CEO Growth Strategy: How Culligan Scaled 300+ Acquisitions with Scott Clawson

Today's episode is sponsored by Dealroom, the M& A platform for teams running buyer led M and A. If you've ever spent a Friday chasing five people to complete diligence tasks or watched integration timelines slip while everyone blames someone else, this is for you. Deal Room helps you stop herding cats and start aligning your team. You get project management built into the Deal Room with features like real time tagging, stakeholder alerts, task dependencies, and custom reporting. That means everyone knows what they're responsible for, when it's due and what's holding things up. On top of that Deal Room customers hit their integration timelines 90% of the time. When integration stays on track, cash flows unlock faster, CFO is happier. Learn more@dealroom.net or click the link in the description. Now 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. Hello and 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 seller led approach? It's dead. Buyer led M and A is all about strategy, alignment and efficiency, putting value creation at the center of every deal. And let's be real, it's not just about closing the deal, it's about making it successful. We uncover what truly works in M and A by learning directly from the best. And Karn, I'm your host, Kisam Patel, Founder and CEO of dealroom and Chief Scientist here at M and A Science. Joining me today is Scott Clauson, Chairman and CEO of Culligan International, a global leader in consumer water services and solutions. Under his leadership, Culligan has transformed from a legacy water treatment company into a 3.3 billion global platform through strategic turnaround, operational focus and a highly programmatic M and A approach. With nearly 300 acquisitions and operations in over 50 countries, Scott has built a true M and A machine while maintaining a sharp focus on purpose driven growth. Today we're going to talk about activating a programmatic M and A engine that scales Scott's company 10x in under a decade. He'll share tactical insights on balancing organic and inorganic growth and how capital partners like Advent and BDT have shaped the journey. Scott, how are you doing today?

Great. Good to be here. Fellow Chicagoan.

Fellow Chicagoan.

Awesome.

Thanks for hosting.

I know it.

Cullen Global Headquarters here just outside of Chicago and around o'. Hare.

We got some planes coming by. It makes it easy to get in and out of town. And it's a pleasure to be together. I look forward to our conversation here.

I got to tell you, your office is like the best tasting water I've ever had.

It better be. Let's try this together. Oh, yeah. Good water. It's one thing you don't have to worry about here.

Something you got to appreciate, too.

Exactly.

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

I have a little bit of a background similar to you. I came from a small town in Indiana. Very small. I'm not sure how small yours was.

25,000 in Little Town, Nebraska.

Yeah, I knew it was in Nebraska. 5,000 in Batesville, Indiana. Grew up there. Started my career really in operations after undergraduate in finance, then went to business school. And then one of my first jobs was actually doing business development in Central and Eastern Europe. That was a great experience. Then wanted to run a business and decided to join Danner. And I was being interviewed by one of their senior executives, very senior. He was asking me about my M and A background and business owned. Said, I want to really run a business here. And he's like, no, you really need to get to know how we do M and A in business development. I said, no, I've done that. I just did that here and there. And he looked at me and said, not the way we do it. And as you know, Danaher is a very respected company in M and A. So I worked at Danaher, spent some time there, then did my first private equity deal with Centerbridge Partners. That was in 2007. An agriculture business in Illinois partnered with them. That went really well. And after that, ended up here at Culligan and joined in 2012. And that's been my journey up to this point in Culligan. And I'm someone that understands really complex business models and international and both direct and dealer businesses. And it's just been a great career so far for me. One I've learned a lot into along the way.

How about the Culligan story? Can you walk me through what the turnaround Culligan story, and how do you set the stage for your M and A strategy?

Let me tell you first a little bit about Culligan. We provide healthy, safe, soft water to millions of people around the globe. And we do it throughout the day. Whether you're at home, at a gym, at your office, at a hotel, it just doesn't matter. We do it through all types of products. Whether it be a really great pitcher to water filtration devices and solutions at the office and of course a lot at home. And it helps us eliminate a lot of single serve plastic in the world because it's all filtered just like you're getting today. When I started in 2012 at Culligan, it was really a turnaround story at the start because it had been over leveraged and really we bought it in a restructuring from CD&R. It at that time was an over 80 year old company started right here in Chicago. You might have seen back in the day a big complex off of north in Northbrook, off the interstate. But first part of what I did is needed to turn around the business in terms of just having it on strong, safe footing, making sure the strategy was right on. And we did that the first four years sold the company to Advent. We did very little to no M and A at that time. None. Two things came together that had us start this Programmatic M and A machine. The first one's a little different than what you may have heard before. I literally is on vacation with my family in the Bahamas, pretty remote barrier island where there's not a lot of commercial stuff on the beaches. You could go to this part of that and be really remote. And there was a huge amount of plastic on the beach, single serve, other stuff, not from hotels. And I'm sitting there saying, all right, this is ridiculous. I have a daughter who's always on me about she won't drink out of plastic. And I looked at our business and said we're not that big in drinking water yet. It's a big emerging trend. And then when we sold the Advent, they were very interested to grow the company both organically and inorganically. And that's how our programmatic M and A like machine is what I like to call it started. And we really then put a lot of time, effort, money, analysis into setting up the Programmatic M and a machine in 2016. And that was the start of what has now been over 300 plus deals. It started in basically 2016. 17.

