Balancing Legal and Business Concerns in M&A Transactions

I'm Kisan Patel and you're listening to M and A Science, where we talk to deal professionals and learn lessons from their experience. Scott Heil is an M and A professional with almost two decades of M and A experience as an outside legal professional in house, attorney and general counsel and corporate development executive. He also teaches entrepreneurial law and global business transactions for Clemson University's MBA program. In this episode of M and A Science, Scott and I discuss the delicate balancing act between legal and business interests, how to best handle cultural differences, geographic differences, why it's important to keep an eye towards integration during diligence and not making mountains out of molehills. Now my conversation with Scott Heil.

Let's start off with an overview of your approach to due diligence.

You know, I think having the dual legal business background has given me an interesting, unique perspective. You know, it's tough sometimes when people don't like what you're suggesting and it's coming from the corp dev side, then they're quick to call you out being more of a banker. And then alternatively if there's a problem on the legal side that I'm raising, then they call me out for being a lawyer. So it could be a double edged sword. But diligence to me grew way beyond what I was doing when I was starting elsewhere. It was sending lawyers with some folks from the acquirer to simply go through boxes of documents and check contracts and double check the financials. That was the lens that I had when I started my career. And it becomes so much more than that. And to be successful it has to become more than that. So the way I started thinking about diligence is how is it still tied back to the original investment thesis? How do you coach your diligence team beyond just the legal side to prioritize and identify quickly those material items that could impact the investment thesis while at the same time following up on all the more legal risk oriented issues that you need to find that may be a red flag to even move forward with the transaction. And then at the same time start to layer in the integration planning into the diligence. So that diligence is simply not risk finding. It also includes planning and gathering information that can be used by those members of the team or those people that will be brought in later in the process to finally develop an integration plan and execute on it post closing so that you don't leave or you try to avoid leaving as many, you know, hidden, hidden issues as possible and not kick the can to post closing and all Those things can be a problem for achieving the value and capturing it the way that the plan called for.

So you're looking for those surprises ahead of time for the integration team.

Yeah, you are. And you're also trying to. You know, I think the balance that I've been able to get between the legal side and the businesses is not making mountains out of molehills. You have to understand, if you're on the outside, you have to understand your client well and their risk tolerances. And on the inside, you better understand those things so that you don't let issues get raised that maybe are easy to address, or the mitigation is something that is not material from a financial standpoint to address. Or that though the issue is one that needs to be addressed and there will need to be effort put into a mitigation plan in and of itself, it does not negate the value of the acquisition so that the team's effort should be spent on mitigating it so that it doesn't distract senior leadership away from the issue at hand, which is that the acquisition potentially is going to make the difference, whether it's a bolt on, whether it's a platform play or into an adjacent market.

How would you go about prioritizing those risk and legal issues that come up?

You know, for us, this ended up developing into a process. And I'll make the caveat statement that in general, I'm not a huge process kind of guy. To me, you know, you can't M and A has got as much or more art than it does science. There's analytics that are necessary, there's some base table stakes, types of activities that you need to do so that you're focusing on the 20% of the issues that are unique to this deal, rather than the 80% that are kind of standard for most acquisitions. So putting that lens on and then talking to the team and saying, look, here's the investment thesis, I'm not going to hide that from you. I think in some organizations, I've seen that they are less open to having the conversation with the team about why are they targeting this company. You know, where do they believe the value is? And, you know, acknowledging that this is where we think the value is. But we haven't been able to start diligence or we've only got limited information either under NDA or that's publicly available. So these are hypotheses that we're testing, but we need you to test them. These are the ones we think we need to test quickly, because if we don't substantiate or validate these key value drivers for the acquisition, then you finding 20 legal issues or finding a major potential cost with an SAP implementation is irrelevant. And you're not doing the team the service that you need to do, which is focusing on those key value drivers. And once those get checked, then start going down to the next level and understanding whether there's some hidden costs that might not be budgeted for with my SAP implementation comment, or whether there's major legal issues that may or may not be able to be addressed post closing or in the purchase agreement to limit exposure for the acquirer.

So let's start looking at the big picture first before really diving into these details.

Yeah, I mean, I think that's the best way is to make sure that you're always reminding people throughout the process and this gets through to integration planning as well, that there are, you know, a handful. I mean, I'd be surprised if most people have more than five key value drivers for why they're pursuing the company. You know, it's geographical expansion, it's channel access, acquiring ip, acquiring talent that they need to add. So, you know, make sure the diligence team is focused on those areas. Utilize third parties to the extent that your budgets allow in diligence. So think of accounting firms, outside law firms to be running in parallel on some of the more like I mentioned table stake types of items, you know, quality of earnings, reviewing the contracts, making sure there's no gotcha, legal issues that haven't been identified so that you're not losing time. But a lot of the internal team from the acquirer is best spent focusing on those key value drivers in those critical kind of first couple weeks.

So when you think about the top things you look for during diligence, are.

There standard things that you would look.

For in every deal or are they primarily driven on the identified key value drivers for doing the transaction?

I think it's a hybrid. You definitely have to prioritize those key value drivers. So that's back to my point. That's that one to five key items that cause this target to be the one you identified over others as the one to pursue. And availability can be one of those drivers. But that also might mean that maybe just because they're available isn't enough to pursue it. So that's still a value driver. Then that next tier down I think is industry specific. So if you're on the sales side of things, so let's say distribution, wholesalers, retail, you really got to understand your sales force, what's the temperament of that sales force? So you're going to prioritize issues that your acquisition could do to impact their sales force and whether the sales force that you're acquiring is the kind of team that can be successful in your environment. So that's the cultural piece. You know, I've done a lot of manufacturing deals. Obviously with certain types of manufacturing, especially, you know, environmental issues can be a number one thing to address quickly because you might have a strong preference for avoiding environmental problematic targets, or you might have a view that you don't mind acquiring them, but your company has a strong position to clean up and fix those problems and that's going to potentially impact purchase price. So you don't want that to drag on later into the process. You want to identify and quantify it early so you can have that conversation with the seller and see if there's a deal to be to be reached still, you know, and then everything in between, depending on kind of where those drivers land and where the issues are for your own company. Every company has kind of got different hot button issues. A lot of them come from previous bad experiences on acquisitions or you know, sometimes it's senior executive or board members who have had experiences at other companies and they just get these hot button issues you need as a corp dev team member or anybody on the diligence team, you need to be aware of those issues and make sure that you're issue spotting those hot buttons early and hopefully finding that they're not a problem and calming those potential fears early so that they don't rise up later and disrupt the process internally, which always sends a terrible message to the sell side.

How do you present your risks when you're going through this diligence process and maybe you come across something significant like how would you take that back to the seller and saying, look, this is a big environmental concern or whatever it may be.

There's not a one size fits all answer. For starters, the initial thing is an internal review where we identify the risk, identify whether there's still additional information and where we're thinking or how we plan to obtain that information to further quantify and validate that risk. So once you've kind of got those solution sets or potentials in order, that gives you the right conversation with the right potential to say, okay, you know, this is what we've seen so far when you meet with the seller and we're identifying this, assuming it's not a walk away point, something that you think you might be able to work through Whether it's purchase price adjustment, whether it's from a specific identification or specific escrow to cover that risk, post closing, or you as a company are thinking about self insuring, but you would try to get a purchase price adjustment to kind of offset some of that self assurance, whatever those avenues are. Don't go in there with a seller and all of a sudden just raise an issue without hopefully having some potential solutions or be able to quickly identify that, you know, this issue will become less important if we can identify xyz, if you can get us that information. Because a lot of times that's where the issue lies. It's an information gap and it didn't come up as clearly as it maybe should have in a data room or with your diligence request list. So now it's identified. So how do you quickly get it solved? And when I say that, I mean I've seen people do this kind of bleed on of questions. That's something I feel is detrimental to a lot of deals. It definitely I can have a lot of investment banker friends on the sell side and say it's one of their big fears with strategic acquirers that they get this kind of ongoing drip of questions and they don't clarify what they're trying to get to. And that gets frustrating. If you're the seller and if you have other buyers in the mix, that can be again something that makes you less attractive as a bidder.

So it sounds like you're doing a lot of internal consideration really trying to add some clarity before you take it to the other side.

But if you just lob over questions or you also leave room then for the seller or their advisors to try to guess why you're asking. I've seen that happen to be detrimental and that community, you have a natural communication gap because there's this, you know, the dance between the seller and the buyer about who's trying to get a better deal. And though I'm a fan of trying to be middle of the road and fair and pretty open and honest, it's just a natural thing. Especially when you have sellers that most of the time have never sold before. This is going to be a one time event in their life, they have a normal level of apprehension. As a big organization when you lob over questions that you don't quantify the materiality or why or a little bit as much as you can give some clarity, you're just creating fear in the sellers. And that's always problematic as you're trying to reach a settled negotiation where Both parties feel like they're winning because you're destroying that trust that you work so hard to build at the front end of the process to get them engaged in the first place.

Have you ever gone out all out war with another legal team?

Lawyers can be interesting crowd. I think they fall into two camps in my experience. One, there's a group which I hope I deem to fall into, which kind of has a more of a business oriented mindset where it's trying to get two parties together. And barring there being a good reason not to, you're trying to address these issues so that everyone is happy and the transaction moves forward. You're not there to try to find the reasons why this is going to be terrible. You know, if business is only worried about the negatives on a daily basis, they wouldn't be in business for long because there's just lots of risk out there. And M and A is no different. If anything, it's just a higher risk, you know, activity. But it's one that's necessary to find growth. So when you run across counsel, opposing counsel, and who treats it more like a litigation, who thinks that everything's a zero sum game and if, if we went on a point and then they've lost or vice versa, it gets frustrating to me. It's inefficiency. You know, I've had scenarios where they were so worried about fighting on the legal comms and thinking that they're getting their clients some great win that they didn't anticipate or didn't address. What would have been the easier thing, which is if you want my client to retain that risk, my client wants more money. In the grand scheme of things, the probability of the risk was low. The probability that my, you know, the acquirer would have paid more was high. So the lawyer wants some point that they can brag about in the legal circles, but in essence, they did the client a disservice because the client could have gotten more money and it was a low risk. So what I worry about sometimes is when you have kind of counsel that starts off contentious or it feels like winning points is some bragging right. That typically isn't a bragging right for the client. It's kind of a personal gain and it's selfish. So does that mean that I hadn't fought on issues? No. Be lying. People would write to you immediately and say they know I have, but I try my best. And I think most good counsel who are experienced in M, and they do their best to keep things in perspective and make sure that back to my mountains molehill comment that you don't take a legal risk item and make it the linchpin to the success of the transaction, when in reality it doesn't have that bearing on one of the acquisition will be successful and the value can be captured. So that's why I said that's why I went back to this. Communicating early and often even with outside counsel, make sure that they understand it. I mean, I don't blame an outside counsel who was never told exactly what the real reasons were driving the acquisition from fighting on core legal points. That is their job. And unless you give them the understanding that for this deal, you know, maybe those aren't the most important issues. Maybe we really need to get this acquisition completed because we black there's a lack of other potential targets out there. The next ones wouldn't come due until too late for us to be able to grow the platform we need to or add capabilities that we need to add. Therefore, you know, for this one, I think we can be a little bit more tolerant on legal terms in the agreement. And if you don't tell them that and they're used to fighting for you and you haven't said that's wrong, why would they not do it again, even if it causes issues with the transactions moving forward? Yeah.

So this definitely ties back to that alignment of goals and objectives.

Yeah, that's what sticks out the most. The one little thing, the one nugget that's become clear is even though there are definitely people on transactions that only kind of come around at certain points in the deal, you know, maybe you hire an investment bank to do a scan of potential targets which you don't hire them to help on the buy side. Maybe you have a diligence transaction team who doesn't get involved with the integration side, or you have an integration team who only comes in kind of post closing historically, instead of treating these things as siloed activities to accomplish acquisition, to look at it holistically and say all these things tie together decisions made at that front end, impact optimal ways to integrate the acquisition that gets completed on the back end. And every step in between, making sure that there's visibility to those core drivers and it's not, it's not complicated. It gets repetitive in some ways and you want it to be. But is the key, in my opinion, to being more successful with using acquisitions as a, as a growth lever versus simply saying you close an acquisition only to be three years in wondering why the hell you did it or looking at worst case to divest it, which happens.

Now you mentioned that you guys plan integration pretty early. And I guess looking at that approach, which is a good practice, how do you take that in consideration when. When analyzing your target? I mean, is that part of the consideration? How much is it going to cost or what's going to go into it to integrate the company?

Yeah. And something I've learned and got taught from other folks that were mentors to me over the years is looking at integration complexity at the time of target identification is something that's overlooked. But it's one of the easiest ways to enhance your probability of being successful with what you're trying to achieve. An example with that would be, you know, you thought you needed to acquire a company, but you didn't really boil down what the value drivers were. And you, you know, let's say it's overseas in a complex jurisdiction and you start getting cold feet about whether you could do it. So you kind of just walk away completely from the transaction or you go forward with it, only get bogged down and very complicated issues. Post closing. If you had identified and scenario, I'm thinking of that the key thing was a talent. It wasn't necessarily acquiring the assets in the going concern business, it was getting access to the talent. Did anyone think that maybe we don't need to do an acquisition, that maybe we just need to reach out and see if we can acquire that key talent and integration. Thinking about integration is one of those elements that will help you clarify what are the ultimate goals do we want to go through this process is what we need to achieve, require us to acquire them and then integrate them. Even if you put it off for three or four years because you want to do an earn out, three or four years will go by and then you have to integrate them, which is even more of a challenge, particularly on the cultural side.

So what was some of the hardest things you've had to face? Doing international transactions.

There's enough cultural diversity in the United States alone to create challenges from an integration standpoint and success. Post closing and acquisition. You know, I've seen people over the years make these wrong assumptions that because the target's located in the UK then it must be easy because you share a common language. Even though we both know there's lots of differences between those languages even. I mean those are just simple mistakes. You might actually have more in line culturally from the way your business runs and the way that management works with a German company than a UK based company. So if you make those simple Kind of human assumptions that, you know, they, they look like me and they talk like me, that that makes the difference, that makes it easier. You'll make quick mistakes. Similarly, if you get scared to go after opportunities in regions where it looks very different than you're used to. So you're looking at opportunity in South America, Brazil, you're looking at opportunities in Asia, China, you're looking at opportunities in Europe and you think, wow, I don't want to do that. I'd rather pursue the domestic because I'm scared of the cultural differences. That can be an equally bad decision to make that I've seen. But you do need to think about getting better advisors. So engaging. You know, in my experience, one of my things was even though I had a strong corporate development team, ex investment bankers, I've got years of negotiating experience, I still liked having a buy side advisor firm local to make sure as much as I've studied and got to do deals, I still don't mistakenly step on landmines culturally because I don't want any hiccups that I could be avoided. That's my big thing. If information is publicly available, if I could have done some planning ahead of time and avoided it, then it's on me. If I missed that, if it's something that you couldn't have anticipated so it's a hidden thing that nobody could have found out, yeah, I shouldn't get the blame. But if I could have thought about this, like I'll give you an example. It's not unheard of, for better or for worse, that companies based in Italy keep two sets of books that can be very different for tax reasons and financial reasons. So we can laugh about it. But if you go there looking at companies and you're not spending extra time trying to find out if there is a second set of books or going under the assumption that there must be, you just haven't found it yet, then you can get caught late in a process where you've invested a lot of time and money and that can be a gotcha that makes you walk away if you find out ahead of time. Worst case, you find out post closing and you're trying to get identifications or litigation in countries where that's more of a challenge.

So bring local advisors feet on the street or advisors on the street.

Yeah, law firms, county firms. It's better these days than in the past. Some countries are more of a challenge than others. And you need, hopefully you have good advisors domestically or your core advisors if you're foreign, who have experience through other clients so you can leverage learnings that other clients of theirs have had so that you don't have to learn in the same hard way what was the.

Hardest country you had to work with.

I will say that one of the most challenging, if you come from a US Kind of mentality around speed, and in this naive sense of that things are generally on the up and up, is doing transactions or dealing with companies that are based in Central Asia. So India, Bangladesh, Sri Lanka, where culturally it's not as negative to protect your company in ways that would be, you know, either ethically or illegal in the U.S. ethically challenged illegal in the U.S. so, you know, for instance, I'd heard stories where people were like, well, you know, it's okay to go after this company. They've got FDA certifications, only to have somebody who knew better, who's in country, like I said, who's been around the block, say, well, you know, that you can get pretty good copies, counterfeits made here in India. So you can't assume without going back to the original source that that's even an authentic duck, even if it looks perfect. Like that kind of naivete can get you in trouble quickly in countries where there's a probability of that happening.

A very good diplomatic way of answering that question, by the way.

No, no. I mean, because I. The deals I've done in India didn't have that particular problem. That was someone else. I know. But it's something that once they told me that I was wary of. But the transactions I've had, the one thing I will say, they take a lot longer. Now, that seems like a negative. From a US Standpoint, we're always rush, rush, rush. To me, it's a smart move if you're on sale side because, you know, a lot of times these have to do with legacy family issues, control of businesses that they start up, and they value family and their businesses and family wealth in ways that are less common in the US Than they were in the past. So I don't feel that that's a negative. In fact, I spend a lot of time coaching my teams to say, look, it's good to approach things there. There's a lot of great talent. They're doing a lot of great things. It's a large country. From a consumer standpoint, you got quality, skilled folks there. But don't go in there thinking you're gonna get a deal done in three months. Because if somehow by miraculous matters, you get it done in three months, it's probably one of the worst Deals ever, because it's just not. Things don't get done that fast. They get done well. They take time. You couldn't have built the trust up with the other side in order to get access to everything you need to know to get the best deal and our integration planning in place in such a short time frame. I mean, you have to take the time to build those relationships. I think that's, that's a fault that I see with folks where they identify a region, don't understand the culture and then go rush in only to have it come back later and they're having problems or getting shut down or they're having to exit the country.

How do you validate for cultural fit?

I've been thinking about that more as of late in relation to some work I've been doing. And one thing that had come up for me in my experience in my other roles was this idea that, oh, you always worry about the target's culture and you know, manage the HR folks, your diligence team. You pay an outside advisor or outside service provider who specializes in this to quantify the target's culture. You know, and you do need that. Whether you need to pay somebody else from the outside is up in the air. Most companies with whom I've worked haven't had that luxury from a budget standpoint for the transaction. But yeah, you need to understand what kind of culture is it? Do they admit to problems? You know, do you need to. How do you disagree with your boss in that environment? How do you deal with conflict in your environment? Customer complaints, supplier complaints. I mean, how do you ask for a vacation or to go out of the office? Little things that post closing, if you try to change those things can have more of a material impact than you'd like on that target, up to and including causing early attrition. But the other lens I use lens too much, so you probably edit that out. But the other lens I would say you need to think about is what's your true culture? When I've asked that internally at times, everybody kind of can pitch their company's PR version of the culture, which is always positive. But are there other elements of your culture, the reality of the day to day that you need to be aware of and kind of quantify the better companies I've seen over the years really have a good grasp on the reality of their culture, so that when they go get the information on the target's culture and do that side by side comparison, it requires you to be very honest about your side because your side can't be like we do it all perfect. Wow, look at all these points where they don't. That's not reality. Not reality. You know, example I give in my class is you have an organization and the way that you run manufacturing is such that it requires very strong leadership from your plan manager, such that they feel that they own everything that happens there and that they take responsibility for everything. But the natural consequence of that is they don't like to admit upwards that there's issues because they want to address it themselves. When you have an acquisition scenario and you're acquiring a target manufacturing operation, if you put that same plant leader who may be wildly successful in your organization into that target and then expect them to let you know quickly when issues are going to arise, that you can address them because you already are worried that there's some plant issues, why would they suddenly change their way that they've been successful and start in their view maybe crime to their mother about problems they're going to want to try to solve themselves. What if that person's never acquired a company before? What if they never been put into a new plant that wasn't theirs and tried to figure out to solve it? You're putting somebody in a scenario where they're not likely to be successful and you're increasing the probability that issues get hidden until they become material problems. Which means sometimes it's too late to address or the financial impact is much more difficult to mitigate.

I guess I'm curious this on cultural fit. I feel like it takes like this view, like very underlining view. And I remember talking to a founder that did about 30 or 40 acquisitions and he made this very strong point to do a walkthrough through the office and he specifically look at little details and that's what helped him get a sense of the culture. So I'm curious to know, I guess how would you look at some of those underlying details to figure out that culture?

One way to do it that's more neutral that used in the past is the firms that are out there that will connect you with people that are consulting to give advice in areas, not disclosing confidential stuff for their target, but they're brought in. So your GLG and your alpha site, you know, you can use those sources to potentially find a former employee who's willing to participate on a call where you have them asking questions about their culture. You know, the former employee, there's nothing usually proprietary about culture, so they're not going to violate non compete. That's somebody who just worked there. Now, maybe they got fired. You need to put that lens on it. Maybe they had the rosiest view of the company with that lens on it. But that's just a source that's more direct. You might be willing to talk about those issues rather than the usually smaller team with whom you're interacting at the target pretty close. The other side of it though is with your team, with your front team, the people that will go on site, both. You know, my preference always is you do have the diligence team that goes on site, but you also have people that are either a hybrid diligence integration or later in the process, people who are key to integration planning get to go and meet some of their counterparts. When you feel more comfortable the transaction is going to close. And to have to make sure. When you look at that group, are they the kind of person who has a biased view of the acquirer's culture already? Are they very strong opinionated? They're not open to listening? You know, one of the big things I tell my folks is like, you know, you got to listen, listen, listen. You know, that's all you should be doing. You should get them talking and then no bit of information not worth writing now. So your job there is to get them talking and record it and not make judgment calls per se. Now, as we debrief from a diligence meeting and we sit down, I'll do that right away at the hotel or on a flight back, you know, you start having those conversations, what did you guys see about this? Did you notice anything? And everybody's going to have a little bit of a bias in the way they talk about that. You know, HR people have their way of thinking about that. An IT person might have their way, legal has their way. But this is where I think having a strong corporate development team or a strong team who regularly does transactions, they get a sense of understanding about how to filter your own, the own internal team, the acquirer's team, and then take what they also saw by participating on the site team as well or part of their team participating and combine those two to give you a much better overall picture of the culture or at least where potential hotspots are or where there might be potential opportunities for improvement, or where there might be places where, you know, you should spend twice as much time planning because that's where you believe it's still a guessing game to some extent. That will be the most critical area to avoid too high attrition or any attrition post close.

How do you Measure success on these deals.

I kind of treat it in layers again going full circle the value drivers and successfully proving that those exist and that they are being executed on post closing as you score a card for that first. People talk about 100 days. I like to talk more about six months to a year. That things are moving along as you planned, that the value captures is happening. The synergies in a perfect deal or above what you hypothesize, not less that you're able to achieve revenue synergies that smart people, which we are, they don't model in it doesn't mean you don't hope that they're there. And you got a plan around executing on trying to achieve those revenue synergies as quickly as possible.

Do you keep a specific scorecard around synergies that were planned and what were obtained and things like that?

Yeah, I feel like that's best practice. You know, how complicated that scorecard is really depends on the company internal metrics and desired reporting and the deal specifics. But in general, you know, I look at something that where the cadence is fairly frequent in the beginning. It's something I learned from my friends on the private equity side of the business. You know, something's off in that first six months. It has like less than a 10% probability of being on plan five years from now. So if the things are off, they're going to go in and address it quickly because that's the only probability of getting to where they need to, which is a higher bar for them because of the whole periods and the desire to get return for their investors. But I think for a lot of strategics, you know, they might be able to hold it and have a view that we're going to buy this and it's going to be part of the company for the next 20 years. But they usually have somebody, whether it's some stakeholder cares to know what the return is probably within five years. So scorecarding is one way to again quickly disseminate information, raise issues and get the team. Because everybody wants to be successful. And I include the targets team with this. You raise these issues so that you as a team can help solve them or allocate resources, time and money to that problem to get it solved quickly. So it's less of an interruption. Because you're going to have interruptions. I mean the nature of M and A, there's just things nature of business. You have normal business interruptions that come up that were unanticipated. Then you have specifics for the deal that can come up that were unanticipated. So if you have not planned well and you're not scorecarding and having, you know, it doesn't have to be a professional kind of IMO office working on it. But that's helpful, you know, to make sure that the table stakes, types, items get done. You don't want everybody running around worrying about the fact that business cards still aren't in for the salesforce when you have a major issue as well because they'll both get dropped. But they both can have an impact on top line potentially if the salespeople don't feel like they're. Maybe the salespeople are like great, they don't give us business cards. I don't think I like it here. I know I'm supposed to be calling on customers but maybe I'm calling on competitors to see if there's job opportunities. And all they need to do is feel like they're more part of the team and now they're worried because somebody didn't think through that there is an impact to even all those small, small items while at the same time you know, the strength of the team, you know, the top down management. If there's a major issue like you, your number two customer has, despite the fact that you did diligently, they told you quote unquote they were going to stay, but they're talking about leaving and moving to a competitor and that's going to seriously impact your projections. How do you address that? That needs everybody's attention as well. But if you let everybody try to solve these problems in isolation, any one problem might seem like it's immaterial, but they'll add up quickly. And most people don't have that much flexibility on the return model if they have all these things start adding up.

That's interesting way of looking at it. You're very people focused versus financially focused and scoring your transactions.

Well, that's the, I mean that's the easy stuff. It's on there. You know, we have the, you know, you got your top line, your bottom line, your margins that you're tracking. Maybe you have stuff broken out by products and skus that you're tracking. Maybe you're trying to do some cross selling. How is that going? Those are easy things to report on to see the numbers. And in the perfect world if you're using the stoplight model, you see a bunch of greens. But I find that companies that do a good job of managing those same metrics for their internal operations, for their Normal reporting cycles, find a way to do it for the target. It's when all of a sudden you get a red and everybody thought everything was green. And when you start tracing it back to the root cause. The root cause was something that probably could have been addressed substantial amount of periods beforehand and should have been, but somebody didn't raise it because they were not focused. You didn't have somebody who's trying to make sure that it's not calling people out. I tell people all the time, like, this is not about scorecarding individuals for performance. It's just M and A is very challenging. Integration, the most important part of M and A, it's even more challenging. You need all hands on deck. You need everybody in the organization and in the target organization helping to solve the inevitable things that pop up. So why would you handicap yourself by not letting that stuff be at full visibility to your core team?

So looking back at your experience, Scott, and all the transactions you worked on, domestically, international, what would you say are the biggest lessons you've learned?

Patience. Patience on deals. Patience and planning to understand other cultures and being sensitive by other cultures. I'm not solely referring to the other nationalities. I'm really talking about the fact that every business comes from different roots. Some of those are reflective in where they started, in the country they started, or in the culture within which they started. Other things have to do with the way that they started. They start in somebody's garage, somebody acquire business and transform it. Is it a legacy business that's been around for generations and taking the time to be empathetic to why they're selling and how this could be beneficial for them, how they can win the old win win is a key piece that cannot be overlooked. Second thing would be making sure that you don't silo the different parts of an acquisition that whoever identifies the target, it says go after it, doesn't just hand it off to a team that's not part of that conversation, who's like, well, I'll get price negotiated with within this range, I was told, and diligence it and say, okay, well now we're good, we got an agreement to sign. They then hand it off to an integration team that knew nothing about any of the previous stuff and was told, integrate this and by the way, you better be successful if you want to do this with a best practice approach. You need to have a coordinated attack, the beginning of the process all the way through to the end. And there's really no exceptions to that.

Thanks to Scott Heil for sharing his M and A experience with us. Scott is the owner of the Stam Collaborative, an M and A and strategic advisory firm with principals in South Carolina, Texas, and Germany. Visit thestand.com that's T H E S T A M M.com if you have interesting M and A stories or suggestions to share, feel free to reach out to me. You can find my email address in the show Notes. Thank you for listening. This podcast was brought to you by Deal Room. DealRoom is a technology company that helps corporations on both the buy and sell side minimize risk and maximize value on MA transactions. We take that mess of data rooms, spreadsheets, and emails and replace it all with one easy to use process management tool. This results in big improvements in collaboration between teams, security, and risk tracking. Learn more why Deal teams are switching to deal room@dealroom.net.