Building Trust in Acquisitions with Dan Pollock

This episode is sponsored by Deal Room, the M and A platform purpose built for buyer led M and A. If you're in corporate development, you know how chaotic things can get. Juggling Excel trackers, email threads, shared drives and four different tools just to get basic updates. Deal Room puts you back in control. It's an end to end platform designed specifically for buyers. You get one place to manage pipeline diligence and integration with built in project management, real time commenting and automatic stakeholder notifications. You can templatize your rooms, run bulk permission updates across deals, and even use AI powered contract analysis to spot risks like change of control clauses in minutes instead of hours. With Deal Room, you're not just chasing people or reconciling data across tools. You're actually running a repeatable scalable M and A process the way a buyer should on your terms. Go to dealroom.net or click the link in the description to learn more. Let's get back to the episode 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.

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Scientists welcome to the M and A Science Podcast. This podcast is part of a mission to rethink how M and A is done. The old school settle led approach. It's dead fire led. M and A is all about strategy alignment and efficiency, putting value creation at the center of every deal. We uncover what truly works in M and A by learning directly from the best. I'm your host Kisam Patel, Founder and CEO of dealroom and Chief Scientist at M and A Science. Today I'm joined by Dan Pollack, Vice President of Corporate Development and M and A at SAM Companies. With years of experience in M and A, Dan specializes in strategic acquisitions, relationship building, integrating family owned businesses in a larger corporate framework. His expertise lies in creating a win win approach for sellers and driving SAM Companies growth through carefully aligned acquisitions. SAM Companies provides geospatial services for large scale projects such as transmission lines, highways, bridges and pipelines. Backed by Peak Rock Capital, SAM Companies integrates M and A into its growth strategy with a focus on preserving values and relationships. Today we're going to discuss aligning acquisitions with long term strategy management, maintaining trust with sellers and ensuring smooth integrations. We're gonna learn how Dan balances proactive relationship building with disciplined deal execution for scalable growth. Dan, how you doing today?

I'm very good Kassan. Thanks for having me.

Thanks for coming to Our office to do this live in person in Manhattan.

Of course. Invite me in when it's raining. I appreciate it.

It's the best part of the fun here in New York. You know, it's been a while since.

I've been back here. I spent about five, six years of my early career here. So it's always nice to come back into the city.

I appreciate we were able to do this live. I know how to chase you down for like over a year to finally get you to do this. So shout out to my team for pestering enough to get you finally to do it.

You know, it's all about deal sourcing right at the end of the day, staying active and persistent. So I recently relocated up this way in the Northeast, so made it so much easier to get in here. Appreciate it.

First lesson. MA lessons. Persistence conquers all. That's right. Let's start with that.

I agree.

Shout out to VRC Valuation Research Corporation for providing our space to do this interview.

Great location.

Can we kick things off a little bit about your background?

I started my career in public accounting. I worked for a regional firm first for a couple years up in upstate New York and then found an opportunity with Deloitte down here in New York City. So I started on their audit practice and the first touch in the M and A was really the main audit client that I had, which was an investment bank. So they're obviously doing M and A advisory work and they're actually doing some deals themselves. So got to be involved and, you know, auditing. Looking at that information and those seemed pretty exciting. So I had an opportunity to pivot from Deloitte's audit team to their advisory team and transaction services groups. So doing quality of earnings analysis and other accounting and financial diligence. Started to get my hands dirty when it came to real deal work. Then wanted to get more on the buy side, saw some exciting things happening, so decided to go back to business school, get my MBA at the University of Texas. And that's where I did the networking. Got connected with sam, which at the time was owned by another private equity group in Austin. And they were looking to build the M and A muscle at the company and really supplement their organic growth strategy. So I've been there since 2018 and I think done over about 25, 30 deals then.

So you got in and it was brought right in to start building out M and A.

They had one deal. It was a nice deal. The company headquartered and founded in Austin, Texas. A lot of the operation was Texas and a handful of offices across the country. But the first deal they did got them on the east Coast. Got them offices from Philly down to Atlanta. And then we were able to really grow that organically and then do some add on acquisitions to fill in some holes. So the time it was probably like 500 employees. Now it's 15, 1600 employees with 45 plus offices across the country and very diverse now across Texas and kind of east of the Mississippi.

Built the M and A function from scratch. Yeah, started from the bottom, now you're here.

It started from the bottom, now I'm here. Yeah, yeah. It was very much a learning experience for myself. I work directly and still do work directly for our CEO and got to partner with him. He's still heavily involved with the M and A. He lets me run with it, but he sees it as obviously a key piece of our value creation. The private equity team wanted to have someone at, at their portfolio company to really focus on this and build the muscle within, within the organization and make M and A a core competency as part of the growth strategy. So that was the task. And first couple years I got there, we did two, three deals a year. Really building out the playbook and the process and the way we did this and who was gonna be involved and pulling folks from different functional teams in and just continue to massage and evolve and evolve the playbook. Really at the end of the day to now where you know, we've got defined execution, playbooks integration, playbooks defined teams. We're using deal room to streamline all of that. So it's been a lot of fun. You see how it's evolved, you see how you learn things along the way. And we're still not perfect, but we've gotten much better at this.

I got to put a disclaimer now I'm a customer, but we can't help it. Nowadays all the best acquirers are using deal rooms. So I can't help it. Last year you guys did seven deals.

Yeah, we've got a great group of people and a great company of talented folks. They want to be successful. So as I mentioned before, M and A has become part of the strategy and the growth story at Sam's, our regional business unit. Area leaders, they know that hey, we can grow the business through acquisition as well. So we sit down like, what's your business strategy here at this kind of like more regional area, local level. How can we be helpful for you guys? And obviously we're a national business, but it's a pretty small industry. Everyone knows everyone and they know who's doing good work in their area or you know, the good people. It's a people business. People want to work with good people. I used to work with this guy at Company X, now he's over at Company Y, or he started his own thing five, six years ago. Let's go see if he's interested in selling the business and bringing them in. So definitely a team effort. We are very fortunate to have the resources we have to grow our pipeline and to get deals done.