Was there a shift in the business model? Was it more like the core business was water treatment and then when you sell the plastic bottles it shifted towards exactly.

We were bigger in water treatment and that's still a great business for us. But we saw this unique opportunity to take the brand and expand it in water treatment. Now we were in water treatment some, but not in offices, not in hotels, not in restaurants. So what we did was we looked at, did a lot of strategic work which frankly any M and A programmatic M and A machine should start with making sure you have the right strategy and target markets and product lines around it. We did not do that fast. It took us six to nine months. A lot of thought, some outside help going back and forth with Advent and the board and then we nailed it. And we said oh my gosh, there is a boatload of opportunity, really fragmented to go after. And at that time we were in basically four countries. Canada, North America, France and Italy. And the company was healthy on and we said we shifted the strategy to also grow in water filtration for people at home on the go on. But we needed to get a mass. We need to acquire some people to help accelerate that because it wasn't our core product line.

So the inspiration started with time at the beach with their daughter and seeing all the plastic bottles. I like the point that you're being candidate just didn't happen overnight. But you had about a nine month journey.

Oh yeah.

Can you click into that? I'm just curious because I feel like I'm going through the same thing running a tech business which I feel like every week we think our strategy differently.

I give a lot of credit to my board and partners at Advent. And by the way, one of the reasons we picked Advent as our next partner is because they had capability and international experience to do this. So between their involvement, we hired some really good outside consultants. We had to pause some of the things we were doing and say hold on, let's get our best people working on this. And we did a piece of work that I think is critical to be successful in Programmatic M and A. And that is, let's define exactly the guardrails per our strategy. Healthy, safe, filtered water, no plastic. But then what are the attractive markets, what are their growth rates, what's their penetration versus kind of single serve plastic. And by the end of that work we had something that even the market consultants wouldn't have. I could say pick a market, Germany, France, Canada, Mexico and say, oh, we know what their growth rate is for filtered products here, what it is for softening and the penetration. And therefore that was then like okay, this is a great opportunity. And of course frankly we also already had a brand and a really healthy business in it. So that's how we started.

So it was really defining the product, what you're actually going to market with and getting crystal clear on that. And then it was mapping the whole marketplace out of like where do you want to go, where do you want to prioritize The. You use some consultants?

Yes, we did.

Were they helpful? Do you get good roi?

Yes, if you consider that we've taken EBITDA from where we are today. A lot more. Call it almost 20 times since and at least almost 10 times since the Advent deal.

Where did they do. How did they add value? I'm always Advent or. Well, let's start with the consultants, then we'll go back.

Be careful with the consultant. But they really helped us, along with our kind of analytical team in house of defining market, growth rates, solution or service growth rates. Cause we're a water service company. Of course, you need some filtration products to do that. They just help nail that down. Then we had our. Okay, these are the best 20 markets. These are our guardrails. Okay, how do we start? The Programmatic M and A.

So really a lot with market study. Do you name the consulting firm?

Yeah, Bain. It was Bain and Amani. All right. There was a firm that was a water consulting firm, Amani.

Okay, that's nice.

They're now part of Rollenberger and Hugh.

McCarthy Arthur on here. So I gotta put it back to Bain. So that's good.

Both of those together. Really.

If it was a bad experience, we wouldn't want to name them. But it's a good.

No, it's important to get. I think anytime you start. What we did is to be grounded in strategy and guardrails of where it makes sense. Somebody does M and A in an area that's a dog.

So get the market studies. Help expanding that with the consulting firm. And at the P firm. What do they do? They help anything with strategy?

Well, Advent was tremendous. They helped on and the board. We had independent directors on the board to make sure we had this strategy defined well thought out and targeted. And then they were very helpful in setting up the Programmatic M and A machine along with Kamasha, who runs that for me globally in terms of the pipeline work, transactional and integration playbook. Much of that we had from my background because I came out of companies where I learned it myself and did it well. But on our first 10, 20 deals, they were very helpful and active. They had people on the team. You know, they do that a lot. And they help get our people up to speed as well.

So they're really helping with the process, the execution. I'm wondering how much of it do they actually help you with in house? I know some of these bigger PE firms will have a portfolio support or like a portfolio operating group.

Yeah. And I've been with several that are very different from Centerbridge to Advent to now BDT msd. So they helped significantly on the initial deals of the transactional side of things, analysis and so on and a little bit on the integration playbook, but we pretty much had that nailed. They did not help much on the actual pipeline work. We built that up in house and then as time went on they would only like really support us on deals that were pretty sizable. That was back in 2017 when we set that up. Today we have zero help from our. I wouldn't say zero help, but very little on what a lot of PE firms would do would be have somebody on the deal and do an analysis and all that. We generally do it all in house. If it's a bigger transaction or so on, we can always lean on them for help or review and so on.

Are there any other areas that you found PE to be really helpful? I'm curious about this too, Scott, because I'm at this stage with our business. I bootstrapped IT to about 10 million revenue and now starting to think about doing a minority recap. So I'm starting to date the PE firms. It's interesting. So I'm like paying attention to their operating model. How well do they support their port codes? I guess part of it too is less ownership of this capital structure. We got a partner that can help you think through debt and equity balance and what other levers you can use. Did you find anything of that significantly.

