Aligning People in M&A for a Better Outcome

I'm Kisam 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. Hi. Today I'm here with Carlos Sesta, Vice President of Corporate Development at Presidio. Prior roles for Carlos include head of M and A at Dentsu, Aegis, director at Verizon and Verizon Ventures, as well as other private equity and Wall street positions. He's an investment banking and private equity trained executive with over 15 years of experience executing and leading strategic initiatives. Today, we're going to talk about aligning leadership for greater deal success. How are you doing today, Carlos?

I guess I'm good.

How are you doing? Wonderful. Maybe we can just kick off with a brief explanation on your current role at Presedio.

Sure thing, and thanks for having me. So the best way to describe what I do at Presidio is I'm responsible for the executing on against the inorganic growth strategy for Presidium. So anything that is origination, negotiation, execution, and even integration of all deals are my responsibility.

Great, so you run the M and A. Exactly what advice could you give to entrepreneurs that are transitioning to a role in a larger company post acquisition?

Right. So we're doing so many deals at Dentsu and Verizon, so there's certain best practices. I don't pretend to have a list of. If you do this, you're going to be great. It's just some things that the entrepreneurs that came into a larger company had in mind that resulted in a successful transaction. So one of them, I would say do your research, do your due diligence on the acquirer. As part of the diligence, I know the acquirer will point you to other portfolio companies so you can talk to other CEOs that went through the same same process. That's super helpful. But I would say, you know, extend that sample to the ones that they didn't point you to. I'm not saying go behind their backs, but try to find out what the story is behind each acquisition and get comfort that the, you know, the way entrepreneurs are treated when they come into a larger company is something that aligns with what you, what you're looking for. Then I think the second step is really, it comes to the core of what we're discussing. Kiss and you and I were talking about. Does it make sense to talk about a topic like this? The core of the success, I think, is the main seller, the entrepreneur connecting with the Deal sponsor, either the person that he or she are going to report into the person that is driving the deal forward. And, and this is a particular interest when we talk about middle market where the guys are going to be running the business are most of the times the guys that are selling the business. Right. So if you think about that relationship between the seller, the main seller, say the CEO, the entrepreneur and the deal sponsor is that there's a certain personality that these guys have to have that ensures the deal goes smoothly. And I think that is both have to be kind of bridge builders in the sense that, you know, they're coming from different backgrounds. The entrepreneur is very concerned about not breaking what he has culture and the sponsor wants to, you know, has other, bigger, larger objectives to solve for and not everything is going to go smoothly as everybody knows. So they have to be the kind of people that understand that there's going to be issues and that they can be flexible in cases both ways. Right. So when the entrepreneur is not a bridge builder, get a big pay up front for their business and then every time that the sponsor or the company the acquired try to come up with integration points, I think the bridge builder would say, okay, I'll take the good with the bad. They're bringing some discipline here to us in terms of the processes that are going to apply to us. And I think the guy that is not a bridge builder will quickly default into us versus them kind of mentality and say, oh, here comes the big guy and they're putting all their bureaucracy on us. I think there needs to be a point. An entrepreneur has to be mature enough to understand that yeah, they're going to come with some processes. But why don't you take what's the good with the bad? There are definitely stages in the life of the company that in order to grow, in order to scale, you need these processes. So why don't you have, why not have a discussion that is open with the deal sponsor about how to do this in a sort of synergistic way.

You're really hitting on some interesting points with this because a lot of times we always get fixated on the dollar figure, how much of that transaction happened for, hey, I got some competing bidders for my business and we sort of have this onset look that you're just going to sell to the person offering the highest amount or the most favorable terms and so forth. Everything you just mentioned is all beyond and past that because now we're putting in this consideration about what's this transition going to look like. And like you mentioned, that founder owner doesn't want to destroy his company and see things get broke. And then he's got to think about this role in the organization and what that transition is going to look like. I'm curious to know, checking references like hey, what are other companies that they've they sold to and what's that experience been like for. For the CEO? When, when do you start thinking about this and when do you start thinking about when you mentioned having that connection with the deal sponsor? Because that's sort of helping to to facilitate that plan in how we're going to put the companies together. The CEO doesn't want to break it and the other person wants to preserve and execute on his value drivers and the investment thesis they created. When do you start really putting those pieces together?

