Formulating M&A Strategy for Proactive Sourcing

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I'm doing great Keystone. How about yourself?

I'm doing very well. Thank you for taking a break from doing deals to hang out and teach me a few things.

My pleasure. I'm sure the learning is going to go in both directions. Looking forward to it.

Can we kick off a little bit about your background?

I've been involved with corporate development for over 20 years. I didn't get here in a straight line way though. I'm an engineer by training and started my career with a manufacturing firm and found out pretty quickly that I did not like that wanted to move into something else. I used going back to school getting an MBA to pivot that found that I really loved investments, really loved finance and wanted to pursue that. Went with a firm, a financial services organization in an investments and general management related track. Worked there for a number of years, was astounded by within financial services. What an incredible amount is going on Respect to strategy, distribution, new markets, innovation. Innovation gave me the bug to I work with an insurance technology firm. This was in the 1999, 2000 timeframe, so we'll call it Internet 1.0. Worked with capital markets, raising money, operations, business development. The whole thing moved from there to a larger finance and technology organization, which is where I really got the M and A bug in. It was a publicly traded company. We took it private and I worked with the private equity sponsor then to do a number of acquisitions. Ultimately we sold the company to a large bank. I worked myself out of a job with that acquisition and that landed me at Guardian, where now I head up corporate development, which for us includes M and A strategic partnerships, venture investments. In my time here, we've dealt done well over a dozen M and a transactions, over 25 venture investments and a number of other strategic partnerships.

You like doing deals?

I like doing deals, yeah. Good deals.

I got stuck at the engineering part for a while. I was like, there's an interesting theme here on M and A Science. I'm curious if you could sense a little bit of that. Maybe I don't know what it is. It's just the folks that come from engineering background have a little different thinking around problem solving or they're wired a little different.

Part of it, I think is what I call, and I refer to me this way, not necessarily others, but M and A allows you to keep that numbers geek focused because this is very financially oriented and that helps in doing deals. But I think also there is a technical way of thinking that you have to or can be applied anyway to an M and A transaction. Just given the complexity of the moving parts.

We'll learn more. We got a bunch of them scheduled. We had AstraZeneca, then apparently the head of corp dev at both Goldpuff and Uber, same thing. PhD engineering backgrounds. Let's get into it. Mike, how do you start formulating the M and A strategy?

The M and A strategy needs to start with the overall business strategy, which is the driver. Because the M and A strategy alone, we would view that as a tail wagging the dog as opposed to the other way around. So in corporate development, we work closely with our businesses to formulate the organic strategy and then we'll build the inorganic strategy from there. M and A is tough. It's really difficult and complex and high risk and it's hard to do well. So if the business strategy can be satisfied through organic means, that's really the way to do it. But ultimately businesses want to get into markets new Products, new services, new geography, have growth targets. All of that put together makes M and A a viable part of the strategy. And that's where we start. We work with the businesses, we find the verticals where the M and A activity could really help advance the overall strategy. And once we identify those areas, that's where we get busy with kind of.

Our deep vertical work with the business strategy. First thing you do is start getting a good understanding of the business strategy. How does that shape into the M and A strategy? What does that look like? Who's involved?

We find as we work with the business strategy, there's gaps, there's objectives, where when you ask how are we going to get from here to there, the answer is we're not without expertise or additional capabilities outside of our organization, which helps us point the direction. And we work with our business leaders closely on that and try to provide value through understanding some of the verticals that they might be interested. Interested in being able to provide some external market feedback and knowledge around verticals and help them see where there might be a match.

Sounds like you're doing some reverse engineering here.

The engineering being the key word, but yeah, to a certain extent, absolutely.

So, hey, what are you trying to achieve? Here's your goals and this organic path is going to have its limitations. To achieve that goal. This is where you find these cases or opportunities to look at M and A fitting into the picture. And that's essentially where your M and A strategy starts shaping from.

Exactly. Yeah, you got it perfect.

What do the conversations look like? Who are you talking to? Where do you first understand the business strategy and go through that? Who are you talking to?

As an enterprise resource, you really got to operate as if you're part of all of the different business teams. That's one of the things that keeps it interesting is the fact that we're working with all different businesses. So you're giving a look at a diversified number of different things. So we consider ourselves to be adjunct members of the business's executive team working with them. We try to attend meetings, we try to be involved with their dialogues, certainly understanding their strategy and how the strategy is going to change on a going forward basis and therefore what that might mean with respect to identifying external opportunities.

I still try and get a sense.

Of the roles from a role perspective. Business leaders are responsible for hitting their objectives and managing and directing the organization. We consider ourselves assistants in that where if it's not organically focused, if it's not just execution of sales strategy or operational strategy or technology initiatives, but we're saying, hey, look, we want to get to step C. We're at step A. There's a B in there somewhere that we don't know where it is. That's what we go out and get. So it's identifying the vertical, looking at the participants in that vertical, where we might want to acquire that expertise or that service.

