carlos previously had an interview on this topic. Now we're going to expand on this concept with an example in more details. Hey Carlos, Thanks Tim.

When did you learn the value of bringing the integration lead up front in the process?

So this is an interview that we had already, but Thyssen was like, nah, too high level. It sounds like you don't know what you're talking about. Let me drill down a little bit, make this become a little bit more practical. In the previous job that I had, M and A was done in a programmatic way as a program that was considered one of the strengths of the company. So we would do seven to ten deals a year in middle market and negotiate and integrate them. There was a lot of smart people and they gather all the data about all these acquisitions during the time and then a lot of postmortems about deals and we have a lot of data that people go through and surprise, surprise the conclusions that people are getting at. I was like, well you didn't capture value on the Integration, the integration is to blame. That sounded consistent with what we hear in the market. But there's another story behind it. The more we were digging into it, the more it became clear, at least to me, and I think I was successful in communicating that to other people around me, is that you can't blame integration for everything. It's really the linkage between how you plan integration and how you price the deal that could be such a disconnect that you couldn't go back and say, oh, it was just integration that it was blamed for potential failure. It's how the integration planning was factored into the whole deal planning. A small aha moment that we took very seriously and converted that into learning for future deals.

That's actually interesting. You basically look back, did a retrospective with some of the CEOs of these companies that you've acquired and really came to that conclusion. The fail point was integration. This is sort of what are the elements that you can do to improve that?

It's more just getting the feedback of the CEO of the company. It's looking at the whole process because the CEO of the company was going to say, oh, you messed up on integration because of hr. And that person will have a certain view, the integrators themselves, not a different view. And then if you put it all together, it's can't just blame it on integration. So everybody's sophisticated enough to at least do integration today. So if you didn't do integration, then, yeah, blame all integration. Thinking about integration, it's how you connect that with how the deal's price and how the deal is that link, that.

Is the continuity between pages. Ready for the next question?

Let's walk through an example. Where do you begin in thinking about structuring a deal?

Let's define a couple of things. So what is the structure of the deal? It's how much you pay, but also how you break that down into different components. And you can be cash up front, you can do sellers financing and then do deferred payments. You can do contingent payments, which are the infamous earnout, where the payment is going to be variable depending on profit. You can do equity, you can pay with equity, you can play with equity like instruments. But in general, what you're trying to do is figure out how much is cash upfront versus contingent payment. Because the contingent payment does a couple of things. It manages risk, but also provides an opportunity to give upside to management if management overlaps with the share owners. So if you think about it, the dials that I think about when we pricing it together. Right? Pricing a deal is one is the headline price, which is the one that everybody knows, right. How much do you pay for this company? 8 times, 9 times EBITDA, 3 times revenue, 5 times revenue. That's extrinsic to the process. It's depending on what company like that is trading, what's the market like. So it's an external input to your whole process. Then you have the risk management part of the equation, which is if you ask your risk guy, he's always going to say, oh no, put everything as contingent payment. Nothing is fixed payment. So that's the extreme. That person or that kind of worry about risk management is always going to push towards variable payments. Or if you find something in the deal, let's say uncertainty about their forecast, you're going to try to quantify that forecast and say 20% of the deal. So we're going to say, okay, I'll pay you 80% up front. But this part that I'm not sure, let's put that on another. That's the second dial. The third dial, which for me is the most important is the integration. All these other two factors are going to interfere on how we integrate the company. And that's the one what I think you cannot compromise on. What do I mean by that? I mean, if there's no contingent payment or ability to incentivize management with the purchase price, then you probably going to have to put some sort of bonus overlay of bonus in there to increase their chances to make more money into the deal. Guess what? That increases your overall price of the deal. And also, conversely, this is the infamous part of the earn out. When you put a structure on the deal and you're still measuring the target profit after you've done the deal, it means that you have to keep that entity separate. It means that you cannot completely act as one company. There's going to be intercompany charges and all that. For me, it's just those three dials and it's a fine balance between them. Once you turn the dial too much to one side, you mess up the other. The equilibrium, the other.

I like that view. Your deal structure is built around those three dials. You talked about the valuation, the risk management and then your integration model. Really nice to actually put those three together. Give it to my partner to ask you the next question.

Walk me through the setup. What does a target entity look like? Who's doing that?