I like this big part of it is the relationship with, what do you call it? Business unit leaders, general managers, business unit leaders. For simplicity, you build a relationship with them, you understand their strategy, and then they might even have ideas about companies. And then you start shaping your own pipeline based off of this.

Taking a step further, the corporate business strategy is kind of refreshed every year with kind of like an annual plan and budget. And you know, these are the things that we want to focus on to help drive us to our financial metrics that we want to hit. M and A is part of that. It's a tool to get there. It's not its own strategy. Out on an island where you focus your M and A efforts needs to be tied to your strategy. So we're a tool in the toolbox to drive growth. We're organic first, if we can be, and then M and A is there to supplement it and trying to have a really good balance between the organic and organic growth.

That's well put by the way. It's a tool to execute against your strategy.

Those are the broader corporate strategy, but the way we like to think about our business, a slogan that we use, national reach, but local relationships still very much service based, boots on the ground. Local relationships matter. The business strategy at the corporate level may not look exactly the same at every office or business unit or what you want to call it. Let's go have a focused strategy session with these individuals, these leaders and say, here's the broader corporate strategy. We want you to be diversified, we want you to be working with good clients, generating high margins and you're able to grow. So it's like, let's go execute that. And can M and A be a part of it? Should M and A be a part of it?

Did you ever have a challenge getting like the M and A culture almost of folks that want to do or motivated to do M and A versus it becomes like a very much of a push effort. Did you feel that?

Yeah, Starting out, it was probably like that because listen, it's a lot of work, right? They're going to be involved and diligence. They're definitely going to be involved in integration. And whether they like it or not, they're probably going to be held accountable for the success or failure of the deal. Or are we meeting our goals? Are we extracting the value? It does put some additional pressure, I guess I would say, on these, these business unit leaders. But also, listen, if you're not growing, you're dying. And if you want to expand your career at a company like Sam, who's going to replace you, you need someone to take your spot now. So the only way to do that is you got to grow, right? It creates opportunities, creates development opportunities for our staff. We've done a good job of, of articulating why growth is important. And now it's like these guys are incentivized to grow their business. And another way we dangle, like, referral bonus. Hey, if you bring a deal to the table and we get it done, we'll pay you some, you know, we'll give you a spot bonus for that. Right?

So interesting.

It's nothing massive. It gets people thinking anyway. Right?

That's a good way to start Legion. Was there anything in terms of, like, readiness for the company to do an acquisition you had to do, especially in these early deals that you were doing?

Definitely required more resources, more skillset than we had at the time. I honestly think not to plug deal room again, but it helped getting everyone involved in this, getting more of a cadence. But you've got a deal that's, you know, very close to loi or post loi. And now we're talking about real diligence and integration planning. You start getting a couple of those and to get the ball rolling, it just becomes second nature in a way. It's like, okay, here's the team. Lois out. Okay, this is the next thing. Get everyone together, get. Get them into the end of the deal room, See the information, start asking questions, start building out the integration plan and the task list. And I think it's just reps at the end of the day. You're not going to have all the answers up front. We did leverage our private equity partners at the time when we were doing our first couple of deals to provide guidance. My background is more in financial diligence. So leverage that skill set and have been through deals before and knew the process, which obviously was very helpful.

If you look back and how your process evolved after 25, 30 deals, how would that compare from those early deals to how you do deals now.

We've gotten just so much stronger at every aspect of the deal life cycle from sourcing through closing and integration. For the longest time it was just me as a one man show from a corp dev perspective. So bringing someone else on to really help drive some additional efficiencies and best practices was really helpful. But we've had a lot of the same team members too across the team from more of like a back office perspective. Finance, accounting, hr, marketing, legal, safety is important, regulatory, all that stuff. So these folks just get better every time we do a deal. They know what to be looking for, they know what's important. Probably where we've seen the greatest improvement in the process is the sourcing relationship building with the target firms that we're going after. You do that long enough, you really start to hone the way you do that and not necessarily calling it a sales pitch, but you really learn how to tell the story the right way.

I want to take that one apart.

Sure.

But before that, just to get more context about your company and the deals you do, can you just share one example of an acquisition just to get a sense of like how it tied to strategy.

And we are, as you mentioned in the Intro, we're a 15, 1600 person professional geospatial services firm. We do also some inspection services, but where we've been very strong in our core competency is collecting spatial data that is then used for design purposes or construction purposes on these major infrastructure.

We talk about the drones that fly around.

We do some drone work, but we also have fixed wing aircraft with million dollar lidar sensors that is collecting very dense 3D type data and using that in a design perspective or construction phase. But then we're also doing a lot of this inspection work along the, you know it's called a transmission line. Right. We're seeing all these wildfires out in California. A lot of them are being driven by the power lines and stuff. So we're out inspecting these lines, trying to identify if something's failing or something's going to fail using these images and then predictive analytics and AIs. It's a really fun company to be a part of because we're doing some interesting things. I think what we're doing is keeping people safer, specifically when it comes to inspecting underground utilities. And you know, we're identifying where gas pipelines are before you dig and things like that. It's a really fun organization to be a part of and be a part of some of these major complex infrastructure projects. So with that one of the key markets subsectors that we work in is in the electric utility, electric power generation area. We want to continue to grow in that. We see continued growth in that part of the industry for many years to come. And one of the acquisitions issues we did probably about four or five years ago, they had made a great reputation in the industry for being the go to when it comes to anything geospatial services around renewable projects so big wind farms, solar and then transmission lines going up to connect green energy generation to the grid. They were a smaller firm based out of Texas, but had national clients, but didn't have the national reach. So they joined forces with Sam, who also was doing a good amount of this work. And immediately because of our national reach, we were able to go service four or five massive projects up in Illinois or in the Midwest that this other firm never would have been able to get at because they didn't have the resources of the national reach. So again, going back to that national scale local relationship, that strategy came through and I mean we doubled that business in like two years.

