Executing Various Strategies and How to Get a CEO on Board

Hello M and A Friends. If you're looking to improve your in house training, we have corporate training plans provided through the M and A Science Academy. Give your team members access to the best in class courses, templates and networking opportunities in the industry. Our Academy was designed to lead practitioners with the how to of M and A practices. If you're interested in learning more about individual or team plans, go to mascience.com academy. It's also a great way to show your support for M and A science. Again, that's mascience.comacademy onto the interview I'm Kisan Patel and you're listening to M and A Science where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and what actually happened during M and A deals. Welcome to M and A Science where we curate knowledge from the best in M and A to continuously improve. If you're interested in keeping up the latest from M and A Science, subscribe to our free newsletter@mascience.com Every week we share highlights from our interviews, invitations to events, M and A role openings and other resources as we build the greatest community of forward thinking M and A practitioners. Again, that's mascience.com I'm your host Kisan Patel, CEO and founder of M&A Science. Joining me today is Rohit Dave, Head of Corporate Development at Block. Formerly known as Square, is a global technology company with a focus on financial services made up of Square Kilometers, Cash app, Spiral, Idle and tbd Block Bill's tools to help more people access the economy traded on NYSE under sq. Today we're going to talk about executing against different strategies and how to get stakeholder alignment. How's it going Roy?

Thank you son. Glad to be on.

I appreciate you taking time out of your day of doing deals to hang out. Chat with me a little bit about M and A. Can we kick things off with a little bit about your background from it?

I've been on the east coast most of my life. I went to NYU Undergrad and studied finance. I was very early adopter social media. I was really interested in the way the entertainment and media worlds were being disrupted by technology. So out of school I did some investment banking, but specifically with tech coverage. Following investment banking I actually went to law school which is a little bit of a backward path for folks who have law degrees and do corporate development. I was always engaged with policy and politics and so it's something I really wanted to do and being a first generation American probably added to that. So I was in law school. I worked at the technology policy office at the White House for a summer. I worked at venture capital for. I had a couple different funds and that's really when I solidified. I wanted to cover technology for the rest of my career. And so out of school I practiced for a very short period of time before jumping over to corporate development. My wife and I, we moved to the West Coast. We stayed in the Bay Area. I was on the corporate development teams at Samsung. I joined Twilio shortly after it IPO'd, which is an enterprise software API company. We had our first kid. We decided to move back to the east coast and that's when I led a corp dev function for the first time at WeWork. Really two chapters there. A year of executing acquisitions and a year of after the IPO didn't work out, restructuring the business and really executing as divestitures. After doing all that restructuring, I spent a short amount of time at a venture fund and venture studio in New York called Juxtapose. And that leads me to where I am now. I've been at block for about 15 months running the corp dev team here.

My first question that popped in my head was, do you prefer living on the west coast or East Coast?

I was born in New York. New York, I think is the best city in the world. It's pretty easy for me to say the east coast, but yeah, I definitely miss wine country in the Bay Area and being close to the water and honestly, a little bit more of the work life balance. In M and A, you don't always get that there's a healthier balance between the two over there. And now obviously a lot of the stakeholders I work with are based in Pacific times, so it shifts my day a bit. Both coasts have great things to offer, but I'm a New York City person at heart.

I can understand having the bias there. And then when going from law, you went straight into corp dev, essentially you got into M and A, didn't stick into the the law side, but went through corp dev roles at Samsung, Twilio, WeWork and now Block. That leads us up to this conversation today around the various strategies that you've been executing on those roles. Can we talk about the different types of strategies in M and A?

Taking half a step back. Corporate development has different flavors at different organizations. Depending on the kind of business you're joining, what stage of their life cycle they are, you'll probably employ different strategies. But I do think broadly, especially in the tech world, they boil down to three different Paths. There's aqua hires people like to call them. Although that means a lot of different things to different people. But really what I would call more talent led deals. You're accelerating existing roadmaps by fulfilling a resource constraint in talent and making sure you can accelerate hiring and accelerating your plans over the next 12 to 18 months over by a few quarters. There's what I call tuck in type acquisitions where the main thing you're acquiring are assets. And I define assets very broadly. Assets could be ip which is how people often think about IT technology. They could be customer lists, customer bases is knowledge and know how yourself. Similar to an Apple hire. Maybe a team of people that know how to solve very specific things and built a lot of the hard bought learnings over the years. It's like a combination of some sort of asset plus some talent. And they're not just accelerating roadmap. You're probably buying things that you think would be difficult to build or would be too time consuming to build, especially in a more mature market. The third one or when we often think of M and A, what we really think about is the strategic deals. Strategic deals are you're buying self contained, fully operating businesses. The strategy there is maybe you're expanding into a new market, a new geography. Maybe you're expanding your product offering by in doing that it's really the higher leverage, needle moving type, transformative acquisition and obviously the more complex one. There may be a lot of different considerations. Even leaving aside cross border and international type thing consideration. What you're doing there is you're acquiring a full business. They have their own operating functions, they have different ways of doing things, have their own culture. And then you have to make a lot of decisions on what the go forward operating model is. And that's again I think when we think about M and A, the ones that hit the headlines on the Wall Street Journal, it's usually those types of deals people are talking about.

I got Aqua. You're basically buying people tuck ins where they're things that's either IP tech slash a capability or customers and then a strategic where you're buying a full operating business. When you break those three down, it sounds like there's different size categories that if you compare to the overall business balance sheet. Naqa Hire is probably the smallest side. Then it goes up with the tuck in and then more on the strategic side. Is that how you would look at that?

