Carving Out A Competitor

Hello Ma friends, Anyone that charges you per page for a virtual data room is not your friend. It made sense 20 years ago when people would show up to your office to scan documents, but with today's cost of cloud storage, it's a dirty scam. That's why I'm here to tell you about Firmroom.com's new data plan that includes 50 gigs of data storage for only $800 per month. And that would be over $300,000 in.

The per page pricing world.

Don't take my word for it. Check it out for yourself by starting your own free trial@firmroom.com check it out firmroom.com I'm Kisan Patel and you're listening to M and A Science where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and what actually happened during M and A deals.

Welcome to M and A Science where leading M and A practitioners share lessons learned from their experience. If you're interested in keeping up with the latest from M and a science, visit mascience.com and subscribe to our free newsletter. Every Monday we share highlights from interviews, invitations to events as we build the greatest community of forward thinking M and A practitioners. Again, that's mascience. Com. Special thanks to VRC for providing office space to host this podcast. I'm hanging out in Midtown Manhattan. Just for those of you that are not familiar with vrc, Full service independent global valuation firm that focuses on exclusively on valuations that offer judgment beyond modeling. So good folks over there, I'm your host, Kisan Patel, CEO and founder of M and A Science. Joining me today is Liz Lockhart, Agile M and A Integration leader, adjunct instructor, and current USC doctoral student where Liz is researching how to reduce employee turnover after a company is acquired. Basically, Liz is getting her doctorate in organizational psychology and leadership while doing M and A deals to Today we're going to talk about her experience in carving out a competitor. Liz, how you doing?

Hi Kisan. I'm doing well. Thank you so much for having me. Such a cool opportunity to get to share. Basically, I'm an M and A nerd that both works it and studies it all the time. That's most of what I talk about these days.

M and A Science is the home for M and A nerds. They're always welcome here.

Thank you. I feel very welcome.

Can we start off by learning a little bit about your background?

So if we go all the way back to where I learned about work, we look at my father and my father Owned a professional audio gear retailer that made its first online sale on Thanksgiving of 1996. And so I watched him build, grow and then sunset prepped to sell, did some diligence on also a thriving online retail business. And this was when online shopping was new to most people. He was hand coding this website, it was really cool. And so I learned my work ethic and technical savvy from him and started answering the phone for him when I was 12. I had a voice at this level and so folks didn't know I took orders. It was great. So after finishing my first round of college I started a career in technology and I went into procurement and project management. I founded a project management organization and began leading also an internal training function and I most recently took on a business applications team which focuses on Atlassian tools and organizational wide reporting. All that's going on and in addition to what I just shared which I consider my day job, I I started teaching a graduate level course in operations leadership at the University of Portland in 2019. And then just this last fall I started on a doctoral program at USC in organizational change and leadership. As I mentioned, I'm that person who listens to development and growth focused self help books in my free time. Love to learn. I have far too many audible titles sitting on my shelf. And I got turned on to you actually Kisam by a classmate of mine in my doctoral program that works with companies that are looking to sell and he said hey, I think you're going to like this. Check it out. And man was that cool. Specifically focused on the M and A space. I've been experiencing acquisitions and divestitures pretty much throughout my whole career. At one point I was at a company that acquired 24 companies in 16 months. Wow, crazy times. Now I'm absolutely thrilled to be leading M and A integration programs at a company that acquires an organization every three to nine months or so. How nice.

There's gonna be a lot to unpack in this interview. I'm a little intimidated Liz, to be honest with you. Cause you're extremely sharp. The experience is really unique from your perspective. Particularly because you're not on the front end where you paint the picture and handshake the deal to close. You're on the other side. You gotta execute to create that value.

Or else there's a spot in Angel M and A, the book where it says phone rings and you learn about this thing. And that's exactly what's happened to me so many times is the phone rings, the deal's been signed And I'm given a few data points about it and then it's my job to make that valuable. It is the coolest, most learning and fail fast oriented spots. No two are the same and it's the most fun.

We're very curious to hear about your carve out experience because this is one I actually got criticized for not covering too much. They're like, oh, you cover carve outs on the sell side, but what about carve outs on the buy side? Which I'm like, that's actually a fascinating point. We should be talking about carve outs on the buy side and it seems like the experience you've had. There's a lot of other topics we're probably going to touch on either now or later. But yeah, I'd love to hear about your carve out experience.

