Creating an M&A Team Structure

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Great. How are you doing today? Kisan?

I'm wonderful. Thank you for taking the time to come hang out with me. Can we kick things off with a little bit about your M and A background?

I went to the Air Force Academy for undergrad with a degree in engineering, then spent six years on active duty doing nothing around contracting or anything of the sort. Of when I got out of the military I went and got a law degree and an mba. Practiced law in mergers and acquisitions at a big law firm. Then I went to a middle market Investment Bank, a PE rollup and then for the last 12 years I've been at Premier in one capacity or another, helping us first go public and then spending that money.

That's quite the tour there and I've found the corp dev leads, the legal background tend to be pretty dangerous. But then you took that full circle route through banking, PE corp dev I did. Any big takeaways from all of that that sort of bring it all back.

Together the law degree has been super helpful and actually having practiced law is helpful. I don't know about your experience Kisan, but in mine oftentimes the lawyers are left out of the room in some points and I am the corporate development guy in my role but I'm still a lawyer in the room hearing what people think and I'm a believer maybe because of my legal background that you ought to bring the lawyers in the room a little bit sooner.

But they're the ones always finding reasons not to do the deal sometimes yeah.

If they're finding reasons not to do the deal you need to look for another lawyer.

That's why you bring them after you sign. You're gotta. Here's the initial loi. You want to check this over, make.

Sure we're not doing anything wrong. Yeah, no doubt. No, we've found a great firm in McDermott, Will and Emory in the healthcare space to help us with deals. They've been wonderful, great.

And if the CEO decides to start doing M and A, who's the first hire?

I think it's gotta be ahead of corporate development. Maybe that sounds too obvious Kisam, but I don't know that you want to have the CEO put this on someone else's plate who hasn't done it before. I've seen it where a CFO has been estate as the head of the team if you will and then they bring in a mid level person and me it is it's corporate development, a leader that you want to run the team and report either to the CEO or the cfo.

Where do you find this person?

You can maybe steal one from another company, a junior person on their way up that's got a lot of experience with how they at least do it at their company and then bring them over with a promotion or something to that extent or you can rob maybe from a investment bank and I would look at senior associate junior vp. The fear being that you won't be able to pay enough money to get them to come over and so you'd want as senior as you could go maybe in an investment banker and ideally.

In the industry got some options. What do you think's the best? And it sounds like you're. The theme here is someone that really knows how to like source and take a deal to loi.

Absolutely. So source, take the deal to loi. What do I think is the best? Is that your question?

Here's what I've learned is with the bankers they can do that but then the integration of your internal operations is lacking it's something that needs to be learned.

I think the best play then is to grab somebody who has done it before. Like I described. If you can get somebody on their way up and ideally somebody who. It's great that you bring up the point on the integration management officer or team, if they've played on both sides, both the M and A side as well as the integration side. Great person to have as the head of the team make them come along or have them choose to do it because they're getting a promotion or moving into an industry that they enjoy. I think that's your best way to go.

How about internal?

Internal would be great. I'm all for always hiring internal if you can. I've seen a lot more success with the IMO than the head of corporate development internal. Just because there's so few people that have led and been in charge of M and A, whether it's at an investment bank or a private equity firm or the like. And then those individuals often make a salary that is high enough that it's hard to attract them once they have a level. So experience. It's rare to find a former banker in the general population of your company. So I would love to, but I think it would be tough.

Okay. I'm pretty keen on poaching. So let's say we picked up a director level person at a fairly reasonable investment for the company. We bring them in. Talk to me about strategy. How do we start thinking through that? Who ultimately owns the strategy?

The first thing you need to figure out is who owns it and how does that corporate development team fit in. I've seen this done a number of ways. We've even switched in the decade I've been at Premier and I think the CEO owns the strategy and they often have a strategy person that works for them directly. But I also see it where a corporate development lead wears that strategy hat as well and that's successful too. M and a partnerships 5 build partner decisions are all strategic decisions for a company. So certainly it fits squarely in the corporate development realm in some ways. But I like the model where strategy person and if it's a big enough company, the strategy team works directly for the CEO and then you have the corporate development team report to the cfo.

Really? Yeah, I've seen that structure. I always thought it was the wrong structure to be honest. Why is that the strategy part? I thought they wouldn't be as looped in with the strategy and that ultimately they should be working directly with the CEO. But in this case we Have a strategy function. Let's say there wasn't a strategy function just because I. A lot of cases when you're building this function maturity that may not be there, that corp dev leader should work with a CEO to be tied in to take the company's broader strategy and really shape a defined M and a strategy.

