Four Questions That Defined a $1 Billion Deal with Robert Lovegrove

You know that feeling when you're deep in a deal and something doesn't sit right but you've already invested weeks into it? One of our members put it this way, I don't have time to sit there and listen to every episode. So the M and A Science Intelligence Hub became my deal advisor. When he's evaluating whether to walk or push forward, he asks the hub to show him red flags. Other operators have seen customer concentration, risk, revenue, quality issues, cultural misalignment. It gives them answers grounded in over 400 practitioner interviews with citations back to the exact conversation. It's pattern recognition when you need it most. The Intelligence Hub helps you think like someone who's walked away from bad deals before because they have Join the professional membership and become an M and A scientist. Ask@mascience.com again. That's mascience.com this episode's brought to you by Deal Room, the M and A platform actually built for buyers. Most data rooms clunky seller first, zero real workflows Deal Room flips that script. It's the number one platform for buyer led M and A. Designed so corporate development and private equity teams can run the deal end to end with speed and control. You get built in project management, smart templates for diligence and integration, real time collaboration across teams, and AI features that actually reduce the work, not just repackage it. No tool hopping, no chaos, no surprises. If you're ready to run a tighter process and close better deals, go to dealroom.net or hit the link in the description. Leave the deal on the outcome. Dealroom.net now back to the episode. I'm Kisam Patel and you're listening to M and A Science where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and what actually happened during M and A deals.

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Scientists welcome to the M A Science Podcast. This show is part of our mission to rethink how M A is done and build the operating standard for buy side M and A. The old school cell led approach. That era is over. Buyer led M&A is about strategy alignment and execution, putting value creation at the center of every deal. And let's be real, it's not just about closing the deal, it's about making it successful and we get there by learning directly from the best. If you want to go deeper into the framework, grab my book buyer led M&A. If you want the full system, frameworks, templates, exclusive content, expert Q and A sessions, access to me and the AI powered Intelligence Hub Join the M and A science membership@mascience.com it's the home of Biolight M and A. Let's jump into it. I'm your host, Kisam Patel, Chief scientist at M and A Science. Today I'm joined with Robert Lovegrove, recent vice president of Corporate strategy at Milliken Co. 160-year-old family owned advanced materials and chemical manufacturer. Now, Milliken isn't your typical M and A story. This is a private multi billion dollar industrial that's deliberately transformed itself from a textile company into an advanced specialty chemicals business with sustainable material at its core. Between 2019 and 2022, Milliken executed three of the largest acquisitions in the company history and Robert's going to walk us through how they did it. Today we're talking about adjacency mapping, strategic rationale that gets defined before chasing deals and how they condense their largest billion ish acquisition down to four critical questions. You ever wondered what disciplined buyer led M&A looks like at scale in a private company? This conversation's for you. Robert, how you doing? Good.

How are you doing?

Hey, thanks for joining us for our first live session here in 2026. Can we kick things off with a little bit about your background for the

Canadian online that we know of? I grew up in Montreal and Toronto. Mechanical engineer, Queens University, Canada and then mba, Clemson, South Carolina. But my background has mainly been in business. Started really in the product marketing side, commercial sides, advanced marketing, and then grew up into corporate strategy. The fun thing is I actually wrote my job description when I joined Millike and so the power of having some of these private companies as you can structure your team, what you need to do. I actually wrote my job description to join the company, joined to really drive innovation and strategic marketing. Started and dabbled in a little bit of M and A and then was chosen to write a new job description to move up and be head of corporate strategy for the overall company, which involves waking up every morning and saying this is a beautiful company. How do I grow it and what are the tools in front of me? From a balance of organic and inorganic activity and the long history of the company, the great balance sheet, we really arced on a corporate strategy of looking at for generations to come and being able to provide a good dividend to our shareholders. Was the mix of our portfolio correct? And we weren't exactly sure it was. So we embarked really on a corporate strategy of taking cyclicality out and building the business so that would really provide a good, stable, consistent dividend for A growing family.

To get the record straight, you didn't come up through investment banking, private equity background, you were actual engineer by trade into an operating business role. Came up through that into M and A. Can we talk a little bit about the deals you've worked on? What did your M and A experience look like? How many deals? And that leads us to talk about what type of deals.

I'm not an investment banker so I'm not going to say I got the 200 plus deals under my belt. I'm going to say that I'm in the 10 to 15 in the way of deals. But the interesting thing when you're sitting in a corporate function doing these type things, I'll say I've probably looked at 300 deals. But to actually get to the number of deals we do because we're very selective and being in a private family business, not a multi billion dollar long history, it's more about the culture fit when you're doing things. We're very deliberate in a lot of the strategy of building out from strategy. What will we want to do? How will we use M and A to grow the business and then the fit. And I'm fortunate to sit in one of the six companies that can make this claim of world's most ethical company. For 19 years in a row there's only six companies that can do it. So when you look at those values and the values of the company, they really move into the fit of how to utilize M and A. A lot of strategic thinking goes into it.

You were part of like re engineering the strategy. Can you talk through like how that happened? I liked how you mentioned when they rethought the business in terms of returns for generations. How'd you take that into a practical sense of rethinking the strategy for the business?