Wow. But then it's just cross selling their service in this different market that was.

Cross selling and then it was just pure national resources scale that we had. Yeah, it was more about just adding additional resources and capability to what he did to his national client base.

How'd you think about synergies on that deal? Not to like peek under the skirt here. When you look at it it's like okay, let's say X dollars are paying, but how do we look at synergies on cost synergies from buying a business like that versus revenue synergies? Cause you said you doubled it. How do you think that through and looking two years after, how accurate were you?

One of the deals that we do a little bit smaller and they're hard to really quantify. Some of these synergies, the cost stuff you can kind of tease up pretty easily. But on the revenue side it's a lot of hope for stuff and you think it's going to happen. And ultimately we typically see some pretty strong execution on that. But for this one, because we, Sam, were going after a lot of these same projects that this company was winning, we knew immediately bringing these in what it was, we knew the amount of the contract award, what the revenue generation was going to be. So we could really get a good clear picture of what revenue could be in the next one, two, three years based on. And these were multi year projects. I don't remember the dollar amounts exactly, but we had Some specific things that we could put in there from a revenue synergy perspective to feel pretty good about, which is typically pretty hard to do.

I was going to say because I talked to some companies that don't put ad revenue synergies at all because it's just not something you count on. Yeah. So it sounds like you're a little conservative on it as well. You gotta have certainty.

Yeah.

But then cost energies tend to be more predictable.

One of the things too. And I don't know how, how much of a rabbit hole we want to go down into like earnouts and all that stuff at this point, but that can kind of play into that. Right. It's as a seller. Hey Sam, like I feel really good about we can go get all this additional work. It's like, okay, well I guess put your money where your mouth is and let's put some type of earn out incentive. So we're both sharing in that risk a little bit. If you have that much conviction in it, we'll both share in the win and we'll both share in the loss.

Let's start with the beginning. I want to learn this stuff. I want to learn how you court your targets. First of all, how do you get them on the phone? Is it easy for you guys? Do you have the business unit leader just already knows them through conferences and stuff? Or are you reaching out cold? How does it start?

All the above, much higher probability of a conversation or that intro call if there is some type of personal relationship with someone at the firm. If you knew somebody, right. And like you felt good about them and you'd probably be willing to have a conversation with, with someone at their company. So that's definitely by far and away like our number one resource and where we like to go to first. After that, a lot of proprietary cold reach, cold outreach. Again, being in the business now for eight years or so or seven years, you learn who's doing the good work and who it is that would fit the strategy. So you kind of know who they are across different geographies and just making sure that you know whether they never respond to you. Following up and trying to get a response out of them or if they have responded to you, telling you, hey, appreciate the outreach, just not the right time. You just hit them up in six months or a year and just continue to see when timing, because it is all about timing.

At the end of the day, are you that direct? You send them an email and it's like, yo, just want to see if you think about selling your Business.

The first one is not necessarily like that. It's more about, hey, you know, I'm sure you're familiar with Sam. We see you're doing some very interesting things here, here and here. We're also doing stuff here I think would, would make sense, complimentary to each other. We'd love to have a conversation and see where it goes. It's no secret that I'm the M and A guy. But then you kind of also lead to like, hey, if M and A is not an option, maybe a way that we can team together and make this a win win relationship. Either way. So not coming at it like super hard out of the gates, but also not trying to be secretive about it either because you don't want to get alternative motives. And why are we having this conversation? When you get there and you're like, oh, I thought this was something different, then you're just wasting each other's time.

Yeah, you kind of, you sort of got a little bit of a. Here's a strategy. There's some commonalities between what we're doing. We should probably go on a date and talk.

Yeah, exactly.

Didn't you grab like a phone call from there?

Yeah, typically a phone call, teams meeting.

What are you trying to do in that first call?

Start developing that rapport a little bit. Right.

You always do that. Especially I'm doing a lot of these cross border interviews. I'm like, America, we like small talk.

Definitely. Typically talk about the weather.

Right.

Kids or grandkids, you know, that's topical for me. I've got young kids, so it's always fun to get going with that. But then very high level, like, where are you guys focusing your business markets? You're in high level view on size, employee count, revenue, what's important to you. Culture's the thing that's most important here when it comes to these M and A deals. Right. So if the first conversation and the first words that are out of this person's mouth is like, what are you going to pay? You know, like what, what do you think for purchase price? You're like, well, it wasn't about their employees, it wasn't about their clients, it wasn't about, you know, taking care of people, you kind of can tease that stuff up pretty quick.

Yeah, yeah, I agree that's a little bit of a turnoff. But transactional things, sometimes it's nice to.

To get there quickly, but it doesn't need to be that quickly like the first call.

I feel like it's a lot of this Niceties. And then you get some key information like, hey, this is where we're at. Then you probably get a sense of like, okay, this is interesting, or not interesting from that call. What do you do from there? Do you have another call? Do you say, hey, I gotta go meet this person?

I would say every deal's a little bit different, but if I were to kind of put a standard process in place, it would be intro call, maybe another call, learn a little bit more. If it makes sense, bring someone else into that call with me. Maybe if it's very specialized capability or specialized work that they do, bring some type of subject matter expert into the conversation. Because I don't know all the answers. I don't know the business like a lot of the guys are executives and leaders do across our organization. So getting them to hear the story and hear what they're doing is really important early on, if that's needed. And then, yeah, ideally it's trying to get in person or trying to get a little bit of information to just confirm and make sure that the revenue's there, make sure that the margins are there and we're not wasting too much time.