It's highly dependent on how engaged and involved is that cfo. I think why I like the CFO being an offset is that the CFO is going to have typically a more conservative view of the world. The CEO wants to get the job done. So are you going to pair that CEO up with a corp dev guy that also just wants to go get a deal done and then they have to get beat up by the CFO not to do a bad deal? Or do you let the CEO who really has the stick anyway and owns the strategy, have the CFO and the head of corp dev pushing them to do smart deals and back and forth that way. So for me, there was some of the balance on how you run the deals and make sure you don't chase and do bad deals. And I've seen more of that with it under a CEO than I ever have under a cfo.

That's so interesting. You want the headwind.

Yeah. Because if you can beat the headwind with your executive team, then if you have an active board, depending on size of company, again, you'll breeze through your board meetings anytime.

What about capital allocation? Does that give you any leverage by reporting directly to the cfo? I feel like a CEO could override everything. Just we're going to do this deal.

It hasn't for me Premier. It's been run a little differently, but I don't know that you'd get more leverage on capital so much as you're going to have an advocate if you've pulled your numbers together appropriately and you sold your boss on it. When it comes to a discussion about moving forward, you've got the backing of the cfo. Instead of having the CFO try and drag you down, you talk about it being me saying that I want some of that drag instead. I want to do that drag early with the. With the CFO so that it's smooth sailing for the rest of the approval process.

Interesting. You want them as your champion and it ultimately gives you a better case. And you know, CEO is going to be, you know, at first sight likely and here that paves the way for it to be a lot easier through the following stages.

Your argument is a good one through different groups that I'VE talked to and different folks that are in similar positions. Certainly if you have a sort of that lawyer we talked about earlier, if you have a no cfo, wow, that would really stop you. But I still think even if in that scenario you would be under the cfo, but the CEO would be giving the pull because they want to do faster deal and more deals.

I'm very obviously biased on that view because of the background of running this company. I get it. It brings a new perspective to light the strategy itself. Are you when it comes to the strategy of M and A itself, how do you think about that sort of own, manage, socialize it, develop it?

You're talking about how do we go about doing M and A or how does M and A fit into the strategy? Or both.

Both.

How we execute on M and A has largely been for me something that I was able to set up that process the way I wanted it to be and now run through it and tweak it. And if anything we spend more time tweaking the IMO function than the M and A function and how it operates within the company. But on the other piece on how M and A fits into overall strategy, while I didn't say that I thought the corp dev person should be wearing both hats of strategy, the corp dev person has to be in the room when you're discussing strategies to talk about should that be a buy, should that be a build or should that be a partner? So unlike our private equity friends doing a similar role of buying things up, we have to help make those builder partner decisions as well. And you don't hear a lot about a lot of build and partner decisions being made by the PE level folks. But in at least Premier where I am, we spend a lot of time helping execute on partnerships and pushing a new capability that we have to why don't we just build that ourselves instead of overpay for an asset?

That gives you your guiding post of this is where we should go, where we should actually buy things and sure does.

The way we structure it at Premier is you have to have a champion, if you will, a business unit lead because I don't own that business after we buy it. It's not investment banker walk away, but at the same time it is that champion that you have to sell in order to do the deal. And you should be thinking about some of the things that that champion because they're so bogged down and operating their business isn't potentially thinking about. So you should be actively pushing strategy with your strategy person, which if you don't have one with your CEO, cfo, executive team. But at the in the end you gotta make sure your operators are on board as well.

How do you think through about building the rest of this team? I'm thinking timeline too. Hey, I just got this new role. I'm gonna start hiring folks and building it out. Or am I getting a deal going, getting more activity? Maybe we got enough capabilities just to do a deal a year, but as we increase the volume, I'm using that as indicators to add more roles and dedicated resources. You can maybe give me a sense of the timeline and then those specific roles you're adding on as you go.

Yeah, that timeline is really hard. It really depends. What I see a lot of people have done sometimes is hire a VP of Corp Dev. So someone who could even move up into your role and is really leading sourcing as well as execution of deals. But I think that's a mistake. I think the first person you probably ought to hire is a junior person is an analyst. If you're not an organization that's ramped up and doing deals already and that sort of thing, you'll want your senior person, who is that first hire we talked about, to be out sourcing deals, spending time on strategy, those sorts of things. And your junior person can then support that person with modeling and the like. I think that's maybe your second hire. And for me, once you have two or three active deals going under those two individuals, it's time to start hiring teams. And the way I think about hiring teams is hiring a senior person first and then letting them be a part of the hiring process to hire a junior person. If your organization fits nicely into teams that could then specialize, that would be great. Or if it makes more sense for you to just whoever's not busy takes the next deal, which is where it typically ends up for us at Premiere, that works too. But it's truly dependent on workload. And a lot of times the sell to come to Corp Dev job is that we're not going to work you quite as hard as your PE&M and A investment banking brothers but and sisters. But the what I tell our candidates is that when the deal is on, you're going to be as busy as you ever were. The difference is that we'll hire appropriately and staff appropriately too, so that you can get a break in between them every once in a while. But when you're in a deal, you're in a deal because you're being pushed by and competing with folks that are working those crazy hours. So try to make sure that's abundantly clear to the folks transitioning out of banking, for instance.