Significant value add with all three of my private equity partners, Standard Bridge Capital Partners for two deals, Advent International and BDT msc, each in somewhat different ways. But I'll describe where first and foremost they are. Excellent. Just to what you said Kisan, about challenging and looking at your business and what are the strategic opportunities to really change the game or add value. They can be thought leaders on that. So that's the first thing. Second thing is they challenge, they push, they ask questions and that's great for us. It makes us stronger. Especially if you have a management team that understands that's partnering versus seeing ghosts and things like that. So they would immediately help look at and say how can we grow this? How can we add more value? Have you thought about that? Then that's been really value. And then third, they actually will apply resources at times if you want to help fix something or improve something. And look, I'll give you a great example of that. That was honestly one of my harder darker days as a CEO. And this goes back to 2009 10, my first P deal. A lot on the line first time CEO of a PE backed company, standalone CEO. And I had a big issue in Brazil and I was in Brazil, a lot of problems, distrust, foul play. And I was down there with one member of my team and I realized that I was in the gym playing Michael Jordan in basketball. I had no shot of figuring this out, not speaking the language. I spend a lot of time down here. This business unit of ours had a serious financial problem underneath. I called up the operating partner at Centerbridge on our deal and I remember it was late at night, I just left and it just hit me, I'm out of my league. And he immediately, over the next week got partners, worked his network in Brazil. He flew down there and he had seen messes before. Two weeks later we had an interim person on site. Boom, boom. He was on it with me and it was like, oh my gosh, to this day if when I see this gentleman, I mean I look and say thank, you know, thank you. No, he did worked his network. They really can help you improve businesses and ops and help you drive the.

Value creation plan, capital structure, helping shape your strategy, helping you build M and A as well, challenging you, maybe even driving some emergency to keep you a little on edge and motivated.

Having the right independent board, the resources.

Like being able to actually help you out.

And then like in BDT, MSD's case, very strong relationships around the world. I can give you an example too there how they've literally helped us in our programmatic M and A. Yeah, absolutely.

You know, we look at this, you've done like 300 deals and I'd love to hear a little bit more about when you started this process. You got the strategy nailed down, you started building out some of the pieces, the feed firm initially gave you some of that start. You gotta essentially scale it out from there. Was there any other essential pieces to really get that right?

Yes, pipeline. One of the biggest opportunities in Programmatic M and A is how companies set up the pipeline resources. And I noticed this early on and then how you incentivize people. But if you don't have pipeline and it has to be not the data and getting all the targets, who's actually going to talk to them, who's going to visit them and is it the right person? And what we did that was hugely successful, that I don't think enough companies do is find pipeline resources that are in our industry that all they care about is pipeline. They don't want to do a bunch of due diligence. They don't want to be trying to do the contract work or integrations they are rewarded on. Get those relationships, find the deals, meet the people and get them to a table, to an loi. After that they can take off and they're hard to find. A lot of people want to be involved in everything. And we found an individual at the start that is an all star at that. And then he got a couple people more. So that helped. Of course, it's once you have the strategy, you need the end, the guardrail, you need pipeline. And of course, a transactional and integration playbook we put in place. And then we went around the world and set this up in these 20 markets.

Easy, easy peasy.

Well, not easy, but it can work.

I like the pipeline focus because it's tried and true. Like even running a software company, every manager meeting I have is all pipeline. You found this formula of this right profile of a person that could do well at building pipeline. Because you've scaled this out ACROSS what, about 50 countries now are M and.

A Programmatic M and A is in pods around the world. So over eight areas where they're operating a country or cluster of countries. Yeah.

This is where I'm really intrigued because how do you scale that out? Do you say, hey, this is the profile, and then you just start hiring those organically in these different markets? Yes, against her strategy.

Now, first we got to be in that market, and in our case, we were in basically four countries. So we had to get to these other 20 countries through generally the first acquisition is a beachhead. And then we would in that area build out this small part of the programmatic M and a machine.

But you'd hire that beady person first.

Exactly. So what we first did is we hired one in the US and one in Europe. And their job was pipeline. It's a certain type of person. It's someone that really has strong interpersonal capabilities, knows how to get to know people, can work with our teams and others, and they would go meet with and target the deals. That of course came out of our research of target companies. And they would help us find those deals that would help us get into those markets. And then once we were in that market, let me give you a good example. Southern Europe, there was Iberia. We didn't have any real business in. It's a great target market. Portugal, Spain. Filtered water, the water isn't great. Plastic isn't growing that much there. So we first, through our kind of corporate pipeline guy, found a business in Portugal, fairly sizable, purchased it, their team stayed on with us. And then within that we said, oh, this is a great area. But they need a local pipeline person, they need an integration lead, they need transactional. Kind of comes from their finance team, but we have that playbook. So that's how we did it. And then they've since in that area probably done more than several acquisitions. And now we're basically one of the leading companies in Iberia over five years. If you go there today, it's like they run their own. It's like its own little P deal. They're running their own programmatic M and A. But what's interesting is I'll give you another example. Then we're in another country and I'm visiting it and then I'm not doing any. And they're stable, they're growing organically, they have a good team. Of course you want that when you start. It's like, why aren't you guys doing more deals? It's because the finance lead is in his part time trying to talk to some of the water service companies. They're asking their GM to try. They don't have time. They're trying to make their budget. So I was there and I said no, no, no, go hire the M and A pipeline guy. If he can help do the transactional part, great. And what do you think happened a year later? They hired the person like six months later. A year later, six months after he started, they got like deals flowing. Why? Because that's his job. And then you want to incentivize people to do it. Right. So it's remarkable. If you just get the steps which we've outlined and get them going in a place, it can really work. And as long as you have the incentive set up.