To be fair, I have done one carve out but it was a carve out from a public company. So my first carve out tons of learning and I'm really excited to share that with listeners. And what I'm going to cover today are the things that I wish somebody had told me, the things where someone's talking about something in a meeting, not quite sure what they're talking about. Do a little Google and I catch up. So I'm trying to help others catch up. This last November, starting last November, because of course it's longer than that. We carved out 400 people from a public company that was about 11,000 employees in total. So 400 people coming out of 11,000. We were buying a specific product line from that organization that included Capture, Archiving and E Discovery Technologies. Of course carve out much more complex than a normal acquisition because the target was a small portion of a publicly traded company. So not just a carve out but also publicly traded, which meant there was significant regulatory approval that was required and caused a lot of. Not that I was used to it lead times and increased scrutiny on everything from what information I could receive to what I could send to internal employees. In terms of pre closed communications, because it was a public company, there was a really long time period between signing and close and because public company at signing you also have to do a filing and so the time period to inform folks is very short. I'm very used to working directly with the management team of another company and talking about how they communicate with employees and what is very typical in that culture. And here I didn't get any of that. So for the first time in my experience, everything including employee communications about picking a free sweatshirt needed to be Approved by our outside counsel, Target Council, Target divestiture leaders and my executive team. And so this added a considerable amount of time and effort to employee communications, especially between signing and close. So that's just writing an email to folks and that's how many different people it needed to go through because it was not just a carve out, but it was also a carve out of a publicly traded company. So there were a lot of people looking at this. We had to be very careful.

That sounds like a lot of overhead, a lot of things that tend to make it more difficult to really do the parts to create the most value, which is basically the early integration planning that really have those things thought through, the collaboration to do things. And you know about this agile stuff. So you know those challenges to try to execute that way. You know what might be interesting is to walk through this from a timeline. If you can give me a sense of on the buy side, I'm really trying to get to the differences too. You pointing out some pretty unique complexities, especially this being a public company. But yeah, if we can get a sense of what are the key milestones or events that happen and then when you get involved and what are those key things that you're really working to build up to.

So for me, especially with a public company carve out, you get that call and it's hey, this is happening. Here's a little bit of information. And that's exactly what happened here. I got a little bit of information in late October, I'll say that was, hey, we're getting a quantity of folks on these many countries and products like this. I did not get an actual company name, publicly traded company. I wasn't under special NDAs. So I got as little information as I could in order to go, ooh, oh gosh. Okay, let's spin up what we normally do. So that happened in late October and then we announced and signing and filing. Is that announced? Cause you have to announce publicly when you are changing a publicly traded company. So we had a really tight communications timeline and of course noting all those legal approvals required in there. That happened in November and it said we have entered into an agreement to. We had to be very specific about that language, entered into an agreement to acquire this portion of this company. So that happened in November and then between November and February 1st. It's a really long amount of time when you're sitting in it and you can't have a ton of information. November, December, January, February, we won't count February because it was early February. But three months where I really would love to do planning and effectively redo diligence to do integration, planning and find out how are things coupled, how is it intermingled with the existing organization? What things can I move over now? What things can I move over later? How can I maintain continuity of business and make sure that we retain all that revenue and those customers. But because it was a carve out of a publicly traded company and we were competitors, there was very little information that I was able to receive during that time. And so for those three months, we spent a lot of time thinking about, okay, what do we need the selling organization to maintain throughout transition, such that we're keeping the business working. And then once we were able to receive information about customers, contracts, products, pricing, infrastructure, because we're a competitor, if I find out everything about how they built their product and then the deal doesn't close for some reason, then I know all their secrets. So I got very little information during that time. It felt so slow. I just wanted to get to work. But that was really the thing is three months of very little information, but a ton of desire just sitting at that starting line, ready to go, revving the engine. So frustrating. But we're going to work through a couple things that we'll talk about. What to expect, how to make it.

More okay, what makes it hard, what were the challenges?

The challenges of a carve out are so unique. I'm glad we get to talk about them. And there are two big elements that stand out to me as exceptionally unique. That's how information can or cannot be shared, especially when you're a competitor, and the need for transitional service agreements. And in this experience, as I mentioned, Target was a direct competitor, which meant there was very little information that we could receive about products, technologies, employees, contracts, customers that we were acquiring prior to close, as there were really strict antitrust requirements at play, in addition to normal M and A confidentiality practices. For example, if they were to show me everything about their business deal didn't close, I'd know everything about their business and I could compete with them much better. So we weren't allowed to get any of this sensitive or what was referred to as competitive information that reasonably makes sense because of and I could just build and sell against them. But in addition, because they were a competitor, we couldn't get product information or a client list during diligence. There was a very small set of people that were able to get that, but they weren't able to share it with me. And so I had an idea of what products we were getting brought into our portfolio but very little information about much else.