Valuation, right? How much you're going to pay is important. You mentioned culture. Anything else important besides money and culture?

For us, it's how long would you be willing to stay at the organization with us? Like, do you want us to write you a check and then you're off on the beach? Or are you interested in the value that Sam can bring to the table to help supercharge growth for you? Right. And your team?

How do you look at that? Does that impact value? If I know this person wants to leave, we're going to value it less than.

Absolutely. A lot of things are. You need to consider and all that, but a lot of our deals are $10 million or less in revenue businesses. Right. So you've got some key man risk with 1, 2, 3 people. And if those are the owners or the owner, they walk away. Their employees are loyal to them, their clients are loyal to them. There's a transition period that you need at least probably of two years to transition those relationships to somebody else. And sometimes they never transition. That's unfortunate, but don't like writing a check and seeing someone just sail off if they're truly important for driving revenue.

What are the different scenarios? It's either, hey, I want to get out right away, I'll stick around for two years, or maybe I'm in it for the long run.

Yeah, those are kind of the three. When We've seen them all. A lot of times you speak with these small business, family owned businesses like why would I sell my business? I'm not ready to retire. You can try to explain to them like, man, if you want to retire in five years, you should be selling your business right now if you want to get the most value for it. Because in five years from now I'm not going to be willing to pay you the same thing even if you're larger or more, you know, generating more, more revenue. Ebitda. So it's, it's really about making sure that they understand that when you have those conversations with them and then you get opportunities where you know, you come across a good firm with maybe younger leader, younger owner and, and they fully appreciate that, hey, I'm kind of tapped out with where I can do this by myself or organically, let's go join a company like Sam and we can take this thing to the moon kind of thing.

This is definitely, you don't know this in M and A until it's too late. And this one, take notes on this one if you're listening. We just talked, right? It's either, hey, I need out, whatever some reason and that happens, I need to get out. And then you have like, okay, I'll transition for two years and I'm out. And then here, five years you're going to have more confidence and you're going to pay more for the five year scenario knowing there's much better continuity with the management and higher optimism of business stability. But that's the thing, you got to plan that ahead and people don't do that. They always think, oh, next year and that's it, I'm turning the keys over and I'm out. We want to optimize valuation. Obviously the growth factor of the business contributes to it. But then the confidence in the go forward is going to be critical.

Absolutely. If that's where they're at and they want to retire, there better be somebody else in the room. And we're talking that's going to be the go to person if it's their number two. And maybe he's not a, a shareholder in the business, but he's being incentivized somehow to prove the values there.

So there's management future. Anything else you look for?

I mean, clientele is extremely important. Who are they working for? Are they working for clients that we think we can expand with, bring more capability, cross sell to? Are they clients that we really want to be working with? Like I said mentioned before, the Electric utility power space is very important for us.

How do you know public workers? I'm not going to give you my customer list, dude. I'll tell you.

Hit the road for sure. It's tough but it's like honestly you'd be surprised what someone will tell you especially if they're trying to like pump up their business a little bit. Right? Like, yeah, I'm working for this guy and this and you know these guys in the year over here. But also like a lot of the time, especially in the public sector that's public domain information. So I know who a contract with the Florida Department of Transportation. Like I know I can go on their website and see. Speaking of another sourcing tool is you go scour the dots. He's winning all the work. Then you know who to go buy. Right?

But I like that.

Yeah, yeah. Obviously anything in the public domain where you can figure out who's working for who. Yeah, you're not going to get a client list immediately but you can at least get that high level, hey, I'm working for investor owned utilities. Okay, great. Those are great clients. I'm working for dot. Great. That's great. I'm working for this other maybe larger engineering firm or AEC firm. Great. Those are all really good clients.

Gather the conversation. Things look good. How do you get the deal to be actionable? Especially think about somebody that's never thought about selling their business or like you described, it's I'm not going to retire anytime soon. How do you turn actionable?

It's just my charm.

Let's be real here. Do you convince people to sell? No break a devil.

We've convinced people to sell to us, I guess and for X price. But I don't think I've convinced anybody to sell their business. You can't just be convinced of that. Like you have to be thinking about that to an extent.

I'm curious about this. It sounds like the goals of these early interactions is one, establish relationship and trust. Two, essentially to position yourself to be top of mind when the deal becomes actionable for sure. And then there's probably some things of like you said, if it's all these options because I feel like anybody with common sense is going to want more than one option if they're going to exit. So they may recruit the banker. Have you had that where they, you engage with them, it becomes actionable like a year later. But then they recruited a banker. But you already know the person now even though they have the banker and they're running a bank Process. Are you still communicating with that company directly?

Kind of. Kind of in that situation, like right now? A little bit. To be honest with you, nothing would stop me. No, it's like, it's a fine line. And honestly, one of the business unit leaders in our organization is working with me on a deal like that. And he's the one that's kind of having the conversations behind the scenes, so no harm being done. Really. At the end of the day, we've had situations where we've had conversations and we're probably on the verge of going down some type of process to get a deal done. They've hired like an advisor, not necessarily a banker to go like put this through an auction process, but an advisor just help them through the process, which we're totally fine with, honestly. Makes our jobs a little bit easier. That's a good situation. Typically, unless they want to come in and they just like, oh, you can get twice as much money or you can get on a multiple. Like, okay, we've already established where we are. Like, don't get in the way of the deal. Like help get the deal done.

It was the relationship building, positioning yourself. So when the deal is actionable, you're ready to move on it. Ideally, you have established that rapport. You know that because you want the deal more than others, you're going to get the deal.