What's the incentive look like? Is it like almost. I think it's our sales reps. You get a base pay and then you close deals and you're going to get kickers for that.

Yeah. There's a hidden gem in this. You tell me. I don't think many businesses comp this right. And it's yes, pipeline, person and deal guys go get it done. Reward them for their performance. Maybe they get some bonuses for getting these deals done. But how do you get the business to like. The business has to then own due diligence and integration and we have great playbooks for those and most companies do. But I've been at a business before. Oh, we can't. This is one of our leaders that's calling Bob. This literally happened several years ago. We're missing our budget some because of these acquisitions. And I get it. They should. It's hard to do a bigger acquisition in two and then, you know, it does take your eye off the ball. But in the incentives part, what we have done is incentivize the BU leaders and their teams with it helping their budget. If they do small programmatic M and A. So if you have a budget of 10 million, but you get these deals done and within year they give you X amount of EBITDA that helps your budget. And it wasn't planned, meaning they could be missing their budget by a million. But they just bought a couple companies that make up that million and they. And that's like free budget money. We're happy because it's accretive. They're happy because it's like, hey, programmatic M and A can help us make or beat our budget. Ideally beat it and pay our whole business unit team more. So that's a powerful thing. I don't know how many companies do that. I think it's probably what they generally do is like, oh yeah, go get these deals done. You're a stockholder, so therefore you know you'll be rewarded. But this is in our blood. We do call it the M and A machine at Culligan because it's just natural. And of course they're going to be rewarded as shareholders. But if you're in France or you're in Germany or you're in Latin America, you have a tremendous amount of pressure to make your budget. But the minute we say if you go buy people, that's plus to your budget.

Yeah, that's right to it.

And then what we say is if you buy them, let's say you buy somebody in November, we give them credit for half the year of the ltm. Now we got everybody line, pipeline, guy. Businesses like this helps us grow as a and make money as a shareholder. It helps us make our budget. Now, of course, they have to have these elements in place which the integration playbook and the due diligence playbook. That's the easy part.

The biz dev person is their kicker based on hitting the loi or at close.

Their kicker is based on a couple things. In some instances they're on a whatever bonus program of the business or corporate they set in. If you're the development person again in France, however France does, you get that we could give them a kicker for a deal or two, but globally what we do is we have a matrix target of how much EBITDA we want to buy multiple and it's just formulaic that let's just say we have a target to buy. I'm making up numbers. We do more than this 10 million of EBITDA and our target is 10 million at seven and a half times. And then if you buy 10 million at less than seven and a half, you're getting accelerator to your target.

I like that.

If you buy, it's perfect. It's like perfectly aligned.

This is for the biz dev person to get.

This is for the biz dev people to get. And by the way, it could be those at corporate or in some pod, call it France. This is mainly used for biz dev and the corporate resources.

I like it because you're incentivizing them to do good deals, not just deals.

Exactly. If you pay too much, it hurts you. Now we know our market. We've been doing this for a while. We kind of know if you've done 300 plus deals, you're aware of things. And we have huge credibility coming to us because of our reputation of how we treat people after deals. If you do that plus this somehow reward the business unit leader. But you know what, when you reward the business unit leader is on by saying oh you, you know, if it goes well, you may get some extra bonus at the end of the year.

That's like count it all towards it.

Kind of like it can work or not. But if you have it part of your incentive program where it's been now going on for us six, six or seven years, it's okay if we do. Everybody wants to do programmatic because it helps them beat budget and then if they beat budget they make more money and they're doing now if they do a big deal, we don't let that. If it's a really big deal, that's different thing. A business that's doing 10 million, let's say they do a $8 million merger, we're not going to have them probably blow through that. But remember we're an M and A machine on water service companies where they're pretty small and programmatic and that's the best way to do it.

If they did the bigger one, is that just completely different? They is that just like a. Here's like a whole business case and you just have a whole different part.

Of that grid for the M and A teams and so on. And then for the business we would have to set up a special program for that year.

Can you walk me through the overall structure of this M and A organization? Because I've worked with a number of teams and I feel like everybody's just structured differently. There's a lot of ways to do it. But what's interesting is that you're doing this on essentially a global scale. There's this balance between the biz dev you scribe having that localized. But then when you go through diligence and you go through integration, I'm also thinking through like those processes where, hey, maybe there's some parts that you do want to localize, but maybe there's some parts that you want centralized. And just trying to put that in mind of how you actually do deals with. Like how do you actually structure the team to make this efficient? From all you've learned over the hundreds.

Of deals, this is a great question. And there are various ways to do it. We are set up where the corporate M and A team, Mohammed Shah, who leads that, is responsible for the setup of resources in the regions. One, to make sure the strategy and guardrails are what we talked about. Two, three, is that then the playbooks are in good shape and kind of followed, which is we have two playbooks. Due diligence playbook and integration playbook. That's it. But everything else is in the region or the business unit. And then there's just several of them that then have pipeline targets. They use these playbooks. Of course, any bigger deal goes up to Amit. He sees almost everyone. But he's not having to prove a small deal and wherever because it's small and he sees it because he's always tracking it and he has our multiple versus price and works that so we really stay grounded in our strategy around water services and then the guardrails and that is part of corporate job. But pipeline, execution, due diligence, all part of the business unit. Now look, some of our business units or clusters are 50 to 100 million of EBITDA. But I don't want some. There's not somebody flying in from around once we get it going. That's their own programmatic machine. It's running in France, it's running in Iberia.

You're almost like treating them like a portco of your own Common themes.

And for sure, because we at Culligan run quite decentralized. It's also with the common purpose of healthy, safe water and so on. But that's also been a reason why we get a lot of deals. People trust us. I can have people call up, just call up these people. They were at their own company, they're happy here. Talk to them about how it went and how much money they made later or not. Deals come to us that way. And it's because we treat sellers with respect and credibility. Reminds me of in Italy how we got our machine going, if you want to hear a good story about that. So there was a business we wanted to buy and Advent helped us look at it. And I kind of came in at the 11th hour when they were going to go another way. I met the two Italian owners in an airport hotel and the meeting kept going on and we built a relationship. They'd met our team, but they were really headed the other way. And I committed to them that they would keep running their business, that we would keep it in their location. And this all made enough business sense that they would have the ownership of the R and D of these unique product lines. And we held true to that to this day. And it's a little bit maybe outside our structure of what would be, you look on paper wise, but the business has gone from 5 million to over 50 million. It is one of our super performing assets in terms of technology. This was an area where there was also a technology oriented company that spread. So now what do you think happened to all these other owners in Italy? That when we started doing more programmatic M and A, they know this firm, they'd call them up and these guys are like, you can trust Calligan. They haven't changed what they said we would do and they've invested. And of course there's deals that what you're going to do is a little different. Maybe you're integrating and getting a lot of synergies, but if you do what you say you're going to do and you become known as a programmatic M and A and you can put points and dollars of return on the board for people that can have funds. That's part of it. But that generally only happens in my view when it's decentralized. If you're a big corporate behemoth, I don't think it works. Very decentralized.

You're like highly decentralized.

Well, I'm a firm believer. My leadership DNA, whether it's taught from my dad long ago to Danaher to everything else I've learned is empowerment. You want to push that down as far as you can. Of course we have systems around again, integration, due diligence and the transaction that's controlled. But people can learn that and get it going. We have all these business units with a common theme around the world performing quite well. And it's fun.

It takes hard work to build that reputation. And I like what I'm hearing about the Approach. I wanted to ask you about buyer led M and A because I've been publishing a lot of content around buyer led M and A and it's something I've observed from watching organizations like yours that may start off with a process they stumbled on. It's a seller led process. But then once you start running M and A at scale, you have to be buyer led. You told a lot of it already. Where you have to have such a clearly defined strategy, there's a clear criteria now you've got folks that are proactively finding businesses that fit that criteria versus just engaging bankers and being reactive towards it. But what I was curious about was like as you move through the actual execution, decentralized sounds like a lot of it, you really keep localized. Are there other things that you do to just fit that theme of being buyer led to ensure the success of the deal post close?

I believe the main one is having core competency in terms of talent that are doing pipeline work. And that helps. Then you be buyer led because you are implementing that with relationships. To me, that's the key. I'm on several boards and have talked a lot about MA and generally I'll sit there and just say, well, are you going to get programmatic M and A when you got take Ahmed, you got people like Ahmed and still people that know how to do due diligence in transactions all in once in a while for dollars and all that. So building that competency and then having the credibility I do think are the main key. I'll give you another great example about buyer led M and A that happened in a region of our business that's also a business unit within a business unit. Here in the US they had a pretty good pipeline person trying to be buyer led, calling people and so on. But that was it. And so I said no, no, no, no. Who do we know in the industry retired? I mean these are companies of 1 to 2 million of revenue. And it's like, oh, so and so we bought his business two years ago. What's he doing? I knew the guy. Yeah, let's get that guy going part time. And all he wanted to do is go back to his relationships. He's tired of just sitting around playing golf. He's buyer led and he's walking in somebody's dealership. So you need to do those type of things are the key and then get your team. GMs want to be buyer led because they get rewarded for it.

It's like you have to start from the early in the process to have proactive culture then allows you to build that as you progress through the deal. Like the same thing like doing your diligence and controlling your timelines. And how do you plan for integration to make sure that goes smooth.

Exactly. There's a whole process on that front end and that then instills the culture. I like what you said, the culture of being buyer led but how do.

You keep things to fit Culligan versus like straying out of your guardrails?

A lot of the review process early on on deals as they get to loi a lot of that. I give a ton of credit to Amit Shah who leads our global M and A and his regional leads to catch if people get outside the guardrails. And believe me, if you're rewarded on M and A you will want to do some deals at times that may not be as strategically fit. And for our case, water services that are growing in these very big markets but narrow and I'll give you an example in water there's companies that do hydro panels that pull water vapor from the air and turn it remineralize and turn it into water very early on. Sounds pretty cool, right? Sounds like collagen should be in that. We had these devices that we can put out in the middle of nowhere but that's not our core yet. It's early stage. It may or may not work. It's a different kind of segment. It sounds I've had to say no to certain things. I don't really need too much anymore because the team does. So that's how we do it. And that you do need to have that discipline somewhere. And we do it by these are the attractive markets. These are the guardrail which are water services. These areas are a tech deal but we're not doing VC too early stage and we're not doing something in some geography we haven't targeted yet.

This new emerging innovation. Do you sit there and say hey maybe we should have 5, 10% of resources.

You've done that. Yeah.

You sort of look at that.

We have two or three deals that will take a early position to bet on it but not have to overly run it. And some are working and some we're going to probably lose our investment on.

So there's a discipline to stay focused. But then there's this view of let's not let the things get away from us. We'll sort of resource allocate accordingly to.

We're a little blessed in this regard because any new technology ends up having to come our way if they Want to get to the markets because we won the ground game.

I don't want to pick on Amit here because obviously you've kept him around long enough that he must be worthy. But you know, for. Let's just broadly speaking, for a head of Corp dev, your CEO building out Programmatic M and A, what's ahead of Corp dev doing essentially to impress you? This is a person that's really nailed their role. This is why they've impressed me.

Okay, that's a great question and it's an easy answer. They're going to understand and do a lot of just what we've been talking about. So that's the easy answer. But in addition, they are just really astute and experienced in the parts of the M and A machine we've set up. So if you take Amit, he's really good at the due diligence, transactional and the hiccup. So he can see that, he can feel it. If it's a real big deal, he's in the middle of it because you can't miss on that stuff. But he also is really great at setting up this M and A machine and being comfortable that they're in our case because we do so many deals that they're in each region as pods and is a great leader about it and the success has been excellent at process and playbooks and strategic thought and then him be able to go deep when needed. In general, a lot of Corp dev or just M and A leads, they're really good in one area, but they don't have the breadth that's needed to run Programmatic M and A. Or you want to do it all at corporate. In our business, that wouldn't work, right? In some businesses it could, but I'm not a big believer in it.

So leadership is a huge component. Being able to build out a process and getting ahead of problems.

Yeah, and being involved. He reports to the board every quarter. He knows where we are in our targets and he directly reports up to the board. He will report out at a board meeting. The value driver of this is huge. So it's not long, but he owns all of that. So when we say we're doing all these deals, he knows every one of them. And I walked in the other day walking by his office and this had come up through a bu. A question about what we needed to pay for a deal. And I was just asked about and I said, amit, send me XYZ the last 8 deals in this area, in these regions, multiple boom. And just let Us know the strategic thought on that two hours later the data. But then he has this strategic thought about it. So when a big deal comes up, the differentiator for us with Amit is he's also very just smart, strategic. We've had him since 2000. He was my first hire for the programmatic M and A. If you asked him how long it.

Took us to get him, I mean.

We had to wait for. We got Advent on board and he was the first hire. And I always joke with him about it. Like, how many deals did you do at ir? Fingers all around. He was like in the last six years. I don't remember. Like a couple now. Like he's a star.

I know.

Now we don't divert him either. We don't need him. We got other people working on ir. He could do a lot more, but this is great.

I feel like he's got his neck exposed more than you do now. I'm starting to feel bad for the guy.

You should take him out on the weekend for sure. I love him.

Hey, do you run across regulatory challenges?

Not generally, no. We're very careful about that. We have.

I just didn't know. Now it's like the talk of the town. Especially with all the markets you play.

Very aware of and make sure we're adhering to being very sound in those areas.

Let's talk pe. I want to go back to this transition that you went from Advent to BDT as your capital partner. You mentioned that different approaches. Like you mentioned, Advent wasn't as hands on where BDT was more hands off. Just curious if there's anything else that differed their approach when it comes to supporting the M and A vision.

You have the last three partners here at Colligan, Centerbridge, Advent, bdt, mst, because they've merged with Mike o' Dell's office. I was able to really choose our partner in those cases because we had several PE firms around the deal and that's been a blessing. That's not always happened. And I appreciate the confidence that was given to me to say for near the same area of price. Who do you think would be the best partner relative to bdt, msd? They have added tremendous value in all the general ways. Good board members stood all those things. But longer term capital, their funds, 13 years. They love our type of business, which is compound, grow, keep compound. We don't have as much time on plenty of capital, a little less leverage. So their capital timeline and structure has been very positive for us. That just aligns everyone and then the type of investors they have are incredible because they are owners of businesses. Their investors tend to be big businesses that were privately held. And that's what they are. They're investment fund for the private client versus institutional investors. These are people that did well make money. So they help a business in a different way. That's been great. They're international, they like any of the PE firms. They have a network. If I needed any help, I'm one call away from having five people at BDT MSD working on it to get back to us. And of course they challenge us and all those things. But their relationships around the world have been, I'm telling you, a game changer for us that generally you don't see as much. For example, we had a fairly sizable acquisition we wanted to do and BD in certain of these target markets that happen to be in Europe. And when we were getting near the end of putting our deal together, they asked me is there any market you want us to have a co investor in more than others? And I said yes. These two, within a month after close we were going to Europe, meeting with a company through their relationships that I would have never gotten and we were able to buy that company fairly sizable only because we had a network of people in that company that were invested in BDT that were really reputable private businesses. The seller is like oh yeah, I know all of these people here in so and so country. I trust them and I'm going to meet with BDT and Scott. They might not have met with me. That's pretty great. You don't get that all the time.

So if you had the opportunity to pick your private equity partner, what would the top things be that you would look for?

1, of course would be the relationship trust fit there with the people you're working with. That should go without saying. Two would be their alignment to the strategy of the business and the future. Three would be value add to that strategy. Value add all those things and most all will say they do it. But for example, with us just on this three, we wanted to go more international and needed a firm that would support that BDT MSD advent did before they were going to do it, if I'd gone to some other firm, they may be like, oh, you know, a little cautious here or there. They're like let's go. So they were going to add a lot of value on it. Four, are they willing to to have a strong independent members of the board? I don't want only a bunch of financial investors on my board. My Boarding partners have real CEO people on it. And some of these investors in them are actually family businesses investors. So they actually made their money by running. So that's another area. How much you want them to be hands on or not is another criteria that you want to make. Sure. Fits with management.

This is great.

Those are the things that quickly come to mind that are really important to me. But they. They need to add value. And they. Those things are where it's at.

Relationship trust, alignment to strategy, challenging and.

Value creation to that strategy. If Advent had not pushed me, I saw the need with that plastic. But they then pushed and said no, let's do work. Let's change this company from a water treatment with some drinking water to. To a global water service company that takes care of drinking softening anywhere you are. And that was because of Advent. And by the way, a couple board members. A couple board members that were independents.

See people talk so bad about private equity and then I love private equity. Good examples, they're creative. What about the other part? I guess let's think like capital allocation and you got money that you can invest towards organic versus inorganic growth. How do you think through that? Then we talked a little bit about the P partner helping with some of the structure in the back end. But on the front end, how are you thinking about capital allocation?

Evolved over the last 15 years to move more emphasis and capital allocation. I don't wouldn't say. I would say emphasis. Not exactly dollars to organic growth. As you know, the times have changed some around earlier in my career doing inorganic growth, growing ebitda, being efficient, do great, make a lot of money. Now the best companies are growing organically as well as programmatic. I believe you need to be balanced and if not in today's market 2025 we have a higher emphasis on organic growth than inorganic. Now we got inorganic growth nailed and we call it our M and A machine. But that does come at the expense, if you're not careful, especially if you're doing it fast, of focusing on organic. So our capital allocation looks at both. We grow really well organically. We have for years. We of course spend more capital on that unless we're in a like mega deal year than the programmatic M and A. But programmatic M and A alone or M and A alone is not the best recipe for value creation. If you don't have organic growth. And that just gets into all of the things I've learned and we do well here at Culligan around the business system and focusing on breakthroughs of organic Growth and so on.

Have you seen like the risk from over relying on M and A or synergies to hit performance targets?

We've experienced it and when we do as much as we have, it's logical that when you do a lot of M and A that it could take your eye off the ball within these businesses, whether it's one big business or like us, where a lot of different BU's with the same purpose. So we have seen that that can happen and that's where our business system and emphasizing organic growth is much or more than inorganic really is important.

What about like the integration efforts? Because I've heard of rollups where they're off to a great start, but then integration ends up being the bottleneck. They factor in all these synergies in their models. They don't integrate them fast enough or.

Some of them, they don't integrate. They're just a roll up and then they tell you that they're integrated and you get burnt there because you find out you just bought a roll up of 15 different companies.

Yeah, backlog of integration work to do.

Yeah, that's one of our playbooks. You have to.

Is that part of like investing in organic or is that, you know, just being good at M and A is making sure you budget to integrate the company.

Being good at M and A makes sure you integrate the company and that separately about it. Separately, you're investing in organic because you know what happens if you do this deal? You have some synergy number. You got to hit that everybody. What's the synergy? All right, it's 10 million. You better hit it. Okay, that makes the model work. All that, everything you've done and talked about in your work. But what really happens is if you're not careful and I've seen this happen. Okay, hit your synergy number. Make sure you do your top line suffers some or like you're doing whatever to do and the capability build underneath isn't happening. But two or three years down the road you find out like that worked but we're not growing as much as we should. So that's more difficult business initiative to do. But that is the holy grail is make sure that you're growing organically, doing programmatic. But your numbers are like whatever you're growing organically plus two or three inorganic. But if you don't, then you hit synergy numbers and lose capabilities. And you've seen that all over the place. Big deals and others. Two or three years later, people like deal's not working out. Part of that is, you got to build capability as you do it. And we build that into our model. So one thing we do is, and we get the model and then we say, oh no, what capabilities do we need to do to make sure we integrate? Well? That could be finance capability. We're buying sometimes family businesses and that, and we put it in the model and the model kind of sometimes goes a little bit down and then up.

So this scenario that you want some level of consistency in executing, you're doing like 60 to 80 acquisitions a year. How the hell do you do that across all these geographic regions, different cultures? I can't imagine even having these different leaders on one call. Understanding each other, that's the core competency we built.

It's a general answer. But that's. It's a really good playbook. So if I brought in Amit Shah and said, just pull it up, give us your integration playbook, it's really good now, it's not too detailed. We massage it for size of BU because you can't roll out an integration playbook that has 100 line items for a $500,000 purchase revenue. So you're buying something for okay, one times revenue. Whatever they don't need, you got to have. So we have all that figured out. Then we've trained and have good people in the areas. And then the BU leader there, locally, wherever they are, has to say, okay. And once in a while they're going up the flagpole saying this integration is too much for this company or too little. It's governance, but it's governance within the pod that then goes up.

You'd love to get just general advice for CEOs or corporate dev teams that are looking to shift from being opportunistic to really building this repeatable M and A model. What are the one or two key things that should make sure they don't screw up?

For those really looking to do great programmatic M and A, there are several important things. First, you gotta build the capability and the muscle of the organization. Of course, you need to make sure your core businesses are strong where you do it. We talked about how to build that capability with Corp dev pipeline and so on. And then you need to ensure you've really mapped out the strategy, the target markets on, so you have strong guide rails. And generally I think companies do that pretty darn well. And then after that, do you have the playbook or due diligence and transactional close and people that know how to do that and then integration after and people dedicated to that and Then finally, is it married together with the actual business unit leaders, incentives and desire and comp plans? Because at the end of the day, M and A ends up in a business, especially programmatic and programmatic. M and A always ends up in a business. Any misalignment of that really hurts. And then if you have that set up and build this culture and DNA, you then have what I like to call the M and A machine. The reason we call it the M and A machine is it's a flywheel that keeps turning and works on its.

Own with good corporate governance, strategy, process, leadership, alignment. Scott, I know we're hitting on time, but I gotta ask you, what's the craziest thing you've seen in M and A?

The craziest one was years ago, 1995, 96, I was doing M and A. First biz dev job I had, I was the biz dev person in Central and Eastern Europe. We were looking for partners to make products for Coca Cola Pepsi bottlers in the local market because they wanted to be local. And that was a time when you had a lot of accounting and consultants reaching out. We can show you these partners. And I ended up meeting people at a big show that said that a great partner in Belarusia that made a bunch of these products happened to be bottle caps. We organized a trip and off I went to Minsk, Belarusia. Two hours, we get to this state owned factory in the middle of nowhere in a huge buildings like football fields of buildings in the corner of some machines making these products. And it was freezing cold. I'm like, there is no way we're going to be here. But the worst thing about it was this is in Belarusia and I had to stay at the kind of hotel attached to the company. And it was so cold, I literally took all of my clothes out of my suitcase and was laying them on my covers to add more warmth. And then the next morning for breakfast they were drinking vodka shots. I'm not kidding. The people trying to sell me on this deal, I always remember that. I'm like, that was one trip. It's probably three hours from Chernobyl or something. That was pretty, pretty crazy.

We go through it for the hunt of the deal. Here we go.

For the hunt of the deal. There's so many.

You don't know until you see it. That's why you got to go see it.

You got to go see it. You got to be out there. There's another one when you. We were tracking a beachhead and we found out we were losing it and this was a pretty significant size for us. Over 10 million of EBITDA. It was owner and his son, he owned a business for 40 years, started it and I'm like we were losing it. They were visiting who they were going to sell to in the US this European company. I said to my team, where are they? One of them knew this seller fairly well and said I'll meet you at the airport. This happened to be up in Minneapolis and I stopped whatever I did and flew up there. They gave me three or four hours before they were going to fly out and just told them why we were a better deal, that they could trust us. Like I told you before, that we weren't going to change the game on them, that We're Culligan with 90 years of history. And by the time they were getting on their plane they said okay, we really like me frankly liked our process and committed not to sign with the other company but to have us visit them the next week. And we ended up buying them a month later. And today they're a fantastic company. But if somebody that one it needed me because it was a 65 year old owner who's like if I don't get on that plane, we don't own that business. Today my team does this a lot more than me. It's not about me. But that was another great story. And especially because that business, this was several years ago, it's just done great.

That's like the moral of all of M& AIDS. It's about relationship and trust.

It is so much about it and we've been blessed that we have trust in the market. And when you have trust in the market, then sellers check. Now we tell them, call people. Sometimes you know you're doing a lot of integration so that makes it a little different. But it works. So it's been fun. It's been very fun here.

Scott, this has been an awesome conversation. Thank you so much for helping me take the time and helping me become a better M and A scientist.

Well, thank you. Appreciate what you all are doing and the work you're doing. We love it.

Fellow M and A scientist, always welcome hearing from you. Reach out to me on LinkedIn. Let me know what you think of this interview. If you've got other topic, ideas, criticisms, till next time, here's to the deal.

Foreign.

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