What about the tech stack? Did you get an understanding of what the main products or tool platforms are using?

I was able to receive information about is this in the cloud or is it on prem? And if it was in the cloud, maybe even which cloud, aws, Azure, Google, et cetera. But I'm not able to get any information beyond that.

Nothing like here's SAP, Salesforce. This is the key tech stack.

Oh the text. Sorry. I was considering the product because it's software company.

Oh yeah.

So that's competitive in terms of how we build our product. But to answer your question on were we able to know if they were using Salesforce and we were using Salesforce? Yes, I was able to know that, but I wasn't able to get an extract of any of that information or even see how it was structured.

So you just got very basic information and then even on their stack of the product itself, same thing, you just know what cloud is on. That's about it.

Yes. For example, I would get if we were ranking customers because you want to know does one customer have 50% or more of the revenue? Always want to know that it was, it would say customer one, customer two, customer three and it wasn't until after close that I got a map of which customer was which. So I couldn't tell what industry they were in, what type of customer they were government, private, public, public, et cetera. Had no idea.

How do you get comfortable closing? I mean to me this has got to be such a no brainer terms. That's where we're agreeing to this because I'm rolling the dice and hopefully I get some fluffy teddy bear or something out of this unknown box.

I would note that as part of my role. So I focus on post signing and post close integration. I do not get much interaction with the diligence team. The company that I work for is owned by private equity and there's a team at that PE firm that goes and does all, all of that diligence and decides if we're going to do the deal and gets all that set up. And so by the time I get brought in, it's decided, yes, the deal is happening and it's my job, as you've mentioned, to make it valuable. It's the hardest part of M and A is making that valuable. And so I was told for this one, this is happening. We've publicly filed in the London Stock Exchange that this is happening. I can't tell you much about it, but you will make it valuable. It was the hardest part of carve out is the especially with a competitor, especially in a public organization is the lack of information that you're able to receive at the outset because of how sensitive that information can be.

Were there other challenges?

The one that I will highlight is around transitional services agreements. And I'll use this analogy. If I were to buy a new house, but I wasn't able to put the electric bill in my name yet, it might be in the historical owner's name still and I would pay them for that. And so in a transitional services agreement, it's where you need the seller to continue paying for whatever it was that's to going going on or operating whatever it was that's going on, but that you're going to pay them for it so that the seller isn't contributing additional value to a business they no longer own. So those are the two things that were the most difficult and I'm happy to dive further into them.

So let's start off by order of importance here. We're going to role play me doing the carve out, which one day I hope to be fortunate to do that because it sounds like a lot of fun and headache, but worth the headache, hopefully. Would you say that is the biggest thing is you mentioned that thinking through the services you're going to need to continue operating the business which links you to all these TSAs is that number one and go from there. And I'm still trying to get over the lack of information to get comfortable to close this deal. But I'm going to assume that I'm buying it on some sweet terms that I can roll the dice with some unknowns. That's why we're going to do this.

Let's cover that one first because there is a way to get some information. And so I'm going to talk about this problem and then make a recommendation for what to do. There is an opportunity to get some of the information you need to do a good portion of planning. But the only way to get this data sometimes is through utilizing a tool called a clean team. And the entire idea of a clean team was brand new to me. A clean team is a group of folks who operate under certain protocols prior to the regulatory approval and deal closure. So before close, these clean team members can get competitively sensitive information to assemble, review and analyze it. It can get that confidential data between the two companies, these very special people on a clean team you could ask, how do I get on a clean team? We'll just put the people that need to do the work on the clean team. Off we go. That unfortunately, in my experience at least wasn't going to work because there were many stipulations and requirements about being on that clean team and receiving sensitive information. And those stipulations for us were in deal documents. So as part of the deal this was included. Here's the clean team. Here's the requirements of being on the clean team. Honestly, I didn't even really understand or know about this opportunity at the outset and it took a little while for me to get up to speed on this. But when considering who can be on a clean team because you'd think, oh, we'll just put our people on it. Great. Think about clean team eligibility as a filter, of course, of people you would want to actually get that information. In my experience, some of those filters were clean team members had to have no responsibility for day to day decision making, pricing, selling, marketing, R and D, product development, product roadmap, employee solicitation, hiring. Big deal about hiring. This means no people leader could be on the clean team. That immediately excludes a good portion of your leadership team. No people leaders can be on this clean team. So that was our very, that was our experience specifically. Also couldn't be anybody that did customer or supplier negotiations or held those relationships as a priority. Really narrows it down. So I had a very slim list of folks to pick from at that point. And my other option was I could pluck somebody out of their operations role and make that their entire job. And the risk there, if I pluck someone out of their operations role and make that their whole job and the deal doesn't close somehow that person cannot work in the business for a period of time. Personally, the what's in it for me of being on a clean team going into this role is that if the deal doesn't close that you can negatively impact the future of your own employment at that company because you'd be excluded from some stuff into the future if the deal weren't to close. Wow, big deal. Of course, anybody that was going to be nominated to the clean team had to be approved by council on both sides and leaders on both sides. So you can either decide to do a clean team with all of those stipulations or you can just wait until the close happens and then you get all that information. In our case, we set up a clean team, but with not enough lead time to actually make it super valuable. So we went through all of that effort, sorted through all these people Said, who meets these requirements? They didn't have enough time to do anything with it. And so even if you have enough time, Clean team members are very limited in what information they can share with non clean team members. It's not that a special person can go into a room, get information and bring it to the person that needs it. That's not it at all. The clean team, if they are getting information, they have to summarize it, anonymize it, and then write a written report. It should be absolutely noted and underscored that a clean team is not a loophole to get the information that you need when you cannot have it. Even when you set up a clean team, if you're not on the clean team, you will not receive sensitive information about the target. It just won't happen. And if it does happen, you got other problems.

What do I get?

A lawyer will call you. That's what I'll say. I do, however, have a recommendation for folks that find themselves in a situation where you can do a clean team or you can do something else, and that is to create a role or a team that works on integrations that can meet clean team requirements the majority of the time. So for me, I created a role for a project manager that has no direct reports, isn't involved in hiring, doesn't do any pricing, selling, go to market, doesn't own any vendor relationships. And so I've created a role that can meet clean team requirements all the time. And so if I can skill that person up in integration and knowing what to look for and what to plan for, I then have someone that can actually help us plan for the future during the period of time where otherwise folks really can't receive that information. So that's my recommendation, is to create a role that meets those requirements.

I like that you're familiar with our plays.

Exactly.

I think this could be a play.

This is my play now. I absolutely agree.

So we got to talk through it. You got to give me steps and examples. You're basically creating a role or designating a role within your imo.

Exactly. I don't have a formal imo, so for folks that don't, it's just designate a role to be skilled in integration planning and meet those requirements. So keep them out of some very specific things, but make sure that creating this role, you can meet those clean team requirements. And then you have this secret weapon of carve out, especially in a public company, knowing exactly what to do. And if you can create and maintain this role, you'll be so Much better set up for success in the future. I was scrambling to get these people together. What if I could hand this to someone and say, you are the designated person. Go find out what's in there and start to make a list of what we need to make sure that we're accommodating as we move forward.

Step one Identify the person. Project management background.

Project management background yes. Facilitation yes. Agile mindset. I like to say that I carry the agile mindset into whatever we do, which is things change, people are important, off we go. There's a whole agile manifesto we could go through if you wanted. But it's mostly the acceptance that you're not going to know everything at the outset. Things change, people are super important. So you're creating that role. Step one yes. Step two, bring that person into existing or emerging integrations and allow them to learn by osmosis and marinade and learn that those collection of plates that you use most often and then enable that person, get them the right information they need and have them start looking through it and pulling things out. When we do non carve out non public company, that's my job because I can get that information. And so I will go through an entire data room and I'll create a new folder structure because oftentimes data rooms are organized by the question and then there's a long string and then you might get three files that may or may not refer to that. So I'll go through an entire data room and that's what I think this integration role would be benefited to do is go through an entire data room, look at everything and bucket it where you think it's going to be useful in the work streams for when you're actually going to do integration planning. And just by doing that you get a really interestingly clear view of how that company operates. What tools are they using? When's the last time they sold a big deal? What types of issues or praise are they seeing from customers? You learn so much about a company by looking through their data room, hopefully if it's done well. But get all of that information as you can, digest it and then start to build. And I do this when we buy a private company. I build this context aware summary of what's going on. So for example, for an HR team, I did this recently, I've looked through all the HR documents and I'll say something like in this country they're using a peo. Here's the PEO contract. In this country it's done this way here's the related documents for this. I found this for benefits. You're going to need to look here. I've noticed this about payroll. We're going to need to adapt here. And I've noticed these four things about how they're running sites and facilities. And here are some things I think we should start with. So you give a lot of information and contextual data to the workstream owners when the time is right to say, hey, I've looked through this, I do know something about it and it's my job to help you. You can be much better facilitator of change if you have an idea of what's going on and where you want to go.