That's a good point. And that's where you'd primarily look for those hires is experience that's related to what you're trying to do.

Yep, banking. If someone's had a bunch of banking, I'm not even as concerned that they know healthcare where we're focused. I think I can teach them healthcare. I want their skill from doing M and A deals or I want to poach another corporate development person who I know has had some success.

When you said getting to that point where you hire a leader to work with them, to hire others, what reference did you mean specifically in corp dev or building other capabilities?

I was thinking corp dev. You have your head of corp dev, then you get a junior person and he or she as the head of corp dev at that point has to be leading those deals as well as being a part of the strategy. It's very busy until you can get some going and have the company who maybe hasn't had a corp dev function before understanding what your needs are and then work towards hiring the two person team I was talking about. So you'd hire a vp, let's say of corporate development and then have them be involved in hiring another junior analyst.

To support them as the head of corporate development.

The head of corporate development does some of that. But I'm going to put some teams together underneath me. If we've got the volume of deals, I would hire a VP and an analyst and then a VP and an analyst. But I like hiring the VP first because they get a chance to get their feet on the ground and then be a part of the decision on choosing an analyst because they're going to be tied to the hip with that person to get deals done.

Okay, just title clarity. Because I feel like a lot of times I see head of corp dev and VP of corp dev interchanged. And then a lot of times I think what you're referencing that it would be a director a lot of times.

Sure. So at Premier I'm a senior vice president and the people below that are vice president. But yeah, fair enough. You would have a. If we're going VP or managing director down to director level. I was definitely describing the director level person who then would come in and be part of a two person team where they would hire the next junior person with you.

Got it. How big is your corp 15?

We have seven.

What did that look like when you.

Built it out so when I arrived, I was the first hire that the senior vice president brought in and we then went from there to a junior person and then got another person in who was really more focused on strategy but had done some M and A and then grew it as I just discussed, which was grew it into other places and how many bodies we needed based upon what was our deal flow. That's the way that went. When I ascended to be the head of the team, I decided we needed a partnership function. So we not only hired specific M and A people, we found people. And this is a higher piece. And I think you can do from within your company. Sometimes even take a lawyer. That lawyer maybe came to a company versus a law firm because they were getting one step away from billing every six minutes. Now they're at a company and maybe they want to get another step away from the law and do something a little more operational. And I've found you can convert a lawyer into a partnership person pretty easily.

That's actually really interesting. Essentially I get hire as you need and keep up with your deal flow. And we talked about building this for corporate development team. What about in these other areas? When we think about in the functions, the legal perspective, accounting, hr.

I think early days, you hope people on those teams have some experience in this realm and if not, you are going to outsource it with a senior person on those legal or accounting teams managing that relationship and you helping them pick the right people. If you get to again, a place where the volume demands. It's wonderful to have a dedicated or at least someone who's spending half their time or has a good background in M and A deals on both the legal side as well as the accounting side and even hr. Having a dedicated or halftime dedicated HR person is wonderful both during the deal, but even better on setting yourself up for success and being part of the IMO on the back half of the deal.

This goes to that source within find it. And it sounds like it's a whole capacity where you have a person internal leader that may have had experience with M and A. Now if you have an internal functional lead, let's take HR for example, and they've never done nmna. Do you automatically default to hey, let's supplement this with an external resource or I'm going to pay attention and coach them with this. How do you think that through budget?

If I can wrangle enough budget, I'd love to bring someone in who's experienced and get running that way. If you don't have the budget because A lot of times in a company gets messy. It's not my budget. That HR person sits on. The HR team will convince the HR team to use their next hire for this purpose. And so if I had the budget, I would definitely find someone with experience. If I don't, then yeah, I've got to figure out how to train somebody up who's interested.

Fair enough. We keep growing this team. This matures and obviously depends how big you go.

Some of the mature piece there is. Do you want to add different functions? You have a full office of IMO as part of your team. Do you continue to grow the team? You have to know how your resources will come to you. And then again back to the strategy as to how hard you're going to go at M and A. One of the things I've seen also be successful is that director level person, if they work on a deal and they find that deal really interesting, can you drop them into that company in a COO role or doing something else and allow them to completely transition off of your team but really help the company, especially on the integration piece and then learn a new skill set. Some places will let that person come back after a certain period of time if they want to sort of their choice. Others, you're gone and I got to hire back into your place. So lots of different things to do with your team as it matures. And again, it's all driven by is your strategy inorganic growth? If it is, you got to have an appropriately sized team.