That's a fair point. I do think that's how often the business thinks about it. This is a smaller deal. It's a tough. This is a talent deal. I think that usually your CFO will have different considerations. If they have a. If your CFO has a budget or envelope for the year for M and A, then they probably are thinking that means probably X number of first type, Y number of the second type, et cetera. It's probably broadly right. The acquires talent deals tend to be smaller, the tuck ins tend to be more in that middle category and then the strategic ones tend to be a little bit bigger. Part of that is informed by the fact that if you see eye to eye with the target on what purpose this is fulfilling, that your valuation is going to reflect that. What I mean by that is if I am valuing the talent versus I'm valuing assets plus talent versus I am valuing your entire business, the purchase price will be reflected in that. It's all relative. Depending on the size of the company, an acquire could be as the acquirer, you're a massive multibillion dollar business versus your privately funded unicorn. A strategic deal might look a lot different to you than a strategic deal does to Apple for instance. It's all relative. But I agree generally speaking the smaller size deals, the bigger medium size to the bigger one, you probably see some deals, especially if you think about the outside that may actually, especially in the first two buckets, blur a lot more. The talent deals plus like the tuck in and tuck in asset plus talent deals you can sign up kind of blur. There might be deals from the outside I think sometimes that look like strategic or more token type deals, but then they're actually really just expensive Apple hires especially in this last macro cycle we saw where valuations were getting pretty frothy. But you really acquiring a team of people that knew how to do things and they had really achieved product market fit for maybe pre revenue at times and that's very much a talent deal but just maybe you paid more for it because that's what was needed to get the deal done. And similarly you might acquire a business that's primarily you're acquiring some technology. Maybe there's an existing customer base, but it's relatively small, not needle moving. You might characterize it and see it from that tuck in lens and that'll inform structure and valuation. But those can also be complex. If it's cross border, if it's a company and today it was in Russia, that would be pretty complex even though it's like a smaller check size.

Going back to the earlier point you made around some of this stuff is relative to the stage or life cycle that the company's at. So even for yourself, getting into this head of corp dev role, but assessing that against the life stage that these different companies are at, would that shift around what type of strategy they're primarily focused on? Like maybe earlier stage is more focused on those acqui hires than later, they're doing the strategics or does it not impact that at all?

You mean as the acquirer?

Correct?

It does just empirically has to. If you're a smaller company and especially if you're a private company, you have less currency by which to do M and A. What I mean by that is probably can't use your venture investors cash to go get acquisitions on. Maybe you can, maybe that was part of your fundraise, but you have a limited dry powder to go acquire those types to make an acquisition. So you're using your own stock, your private stock, your target may not see it the same way, like they may have a different perspective on the valuation. Again, we're in a different economic climate now too and different markets have shifted. And so the last round at which you raised capital, the valuation of which you raised may not reflect what the target sees as the value of your stock today. And so it's harder, it's just harder to get those get deals done. And you are probably looking at a smaller set of companies that would even entertain an acquisition conversation. And those companies will probably tend to be smaller. They themselves may be like smaller startups just by virtue of the fact that they're smaller, maybe earlier stage themselves. These targets, they will probably more often than not fit into this talent or kind of tuck in type category. They may not have full fledged operations, they may just have a product that wants it may be pre revenue. And so by virtue of kind of limited opportunities that you have as the acquirer, the companies are looking at falling through those first two buckets. The other thing is if you're an earlier stage acquirer yourself, growth stage acquirer. Especially again if you're private or even if you know you're public. But you just. There's a lot of companies that went public over the last couple of years and are sitting at sub billion dollar market caps and they have the currency, they have stock to acquire with. But then it'll be highly dilutive if you are an acquirer that with those traits, even if you have more of an opportunity set, you may not want to acquire the more strategic businesses because they're more mature potentially you yourself are likely in a more high growth emerging space. So there's Going to be a drag on your growth likely. If you're acquiring the more mature business, it might help you on a margin basis. But you yourself are probably being valued more on growth than margin. And so are you willing to trade growth like drag on your growth or slower growth business for margin at that stage? Maybe not. It depends on what you're optimizing for. From a financial perspective, cultures may clash. That acquisition might be a lot more difficult. One of the things about acquiring a fully operating business is they have their own set of culture, they have their own people philosophies, they have their mission they've executed against it. When you're bringing those types of companies into your earlier stage, likely more chaotic high growth culture, is that going to be a fit? I think because of those reasons, you tend to when you're at an earlier stage, look at other businesses that are in their growth or early stage. And so by virtue of that you're often looking at more of that acqui hire and tuck in type acquisition. And then the last thing I'll say is especially in this past cycle and continuously the case today. But when you think about talent, you're often thinking about engineering talent or some sort of specialized talent in a space that is maybe highly regulated. There's things there's like a knowledge set that is coveted and scarce in the market labor perspective. And if you're an earlier stage business, if you're unit economics are good. One of the biggest constraints to you executing as your plan is people. That's when a lot of times companies turn to Apple hires, you can see a growth stage business probably having to resort to that more often. And I don't know if companies should think about things this way. But a lot of times the aqua hires potentially let you get some more premium elite talent that otherwise you wouldn't be able to go higher in the labor market. So when you think about M and A from that perspective, you're an early stage business. Comparing trying to go into the market and hire the same people that the faang businesses are giving out much more lucrative offers to M and A might be a way to bridge that gap to go fire a bit to go acquire of talent altogether. That would be harder to pick off one at a time in the labor market. For those reasons I think it is. I think growth stage businesses do tend to look at more of the first two. Not to say it doesn't make sense to look at the strategic ones. A lot of times the strategic ones can look more like merger of equal type scenarios or Acquisitions where you're giving up a significant percentage of your business. And the reason you might do that is that there's just a bigger market opportunity or there's value to accelerating the different things you thought components you were going to build, the platform you thought you were going to build because incumbents are catching up or the market opportunities. There's a small window and the best way to capitalize against it is to, even though it's dilutive, to go acquire, to go merge with one of your peers.

It's a lot of different ways you can look at what drives doing the deals. Then also economic factor. As you grow, you got more options. Essentially.

Yeah, it's like a two edged sword. As you grow, you may go public, you may have public company currency, you may have a better cash position on your balance sheet to go do acquisition. And the other side of that of course is maybe some of the earlier growth opportunities are diminishing. Maybe there's diminishing returns on growth or there's you're starting to plateau and where you can get from terms of margin expansion. You have to think a little more creatively about what? How do you think about your next chapter, how do you think about the next inflection points in your business? And that's when sometimes an Apple hire or a tuck in doesn't move the needle quite as much. If you're a larger company acquiring a team of 10 people to go build out X product that's probably going to take three to four years to ramp is not really going to move your needle for your business or for your shareholders in the time scale that they expect. That's when you both have the benefit of having probably the financial position to go think about the more strategic opportunities. But then you're also looking at the strategic opportunities because maybe some of the internal organic opportunities are starting to flatten out.

If you click down and really identify what strategy to use, how would you go about doing that?

Yeah, that's a good question. Because none of these things exist in a vacuum. I think the worst case scenarios, you start acquiring things because you're reacting to opportunities being presented to you. M and A, I'm sure many other folks who come on here have said really doesn't exist in a vacuum. You're thinking about M and A as a tool and yet another tool to go accomplish your business needs. And the very first question is what is the business need? What is the problem statement? Typically we think about build, buying and partnering, but let's say it is buying then aligning on what the right North Stars are is really important. Starting with me with kind of a more abstracted higher level North Star. What are you looking to solve? Are you trying to solve an engineering problem that you are having a couple of staffing against and it's really about accelerating a few quarters. Are you trying to build an asset that's going to be very difficult. There's very specialized knowledge to build it or there's certain licenses you need and those are very scarce. Is there something like an asset you need in order to go hit this next growth vector or go build this next product? Are you basically saying I like the economics of this other business and this other product or industry and it's obviously to expand into that and I want to do that over some sort of horizon. But there's a lot of uncertainty and risk there and an acquisition that helps de risk that aligning on what you're trying to accomplish from a business need is really critical to then figure out what is the type of acquisition. An example may be. But you have a product and you want to go extend the product. Is that product mature today? Is it something emerging? Do I have time to actually build it? It's just a question More just I don't have the talent and the people to person powered to go put this thing into the world. Or is it more this industry's mature and if we don't have this product we're actually going to churn customers. The former if it's emerging and there's time to go build it. But it could be a competitive advantage, more offensive strategy if we can build it first. And there's not a lot of things in the market that actually look like what I want to build experience I'd want to present offer to the world and then Aqua Hire starts to make sense. Right. We know that the North Star is I want to accelerate the development of this product that we want to grow in house. If on the other hand it's I don't care as much about this product itself, but without this product my existing customer base is going to start to churn and it's a mature space. By the time I build that thing, it's going to be years. And so the Churn problem's already going to happen. Hey, churn's the issue. I want to retain my customers. That kind of tells you, okay, so this is not an Apple Hire type situation. It's probably either an asset I need to acquire and build around it or I need to go acquire the strategic business and then that's when there's a little bit of give and take. You'll go meet some companies, you'll try to understand the landscape. You'll see the ones that it's more than just looking at numbers on an income statement. You'll have to go and see is that company a fit. Are they culture going to mesh? Are they again going back to timelines, when does this have to happen? If the answer is yesterday, we should have built this two years ago and we're just really behind. You might need to go acquire that strategic business. If in the other hand it's not emerging but it's early few years into this product category, the nice mix for you there would be buy the asset and a small team around it. You can hire around it. You can have better control over the culture over time. You can have a tighter control over what the product looks like over time. Maybe you have that window to think about those things.

What about if you are a company that has great product solutions but wants to expand on the distribution? I'm curious if that's hey, ideally you're supposed to build out your go to market organically and then get your VP of sales. Or have you seen situations where through an acquisition they've been able to accelerate the distribution goals to be able to reach the products to the customers.

There are definitely times when you realize your go to market for some customer base, especially if you're thinking about like channel relationships isn't working and then you see some other company is executing against that strategy really well. Now I think it's pretty rare that you would go acquire a business strictly for their go to market. And I think there's a distinction here between B2B and consumer. On B2B, it's pretty unlikely that you're just going to go acquire a business for their sales team alone or their market strategy alone. It's expensive. Salespeople often are actually easier to hire in market. That's a question of compensation. A lot of times if the product's not a fit, what are you doing? You're going to throw that all out to try to just win this one channel over. The sales strategy may not work for your product. It only makes sense in that instance. If you actually think the product category is one, you want to expand it to two and probably more importantly than that that there's cross selling potential. Twilio acquired SendGrid Twilio is an API business built around communication. Messaging, voice kind of has combined a lot of those different APIs into more robust use cases. Like around the contact center and customer engagement and then sendgrid set of email APIs and so did a number of those other things too. In terms of use cases, but specifically around email, SendGrid had a slightly more upmarket customer base. While there was like a lot of overlap over customer base. Email is a more mature product and so there was a lot more enterprise using. It also had, and this is what's relevant, they also had distribution through kind of marketing automation platforms. Like they were the API used by a bunch of marketing automation platforms. I don't think it was any execution issue by Twilio that didn't allow for the Twilio APIs to be on marketing automation platforms. But marketing automation platforms like marketers were still using email. There was still like a slow lag in terms of the channel shift. Now you could have a thesis there where having access that in those inroads to marketing automation platforms and then not just the platform themselves, but the end user marketers, that customer Persona having good mind share with them maybe makes sense where you can justify an acquisition in a world in which you don't think there's cross attached between the email product and messaging and voice product, that's yeah, it's expensive. Are you really going to spend that kind of money to try to have make inroads in the marketing automation platform and try to acquire this customer Persona that may or may not be interested in your product? It only works if you think your product can attach with the target's product. Distribution is a part and parcel of those types of strategies. But it's can be rare, at least in the world I'm in with software and tech that it's going to be the reason to make an acquisition. Now maybe in manufacturing that's a different story essentially, but in the world I'm in, it doesn't really make a ton of sense. I would say on the consumer side though I didn't make a distinction and the consumer side it tends to have a little bit more complexity. I'd say in that be there is a user demographic that your product hasn't resonated with to date, but is that a byproduct of your product maybe. Or is that by virtue of the fact that you employed a very successful marketing campaign toward a certain demographic and not toward others? If you have a similar product set to a target business, but they've just been more successful at acquiring a different demographic, a consumer demographic from you, there's probably some math there around revenue per user that could make sense for you or some lifetime value calculation if their demographic is a little bit more attractive. Being on the B2B side, it's just a little more nuanced and complex around the product that the customer's buying from you. On the consumer side, sometimes it may be a very similar product and the ability to then use that, to then think about acquisition as a way to move a little bit more upmarket is interesting. But again, the math needs to work. It may still be an expensive proposition depending on the target's expectations.

That's why I like E Commerce. At least the math somewhat makes sense there. As opposed to other industries. Can we talk about chasing shiny things? We talked about having this North Star strategy and then that should guide you on the companies you're buying. But I don't think that really happens. And I'm curious, I think this sparked the initial conversation when we first met around, hey, he did some interesting deals that we work specifically. They didn't get the best press in terms of all these acquisitions we're doing. How does this align with what they do? But then depends on how you look at it. So I'm curious about that. Is it strictly on the view of here's your North Star and let that guide you to the opportunities or the shiny thing that pop up and then building the justification how it would fit the strategy. Where's the line fit between?

Come on, you know, it's more art than science, they say. I hope the answer is more like it's in between. Right. It's craft. Yeah. I think shiny object syndrome is a very real thing. Not going to pretend like it's not. I think it depends on your company's culture and how the executives make decisions. For sure, you reference wework. I think that definitely plays a part. Maybe to take a half a step back. Deals are generated from freeways. I think the best way is bottoms up. Proactive deal generation. You understand your business partners needs. You've identified folks not just at the executive level, but within the business, whatever you want to call it, working group plus one, plus two away from the executive team. You understand what their objectives are. You recognize what their roadmap is and the needs and gaps. This is the best type of deal making. You are then actively going and understanding what's going on the market. There's a dialogue, the pitter patter there. You have conversations around what might make sense to build versus buy or partner. And then over time you come up with the view. And then when you do identify those gaps, like from a first principles basis that you want to acquire rather than build or all the factors that you would acquire versus build. The corp dev team is then going out and finding opportunities to fit in that and then you have to build consensus, kind of bottoms up. Then you go to their manager, you go to their executive, then you go to the whole C suite and you go to the board. That's the best type of deal making because you know, it's something, in my opinion, you know, it's something that the business needs, that you both collaborate on, understand both from a financial perspective and like a balance sheet perspective, being a steward of your capital. Does this make sense? But then also from a product perspective, this team have the right culture. Are they going to accelerate my roadmap and plans? Are they going to be a distraction? You marry those two things and you can build really strong consensus and then go after that acquisition. There's another kind, I'd say that's a little more inbound. Historically we think about this as investment bankers, but over the last decade it's also venture investors, growth equity shops that are calling you. You're building relationships with them. A lot of these funds have built portfolio managers or platform teams that actually part of their job is to reach out to people like me and they'll cultivate those relationships because they understand the spaces very well. They have to build really high conviction. These investors over 10 year ARCs, they know what's out there, they provide you leverage and so you learn from them. They give you inbounds and so similar to bankers giving you inbounds, there's differing interests and incentives and why they're reaching out to you. So you still have to do your own work, figure out if it makes sense. Those are usually lower likelihood, I feel like of going forward. But still important conversations. Sometimes they can bring a new perspective. There is sometimes change shiny object syndrome with that as well. Because it's some company that's gotten a lot of great press, comes to your doorstep because of the visibility. You bring it internally, you socialize it, people get excited, oh, this company's for sale, let me go learn some more. But I think ultimately if you're talking about that working group level, that plus one, plus two away from executive teams, there's only so much they can chase the shiny object. They still need buy in from their seniors. Usually you'll get to a very principled outcome and then actually I would say it's probably corp dev's job if the outcome is wrong. Like if you're saying no to something that actually makes sense economically to then Help them think differently, build the case and maybe build consensus. I think the shiny object syndrome comes the most sometimes with the third category, which is when things tend to be a little more top down. These are the more transformative acquisitions. Usually they're the ones where you have somebody from the C suite saying this is a company, just like from a concept perspective. But conceptually this is the space we need to be in. This company understands something we don't. They've built something we haven't. The marriage of our brands will be amazing. This will be accelerant to our plan. The vision for them, especially vision, right. Like you think about these bigger, sizable shiny objects. This thing's going to accelerate my five year plan. But the how isn't always there. And that's where if you get enamored by the shiny object, but you haven't really figured out if the business is what you think it is, you kind of already have come to a view before you've actually done the analysis. And it's hard to shake that sometimes. Sometimes you're fortunate. Sometimes the shiny object numbers and everything just makes sense. The synergies are incredible. The customer base, the overlap and extension of the customer base makes sense. Products do cross attach cultures are a great fit, but as you can tell, there's a lot of boxes to check. So it's not a foregone conclusion. But a lot of times to your point, if there's a lot of conviction around how this company one plus one can get you to three over a five year arc you're trying to back into, okay, it doesn't make sense in year one, it doesn't make sense in year two. Maybe the two things got to work together and get you to where you want in year five. And that's where I think what you're talking about happens Sometimes it's like this idea that this I don't know how get from my year one plan to my five year vision. I want to get there. I think there's a bunch of paths to get there. And this acquisition maybe can be that silver bullet. And so I get enamored by that shiny object. The other reality is sometimes from the outside things look a lot better than they are. When you get inside US Corp. Dev, your job is to provide hopefully as objective of you as possible. At some point the old Amazon thing, you have to disagree and commit, but hopefully these are the 50, 50 cases that you get there. When you get to a point where it's a 50, 50 or coin toss and executive makes a call Then you disagree, commit and execute against that. If it's pretty glaringly clear. This is not a 5050 Dawson. This is something where this can be value destructive to our business. So you have to find a way to make your voice be heard. And that's the way you try to overcome the shiny object syndrome. It's exciting. As an M and a professional, you're trying to do the more impactful business deals. Those are the ones that make you do what you do. That's the reason we get out of bed. You're hoping to find that needle moving thing. You have to find the right balance. It's exciting when there's that shiny object or the C suite, that top down deal comes and it's shiny, it's exciting. And so initially you go in with I do anyway, which is some sense of optimism. But then that optimism has to be weighed by a healthy dose of cynicism and pragmatism because it's going to be ultimately you that can't have the rose colored glasses on and you're going to have to present whether or not the deal makes sense or doesn't. And again, if it gets to 50, 50 toss up, disagree, commit, C suite, we'll go for governor. But if it's glaringly a bad deal, you got to find a way to make that clear.