Yeah, like a subplay in there about how, how you get other people to do stuff. But we'll get into that later. I want to make sure I don't miss any steps. Step one, we're going to find the person project management background and not going to break those things which we'll list. Give them the introduction to M and A. Give them that exposure. I'm trying to distinguish this as a third step is to give them the information where. Here's what this looks like. Right.

The third step is to get them that competitively sensitive information that other people wouldn't be able to receive. And then that fourth step and I guess I could I combine this.

Simulate integration. This is where it gets cool. You're actually got a model to simulate integration and teach people how to do it.

Exactly. And it's through that simulating and through planning. And I like to do this big format. I have flip charts and sticky notes and it gets real fun. But to have someone walk through it such that when everybody can get this information, somebody, this person that is in this special role can go, hey, I've looked at so much of this. Here's some stuff I found that I'm really excited to show you because now you can help me figure out what we need to do about it. It's like a, an opportunity slash challenge spotter of look through everything, see what's there. Know enough about the existing organization to think about how it might fit in. And then once everybody is able to have that information close happens then walking each work stream through. Here's what I found. Here's what I think this means. Here's what I think we can do about it. And sharing that knowledge in a contextual environment once closes happen and everybody can know you're the guide for the data at that point.

This is really cool. I'm curious about when you walk through this carve out process, would it make sense to revisit the TSAs like do's and don'ts around TSAs, there's so much.

To say about TSAs. They were new for me. The analogy of paying somebody else because you couldn't move your electric bill into your own name, that's exactly what it is. But make it every utility you could ever imagine and a lot of other things. So I got to learn so much about TSAs through this deal that we're talking about. Transitional service agreements as we're talking about was new for me. I was very accustomed to buying an entire company or a collection of entities, starting to pay for everything immediately and then just doing it on our schedule and carving out a portion of a company very different. It's not just my schedule that matters, it's also theirs and where they're going. And maybe they want to go to another data center, but things are intermingled. So much more to think about. TSA Transitional Service Agreement. It's an agreement used when an organization or part of an organization is sold to another company. And the agreement is used to facilitate a smooth administrative transition between owners. So TSAs are going to cover elements of the business, operations from payroll to procurement, everywhere in between. In the tsa, the new owner of the organization effectively is paying the seller for services provided to the acquired organization until those services can be provided by the new owner. I'll give you an example of this. A site, a facility may have a cleaning service that has an agreement with the seller organization. That cleaning service also services that seller's eight other sites that are not coming over as part of the deal. So until I can get a new cleaning service in that site, I am paying the seller organization through a TSA for the services rendered by that cleaning company on the site that is now mine. They're long, they're complex, they're often formatted in a table. So exciting. So TSA is extremely customized. They are extremely customized and fit to the situation at hand. We typically do them, at least in my experience, this one time across each work stream. So I have an HR, IT facilities, InfoSec, product infrastructure, TSA. They're all separate, they all roll up to one large TSA agreement. But you have to go through every single thing. It's what do you need to run this business? We've got this and we've got this and we've got licensing for this. And also this is running and this happens. Then we use this other thing. You have to Go through all of it. Diligence would be really helpful with this process, huh? You don't always get that information because TSAs are often built by the folks that are doing the work rather than the folks that are analyzing it. Typically you'll need full coverage for continuity of services, but in some cases you won't. And for example, we're talking about payroll here. So in the event that we can move newly acquired employees over to our payroll immediately with no laps, then we might not need a TSA for payroll processing during the transition period. So you have to talk through every element and say can we do this before close or is this going to be after close item? If it's an after close item, a TSA is written, so you have to go through every single thing with very little information pre close. And in many cases it says covering delivering this service. And that includes all of these things that contribute to it that you may or may not know about. TSAs are absolutely not perfect when they get written. And there is always a line that says these can be modified at mutual agreement. Super important because you're not going to know everything. When you can't have competitively sensitive information about the other business, when you can't dive into it head first, you can't possibly know everything that it takes to run that business.