Going back to the question, like, have you convinced anyone to sell their business? Definitely nudged very hard. Again, I don't think we've convinced anybody, but I mean, we've had a lot of situations where you have a conversation with someone today and then in two years it's, you know, you continue to kind of stay in front of them and then two years you get the deal done. It's no process. It's. Sam was always the natural buyer for me and it was just a timing thing.

You read the sellers to know what their motivators are, what's driving them. You take them out for a beer. That's my.

Take a mouth. Yeah. Going back to, you know, what's the cadence? Phone call, teams meeting, whatever. The in person meeting is so helpful for that. We'll share a little story about a deal we got done last year. And this is one where nudged really hard for a long time. It's a good business down in the Southeast, doing a lot of electric utility work. Fit really well like plug and play into our organization and our business unit. But the owner was a relatively absentee owner. The business was just running and it was just cash flow foreign. So it's like, why should I sell the business? And I was like, you know, well, there's got to be headaches somewhere for you, somewhere like, we'll pay a fair price. Do you really want to continue to deal with this? That took a visit, a couple visits. It took a meeting around his pool, in his backyard. At the end of the day, I think it came down to, okay. I think what Dan, who was there with me is telling me is true, and I think they're being genuine and got the deal done. And six months later, I had to, you know, I had a conversation with him the other day and I hear things are going great. That was one situation where he really didn't transfer over because he was not in the business. We did put some type of like, earn out scenario in more so to get the conviction that he really, you know, he really thought this level of revenue and everything could be maintained after he left.

Yeah. That he's incentivized.

And he's incentivized to make sure it works. Yeah.

I like how you dig into the pain like you got some headaches because it was running like a software sales.

What are the pain points every day. Honestly, that's where you kind of go again, being small business owners. It's like, I know you're dealing with hr. I know you're dealing with accounting. I know you're dealing with payroll. Like, we can take all of that off your plate and go focus on generating revenue and building the business and your people.

25, 30 deals. First of all, let's break it down to how many are pure proprietary deals versus came inbound.

I would say it's probably 70. 30.

Okay, 70% are outbound. You hustle and that's great. And 30% buyer led, baby.

Buyer led. I know you just coined it, but we've been pushing it for years.

So I'm not inventing anything. I'm just calling it out. Like, this is where the industry is going in the next 10 years is it's going to be more and more about proactively sourcing and executing deals. It's going to be more about tying it to strategy. We're calling where the ship is sailing towards. So out of the 70% proprietary, how many of those end up just in general getting an advisor?

Out of the 70%, probably one out of five.

One of five. That one out of five. Do they just help close the deal or do they turn it into an auction?

What we've seen is they help close a deal because honestly, the advisor there's A handful of industry focused M and A advisors, bankers in this space. And I know them very well because I'm trying to get deals from them and I've actually built relationships with them. They tell me like, hey man, if you ever get an opportunity where, you know, the seller really needs someone to help them through the process, we're happy to help. We're not going to go try to shop this around or get in the way of the deal. We'll happy to help. You know, for a fixed fee, we'll help you guys get the deal done. Right.

That's awesome. Yeah.

And you gotta be careful of like conflicts of interest. It ultimately needs to be the sellers born with with it. But it's all in the nature of trying to get to a win win deal.

So they could be helpful in that situation where they're not gonna turn on you. And so 70%, I mean that's great, like proprietary. Now those other 30% where it is competitive, this is what I'm curious because a lot of times I can imagine you're competing with B firms. We get it right now. Right. I got inbound for our deal room company coming from tons of private equity, minority, majority and then also strategics. But the P's always sell you on the second bite of the apple, which is like, ah, you know this and all the value creation stuff they have and all the consultants on their payroll going back to the other relationship. And you're obviously positioning yourself, but the story like what's your pitch and how do you compete with the P firms?

I think this goes back to trying to solve a problem for these owners. What's the ideal situation for you? If you sold your business to somebody and they expected you and you expected to stay on and continue to work for five years. Well, it's probably doing what I love to do every day and focusing on that. Okay, well, as strategic buyer I can offer you that. As a private equity buyer, I can help you. But you're still going to be the guy to go to when growth not happening, when this isn't happening. Right. Like we can relieve a lot of that stress. Like yeah, we still want you to grow, but put more of that onus on us as the acquirer to make sure that happens and execute. Now that doesn't mean you can just stop working. You're only going to work 30 hours this week. But I think that allows them to feel like, hey, I'm actually on a team here, someone's bringing value to me to help drive growth.

It's the Better together story. But it's almost like they have clarity on what that's going to look like. But also they're excited about that.

Not just on like hey, the day to day, like what I have to do as a seller. But from the business perspective it's. These are smaller firms. They probably are. From a service line or capability perspective, they're doing one thing that maybe we, Sam, do 10 things, they're doing one of them. Okay, now they join Sam. Well, now you do all 10. Do you want to grow? The easiest way to grow is to go to your current clients and tell, hey, I can do all these other nine other things for you. Now unless the PE is going to like merge them into another firm, you gotta go build all that capability from scratch. Right. I mean that's the whole strategic buyer play. But I think it resonates, I think it's real.

Yeah, it is better together you're going to be able to offer more, do more things, focus, get the pain points off that you don't want to deal with. Can we talk about how do you structure these deals? Because again, go back to competitive situation. We have P firm and we got levers. You got cash, you got earnouts. You mentioned rollover equity. You guys do the rollover equity from time to time. From time to time. And then seller's notes. Can you do that?

Yeah, typically more of just like an earn out situation. Similar.

What does that look like for you guys?