You've done deals you didn't want to do.

Yeah, of course.

How does that go down? Do you just say hey, commit, disagree, commit whatnot. How does that pan out? Do you just hey, do what I got to do and is there things that get lost in terms of that sense of passion drive to make sure the deal is successful?

I think the thing to remember is there are multiple stages and checkpoints as you go through a deal process and every company's different. At minimum you're going to have some sort of check in with some C suite person. Depending on the size of your business or the way you think about approvals, maybe all the C suite before you put out some sort of non biting offer, right. Whether it's an loi IOI term sheet, depending on the weight of it, depending on kind of your own reputation around M and A and how you think about that stage, how serious you are about that stage, how much work to get done, at least one C suite person is probably going to have a say in that very often multiple. You're also going to have a check in at the diligence, like after your diligence, like confirmatory type diligence is done before you sign definite agreements, there's going to be some sort of approval or a check in that happens there. Maybe except for very smaller deals, but pretty much that's how it's going to work. Depending on the type of deal, especially on the more transformative ones, it's going to be a lot more common than that. You might have a weekly check in, right? You might have. Once it really gets into it toward the end, as you're wrapping up diligence and you have to come to a decision if it's, especially if it's a public deal, you might be having daily conversations around it. And so I think the thing to remember is keep doing the work, keep learning and keep surfacing and escalating flags. There's probably many reasons why you wouldn't do a deal, but as far as how I categorize it, really two reasons, not from s corporate person, I wouldn't want to do a deal. One is I disagree with the strategy. There's a lot of assumptions. If I tweak them in the more upside case, it might make sense. But I don't agree that the assumptions, the drivers should be in that upside case. I actually believe the numbers are going to go the other way. That's fine. That's where I can get to the disagree and commit. Right. Because maybe you as the executive have done this longer, you know the space better. Maybe you're more in the weeds, you know, the customer part. Maybe there's enough that for honest and people with integrity and intelligence that disagree on what the right assumptions and drivers are, which way the assumptions will turn. And it's really a question of the deal could succeed if all these assumptions pan out. The deal could not succeed if I'm right and all these assumptions don't pan out. But in those instances, yeah, smart people can disagree. It makes sense. Sense. If you move forward on a deal that unfortunately has. It's less about the assumptions and more about real red flags. Tangible, empirical things today exist that will be value destructive or that will be distracting or minimum make you want to have to revisit the purchase price in a meaningful way. And then you keep moving forward on those deals because of shiny object syndrome inertia. Maybe there's a bigger. Fortunately not most of the places that work, but bigger organizations. There's some internal political risk and cya. I don't want to have to be seen as having committed all these resources to diligence in this thing and then being wrong, which would be the worst reason to do a deal. But it's when you Start seeing these flags that are more than just assumptions where you can disagree, but clear indicators that some of the assumptions are just wrong. I don't know a compliance issue that could lead to investigations from a regulatory agency, fraud. Hopefully you don't move forward on a deal where you see fraud. Some intangible things that feel like this C suite, I cannot trust that them even smaller things that could by a thousand cuts kill you. They lied about where this product was, what stage this was in. They lied about product market here. They lied about or they fudged their retention numbers. But if there's like a thousand of those things, it starts becoming a yellow, orange, red flag. In those instances, you're just always trying to present information. And the ones where I both have disagreed on the first set, where the strategy doesn't make sense to me and like I said, smart people can disagree. And plus I keep finding these orange flags. You're just finding whatever form and channel makes sense to continue elevating them. The last thing I'll say on this is it also depends on who's sponsoring the deal. It's like a chief product officer. They still need probably the CEO and CFOs buy in. If it's somebody else, like a GM of a business, they probably need one of their seniors buy ins and they need C suites buy in. It starts becoming tougher when the CEO and CFO lock arms together and say we want to go do this deal, that's when it starts becoming tougher. In those instances it's hard to overcome it and you have to recognize that. But it's still your job to continue surfacing the problem areas. Thankfully, among the deals I've done that I didn't want to do, most of them have been in that first category, not all of them. There have definitely been instances where I've tried to continue as a team to flag the issues. Depending on who the stakeholders are that are trying to move it forward, you may or may not be able to convince them.

So how many times have you acquired a business and then in turn divested the business?

Well, that comes down to one company I worked at.

Obviously there's a big prime example.

Yeah, yeah, yeah. No, that's not true, actually. No. There's at least one other example I had other than working. We were, while I was there, we acquired numbers or I'm a little off on the numbers now probably, but like somewhere between 10, 11, 12 businesses over the course of like 10 or 11 months. A number of these acquisitions predated me. I often get Asked about the wave pool. So that was not mine. But of the acquisitions we made, they ranged. Right. They were like aqua hires of five to 10 people to larger, more strategic acquisitions. Yep. Probably ended up having to divest about a third of the ones I had acquired and then a couple of the ones that predated. That was one of the shortest turnarounds probably in the history of M and A where you're acquiring things, bidding them out. We're seeing some of that again in the crypto world right now. Actually. That was a really quick 180 from acquiring to divesting. I've done it maybe more relevant here because that was circumstances. I still stand by. A couple of the acquisitions we made and I think thesis is actually playing out. The business we sold were the private equity and they rolled up basically a strategy, especially in the software, real estate software space. They've rolled up businesses that did exactly what the targets we acquired. And now they've combined a bunch of them and see them now maybe building pretty sizable businesses on their own. Those are hard to know. We don't know how they would have played out. Some of them, probably for the best, that were immediately divested. At least one example where I have divested the business that we acquired after a couple of years. Those are tough, but you have to always, as a finance professional, you can. You don't want to be holding to sunk costs. And those are tough because you make these acquisitions with hopefully really high conviction. You make acquisitions that are other than maybe on the talent side. Deals that are 2, 3, 4, 5 year arcs play out to find out you're wrong two years later, or you think you're wrong because either the market has changed so your assumptions were so off, or the business just isn't what you hoped it would be. The leadership isn't what you hoped it would be. You were bad at integrating always. The other side is YouTube. Sometimes then those are really tough conversations because you're having to revisit all these assumptions you had to build a lot of conviction around. And it makes you question your strategy and it's uncomfortable. But you have to have those series of conversations. And often what I found in these situations is you almost bargain. You're almost figuring out like, what else could I do with this asset? When you know the answer is probably divestiture. You're kind of thinking there's something more creative we can do. Can we spin this into a joint venture? Can we repurpose it to do xyz? And you realize by the time you burned all the money to try to explore those other things. It's just going to become an even bigger and costlier mistake. So then you should probably go consider at least understand if divestiture or a carve out is viable in the market.

Can you teach me how to get buy in from CEO and board?

It's data and then storytelling. If you work at a good company and you have good decision makers, it's pretty unlikely that they're going to make decisions that are abjectly against what the data is telling you. You might. You project out the business, you look at the unit economics and it turns out it's going to burn more and more money over time. There isn't really a path to break even. It's not impossible, but it's very unlikely. You're going to have an executive still say, well I still want to go do that. I am the master of the universe. I can go turn this business around and combine that with my business and the synergies, we're going to get it to break even. It's unlikely that you're going to present data. Whether it's in the go case or in the no go case. That is, then you're going to have a decision maker just squarely contradict it. Data is not sufficient. You need to tell stories, you need to tell good narratives. And I don't mean fabricate things. You need to explain why these synergies are going to happen. Why is it important that these synergies happen? What does it do for our market position? How does it get us closer to that five year vision? What does the business do that we don't do today and why together are we going to go accomplish this thing? Going back to mission statements, vision, values and culture. I think those pieces are sometimes overlooked by corporate professionals because we're trained as lawyers and bankers and private equity and you have numbers all day long or the contracts all day long and negotiating. And so you forget sometimes that ultimately it's people and cultures that are meshing. The ability to work together against a certain problem statement, certain mission is what's going to make an acquisition successful or not. In addition to the numbers and information that you're presenting, mostly around financials, other operational metrics too. You need to tell a story on why this matters and how it gets you to the vision. Just as important as part, telling that story is trying to bring executives along on that story. And I've learned this mistake a few times in my career. It's harder to tell the compelling story to a receptive audience. If you tell them one time in that one meeting where you're going to present it for the first time, you need to start painting that picture earlier on, preview it. You need to share with the csp like this is something that we're looking at. Wow, this opportunity is amazing. Maybe there's like piecemeal content strategy, right? Maybe it's. This is an opportunity, a market we're evaluating with the product team. Here's a little readout on that. That share some market developments. This, and this has changed. So a lot of our operating assumptions from two years ago are now different. Like a build up before you finally get to those last couple of meetings where you're going to make a decision on whether or not you're going or it's a go or no go on the acquisition the first time somebody's hearing about it. Even if you tell the best story, if it's the Godfather, you're presenting the Godfather in that meeting. Probably going to be harder to get them pay attention. Not only is it going to be hard to get them to pay attention, they're going to interrupt you and ask you a bunch of different questions. That's going to totally violate your ability to tell a narrative. So it's only if you've warmed them up, brought them along the way that you're going to be able to actually have success when you do that storytelling, present the information when you're looking for a decision.

I like where you're going with this. The story stuff's interesting. We break that down into an example because I think this is the thing, a craft I'm really trying to get good at. I like how you repeat it and it becomes stickier or even slice the different formats of it. Can you give me an example of how you would shape that? Here's this sort of deal. You're building the business case around it, but being able to tell that in a story that lands well, this is.

The reason sometimes you'll know a company for a few years before you end up moving forward on an acquisition. It's not just getting to know the other sides because internally you're also having to build that story. And there's also the element that people are moving seats internally. And sometimes the right person's not in the seat for you. They move forward on something. There's a product category when I was at Twilio that one of the products GM is one of the product leads, was really adamant about it was about building a more modular context center, not just providing the APIs that could let somebody rip and replace and build their own contact center themselves. But more about going one level up, creating modules, even user interfaces. Because Twilio is an API business that had some products with the user interface, but not a lot. The building a little bit more that it made it easier for customers to piece together how they could use Twilio to build their own contact center rather than just the most savvy engineering focused organization being able to do it like anybody could do it. This is like a vision the person had for a few years. It wasn't like a corp dev driven thing per se. And when he started finally getting some buy in and funding to go experiment and build portions of it, it became pretty clear like when we would talk about it that there were really big gaps that we would never build. Especially if the idea was to try to get something to customers hands sooner than later. We started, you know what would probably end up being like almost over a year arc of trying to convince folks that we need to acquire a couple of reporting businesses within this space or at least one. Sorry, not a couple. It started with maybe we first say we need a partnership around this. We shouldn't just have one partner, we should test a bunch of different partners. Maybe we have a marketplace around this. There's a bunch of docs. Ultimately there was a product vision doc there was like how do I build this? Talk to the product side driving this? How do we actually build this? What's resourcing? I need just going and getting funding. Okay. I don't have funding for the reporting tools aspect of this product. I envision so I need to tap some folks. And so when I was there anyway, that Corvette function also spent time on partnerships. That was nice because it allowed me to go and kind of surface a bunch of partners and working with the product team. And so okay, we have a bunch of partners and we don't think it's not clear to us any one of these is going to make sense. Why don't we build a marketplace like a really lightweight one. Okay, great. What is the benefit of marketplace? If we're right then now we have built maybe a new revenue stream on the marketplace business here for this specific product. And if we're wrong, it's lightweight. This is partners. We didn't have to build the reporting tools ourselves. Having these proof points and the story around this point which keeps evolving over time was really important. It wasn't like we started this story with we would need to go buy a set of reporting tools to plug into this Context center, it started with a context center product story. There's gaps here. We want to announce this at our next developer conference. So let's try partners then. It started with Corp Dev. Telling a story around one partner is probably not the right approach. We don't know who's going to be the best in class. Let's start a marketplace then. After we launched this marketplace at the developer conference, the question it turned out one of the partners was seeing you have to kind of keep changing your story based on the new information you keep gathering. After we launched this, we learned that one of the partners had a disproportionate amount of traffic going to it as part of North Star. One of the companies North Stars was to have more software revenue, meaning revenue that was like higher gross margin than some of the core business. This product was really high gross margin. So hit that company level. In North Star we're seeing one partner disproportionately benefiting from it. So it doesn't really need to be a marketplace, it needs to be one partner. But then we're giving away probably, I don't remember the exact percentage, call it like a third of the economics to this one partner over time. It's still all very nascent, right at this point. It's not as if this partner is of any meaningful size here. We're giving away a bunch of this. It's like we should go and tell an acquisition story. And so it started with me flagging it in a weekly pipeline update with one of our C suites. But okay, why don't you go and learn more? Then it was going with a product team and telling a story about how this is one of the most critical components of this modular context intervision. Okay, great, so then why should we buy it? Okay, then going with the finance team, trying to craft the story around. These are the numbers, look at over time, how we will enrich this other company to our detriment. Okay, great. And so now you combine all of that into a story. If you tell and then that's no longer really story. Now it's like a memo, it's analysis. But it's like all those little portions started with a product document, started with a marketplace story, then went to a margin story. Why it hits one of our North Stars financially, that's a part of the five year vision. And then you put it all together and that was over the course of another 12 to 15 months. You're crafting a different story along the way based on new information and for the audience the financial story was a little bit more toward the CFO CEO. The product story was more toward cpo. The moment in time, what you can get done. Going to the shiny object syndrome piece, sometimes it also applies when it's not shiny object. What can you actually get done? What's interesting to this person in that moment? What does your audience care about? And then finally, as you start doing all these proof points and these little wins, you can then package together the cohesive story and have that big M and a meeting we always think about in the boardroom. But it's actually a bunch of little conversations that get you there. And hopefully it's not always the case. But hopefully by the time you're in that boardroom, whether it's virtual or in real life, it's all kind of choreographed. Everybody's been brought along for the story.

Who's the hero? Is it the product manager that sort of painted this view or found this gap? Or is it the customer who's the hero?

It probably varies depending on the culture. Twilio is a very customer centric place and still continues to be a very customer centric business. There's a lot of customers to thank for advice there along the way and providing testimonies about why Twilio would be a great place to buy these solutions from. But ultimately you had a product manager, right? The product manager is the one that kind of comes up with the initial vision. And I would also say it's almost never going to be corporate. Corp dev doesn't take bows. That's not my phrase. Somebody else in the Cortev world has said that to me before. I totally believe that there's no end zone dance. You still want to celebrate the team. You still want to have some celebration. Obviously you work really hard. It's a milestone. It's better in the gap. But corp dev is not taking bounce. Ultimately and partially. Corp devs also is not super accountable for after the fact. Right. The product person is going to be accountable for that. That specific instance turned out to be a great acquisition. Doesn't always work out that way. So if it doesn't work out, there's somebody, a product person who also is going to receive a lot of blame. So yeah, that's probably the hero. And most of the time I would imagine either the GM or the product we.

How do you deal with rejection, handling? What are some tips on that? He told you a story and you got to know or this is why we shouldn't do the deal.

I feel like corporate professionals are pretty good at handling rejection. It's a game of numbers in some way. I don't think about it that way day to day. Each deal is its own deal. Each opportunity is an opportunity. If you don't get super excited about each one, when you wake up, you're not going to be excited to get out of bed every day. But at the same time, if you look at your funnel, your pipeline of where deals are, how many deals are in the top level and how many deals you've passed on, a lot of no's there. You don't take it too personally. People have thick skin. Moving on from projection. Maybe your question is more about when you have really high conviction, when you feel really good, this is the deal. It doesn't happen often, but when you feel like this is the one, this is the one that's going to hit all these five objectives and move the catapult the business forward. Knowing those situations stings, of course, but I think it goes back to something I said earlier. It's like, who's saying no? Is there an opportunity to convince? I think working with executives over time you learn when there really isn't an opportunity to convince and you can take some more cuts at it, but might just be wasted energy and probably just lead to more frustration. Rather just fail fast and move forward. But when you know it's an executive that can be convinced, you need to determine why the no is coming. You need to do that work. So is it, I'm not ready now. This is something where I have a bunch of other things I care about and so maybe a year from now, is it. I don't believe in the market. You haven't convinced me. Go do more work. I don't believe it's this target. I do love the market and if I don't acquire into it, I'm definitely going to invest and build into it. This isn't the company I didn't like, the culture of the company. CEO isn't somebody I feel like I can trust. I'm more enamored with this other shiny object here. So until you tell me that one doesn't make sense and you explain to me why it doesn't make sense, I can't even be receptive to this new idea. I'm trying to figure out why the no is coming. Ultimately, I have in my mind a framework. I am going to allocate capital in a different place. Resources are finite. You don't have endless capital to allocate. I want to go deploy my M and A somewhere else. These Things seem like they're obvious and you should have charts somewhere that's linearly. Thoughts out for you, what you should be spending your time on. But it's not often how I found executives work. And there's all these competing priorities and it's not always clear how to triage them. And these conversations you have to, I think, recognize are good opportunities to help you refine and calibrate what is going to be the more successful conversation down the line. Use an opportunity to calibrate. If you do think there's room to convince, you figure out in that meeting because otherwise you're not going to get that kind of audience scan, like why it's no if you can and then see if there are really convincing things to overcome the no and not just like incremental things. That's never going to work. Something really, oh, we should have highlighted this strength of the company. We didn't because we didn't know the CEO cared about it or the C suite cared about it. Go back and see if there are like some really big things that you didn't highlight in the right way and bring them back. Otherwise, if they're not somebody you're going to be able to convince. If the no is based on way too many factors, then cut your losses and move on. And if it wasn't a no based on trust issues, then maybe it's something you revisit down the line. And that happens all the time. You revisit the same companies many times over because you change, people change, companies change, strategies evolve. The timing may just not make sense.

Before we wrap things up. Roy, what's the craziest thing you've seen in M and A? That's a good sign. I asked the right person that question.

The funniest situations I think often happen when you need somebody to physically. This is kind of old school, but you need somebody to either physically sign something or even electronically sign something definitive docs to get the deal to close and somebody's off in a different country vacationing or just like their phone is dead for two days. And there's just this built up pressure in these situations where you feel like you need to sign. Like everybody's been working on this deal for six months. You promise it's going to be this timeline. If you don't sign, your day one's going to be totally off. All the systems cutovers are planned for this moment. You just can't find this one executive, whether it's a CFO or CEO. And it's, it is insane because the thing they're doing is probably so trivial. Their phone's off, their phone's been dead and they're making breakfast for their kids or they're off surfing somewhere or I don't know, maybe it's a religious observation which isn't as crazy. But why couldn't we have planned around that? We didn't know they literally can't sign something for a few days. There's these moments I think, and it's something probably relatable to all the old professionals. I've seen it a little more acutely in certain of my roles that when you promised all these timelines, you're trying to get something signed and just the most trivial thing is like keeping it up from signing because this person is just prioritized something else. And hey, I think that's great, that's there's work, life balance. But it's we have a hundred people on both sides like bated breath waiting to close this thing and you're waiting to collect this one signature on a page and they've already pre approved it, but you still need to get the signature. So I think a lot of the crazy moments and ideal processes have hinged on that situation.

I feel like every deal has that. The last minute things that pop up. This has been a good conversation.

Absolutely.

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