I feel like this is where the aha gotcha moments could merge. Let me ask you about gaps. Would there be a gap? You find that there wasn't a TSA covered. One is how do you prevent that from happening? Then what do you do if it does?

Gaps happen, we put our agile head on and say things change, we don't know everything, we did our best. And when a gap happens, what I prefer folks do is come to me or the TSA manager, which is a pretty much a full time job and say hey, we found a gap, we need to make a change. Here's what the selling organization is doing and here's much how much it's costing them. One of my favorite things about a TSA agreement is when there is a blanket for. Because you can include markup in there. Is it a markup on all services? Is it a fee charge to do the administrative separation and do the billing of this? Because for example, if I'm paying for me as the acquiring organization, I'm now paying for infrastructure services and old company is still paying for the AWS because it's still there. Am I paying an additional 5% of total AWS fees or am I paying a administrative fee to do the accounting work to separate that out and put that on my bill. What do you think I would choose? Always choose paying for the accounting fee to split it out. Try to avoid paying a markup on services. Pay for the time to split it out. Because TSAs have a lifespan, there will be an expiration date for them, and that really determines how much time you have to do the integration. So is it TSA for two months, four months, six months? Is it a year? Folks always want to shorten the timeline for integration. I find people get bored after about 100 days. They don't want to hear about it anymore. How can we get enough information to know what needs to be in the tsa? Get enough Runway such that we can actually do the integration, but keep it loose enough such that if we learn about something new or something changes, we can make adaptations. And the one thing that I actually do like about TSAs is as you knock off those integration items, say I move the AWS cloud into my instance, I'm paying for it as the buying organization, seller of a carve out. It's no longer on their books. They're not paying for it anymore. I stopped paying them for that TSA item. At least in my experience. You're not locked in for paying for all of those services throughout the entire tsa. It's until you can turn them off. Okay, so it incentivizes doing swift integration, but it also is there as if you need it. And in some cases, if you need more TSA coverage, for example, you can say, hey, we need more help. We haven't gotten this over yet. Or ooh, we lifted up a rock and there was squirmy stuff under there. We've got more to do than we thought. We need more help. So a tsa, as difficult as they can be, they also allow the selling organization and the buying organization to have a relationship that goes beyond close, that encourages, facilitates, and prioritizes a swift integration onto the buyer's infrastructure, accounting systems, payroll, paying for stuff. I couldn't do it without it. If we had not had a TSA in place for this, and this is what would just occur, is if you just turn the lights off on me because I can't get it in my name, then I don't have lights anymore. And whenever you do a carve out, customers are always concerned about continuity of service and continuity of whatever product you're delivering to them. And so that should be your number one thing, always continuity of business and making sure that you have TSAs in place to support Those customers, processes, platforms, products, et cetera, until you can get them to the final spot they need to be.

I thought of a terrible analogy. I'm thinking of a private company deal as a divorce and then this public company carve out as a divorce with kids.

Very much so.

It's just like, oh my God.

And those kids are like 17 and a half. On a good day, they're almost there. But in the meantime, you're going to be paying half of everything, most likely. And you're going to be paying somebody to do the accounting for it. And if for some reason their birthday gets delayed, you're going to pay for it even longer.

Any tips on negotiating TSAs?

It has to be a really collaborative process. And I mentioned that role of a TSA manager. It's really important to have folks on both sides whose job it is, at least for a period of time when they're being established, to care and keep and understand that tsa. You're outlining everything it takes to run a business. You could go on for days. So really make sure that collaboration is key. Build that relationship so that you can say, hey, we missed something. I need to make sure that this can happen and for it not to be a response of. You should have mentioned that when we talked about it. No, it's. Oh, yeah. Okay, let's see what we can do about this. It has to be highly collaborative. It's not going to work if it's not collaborative and friendly. All but one of the deals that I've done recently at current company has been totally virtual. So it's really important, even if the culture doesn't support it, to try and show up on video to share your body language. Of course, that's 55% of understanding is body language. And so to show up on video and use your other tools such as words and tone of voice and share a little bit about your life and just encourage a relationship as colleague rather than adversaries, because you're not adversaries. You're selling one thing over here. These two people didn't individually, in most cases make this choice. So what can you do to make it less painful for everyone? Because you're going to find stuff under rocks that you didn't expect. Kids going to want a new car after they total theirs. Who pays for that? We don't know. You have to be able to figure that stuff out in a friendly manner.

Have a good relationship, be collaborative. What were the key lessons learned in your experience by side carve out?

We actually did a retrospective and looked at the things that really stood out. And first is because there were different stages where folks got involved, we should have done multiple kickoff meetings. One of my jobs as a program manager for M and A is just to repeat myself and make sure everybody knows where we are, what's happening, what's coming next, especially as maybe you've experienced this or heard about it. Things change. Signing moves, close moves, for a variety of reasons. So keeping everybody informed on what's going on so that they're not doing work when they shouldn't be and that they're receiving all the information that they can to make informed decisions. Multiple kickoff meetings. And then, and I mentioned this a bit in the TSA portion, spending more time just to understand each other's understanding of what's going on. When I say infrastructure operations, that can be something very different to someone in another company. So to spend time and talk about, okay, what do you mean by infrastructure operations? Is that just the team that operates infrastructure, or are you really referring to all of the systems, processes, tools and people that contribute to that? What are we talking about here? That was a big learning for us. We also saw an opportunity for better planning and timing, Acknowledging what info we were not going to receive, and then moving forward rather than waiting for it. We weren't quite sure how to use the Clean Team tool. We didn't have that special person of IMO that could do all that. Otherwise that would be me. But I have a team. I have three teams, but it couldn't be me. We spent a decent amount of time going, hey, can we have this information? The answer was no every time. But we kept trying. And so acknowledging just that you're not going to get this info before close, so here's what you can do would have really helped us and I think would have lowered the general blood pressure of the situation. And then be sure you're gathering integration requirements included in the deal at the outset. Every deal that I've been part of has a specific list of things that you must do. Even as an integration leader, I didn't get all of that super fast. And so what was promised in the deal, I wasn't aware of until we were talking about those items. And I went, oh, this is a requirement. Okay, where if I had gotten that at the outset, and typically a lawyer, especially in public code, carve out, a lawyer will look through all of that and say, here's what you need to do. I encourage people to ask for that list, get that list of requirements, and then work from that. It can be really frustrating when a requirement pops up that you didn't know about when you're planning something. Finally, and most importantly, focusing on that employee experience and employee engagement. If there's something that we did particularly well in this public co buy side carve out that we did, it was this we sent because you really don't know what another company is saying about a acquisition, etc. And so we spent a lot of time building employee comms and newsletters and videos saying, hi, we're so excited for you to join us. Here's what it's like to be with our company, here's what you're going to expect from us, and here's when you'll hear from us next. That helped a lot because there's that three month period of time from hey, you're being sold to, you've landed in a new spot. And what happens is that if you're not providing some guidance on what's coming next, people fill in the white space. So communication is key.

That kind of like what you're doing now with your doctor is sort of building out the playbook on how do you excite and motivate people so they stick around and create value.

Yes. I'll have some plays for you. Do you want to preview into that content?

Let's do it. Yeah.

Founders and leaders have so much to do with employee retention post acquisition. Here's what I mean. Founders are looked to, you are looked to as a culture carrier in your company. And if you get bought by another organization and you show your staff like, oh, I'm not sure, maybe we shouldn't have done that. They see that and they go, oh, maybe we shouldn't have done that. Maybe this was a bad idea for us and it starts to erode trust. And this comes from interviews that I've done with other companies. This isn't even my own personal experience. This is talking with other folks. It's the founder or key leaders have so much influence on the employee outlook of the deal, what they see for in the future. And if founders and key leaders aren't saying, I'm so excited for our next step, here's how we're going to integrate, here's the value, here's what we're building, then folks go, oh, I guess we're done and start to look elsewhere. So it's really important as a founder, a key leader and a culture carrier of your organization to be committed to what's next and to show that team that there is a future. I have seen this Done really well. I have seen there be opportunities for improvement. But you as a founder and a key leader make a really big difference.

Aspire people.

That's one of the things that gets people to join startups is that exit dream. So the exit happens. Okay, what's next? You have to sell them on a new dream with that new organization. Super important.

That's coming up soon, folks. Liz is going to have a whole playbook for us on that. Let me back up on our carve out here. Think. And I haven't done one. So advice for the people that experience a buy side carve out for the very first time.

Advice for somebody that's experiencing buy side carve out for the first time. Ask questions. Bring the legal team close to you. Bring the team together tightly. It will involve the lawyers. Get them on your team, get them in context so that when you send something to a lawyer for review and approval, they know what you're talking about, they know why you need it, and they understand the urgency. It's so easy to throw something over a wall to a lawyer, but it's better if they understand what you're trying to do as they look to approve and then your next steps happen. Especially in a highly regulated environment. And I've had experience doing this so much better than we did before in further acquisition that we've done. So make a lawyer your friend in this case it would be very helpful and actually I know some really phenomenal lawyers, so I like lawyer friends. The next is to define those requirements. As we talked about, if there are requirements for how things are going to work or how integration is going to happen, or how employees are going to be treated or compensated, find out what those things are as early as possible because you can then work them in and then any other change will occur. And then finally, relating back to my previous comment about employee experience, it is number one, especially in software, your people are critical to your success. If an entire engineering team leaves just after a deal, you all of a sudden have a product that you can no longer operate or develop. So be sure to support, nurture and grow people through this process and be sure everyone feels they have a home and a career career in the combined company. That's the first thing we say now is you have a career at this company. There are so many opportunities and you are eligible not only for growth in your current role, but growth in any role at this company that you are qualified for. And if you're not ready for it now, let's talk about a development plan to get you there with larger organization because comes larger opportunity. And there are some things, there are some roles even in a 1500 person company that just don't exist in a 200 person company. So what can we do to grow careers through acquisition? There's a bunch of books on this around what to do if your company is being acquired. Trying to help employees through that change because it can be one of the most challenging, uncertain, chaotic moments in an employee's career. My actual first experience with M and A was being bought. I don't know what's going on. Was on an IT team at the time and it was, hey, you're us now. We're going to do all this stuff for you. Okay? How can I grow in this experience, in this situation? And that was my first move out of a individual contributor role into a management role in a corporate environment because someone saw what I was doing, believed in my ability to contribute and grew me where I wanted to go. So there's a ton of opportunity in there.

Those are really good, thoughtful tips. Hang out with the lawyers, be change oriented, nurture people.

Definitely when it gets rough and it's not working the way you want to and you're not meeting your tastes, TSA requirements, people are what makes that good or bad. So it's always about people. No matter what the numbers, task oriented folks or deal terms say, it's all about people.

Well, this is the craziest thing you've.

Seen in M and A. Ooh, love this question. It's actually the first thing that got me really passionate about leading this better. This is not related to a carve out. But the most puzzling, craziest thing I've seen was where I was getting to know a communications team immediately. Post signature. So deal signed. It's happening. I get that phone call, hey, we're buying a company. Here's some details about it. It was our job to plan and create employee communications to inform almost 200 people about change of ownership in that company. And the most craziest puzzling part was that the folks I was working with on the other side were unclear if their company was being acquired, partnered with joint venture or if my company was merging into theirs. They had no guidance on this. This positioning was unclear and it made to a really rocky start amongst leaders and teams. Maybe you can identify this. The word acquired comes with a lot of stuff. This was unclear. We had to work this out. We built probably three or four more iterations of the all staff deck that we probably needed to for this reason. I Have this short article on five most common mistakes in early M and A integration. It's on LinkedIn. You can find it there. But this is one of those and it comes from experience. You have to know what's happening. Is the company being acquired, the joint venture, are they being merged with what's happening? You can't possibly start talking to people about it until you really clearly know what's happening. So that's a lived experience that's contributed to. I now have basically an intake set of questions of what is this? Who's going to lead the company? How do you know? And that's the first one.

Who's buying who? That's a crazy story.

Yes, I know who's buying who. The first large M and a deal that I did some integration program manager work on was two companies of similar size merging bought by pe merging two companies of similar size. And so it's what are we going to call the company? And we spent months time and money figuring out which brand name worked better in the market. We weren't sure what we were going to call the company for a while because two companies of similar size serving different market segments came together. What do you do? It was tricky.

This has been so fun. I wish I had more time to keep chatting with you, but I have a feeling this isn't going to be only time on M and A Science. In fact, somehow I'm going to have to bribe you to do an academy course for M and A Science Academy. And we bribe well, so we will usually get. Yes, this. Thank you so much.

This started with a bribe. Actually you sent me a couple books.

I did. There we go. If we start with that, then this would be fun. We're working on Standing up an M and A Function From Scratch is the book we're working on for the summer.

So exciting. Happy to contribute.

You got a lot so this is going to be fun. Look forward to future collaborations. Thank you so much for taking the time. I actually learned so much today.

Thank you. This was also very fun for me. So happy to contribute and for listeners if they want to connect with me. Of course there's more to come. I'm on LinkedIn. I can also have created a little professional Persona for myself called Grow with Liz. G R O with Liz. So you can find me there and more to come.

Thanks Liz. 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.