So this is the part where Kisten put me in a hotspot and said, carlos, Give me an example. What you're talking is just too high level. So I'll give you an example where because of the imbalance of one of these dials, I have to walk back the whole deal. And it was that tragic at the moment to walk back in the deal, but very enlightening to how we do deals going forward. This is an example of an acquisition. I don't want to be too specific because I can't. But let's say there's a company that was providing services on top of technology, very known technology platform that exists today. They do implementations of that platform. So they make money by doing consulting and maintenance of that platform. The buyer was in the US and the target was in another continent. The rationale for the acquisition was obviously scale global expansion, but also do some cost arbitrage around labor because the country is priced differently. So you could do some cost arbitrage there. Fast forwarding the story. We had a certain procedure inside of our company dictated by the risk management guys that says if it's in another country, we might want to keep those people for a long period of time. There was a lot of overlap between ownership and management. Management was the owner of the company. So typically our manager will say put these guys on a long run out, three, maybe four years on earnout, giving them a long period because you want to put them together. So what happens in that case was I have a very savvy deal sponsor on the buyer side that looked at me and said, carlos, that cookie cutter thing will not work for me. That's the part of the integration dial. The guy who's looking at his experience, he's saying I need to integrate these guys faster than that. The earn out will prevent me from doing certain things that I want to do. And I know that you're talking about this playbook that you have, but the world is different. We need to act as one. I can't be pricing things and looking at these guys and consulting them on price. It has to just be one company. In his conviction, he said, I can't have an earn out that is more than one year here. So that was that moment that I said I understood and I embraced him. And also light bulb came in as in, okay, the role of the corp dev person not only externally negotiated, it's negotiating internally with all these push and pull parts. The risk guy and the project management guy on who's going to win this and how we're going to price this deal, how we're going to structure the deal in a manner that position ourselves for success and and don't cater to one of these dials only. All of it came to head into the corrupt dev position. And this is the part that I had to go back to the target and say, you know what, I'm going to walk back on this and instead of four year and out, we're going to do one year and out. To the example, it unbalanced the other dials. The risk management guy wasn't happy. What happens with the risk guy was, well, we now have to rely much more on diligence to make sure that we minimize the risk or understand fully understand the risk. And what happens to the overall pricing is that instead of having four years or I have one now, so I'm reducing the whole opportunity from it. So I imbalanced the whole thing and there was sort of hammering people like are you okay with this? And then I was getting negative feedback from all areas. But it was my role to just communicate with them and say, hey, we either price it wrong and there's a high probability of this deal failing given the integration or is the other way around we integrate it well and we pay a little bit more.

That's such a big trade off in that situation.

When do you start discussion integration internally?

I like to start as early as possible. In fact, if I can start discussing before we even bid, the better because then I know where I can go when I cannot go. It's also a conversation that is tied to synergies. The more synergies that we have to realize, the more potential I can bid. Evaluating those synergies is also part of the diligence, but also how I capture them is part of integration. So they're all connected.

You know that statement, pricing a deal with integration in mind, what does that mean exactly?

For me it means getting to the bid stage, at least on the first bid, with conviction on how you want to integrate that entity. The consequences of that are, let's say the ownership and management do not overlap at all. So let's say if the market is telling you you have to pay 10 times for that company, you have to account that if you want to keep management, you have to put incentive programs on top of that. So you're paying more than 10 times and if it overlaps and you want to do some kind of earn out, then have a conviction that you have this right amount of years or time that you hold those guys in place and provide the right incentive. And usually in the banking process, the process letter saying, hey, just the first round is Give me your tev. How do you value this company? What's the total value? Don't talk about the structure right now, but I like to, at least internally already at that point have a view on how we're going to structure the deal. The contingent payments or deferred payments factor.

In some of those variables that are going to be built around integration.

Yeah, right on the first round.

How do you incorporate the integration variables into the deal? Valuation?

Yeah, that's tough. In traditional modeling, the value of the deal is you either use DCF or whatever method you use is assuming successful integration. Nobody's going to price the deal and say, oh, the DCF of this company, we're going to make three times our money here. But if the question goes badly, we're going to make one time. Nobody does that. There's certain discount factors that you can put in place, but it's going to be just so subjective that I think the pricing for me means having conviction of what you want to do from the beginning. The competitive forces start getting out of control, meaning it gets to the point again, back to the three dials. The headline pricing is going up and usually it's pushed just in one way. It's more cash upfront and no structure on the deal. That's the direction that competitive deals pushed you. If you have conviction about how you want to integrate these things and if you absolutely need some earn out on it, then it should be a walkaway point, your conviction. And if you have a deal sponsor that knows what they're doing and have done M and A in the past, I totally listen to those guys. They say if I cannot integrate in one ear, then we should walk away from that deal regardless of the price. That's the attitude that I want to see on a deal sponsor. Having conviction about your walkway points, not only on the economics but on how you integrate.

When you're developing this sort of model internally, what does that look like from the people adding the inputs? Are you guys negotiating some of this stuff in terms of how you present this into your, into your model that you're eventually going to bid on?

Yeah, we're constantly negotiating about negotiation internally before we even negotiate externally, how integration is going to play into the whole equation.

I'm thinking about, you know, who's weighing in on this. Right. If you're, if you're building this out and you're putting all these factors related to the integration and what you're going to do, those assumptions, who's weighing in on those and how does that conversation get Finalized into your evaluation model. I'm assuming it's not just you. There's got to be some other folks.

No, no. So Corp, Dev and M and A by definition cannot go by itself and do deals. I think it depends on the size of the company. When I was doing M and A for that company that I mentioned, on a programmatic basis, the deal sponsor was the person who made all the calls. In a smaller company, I would think I would have to run that by the CEO all the time. These are decisions made at the highest level possible. There can be such a value accretion or value destruction depending on that. That is, they should not be taken lightly as to who's accountable for that.

Got it. I guess one of the other key themes that we really wanted to get into is how you connect the diligence process.

So the way we connect the synergy process and in that same case. So I remember I walked back and I had to make the risk guy very sad by saying there's not going to be too much risk management here. So in order to be comfortable with the risk, we have to do more diligence upfront. What does it mean doing more diligence? It's not doing more financial diligence, going through more financials. It's actually in our case, what we found out is that you will take whatever the synergy thesis is, whatever you think you're creating value out of this, be it cost savings or additional revenue, you bring that piece to the forefront of the process even before you start doing financial diligence and tax diligence. Why is that? You're parallel tracking that with diligence. What you're trying to do to get to is to a quick no if it's a no. So you test the thesis of your synergy up front. Diligence has started. We'll tell the target, listen, we're doing things a little different. Instead of unleashing PwC or Deloitte on you doing all the financial diligence, there's all these points. We think we can add value. Proverbial one plus one equals three in these areas. Mr. Seller, do you agree? Can we have meetings for a week before we start diligence on all those thesis and try to validate that? So what that means usually is that if it's revenue synergy, that's not something that the CEO of the Target could apply. But it's usually someone slightly under, like a chief revenue or a salesperson that needs to be brought under the fold if they're not already to have conversations around that granularity because that person will bring is, oh, I see. That applies to, you know, that client and that client. You know, it's usually going through a list of clients and say, yeah, these guys are going to take this product or these guys are going to take this product. And sometimes even informally, is the salesperson from the target throwing some information out there to the clients in conversation to really figure out if that's a combination of products and services or whatever it is that the combination is coming up with is something that would sparkle like appetite. That's the best evaluation you can have on your thesis. So that's why you want like a week or a little bit more than a week, maybe two will be ideal for testing that thesis. If it starts coming back as no. And then you should cut your losses and run. But that kind of synergies what give us comfort that I can go back to the risk guy and say, hey, I know we're protecting ourselves less from a deal structure standpoint, but we are much more comfortable in our case now because the validation came from these sources and these sources are pretty close to the client.

You're bringing up the diligence process, but throughout it you're essentially testing your synergy thesis. Can you give me, you're giving me the approach, but can you give me some specific examples of what that would entail?

So on the cost side it's easy. I'll give you the revenue because I'm still, I'm buying time to think about it. But on the cost side it's easy. So if you're saying, you know, we have overlap in these areas and we just need one marketing person instead of two, then it's easy. Just get together with the CFO of the target and say, we have this person. What does this person do? It's easy, it's internal, you don't need anything.

You're basically making sure there's no other dependencies in his role or things like that where you sort of like, oh, we can actually size that role out.