This is a mature industrial so been around a lot of things that this company does or the company I'm involved in and has done the rethinking of this is really looking at it. And we step back and look at there's the businesses within the business. So how do you break it down to really look at the fundamentals of what can you do? What is the growth outlay for it? What role should this play in the portfolio? How should I invest in the business and then where am I good parent or am I a great parent or should I be a better parent? A lot of the strategy is looking at the portfolio and the mix of the business and then looking at it and saying hey I would always like this family private family to reinvest in this business. So I should be better than their alternative investments. So can I beat the s and P500 consistently for years to come and can I make sure that there's a great consistent dividend that escalates at the appropriate amount? Doing financial modeling in an organization like this, you have some pretty good clarity of what you should achieve from we run the company or the company is run by pay a dividend to the family, reinvest in the business and then do numerous charitable donations with the funds to really participate and support the communities which this business is in. So you get a pretty good view of what your financials should be, especially the escalation of family members and the number of shareholders and what the dividend should be. And then the interesting thing, when you work in these private businesses, you as an executive are rewarded on enterprise value and growing the enterprise value. But you have to realize when you work in a private family business, they care more about the dividend. The enterprise value increases hurt them on tax consequences if they ever trade shares. So it tends to really be very simple of how do I grow the dividend? And then you got to look at it and say do I have the right mix of business for doing it? And we kind of raised our hand in 2013, 2015 and said no, we don't think we do. We've got a great balance sheet, we've got very good bank accounts and good support. The business is doing very well. But instead of do we need to sell something and repurpose? It wasn't that. It was more of an augment and really look at and it comes down to for all of our businesses we really looked at is there bolt on M and A to increase our competitive nature? Not really because we tended to be a king of niches with higher market shares. So antitrust is going to limit a lot of the rollups that we could do. It really had to sit back and do what I call surgery on the portfolio to really look at it and say where are the near adjacent moves where I'd be the rightful owner to try and grow? We really look at it and we have a matrix of we'll call it our bubble chart of how our businesses are broken down as to where their competitive nature versus the market attractiveness and should they be more of a cash cow in the organization? Where would we invest and grow? Or I'd say it a different way from a strategy point of view. Strategies all about choices. So from a portfolio, how do we disproportionately invest to grow where. And then when we look at that, we get in and say draw what we call an adjacency map. So you look at the different verticals or the way you look at your business. This might be your geographic footprint, your product footprint, your technology footprint, your different infrastructure input, but really what are the core capabilities of this business that the market would say and how would you stretch that by moving from adjacencies. So maybe to foreshadow a little bit forward, when we looked at this portfolio we said is there just another leg we should put in which is a very good stable market to play in where we already have a right to play? We have some technologies, but we should just scale it. And when we looked at all the different markets and studied all the different markets, that was a move more into healthcare space. Because what you and what we're looking for is non cyclical, somewhat recession proof businesses. There's not a perfect recession proof business out there as much as we thought healthcare was. Covid really taught us in the med device area that there was some recession in a medical business. But we did that and then we really looked at some other places that were very attractive for us and looked at it and said what would be the adjacent moves? So for us it really got a little bit frustrating when we looked at the portfolio because the adjacent moves were not just so natural. It wasn't add a product in. We completed the healthcare and acquisition to really grow us in healthcare and it fit along a lot of the core company technologies that we already knew how to be a good owner of. The second largest deal, when that was the largest deal in company history, the second largest deal in company history was really a realization that what type of businesses are we great at owning? And we did a business model adjacency and we sold it on a business model agent because we'd be a great operator on a natural owner of these type of businesses. But it allowed us to extend the portfolio. And just when we completed that, we actually had the opportunity that came to us to really leverage our customer intimacy with a lot of the marketplaces we play and really move into some top notch chemistry. And that became the largest deal. So three large deals over a period of time really routed into a corporate portfolio. Strategy of taking cyclicality out, growing in the right places. The nice thing I can say, our largest deal, the step, it was a bit of a step out for us. We've never done something this size, but a little over three years into it, we've grown at 65%. So it's just been an actual wonderful thing, but it's really helping. And a lot of these larger deals are now a significant contribution towards the profit of the company. So Surgical looks on how to do it and we'll go into how we did the larger deal. But the second largest deal, I will tell the team here, it took us two years of strategy work to say, is this the marketplace we want to fit in? Is the market strong? Is the businesses we're studying strong? And then we actually reached out to the ownership group and provoked them over a period of time where they decided to run a mini process. The value of doing. And we go through a toll gate system, three toll gates to get really aligned and get everyone internally aligned on is this the right strategic fit and marketplaces to play? And then we run three toll gates of the target. The second toll gate of the target tends to be the ioi, but we spent a good amount of time getting everything aligned and saying, this is the deal we want to do and this is the strategic rationale that when we entered the ioi, we actually had board approval to do the deal and all the money allocated to do it. So that when we entered in the final part going towards the loi, we had all the confidence. And then we actually provoked the process a little bit more with the IOI saying, this is firm and final and we can close in this amount of days and this is the minimal amount of stuff done. That approach was really well received. We kind of said to them, look, guys, it's one week before Christmas. If you guys want to close this thing in mid January and go have a great Christmas, here's a great fair value. And the only final confirmative horror thing we need to do is this little tiny amount of things and we're competing against other people that were still trying to pull their finance together. Board approval. We were the most certain bidder. And what I learned afterwards from the team is as much as we were the most certain bidder, we weren't the highest, but the fact that we could just get this done and it was fair value, the team decided to go with us instead of prolonging.

Is that really an IOI at that point or is it more of an

loi, we put the IOI in and when the Lois were due, because we were down to the small group, we just basically said LOI virtually this to close. It's interesting, our IOI was pretty much our loi and it didn't change much because we had everything done. So this is a part of working ahead and really looking at the strategic rationale, really looking at the investment pieces, poking it and provoking it ahead of time to so this is what we wanted to do. So that's maybe a bit of an anomaly, but it worked for us. And we chose a similar approach in the next time that we're in. But that really revolved around how we did the diligence. And the key thing about that is really advantageous is if you can do the strategy work ahead of time and work it into the deal process. For us, corporate strategy gets involved in the what should we do to support right through into the corporate development process, the transaction and there's another person on the team that comes in and really project manages the process. And then corporate strategy isn't done. When the deal's done, we kind of look at it and say okay, we created the investment thesis, we did the diligence. Now that it's done and we got the keys, quote, we own the keys, we own the company. Day one is a hug everyone. This is great to be part of this family. Day two you start working on okay, now we're going to redo your strategy and we're going to check on the fact base of our diligence now that we own the keys to the business and to really do really good growth in a business. And the strategy is to work the strategic plan into the long term capital plan of the corporation, but more so to really work with the new team which is a hybrid of some of our folks and all their folks and go through a small process right away to create solution co ownership around what is the longer term vision and this isn't a three year plan. When we do strategy and because the nature of being in a private business which has got a more family ownership to it, we have to kind of look more aspirational and we run seven year strategy plans. It's about the right amount of years to be aspirational. We have a three year operating, a five year look, but a seven year plan so we can really stretch out where we need to be. Sometimes we do 7, 10 year plan depending on the buying cycles associated with the business and the length of time of the buying process and qualification process for some of our chemistries. By just having that longer outlook and synchronizing it with the master plans of capital, it inspires the new management team that's coming in to these guys are buying us, they're investing us, but more so it's the solution co ownership in me. When you Meet and build this together and everyone's on the same page and saying we had a way to participate in the choices. Because at the end of the day strategy is about choices.

Wanna make sure I got this right. So when we look at the rethink of the strategy, we really started off with just goals. What are some of the financial goals? And that essentially starts building a model that you're focusing on. Because one aspect you mentioned Hayes prioritization, dividends and growing dividends. I came from high tech so it was all about growth and it wasn't so much about dividends. You just operate, break even and focus on growth. I think really distilling that down with that financial goals are is one key starting place. The bubble chart actually nice enough to send me a copy of what that looks like. So I'll talk through a little bit. But you're mapping out your existing businesses on the vertical axis. You have it labeled market attractiveness. The horizontal axis, its competitive position, ability to win. And you really start looking at your own businesses of where you find yourself in a strong position. Where do you see there are businesses that you need to prove? Where are the ones that you're really in a lead dominant position. So I feel like that kind of gives you a really good understanding of where your current business is set. You also mentioned this is what guides you on how you're investing in your current portfolio. From there, this adjacency chart which I wanted to get more detail on because on the adjacency side, this is when you start understanding where you have potential synergies and adjacencies based on some of the strengths in the businesses you're already operating. And then also what are like the great businesses for you to own is one of the things you mentioned. Then when you move through an actual target identified process, you got the three toll gates to really make sure there's a strong strategic fit through that process. And then I like when you actually bring the company together, you're working together with this co ownership solution view so that they're tied together on a long term vision of what you plan for that business as a strategy driver.

Yeah, that's exactly how we do it. And there's a lot of good connects in here and conviction because at the same time these toll gates are so powerful to bring everyone on board.

Can you teach me the adjacency? That's one I'm still okay. Even the last business I feel like you just start going around with gut feel that these are good adjacencies. And then I've been coached through the hey, you should actually talk to your customers and figure out where there may be gaps that you could potentially serve the other customers and what that would look like. But I want to learn your view.

The reason for getting such into this is we don't in all these three large deals we did to transform the company and to really move it and let me backdrop I'd go to meet with investment bankers in New York and midtown Manhattan and they like man, you guys are a textile company with that small little chemical arm. What are you trying to do? And they look at it and then of course they put a valuation on what you think the company's worth at that. Roll it forward to maybe like within the last couple of weeks being in midtown Manhattan and sitting down with investment bankers and they're like, you guys are a pinnacle to the best advanced materials company and do you still have that tax dollar? When you see that perception coming back at you through investment bankers, you can sit back and say, hey, look at all the enterprise value we built. And honestly there's a substantial amount of enterprise value that's built here in doing this in the mix. But at the end of the day, there weren't bolt on MA deals. This wasn't built on hard synergies. This was built on a lot of soft synergies and belief. And the belief was done by doing the work around the strategy and really just understanding that you're a rightful owner and could do this and you're going to get the growth of the businesses or when you put the business in the mix of the portfolio, it's going to help the company. Okay. And look, we're not buy it, fix it for three to five years and sell it. I don't know that this company has really sold anything of relevance. Okay. It's been more build it for long term. The adjacency map, what it really does is you look at it because you're having to do deals and use your M and A dollars where again it's all soft synergies.

Can you break down the difference between hard synergies and soft synergies?

To me the hard synergies are cost and dollars coming up from duplication. So yeah, we're always going to have hard synergies, a back office type things. We don't need two CFOs in a business, sort of simple things like that. But there's not much more depth in hokey. We're going to shut down plants and we're going to get operational synergies. We're going to be making the same things, we're going to be buying more of it. We realize we've got a limited amount of, of hard synergy really comes from the soft synergies of the growth we're going to get out of the business. Or make it real simple, the belief in the new sales forecast, the belief in the new financial forecast for the business. So knowing that there's going to get synergies from our ownership and being able to accelerate that faster. Yeah, I guess it's a simple way of looking at it because we own this, it's going to grow faster, it's going to grow better than their plan or, or it's going to go better than the 3% threshold on a business. So the adjacency map helps you really understand. And I have an adjacency map for we have 20. Think of it simply. We have four business pillars. We have 20 strategic ish business units, SBU business units and then all the profit centers underneath. And it all stacks up. And when you do strategy, you have to look down at the profit center level and not to really get a good granular look of how you can grow the business. So at the profit center select profit center levels and definitely at every SBU level, all will have an adjacency map. And I know I sent you a copy of it. The adjacency map really just looks at a series of dimensions and says what would the markets place the same or greater? As much as you've got this collection of all capabilities in the business, a very good analysis of your broader capability set. So what would you really be great at? Just because you play in a market and just because you have a product doesn't mean that's strong. It's what the marketplace says. So it's what the core strength of who you are on. And then you break it down into the various different verticals. And I know I shared you one of our SBU level ones. You've obviously got your geography, your technical foot brand, different nuances about the business. And sometimes when I say different nuances of a business is what is truly your business model and is there an extension of that business model? You sell widgets and you do this, but should you be in specialized distribution of those widgets, can you go back forward? And again you stack the adjacency model by what's the nearest thing to you and you build it out and then you start looking at saying now how would M and A unlock that yeah,

it's interesting because I see there's a few different factors. Geography is one play. Because you could have just strengths based on different parts of the business. You have your channels that could be another element depending on how you go to market in your channels. And then you have the different areas or verticals of the different products. And then you also have like broader sort of industry platforms that those products play in. So it's interesting how you do end up with the spider view.

You get this interesting spider map. What you see on here too is you look at it and say there's also a part of the spotter map that said, and this, folks, for you guys, this is a medical business that we have. But you play in these types of wounds, so you're great at these type of wounds. What's the market translation to move into a different wound type or a different disease state? And would you just scale the business by just going from disease states with the products you have, or do you need to add more products to the bag? But what's actually interesting, when you get this base down and I've done this, I've gone into the boardroom with this spider map and you look at it and say, this acquisition stretches our core and gives us these verticals to grow upon. And then you build the conviction of the growth and then you build the financial forecast and then you build the belief and the threshold for the growth and the soft synergies that you're going to get out of this on why you should do the deal and does the math all work is a goal

to go through this exercise and identify what's closest to your core as an adjacency or I guess like where those soft synergies would fit in. The reason why this is actually justifying why this isn't too far left field from the core.

That's exactly it. If you were just looking at, well, this is an organic growth play and I'm just going to go down one vertical, then you just punch through it. But when you think of, no, I'm going to use M and A dollars in here, the closer to the core, the greater the synergies, the greater the confidence that you're going to be able to do this.

You look at that full 360 view, not just here's the business itself, but it's like where's the geography plays in where, how are they distributed?

Out of this you start really honing in. What are the strategic options for how you grow from this core which you have the presence of Seeing you have the ability to see off those strategic options then becomes the playbook. Okay, I'm going to buy these strategic options. If I want to do this, then here's the natural people I'll go after and chase. And then what we actually do to grow our M and A is we build from the adjacency map. We build the playbooks from the strategic options, we build out the targets and then have this beautiful job of floating all over the world and basically asking people, I have this thesis on why you should be part of this family. Would you like to join this family? Would you like to join this business? And I'm actually out there incubating the M and A because that's all part of the playbook or it's not just me. You get the chance of looking at it like anything. Business is all about networking. So who do you know that knows someone that can get you into the conversation? And I will tell you, we don't win by getting books sent to us from investment bankers. Bigger players do. But when you can actually come off of the strategy of how I want to grow this business right into the targets to actually having those toll gates done on whether targets are attractive, then you have a lot of conviction to go out and convince people. And the conversations are very interesting. It's a different level of conversation. It gets you in the door usually too. Because it's like I'm intrigued by why you think we'd be better together.

I want to understand the different types you use the wound care where it's hey, we're in one type of wound build our basis of understanding that business. Can we move into another one? Which makes it pretty close. There's probably a lot of elements around distribution and things that you'd find synergies from what are like other other things. Last experience was in the tech space. We built software for running M and A. But that's where mapping the same idea of what are adjacencies. And you. You start looking at FPNA software private equity. For us, the expertise we started developing is like using AI to analyze documents. Is that sort of like here's a capability. I'm trying to wondering it's like how do you weight. This is basically what I'm trying to get at. Robert. Okay, here's the capability thing but at the end of it the dollars is around more synergy distribution the more we can stack up with the same customer base. I'd rather really focus on that. When you do the spider map is there sort of like Some weight between these different elements.

Yeah, there definitely is. As much as you look at, each vertical has what's nearest to the core strength of that vertical. There's what verticals are nearest to grow from. If you look and say, hey, I'm really great at nasty birds, okay, Someone burns herself and they got to take to bride the wound down and they got to build it up. We have a suite of technologies that come in after the wound is rebuilt up to help the healing of it. You look at that's a burn, then the next adjacency, from what I showed you, it's kind of ghosted in. One word, okay, but the next adjacency would be okay. Then I'm good at really diabetic foot ulcers because they're really hard to. And then I go into venous leg ulcers and it's having a solution set. So I'm taking the core technology and I'm doing that through say market development, going following wound to wound to wound. But what I'm actually looking at is saying if my technology takes me into that space, how do I round out with other technologies? So what you might use to heal a burn versus what you need to heal a venous leg ulcer, venous insufficiency, has some extra natural products you tack onto your business is you're taking your products out, you're tacking on other products, you're tacking on solutions. But then you actually look at it and say, how does this whole business work? You gotta make sure that the rest of your core infrastructure is in place to be able to support how you actually sell and build and grow the business. And if I say it, a more simpler way is when you look at most businesses, there's a scalable, repeatable model to how you grow the business. So you're following that down and you're adding more things on through M and A to support that scalable, repeatable model.

Once you go through this, you go time to go hunting and you go find opportunities. And it sounds like you've really pre developed a thesis. When you approach these companies, there is a very clearly articulated better together story. Is that what you lead in with said, hey, we looked at this and this is where we think we can create a lot of value together, better serve customers?

That's exactly it. People look at and say, hey, we're in a corporate function, we do M and A. And you look at it and say, I work with investment banks, give me ideas, I do all that, okay? At the same time But I direct the investment banks through this mechanism of these are the strategic place. This is where we want to grow. So they'll open doors for me when they start seeing it because they want to represent us and work with us. But then when the door is open, I'm going to come in and give. It's basically telling them a story. People resonate around the story. So there's a story of why am I even relevant in industry and what are the values of this company? So I'm doing it generic here so anyone could do it. Why am I relevant in business? What are the values I have of this company? But how do I see they connect to the values of who you are and is there an ability to do things together? I'll tell you one of my favorite stories is I had this meeting and a person came in and they met us at our corporate campus and which is a beautiful campus. And we had the meeting talking about what we could do. And then I just went for a walk with him back to his car, walking around the campus. I said, what's your dream for your business? You've got a nice family business, what's your dream? He tells me the dream. Instead of saying what's holding you back? Those would be the natural sort of thing. I said, could your dream be accelerated under our ownership now that you've seen, feel and touched and heard our story of why we think we should work together? I've used that three times. I didn't use it on the largest deal, I didn't have to. But on the deals they look at and say, this individual said he had a lengthy drive. He said, that's all I thought about on my drive home and I get a call in two days. Deals on let's do it.

I'm hosting a live hands on workshop on March 6 with Gwen Pope who ran M and A at Google, Microsoft and ebay. We'll walk you through. Through an ROI killing phenomenon we've nicknamed the acquisition graveyard where partially integrated deals get stuck with block synergies and integration debt. It's a practitioner lab, not a lecture. You'll work through a real audit on live deal scenarios and leave with four tools you can use the following week. This is a totally free event. The registration link is in the show notes or you can visit mascience.com events again that's mascience.com events. See you there. This is my value lesson of the day. How to make deals actionable is always the big question. And there's this element where I'm picking up that you're validating this. Right? Everybody talks about the better together story, but you're sort of following up with it. Is there a level of validation? Can you tell me more? Like, how do you actually do that? Is it not in the same conversation? Do you follow up like a few days or a week later?

It's part of this toll gating approach. So the first part of the toll gate is, does this make strategic rationale with the target? Yeah, these targets make strategic rationale, and we have a preliminary thesis on it. And then it's get out and talk to them, meet them, provoke them. Most people you look at, you say, hey, I was thinking about buying your company. I'm like, good, shut the door. I don't want to.

I know. I've been there before. So with your outreach, do you reach out with that? Is this, hey, here's this idea and you're already pitching it? Or you get some kind of intrigue that I got some ideas like, it'd be great to get together, compare notes.

This is a part of. In the courting, be the ambassador. If you're the ambassador for the company and you live the company, you are the people. Look at me. You are the ambassador, and I want to be part of you because of how well you represent the company. So you got to be really well about representing the company. But connecting the dots, most people take meetings with you if they're somewhat interested because you have a good story of who you are. And the next part is, provoke them. Okay? So I tell you that like I walk around the campus, I say, would the company be better? I'm provoking him. I'm asking it through questions. I'm not telling him, I'm asking him. And he's looking at going, hey, this is making a lot of sense. When we do management presentations, whenever we can, we'll say, come down and visit us too. We want you to feel like you're part of us. You want to be part of this family. You want to be part of this company. So you're getting people to look at and say, let me test and see. How do I see myself? How do I see this working to continue on? In this one story, one of our early deals, that owner that left, he had an idea. This made a lot of sense. He then came to us and said, here's all your synergy. Here's all the people I'd keep fire you. Here's all the people I'd release. This is what you want to do. We got to build this together, you're going to put the. Because a lot of people that are more entrepreneurial, they care about making money, but deep down, a little bit of them cares about where the company lands. So we play to that emotional component of where this company's going to land, and then that's got to work. And what's actually interesting in all processes, the front end of the process is all about the emotional side of, yes, you're the right person. I'm talking about we try and work as much as possible. And two of our deals were done this way. They just decided they wanted to sell the house. They didn't even go into a process. So if you can get that, or when you're in a process or a lending process gets people endured to you that they want to be part of, you ask them questions. The emotional part comes the key. Decision makers are like, yeah, this is the best thing to do, this one to do. But then their mind flips when they start seeing the dollars. And it comes all about the dollars. At the end of the day, the dollar's got to make sense.

Yeah, it makes sense.

It gives you leverage. I know I'll ramble a little bit here, but I'll talk about our two largest deals first.

I want to clarify. The key is not only just sharing this vision that defines the strategic rationale better together, it's actually the way you design your follow on questions that provokes validation of that vision. So they're really thinking it, and that's when you starting to act the motions along with the vision that you presented to them. Yeah.

So if I give the punchline, second largest deal, not the highest bidder. But when management was asked and had an input as to the final three going forward, everyone was unanimous. I want them the largest deal. We invited management down. We were actually able to let them see and touch us as part of the process. And then when we closed it, they said again, we weren't the largest bidder, we were management's choice. And when management's choice and owner's choice had to come in, it's. It just made sense. It's the difference of $20 million at such a large amount. They're like, I'd rather go with these guys because I know they're going to be the people that take care of my people that mattered. But what was really interesting is we probably performed a heck of a lot better in the diligence process because as I learned, when we own the company and I'm dealing with the people that we were dealing with on the other side of the diligence, they're like, rob, we prioritized your questions. We gave more time to you guys because of the respect of how you treated us. So it's that whole emotional side you're playing to. It's the softer skills of doing M and A that really have to come out. But again, you can't have that unless you have very good strategic conviction and alignment to go do it. As my boss said to me just the other day, he's like, hey, there's not too many people that I trust to fly across the world and throw a number of that size in front of a company. So that's the whole point. I was like, yeah, no, I wouldn't trust myself to do that too. Unless there was a lot of alignment that we built to going and doing these type of things.

Can we talk about your biggest deal? This is the deal where you presented to the board, you had four critical questions that you were willing to walk if you couldn't answer those questions. Can we talk through those questions?

So this is doing the largest deal, give you an order of magnitude. There's close to a hundred individuals working on the diligence. And again, at our standard format, there's about 18 functions that have to do their functional diligence. A lot of people, a lot of checklists to do. You can just bog this down. And the reason for the number of people are really the things that we want to check on. So it came down to. And I can reference a page. We look at the strategic rationale of why we're going to do this. We've gone through the market toll gates. It's a great thing. We've gone through the company tollgates. It's the right thing. We're learning a lot about that. But. But now we're between IOI and loi and this is where the work really has to be done. And we have a strategic conviction on why we're doing it. That then cascaded into four big questions. So at the highest level, and not to say too much around the detail of the deal, but did we really believe in the uniqueness of the technology and its ability to sustain a competitive advantage in the marketplace? That's two questions, but it's really a technology question. Uniqueness and ability to maintain sustainable commitment, advantage. So we had a lot of IP attorneys really looking at the IP landscape and all that sort of stuff here. The second question was the relationship, the market restrictions and the risk associated with a large concentrated grouping of customers. Were we okay, to get through that. The next was where we saw this business going. Long run. Did we really believe in the growth potential in these select number of markets and then probably the fourth one that most people will always have in it. Who are the key talent and how do we retain it? So at the end of the day, the key talent, one you work through. But if you feel like you're going to lose some of the brains and all that with the amount of money you're putting at risk, knowing this is more of a softer synergy deal than a hard synergy, we're willing to punt. But it really came down to the two was the concentration of the business and the growth outbreak and the risk associated with that. And then the sustainable competitive advantage of the technology. In all the looks that we had with our technology, people looking at it, the IP attorneys, if we start saying, well yeah, the technology is good, but it's a little weak and some other thing could get into and you know, we're looking at biodegradable chemistries here. So if you don't really believe that you truly have a unique biodegradable chemistry that you can maintain, then I'm not going to put this amount of money down. Those four questions, they had some sub questions to it, really drove it that every time we were doing a diligence check in, we're like, how committed are we to that question?