This is where you start building a market map.

Exactly.

And saying, okay, here's where our gaps are. Then here's companies we can identify. How do you identify those companies? What are your sources there?

The answer there is at first we don't. We first deeply research the industry or the vertical that we're after. Things like trends, what's happening, who are the competitors, who's winning, who's losing, why are they winning, what are the critical success factors? And after we feel like we have an understanding of that, we then look at all of the players in a specific industry or a specific vertical. And those are some of the obvious ones. Sometimes with smaller acquisitions, there's smaller players that aren't perhaps as immediately obvious or as immediately known. And what we do is we develop a list and we force rank them using those critical success factors as the gating criteria. So the ones after that force rank, that rise to the top are the ones that we spend some time with. They're not always all available, or maybe some of the participants are owned by larger entities. And transaction is not something that's going to immediately happen. But that's what also allows the opportunity sometimes for partnerships. We've identified verticals in companies, and sometimes the question is, do we have to own it? Or if we're just looking for that capability, is there something we might do in partnership with someone? And often that's the answer, but that's the general way to that. We identify the parties and then decide which ones we would like to talk about versus not. We also really like companies that aren't for sale because usually companies that are for sale, there might be a reason, might not be as attractive from a buyer's perspective. Ideally, it is a company that rises to the top, is available, and maybe hasn't thought about a sale, but would in talking to the right partner.

I got a lot of things to go back and back from that one response there, Mike. I'm so curious about the data sources you use, the success factors going, the partnerships, the whole thing, to unpack. And then I want to leave off that last not for sale one, because you got the two, you got proactive and reactive opportunities. You got stuff some Obvious you're probably on the radar for. Because I would assume insurance is a pretty banked industry.

Very much. We have relationships with all of the large, even the mid tier and some of the smaller investment banks. We try to stay in touch with them, we try to let them know what our strategies are so that we're on that call list. Because reactive is a good source as well, depending on the situation and the opportunity.

So you still look at those. And bankers are good friends to have. You get a lot of industry intel from that.

Absolutely. And that's what sometimes helps us put together that market. Just talking to people and understanding who's out there, even if we're not talking about a specific transaction. A number of our banker partners are fantastic at providing kind of lay of the land intelligence and insight.

Anybody else bringing you deals like coming inbound? That's not the bankers consultants.

Some of the consultants that we have out there, whether they are financial consultants, strategy consultants, we aren't necessarily using a lot of them at any given time, but it's another network that is trade focused and trade oriented that'll just call and say, hey, have you thought about this? Have you thought about that? In the effort to provide value.

Okay, so bankers consultants, mainly for inbound.

Yeah, that's primarily the sources for inbound.

Outbound. You like doing outbound better, which you get a little more control of the variables there. In my experience, you can control the timelines a little better. It's not like artificially compressed for the sake of squeezing a bunch of people together in that auction room to get their bid cards up.

Exactly. It can be less competitive, which is good. I think it's also an opportunity for us to be able to tell our story a little more deeply. If you're reacting to a process, there's kind of a set information request to which you're responding. When you're calling someone on a proactive basis, they usually want to know why are you calling? And that gives you the opportunity to say, hey, you know, we've been thinking about this. We may be completely off base, we may not. Maybe this is awkward. We certainly don't intend it to be. But let us tell you a little about ourselves and why we think this could be really interesting that we may have a one plus one equ three situations.

Okay. So a lot of good benefits of getting the deals getting staged and finding the right opportunities that really fit with what you're trying to look to do. Want to take a few steps back. So I do want to talk more about that. You have the conversations with the business unit leaders, understand their strategy, reverse engineer, find the gaps and start verticalizing this as you build your market map. When you start thinking of the proactive effort, are there certain data sources that you're using? Are you just going to industry conferences? How do you get that information to have a right funnel or feed the.

Pipeline from the list? Doing the, if I understand the question, doing the research on the targets. If they're publicly traded companies, that's relatively easy. Most companies at any size have websites and are releasing press releases and news and then talking with trade partners and people in the industry. All allow you in most cases to build up a reasonable intelligence or folder or kind of GQ or GT on different partners and what they're about. Sometimes if nothing else, it's just a cold call. You look really interesting. We are interested in companies that we think we might hold in high regard and have the conversation.

That way you're not buying like third party databases and just having somebody compile this stuff for you.

We certainly have a competition desk here at Guardian. We have intelligence sources here at Guardian. Third party databases, certainly, whether that is the AM best and S&P stuff. SNL, CB insights. Yeah, of course. This kind of the general corporate sources for company and corporate information, you're tapping.

All that and compiling it so you can build out that market map. That way when you have these data sources, you're compiling the list. I want to get a sense of the prioritization part and when you mentioned success factor, because that was like your scorecard, basically I want to get a sense of what that looks like. How are you prioritizing it? Is it a certain model or method of doing that or is it just purely determined through that scorecard factor? What does that look like?