This is something that's kind of evolved over doing 25 deals. Most were cash deals with some type of earnout tied to it. The earnout was really more a retention mechanism. Going back to the conversation we had before was like, there's a lot of key man risk here. We want this individual to make sure they stay on to help continue to keep things rolling. But what we learned was oftentimes that earnout would get in the way of broader company growth. Because this individual's tunnel vision focused on achieving their earn out. We typically use an EBITDA based earn out. All they cared about is hitting that EBITDA number, right? They didn't care about trying to collaborate with their neighbor, you know, the office is next door or bringing other people in to help strategize and build. So the way we structure it, you would think on paper it's like they're incentivized to do all that and interests are aligned. But at the end of the day the psychology wasn't there. And you just get folks tunnel vision on this earn hour. I think we've potentially missed some growth because of that. What we did with and every deal is unique, right? And there's a right structure for every deal. But we started implementing more like retention bonuses, right? Retention payments. It's like hey man, we agree like value purchase price is 10 million. We'll give you eight today and then we'll give you a million in a year. We'll give you the other million in two years. Just gotta be here. That's it. Again going back, it puts the onus on us to make sure that the value from the deal is created.

How do you communicate that? Because it's not technically part of the deal. It's not an earn out. It's not saying it's not in the purchase price. Right?

Yeah, you're right. It's not purchase consideration.

So it's hey, here's your purchase consider. But this is what your employment plan is going to look like. How do you explain that to somebody? You just put like they're right next to the purchase price.

We typically say hey, this is the number, like the headline number you should really be thinking about. But this is how we're going to structure it.

Right?

And it's, but it's, it's still at the end of the day like so this kind of what you wanted. We're giving you what you wanted, but this is how we're going to structure it.

It's still technically a number you give to them, but then you break down. Okay, this is the purchase price and then this is the LOI.

It's like, hey, we're going to pay 10 purchase price 10, but we're going to pay you 8 at close. And then we're going to pay the other two over two year retention. It definitely is. Yep.

That's better. That's because I was going to say you've got to have seen earnouts turn into litigation. No, but then you have to deal with the drama with how you integrate the company. I was wondering about that. So you technically can't fully integrate. If you got to track all this.

Separately, that makes things easier. Honestly. The administrative burden too of tracking Earnhouse. And the end of the year you've got an earn out payment coming due and you've got your process of measuring it. Did we hit the targets? The ideal situation. It's a no brainer easy. Yep, nailed it. Paying their money. But if you're close then you got to jump through all the hoops and it just creates an administrative burden for everybody.

What's the percentage between here's cash you're paying versus deferred, I guess payments.

80, 20.

80, 20.

So it's not 90, 10. I mean, yeah, some deals could be 70, 30, depending on risks, risk associated with it. You know, things like that. I just want to make sure, emphasize that every structure has, has value. In the right scenario, Earn out may make the most sense. We need to make sure that this doesn't go backwards because there's risk associated with it. So we are going to use this Earn out mechanism to mitigate that risk. That's the right tool to mitigate the risk versus like the retention payments.

Here I am still trying to do deals at 100% owner financing. I'm still looking for them. Anybody listening knows anybody wants to sell M and a software, 100% owner finance. We're getting there. We're getting there.

Good.

I've heard some more aggressive where they do like a third cash, third earn out and third rollover equity.

Yeah. The reason why we don't typically, again, look at every scenario differently, but the rollover equities, it's honestly not something that seller typically wants because we're. A lot of the scenarios we're in is like, hey, in five years, I want to be able to control my own destiny.

They want to be. Yeah, they're closer. So they're not in that long of a term. That makes sense. How do you strike a balance between the seller's legacy, which they cared about, and integrating them into Sam's culture and processes?

It's a challenge. What I would say is that, you know, we're a larger organization. We want to be able to scale and we have scaled and that requires, you know, standardization of processes, procedures, the tools we use, the systems. We use ERP systems. That also includes the name. Right. We rebrand relatively quickly. Right. So the name on the door changes. But at the end of the day, going back to that local nature of our business, that entrepreneurialism that was there, we really try to maintain that and give that local operation opportunity to kind of like, you know, control its strategy to an extent. And they're not out there on an island autonomously, like working as like, you know, their own little franchise or something like that, but it's gotta be tied to the broader corporate strategy. But what's right for your local geography may not be right for the 13 states over giving them that flexibility, letting them maintain those local relationships, still give.

Them that autonomy of running their local market like they did before.

Yeah.

And then you're just working with them to enhance it.

Right, exactly.

So it's like, hey, we got a new logo, but we got more things we can offer you. The biggest thing we always hear about these deals, it's always post close integration work is make it, break it. But what I've learned, wire, led M&A, it's not just, you know, this obviously executing against the strategy, being proactive about sourcing your deals, but really leading your deal process with integration upfront so that it is there. It is just thought of throughout the whole process and not an afterthought. Better you plan anything. I've realized it's going to go better like anything. Even with kids, like plan better, it's going to come out better. How do you do that? How do you really connect that the integration and diligence so that you're optimizing for the best integration execution definitely improves.

Every deal we do. But getting the integration planning and process going as early as diligence, really at the end of the day, you know, we get to an LOI or get closer, just pass an loi. We typically start gearing up our integration planning and getting all the folks involved because it's a lot of the same folks that are going to be helping. During diligence and using deal room, the data is shared across integration and diligence work streams. Right. So everyone's seeing the same information and you're using that diligence information to help plan integration. Just makes sense, it's more efficient and that's what we like to try to do.

Yes. Like the software part allows you to start doing the integration planning alongside of doing diligence.

Yeah.

To me, after working with over 200 corp dev teams, that's like the game changer. But I'm just curious from your side, you've seen it before without using products and doing the old way, what's the difference?

It's just such a more efficient project management process rather than working through antiquated spreadsheets and stuff. You're on weekly meetings, check in meetings and status meetings and you know, you're sharing screens of like the deal room platform, looking at work streams, tasks and see where we're at and sharing information and talking about key findings and things of that nature. And because it's a lot of the same team, you unearth things quickly and you get things solved so much quicker. It's the same people on both sides of it.

So you got the same people doing diligence are able to plan integration, same environment.

We obviously have some external diligence providers when it comes to some legal Things.

Finance, accounting, you have them in the same platform?

Yep.

Let me just cut it straight to it. If you got to quantify this to your CFO and like quantify roi, how do you explain that to them?

I would say just from a time savings. Whoever's involved, they're probably saving five to eight hours a week. We're in a heavy in a deal process. So just think about from a time perspective and remember, these are all everyone's second job. Everyone else is on the integration and diligence team. You know, they're running something out. So they're in the accounting team.

Like all these function leads.

Yeah, this is all their second job from my perspective. Anything I can do to make their lives easier, they appreciate that. Honestly, it's like sometimes we announce, hey, we're an LOI here, we're closing this deal. I feel like I got to lock my door sometimes because I don't know who's going to come down. Like another deal. We had to do another one. We just did one that's kind of more of your blocking and tackling back office functionality, diligence integration. But you think about it more from like an operational and like strategic integration and diligence. That business unit leader is square in the middle of it all too. And they're pulling in folks from their team from an operational perspective that should be involved and need to be involved. We're not announcing to the entire organization that hey, we're, we're doing this deal, but the people that need to be in are in. They're under the tent.

So that's a lot of just efficiency you got, aligning people, priorities, what needs to get done? What have you learned from doing the deals to really optimize that execution stuff in the software. But outside of that, is there certain ways you found structured meetings or things that enable people to stay aligned on priorities?

Again, I think it just goes back to more reps. The more you do, just the more efficient. Not like you're going through the motions, because if they just go into the motions and you're going to miss something. Right. But this is what I need to be doing. This is what I need to be looking for. We know what's important to flag for our teams as we do more deals. Right. Like, hey, hr, we saw this early on, like, this could be an issue. Let's jump on this quickly. Or we know they've got these contracts that we may not like. Make sure we review those heavily. Things of that nature. It's just getting everyone more reps at the end of the day and building that muscle. That's what it comes down to.

What I was wondering was, on the seller side, is there a view about how do we keep the process smooth? Because there's one thing internal, keeping folks coordinated, make sure things are getting acted on, but then the seller side, making sure that they're getting a smooth experience so that they come in motivated and not like fud.

That's a great question and something that I think is critical and it's very hard to do because deal's a deal and it takes a lot of time and effort. I try to be as upfront and transparent about that with. With these owners and founders of these businesses. Like, this is going to be a heavy lift. Just want you to understand that we're here to help and we want to make this as smooth and as easy as possible. But it's going to be hard. You've never done this before. The system again. I mean, it's nice to have a system where they can go in, they can see, like, we share, like the diligence list in deal room with them. They see what they have, they can upload it right to the task so that they know what they're looking for and where it's going and who's going to see it. So that's helpful. We emphasize really good counsel that's got a lot of M and A experience. Some folks don't listen to us and it's detrimental to them more than anyone because one, they're not potentially not getting good representation, or two, it's like a draft purchase agreement goes over and then we get this just like redlined mess back because they don't know what's standard and what's not. And then it just creates so much more headache and problems than it really needs to be.

So you'll actually push back and say, hey, guys, you probably need a better lawyer.

You should get it. Yeah. I mean, once you get going and you know, it's too late at that point, but it's early on the process. We're on the verge of submitting an LOI or getting them something. It's like, make sure you get someone who really knows what they're doing here because they could get in the way of getting a good deal done for you.

I almost feel like this is the golden rule of M and A is have a good lawyer to work with.

A good lawyer. Yeah.

With or without an advisor. But I feel like having a good lawyer will make up for a lot.

Of gifts and one that's capable of getting a deal done and being reasonable and knowing where to push and what not to push. And we've got some that we've worked with for a number of deals. They know what's important to us and where they can give and where they can and a pleasure to work with. So makes life a lot easier.

Anything else like you found to sort of be like, hey, this has been a really cool thing to make sure that gets off to a good start.

Maybe going back as a way to help build a rapport and build a trust and get a target owner thinking more like, hey, this might be the right thing for me to do is getting them in touch with previous founders and sellers that have sold the same past.

Interesting.

I think that does a really good job of.

It's cool. You're not afraid to do that?

No. Well, again, like, if you are afraid to do that, what does that say? As you're trying to express that you're a fair and reasonable person when you've got a track record of closing 25 deals, you're obviously not screwing everybody over. You're not going to get another deal done. Reputation is important. And being someone, hey, we just, we want to buy your business and offer you a fair price, reasonable price. And to show that, we'll talk to everyone else that we bought businesses from. They'll tell you the good, the bad and the ugly, as our CEO likes to say.

I keep laughing because I'm doing this right now. We got a lot of conversations with PE firms, so I'm going to their port cos and just talking to the other CEOs and you get a whole different side of the story. And some are just like, look, man, completely whole different story. That's the reason why I chuckle. So it is a really good thing, the fact you can do it proactively.

I think they've been very transparent when they've had those conversations. We tell them to as well. It's like, I think this all goes back to as part of that early relationship building process. If you know this isn't going to work culturally and you know this isn't a deal to do, like, let's make that call early on, both agree and go on our way. There's no reason to set something up to fail. Like why and why waste our time? You're busy, I'm busy. Let's get to know quickly. Right?

It's almost like another layer of diligence too, because other execs be like, yeah, that's going to be a good Fit. Yeah, it's pretty cool. So we brought a pe. The relationship with the PE firm and what I'm trying to understand is as you identify deals to do. I know there's PE firms have very different range of operating models and the way they support that. Well, I want to get a sense of what does that look like? What does the governance look like for you to do deals? Do you have free rein to just write checks? Could you some. You know, how's that?