Have you done that? Send somebody off of the company and brought them back?

I've sent somebody off of the company and they stayed and just loved it. They stayed with that company and kept doing that work. So yeah, it was great.

Thinking back to structure, do you alter the team structure when you need to change the deal structure?

That's a great question. Not usually. I don't think we have enough people to be that flexible. I'd love to. Who's involved? Maybe that my partnership guy. If it's a licensing deal, I'd really like him in there because he knows license as well. If it's a asset deal. This guy's done most of our asset deals and really understands the issues there. So not so much the structure, but I like to be able to workload willing. I like to be able to put our experts from our team on the deals that have a structure that they're comfortable with.

Okay, cool. How do you challenge yourself to think of a different deal structure?

This is going to sound isan like you're Paying me for this interview, but joining groups like those at M and A Science where you have all the corporate development folks, heads of corporate development come together and we hit topics and whether the topic is deal structure or not, deal structures come out and you get that golden nugget. While that could work in my industry too, I think I'm maybe the only, or maybe there's two health care people in that whole group that you host. And so I'm hearing from some hardcore software people how they do it. I learn things from them and then they'll hear something that we do and hopefully they learn from us in healthcare. That's where I get a lot of my new things. The other great source for new is ask your lawyer. And I know this probably sounds like I'm Mr. Lawyer, I practiced for a little while and went to law school, but your lawyer sees more end game deals than anybody. So you don't hire your lawyer until you're really ready to go and wanting to finish this thing because you don't wanna start paying, paying for that. So whether it's internal lawyer or external lawyer, the external lawyers get a lot more looks at end stage deals. You get a lot more looks at early stage deals. Love asking the lawyer if there's a smarter way to do it as early as possible. And here's some of the things I'm thinking about and does it make sense that we would structure it this way. Now maybe I can ask that lawyer that question because I was one. But I think that if you've got a good lawyer and a good outside law firm or your inside person, their full time M and A, they'll be able to make that interpretation for you. If you don't know the legal words to use and ask them what they've seen out there on different structures that would work in this case, the back and forth there is typically they don't know everything that you've learned in diligence. They haven't gone to dinner with people, they haven't seen the facility. And so they're going to ask you those sorts of questions to get a feel for what's really going on there and then be able to provide you some great ideas. That's much better than not telling them any of that. They get down the road, you've got lawyers that bite their tongue. They're like, oh my gosh, structured this differently. I just didn't know anything. So I'm a big advocate of. I know I talked earlier about sometimes you keep the lawyers out of the room. I Don't think you should ever keep the lawyers out of the room. If you've got the right lawyers who are trying to get deals done, leave them in there. They've seen as many deals as anybody or more and they're probably going to be helpful.

Sounds like I got to get more lawyers on the podcast.

There you go, lawyers. Bring them in.

That's a cue. If you're the right attorney and want to chat about deal structures, reach out to me. When do you start thinking about integration? Management Office and imo?

So the integration, or we even call it the transition person. We don't call them the tmo but we always call it transition. Initially it's going to be if your company has people who are project managers who are interested in doing this and those project managers are sometimes put throughout the organization to do different things. I try to wrangle some of their time to learn how to use project management in the IMO function, which is largely project management. But they haven't learned some of the pitfalls and things that they would run into in the different areas of bringing a company on board. So you do some training there if you can. Sound like a broken record, Kisan, but I think it comes down to volume. Are you doing a bunch of deals and you really can rationalize putting a headcount in there or does this have to be someone's additional duty? And ideally that person who has that as an additional duty is someone who has at least a project management background.

That's what I was curious is there. We're consistently doing a deal a year, two deals a year where you really start thinking about creating a dedicated resource to integration.

We have yet to have a dedicated resource at Premier. Our typical year is two or three deals and our busiest year was five deals. At the end of a five deal year, you are certain that you want an IMO that's full time. If you're going to. If you're going to do that again. We did not end up doing that again the following year, but had it kept going, I would have pushed very hard to get us a person who was doing that full time.

It's time to stand up an imo. Someone's going to call you to help you with that. When you don't have that imo, you're working with the business unit leader on the integration. Is there a playbook for them to make the integration successful?