We use a pretty simple scorecard factor where we're force ranking via all the different criteria. The criteria themselves, we've got qualitative and quantitative criteria that we use. Sometimes the criteria are different depending on the vertical and what we're trying to achieve. From a qualitative perspective, just a business that we think would accelerate one of our strategic objectives or allow us to accelerate our strategy can be a very simple criteria. Another one would be if we were to own the business. We think the business could be more valuable or perform better than if we didn't own the business. So it's the synergies, for lack of a better word, cultural fit for us is a really big and important factor that we look at. Having a successful management team, having success as an organization. We're less interested in fixer uppers. We think that the M and A process and execution is hard enough without maybe starting with the hand tied behind your back. Because you've got a business that does need just significant improvement and kind of re engineering if you will, in addition to financial metrics and financial growth and some of the more I think things that most people are aware of.

You're the executive I like working with because you. But everything. Very simply put. I want to get an example, Mike, because I'm trying to imagine you communicating to the board, for example. It's very qualitative the way you describe it. I always think of do you get more formal than that? Is there really numerical scoring for those certain categories? Weigh it based on that or is it more just explained with here's some common sense logic on why we're doing the deal.

There's certainly math behind it as well. That's where there's both quantitative and qualitative factors. But I'll give you an example I mentioned. And depending on the vertical, certain criteria may be more important than others. In a more established business or vertical with more established participants, probably profitability, good expense control and good margins could be really important. Whereas if you're in the earlier stage world with either an industry that's emerging or companies that are earlier stage within an industry, sometimes they're not stable enough to have that kind of expense control right away. And really looking at growth trajectory and whether they're hitting some of their early objectives and some of their early sales or revenue or top line goals can be different depending on the stage of the company or the vertical that it's in. But certainly the kind of traditional financial metrics, market share numbers and growth of clients and things like that are very important. So there is certainly math to it. Yes.

When you put together that business case on doing the deal, what does that look like? Do you have a process? You do that every time.

And with respect to a specific deal that becomes very math oriented. Any well established company will do a quality of earnings report which is a very deep forensic accounting analysis of the company's financials as well as projections going forward. So everything around that we're doing deep diligence on all of the usual suspects, operational technology, human resources, legal. So that for any given deal we have an M and a playbook and diligence playbook that has all of those results mapped out. We usually put the big studies at the end of the appendix. All of the things, the pluses and minuses for each subject matter area where we're assessing the organization goes into a reasonably robust playbook and ultimately presentation and recommendation to our board on how we'd like to proceed.

What's that governance look like behind this? To get a deal approved, who's got to check off before you can fire off the loi?

We certainly need the business sponsor or owner, the guardian business that says yes, we really want to do this. That person and that person's team has to be a strong endorser. Again, these things are too tough to do without having IT match into the business, the strategy and having them endorse it. We have a of our corporate executives monthly M and A team meeting where we talk about everything that's going on. So once we have business support and we have that executive group all nodding yes, then depending on the amount, we have a table, a corporate table of authority that has different approval levels up to an income, including our entire board of directors for something that's more significant.

That's a lot of people. I see why you don't like the auction process and the P firms just send a guy with a check and that's how they get their deals done.

We tend to go deeper on diligence. At least we like to think we do and to be collaborative because ultimately we're all going to own this thing on a going forward basis. And whether it's a good deal or a bad deal oftentimes isn't realized for several years depending on the type of integration and planning that needs to be executed.

Post transaction you have a specific committee for making the decision on these M and A deals. It doesn't flat out go to the board.

We have an M and A committee, a guardian executive team and then we do at certain thresholds and really we keep our board apprised of everything the board is, whether it's official or specific approval required or whether it's just knowledge. We almost always go to the board on material. Anything that's material, we certainly go to the board. And most of the time, if it's board approval required, I'm trying to get.

A sense of the timeline because this is prior to sending out an loi. You mentioned a lot of that diligence you're already firing on. Are you doing it before that when you kick off and start firing on diligence? What's that look like? Or is it like a one and done pitch? Here you go, here's my case. I rest.

No, what I just described is before final sign off, do the deal, get it done at the LOI level, we do that with internal conversations. We may apprise the board of it, but if it's a non binding letter of intent, which is really just establishing a gate through which to begin deep diligence. That LOI is not casual, but let's call it less formal process than what I described before, which is really, you're going to do the deal, you want to cut the check and you got to make sure everyone's aligned and proved to do.

So if you get a non committal loi, you can execute that and then go through the process of getting all the board approvals.

Exactly.

It's pretty good. That kind of gives you good leverage to get out there and get deals done.

Yeah. And again, particularly for reactive processes, you mentioned timeframes. Normally if a banker calls you, they're going to require an LOI three to four weeks from when they're making those calls and they know that all the diligence is going to be done, that you're going to create an loi, assuming that there's interest based on the materials they give you and the conversations that you're able to have with them or.