Is this pretty universal in the deals you look at or is this very particular to this one because of the size and magnitude?

This becomes the best practice going forward. And this is exactly what we look at, because here's what we do with it is we look at it and say, okay, we know the strategic rationale, we know we got these four really good questions. Then you've got these 18 functions with like a hundred line items of checking of diligence. So before we commission all that we're intersecting, what's the most important things to focus your diligence on and how quickly can you find a fail mechanism? And I will tell you, in every deal we look at, if there's an ethics violation and anything that would hurt our ability to be the world's most ethical company, we hunt. Okay, so there's the logical ones, but you're really looking at, it's this logic of fail fast. So if you got your function looking at the right sort of things, fail fast. And there's the other point is, before we even do any diligence, now we look at this long punch list like everyone do, high, medium, low impact. Exactly but we look at it from a different filter and say what are the fail fast things, the highest things to look at, get through fast and what are the things that we can just punt to? We'll really deal with that when we hold the keys for the company. Cause we're going to get it when we do the strategy integration so that we can move fast and focus on the right thing.

I like it. You shortlist this and these are the critical areas to really go deep in. So that way we can get to go no go pretty quickly in a general sense. So we're not wasting time and resources. I'm wondering, take the first one. I'm going to start whacking at that one is like the uniqueness in tech, sustainable competitive advantage. What if that isn't the driver? If you look at a deal and it's, you know what they actually don't. It's more of a generic thing. But this is such a good deal. It's a fire sale or something like that. Do you start like hey, as a

customer questions change per deal.

Okay, that was so my driver is the driver. Is that positioning. You want to be number one. And that's why that unique tech has got to be an important staple.

So it goes back to the adjacency map of we're stretching our technology. We were doing this. We had as. As part of the core inner part of the adjacency map where you say a strength is. We had the customer connect, we had strong customer intimacy, we had strong market presence. Now we're putting a new technology into that. I got it. So there was a tremendous amount of work in understanding the robustness, the uniqueness and the sustainability of competitive advantage from that technology. If we did not believe it, that blew up the whole deal. That was priority one question. Priority two was okay, there's a concentration of customers. Can we really deal with it? Is there any risk associated with that? So the four questions cascaded and we knew the most important one. And that's why we always put it as question number one.

So my counterexample or not the tech. But then it would something else is this is going to increase our distribution. Now all of a sudden the question would change and then we, we'd have one around. Hey, does this really give us an advantage of the distribution in the segment? Which is likely. So in the example I'm looking at now, yeah.

And if I round this back it, if you really think about okay, great strategy. What is great strategy? Great strategy is answering questions. It's choices but it's answering questions. So start with strategy project. What are the questions I'm trying to answer? So when we start an M and A deal and we start M and A diligence, what is the highest, most strategic questions we're trying to answer that lock into the thesis of why we're doing this? So if it was a simple bulldog, it would be how strong are the hard synergies and how many manufacturing sites can we consolidate? How much fixed costs can we take out of the business?

Absolutely.

And then you may have another two or three questions that's really going to get the deal done. Then why in the world are you worried about the market attractiveness of something it'd be just more of that's a lower priority question is, are the markets that this business is in solid enough to carry us forward into this forecast? Because the thesis of the deal was so heavily around what? So this is why you kind of look at it. It's daunting. When you think of a billion ish dollars, you're going to go allocate to something and this is a lot of cash going out. How do you not make this a thing that just goes on analysis paralysis forever? It's like, how do you really just go, we're doing this for this reason. Okay. And here's the unique questions that we needed to answer. We built conviction and honestly, we went into the boardroom with this. We brief them. So when we're doing things, we brief them and give them a little teaser of this is stuff that we're working on for M and A. So they're always in the loop stuff and said, okay, it's decision time. Obviously there's the pre reads that go out, there's the pre conversations that go out. But you have a short amount of time in the boardroom to really cement it and say, this is the strategic rationale we're doing. Remember, here are the most critical questions and here's the answers and here's our belief and here's our belief that goes into this is the returns and financials returns that we think we're going to get out of this deal.

How do you model these deals out? Especially when you described doing adjacencies and having soft synergies that you're betting on.

In this specific one, it was enough diligence to say there's more of a concentrated customer base here, but there's this amount of room to grow in the customer base and we believed it. And then this technology we believe will scale up like this in Markets. And in this specific case, we were actually looking at it and saying, hey, we've done a model looking at this, but if we're half right on this growth within the customer base we have today, we'll get this amount of return on by doing that. Actually, when you're doing deals like this, you always get the internal challenges. So hey, here we want to do the largest deal ever. Boss number one CFO is looking at me going, I don't know if that makes sense. That's a lot of money. We got to really get the numbers working right. Boss number one again or boss number two, CEO, because I work for both is look, I go, we've never done something like that. Is that really strategic? So they're both naysayers. When we actually got into the strategic rationale, the growth perspective, the parts of the thesis, and I really won the CFO when I said, we're half right at this forecast of growth in these customers and here's the validation on why. And by the way, we've also done a line customer awareness study. So we'll have a third party do that for us. Third party do some other things for us. Because we can't talk to the customer base. I said, here's all the reasons why I believe in that. He's like, so if I'm just half right on this growth in the core customer base and core market we have today, we can get the right return. We can push this through. Now I got an ally. Now I got an ally. So I'm always creating solution co ownership. Because my job is all about influencing without authority. I can't tell people what to do. I can't tell the CEO what to do. I can't tell the CFO what to do. You work that mechanism of the two of us and then we're now going to the CEO and CEOs looking at it and going, yeah, this would be absolutely wonderful for us. This would be good. So now he's a champion. So now the chairman becomes the naysayer in the deal. This is the point of working the process internally and team a lot of this citing things like it's just simple to do, they were done as part of the toll gates and the discipline to really build the conviction for the deal. Every deal has different dynamics to it. Everything has different risks to it. You gotta allocate on the beliefs and really build it up.