So on the revenue side, let's say you're a services company and you're selling sort of this implementation service. Right? I'll go back to the example actually. This implementation services and then the target actually have, let's say development of apps on top of that, whereas the purchaser was just like reselling and value added services, like consulting. The other actually had some folks that write code and make the whole thing look pretty right. And more user friendly. So what would you come up to your client with, again, in that phase of like testing, the thesis is saying, hey, I know we sell you the service, but if we had the ability to provide you this, would you, first of all, who you're taking that service with today and would we be able to replace that with this? The client will probably say, you know, yeah, I would, but why would I change? And then the feedback is, well, why would we price it differently? Why would we price it as a package? But that's the kind of conversation and that's valuable feedback. If you go back to the guys that came up with the Thesis, say, yes, they would take the combined product, but they want a discount. So in your synergy valuation, you were doing, you were keeping the prices constant. Let's put a 20% discount so that decreases your synergy. You're still validating the synergies, but it was not as big as you thought before. So you feed it back to the financial model, has implications on your DCF of the company, looks like or can be valued at.

What do you do when you start seeing things aren't what you thought they were? These sort of approaches or examples of validating the synergy thesis? Is that automatic recourse to update the valuation model?

Yeah, totally, Absolutely. And then the question is like, well, our thesis was wrong, or at least was partially wrong. What happens to the model? Well, we thought we were going to make three times or we're now making two and a half times, or, well, it's so bad that it's now destructive. I mean, the price that we're paying, that we said we're going to pay, we can't pay anymore because now the synergies are not there. So what do we do? But that's the point where you sit down with the banker or the seller and say, hey, we thought we were going to encounter this. We didn't. We're not comfortable with the price that we're discussing. So either we walk away now or if you guys are amenable to revising the proposal, we'll discuss. It's an uncomfortable moment. Very uncomfortable.

You're transparent and you're just being upfront.

You have to, you have to. It's the point where you're saying, I do this deal as designed right now, it's sure fired is going to be battle destructive. It's time to walk away.

So validate your synergies iteratively throughout the process and keep doing it till you get to that close. And then game changes and you got to really start executing on the plan.

And I always think about those three diodes because they are, they're so sensitive to one another.

I want to switch it up and get into some of the things that we talked about previously where it was around aligning the CEO with integration lead. And this has been the theme of the year, Carlos, maybe the last few years. It's, it's popped up in a variety of interviews. We just did the interview with Cisco organizations as they mature their M and A function. The common theme is they learn the value of integration. Integration is a phase where things either make it or break it. It's just more attention and focuses on it. Where companies want to start getting integration folks involved earlier, plan earlier. Our conversation intrigued me because I feel like you took it to the extreme level. You started talking about getting people together and start outlining, go to market, you know, before they sign a loi or anything. Some interviews, I'm like, no. I ask them, when do you bring them in? And it's like, well, we're so comfortable that we're really going to do this deal. That's when we start bringing integration people in. Right? You're laughing. Give me your thoughts on that.

We try to bring what we call testing the chemistry between the two principles of a deal as early as possible.

Unless you're a deal sponsor and the target company CEO.

Correct. So it will change depending on the size of the company. What are you doing? But it's the deal sponsor. It could be the CEO of your company, it could be the head of a division. It's the person that is going to call the shots on what to do with that entity and the principal on the other side. It is usually the CEO on fire company. There needs to be a very good heart to heart about, hey, Mr. CEO of the Target, are you going to stay here? Are you going to stay for the long run? Then on top of that has the conversation about incentives. It's more than that. It's the chemistry between the two people and if they don't already know each other and just know, you know, met each other through the deal. We have that phase where everybody's in love, right? And everybody excited about doing the deal. But what you really need to test is in sickness and in health, right? You have to test if these guys are not going to divorce on the first sign of difficulties. And the way we tried to simulate that in the process was to. First of all, I think I mentioned that in other interviews. I, you know, have integration be another work stream in diligence where the final deliverable Instead of being a diligence report is an integration plan. A lot of advantages of an integration plan. A document that is owned by the two sides, the sponsor and the CEO of the target. Where they put on paper what they agree integration is going to look like, how fast of how slow or who's going to go, who's going to stay. From my perspective, the most important part is that they're going to be discussing items that are not very pleasant to discuss. That's when you put your lenses and you look at the behavior and the dance that these two guys do. The corporate ladder shapes egos and shapes things that you would think it's not. They wouldn't be the right thing to do. But it happens. You never know people until you put them under stressful situations. So for them to talk about how are you going to allocate cost between them, how integration is going to be. Just haven't discussed tough items or who's going to go or who's going to report into. Very early on my integration leads sit on that meeting as well. And we're just observing the posture, the dance and that's really interesting to see if those people are going to go along. Well, I think many times we know what's going to happen. Plans go off the window and you have to change plans and all these people work together is super important. And we used to say that we have to find out that the two people are going to be bridge builders. Can't be just like one, one way or the highway. They have to go along well and have some, some, some flexibility there. We test that during that work stream that is the integration plan.

It's interesting because culture comes up a lot and it seems like this is sort of early view at it. But between the leadership, is there some general culture alignment? Are they starting to see their ways?

I think it's interesting too the cultures are different. At least be understandable of the other culture and respect and how to deal with that. I mean there are many deals where the cultures are very different. So integration is very careful. It's very hands off. Or the cultures don't have to necessarily align, but you have to treat them accordingly. If they're very similar, yeah, let's everybody live together. Great. If they're different, then integrate very gingerly. Maybe just the financials now and then think about the good things that the target are seeing in the choir and maybe they don't like having foosball. It's like small things like that.

Can you give me an example? I definitely want to press you for an example because I want to understand that first moment when this happened is the deal sponsor always integration lead and when they first actually interact with that CEO, what does that look like? And then I also want as an example is the red flags you're looking for and how that unfolds.

So usually, I mean it's in the middle of the diligence and you set up a meeting and you say okay Mr. Target CEO going to have a meeting to talk about integration. It's going to be the deal sponsor, the lead integration, the head of M and A and here's the agenda. And then the agenda we come up on our side saying how are we going to integrate the salesforce? How are we going to integrate a back office? And just go through those. I mean like at the beginning, very non specific, let's talk about this. Then at the first meeting you start poking into what you feel is going to be the. They try to feel what the hot buttons are going to be. So you start discussing. So let's say in sales, for example, the structure of the sales compensation is the hot button test that can we align the two and then the sales go no, no, no, no, no, can't really, can't do anything about that. And we're like why? Well because blah blah, blah. And then that's when you start seeing what the hot buttons issues are and then you collect that to another meeting that we come and drill down a little bit more.

When's the first touch point between deal sponsor and timeline wise? Yeah, because it's interesting, it sounds like you sort of build the broad plan of hey, this is what we're going to do, this is how we're going to capture revenue synergies. And then as you continue you're revisiting and you're hashing out more details and then you're starting to test those thesis on your synergy saying okay, this is what we're thinking, your salesforce, we're going to change your comp to this.

You start planning and having preliminary conversations before you get exclusivity, meaning before loi, I think. And the minute you sign the loi the day after you already have this conversation about integration the day after you sign an loi.

Okay. And obviously this varies between a bank process and an exclusive process. But you have some early conversations. But even within that window you're starting to get to a point where it's like hey, this is interesting. I think this is something we want to pay attention to. And then at that point you're bringing your deal sponsor in to get a feel for the CEO management team?

Yes, I take a lot of bandwidth from Ideal sponsor.

Talk me through that. Because I don't think a lot of.

Companies do that if they think I'm going to be doing a lot of decisions for them. It's not being lazy, but just like I can, I'll bring alternatives. I'll tell you, can do this, this or that. What do you think? You know, I'll be dialing that person and taking a lot of time. If you want to do a deal, you have to be 100%. Well, I would say 100% because I have a business to run. But I'm going to take a lot of your time. I'm going to be asking a lot of questions and making sure that you're signing up for each one of those things. Obviously it's not like that. It's like it's about a relationship again. Carp Dev is about making relationships internally, externally. It's very time consuming and very gratifying. I love that. But yeah, I need that person's dedication to the deal early on. I'll talk to the person on a daily basis but I'd say I'll consume maybe three hours of that person every day until we like on the week before loi, for example. At least three hours a day, every day.

Your deal sponsor, the target CEO, the deal sponsor, you're getting him involved. So he's having conversations with the target CEO essentially as this unfolds. They're both the owner of the integration plan, correct?

Yeah, both of them.

And so even before exclusivity it sounds like, I mean are they building an outline? What are they building and what's in there? Like what are the points that they're trying to frame for.

We used to have a template which is like a one pager that it sort of outlines the cost side of the integration which is pretty standard, pretty template. The revenue side is different for the, for each industry and type of product and all that. You try to outline right there and then what we think the synergies are even before LOI and have the two principals have a conversation about it, about the high level validation of it. But also what is the implication of those synergies to the organization. It will fold into how we structure sales comp or how they report. It's a one sheet of paper that is. Listen, they're having at that point the two principals are trying to build a relationship with a deeper relationship with themselves. They're having. Well, when we could get together having breakfast and having lunch and just talking about things and how they think about the market. They are many times in the same industry, so there's a lot of commonalities. They have a lot to talk about. What they're most interested in talking about is the future of the industry. Where do you think it's going? And you see these guys talking, if you let them, they'll talk for days about these things are going to die and these things are going to. So I just asked him, okay, in your conversation, here's a sheet of paper. Start outlining with them in your breakfast with this person how they're thinking about these things, all these integration points and what it means for organization. They're early in the, in the organization. So I just send them a piece of paper, say talk about these things and come back to me with what do you think?

When does this approach not work?

This approach did not work when I was fooled into someone that I thought it was on my side. The deal sponsor just completely came across as someone that is going to be flexible, incorporate with the deal and then turns out that he was a big actor. After the deal was closed, the guy turned into actually caring more about his job than actually making the acquisition happen. I'm going to blame that on the fact that a lot of his compensation was not tied to the success of the deal. But that's the other part. I can put all these things in place and the target CEO is incentivized, but the internal sponsor also had to be incentivized for that deal. Otherwise something happens. And it was also in a period of time where the industry was sort of getting sour on what the acquirer was doing. So that guy that was the CEO of this entity just completely turned into self preservation mode. We did all that work, right, to make the deal and integration be aligned and positioned for success. All of a sudden I was without a reliable sponsor.

Isn't that a good thing though? Like you sort of shake that out earlier than later.

Oh, this was not earlier. Oh, it was.

It turned out to be later. So can you give me an example of taking this approach, this real early? Get the deal sponsor integration lead together with the target company CEO and have them start building this plan. And I like this whole continuous iteration and then validating these integration synergies throughout and having them own it. Walk me through example. It's been successful because the way you describe it and people talk about this high M and a failure rate, it sounds like this is the crux of it. You know, we always talk about it and now we're at a point where it's all around integration. I want to know like get a specific example of that that actually worked out well and then I'll pick it up with some thoughts in terms of how you see it attributing to success.

I have at least like three or four that I think worked really well as part of the process. The Target was impressed that we would take so much effort to into integration. It's actually I later learned that they decided to. It was a very competitive process going with us versus a private equity fund because of how we positioned the whole integration. They were fascinating. I mean the Target CEO himself have done acquisitions in the past and he was very focused on integrations. I think that's one of the reasons why we got the deal. We outlined the integration plan, everybody signed off on it. There was absolutely no surprises. So it's one of those things that if nobody's complaining, declare victory and take it from there. And I remember the case was pretty aggressive in terms of the synergies that we wanted to realize. We ended up being being that company's record first year revenue synergies and a company that has done 100 deals in the past 10 years was the most amount of synergies on the first year. So we were very happy about that.

It's interesting that you actually got favored because you had such a clear picture of what the post closed world was going to look like.

It resonates a lot with people that have done deals in the past. Maybe a first time seller, not so much because they were thinking well is what it is. I'm starting my company. But folks that are more super sophisticated and have done deals in the past, it does resonate with them.

Very cool. What other tips and advice around this? I feel like this is sort of the. You need to make it into like a framework of its own and sort of post.

It is hard to convince people that there's value in this because that sounds a bit. It's a lot of process and sounds cool when you're talking about it. But skeptic is going to say, well, it's all about money. At the end of the day, yes, it's all about money. But it's not only about money. You pay a lot for a company or pay whatever you think it's reasonable. Those factors just tie everything together. It's all about risk. But as I've just demonstrated, if you start building reputation about how you do M and A in two, three years the bankers hear about it, you start building reputation around how you do M and A. Sophisticated sellers are going to look at you and say, I'd rather sell to that guy. Because I know I'm not going to have a lot of headache or things get out of control and then that's how I think about them.

I want to go back to expand on the benefits like the outcomes you see over that approach. Because I know you got extensive history, done deals at Verizon Densu and you've seen every variation of approaching M and A. Give me a good contrast of what the benefits are. Taking that we, we got to give it a good name at some point too, by the way, that I think.

I should shoot TMA at some point.

We'Re going to make a play out of it. We got that collection of plays we're building.

Oh God. I've seen a lot of counterexamples, kissing of deals being done on the headline pricing only and just handing it over to the head of a division. That's probably not a good example because then there was no integration planning and that's not what we're talking about here. If you're doing no integration planning, then yes, it's going to fail.

Right. So let's take the typical, you know, people, they start looping in people what, a month or so early.

Yeah.

I want to get the contrast like what, what are the benefits of, of this in terms of what outcomes do you see? Because I know some people are going to say, hey, we do integration planning and it's very typical that once they get an exclusivity period and they're in, then they start pulling different people in from functions and getting all, all those inputs in.

Yeah.

Even between that and what you're suggesting, which is bit of a different fundamental.

Approach, one of the benefits is you're collecting more data and when the deal goes well, everybody's high fiving each other and nobody cares. Why are we getting so many synergies? It's great anyway, so why do you care? But then even in the ones that go really well, if you have at least a framework on how you integrate it, you can tell things that worked and it's about getting that information again. It's data mining a deal. Data mining what happened in the deal and a lot of the integration and the connections of the integration with the pricing and how you price it, you didn't have that data so you couldn't have that work and it didn't work. And I loved what I did with that job where we go back into the postmortem and really get to the granularity of the small things that work and the things that didn't and learn that and apply on the next one. On the next one. And you take that to other jobs as well. You take that with your career. It's interesting to come to a new job or even a different industry. Beauty of M and A that many times we're seeing as a function that cuts across industries. Come to another industry and try to apply certain of those things and you have like slight variations. I mean it's super fascinating to use that and put it across different industries and practices. The biggest benefit for me is the data mining ability.

Data mining. And we talked about just validating your thesis sooner than later.

What that does to Kissen quite frankly is that we've all been in corporate setup. It easily identifies the sort of the bs, right? Yeah. Usually exposes the BS and he's talking about BS synergies. It immediately put it on the spot like well this doesn't make sense at all. Let's not even go there. And I've been in a bunch of situations where we have our planning of synergies and we never validated with the seller because they cannot know how much we're paying for this or how much we can pay. And then you become with a lot of thesis that are sort of in the vacuum and provides ability for someone just say I can sell this to this. But they just come up with a thesis that has no fundamentals. Just because that person is a high executive and prophesying all these things don't mean that they actually are happening.

Yeah, you're forcing everybody to keep it real.

So there's a balance too. I understand. Well, we don't want to show them at all how we're deriving synergies. Well there's a balance here too because if you have a conviction, absolute conviction that you're right, just never the case. When are you 100% sure that what are you doing? There's risk in everything. So the ability to bring the target together, validate some of the stuff has a lot of value. I'll question completely isolating that from the exercise opportunity.

How do you ensure deal sponsor accountability across all stages from execution integration into hitting the numbers once integrated?

It's not a question for me, it's a question for a CEO of the company. But yeah, I mean you put that into the sponsors compensation. Absolutely.

Them through it, through the compensation tie that into the post close result.

But specifically it can't be like, oh, you're going to get more shares of the. The mothership. And the correlation between the performance of the mothership with. Compared to what your deal. Your deal might be super small. And you're getting equity from the mothership. It doesn't correlate. You know, there's. You can get. You're going to get equity that is not related to your performance here. I've seen that many times too. And it has to be relevant, but it has to be directly connected to the performance of this thing.

We're hitting our time, Carlos. But I got to ask you, what's the craziest thing you've seen in M and A?

I got that question like three times, so I'm trying to.

It should get crazier, especially in this market.

I don't know in this market, but I've seen my quota of stupid stuff, crazy and stupid for me, go hand in hand. I've seen, you know, even when I was in banking, like people, you know, insider trading on targets. They're not senators in Georgia where you can do insider trading. Get away with it. We're just M and A practitioners. We go to jail.

Have you ever heard of anybody go to jail at M and A for inside trading?

Not go to jail, but severe consequences. That's like you don't get. You don't get a job in M and A anymore. And it's going to be hard to get not a job because there's a black stain on your ethics. You won't believe. Like educated people being stupid. It's. Maybe it's like a TV show, educated people doing wrong things.

Awesome. Carlos, thank you so much for your time. I enjoyed this conversation.

My pleasure.

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