The management team, going back to engaging the conversations, being proactive, going out, talking to potential. And this ties into the partnerships as well. Because as part of that outreach, you don't come out hard and saying, hey, we're trying to buy your company. I want to, I'm curious to hear, is it naturally framed as a partnership? Usually. Or if you have more certainties and acquisition that you just come out the gate with it. What does that initial outreach look like?

It really depends on the situation. There's a number of situations where we might say, why don't we start with a pilot or some sort of the fine box of a partnership and see if we play nicely together and if the opportunity that we think is there is actually there, and if it is, then go to something more permanent like an acquisition or some sort of equity investment. But for something where, hey, here is a smaller or different organization that's playing in our sandbox, in which we're already a strong participant, that might be a direct acquisition as opposed to a partnership.

You already got something established as a partnership. Don't you have organic partner functions in your company?

Help me understand the roles.

We have channel partners in the small scale, but there's a function there, part of your go to market focused on a partner ecosystem. And they are those team members that actively develop partnerships as part of organic growth.

Yeah, exactly. And we work directly with them. So that when we're getting involved, it's more not just a commercial agreement. Let's say where we're saying maybe there is some customization being done or maybe minority equity investment allows the company to grow and then to customize and for us to do something more meaningful. So there is a threshold there. We do business with enough different organizations, be they distribution partners or commercial partners in a number of areas. We wouldn't get involved with all of that stuff. We've got enough to do already. So it's more when there's a material above and beyond type of commercial agreement that's maybe threshold gated by equity investment or by a more meaningful long term situation.

Okay. If you look at doing partnerships, it's a pretty significant partnership that even goes beyond where you're putting some capital in or doing some real customizations or something.

That'S brand new to the organization. Where we say, wow, may or may not fit. Let's even craft out what this means or what this might look like because it fits outside of the box in which the core businesses traditionally operate.

Do you ever use that partner function as a channel to identify companies?

Oh, absolutely. Yeah, we've had that partner or channel function will often come to us and say, hey, we're looking at company X or company Y. Who else do you know in the space? Or have you heard of them? And there's a good healthy exchange of ideas.

When you're taking a proactive approach in building Pipeline, it sounds like you have internal resources that you could leverage to identify opportunities. And then you have knuckle up and just go right out there and hunt.

So many people within our organization are just interested in the M and A function and the corporate development function. When we do, we call them lunch and learns or perhaps talking at different staff meetings in our organization. Leave those meetings saying to the people that are there, you guys all know better than me who the competitors are out there, who's doing well, who's not doing well. If you have ideas. I love to get ideas from our internal organization because ultimately they're living and breathing. Today they have our customers calling and saying this person or this company is doing better than you or you're doing better than this one. And that market intelligence is really valuable. We've got a little over 9,000 employees at Guardian. I consider every one of them a potential source for a good idea.

This is pretty cool. You're doing lead gen basically with the lunch and learn and format with your within your organization, which makes a lot of sense because these are the people closest to opportunities or identifying them. What's your like playbook on doing that? Is it just lunch and learns? Do you identify certain key people have the one on ones you need? The ones you got to take out for late night drinks to get the information you need out of them. What's your playbook on that?

It's a little all the above. We do have meetings with each of our businesses where the product people and the distribution people and the partnership people are together and we're saying hey, what are you guys thinking about? Here's what we're seeing, here's what we're thinking about. And we've done that for a while now and it's very successful. The lunch and learns the general population of folks where again a number of really good opportunities occur, happen on a normal cadence depending on who wants to have me in to talk to them or someone from my team. And we do that, I'd say a half a dozen a year in different areas just as education opportunities present themselves.

I like the education part, how you approach it and really getting people aware of your function, encouraging them bring ideas. Do you ever work with marketing on this stuff? I just think of the whole demand.

Gen model Part of marketing is certainly our message, our value proposition versus competitors and talking and working with them about how we're positioning Guardian as well as how Guardian's position relative to its competitors is very helpful. It helps us learn more about the competitors. It also helps us tell our story better than we might otherwise. We consider them to be good partners. Not so much probably in sourcing as much as it is in self understanding as well as understanding of the competitive environment.

I was thinking they could help coordinate the webinars and probably even create incentives for people in the company to bring you like they have a recruiting incentive to bring your friends to the company. Hey, help Mike get some deals. You get a nice little kicker out of it.

Yeah, right now it's a do their right thing type of incentive as opposed to anything else. But it's not a bad idea. Not a bad idea?

I think so. If you look at the banking community, why not? I remember the one conference it was if you refer us to something we close, you get a brand new S class Mercedes. I don't remember what P firm was.

Giving that out but we haven't done that yet. Keith. Yeah, it's duly noted. Duly noted.