There is actually, and we developed that ourselves, but first felt like it was lacking Kisan. We actually then brought in a consultant to run that function on one of our deals and they as a leaf behind was that checklist. And at least some of these PMOs I talk about us using had seen how they use them and seen how they operated and we're now using that and tweaking that as we go. But again, without a sort of professional IMO person in there, we decided probably in my fourth year here that we should bring in someone at least teach our people who are doing this as an additional duty and actually have them run that deal. And to their credit that was the best transition, as we call it, that we had to date. So it was helpful. We didn't have a good skill set internally from anybody who had a great checklist, if you will, around imo. So we paid for it essentially and now we do it ourselves.

Is it that templatable to have it as a checklist? Wouldn't each deal you'd need a lot of this specific information on the company to plan the integration.

So it depends. I think the big picture categories of what needs to get done are the same in every deal. If you're in a roll up situation, much easier to obviously do a checklist that is specific, but instead it's more of when did different things happen, how fast can we get those done and who is monitoring each of those phases. Doesn't matter what kind of deal. We're not doing a roll up of anything. Kisan, every deal is different. Sometimes it's a supply chain deal, sometimes it's a performance services deal, sometimes there's a bunch of headcounts, sometimes it's just very few and some technology it's adaptable enough. But what we found is we stopped missing any big picture items once we got these PMOs. A better checklist.

This sounds more like a guide as opposed when I think of diligence, a lot of it ends up being a checklist that you keep repurposing.

Yeah, I think that's a really good point. I think it is a guide. Back when I was in the military we talked about whether regulations were a must follow or were they a guide or were they just a resource, if you will, towards what you want to do. And I think the different military services look at that differently. Yeah, it's definitely not fully prescriptive for any sort of deal. It could become that maybe for a roll up, but if not a roll up, I think you have to be flexible.

If we go back to building out this M and A team, there's a lot of other processes and things that you need to Build on the front end before we even look at the integration stuff, which is a whole category of its own. How do you approach that? How do you start building out your. You made the hires, it's just you or you got the other junior resource in there and you need to start building out your process. How do you approach it?

So for me it was through experience of both the senior person that I had above me when I was. I was that first hire and it is the combined experience of that team. I think we could have come up with our own imo, step by step. We were able to put that guy together ourselves. Kisan, because we all had enough experience in the first few hires as to how we'd seen this run somewhere else. That's how you pull that together. We also were asked by our board how we did it. So we were forced, if you will, to put that on paper and be able to explain it to someone like a board, some of which had M and A experience, some of which did not. And so it was really good exercise for us to be able to then teach our new team members as well as keep our not so new team members on track.

What'd that look like? Is that a visual workflow? This is how we do M and A. That was what was communicated.

Yeah, visual workflow. This is how we do M and A. And here's what the big box, PowerPoint. Who doesn't use PowerPoint? Here's what the big box. Next thing that you've got to do is and how you step down through them. I'd love to show it to you sometime. Maybe we can put another course together.

Give you the invitation. Because we're planning to do a summit in fall so that would be where we can expand on this. And we always like building more of those practical format courses. Where's a few other areas we can touch on? Because you need to build this sourcing origination model. How'd you go about doing that? And I'm also curious of where do your deals come from? There's obviously the business leaders you're working with internally, external resource, then your own hunting that you do.

Yep. So I think it starts with strategy. Otherwise, especially at a company like Premier that does so many different things, you are going to try to boil the ocean and it will be horrible. You then reach out to the normal areas that most people do through investment bankers, letting them know who you are, that you're there and what you're looking for so that they send you relevant deals. Instead of something that says healthcare Somewhere on the deal, somewhere that doesn't make any sense for you to do. Your time spent with investment bankers helps you to get the word out as to what you're really looking for. We would find deals just from our customers and what they use. Our hospital systems in our case would tell us all the time, hey, we found this great new vendor and here's what they can do and it would be really complimentary to what you do. We go check them out and check out the competition and go from there. We're much more successful as well. And I think the corp dev world would agree with me on the whole at finding those deals versus having a banker bring them. Having a banker bring us the deal is wonderful because they have wrapped it all up in a nice little boat. We don't move as fast as a company corporate development shop as our private equity brothers and sisters do. So we find ourselves not being as successful at running a banker led process. So for us we've done 14 or 15 acquisitions, a number of partnerships and minority investments. Too many to count. Twelve of those 14 major acquisitions were not banker led. They were sourced by the team through going to conferences that are relevant, talking with our members who are utilizing these different services and the like.

That's good. Sounds like there's other benefits from sourcing deals proprietary as opposed through getting them brought to you.

I talked about the upside of the banker led deal. The downside of the banker led deal is you're in an auction process and you don't know how many other people are there and you're they're trying to push the price up and whereas in a self sourced deal you end up being able to really dictate terms. Sometimes you can start with a partnership and then roll it into a deal later and be a reseller of what they're doing and they what you're doing. So it's easier to get to know who you think you want to buy and run away if it's not working versus being in a very scripted, very tight process around an investment banker led process. I love what they do, it was fun when I did it myself. But boy, it's hard for us to compete with that speed. I've just got so many more stakeholders that are involved.