So if I'm on the side of the entrepreneur, the diligence will start even before you engage a banker. And if you engage a good banker, they will help you make the distinction between I want to call it culture is the most abused word ever. But it is how different companies go about emanating their own particular ways. So the banker will help you go. So this group usually does this, this group usually does that, or if they have a particularly sophisticated integration process or not. So that should be happening even before you hire a banker. Just networking with people would be a good way just to go about it. Just go LinkedIn and see where the sell sold to. You're probably going to be in same industry, talk to them about their experiences before LOI signed.

We're talking about this.

Oh yeah, absolutely now. And it's a good segue to the sort of how to get to know the deal sponsor in identifying that bridge builder or the person that acts with the deep level of empathy. And that happens way before LOI and the courtship. But I think those are dinners, meetings, maybe you go for a drink and stuff like that. But I think where it really the rubber meets the road when there's a process that we put in place at Denso that was very much geared towards coming up integration plan that is designed by both parties. So this is a little bit before loi, but it really intensifies once you're in full diligence. You consider the integration as another work stream of diligence. You have your people doing HR diligence, finance, legal. Then integration is one of them because you have a deliverable at the end, which is the integration plan.

Your integration plan is running parallel with all the diligence that's happening.

Absolutely, yes. Yes. So you sort of nominate a lead integrator for the deal that won't be the deal sponsor. It was someone that works for the deal sponsor, for example, or someone in the buyer's organization that can really navigate well within the ranks of the company. And the idea is this person is going to be responsible for collecting findings from all the other work streams and having a sensibility to look at those and say, oh, this is going to affect integration this way. Maybe we should integrate, should not integrate HR so fast. Maybe we should delay finance integration or maybe we should do this really fast. That should be done very early in the process. Because in my mind, how you integrate and how you design the deal, the payments, how you structure the deal, are intimately connected. If you want to integrate fast, great. But if you want to manage some of the payments within earnout, the earnout can interfere on your ability to fully integrate. Because as you know, with the earnout, you still have to identify the perimeter of the company that you're acquiring. So if you start blending costs and realizing cost synergies, you can do that with cross charges. But it becomes very messy and very sometimes litigious.

So early on, you basically want to use the overall strategy to help guide the direction of integration. And that approach you're going to take.

Correct. I'll go one step further. When you were talking about competitive processes, sometimes the competitive process, especially if you are strategic and you're against private equity, for example, you will be forced into putting a lot of money up front and not putting much structure on the deal. If you think you need structure on the deal, and that comes directly from the work that you've done on the integration, It's a fine balance between changing your deal structure to win the bid versus probably hindering your ability to integrate the way you thought it would. In other words, you shouldn't compromise your integration strategy because the deal got competitive. It's a tough one to solve. But if I'm the lead integrator, I'm digging my heels. Because if you did your work right, and everybody knows that the way you capture integration, capture values in the integration process, so you might win the deal in detriment of actually capturing the value of the deal.

Well, how can you prevent that? I mean, it almost sounds like you need the integration guy to be negotiating and put the stopping point in place.

Yeah. So that's why we can get into this as well. We had a lot of debate about what is the profile of this lead integrated person. Because many people think, well, it's just A project manager, right? No, it's not a project manager. It's a very good project manager but also someone that can navigate and is empowered to navigate the whole management structure and put their feet down when things are going in the ways that are not planned. It is a complicated one but it's being done once you assign a lot of. Once you empower the lead integrator. Yeah. He or she will be working very close with me in negotiating deals.

That's a good point of reference. Sort of the way it should be.

It is. I mean even in your seminar yesterday people were talking about integration, how important it is and we should treat it as with the importance that it has being a deal breaker, right?

Yeah. I think it's a trend I've seen with a lot of the serial acquirers where integration just gets pushed up further and further and a lot of people counter it and say oh we don't want to waste the resources where we're not having certainty that the deal is going to get done or assigned loi. But there's a value perspective of having that person there to actually validate the value drivers of the deal and make sure that they're committing to delivering on it.

Correct. Another thing, one other point that is related to all this integration work is and this is only purely from a deal perspective, a lot of the items that I've discussed during diligence, how we're going to integrate our salesforce, the go to market, how soon are we going to integrate HR IT legal, what have you are things that get discussed but don't necessarily end up in a purchase agreement. So what we try to do is come up with integration plan is actually a document. It's some sort of letter of understanding between the two parties which it's non binding but at least we make sure that we discuss all the points and there's no sort of after the fact after you close. Well you said this, you said that. It also circles back to testing the relationship between the entrepreneur and the deal sponsor. You're going to be discussing really touchy stuff, right. How you take people all of their health insurance plans and put in another one. So the way both entrepreneur and deal sponsor react to those tough topics, it's a very good way for the sort of personality diligence both ways to occur. Right. It's not a dinner, it's not having a dinner with deal sponsor. Everything's going to, I'm sure everything's going to be fine and rosy. You test the future relationship by discussing the tough topics.

Well Tell me about the depth of this because this comes before LOI and you're essentially outlining an integration plan and you mentioned some of the things, but obviously it's not going to be to the detail comprehensive in his actual executable plan. What does that look like? What level of detail do you actually get to?

It should be very detailed with timelines when we're doing what?

Yeah, but we haven't signed loi. Why would anybody in their right mind do that? Why would you spend the time and resources if you haven't even.

It transcends the loi. Right. You start before the loi, but it goes. So if you take the LOI as sort of milestone, you sign it, you continue to doing the diligence work and the integration work. So it goes beyond the loi.

I got you. So you'll start it and sort of start framing things prior to LOI jointly with that CEO entrepreneur and sort of develop this clear post picture of what's going to happen. But then you continually iterate.

Correct.

That sounds very agile to me. I like it.

It sounds very you.

So I want to go back to the entrepreneur. You know this guy, we talked about him and doing his homework and diligence to understand what's going to be happening post close. And we talked about even jointly developing that integration plan which we'll get a little bit more details into. What are some of the struggles that you can expect to have for that person to have and have to be able to adjust to?

Yeah. So I will take no credit for this, but I do have some answers and they came via sort of post mortem discussions that I had with some of the entrepreneurs after we closed the deal and things started to integrate. So specifically there's two guys that became entrepreneurs that we acquired their companies and then subsequently we became friends. So Neil Sharma from DEG and Steve Wise from Mute 6 were guys that I got really close and got opportunity to sit down with them and talk about integration and what worked and what didn't work. Very sort of candid kind of way. And both deals are very consistent with these two guys. In these sort of two interviews that I did with them amongst I think There were probably 10 or 12 interviews that I did, but these were the ones that I thought brought more of the impact. So there were two main points. I think the commentary was that, well, we're going through the motions of the deal and planning integration and everybody's discussing how we can grow together and what's the larger vision. You close the deal, the lead Integrator is still there providing that continuity to the larger goal here. But what the entrepreneur is not used to is to meet the professional management. Someone that is not entrepreneur, it's someone in finance or HR for example, that start iterating with the company, interacting with the company, saying well, what are your numbers? What's your budget? And they're like, well, the big vision and the synergies. And then professional management will look at them, say that's great, but where are your numbers? So that's that shock of process, process, process. It's not necessarily bad. I think it's just that the acquirer is so far down the road of putting efficiency into everything that that person is looking for that extra dollar efficiency. Right. And is very focused on the numbers only. So finance is one that I think is going to be a big shock and entrepreneurs should be prepared. The other touchy one is hr. When you're trying to integrate anything that has to do with HR is also a shock when you're going to transition people and it touches every employee. I think those are the big ones. But the big concept is entrepreneur coming from a company that's fast, agile. Everything is done very quickly to the cultural shock of having professional management just try to get something out of them.

I would hate it. I love my freedom, I love running the show. But then I have to transition and I got to change my beautiful CEO title to VP of your organization or whatever it may be. And then I got to answer to you or whoever it is.

True.

How do you sell that?

Well, that's interesting. Again, in these interviews, what transpired was people could have. So that's the point where the entrepreneur is tested in his bridge builder abilities. You could just turn around and say, you know what, I already sold my company and I don't want to deal with this big bad guy and I turn to my employees and start badmouthing the acquirer. I think that's a really bad strategy. The entrepreneurs that I've seen walking through this process knowing or at least with the right expectations, they know that's coming and they take the good or the bad, they will talk to professional management and make sure that you extract from that what they're bringing, which is bringing efficiencies to the process. You're always going to defend your culture. Absolutely, you do that. But you don't go to the point where you completely turn around and start poisoning the relationship. And then that's why you needed two guys to be this deep sense of empathy because it's going to Be very tempting to do that. And if both of them want the deal to work, they have to find a way to again, take the good with the bad. You sold your company. You got a lot of money. Do you want to continue doing this? Let's do it in a productive way. It's not going to be the same way they're done in the past. It's going to be jointly now. You have a partner now.

Okay, so you're transparent and you're really upfront. You're not hiding anything. You're saying, hey, look, there are some trade offs. You know, life's going to not be as pretty. We're going to accommodate the best we can, but it's not going to be exactly the same. And you're going to have some more rules to play by, but you're getting a fat check out of this, so don't complain too much.

And there's more than that. So in that integration, letter of understanding. Right. You also put numbers in there. If there's a structure in the deal where you have an upside to the seller, to the entrepreneur, you both look at those numbers and you validate those numbers. That's how transparent the work has to be. You come in and say, hey, we think we can do 3 million of joint opportunities in the first year, five years. Are you okay with that? And look, this is what it does to your earnout. And we went through that process with the acquire companies and we're going to get in the room and just look at the drivers of the synergies from both sides and they will validate or say, no, this is too aggressive, or, no, this is actually not aggressive enough. We think we can sell this. So it transcends just the, oh, I'm being transparent because there's bad things coming up.

So really we're talking about approaching goals as a partnership instead of my company. Now it's our company.

Exactly. And there's economic upside as well that both are validating.

What's a lesson you learned from Verizon that you carried with you throughout your career?

Oh, man. So I was at Verizon for a dozen years, and you can't possibly get one lesson out of it. So the sheer size of it compared to other companies is just so overwhelming. Right. In order to move the needle on earnings per share, you have to do such big deals. And also I helped Dan Cappell used to be my boss, stand up Verizon Ventures. So that's another whole level of learnings there. If you ever have a seminar about Corporate venture capital. Love to participate because that has a lot of fun.

We'll work on that one.

Good and bad stories. Yeah, no, you can learn so much with it. We established the whole governance process that there wasn't one for small investments and they don't move the needle. So everybody's. Every quarter there's someone trying to kill your program. It's great experience, but I think if I had to go back and you say, okay, what's the big one? And I think for me, the big one was all about humility, to be honest. And it comes from the. So I joined Verizon in 2004. So I saw the whole rise of wireless in detriment of the wireline operation at some point. So you had dsl, so wireline was selling, doubling the number of lines, and all of a sudden it went down because fast Internet was on the case. So from a sort of political standpoint, the wireless guys were on the rise. Right. And everything they touched was gold. Everything they touched was gold. So they rose to the higher echelons of Verizon and they were very successful when they were doing wireless deals and doing successful deals. And the humility point comes when these people ascend to power and then they try to do a deal like in the media space, for example, and it's significant and we all know what happened. So it's a lesson of humility that, yeah, everything you touched was gold back in the day. Every time that you're going to look at a new deal, you start from scratch. You don't capitalize on your past successes. I think that's, for me, it was the biggest lesson on the horizon.

You learned a lot of what not.

To do, which is great learning.

I agree. I 100% agree. Yeah, I know. I've heard some related interesting stories around that too, but we'll save that for another interview as well. Let's talk about leveraging employees to ensure deal success.

Right. So I think we're talking about here is when we're starting a diligence situation and I have to go get someone in HR to do diligence and be part of my virtual team. Yeah.

So they think it's cool at first when you hit them up like, oh, I get involved in this, this secret project and then they find out what it entails and they hate you later for it.

Yeah, it's never easy. It's never. So what I think you can, in my experience, you can make things a little easier for them is if you project manage them, you don't Provide them templates, make life easier, engage them early, obviously, but if they don't have a template for what they're looking for or what is the, you know, how they have to spit out their diligence report. Just provide it to them, you know, have someone draft some because they don't, they really don't have time and you're going to be chasing them and if you, you know, don't partner with them, it's, it's not, it's not going to be, the work is not going to be done. Right. And you know, if you're going to have another deal coming up, it's going to be even, you know that that's going to dictate how the relationship is going to go forward. So what I try to do is be, be their friend and then try to make life easier. That's, that's, I mean. Yeah, you bribe them with templates. Well, okay.

I, I think we both know though, like, especially in diligence, a lot of the real risk you identify requires significant amount of out of the box thinking. Like you're not going to see stuff in the checklist. And it's just the checklist is a good starting point. It sort of makes sure you cover the obvious and the doomsday tomorrow type of stuff. But the real things, I mean it really takes that sort of in the shower moments like, wait a minute, what about this? How do you teach people or sort of get them up to speed to start thinking about the M and A deal in that way and develop that sort of expectation?

Yeah. It's also a point of pride for them that. Right. They don't want to hear from you. Oh, you might want to look into that. You point to something in their area of expertise. So it's. Yeah. So I think I have two suggestions there. They're not sure fire solutions, but I think it's probably something that we might want to try. One is start specializing people inside the functions. So you have someone inside HR that is variable versus M and A. Has done M and A a ton of times. So you have very good insights and know what to look for right away. And things that are not in the, in the checklist. As you said, same thing in, in finance. So that's suggestion number one. Suggestion number two for me would be again, back to the lead integrator. This person is almost like, you know, my, it's my right hand in the diligence process. If this person is the right, you know, has the right levels of experience, we'll be able to look at early find from the work streams and raise flags as to things that could go wrong. To that effect, what we used to do was to when we have the middle of diligence, we have either calls every two days, three days or maybe weekly calls where all the work streams will dial in. And it's a bit again I'm taking a lot of their time. But what is interesting about this, you leave the line open and what someone might say in the HR work stream, my effect have codependencies with integration and finance and even legal. So they discuss right there and then what the codependencies are. And I know you could do this virtually. I know some people use to do that on teams and call out when there are co dependencies but we can continue to do that. But I thought that sort of all hands call is where things really, the issues really bubble up and you sort of use the sort of brain power of everybody to come up with the unknowns. I think it could mitigate those two ways.

That's interesting. So enabling better collaboration could help facilitate that. So it sort of kind of rubs off. You got your out of the box thinking and you start putting the pieces together and start connecting dots. Doesn't that sound right?

Correct. Exactly the codependencies and if you can. I think if you could and I know some of the platforms there already have that capability of. Oh, I found something here. Let me tag that person and make sure that that person looks into this if it affects their work stream and then you discuss live if that's a real problem or not.

I heard there's this amazing tool called Deal Room that does that exact very thing. You should.

I heard about that too.

You should check it out. I think it's going to be the next best thing.

Absolutely it is.

So I think we touched on this in terms of when companies should start thinking about integration in the deal. Can you get right to that little point of it? Is it, you know, we know this before loi but like how early do you really start thinking about integration? Like do you have that first meeting and say hey, let's see if we even like each other first. And do we start looking at some of these sort of a sense of what the company and expectations are for what the person wants for the business? Is it around that point when we start thinking like okay, we kind of get a sense of that or do we start painting that picture of integration before that even.

I think it's even before. So I usually start with the deal sponsor inside my own Organization and we look at the nature of the business and we start designing from there. Okay, is it a scale acquisition? Because if it's a scale acquisition, we just want to put them together right away. It is far from the core. Does it bring a different capability? The further away, I guess from the core, I think the higher the probability that you're going to do something that is more customized on integration rather than just slap the companies together, which it is what you do when you're buying a like for like scale play. So that's the kind of discussion. So we have our opinion at least first from the buyer side how we should integrate this and then. Yeah, so that, so we have an opinion. So in one of the first conversations with the sellers is okay, how are we going to conquer the world? And obviously, you know, usually the principals, right, they talk about business, how they're going to get these clients and all that and then it is a natural sort of segue from that. It's like, okay, how are we going to do that? Are we going to be tied to the hip or are you going to do sort of more isolated or customize? So it starts, it starts there really start very. It start way before loi.

Wow, that's really good to know. What you know we talked about like developing this sort of joint integration plan and go to market. What's the benefits of actually doing that?

Oh, the plan itself.

Yeah. Do you look them as the same thing as your integration plan and go to market?

Yeah. So I think one of the very tangible benefit is, I think what I mentioned before, discussions that don't get captured anywhere else in the deal box. It will be there. Even if it's not bindings, it's like a shake hand of sorts. But it's there, it's been discussed and this is where we agreed. So people, they will think twice before changing opinions, changing their minds. So one is just documenting stuff and second is I think that bit of bidirectional diligence that I was talking about. It's the two principles discussing tough issues. That's what you see. People's true callers. Right.

I like how you call it bidirectional diligence.

Yeah, those two. And I think thirdly, so those two are strategic more tactically on that integration plan you have timelines for each one of the work streams and that's helpful for people to especially project, manage against when things get done, when you move platforms, when you move real estate, that kind of stuff. It's just a blueprint for that.

That helps with coordination and getting a smooth transition.

Yeah, exactly. It forces you to do work beforehand too, which is great.

Can you tell me the specific process.

Of doing of this joint integration plan?

Yep. Step by step.

Yeah. So you start by again, the mobilization starts early by what I told you, me talking to the sponsor. How are we going to integrate this in together with that conversation? We already go to a sponsor and say, can you nominate your lead integrator? To be honest, I think the right profile will be someone like a coo, right? Understand operations, understand finance, understand the data of the business. So right there and then this person is nominated and it's tied to the hip with us as to the whole process. Even like face to face meetings with sellers. The integrator will come at that point, the integrator has the pen on the integration plan. And so that person starts designing it with, you know, it's really, you know, it's a, it's a PowerPoint or Word or whatever we want to do. But there's sections. So okay, what are the main principles? So you start with sort of a purpose statement of source of sorts to say, well you know, these companies are coming together because you know, one plus one equals five. And you articulate that what the way you want to do that. So that's the sort of main goal. And then under it you have different sections, right. You're going to have a go to market session and then leadership is anyone leaving, who's staying? And then functional. And then functional. You break down between all the usual, the finance, hr, legal, ip, tech, what have you. In each one of those will be a full section on how are we going to do this with number of people that have been involved, dates, who, when there's timelines, you design a timeline and then the lead integrator will be project managing all those timelines even beyond when the deal is signed. Right. Because those timelines of integration, as you guys know, it takes six months, some takes 18 months, some two years depending on how fast or how the pace of integration, I think that's it. And then, well, what's really important is that once you have a good draft, a good first draft, and this is probably after loi, but not too much after, I'm saying the first week after you sign the loi, you sit down with the sellers and say this is the integration plan, this is how we're thinking about things, we're going to be executing on this together. So we just want to make sure that everybody's validating what's in here. So you have an afternoon. We're going through all the sections of the integration of all of the work streams and the initial plan, and you get feedback from the seller how we should do this, how we shouldn't do this. A lot of times, the sellers push back on how fast they want to be integrated for the reasons that we discussed before. Well, how is that going to affect my culture and all that? And that's understandable. And it's been done where we'll paste this. Let's do it, you know, in six months or in a year, depending on how the sponsors think is the best way to do it.

Shouldn't you get it done as fast as you can, though?

Not. Well, not necessarily. So. One of the experiences that I had is that we use the word culture again. The culture was so different. It's much younger people on the target. They communicate very differently than the acquirer at that point in terms of the tools that he used internally. Very tough cultural shock. So we.

That's what they need.

Intentionally buying ticket, by the way.

No, these kids, they need to get shaken up a little bit.

No, no, no, no. We're buying them because they have something special that we don't. We got to respect that.

Now, I understand that view. Like, you don't want to destroy the very thing that's the value of what you're purchasing. I understand that. So I'm wondering if it's more of the timeframe standpoint, more of an approach standpoint.

Oh, I see. Yeah. I mean, there's. Those are the two dials that you're gonna play with. Right. And that's when, you know, folks like me or you, we cannot do that. We can't opine on that. It's really the principle to. Principle. I think that's that entrepreneur to sponsor kind of relationship. And, you know, if they'll come up with it and say, you know what, we could do this differently, but we could do this in three months. Yeah.

So one thing I didn't hear when you talked to me through the integration plan is a clear emphasis on the value drivers. Where does that sit? And how do you keep everybody sort of eyes on the real ball that we're trying to capture?

Yeah. So this is part of the integration process, the transparency. Remember I told you we sit down and we discussed the size of the prize with them, with the sellers. We sit down and say, well, there's 5 million of revenue first year, 10. And you validate them. What ends up happening is that that's how the sponsor is going to be Evaluated in terms of compensation. And that's how the entrepreneur is also going to be evaluated and compensated. So it becomes really their joint budget comes out of those discussions.

Well, I'm saying, what about during integration when the head of IT or the head of sales is like, why are we doing this deal?

So you think when there's no alignment within the buyer, well, you got the.

Deal done and you're going through integration process and you have these functional leads that typically is broken down functionally and they sort of got a list of things they need to do and that list gets bigger as they sort of break it down and get their teams to execute on it. And it becomes this massive checks box checkboxing activity. And then it's sort of that whole vision of what the deal gets lost. And that's where I'm wondering is, you know, if we, if we're buying the company for the customers, how do we drive that? This is our value driver. This is all in. This is what we need to do is to make sure that we deliver on, on the value that we want to retain from these customers.

So from trying to see if I understood it correctly from the buyer's perspective, then you're talking about, let's say the guy, the tech guy that is looking.

At this because I get it on top, I get, you know, why the company is getting acquired and you see the value of it and you've built out the value drivers in your investment thesis. But how do you get your functional leads to even know that and sort of had that message continue? I mean, I mean, I would assume that there's a lot of value and having that level of alignment that everybody clearly knows why we're buying this company and the value we want to extract out of it.

Right. That is, you know, I'm assuming everybody's bought in here and if, if there's any disagreement, they are informed through the process. Right. So the work streams are together. The tech guy, the HR person, if they see something that they don't agree with, they should raise their hands. Right? That's sort of part of the process. They also are fully briefed on why are we doing that. This sort of strategic rationale, way before diligence, let's say, or there's a kickoff call before we start diligence saying this deal is coming and this is strategic rationale, you guys are going to be doing diligence on this. There's a buy in at that level. If you're asking me if their compensation is tied to this, I don't think we ever got.

I just feel like the general purpose tends to get lost. This is a frequent thing I hear when I speak to people on integration side where we sort of lose the why we're buying this deal.

Yeah, no. You have instances where I think, well, at least I try to inform everybody up front why we're doing and why we're doing the diligence on a kickoff call. Now, that's not to say that let's say the CTO one day disagree with the deal, say, I don't think we should do this because of why. And that's a valid point. What we would do is bubble up his concerns or her concerns to the executive sponsor. So you have the day to day sponsor of the deal that we're talking about. But ultimately this goes up to, I don't know, the head of a division or a CEO. Right. So we bubble up that. Because if there's something that doesn't smell right, it should be voiced at that point. What about communications?

Yeah, I get it. I just didn't know if there's like sort of a silver bullet approach just to really get that high level alignment around that sort of deal thesis that really continues through organization because it seems like it's strong in the beginning, but then later on you're talking about the guys that are on that integration checklist execution side, they sort of lose that purpose and meaning.

Yeah, yeah. I don't think there's a silver bullet, but you're right, you need to. It's a process of constant management of the expectations. You have many of the stakeholders come up to you in the middle of diligence, say, we found this. Do we still want to make this? Do we still want to go forward with this?

Like, you got to make a mission statement for the deal and recite it every meeting.

That would be interesting. Let's start with.

You could try it your next deal.

That would be funny.

So what's a common mistake you seen made in M and A that you believe could be easily fixed or avoided?

Oh, man, I don't know. I think, I mean, I'm gonna go with the cliche one, but you see over and over though, it's that playing down the integration because many people want to see the deal done and do not pay enough attention to how to think about integration or how to deliver good integration. I think, I think it probably didn't answer your question because you, you. The last part of it is that you're. You're easily fixed and avoided. Yeah, that's not.

That's not easy kind of, you know, just getting like. I liked your approach about the joint go to market integration plan. I mean, that seems pretty easy. Is just have your integration lead and CEO, the company sit down together and really know before we finalize our terms what this is going to look like and have that discussion. That seems pretty easy. People don't do it.

People don't do it.

No.

And also, if I want to throw something here, maybe this is more pronounced on sort of middle market where you're so close to the sellers are the guys that run the business, in particular of the service industry, because you're buying people and their relationships. If you're buying assets, if you're buying ip, maybe it's less so. I don't know. Maybe it's good for another conversation.

I don't know, but I see what you mean. Yeah, we'll have to take that apart in a real deal strategy session.

Right. Buying spectrum of Verizon was completely different.

Well, what's the craziest thing you've seen in M and A?

The craziest thing I've seen in M and A. Oh, man, I have a. Well, let me just try to. Okay, so it was a deal. So it was a deal that we were looking into. I won't say where I was when we were looking into it. It was brought by a banker. And we're probably two weeks into diligence. The sector is very strategic to us. We're gonna. There were good chances they were gonna do a deal. And again, it's very early. We still haven't done background checks or anything. One day my attorney comes to my office and he has a paper in his hand and said, did you see this? And with a simple Google search at that point, a lot of stuff came about. The CEO of the company. How do I put this? And his activities during college, likened to, I don't know, breaking Bad, if you know what I mean. People make mistakes. But I think the massive miscalculation that they created. Crazy part of this is that the banker didn't see this coming. And it was a fairly good middle market bank reputation that didn't see a problem of this coming. And so after I had a conversation with attorney, I called the banker with sort of like, WTF on my face. And the answer that I got was like, oh, we were going to tell you about it. So it was just. It's ridiculous. I think it did that disfavor to the seller who you might have put the CEO in some sort of board capacity that someone else run the company, realize value. You went to a broader process in the market with that issue. I'm sure we were not the only ones that had a problem with it. And you probably hindered the ability to sell the company later on. I don't know if they transacted or not. I didn't see, but for me it's the classic example of bad advice from bankers.

Yeah, got to be upfront and transparent. And don't put too much lipstick on the pig.

Yeah, absolutely.

Carlos, thank you very much for your time today. I enjoyed our conversation and learned a lot.

Yeah, no, this is great.

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