As a company privately held, I think you could fair game bring us a deal. Maybe you got to do a Tesla or something these days to get attention but what are some ways more junior bankers can be resourceful in bringing potential deals to the table?

I'm assuming maybe it means junior bankers within larger firms. Or are we talking maybe like mid tier firms?

I'll give you two scenarios. We got your Goldman Sachs junior banker there. Sometimes they're pretty savvy and it's okay. They find opportunities, this and that, and then within your company somebody that's maybe an analyst level. Again, both are probably heavily behind spreadsheets. Intuition, the best ideas, you don't know where they come from. I think that's one thing as a leader we both can realize. Yeah, I guess. How would you encourage at that level to be resourceful and bring the potential deals to the table?

I would say two things. One is by saying, like a junior banker, don't let the title make you feel that you're not inserted into the lifeblood. And data and information, even if they're sitting behind spreadsheets, there's a lot to be learned sitting behind spreadsheets and a lot of insight that you get out of it. And so don't look at any activity as a narrowing activity or as an activity that is valuable. Information flow is critically important. And at the junior level you're exposed to an awful lot of information. So that would be my first thought is appreciate what it is you're doing because it's really important. And then the second thing would be just not to be shy. If you're a junior person, maybe you're not in a position as a third party banker to be calling clients, but you can certainly be talking to the more senior members of your team. Within Guardian, we try to be more collaborative and encourage people to speak up at all levels. It's having an appreciation and a mindfulness for the information you're getting exposed to and then speaking up in whatever venue is appropriate, whether that is to more senior members of your team of ideas you have asking a lot of questions, or if it is a venue or a situation that allows you to reach right out to folks to hear. The idea is certainly doing that no corporate development or any professional is ever going to get upset by someone coming and saying, hey, here's an idea I have. What do you think of this? I really appreciate this conversation.

Really good leadership advice, Mike. I like it. It goes. The title thing aside, can you. I like Frank Slootman's book about amp it up, creating that culture of influence. You determine the amount of influence you're going to have in this organization. The speaking up one. You're listening to M and A science. I hope you learned that. I started out knowing nothing about M and A and then I just speak up and challenge Mike to an interview.

And look at you now. Yeah, exactly.

I can ask some really tough questions and try to trip them up. I agree. I think that's a tough one. Even myself, I remember getting out of it. A lot of people don't know I was super introverted and shy to do this stuff, but pushing myself. Took theater classes and comedy and stuff like that and helped break out of that shell a little bit. But yeah, those are actually really good for somebody to. I think that's what it comes down to. A lot of it. At the end of the day, it's the most valuable skills, your communication skills, when you can speak up on some of this and people that have it don't even have good ideas or good thinking and yet they make a lot of that influence.

It's so important and it's so hard now in the age where email and texting and everything else, I still continue to think that the person to person communication is where whether it is job search or M and A idea or get career advice, you can't beat the person to person communication. It's just the most important of all.

What do you do to keep up with it? Because I feel like a lot of it is you gotta have the motion of keeping up with it and you get better. And it sounds like a little bit is from you having a lot of these internal conversations and presenting, getting really comfortable speaking on what corporate development function does for the company.

Part of it is just continuing to be curious. So we get so many inbounds and even if people are generating good ideas or if a banker calls and say, hey, I haven't talked to you in a while, why don't we just catch up? And you've got 20 meetings. The last thing I want to do is to schedule another meeting. But putting that aside and being naturally curious is the way to do it. And if you're naturally curious, you're listening to your peers, you're listening to, to external constituents and you're listening and reading and following stuff online. That natural curiosity is really important. And sometimes you're in the middle of a really busy deal or just in the middle of normal day to day, you want to turn that curiosity off. And I think that's the wrong thing.

I totally agree with you. I wonder sometimes, how do you teach that? It's like the whole thing of M and A from the very beginning. If you're radically Curious. The stuff you learned in the first conversation. Even the stuff I'm learning from this conversation. But then the diligence part is the same thing. You can't just follow a checklist.

Exactly. Not.

It's that curiosity that really gets you thinking around and in and out the business. That's when you start finding stuff and really thinking things through about what's going to happen, good or bad.

Yeah. Or finding stuff that you're really glad you found because if you hadn't, you would have done something that you wouldn't have otherwise done. Yeah, exactly.

How would you teach that?

I'm not sure it can be completely taught as much as it comes from someone who knows that this is the career path they want to have and really enjoys it, lives it. If you're working off of a checklist and you're just thinking, I had 27 boxes and I've got 25 done, I got two more, that's not going to allow you to be as thorough and as curious and ultimately as discovering as you would be otherwise. I guess maybe some teaching could be around showing the good results to come from being like that. But I think there's got to be a natural tendency to want to do that if you're going to be good in this profession.

You have your curiosity and then you got your pragmatic approach. I found it helpful to take the curious first, see where that takes you, and then go back to the checklist, see how many you can answer from what you learned.

If you're curious, you might find six or seven things that should have been on the checklist that weren't. That's another benefit of doing it really.

Good on the proactive outreach. So we got our internal. I've gotten those resources, make a lot of good friends, let them know what we do. Keep that in my top of mind. And then when you go out and do your hunting, what does that look like? I have a question here, actually. Specifically, and how do you get contact info of executives to outreach under a proactive sourcing strategy?

A couple different things. One would be whether the contact is made by someone, me or someone on my team, or whether you actually use an investment banker to make that contact. That's also another strategy. And depending on the target, I like to do that outreach because I think that we tell our own story better than the third party. But sometimes if a call comes from a banker that has incremental credibility because the person getting the call says, oh, they're serious because they've hired a banker to make this call. So it depends a little bit on the situation. But as far as his contact information, you can pretty much find anybody nowadays just through online resources and materials or friend of a friend or even working with bankers or analysts or consultants that can connect you with somebody and are happy to do that. I've never really had a challenge or a problem finding the right person and establishing the right kind of contact methodology that I want.

We've had good luck with zoom info and apparently their CEO is a fan of M and A Science, so it works out well. So the contact information, you find that out. Following question that is how do you handle unresponsive target company executives if they're.

Unresponsive initially, Trying to find a common connection, that'll bring incremental credibility. It can be if they're not responding. Again, I like the phone, but email LinkedIn. There's a certain point that if you've tried to use a common connection and you've tried all the things I just said, they know why you're calling and maybe it just means they're not interested. So there's a point in time which enough's enough. But I like to make sure as many times as possible to be able to tell the story and have that connection with the person.

Okay, reach out directly. Don't get respond the common connection. Are you trying to get an introduction through a common connection?

Yeah, it can be introduction. Exactly. Most of the large consulting firms and even banks and we've got a relationship with so many of them, you can find somebody that knows who you're trying to connect with.

And then I calling people forget how to do this one.

It's probably the hardest because if you're calling someone to ask if they're interested in some sort of a strategic transaction, that's a big deal. That's a big. It's a big thing to ask somebody about. Or you normally just say, gee, we think the world of your organization. We think we've got a great organization as well and would love to see if there's ways we can do business together, but know what that means underneath the surface given the situation or depending on the situation. But we try to only connect with companies that we do hold in high, very high regard. And we'd like to think that we're a company that's viewed that way from the outside as well. So that makes it easier to make those initial connections.

If they're not responding, we're going to the second connection. You give them the call, give them that little hey, we're just reaching out.

It's.

Mike, why don't you get back to me? Let's talk. Interested in your company? Give them some of that praise. What's the hit rate like? Do you typically get through to the companies that you want to or do you get blown off?

Almost always. We get through and know where the company stands with respect to that. And we don't normally have a situation where we're doing an outreach and we just walk away with a question.

This is a good M and A lesson here. We should really emphasize this one because I'm 100% with you on the same page. Mike. There is no no in M and A. You can't come back and say you couldn't get the meeting or couldn't get in the door. I had the early advisory days and I tried to tell my team what happens if you do that? You're getting fired. That's not acceptable. I do like that level of determination to push through. Thinking through that initial message. I just want to make sure I got it right. Because there's calling, but then there's also emailing. Is it a similar framing when you email somebody? What does that sound like when you write somebody to get that introductory call?

Everyone now gets so many emails all the time. But if it's from someone that you don't know at all. I think about yourself. If you don't recognize it all, you almost hit and delete before you even read it. You've got to put something in there that's intriguing or mysterious or makes them want to reciprocate and respond. Yet I tend to not. Not put a whole lot of detail in the email because normally these are confidential and sensitive conversations. It's probably similar the email to what the opening phone call, few sentences would be around holding the company in very high regard and wanting to explore ways we might do business together if there's mutual opportunity and then close it out.

Time to grab a call.

Exactly.

And that's what you typically do. Try to push for a phone call early versus a meeting.

That or we're based in New York City. Lots of other companies are as well. And can you grab a coffee, want to grab a lunch or something like that? Is also a great way to establish a relationship.

If we allow the organization or other team members to assist in sourcing, then there's a risk of the inorganic strategy leaking to competitors. How is this managed? Well, I guess that's a little bit out there. Do you sort of outsource sourcing deals? You know how that Potentially whole strategy get leaked and so forth.

I would say for the outreach that's occurring, that's normally someone in the corporate development area. If, for example, we're getting from a guardian associate an idea, we're acting on it and we understand the sensitivity of things as opposed to having the associate who might not understand the confidentiality or sensitivity of it. Normally if someone gives me ideas, but that's a great idea, let us think about it and if anything comes of it, I'll certainly let you know. And so they don't really know after that whether. And it's not intentional obfuscation, but that same token to the intention of the question. You can't have the entire organization knowing what you're doing and how you're doing it because this is sensitive, confidential information. All ultimately that we're dealing.

When you're going out and reaching out, having these conversations, thinking of your criteria, when you got a sense that this is something that's going to proceed into a deal, what does that look like in that early conversation? What do you do to prepare for it? How do you frame it and go from there?

Maybe two things. One is after an initial meeting, if we say, gee, yeah, we should get a few of our team together and talk more deeply, we want to understand you better, help you understand us better. It's normally a couple hour meeting where we talk about our respective businesses. I think one of the parts of your question was how do you know it's going to proceed to something else? You usually walk out of that meeting and you and your team look at each other and say, this is something that could really work. There's just a chemistry, there's a tone, there's a thought. Where we did a deal a number of years ago where I remember we walked out and normally people are a little guarded when you're not in earshot of who you were meeting with. Our business leader said, we have got to get to know this company better. Yeah, there's just a trigger. It's almost one on one human relations that you know whether you like somebody or whether you're not. And there's specific reasons for it. So that's the queuing that we use. It's more of a chemistry, tone, obviousness of the opportunities that come up in those initial meetings.

Do you have a structure you follow for those initial meetings?

It's normally given an agenda. We say, hey, we're going to talk about these three or four things. Our company background, our primary markets, our primary businesses, and we'd like you to do the same. And if it's at a high level, you can do that as just they get to know you. If it's more serious than an initial meeting, obviously there's exchange non disclosure agreements and do it that way. But it's typically bread and butter. List of topics that are fundamental things that you want to understand about the business. Whether that's customer segments, distribution, products, technology, company history and background, things like that.

Essentially the same thing you'd want to learn in a partnership situation. M and A. Either way, you're learning the business. How many dates do you go on before you pop the question here?

I'm kidded for having a very low hit ratio because we tend to be really discerning. It's got to be a real match. As I mentioned before, on a cultural basis, a financial basis, synergy basis, a satisfying strategy basis. I would say it's probably from a hit rate perspective. The way I would put it is you got to kiss a lot of frogs before you find your princess, I suppose.

Okay, that's given. True. So you go through and get to know firms and just keep tabs on it. Some of it's the timing. Hey, it's in your pipeline. And how do you keep track of companies? Do you have a cadence or approach? I'm thinking of in our sales pipeline. It's nurturing. How do you nurture leads?

We have lists internally. It's nothing too fancy or technologically savvy, but there's a limited number of lists. We probably talk to between 50 and 100 companies a year. And so it's just a matter of having a list and a cadence on how you're doing that. And it's really more curated on each name. So it's not a boilerplate process where you say, okay, we're going to talk to 10 and from those we're going to get three meetings and for three meetings we're going to get one. It's not a traditional sales process like that. They're really more curated individual names that could go down a lot of different paths as opposed to you're going to crank a hundred things through the thing and you're going to have two or three kick out. It's not like that.

Do you make a point to the ones that you're interested in to hit them up once a year or keep in touch? I've lost deals this way where I just didn't stay on it and they sold to somebody else.

Yeah, it's interesting that happens that you have to stay in touch and Again, it's another thing that makes that what I think M and A so interesting is you just never know where the next opportunity is going to come from or come out of. I've had situations where you'll buy a company and a number of years later with changes in strategy and other things, you might be selling that company to the exact same person you bought it from just for different reasons. Keeping in touch and making sure that you're doing outreach on a systematic basis is, to your point, really important.

The company you're interested in. I'm trying to get that because I think once a year is not even enough. Do you get something where you're like this guy raised his hand. I would be there with a checkbook. How often would you want to keep in touch with that person?

I'd say frequently. But I think the way at least we or I do it, each contact is for some sort of a value added. If you see something in their press releases that they just signed another big client, hey, congratulations, good for you. Glad that things are continuing to go really well. Or an article you see that might be of interest to them. Something that's more than just hey, it's me again. Is it still no or is it yes or is it still maybe or is it yes? Doing so through this is maybe stating the obvious keys but just through healthy interaction.

It's like sharing the industry notes. Seems like the stuff like that, like keeping the know. Hey, you catch that? What do you think about that? Which is what some of the corp devs that are strategic covering our space do too.

Exactly.

That makes sense. I want the one last thing I want to touch on was the culture component because you go through this, you're getting to know each other. Yeah, that's always a big part of it. We are big M and A science emphasized the industry moving from finance focused to a people focus. I'm just wanting to get a sense of like how do you get a sense of that early in the process? The good, bad, when the culture warrants you away as well.

You said it. The people focus is just so very important because it's the people that ultimately come together and execute well or don't come together or don't execute well. So for us, I would say the cultural fit is the most important, important thing. Number one on that is just to have the management team with the same core values that you have. For us, we put a very strong emphasis on the importance of people, on the importance of going above and beyond for our clients, on the importance of Doing the right thing and conducting ourselves ethically. And as you get to know people, them expressing that or them showing through their strategies or through what they've done with their organizations, that can become clear pretty quickly. I've actually had, even in competitive processes, when one of the first things we talk about when we go in front of a company we haven't talked to before is, hey, here's our core values. Here's what's really important to us. And it's amazing because I think most companies do stuff like that, but we feel really strongly about it. I've had CEOs come back to me and say that first thing you said about core values, doing the right thing and ethical behavior, that really resonated with us. And it's for that reason we're actually still having a conversation. Sometimes that's in the proactive outreaches where a company's not for sale and they say what you said there really resonated. We think it's the most important, important thing. Because if the core values are not, it can be a little frustrating as a deal guy because you say, here's a company that's doing great and it's exactly what we need. But you meet with the management team and everybody goes, oh, there's no way in the world because of the core value mismatch.

How do you make the core values meaningful? Because I feel like a lot of organizations have the same fluffy words on their website. Yeah, I'm curious, how do you make it meaningful?

It's got to be action oriented. That's how we feel. We conduct ourselves a Guardian. When there's natural disasters in some of our communities, there's Guardian representatives historically who are passing out food or generators or things like that. Having a real sense of community, going above and beyond for customers. Same type of thing, Having specific metrics around customer service and not just numbers and not just effectuating a sale, but when we had, again, natural disasters where people didn't have connectivity to pay disability claims on an accelerated basis. It's all around action and kind of living the words. Because other than that, you're absolutely, absolutely right. It's just fluffy words on a screen and everyone's got them because people are so important. But really backing those words with actions is the way that we feel is really important to show it.

Does that help you understand? Because I always feel like leadership styles or approaches is a big part when you think of culture and then the whole flow of decision making. We're a little startup, we're really fast and agile. What does that look like in your company? Does that stuff come out through that or how do you get a sense of that or is that something you don't care about?

Even startups typically have senior management teams that have been around a while and done different things. So whether it's somebody's track record or history outside of working for the specific company, or whether it's the way, particularly with early stage companies, how they've raised money, who they're taking their money from, how they're deploying that money, the types of hiring that they're doing, how they've made their projections versus the deliverables for those projections, it can all come out through those things.

Okay, anything else culture related that you're looking for, you tried to extract to get some clues to understand it better.

We really like it when people are passionate about their business and that comes out just in how they're talking about it. We like people who have successful track records. We also like it, and this is a cultural thing, is the people who realize where their organizations have a need, where being associated with a firm like ours could help them and saying, hey, here's what we think we need and being really self honest about it and saying this is why we think that an association with you guys could be really helpful. So self awareness around critical needs and how they're going to be met, anything.

Around deal fever is keeping you from going crazy and doing the wrong deals.

Deal fever is one of the larger challenges for an M and A person because everybody assumes you're the deal person so you want to get the deal done no matter what. And for me anyway, nothing could be further from the truth because getting a deal done just for the sake of getting it done, if it's a bad deal that's going to end up biting you down the road. I try to focus on good, productive deals that are meeting specific metrics and fulfilling specific strategies. Sometimes business leaders can get deal fever to a certain extent as well. And I think it's the same thing just being really honest about whether it's a good deal or not a good deal. And if you're doing the things we talked about earlier, by being teamed up with those business leaders, you can have a really good healthy dialogue.

Mike, what's the craziest thing you've seen in M and A?

The neat thing about M and A is that it's all crazy all the time because it's almost always high impact. It's almost always people that are involved that have the fate of people are in the balance, the direction of companies is in the balance. There's almost always a timing element. So it's more than just a crazy deal. It might be like crazy situations. We were buying a company from a sole proprietor, a person who had built this company from scratch, wildly successful, really well run, reasonably large. It was north of $250 million valuation. And all of that was going to this one person. And I had to go there. We really wanted this person to stick around for the first at least six months or maybe a year for transition and integration and customer introduction. And I was thinking to myself, how am I going to negotiate get the compensation with this guy? Because we're going to write him a check for north of $250 million. And so as we were going through it all, here's what we'd like you to do. Where do you think you provide value? And I finally just said, what do you think? Your compensation. What would you like your compensation to be for this? And he just stopped and he said, doesn't really matter. So it was one of those silly conversations where he was doing the right thing because it was his baby, his company. He wanted it to be transitioned and integrated in the right way. I was more. More concerned with how am I going to negotiate a compensation package with the guy. And he was really more realistic about the whole thing. So that was a little different.

That's a good lesson on that one too, of just being straight up. Hey, we just had a corporate development crash course on this interview. We covered a pretty good chunk of your role right there and gave some explicit how to's. So those of you still with us, thank you and hope you've gotten some good takeaways from this interview. I know I did. My notebook's full of over here. Mike, thank you so much for the time.

Ken, it's been a pleasure. Thank you very much as well.

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