I'm curious because what you describe in the roles in such a large scale, 20 plus businesses, 70 profit centers. Imagine like it's all one capital base. How do you have a system in place to allocate? And I know we talked a little bit about just mapping your businesses out, where they play, but then where does like M and A make sense between supporting your businesses and doing these platform acquisitions? And how do you keep everybody happy?

So we run a strategy process across the company, consistent strategy process. We meet at the midpoint of a year to really see everyone's visionary seven year out and wish lists. We take a lot of that, we synthesize and then that portfolio grid is the roadmap of what? What's the role the business, each business is playing in the portfolio. And is there organic growth things that we should fund capital in? We're looking at that. Is there inorganic things that we should fund in? Can we move one of the bubbles to something more attractive? Or if we can't do that, then look, if you're a cash cow in the business, you're a cash cow in the business. I'm not going to give you M and A dollars. I've got to get a return on investment. Where's the best place? I've only got so much money and it's really a big competition. So we take a week, we look at every single business in detail. We sit as a C office and really look at the growth story. We run dynamic models of each of the businesses of where's the growth coming from, you know, and we build this over and refine it every year. But this is 10 years running of doing this. Then you get a pretty good view of where's the M and A capital budget. Now the other thing that's challenging is we are working towards always utilizing and having a great M and A muscle. But M and A capital competes against other capital too. So there's all the things that we need to do to shore up our competitive nature or shore up our operating system that's competing for the same bucket of capital. So we've got to look at it and be very strategic on where you go and having the plan. So before we just fire guns out there to try and buy things, we're trying to figure out what can we afford, where do we want to afford it, what's the rationale, why to do it, what's the conviction? Now let's go knock on doors or let's magnify the voice a little bit, figuring out the investment banking community. There's a lot of them and you got to figure out who do I want to work with that's best at helping me in this area and putting the message out with them. And then obviously we get books and all that coming at us. We'll turn them around quick because we don't want to miss them. But at the end of the day, we're proactively trying to drive the M and A muscle through the playbooks, the target lists, the interaction with who's the best person, has the best relationship, how do we get entrees and then how does the corporate development lead or corporate strategy lead get out being the ambassador

and create things rigor on each business and then you put it back in

that bubble graph to and there's a good team behind it that's doing a lot of work. It's not big team. You don't need a big team here. For every single parts of our business, we have the go to person to go to fast. There's a checklist. I am going to do a customer awareness study for every deal because we were burned once. We were burned once because we were so excited about getting the deal done that we didn't get a good enough customer awareness study that we realized that a couple of key programs were coming down with some of the key customer base and all of a sudden volume goes away within two years of acquiring an asset and you look at it and go, shame on you that you never did that.

What goes into a customer awareness study?

It's pretty simple. We just want to really understand the brand, their brand in the industry that play relative to competitors. And then we want to touch customers to get their perception and we'll use third parties to actually go physically talk to them. This isn't a survey thing, this is physically talk to them. Do the equivalent of expert network interviews, triangulate voices together and kind of look at how strong is the brand in the marketplace and whether any red flags out there of just the way they behave. If we get some senses of things that are like, hey, these guys, they drive by price and they're known to cut deals that aren't necessarily kosher. We're like, whoa, red flag. So that's going against the fit. But again, we're just trying to figure out through a third party look, are these guys legit in the marketplace? Do customers like them? Why do they like them? The other part of the customer awareness study is where are their strengths? Are their strengths more commercial or are they really technical or is it their tech service? Because part of our colgate is what's it take to win? So as we're doing adjacencies and we're moving into some new spaces. What's the scalable repeatable model for a business in that industry? How do people win? What are the most critical strengths? Why will we be a good pair? How can we be a great pair? We're going to be a great mayor. And then how's the cultural fit? So we're looking at and we're testing all that through the awareness when you

got burned, like what went wrong?

We got burned because we got the keys. We're operating the company and then they oh, sales forecast is dropping off for these critical product lines with this critical customer. Why is the sales oh, didn't you know that program's coming to an end.

There's some real surprises. They had initiative done program. They could have just unhealthy customers.

But trust me, there's surprises at every deal. Okay? My message to everyone is do enough strategic work, do enough homework to minimize the surprises. You can never get this perfect. The grass is never greener. It's just a different shade of green. There's some different nuances.

I want to pull thread on this one because this is the dilemma. You got large strategic and then you got the nimble private equity firm that'll just skip everything, outsource it all and just boom, drive to get hard to get the deal done. You mentioned you had 18 functional areas that have their own center of excellence that focus on their domain. How do you avoid from that process getting bloated and slowing things down when you're looking for this widespread of risk while still moving through quickly and minimizing the pain on the seller?

Deal kickoff internally. So when I start a deal, I'm going to call a diligence meeting, the kickoff meeting to diligence. I'm going to go forward. First of all, I'm going to have the right people beside me from our legal team giving the reminders of the do's and don'ts. So we do the compliance stuff. Then we'll introduce the targets for so a lot of people say our credit people. Somebody's going to due diligence and credit to them it's just a company. So I'm going to back up. Who is this company? Why are we interested in what's the strategic rationale? What are the key questions? And I've already looked because I'll do this and I've already the team will do this. We'll look at the punch list of all the hundred ish plus items that you got to cross off and we're going to go in and say, hey, we think you got to hone in on these first. So much as they ask you to finish it all off. Do their systems work okay? I'm okay if their system, their systems are going to work, you know, and tying it in. But if they do some funky things, let's say credit on, there's not a consistency of how they do it. There's some cutting angle. You know, it's just like, is there failure modes in there? But what the diligence team is doing is they're finding failure modes on why it would affect the four questions or the key questions of the deal, or they're not logging key things that we gotta look at that have gotta be on the integration plan. So in diligence, we're confirming the strategic rationale of the deal and we're triggering the most important things to happen in the early stage of integration in that period of time. We're also identifying the functional integration manager. So the functional integration manager's got to own all this because they're going to take it forward. And then a member of corporate strategy on the bigger deals, as myself, moves with the deal and does all the strategy integration. The integration manager does all the nuts and bolts, tying bank accounts together, making sure people can get paid and diligence things. We're going to look at and say, is there things that we have to do because their cost of benefits and something like that. This is a live one. Here is we looked at the benefits that one of the companies we bought were and then when we move them to our benefits program, what are they not going to get and what are the cost impacts of the company? So we looked at and said, you know what, we're actually going to have to provide more money, put it into the deal that we're going to give a stipend or whatever to all the new employees to basically cover that so that their health insurance is not costing them more. It's doing the right things. But that was found in the diligence. So that's the. The first things is the critical things that you got to look at. I'll say it a different way. The punch list is the strategic things that I want to know answers to the critical things that you got to look at that are going to affect the deal model. The list of things that have to be on the integration plan and then the things that we think you can just cover once we own the company and we'll take care of it.

It's constant prioritization. It's just like you distilled the business case around the four key questions and you just keep doing that while you're going through this diligence. Exercise by function. Yeah, I want to get one question here from one of the audience here. Michael. When Milliken acquires or partners with a business, where do you find owners most want support? Post close? Is it access to Centralized capabilities like HR R&D or shared services or something else? How do you balance preserving an entrepreneur's existing ways of working with integrating them into Milken's culture so value creation is accelerated rather than lost? That's a whole podcast interview.

Let me hit the last one. Culture kills deals. Know what you're buying and know what the fit is and then structure your management operating team that's going to go through this exercise of solution, co ownership and creating the strategy together with the back office of the company. But preserve them the best you can. Look at the largest deal, 65% growth on the largest deal. One of the things we looked at and said this is the way they operate. We're the big company. How do we not do that? They're located not where our headquarters are. So what are we not going to move to our headquarters? Because that's what's going to preserve their independent thought process of entrepreneurialism and stuff like that. What are we not going to just basically corporate headquarters optimize, millikenize, if you want to use that word. That's what we look at now. What's the front part of that question again?

Oh, the front one is where the business owners see them wanting the most support post close, decentralizing capabilities like HR R&D or shared services or something else that's interesting.

It's deal by deal. And you think about this. I got to figure out why are they even going to listen to me? For some it's you're going to make my company scale a lot faster because you just have global international reach or some of them. It's yeah, so I want all your back office. The other is I want access to your balance sheet. I want you to invest in me because I can't do this without a good parent with a good balance sheet. There's a mix in each one of them and you got to think about it. For each deal, I got one more.

What's the craziest thing you've seen in M and A?

What is the craziest thing I've seen is we're at the 11th hour, we're about to close a deal, everything's going together, and then you get the phone Call. Oh, we got a little issue here on this one piece of property. The owner may not have complete free title to sign off on this piece of property. Okay, what's the issue? He co owns it with his ex wife. So the craziest thing we ever saw was getting involved with an ex wife in a very messy divorce. She probably could have looked at and said, I'm not going to do anything. And it would have just killed the ability to actually close the deal. So that's probably the craziest thing I've seen. And obviously some of us actually engaged with her. And again, not to give some away, we had. We walked away and said that was very unique experience.

Okay, you got it done. You got the deal done.

Got the deal done. Very unique experience.

You didn't amend the divorce or relationship there, but no.

And further created more fireworks. That was our biggest challenge.

I like how it started with we got a little issue. I feel like that's the last thing you want to hear on the 12th hour is we got a little issue.

Yeah, there's been a lot of crazy things over the period of time. Another crazy one is we were in a select small group going for something and someone's like, hey, you know, these guys aren't these big name. They aren't this. They're. Are they ever going to be able to. So we're kind of forced out. And then we had to. This is where relationships matter. People in the right places. We actually had a third party that was working with us that. Hang on, it's like, I know the chairman of the board. I'll have a conversation. This is the sort of thing of we may not even have got one of these deals done, but we did because we know people. And again, sometimes you can look at it and private equity sometimes gives it a bad connotation because you think that it's more about the numbers than the cut and dry or something like that. My advice to everyone, bring relationships into that. People like doing business with people. And when you treat them with people and you treat them with respect, it's amazing the things that can happen. Just when people lean in and say, we want to work and do things together.

Totally agree.

Our approach and all that is we're not trying to get something at the lowest price. We're not trying to nickel and dime someone. And even when we price our business, it's all about fair price for fair value. And if you can keep that mindset and keep your brand around that, then people respect you. And it makes the friction times in M and A deals go a lot smoother.

Wise philosophy to live by Robert this has been a great conversation. I appreciate taking the time from doing deals to help me become a better M and A scientist.

Well, I hope it was helpful for the audience online as well.

Hey, like I said, I haven't done a live one of these for a while and I see there's a group still to dialed in. So I want to thank you. I know we went over our time

and we should let people know this is done pretty live. You're sitting in Switzerland and I'm here in South Carolina.

Yep, we did this first one International Remote. Whether you're listening to Live one or this recorded when you publish in our podcast feed, I love to get feedback. Reach out to me, connect me on LinkedIn. I took my privacy filter off so it's easy to connect with me on there. I'd love to get feedback if this works because I'm planning to do a lot more of these live sessions this year. I just find them exciting to do because you don't know what's going to go wrong. I can scale them out and actually increase our volume, which is another goal. And we're trying to do more unique topics so you're going to see a lot more of these live formats so that we can pinpoint different topic areas, do more interviews internationally and so forth. Anything we do to improve. If you got suggestions for topics we haven't covered until next time, here's to the deal. Thank you for taking the time to explore the world of MA with our podcast. We love hearing feedback. Tag us on a LinkedIn post, add a review on Apple Podcasts. We'd love to hear from you. If you need help standing up an M and a function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email Kisan K I S o n a science.com or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter. Again, that's mascience.com here's to the deal. Views and opinions expressed on M and A Science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual. This podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions.