Behind the Scenes: Effective Deal Sourcing and Closing

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. Today I'm speaking with Scott Kaeser, the Executive VP of Corporate Development at United American Security, a wholly owned subsidiary of Garda World. Scott carries well over a decade of experience in M and A growth strategy, operations improvement and corporate finance. Scott is also an alum of M and A Sciences First Season and I'm excited to have him back today to discuss the best strategies and practices for advantageous deal sourcing. How are you doing today Scott?

I'm doing well. Thanks for having me, Kisan.

Happy to have you back. Maybe we can just kick off, just to touch base a little bit on your background and kick it off from there.

Yeah. As you mentioned, I have over 10 years of MA in corporate development experience. I've spent the last five in a corporate development role in the security industry. Since we last spoke, there's been some exciting changes with my company. As you mentioned, we're a wholly owned subsidiary of Garda World, which is a $3.5 billion security services business with global reach and global resources. We do everything from manned security guard business in the United States, which is where I focus and spend my time in the corporate development space of that industry. But we also service clients in Canada. We have armored cars and cash services, as we call it, throughout the United States, Canada, Africa and the Middle East. We also do a lot of work for the US Federal government overseas. Some really exciting things like protecting embassies overseas, executive protection and various security services throughout the world. So I have a much bigger platform to work with and resources at my disposal. But I am still focused on corporate development for security services in the United States and that's what I do on a daily basis. I have experience doing corporate development in some other industries in the customs, brokerage and logistics industry, in financial services and information services, and then I have a consulting background prior to that. So rolling up sleeves and diving into specific line items or project needs within a large corporation to help them create value for shareholders. And at the end of the day that's really what we're trying to do.

So before we jump into the set topic, can you tell me a little bit about how things have changed? Because you ran your own shop pretty independent and the reason I asked you for this particular interview was you were so hands on with sourcing deals and just running that front end BD function of the corp dev role.

That hands on component is really important to me because I want at this point in my career to make sure I really have a good hands on understanding of the fundamentals, start to finish of the deal process. So everything from origination through closing and integration. And as we talk about origination, that's a difficult part of the job and it requires some basic building blocks of building a network, building a database of targets, mining that database, making the phone calls, doing some of the grunt work, if you will, to help set yourself up to be successful so that you have an active pipeline so that you can have successful deal closings. You really need to focus on that origination. And that's something that I've prided myself on in my career and being good at that very initial stage. As I've gotten further into my career, I have more resources that help me in that regard. But having done it myself, having made those cold calls, having built a database in Excel, it's nothing fancy. It's really just a list of records and targets which, with phone numbers and names and notes, those are the things that have set me up to continue to be successful, to maintain active pipelines. And I highly recommend it for those looking to build a corporate development process or accelerate a corporate development function within an organization.

Great. Well, let's take this all the way back and let's put ourselves in a scenario where we're a company, maybe we just went IPO'd and got a significant balance sheet to work with and we're building out a brand new corp dev function, really starting from scratch and setting up an origination process. And I want to hear from you the steps to maybe from the very beginning in setting that up.

Yeah, it's a good question and definitely for anyone thinking about getting into corporate development or those roles that could be created or exist as you set up a corporate development process and function within an entity, an organization, building that database is critical. Being good at just collecting and keeping track of information on targets, getting the list of targets to begin with, not starting so broad that you're trying to boil the ocean. Not every company in the world is a target. You need to create some criteria to help refine what you're doing. Broader target metrics are also not getting so narrow that you only have five names on your list. That's going to be a pretty short process to contact those folks. Your database will be exhausted too quickly. Finding the information to populate your database with, whether it's from industry association lists or other lists that are available, whether they're free through Internet searches or sometimes they are paid lists. Developing those lists, getting them into Excel, working on them, so they make sense from a corporate development standpoint, meaning really finding who the owners are of those companies. It's not just the corporate main headquarter office number that's going to help you start a corporate development process and then mining that list. So you have to create the list and then you have to have effort to mine that list. I actually had at one point in my career a couple days of sales training. And I bring it up because there was an enormous amount of relevance from that training in terms of getting through gatekeepers at an organization to finally get a hold of the person you're trying to reach in a sales capacity, it's usually the buyer of whatever it is you may be selling. In a corporate development capacity, it's usually the owner of a company or the C suite who may be empowered to have conversations about the sale of the business, whether that's a CEO or a CFO and, and getting through to those folks, even knowing their name and having their direct office number or finding their executive admin and talking to that person is a great skill set to have from a corporate development standpoint and it can be employed by a younger set of professionals. It doesn't require 20 years in the industry to be good at getting through the gatekeepers and collecting information, putting it into a database of who you need to be talking to. One of the details that came out of that training was once you figure out the name of that person and possibly even their schedule when they might be in the office and available to chat, when you get through that process and this is the first time you're learning oh, the seller. The owner of a company's name is xyz. Don't connect with them right away. Hang up the phone, take some notes in your database, spend some time thinking about what you're going to say when you do finally reach that person, because it does behoove you to have a much more polished script and expectation of how the conversation's going to flow than when you're surprised that, oh my gosh, I just got connected to an owner or CEO and now you're a little flustered and the conversation may not go as well. Sometimes you only get one chance with that person. There's only one chance to make a good first impression. So you want to make sure you're polished and well practiced at when you make that initial connection and do it on your time and at your Pace because it will help the flow, the conversation and the cadence and the process by which you elaborate what you're looking to accomplish in that conversation. So all of that initial process in terms of building that database of targets and then being very well versed in how you connect with the right target audience, get through the gatekeepers, is something that in my mind is critical to setting up a good corporate development function and setting yourself up to have a great deal flow, great deal origination, and great deals after that.

So, a couple follow up questions. 1. Data. Is there anything particular you found good for data sets? Are you using third party proprietary stuff? Are you just googling things around? And then what's that number? That's an ideal one to keep you focused. I struggled with this where I want to boil the ocean. I end up with a list of 5,000 target companies and it could have been a lot more efficient if I dialed it in better. I don't know if in your experience you found a certain range that's ideal to at least start with so you're.

Focused, that makes a lot of sense. And I think everyone struggles with that to some degree because there's no perfect answer. It's a balance. The best sources I've found for creating the list to begin with are really industry association lists. Now again, I'm coming from a strategic buyer standpoint, a corporate development standpoint in house corporate development. So I have picked an industry that I'm targeting versus private equity or other institutional investors may be able to pick an industry. They may have a much broader scope. But from my standpoint, I've been able to find good starts to lists using industry associations. Sometimes you do have to pay to become a member of those associations, but then very quickly you'll get the directory of the folks in the industry. And to me that has been a great way to start with a target database. Are they all going to be perfect? No, you're going to get the offshoots of services or vendors that may be in that directory as well. And you'll need to refine your database to either weed those targets out or not. So that's a great place to start. That's where I've had good success in starting. There are some paid lists that are available, they're not overly expensive. So if you are thinking of building a corporate development function and you need to spend $2,000 to get a real list of targets that may hopefully include contact names and numbers, then that is a very reasonable investment to make. As you get started in a process, then in terms of boiling the ocean, having a huge list of targets, it does help to refine the criteria of what you're looking for. In many cases for me that would be deal size. There are many deals that are going to be too small companies and targets that are just too small for me to invest my time and my team's resources in, and some that will be way too large. Those will become apparent real fast. If Amazon shows up on your list, it's probably not an acquisition target for you unless you're good at carve outs and can figure out how to get them to divest something that you want. But having some data on the size of the companies, whether it's even employees, is sometimes easier to get from public sources or divulged information. Some of these private companies are not easy to divulge revenue or EBITDA size, but getting some of that size helps refine the data. And the next step in my mind has always been, okay, let's create the 25A targets that are right in the wheelhouse of size and strategic fit and just a great MA target. And those are the ones you really want to work over a long period of time, build your relationships with the owners. So that may not be in a week or two or months that you get a deal going, but in a few years. And you've built that relationship with those A targets such that you are the first person on those sellers minds when they start thinking about their exit strategy. And if you're lucky enough to create yourself a proprietary deal process, that's kudos to you. You have now avoided maybe an auction process or an aggressive sale process that would force you to do things in a deal process that you may not want or be interested in doing to win a deal.

When we talk about different sources of deals, we obviously are going to focus on developing our own proprietary method of sourcing deals. Is there anything else you can think of beyond that that may be potential sources?

Well, that's a great question and definitely from a strategic buyer standpoint, the operators or the salespeople, the ones on the front lines trying to grow the business, are going to be great sour of ideas or potentially acquisition targets because they're going to say, gosh, I keep losing out to XYZ company in a sale process because they have this functionality or this technology or this service line. Talking with the folks within the organization who are on those front lines, whether it's salespeople, marketing strategy, even ops folks, operations team members is critical in developing targets and M and A Strategy helping, as we just discussed, to refine the criteria of what we're looking for. The farther reach you can have into the folks on the front lines, the better. That may end up going through some very senior level people at the organization ahead of sales, ahead of strategy or marketing, and hopefully those resources and professionals are on their game enough to be able to filter information correctly from their team through themselves. To you as to what may be good targets. But look, part of the success of this role is networking. Making connections obviously outward to targets and owners and sellers, but inward too matters. It does beg the larger question and brings up the larger point that corporate development does need to sit at that very senior level of an organization and needs to be viewed at that senior level of the organization because you are really working with the senior leaders and the board members to enact the growth strategy.

Would you incentivize your internal people for finding deals?

Yeah, absolutely. Deal with deal finder fees can be small in the context of a larger deal, a multimillion dollar acquisition if you're offering $10,000 to internal resources just for the finder's fee, to me that's quite reasonable when you're talking about million dollar purchase prices or value creating opportunities to really incent your team, your organization from top to bottom to have their antenna up for deal opportunities is a really wise thing to do. And if you compare that $10,000 example to what you would pay to a buy side broker or a banker or a sell side broker even, it's peanuts. I mean those folks are taking big percentages of the purchase price. And you may be able to avoid all of that. If someone within your organization who's incented by a $10,000 bonus or raises their hand and says I know of this company we've been working with and they have a great product that we bolt on and really try and co market with or co brand with or just like or lose out to on sales opportunities. Those are awesome opportunities and awesome targets for corporate development teams. And so to incent folks within the organization to think about it and raise their hand and mention them is a great idea.

HR does it. So why not exactly the banker fees. Let's talk about working with bankers in terms of sourcing deals. What's the good and bad?

They are incented to get deals done. So the good is that they're going to work with you and their client and I'm assuming bankers on the sell side to get deals done on the buy side, you would typically employ bankers and hire a buy side Banker or broker if you don't have a robust corporate development team. From my standpoint, in my vision, better if there are good M and A targets and value creating opportunity over a medium or long term that you would build a corporate development function internally. Technically those are your internal bankers. Those folks likely won't need third party buy side advisors. If they're doing their job well. You'll run across them on the sell side. From that standpoint, you're not paying for it as the buyer. The seller is paying for their sell side advisor. The sell side advisor will always tell a seller, well don't worry, I'll get my fee and more through a competitive process or through my negotiating skills or whatever it takes. You'll run across those fairly regularly. Seller being represented in the smaller space because sellers don't do it that often at the corporate space because it's just more typical to give a mandate to either divest a component of the business, a carve out or the whole business in general. You're not talking about owner operators at that level. You're talking about a board and then a C suite. That's going to engage in bankers to sell a business and that's more common as well. From a private equity owned standpoint. Institutional investors are going to engage a banker to sell their business, sell their portfolio companies. Their fees are high. They're usually contingent base fees. There may be a small retainer and they're going to get paid when the deal closes. So they are incented to close the deal. You're going to see anything from less than 1% on a huge deal, potentially all the way up to 10% in smaller deals for that seller and hopefully they get the value that they pay in that advisor. My overall experience with bankers has been positive. These are very smart people, hard working folks. If they're your advisor, they're engaged by you for a specific mandate and that goes typically extremely well. I mean it's high priced support. But I've been pleased with that support in the sense that you get what you pay for and you got some really high powered resources supporting your efforts to either get a deal done or, or whatever the mandate may be. You've got some nice resources supporting you.

It's just like we're in the good real estate agent.

Absolutely.

Let's go back to our process, proprietary process. We're building it up and I want to go to the point of contact, that first point of contact. Let's start with that gatekeeper because I think that's interesting to learn how to get past a gatekeeper, I'm curious, what do you tell them?

That's a very good question. And it's never easy because you're always dealing with what the first words out of your mouth are going to be over the phone, trying to listen and understand who you're actually talking to. Is this someone at the managerial level who actually may be interested in stopping you altogether truly being a gatekeeper and not letting you get access to a seller or an owner who might sell the company and then that person might be out of a job. So those folks become gatekeepers. And in those instances, if I feel like I'm dealing with someone who may be actively engaged, trying to keep me away from the intended target, generally the seller themselves, I will sometimes discuss partnership opportunities, growth opportunities, things that should be benign enough to that gatekeeper that they would allow me to finally get access to the ultimate decision maker or the seller. And that's a fine line. You do have to be fairly adamant in those cases about the fact that you're going to divulge a little information as to why you're calling, but you really need to speak to so and so in this case the seller, and keep mentioning that enough times such that you're eventually going to either get gatekept and have to hang up, or they will pass along a message or put you through or provide some contact information of who you're trying to reach. That's typically a president of a company who may not be the owner and might be, or a COO or a CFO who may be real concerned about their role if the seller were to engage or consider an exit strategy, especially with a strategic buyer who might very quickly look for those types of synergies. Other gatekeepers would be executive assistants or admins. And you can generally be more forthcoming with those folks. And many times I just ask to speak with the owner to discuss something of strategic importance. And in that, in being a little more vague, I oftentimes try to elaborate my title and position to them so that they know it's not just a cold caller trying to sell them office supplies or something, that this is a call from another senior professional or a professional attempting to have a strategic discussion with a senior level person and a seller or a decision maker at the company. So you balance those and you're going to get gatekept along the way. I know it sounds a little silly, but one small trick that I use is that I always ask their name. I want to know who I'm talking to. I write their Name down. I think they like hearing that you're interested in knowing who they are. Every once in a while that person might be a little nervous as if you're going to complain about them once you finally do get to the right person. But it allows you to take the name of that person. And if you end up calling back multiple times in some cases to try and get through that gatekeeper, you can build a relationship with that person. And I have had success. When I use their first name and talk to them more colloquially and casually about what my intended goals are, who I'm trying to reach, they start to put their guard down. They start to be a little more comfortable with you after that second or third or fourth call where they start to feel like they know you too. They've taken your name down a few times or something. They've taken your contact information down a few times, they've heard your request a few times. And as you develop a little more understanding of who you are talking to, first name role, they I found that it helps me get through those gatekeepers a little better with persistence.

I remember when I first started cold calling, it was, I tell them it was confidential related investments. I used to start with that. But then as you got comfort, as I got more comfortable with it, it became more blunt.

Look, I'm not saying my way is the right way necessarily. There's no. It's an art, it's an art, it's an art. And being blunt works too, especially because our resources are limited and our time is limited. And so being blunt can work. And I understand that point.

I want to hear about the time where you exhausted all your efforts to get through. I want to hear how many times you had to do to hit that one. Because I know you had to have one win like that.

Oh, I have a few. In fact, you know, it's amazing that, you know, I've done enough deals at this point that you have the stories of the folks who at first thought you were a salesperson or at first thought you were just a broker looking to see if someone was interested in selling. And I bring that point up because over the last few years there's been these enormous letter campaigns of bankers, brokers, even buyers or buy side advisors, sending mass mailings out to basically every company out there to say if you're interested in selling, I have the buyer for you already lined up with a great price. They send these letters to these owners regularly. And I talk to owners who say I get those letters all the time, one a day. Two a week, five a week. And so I try to differentiate myself from those letters or those interested parties when I reach out to folks because from my standpoint, the success of our process is a much more personal and involved process. And you're going to get cast aside in the first few calls in some instances because that seller may think you're just another buy side advisor looking to see if someone's a seller because they're going to get paid if a deal closes or they only get, you know, they're just trying to find a buyer and a seller and match them up. So I do have experiences where I finally got through to an owner. It oftentimes just takes that persistence, it takes that effort of knowing. As I mentioned earlier in the conversation, hey, this person gets in at 7 in the morning and is generally available from 7 to 7:15. Now I've got that in my notes and I put that in my calendar on a specific day and I'm calling that person early in the morning. I finally catch them maybe after five times of trying or getting gatekept and I finally catch that person and I have my script ready. I know what I'm going to say, I'm excited, but keep calm enough to elaborate my intentions and what we're looking for. And they'll say to me, well, why didn't you contact me earlier? Or you know, or I'll mention, hey, I've been trying to reach you for months or years in some cases. And they'll say, well, so and so deals with so much garbage during the day. My admin has to gatekeep so much from me so that I can stay focused that you got caught up in that gatekeeping process and you hear that. I hear that from sellers I've done deals with. Finally we got connected and are having a strategic conversation at the right level of buyer and seller. And it was frustrating to have gotten gatekept for a long period of time, but it's satisfying when you do finally get through. It's disappointing when you hear that company transacted and you never did get through. And that happens too. Those gatekeepers are the first people on my list of synergies to get rid of after the closing. No, I'm kidding, absolutely kidding.

Have you ever tried LinkedIn? Just direct route reaching through LinkedIn.

Yeah, that works too. Again, going back to LinkedIn, I've had success there where if you're getting, if you know who the owner is through LinkedIn and you link in with them then and they accept, then you can start messaging with them directly. And that does work.

So let's go back to our story here. We get past the gatekeeper, finally get the CEO owner to pick up that conversation. Let's walk through developing that narrative for that very first touch point.

Yeah, that's a good point. And it's really critical because you need to be on your A game when you finally do make it through all those gatekeepers to get your intended audience on the phone or in person. And you need that short practiced speech of why you're a good buyer, why you think you're a good buyer for them. So understanding the industry. I always mention things like good cultural fit. We see the world in the same way as you do. We're more aligned with you and your service model and how we deliver service, those types of things in a succinct enough manner that you can make your case, be clear as to why you're calling. You're here to talk about a transaction, but then close your mouth and listen. Right? Because these are folks, one that are used to talking more than having to be talked to. And they're going to be quick to then either agree with you and find value in the message and engage with you in a conversation and start to talk to you about their company and do their necessary efforts to build up the value of their company for you or not. Or shut the process down and be.

Efficient with their customers.

Yeah, I mean, sometimes you're going to get a quick, no, I'm not interested. I've gotten a lot of, well, I'll buy you. I have more money than God and those are frustrating. But you say thank you and I'll take a note and I'll call you in a year or something like that. So you get the wide range. But I think going back to answer more succinctly, have your quick pitch, be good and succinct with it and then stop talking and listen and start collecting your information on what they're telling you about their company.

I want to hear your pitch.

Well, now you're putting me on this screen.

We could role play. I'm the business owner.

You called me up, I call and I say, I'm Scott Kayser. I'm an executive vice president, president of Corporate development at United American Security. We are a security services firm headquartered in the US and we're differentiating ourselves from the larger security companies through a service delivery model and a local geographic focus, which we believe is similar to yours. We see the security world similar to yours. I know your company is excellent because of your brand and your people. And that's how we know our company is excellent as well. I'd be interested to understand where you are in your life cycle of your business. I'm an acquirer of businesses. I have many great references. We're well capitalized. We have an efficient deal process. We've done 35 deals over the last two years. And I'd be curious to have a conversation with you if you're interested in selling your business.

Great. Love it. You're going to have a lot of listeners pulling over, taking notes.

Great. I hope to be helpful to your audience.

Walk me through the meeting. Maybe from that point in time you set up a first meeting. How does that go down?

Yeah, as we've just discussed, the first connections are typically via phone. If you're lucky enough to meet someone at an industry conference or in person at a luncheon or something like that, great. You have to have that same pitch ready. Short, succinct, to the point. After that phone conversation, I try and collect enough information from the seller to know if it's worth my time or not to keep going. So share with me some metrics of your business that let me know how big you are. You know, most folks at that stage are comfortable sharing revenue information. I have typically been comfortable sharing revenue information even at the smaller end of the scale. Now my company's getting big enough that I do have a little worry that sharing revenue information may, may dissuade some sellers. We may start to get so big that they consider us, you know, one of the big boys who we're trying to differentiate ourselves. But sharing revenue information first helps them get more comfortable sharing theirs. Or if they're not willing to share revenue information, maybe number of people in their company. We have a few KPIs that we use in our industry. As an example, hours per week is a KPI that is very common in the guard industry. But the point being, if There are some KPIs in your industry that some seller company may be willing to divulge without feeling like they're sharing confidential information, those are great to ask about that avoid having to ask about revenue or profit or EBDA that let me get a sense of how big the company is. Mainly because now if they're too small, it lets me shorten the conversation. Let them know we're a good partner. We have a broad geography so that if they land a whale that needs service in geographies that that particular company can't provide, they could think of us first and could be a good partner or subcontractor. Collecting that information on the company helps for us in our process. We have what's called an initial data request and that would accompany a seller's financials. So if they'll send those to me or fill out my data request, my initial data request without a confidentiality agreement in place, that's great. I'm going to treat their information confidentially. As a corporate development professional, there is no difference in my actions as to whether or not I have a confidentiality agreement or an NDA in place. I'm still going to treat all that information that I'm collecting and receiving very confidentially. But sometimes a seller will ask to put one of those in place fairly soon. Once I collect that initial information, it allows me to determine if I want to spend the effort to get together in person with the seller. Because to me, that's a critical next step in getting a good deal going or getting a deal going is starting to make that person face to face connection.

So you're still over the phone at this point?

Yeah, typically over the phone. And I want to try and balance collecting enough information early in the process. It allows me to determine whether I want to get together in person over a meal, which I like doing. It's casual, everybody's got to eat. Takes them away from the office. You know, sometimes they're a little more comfortable, Sometimes they're a little less worried about their employees seeing someone that they don't know in the office and getting weirded out. So I like to meet over a meal once I have determined that it's worth my time and energy and effort and travel resources to get together with someone.

So looking at deals, capturing your initial data requests, probably keeping track of all that, you get to the point where things look good, you get this first meeting set up in person. How do you frame these meetings to be productive?

Yeah, having that list of five most important questions or topics you want to make sure you cover is critical. Writing those down on your notepad or memorizing them and making sure you cover them in your first meeting is of course vital. And then it goes back to that comment about once you get them on the phone, listening is important. Once you've got the meeting. Once you're meeting with someone, whether it's in their office or over a meal or just out of the office, they're going to start telling you a lot about their company, what they're looking for, what's good. A lot of times you'll be surprised. They'll Start telling you what's bad, that's great. As a buyer, I want to know sooner than later. But listening is vitally important. So covering the five or so topics, having those broader topics or questions that you come armed with, that allow the seller to just start talking and elaborating the business about their business is key. And it makes those meetings go fast. You're talking an hour, basically. I mean, if it's going so well that it takes more than that, great. But you're just letting them talk about their business and listening so that you can structure your deal properly to protect yourself from issues you hear that you may not like and really learning more about the target.

Okay, when you do get this information, do you ever repurpose it later on? So an example is when I'm selling to your corp dev group, I'm going to go through and do discovery call, learn as much about your process as possible. But then when I actually go into a presentation or a pitch, I'm going to repurpose and try to use as much of your language to validate. Here's the problems you specifically addressed. I'm going to show you how we're going to solve them today and move that in that direction. Do you have any. And that's like typical sales thing, right? Solution selling?

Yeah, that's smart.

That you would apply in a similar way when it comes to transacting a deal.

No, absolutely, you're right. And it's smart from a sales perspective. From a deal perspective, it's more your skill set in getting a deal done, both in protecting yourself, but also creating that connection with the seller is making sure you listen to what they're saying and then incorporate it into your subsequent conversations and the deal process. So that of course you're going to be talking about integration at many points throughout the deal process. If you can start mentioning specifics instead of just saying, well, when we move your HR system over to ours, when you say, well, when we move XYZ HR system, which you know is the seller, over to ours. And I've had experience moving those two systems and these are the two or three things we gotta be on the lookout for or do a little pre work to get the data right, or here's the gap between the functionality of your system and ours or your processes. Maybe it's not a system, but maybe it's a process of how they're running their business and how we run ours. The sooner you get to those specifics, one, you're going to give the seller enormous confidence that you're paying attention to the right details that are going to allow both of you to be successful with the deal. And I say that because we do structure a lot of our deals with holdbacks, deferred purchase price, such that we both need to be successful post closing in order for the seller to realize their full value. And of course for me then as the buyer to get off on the right foot and have a good deal going after closing. The more you start talking about those things sooner and with specifics with a seller, the better off you're going to be. Because one is their business, they love to talk about it, they're going to know more than you ever will about it. And so giving them the platform in which to elaborate on it, think through the details, show them that you know the details, you like those details, that those details fit perfectly or even better, don't fit perfectly. But here's how we're going to solve those issues together. And it gives them confidence that they're dealing with someone who's got a handle on the business in order to make it successful. As you close and integrate, use that.

Information to keep them comfortable.

Absolutely. And then building that relationship with the seller, or even brokers and bankers, representatives of a seller is vital. That is an enormous qualitative component of a successful transaction. Because if you build the right relationship with the seller or the advisors and management team that you're acquiring, they're going to divulge issues to you or problems before they become disasters. You're going to learn a lot more. You're going to have trust when things don't go perfectly because they never do, that the sky isn't falling. Let's work together to solve this. It's not the end of the world. If you've built that relationship, you will add so many criteria to the success of your deal. So I can't stress highly enough building that relationship with the sellers or their advisors.

What do you look for in terms of red flags or things that, hey, I need to run first?

Red flag to me would be difficulty providing some of the basic information about their business that you would ask for to just get a high level understanding of the company. If a banker or broker is not able to provide it, they're not doing their job well and that's a bad sign. They're either not focused on that particular transaction or they're not good and you've got a problem in either scenario. And then from a seller standpoint, they need to have a good handle on their business. You know, if they send you financial information and it's a gobbledygook mess, it's multiple legal entities and they don't understand why that's the case and they have to elaborate all these adjustments and things that, you know, they're trying to explain to you over the phone while you're looking at a summary. P and L. Those are red flags to me. I mean, thankfully, I'm in an industry that is fairly straightforward and we are trying to be laser focused on what we acquire and not acquire too many different service models and lines of business that detract from our mission. But having sellers struggle to elaborate the value driver of their business is a huge red flag to me. I grew up in a Marine Corps family and I've always adopted the KISS philosophy. Keep it simple, stupid. I do not need an overly complex, complex business model. And if it is, I'm going to have a hard time valuing it and buying it. And so in any industry, in any business, help me simplify the business and the value drivers such that I can understand the business and then therefore the financial statements when I review them. And if I can't do that fairly quickly in the process, that's a big red flag. Sellers can be awfully coy with the rationale for selling. As I've had more experience, you get better at recognizing the red flags of why they may be selling under certain circumstances or duress that would cause problems later in a deal and trying to flush those out sooner than later helps. Those red flags when you get a wishy washy answer on their motivations for sale are something to be explored. It's not necessarily a deal killer, but you know, having a very articulated rationale for their sale process helps avoid some ambiguity as to what this deal is all about.

Anyway, what about when you need to consider revisiting down the road? What may be some indicators of that?

Yeah, there's, you know, businesses are always changing and so for us, revisiting down the road is typically a result of either the margins just aren't where they need to be right now. And therefore I'm going to have a hard time offering a value that's going to be meaningful to a seller because we're a profit based, cash flow based, free cash flow based valuation model. So if there's no visibility to a business that can create good free cash flow, I'm going to have a hard time doing any deal. And those are always, hey, let's talk again in six months or a year or two. Hey, these are some of the criteria that I'm interested in in your business, you know, if you can fix your gross margin or you can fix your back office staff structuring, or you can fix some of the, you know, fixed or variable costs in your business to a point where in a year or two you're a much more attractive target to me then, then, yes, let's revisit. And I always, always leave it at that. You never say I'm, you know, we're never going to talk again. It's hey, let's talk again in six months or a year. And it's so easy to put a note either in your database, kind of CRM or even in your Outlook calendar just to touch base with that person again in a specific period of time. And that's just building a relationship. Companies grow. I've been pleasantly surprised when you make a connection and a company might be too small for what we're looking for and they land two or three large new clients and they're really kicking butt and their growth is fantastic. A year or two or three later, all of a sudden, now this is a great deal. One, they have the momentum that you love as a buyer, you know, something they're doing is right. And two, now you're at a size that makes more sense for us to really dive in and spend resources to do a transaction. So there's a lot of that. Let's revisit this later. I mean, that's, you know, in reality, 80 to 90% of the conversations I have with sellers end up being that, you know, let's talk in the field. We're not ready yet. This is not perfect for me or you, but let's keep talking.

Right, right. At least make the introduction. Is there any indicator that the deals aligned really well and it's going to move fast?

Well, that's a good question. When they have a banker or a broker from a sell side perspective, that's usually a good sign. They're willing to spend money to get a deal done. They're quite motivated to do a deal. So that's a quick indicator going back to the ease of providing information. If their financial statements are ready and they don't need a ton of clarity or clarification or adjustments. If they're able to provide those KPIs to me very quickly about metrics from the industry that matter to me and ought to matter to them, when they're able to rattle those off either in that initial phone call or very quickly after the request, that's a really good sign. Those deals move quickly. Another good point, there is cultural fit, right? So the deals, where there is great cultural fit, whether you tell sellers you want great cultural fit or not, but where there truly is good cultural fit, when it is in our wheelhouse as a buyer, they are a seller, they're motivated, they have good rationale for selling, they have good handle on their value drivers and the information in their business, those deals move quickly.

Has culture ever been like a complete deterrent?

That's tough because you may as a buyer recognize a culture that doesn't fit perfectly well. But if the financials are okay or look good, the purchase price is good, it's a ton of EBITDA for a small purchase price. As a buyer, we tend to talk ourselves into those deals.

You're one of those corp dev guys.

Well, look, at some level I can look at a model and if the multiple is low enough or the IRR is high enough, I can talk myself into those deals. Despite terrible cultures, sadly enough, those come back to bite you at some point or typically do. And the thing about corporate development, different than a banker or brokers, we live with our deals, right? I'm in this for the long haul. I don't anticipate being gone in a year or two or five or ten. So I have a little more desire to make sure that deal goes well over the long haul. Because if it doesn't, I still get, you know, people are still quick to point the finger at corp dev to say, this was your deal, Scott, you know, and look at it, it's a mess. Even if that's five years later. And I don't like that. No one does. We're proud of what we do. We work hard to do good deals. So you gotta be careful there. You know, try not to let yourself let a model and evaluation talk you into a deal with bad cultural fit.

Very good. Good moral when it comes to actually making the offer. What does that look like? What prompts it? How do you go about it?

Yeah, the sooner you can do it, the better. You know, the seller is going to see that as an efficient process. Even their advisors are going to immediately then see you as a legitimate buyer.

Do you tell them? Do you like, hey, based on our conversation, I'd love to make a proposal.

Yeah, absolutely. And I even say that usually if I engage with a seller over the phone, even in an initial conversation where they are interested in talking, I try and elaborate towards the end of that conversation, the process. So, hey, I'm going to, I'm going to need A little information from you. I have some pretty specific industry focused questions that will allow me to very quickly get to evaluation and a term structure and a deal structure that I want to elaborate with you and discuss with you sooner than later so that it's efficient for you and efficient for me. We're using our time wisely. So that's why I justify sending you an Excel spreadsheet that says here, fill this out for me, which is the data I want. The questions I'm asking different than just send me a P and L. I can value your business off that P and L, but I'm probably going to end up following up with all my industry specific questions anyway so that I have a degree of comfort in my offer. Now, part of that is my strategy in that I really strongly avoid trying to retrade through a deal process. You know, once I make an offer, you know, unless something really checks out significantly poorly, I'm going to strongly avoid making a change to my deal structure and offer structure. Some people do that. I think it's much more of a common private equity model right now to make an offer an indication of interest in loi, get under loi, do your diligence and then retrade. Likely down. Many sellers may still go through that process and sell because it's easier than going through it all over again.

You don't send an ioi, you're going straight to an loi, right?

Yeah, it depends on our tiny deals. We'll do loi, straight to loi and the bigger deals or in deals with bankers or brokers on the sell side, we will do an ioi and that can be just a simple email with some bulleted point value and term structure. So it's not anything overly legal or complex. But it's the high level bullet points, kind of like a term sheet. Sometimes it's even verbal. We have enough complexity in our offers and the offer structure that I like to put it in writing. I have no issues putting it in writing in an email if that's accepted or we go back and forth on a few things and we're good to go. And I have a high degree of comfort that I'm going to get it signed, then I'll put a formal letter of intent in place and we'll get that executed.

So I'm curious how you present because I was always a big fan of presenting in person just because I wanted to know the reaction and gauge off of that and give some explanation on certain things. But that's all in terms of where my offers were at.

Well, that makes a lot of sense. Yeah.

I just want to make sure we had a heart attack and, you know, vitals were good.

Yeah. Gage, if you, you know, overshot the moon and paid too much. I am typically doing my offers, initial offers. IOIs, LOIs, just email, via email. You know, it's, there's. I'm not saying that's the right way. It's a little more efficient. I may have, you know, I may be making multiple offers a week.

Your machine. Yeah.

And so it's not totally feasible in some instances for me to be doing that in person or my team to be doing it in person. I don't know. It's a good question. I'll have to think back on that. I don't think I've lost deals. You're making an offer, it's usually millions of dollars. It's a big number. It's got some complexity to how it's structured with holdbacks and working capital. I try and add a lot in those offers about the operations of the business. So be pretty specific about whether I'm keeping their office or their office staff or components of their office staff. You know, where my synergies may lie and what I might focus on in diligence. I try and provide a lot of that upfront to differentiate myself from other offers they may have. I think sellers like the clarity in knowing some of those high level components of the deal structure sooner than later. You know, we offer a lot of consulting agreements to sellers to stick around after the closing and, and help with integration and just those. I also articulate there's a value to those, you know, monthly value, typically. So all those things, you know, end up being in my offers. And I find that sellers, even if you're giving it verbally, you know, they're going to say, okay, I need to think about this. They're very, you know, I almost would be worried that I did something wrong if they look at it and say, yep, I'll take it. You know, it's like, well, I must have spent too much, I must offer too much or something. So I have not. I don't off the top of my head, feel like doing it via email or loi sort of letter. Not in person is a terrible thing. But going back to our earlier conversation, doing things in person is never bad. Building that relationship, being there in person is always a good thing to do.

Yeah, I think there's a lot to consider the circumstances, but it sounds like you have a very structured and transparent approach.

I Think that helps give sellers comfort, that they're dealing with a very professional, efficient corp dev team and process.

Why do you lose deals?

For me, my, the main reason I lose deals is price. So I have buyers I'm competing against that are much more aggressive in price. So that's the easy answer. Okay, you know, deal deals will fall through for various reasons or you'll lose a deal process for various reasons.

There's never instances where you had the better price, but they picked somebody for some reason.

I'm the opposite of that. I am trying to. I'm out there on a regular basis trying to win deals with, with a lower price but a better offer and a better home for the seller or the seller's key people or the seller's employees or the seller and the seller's customers. That's my pitch. And so I'm the one out there saying, well, you should contemplate a lower price because of X, Y and Z. And it's not typically a significantly lower price. But my role and frankly my strategy regardless of the industry is not to be the highest price guy. I want to use those strategies that we elaborated on earlier about building a relationship, creating trust, understanding cultural fit, working through the places where there's not a great fit together with sellers so that they see me and my offer and my buyer, my company as a buyer, a strategic acquirer, as the right fit and they're willing to contemplate a lower price. If you have an unlimited checkbook and a mandate to get deals done, you're going to get deals done. I mean everything's got a price and you can overpay for everything. I try and be really disciplined in my approach to valuation, both from a DCF standpoint, understanding of a five year IRR understanding of the synergies that are taking and who's getting credit taken and who's getting credit for those revenue synergies, cost synergies, cultural fit, qualitative impact, strategic geographical, product level fit to win deals and to structure offers and to create that value proposition to a seller more so than just price.

What's your favorite part of the hunt?

Well, I love all of it. I've been doing it for a decade, so you know, some of it is not glorious, but I like the process start to finish. I love the project oriented nature of it. You're not working on the same thing over and over again for 10 years. You've got dozens or more of deals or maybe not, maybe a few deals you're working on over that period of time. But every deal is different. Every deal's got its stories and uniqueness. Closings are great, right? Everybody's in a good mood. Hopefully the dinner is at a fancy place and the alcohol is flowing. You get a nice meal, you have visibility into the 100 day plan, but you haven't yet started really working too hard on it yet. And so closing dinners are an easy one to highlight because look, we all love those wins. And from a corporate development professional standpoint, the closing is a win. You got a deal closed, that's 10% of the work in my mind. Or the success of the value creation. The integration is 90%. But I do start to leverage many more resources and functions once the deal is closed to help make sure integration goes smoothly. And so the culmination of a deal is that closing dinner. And I love those.

You should invite the integration people to closing dinner.

They are usually. They are, they are. Okay, look, as long as you're not going someplace so expensive that a larger team is prohibitive, the bigger that meal, the better. Right? You're going to have. If you have integration folks there starting to hear from the seller or the seller's people, having the seller bring their folks, whether it's management advisors, the bigger that dinner, the better. Obviously it can't get so big that you need a banquet hall, but if there's 10 people around a roundtable celebrating a closing and the future together, that's a kickoff.

I should rename it to a kickoff dinner.

Well, maybe you have to have one of those too. So that's a week later you get another nice dinner. There you go.

So I just got a couple before we wrap up. One is even my experience and I love sort of rekindling some of my past experience in the deal sourcing side. I found it to be highly inefficient and today I still think it's highly inefficient because you spend a lot of work to run through that funnel to get those handful of deals or more that you do a year. How would you vision the future 20 years out, whatever, in terms of how that could be more efficient?

Yeah, technology very much helps and deal room very much helps. You know, the technology that you're building, the understanding that you have as a deal professional and building that functionality into software is a huge benefit and advantage. Whether it's just keeping all information in one centralized portal as deal room does, that's been very helpful. We've lived through the last 20 years of software development and software efficiencies being implemented in corporate America. I think we're still in the infancy of seeing where different softwares and technologies do complement and help corporate development professionals to be more efficient. I think over the next 20 years, hopefully we start to see much more of that. I don't think there's a lot of IT out there at the moment. So there is a demand for IT and a need for IT and a space for that type of work to make origination, deal flow, sourcing databases, valuation, all those sort of pre deal components more efficient for corporate development teams.

Yeah, I mean we built a focus on diligence through integration and are seeing how just general project management flows could benefit it. But I've always been puzzled by the sourcing side where even keeping some internal pipeline tracking is a big focus of ours currently. But in terms of really identifying these companies and if there's just a way that you least had some kind of inclination, a way that somebody could raise their hand if they're thinking of transacting or something because it's just really hard to get down, you spent all this effort to get to that person, at least to have that conversation, not having any idea where they're at with it. That's the thing I've really been puzzled with. And I know in the front end we think about some of these origination platforms that popped up, but nothing's been like the go to standard in that stuff at all. And a lot of it's been floated on the really small end of the market, a lot of the mid market and up. It's still sort of under the radar through the prestigious investment banks and so forth. Unless you're putting in the effort that you're doing. That's where I was always curious. Is there a way to identify that?

That's a great question. I think at the medium and larger scale, as you mentioned, the investment bankers have had a stranglehold on a deal process or valuation or even the expertise to get a deal done. And we are seeing I think a much better proliferation of deal experience. Deal know how just the awareness of MA and the importance of M and A get proliferated into organizations more so than in the past. And that is a function of companies having corp dev teams internally or the notion that MA should be an important component of their growth strategy or value creating strategy. As we get more of that, you're going to have more sophisticated sellers. The deal flow and leads and valuation expertise and understanding won't just be held within the investment banker world. You'll have it at the corporate level. You'll see it trickle down to the smaller and medium sized companies too. Having technology that helps companies value their business will be useful and we're seeing a little more of that now too so they don't have to go out and spend $10,000 to get a professional valuation done. I think the days of that are behind. Smaller companies, bigger companies do it for corporate finance reasons and board resolution reasons, but there's the expertise to do a lot of that work that exists down through the organizations. You see the the big four start to employ much larger transaction services teams and MA professionals in eny, Deloitte, kpmg, Accenture. Now you're seeing it even below them at RSM and Grant Thornton and whatnot. There's teams built to provide deal experience, specific deal support, transaction support and as we see that you're going to get more of a sophistication all the way down to the seller level to where hopefully technology becomes valuable to a broader base of folks that are entering in their data that can be used on our side on the buy side to help find deals, get deals done, do good deals.

Interesting to see what comes One thing I really admire that you've been very consistent about in your responses is upholding this vision of post close and what that looks like. And it seems like you really bring that through the whole process. I really like that. I haven't seen it in my practice, but it sounds like you really make that part of yours.

Well, that's critical, right? All the things we talked about from a relationship building standpoint also matter in terms of the relationships internally with your functional area experts and the folks who are going to be empowered to help with integration after closing. I've said it multiple times, I'll always say it. Getting a deal closed is 10% of the value creation. Good integration is 90% and starting the M and A process diligence process closing process with your functional area leaders and experts engaged and helping. Whether it's from deal flow and process management and information access and management to just a general wherewithal and a feeling of buy in and engagement in your transactions matters tremendously to that successful integration and being able to as a corporate development professional work with lead liaison with all those other functional area leaders and people within the company. Super critical to the success of a corporate development team.

Very well put. I'm writing a book right now so I'm definitely going to quote you on that.

I'll look for those royalty checks, then.

We'Ll talk about that. I asked you this last time. I'm curious if you had any news stories, but what's the craziest thing you've seen in M and A?

Oh, my gosh. I mean, I've had deals fall through, big deals fall through at the closing table. And that's just the biggest kick in the gut as you could possibly have. You put all that work in, you spent all this money, and then for whatever circumstances, generally out of your control. Hopefully out of your control, a deal falls through at the closing table, that's a disaster. You know, deals that go bad after you close and customers leave and employees leave and IRRs go negative, those are a mess too. And there's a lot of finger pointing. That's high stress. No one's happy about that. It does happen. To expect that it'll never happen in a career, corporate development career is. Is wishful thinking. You know, not every deal is perfect. You know, it stinks. When there are things that were. Hindsight's always 20 20. It's like, oh, gosh, I wish I would have done that better, or I wish I could have done that better. And you see these situations in which, you know, things don't go so well and you wish you would have done one or two or five things that could have prevented that. And of course, hindsight's 20 20, so, you know, you make them learn lessons to employ next time. So those are crazy. Not good crazy.

I mean, do you have an insane reason on why somebody would leave at the closing table or ridiculous reason.

Oh, I think I mentioned this last time, but I mean, some guy apparently felt like he was going to be dragged through the mud from a public relations standpoint in his country because of selling to a multinational firm. That's the excuse he used. And then decided to walk away instead of literally signing the documents. And that's nuts. I mean, just, you know, there are many ways. Don't come to the meeting, man. Or please. Well, before that, give me some indication that this deal's not gonna happen. You know, don't let us get all the way to a table with, you know, hundreds of pieces of paper lined up and then you don't actually sign them or follow through with your attorneys. Crazy.

That's why they break up easily, I guess.

Yeah, they have those right. I mean, that's, you know, that's more on the buy side that you would owe something. I suppose on the sell side, you could employ that too, if you're worried that you have a flake. You know, on the crazy positive side, I have seen some closing dinners get very expensive. When the wine starts flowing, people are willing to spend some of that closing money at dinner. And sometimes I pick up the check if it gets too out of control. I'm not going to pick up the whole check or pick up the check at all. If if these were decisions I wasn't making. And the seller is flush with cash and buys Dom Perignon and whatnot. And those can get crazy too. Those are fun. The headache the next morning it's barring a little happiness from tomorrow, but part of the deal process, you're going to see it all.

That's a good hook to source. Send some deals to Scott so can have some fun closing dinners.

Thank you and thanks for having me today. Kisan.

Hey Scott, I appreciate the time and yeah, those are all the questions I had. Thank you very much for taking the time with me today.

My pleasure. Thank you.

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