Yeah, that's really interesting. And then I guess there's the other variables that you get to control to keep the deal maybe a smoother, not so quick pace.

Yeah, it can go a little bit slower and that's good and bad as well. They haven't gathered all their diligence so you have to do that with them and that's painful. They may not use a great attorney, whereas an investment banker, if he had or she had been in there, they would have maybe suggested that you really need a good attorney here. And so there's definitely some downside to it, but shorter speed and it helps on the integration piece as well because you've gotten to know each other versus it being a super fast led banker process.

When you're building those relationships with the bankers, are you just reaching out, introducing yourselves? Are you asking around which bankers you should talk to? How do you find and build those relationships?

That's what we do, reaching out to bankers that are in the space, looking for others who have knowledge of it. Certainly there's a lot of public announcements about who's selling what out there. Reach out to them. Depending on your company size, are you really going to be talking to Goldman and JP Morgan? Are you going to be talking to middle market banks and then attend conferences in the healthcare world? JP Morgan runs a conference every January and if you are not there, you're the only person in healthcare who is not there. The conference itself, Kisan has done at this old hotel that is just busting at the seams when we're there. I think the number of actual attendees who go to the conference itself is in the 3 to 5,000, but the estimate of the number of people in Town is 19,000. With bank of America sets up across the street, Wells Fargo sets up the Hill and everybody who's trying to take off their year and meet folks and make sure that the entrepreneurs who are trying to raise money show up here. It's no other conference. Most investment banks who have a specific arm have a conference for that arm. Bank of America has a great conference in Vegas, but it's only the people that are actually attending the conference. There's not 19,000 people hanging out. And for JP Morgan, it's been in San Francisco for the past 30 years. You need to find your conference, what is that for your industry? And go see who you can meet. And that's been a great source for us, especially because it's gotten to the point, at least in the healthcare industry, that even the companies that are looking for money will go to that conference and see if they can't raise money.

What are other big components of process you need to build? There's this origination model and you met the potential target at the conference and you start courting it. Finally get this, hey, we're interested enough to see what you Guys come up with an offer, sign NDAs, share some information. How do you start thinking through that process ahead of time? Obviously some of this you've got experience with, but just what do you need to do to have the rest of your team up to speed?

Part of that process is hopefully you've gone out to search for that company because you've already talked with your business unit lead who's going to own it on the other end. But you want to involve them and their team in that initial vetting if they're willing as well. I typically take first calls, first meetings, those sorts of things and see and they have enough trust in me to say hey, we heard about them, it's great, they're not great, we're not going to waste our time there. I went out there, I saw them, it's not great and they trust me on that. But you bring them in as soon as you can from that perspective. And then for us, banker led process will give you a process letter. We just mirror that same thing. We need a two step with these people and do an indication of interest followed by a letter of intent. And then from a process perspective internally, who needs to sign off on an indication of interest? Who needs to sign off on a letter of intent? Does it have to go through legal? Does the CFO have to sign off? Maybe those two documents, Those two stages of a deal are typically non binding. So you can push that, hopefully you're company can push that responsibility down so you can move quickly beyond there. You're digging in, doing a lot of diligence and moving forward. When we put out a letter like that, whether it's in a banker led process or in our own process, we all stack hands around the table that we would sign this deal even though we're not bound to do, we're excited about doing so and this is a deal that we would do unless we find something crazy indulgence. So there's that sort of step of the process. Those Lois, even outside of a banker led process are good for getting your internal teams and executive team thinking about it and socializing it as well versus just showing up with a fully big deal and nobody knows what you've been working on. And then we start running through diligence. Diligence is the next phase and there's more diligence lists out there than you can shake a stick at. Some of them are specific to an industry or type of business, some of them are general and you want to tweak it accordingly. We typically have a IOI or between IOI and LOI diligence checklist, which has maybe 12 items on it to not scare this new person that doesn't have a banker helping them away. And then when we go from LOI to final documentation, ours has 250 items on it, which freaks the seller out, but we help them through it.

Do you do IOI on your proprietary deals?

Not always. Typically there's just one. We can call it an IOI or an loi, but there's typically just one non binding. Do you want to call it a term sheet? Do you want to call it an loi? We just want to make sure that we have all been talking about this, but when we put it on the page, are we still in green? And so we want to do that before we really start spending a lot of money on outside consultants and lawyers and the like.

Between ioi loi, I guess it boils down to binding versus non binding. Is it usually binding when there's a breakup fee versus not? How do you differentiate between the binding and non binding loi?

Yeah, that's a good point. That's where I see it happen. I think you've nailed it. Which is most iois and Lois that we do do not have a breakup fee. There are sections of it that are binding as to if we get into a fight because we you think we stole your information. Here's where we're going to go have that fight and those we're going to do for that fight, whether it's arbitration or litigation or otherwise. But if somebody is in a has a pot company that they're willing to take off the market for some period of time and let you take a look at it. It's not like buying a house where you pay a diligence fee and that's your option cost. But there' often a breakup fee like you talked about in those there's some sections of the document that are binding. We put our our Lois that are non binding together. There's still a few sections that are binding between the parties and we'll say that the breakup fee is. But practically as well. Nobody ever pays a whole breakup fee that gets negotiated again later because each party says I'm not paying you a breakup fee. If I find something ugly and diligent, that's a good reason for me to go away. I'm not just paying you because you didn't tell me about that before we signed up for the breakup fee. And the other party will say it really wasn't that bad and somebody else would have done the deal. So you should pay me the breakup fee. So you end up somewhere less than the number typically as a breakup fee. And that's just a really hard one that to even put in front of a judge or an arbitrator who gets to determine what's bad for my company that we found in diligence. It might not be bad for them, they don't care, but we think it's bad. And so breakup fees I find to be very cumbersome. If it's the only way to get the entrepreneur or seller off the block and get moving, then we'll put one in. Of those 14 larger deals, one had a breakup. Okay, so we avoid it like the.

Plate back on diligence, you got your core diligence and what you're doing initially, but as you continue and you get to confirmatory diligence. Right. We got our loi sign and you're really reining in your functional leads. How do you build that muscle for them due to due diligence? You got folks that have got little to no experience. How do you approach that?

So again, it comes down to where you can have people that are dedicated or something that's very focused and it's a roll up. You can have people that learn and always do it. What we try to do is make it sound like this is the coolest thing you could be working on. Your job might be great, but working on an M and a deal is the coolest thing ever because you know something that you're co workers don't know. We're trying to sell it any way we can because we don't pay people more money for it. We don't. This is just an additional duty. And then. And you're right, then we have to train them as best we can to here's the type of thing we're looking for and here's how we want you to report it out to us. And so we'll show them examples and that sort of thing. On the whole, they know their business better than I could ever because they're an expert and SME in whatever area that they're doing diligence on. They know what to do. It's just not as hard as you might think. They will know what they like and don't like. Some go way too in depth and you can tell them, hey, next time you can carve that way back. We don't need to go that deep. And some don't go deep enough. And you have to push them back again to ask Some more questions. But on the whole, these subject matter experts are going to know what they're looking for because they are people that are probably a part of the business unit team that's going to own it. After they're thinking, boy, I don't want to buy this business if it's broken. They want to take a look.

Do you encourage them to think about the integration or does that come naturally?

We often have to bring that in. If somebody hasn't done a deal before, we have to tell them to think about how are you going to bring this in? Where are those synergies and dis. Synergies and where are those pieces that we should keep their stuff, not our stuff or the other way around? That is often not something that's intuitive, like you say, and instead they're just looking at it for do I think this is a good business or this portion of the business is working or not working? We have to push them a little bit to typically to say, take it to the next step. How is that piece that's not working going to play out going forward? Do we need to invest to fix that? Do we have something that we can do already that just substitutes in? You have to push someone who's not a professional all the time, diligence person to think about the integration.

What are the different deal structures you've done so far?

We are all over the map. The first three years I spent at Premier, we were a private company and we were trying to figure out how to take the company public. And in the end, we used what's called an UPSEE structure and we had to convert 181 nonprofit hospitals, most of them nonprofit hospitals, into something that could go public. So we had to think about how that would work. And for Premier, Pre close we were at. We had floating equity. And so we had to at some point shut that down and say, here's the find equity and not make anybody mad as to, hey, this was a bad year for me to have my equity be locked in at a certain level. But there was sort of no other way to do it. That was a huge problem for us trying to figure out how do we take a floating equity play and make it now something that at a defined point you can ipo. That was a hugely complicated structure which included a tax receivable agreement that we split with the members. And I think we could do a whole call itself on Premier trying to go public. We were successful at going public. The other things that we look at as a team are licensing deals both in and out of our industry, we will work on those as either partnership or it might be an acquisition of a license that's specific to us. For instance, on buying something outside of our industry, we might be acquiring in an asset deal essentially just the license and maybe a transition services agreement where they'll train us on it and make us smart on it. But a license to either a geography and or an industry. And the sell for me is, hey, you guys don't want to take whatever it is you do kissan and try and sell it into health care's really tough long sales cycle. So why don't you monetize it by selling me a license? And so that's been super successful for us. We'll do an asset deal. This is all getting into the legal mumbo jumbo piece though, versus a stock deal. You know, in an asset deal you just take the assets and leave the liabilities behind. So as a buyer, I love to do that. But the seller, if they're savvy, will say, you got to pay me more for that to leave those liabilities behind. And in a stock deal you take over everything. Some of the other interesting deals that we do is if we're not really ready to buy a company yet, we want to start partnering with them, but we think we may want to buy them someday. It just seems counterintuitive and not so smart to run a business's revenue and earnings up and then have to buy them at a later date. For us, we try and earn equity along the way. Whether that's a warrant or whether that's class of stock or whatever it may be. As we grow the company, we're buying the company in some way by earning those and then at a later date we can pull the trigger and buy the rest of the company and not feel like we had to pay for the development that we did and help. We love the warrants play more than anything. I think we essentially have. We'll try to negotiate a call right there as well. So at some point later in the future we can call this. But if they give us a put back, we have been not as successful with someone hanging a foot over our heads. So we'll just do away with that and ask them to make sure that we're in the process should they ever start to sell it again. And we hope that we could outbid someone else because now we've got through warrants, 30% of the company already or you know, so we ought to be able to make the highest bid based on that.

It was a loaded question. But that was a loaded answer. There's a case study somewhere on the 181 hospitals that are not for profit. You took public. Kevin, any other tips or advice on building on an M and A team? What's the best thing I can learn from you?

The hiring process matters more than anything else. Your people are all you've got. If you're busy yet, you're also needing to hire because that's what I just described as our model. We're hiring on a lagging indicator really to hey, we're too busy now. We need to hire someone. It's easy to not spend enough time and get the right candidate and you will regret it. And so spend the time to find the right people and then to retain them through development and mentoring.

That's what everything comes down to. It's all hiring the right people, every function you're building, everything.

Think about it. Sometimes when you're too busy, you know, you need another person. I'm too busy. Oh yeah, we'll just let somebody else interview that guy or wow, I didn't show up prepared. I didn't ask him the right questions. I mean, oh, that's the most important thing you can be doing. And so I often have to remind myself to put the time in as well.

I agree. It's a lesson I've learned hard way over the years. So now it's the top priority. Kevin, what's the craziest thing you've seen in M and A?

I'll give you what I've seen lately. I've seen the speed with which some PE firms are able to go from teaser to signing a document. A definitive document is shocking. I recently lost a deal to a PE where we submitted an indication of interest in ioi and then we were supposed to get results five days later as to whether we were going on to the next round. Instead they said, hey, we're going to need the weekend. And I was thinking sometimes the bankers let the someone's late and can't get their IOI and they let it go till Friday and maybe they needed to think about it over the weekend. No, they were drafting documents with one of the bidders over the weekend and they closed six days after they went out to parties and made the. And had the teaser and.

So big of a deal. Are we talking about couple hundred million? What the. Yeah, that's pretty crazy.

Yeah, there's a lot more insurance out there these days. Reps and warranties insurance. But you have to do some diligence in order to get reps and warranties, insurance. It is crazy out there with the amount of money today that's available and has to get put to work. How quickly some of these private equity firms can do it. Quick dust of diligence. They've been following the company for a long time. Get comfortable and go.

I'm amazed.

It is shocking.

Does the helicopter come with it or not?

Like, I don't know. I mean, I think it's just these agreements have to be really broad and some sort of definition around. I just need to make sure you bring me all the stuff that I need to run this business the way you're on it. And they just trust that they will. In six days, I could. For that size of deal, I have to get the finance committee and the board. Like I couldn't even get those people together in six days, let alone they would ask me all these questions about diligence that I didn't have. So that's why you heard me say earlier as well, to tie this back in, that 12 out of the 14 of my deals are not sourced by bankers because I can't hang.

Is it just like the culture of running a PE fund like the venture model, you're essentially taking bets ultimately that you don't look back and say, what was it? Was it how much I believed in the team, the market?

Right. On a smaller size deal like venture, who is. I would argue venture capitalists are really investing in people, not a business and how well it's running. They're saying this is a good team. That's what these guys are doing, just with a heck of a lot more money and a more mature business. That's the best I can explain it, Kisan. I just don't know how they do it. And again, with all the stakeholders I have to get signed off, I literally could not do it in six days. There's just no way.

Kevin, thank you so much for the time. I enjoy the conversation. I learned a lot. You're helping me become a better M and A scientist. I will hopefully see you later this year at the summit.

Thank you. Thank you for having me on the show. Truly. I'm learning a lot from you and the different things that you pull together for us practitioners. So really appreciate you being out there.

Till next time, here's to the deal. 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 Masscience.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.