As we've gotten better at it, we definitely have a little bit longer of a leash. Our private equity partners are great. They are very supportive of the M and A playbook that we have. Going back to the conversation we had earlier about how we use M and A as a tool. Right. And it's included as part of our strategic planning and you kind of build that like buy box, if you will, like where do we want to focus our M and A efforts if we need to prioritize something? Like, we know it's going to be hard to grow this organically because X, Y and Z. But from an M and A perspective, it makes sense to focus here. Okay, great. That's the priority. In the buy box you have four or five things that make sense. If you tease something up that fits squarely down the fairway with that, it's a pretty easy go get it done kind of thing with a good pitch deck of 10 slides or something like that. And here's the strategy and here's why and here's the value that we recommend proposing to pay and what we think it'll do from an accretion perspective. Get the LOI signed up and go through diligence weekly check ins on diligence and then like a, you know, final like bring down report or update when we're about to close a deal. But if it's something a little bit outside the fairway or something new or maybe, hey, we, we think adding this type of capability or solution or a little bit outside of our core competency, then that's going to require some more conversation. Rightfully so. It takes more to articulate the why. But that's fun, right? Like you get to really sit down and partner with the private equity sponsor and, and talk through it and help them understand why you think this is good. And then maybe they have a different way of thinking about it.

Come back to that in another podcast. What's next? What's next? M and A Growth future. Kind of happy. We haven't talked about tech or. Well, we talked about tech, but not like AI specific.

I guess that's a good segue. What we just talked about something that's like looking at something that's not right down the fairway. We did a couple of deals last year that were a little bit different. What's interesting about Sam is we've collected all this data over our existence, and I think we're pretty unique in the industry to have all this georeferenced data on where points are or where things are on the Earth's surface. It's pretty valuable information if you know how to hone it and structure it and analyze it. We've never really done that, and no one has really done that. But we made a couple acquisitions last year that are starting to put the tools in place and the capabilities in place to start doing that and providing real intelligence from that data to our clients. And it goes back to, like, asset management and understanding where things are. So if something fails, they know what to go fix and what has to be fixed. Or if you know, based on history, this part's going to break. Right. So it's finding more things like that that will ultimately lead more work for us from the data collection side because obviously you'll find gaps in where you need to go, maybe collect some data, but at the same time, you're just bringing more value to our clients. So continue to innovate. And M and A is going to be a part of that because there's. There's a lot of smart people doing some interesting things out there, and we're not going to be able to do it all. So that's what I would say is next. You know, there's a lot of opportunity, a lot of money being spent. A lot of talk about, you know, our utility grid not being up to scale. And we do things differently there. Roads and bridges. You know, I think we had D plus or something from the Army Corps of Engineers report card on our infrastructure, United States. So there's just a lot to do, and you're going to have to do some type of automation or AI to do it, because there's just not enough people to do it.

Yeah, this is. I remember Bain had a report a number of years ago about scope versus scale. This is expanding out the scope case, requiring capabilities to do more things. What's the craziest thing you've seen in M and A?

We've had some. Some fun things over the years, but I have to say we ultimately didn't do. I mean, it's just, you know, small business stuff that you see in some of these, these owners, we're on like a diligence call with attorneys, accountants, and the owner of. There's two owners. One of them was on the call. He's more like the cfo, coo. So he was giving us a lot of the diligence information. He's on a zoom call and he's walking around his pool smoking a cigarette. And you got all these attorneys and lawyers on and they're just like looking at me like, who is this guy? What are we doing here? You're buying this company. It's just like, yeah, yeah. We're contemplating ultimately didn't go through. But I mean just the guy was quite a character. So there's crazier things out there. But that one stuck in my mind.

That is a funny one. You heard a big surprise that popped up during diligence because I always think these small businesses, what they expense on the business or just things that pop up.

What we run into a lot is our industry and the survey. Geospatial stuff. A lot of small business set aside work. A small or certified small, certified disadvantaged business, minority owned business, woman owned business. And if Sam were to acquire that company, a lot of that work goes away. Right. So I guess this is something lesson learned. We were talking with the firm, made no mention whatsoever that he was a certified small business. And we basically get the loi. Then we start getting his contracts and reading the contracts and it's like small set aside contract. And it's like. Probably should have caught that earlier, just to be honest, but something you might want to lead with a little bit if you're a seller. Because again, no one wants surprises. We just waste a bunch of time. We had to walk away from that deal. You know, it's just.

Yeah, it's funny. And sometimes seller, if you're first time, you don't know.

You don't know what to say. You don't know what to say.

Yeah, you don't know that. That's a big red flag.

Maybe just assume that I should know that. Again, it's again, probably my fault, my ignorance. So definitely put that one on the diligence list early on in the process.

Man, this has been a great conversation. I appreciate taking the time with me sitting down, helping me become a better M and a scientist.

Yeah, you're welcome. Thanks for having me. Been a lot of fun. Thanks for all that you do, Kassan. I appreciate it.

No, it's been a pleasure. It's plenty of pleasure collaborating as your team. Fellow M&A scientists you listened this far. Thank you. Appreciate you. Appreciate hearing from you. Connect with me on LinkedIn. Love to get the feedback topic, ideas, criticism. I'll take it. I'm trying to get better at doing this to provide more value. Till next time. Here's to the deal. Foreign thank you for taking the time to explore the world of M and A with our podcast. We love hearing feedback. Tag us on a LinkedIn post, add a review on Apple Podcasts. We'd love to hear from you. If you need help standing up an M and A function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email Kisan K I S o n a science.com or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter. Again, that's mascience.com here's to the deal. Views and opinions expressed on M and A Science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual. This podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions.