Hiring A Head Of Corporate Development That Fits Your M&A Strategy

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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 MA deals. Foreign welcome to M and A Science Live, where leading M and A practitioners share lessons learned from their experience. If you're interested in keeping up with the latest from M a science, visit mascience.com and subscribe to our free newsletter. Every Monday we share highlights from our interviews and publications so you can continuously improve your M and A skills. Again, that's mascience.com I'm your host, Kisan Patel, CEO and founder of M&A Science. Joining me today is Charles Breed. Charles is an M and A executive that has led 70 plus M&A deals and was previously VP Corporate Development at Symantec, SAP and several other tech companies. Today we're going to talk about identifying the right people to stand up your corp debt function. How are you doing today Charles?

I'm doing great. Great to be here and hopefully we can provide some valuable content.

Absolutely. Can we kick things off with a little bit about your background?

Been in M and A, mostly in Silicon Valley, all in tech. Started that life with Hewlett Packard, moved over to Cisco working with Mike Volpe under John Chambers, and then slid over to Symantec, John Thompson and then also SAP and others. So I've spent close to $27 billion of other people's money on 72 acquisitions on the buy side and to close 72 deals. I've looked at hundreds or thousands since then and it's funny, we call this industry M and A because there isn't any M anymore. It's just the A. It's acquisitions for those old schools out there. The merger used to be back when the SEC allowed clear stock pooling, which is no longer allowed to merge companies so we could both inflate our valuations. Merged the two at a happy number. But now it's acquisitions. And acquisitions are either all equity or asset purchases. And asset purchases are very rare, usually for distressed assets. The attorneys love it because you can leave all the liabilities behind and just pick up the assets. But I think I've done maybe two asset purchases and the other 70 are all buying outstanding shares or equity.

Well, I'm excited about today's discussion. Maybe we can kick things off with if we're standing up an M and A function, where should we start?

M and A. It's a team sport. It is three dimensional, not two dimensional, which most people believe after studying Excel spreadsheets day in and day out of accretion, dilution multiples and EBITDA cost synergies, everyone looks at a transaction through their own lens. Whoever's running customer support, I assure you they look at it very differently than marketing, sales, finance, accounting, tax facilities, legal, on and on and on of the constituents. There's probably 20 different functional teams out there that view an M and A very differently Is it us? Is it foreign? How many offices? How many employees? How much revenue? What are the liabilities? What are the costs? What's the technology? Who are the customers? What's the growth rate? Each of those are different questions from those different functional areas. A lot of things don't fit on an Excel spreadsheet like culture people. Are they serial entrepreneurs that are going to basically take the money and run and only stick around for integration? That's fine. You just have to all be very honest with each other of are we going to close down these facilities? Are we going to make you relocate? With COVID going on, there seems to be much, much less of that. Back in the day it was okay, we want you in a dev center in an office. Now it's much more remote friendly. When you're building out an M and a team or interviewing, I always look for what roles are we trying to fill. There are three distinct types of people, types of roles, types of experience, and those three are very discreet. The first of that is the experience within that industry. Do you know software, pharmaceutical, oil and gas, transportation? Are you a subject matter expert within that industry where the competition, the growth rate and you have a BS meter related to the industry you are hunting in. How big is your network? What kind of bankers do you work with? Who's on the sell side? So that is the first stage of understanding voice of the customer, partnering with the cto, marketing, sales executive team and finding what I call digestible protein that is going to be accretive to the organization in the long run. You have to know the industry, the competition, the products, the solution. Is it a service industry? Is it a people industry? Is it a Tech industry, is it a finance industry? I would be worthless in finding you a pharmaceutical company or an oil and gas company or an airline to buy. My background is all software, tech, security. It's been in that world. That is a team sport and that is a big part of your deal flow, your deal funnel. If you only can bring three or four opportunities to your executive team to ponder, that's not good. On the last Exec team roundtable, I presented 20 companies and we did speed dating. Okay, how many employees, how much financing? Where are they located? What's the revenue? What's the growth rate, what's the product? And we go through that and I sit back and I listen to the executive team argue debate. And then I get to hear, you got two ears and one mouth, use them in that ratio. And you get to hear what really is important to them, where they say, oh, we want a company with high growth. And then you bring them the company with high growth. That's not in California. And you hear less enthusiasm, go, ah, geography really does matter. So listen, that is that first bucket of experience and credentials. The second one is one that we're all familiar with and that is the transaction itself. The transaction is about legal finance, accounting, forecasting. Due diligence is never completed until you sign that definitive agreement during the PowerPoint honeymoon phase. You can quote me on this. Nothing good has ever come out of due diligence. You always find out bad things. I've never found out. Oh, we did diligence. Oh my God. They had another 10 million in revenue they didn't tell us about. Wasn't that fantastic? That's never happened in diligence. You find out, oh, we had a few lawsuits, we had a few disgruntled employees, we had a few litigations of IP patent infringement, this and this and this. Expect that your honeymoon phase ends quickly with diligence. So people think of M and A. It's a transaction. What are knowledge qualifiers on reps and warrants? How much should escrow be? Are we doing a simultaneous sign, close and announce? Do we need a fairness opinion? All those transactional things that bankers and lawyers, they know it well. A lot of those roles can be outsourced and you can get help from lawyers, bankers, attorneys, deal people. The third one. Anybody listening? This isn't even a pop quiz. You should know what the third one is and that's integration. So whether you want to call it host merger integration, Host merger operation, pmi, pmo. That is a person who is detail oriented, project manager doing cat herding you have what I call two in the box from each functional team. One person from buy side, one person from sell side that represents tax, finance facilities, hr, accounting, go to market, sales ops, all that. Let them sort out their business cause they're experts with it. But you as the integration expert or organizer, facilitator, it's usually cross functional dependencies that stop everything. Why didn't HR onboard people in time for day one? It was held up in contracts because they had to get a new vendor on contracts. Couldn't get it done because legal said they have a weird contract and this isn't what we typically sign. And so then it couldn't get the new software going because legal and contract and it couldn't get it going so HR couldn't do their job. Follow the breadcrumbs back and manage this. So typically I use something called smartsheets, not paid by them, but it's like a Excel for everyone. And I have typically around 1500 discrete action items divided by 22 different work streams that say, okay, this, this is what you got to get done on day one. Day one is really important from a legal point of view, closing, but it's from a people point of view. If my company is bought by your company, I want to know on day one who's my manager, what are my benefits, where's the portable, what's my email, what do you use for chat, where do I order business cards? If people even do that anymore. You want a feeling that you came into a professional organization on day one. I don't know, maybe they change the sign on the building or they have an executive meeting everyone that day or you get some kind of a party on day one or something. Make day one a good experience, not just for the lawyers and the sec. Make it good for the people. To summarize, first phase deal flow tech. Second one is the transaction and all the mechanics around that. Third is integration. Now at a small company, you may have to have one or two people wear those three hats. But I assure you at Cisco, Symantec, SAP, the big serial, repeat acquirers, completely different teams. They have a sourcing team, they have a deal team and then the integration team. You may have that luxury, you may not. And it depends what you like. But it's hard to get an individual that can run a transaction through the complete cycle from soup to nuts. And that's a rare individual because people say, yeah, I can do integration. If you haven't done integration, it's a thankless job because nobody reports to you. But you're trying to get them all to do something. So you have to be very persuasive. That's different than looking for shiny new baubles and new tech. Our job is fascinating in M and A because you have to be a mile wide and a mile deep in finance, accounting, forecasting, sales, hr, tax tech, sales ops, customer support, all those areas. Because if you can't represent those functional disciplines at the negotiating table, your team behind you will be questioning your ability to run a deal because you're not looking out for their best interest. You can't have the VP of customer support on all your negotiations. What do they use for trouble ticketing? They use jira. What's the time to resolve? How complicated is it? How many outstanding tickets do they get? They want you to ask questions on their behalf in meetings they're not in. And it takes a long time to be, I don't want to say jack of all trades because you need to be a king of all trades, not just a jack of all trades. Rev rec asc606 accounting. You need to know that stuff. You can't always rely on others because in the moment, in negotiating, in diligence, if you don't ask the right question, they will not give you the right answer.

I think that's a great way to frame those three pillars you mentioned. The industry, transaction integration and developing the competency around that. Typically the first hire when standing up M and A function is the head of corporate development. Can we define that a little bit more?

The first thing corp dev has to do is understand or assimilate the strategy of the company, the board of directors, the executive team executive. If you're running corp dev and you don't understand, are we looking for growth? Are we looking for profit? Are we looking for geographic expansion? Are we looking for aqua hires? Are we looking to get into adjacent markets trying to take on our competition? Are we trying to get into new industries that we're not in yet? What is the strategy? And you have to internalize that saying, okay, in tech, most of these unicorns couldn't care less about profitability and margin. It's growth. We got to show 30 plus percent growth rate in revenue. Okay, you just answered one of my questions that profitability isn't the highest growth is. Now what are we going to do? Are we going to get that from a lot of small tuck in deals? We're going to get that from a large needle moving deal. Again, Corp dev must not just understand strategy but believe in it. Because if you're not on board where the company wants to run left and you're more apt to run right, there's going to be a problem in the targets that you're looking at. Whoever the person is that's running corp dev needs to be honest with themselves on their strengths and weaknesses. Are they a spreadsheet jockey that can manipulate tons of different FP and a pro forma models themselves or they need someone else to do that for them? We all know what an income statement and a balance sheet is, but when it comes to putting together model with reasonable assumptions on growth, synergies, cost to acquire, all that fun stuff, you either are going to do that modeling yourself or you need someone to do it. Same question, are you a nerd? Are you a tech guru? If you're looking at cybersecurity and you don't understand basic 101s of cryptography, what's the difference between a VPN and antivirus? If you don't really immerse yourself into that industry, you're going to have to rely on others to do that for you. And so I can just go down this list of how well versed are you in finance, accounting or tech? Or go to market and make sure that when you hire people that fill in gaps that you may have the core personality traits really are being objective. You cannot be the champion of a deal and run corp dev. That's ridiculous. That's like being a real estate agent. And I have my buyers. I'm going to tell them what kind of house they want. Do they want a swimming pool? They want a big backyard. I'm going to tell them that, oh no, you don't want to pool. You can't do that. Corp dev has to be objective and there has to be a champion. The champion can be your CEO, can be a line of business. You have to partner with them. But corp dev needs to be just completely here are the facts, the good, the bad, the ugly and be able to communicate that at an exec level, a board level, you got to keep a lot of things in your head because you will be asked like you are a walking Google authority on transactions. What about this company? I heard about this company. What about this company? People are going to expect you to keep a lot of data at your fingertips. You can subscribe to various services. Everyone's got CrunchBase Pro and LinkedIn. You can use PitchBook and 451. There's all kinds of services out there to make you look like a star, good communicator, honest Objective, know what you're good at, what you're not good at, what you need support with. Hey, if you can do it all, great. And then it just depends on how many transactions. Because if you run corp dev typically, let's say you're doing two deals a year, you can pretty much do a lot of that yourself. If you're doing two deals a quarter, two deals a month, you need a team. A corp dev person can run two to three, four deals a year. And keep in mind folks, that you do a $2 million deal or a $2 billion deal, they still need a definitive agreement, they need a timeline, they need diligence. I have found a $200 million deal to be more complicated in some cases than buying a public company. Everything's disclosed. You can go look at 10Ks and Qs and they've obviously have audited financials. You look at a privately held company and their financials may be a mess. And diligence is more difficult. Do not get confused with oh, public company complicated, more difficult. I've done four deals over four to five billion dollars. There were some of the easiest ones because it's all publicly disclosed. And then one more point that you have to communicate being a corp dev person is when I'm talking to board members, exec members, I can't tell you what amount of focus they have on consideration. Oh, that's too much money. Oh, what do you think it's going to cost us? Oh, they don't deserve that. Oh, I don't want to pay 50 million or 100 million. DOL everybody's a armchair Monday morning quarterback saying, oh, they focus on the consideration. So look, if I can get a great deal on a lousy company, did I do a great job? I saved the company $20 million, but I bought a crappy company. That's probably not what you want. Overpaying for quality. Companies that aren't fixer uppers, that have high growth potential, you got to pay what market demands. And nowadays everything's a bubble, everything's expensive. You have to explain sticker shock to the board and the executives saying, oh my God, Charles, why are you bringing me this deal? They want $500 million for this company and they've only been around a few years. That's the price you're going to end up paying. It's difficult. Strategics are competing against private equ new rounds from venture. So get ready to be able to explain sticker shock to execs and board members.

Assemble a strategy, financial modeling aspect, being able to rein in the right people to cover these different areas that we mentioned before. Being objective, knowing what's the good, bad and ugly as well as being a good all around communicator. I got this quote from a prior conversation we had. If you show an executive team the very first company with nothing to compare it against, they'll pick that one. What does that mean?

I go back to my house hunting analogy. So I'm a San Francisco Bay area person. I came to Austin, my wife and I literally looked at over over a hundred houses. Most of them were just drive bys through Zillow and Realtor and stuff. And I got to tell you, the first couple of houses were like oh wow, I can't believe you can buy a house in Austin for $300,000. This is great. Look at the backyard, it's new. We were quickly enamored by the first couple of houses we looked at. We had nothing to compare it to. I think it's a really good exercise to have twice a month one hour meetings where you're going through scenarios of optionality and say we can sit around the table here and theorize about the perfect acquisition. It has all engineers, no venture capital, 200% growth rate, big name Fortune 500 customers and they're going to sell it 1x trailing. These things just don't exist. Theoretical of what is a perfect company that can help target some hunting and deal flow. But you got to bring them in front. So create a format that is muscle memory. Everyone immediately has these top questions. Where are they located? How many employees, how much revenue? Who are the top customers, what's their product solution, that kind of stuff. So you can put a template together and go, okay, this company is based here. They've got X number of employees, they've raised so much money to date. Revenue is a tricky thing because not everybody discloses revenue. So you may have to be creative in extrapolating or talking to folks you may know to get an idea. Look, if it's 1 or 2 million bucks, I don't really care if it's 1 or 2, I just want to know it's 1 or 2 million bucks. If it's 20 or 30 million, that's fine. I don't care if it's 22.6 or 28, it's in that range because that will give you a big indication of what consideration will be asked. Running through a whole bunch of optionality is a lot of fun. Like I said, speed dating. And you bring that to the board and you listen what are the questions. And at the end you go, okay, we didn't engage with an NDA. Every company I ever look at, I don't want to do an NDA and get financials and get serious. That's too much. You can get so much off of company websites, blogs, off of sharepoints, off of just through the agencies. You can build an enormous amount of data without that company even knowing that you're looking at them. Put that in a common format, run it by the decision makers, the M and a committee or team, whatever it is, the more you look at, the more you'll start to zero in. And many times we've engaged with a target and we've said no. And then we go back six months later, year later, two years later, and we reengage. Probably 25% of the companies that I've closed deals with. We've had a stop and start dialogue. And I usually tell people that we're like a VCR machine that only does fast forward or stop. And that's pretty typical.

I actually like the idea of the exercise. It gets you really thinking about how to refine your approach to assess companies and know what fits and what doesn't. What about functional leaders? How are they involved in this process of standing at an M and A function?

Oh, they're a disaster. Try to avoid a lot of committee meeting, group think sessions, and spend time with individual functional managers one on one. You're wasting their time. If I am studying finance, I don't really need to sit in on two hours of what's the source code written in and how many APIs do they support and what's their DevOps look like. I do a lot of one on one meetings where I sit down with a head of finance, tech or sales, hr, tax, finance, and then I do my homework on that topic and say, okay, this company that we're looking at, don't worry, no decisions have been made. So don't freak out. We're not announcing an acquisition tomorrow, we're just looking at it. You got to get their blood pressure down a little bit, thinking that you're closing a deal without them knowing about it and say, okay, they've got 12 locations. Oh geez, where are the 12 locations? What's the jurisdiction and law on those on HR and tax and all that? How many people are in location? That would be questions for someone maybe in finance or HR facilities developments like, oh yeah, the development's offshore. Good. Have one on one discussions early on with functional leaders to answer their big question, not just make them feel like they're part of the process, but truly bring them in to be part of the process. I have done this before. They had offshore development team in India or something. And the development manager has had historically a difficult time managing development teams offshore because they don't speak the language or they don't have on site that they trust or you gotta walk them through. Yes, the devs team is offshore. We could do this or this. Oh, by the way, I noticed that four people you're linked into actually work at this company and they're in the dev team in India. You try to solve the problems before they come up and diffuse some of these hardships. It's going to be real hard to get 100% of the entire executive team, functional management team on board with the exact same deal. Everyone's going to have their favorites. I find that a lot of executives base their thought process on anecdotal or seat of the pants or gut feel or past experience. Like, oh yeah, I don't want to get into that business or I don't want to get into that geography or that industry. And then you have to. Why is that? Things have changed. If you make the mistake, hey, we got this great target. Let's all have a big, big group meeting for two hours and you have all a dozen different functional team managers or execs there and all of them are going to be wanting to get their questions answered and you've got to share the love with 12 different others. You are doing yourself a big disservice in not having one on ones scheduled before that group hug and get the issues out on the table before you bring them all together. That can be the kiss of death for a deal if you don't diffuse concerns individually ahead of time.

Really great points. So who's going to assess the company first? The executives or the functional leaders?

It can be anything. I've seen deals come from engineers, from CTOs, from the finance team, from the CEO. Not to pick on investment bankers, but we've rarely bought companies where we're given a teaser. You guys should go buy whatever, any good corp dev person, we should test them on this. Give me a teaser and if I can't find out the name of the actual company in five minutes or less, I need to find a new job. The teaser will usually give away who their customers are, who their partners are, their geography, their revenue, their growth rate. There's some key buzzwords in there. If you're good, you can usually figure out who the company is pretty Quickly. Remember, on the sell side, you always want to be bought, not sold. If I'm hunting for a company that has not hired a banker, that's usually a good indication that they're wanting to go it alone because they're swinging for the fence. If a company has hired a banker, I guess this is my bias. I immediately think there's something damaged, broken, or they can't raise money. Why are they hiring a banker? Why am I getting a pitchbook? And then the banker will say something politically correct. Behind the scenes, you find out that the founders are fighting or they can't get funding, or they lost their largest customer. But even that's okay. Buying a fixer upper, just go into it with your eyes wide open. Very few companies can acquire damaged goods, so you're getting a discount on consideration. But you probably have tech issues, tech deficit, HR issues, location growth, maybe there's a bunch of disgruntled customers. Certainly go out on Glassdoor and look at reviews and all that stuff. Changing company culture. Buying a fixer upper that you're going to flip, that is really difficult unless you are ruthless. Unless you're like a PE company, they can do those. They can go in and change the whole management team. They got the dry gunpowder to do that kind of thing. But strategics, we typically don't like to do that. So I should have caveated. My whole conversation is I've been on the strategic buy side. So I have not worked for private equity company leverage buyouts, venture money. Our synergies are we're trying to buy great people, great technology with great customers. And that's another thing I hate bouncing around. But that's the way my brain works is diligence on customer contracts. Are they month to month? Are they one year? What are their ounce? Can they terminate without cause? Can they terminate but get a refund? Can they terminate, not get a refund? I have found that looking at customer contracts, if there is revenue there could be one of the biggest assets or one of the biggest liabilities you incur. I walked away from a killer acquisition where it was a small startup and they didn't have good legal advice. And so they agreed to take on all liabilities for data breach that was in the agreement. Anybody listening and you have any legal background? Unlimited liability for a data breach caused by this product. A public company that's almost kryptonite or radiation because publicly traded company can't inherit 500 customer contracts with the largest banks and hospitals. Let's say if there's a data breach you're on the hook for an unlimited amount. I mean that single thing killed the deal. I've had a bunch of those, especially in tech and software. You're buying intellectual property and if that IP is encumbered where it may infringe upon patents, infringe upon ownership, infringe upon leveraged open source code that wasn't contributed back to the community, you really have to know that intellectual property is squeaky clean. Because look folks, I don't care what your escrow is good on you. You negotiated a 20% escrow. So the deal was 100 million 20 millions held in escrow for a year or two and you find out that all their IP was stolen. Leveraged, infringes on patents, GL whatever the $20 million you now can claim back, you've still lost not only the $80 million, you've wasted your time now what do you do with this thing? So escrows are not the solution to really fundamental material impacts to ip. I've rarely, rarely, rarely, rarely have ever dipped into an escrow claim. People fight over escrow amounts a lot. It's a real big deal because the institutional investors say, look, I invested in this company, I don't know how well they paid their bills, treated their people, whether the IP is stolen. I'm just a vc, so I don't know where the code came from. So don't put my money at risk. Put their money at risk. So that's the big argument. So usually try to, they say, take the escrow out of the founders and the people who are sticking around. That's usually one way that's resolved. But again, putting the source code in escrow, great. What are you going to do with it? Here is a bunch of crazy spaghetti code with no engineers to explain what it is. It wasn't commented. What are you going to do with it? I think people get comfort around escrowing source code, escrowing cache. Don't be fooled. It may not buy you what you think you're getting.

Going back to looking for a corp dev leader, where should you look for one?

The most logical place that everybody looks to is those that are coming out of the banking world. And so they usually have a Stanford, Harvard, Yale, Princeton, Ivy League degree. They worked at Goldman Sachs, they worked at JP Morgan, they've been a banker, broker. These are fantastic people for that middle phase that I told you about, the transaction itself. And they're really good at understanding definitive agreements, how to draft a non binding term sheet and that whole process. But Is that the most important attribute you want? I would say 70, 80, 90% of corp dev people have done a tour of duty through Goldman Sachs, JP Morgan, Merrill, bank of America, Wells, you name it. Or maybe in the venture private equity side and they're transaction people. There's nothing wrong with that. But ask them if they've ever done many large scale post merger integrations. None. They're like, wait a second, I don't do that kind of stuff. That's like real work. You better hire someone that knows project management because I'm not doing that real work. I'm only doing the sexy stuff. A lot of times they don't know the technology either. Are you going for volume where you really want to do a lot of transaction deals? Bring in someone with that background. If you can't afford to make a mistake, those mistakes are made on the front end. Is it the right tech and is it the right people? How deep were your diligence? Of the 70 plus transactions I've done, I can tell you that probably, I don't know, 10 or 20 were deemed successful and the rest were not so good. Things you don't want to put on the resume. Nobody remembers what you paid for those great companies. Oh, you paid $100 million or $200 million or you paid too much or you got a good deal. They don't remember what you paid. They remember if it was a good deal or a bad deal that will stick around with a banker. They don't feel that pain because you're a broker from your real estate broker and I move you into this house and you happen to have bad neighbors and the schools weren't very good and your commute was too much. I've moved on and I've sold 50 other houses since then. It doesn't stick to me. But in House Corp Dev, if you do a bad deal, you're going to be known for doing that bad deal. And that can be really hard to dig yourself out of, doing a bad deal. There was one that was really famous. I'm not super involved with it, but SAP bought a company called Tomorrow Now. This is all public information. And then Tomorrow now had some type of agreement with Oracle and they were getting bug fixes or whatever. Oracle sued SAP over that acquisition, saying that they had confidential information. SAP ended up going into a damages clause. It turned into many billions of dollars in damages. So yeah, that was a really bad deal, but someone should have seen that. Would a banker have picked up on that? I don't know. But would the Head of customer support. They would have picked up on it because that's what they do for a living. Oh, you're supporting an Oracle customer and now we own your company. Where are you getting the data, the fixes, the bug fishes, the patches? Oh, you're getting those from Oracle. Not so sure we have rights to that because we're SAP. We're one of their competitors. So back to if you don't ask the right questions, you won't get the right answers. I put a lot of value into domain expertise. Someone who I worked for, a brilliant guy. His name is Joe Gottlieb. I worked for him at Sailpoint. My God, he could have been writing code. He just knew the technology standards, protocols. You could mention any competitor in identity and he would know the deal. So he knew that. But was the guy a financial modeling guru? No, he wasn't. But I can get people to do financial modeling. It's really hard to get someone who's a real industry insight on this. Technology is going to be short lived because it's a feature and it's easy to recreate. So the barrier to entry is Microsoft, Oracle, SAP. They throw a dozen people on it for six months and they've got it too. You need to understand what is really unique because you're usually buying things for time to market. We're buying this because we don't have time to do it ourselves. We could. And that's where engineering gets involved and says, oh, I don't want to buy anything because I know I can build it better. That's true, but in Corp dev, I've never figured out a way to hire nine women to make a baby in a month. It's going to take nine months. You can't hire nine women to do it. You can't put this mythical man person on a project and say, oh, we'll get it in a month. If we put nine people on it, it takes longer. So you're usually paying a premium for time to market. And then the one last thing I want to mention on this thread is when you're acquiring companies and you're the larger acquirer with brand name channel field install base, they will say, oh, if you take my little product and you put it through your channel with all your customers, you can upsell it to 10,000 customers. Oh my God, you'll make millions. Wait a second, that's my synergy. That's not your synergy. I'm not paying you a premium for your company because I can put it through my channel. That's often the case of smaller companies being bought by a Cisco or an HP or a Google or Amazon is they say, oh, if you buy us, you'll be selling this to millions of people. Yeah, that's the whole idea. That's why I'm buying it. But I'm not paying you a premium for my synergy.

Is it better to hire internal people to become head of corporate development or external with experience?

Either way, I think a lot of internal folks do aspire to corporate development. They're usually coming out of business development or finance where a lot of people think M and A is super sexy, super top secret. You've got access to the CEO. It's not as glamorous as you think because you definitely, like I said, you don't want to be caught in a bad deal. I've hired internally quite a bit from finance biz dev partnership folks, BD partner folks have come up through the ranks internally and have been corp dev assistants and managers and directors. Nowadays we've bought from competitors, but competitors is really dangerous. If you bring a corp dev person over from your main competitor, you'll probably get a few letters from the legal department because that person in their head has strategy, game plans, roadmap, deal flow. It's hard to pry that out. I see a lot of companies that would not hire a competitor's corp dev people just because of litigation potentials. As you've heard me talk across all these disciplines, it's hard to get someone just on a business school who can run the gamut for all the corp dev attributes. It's tough.

Yeah, there's a variety of skills that are needed. What are other skills required for the head of corporate development?

Corp dev is a feast or famine thing. When you're between deals, you're looking at targets and yeah, sure, you can take off on a Tuesday and go play golf at 3 o', clock, but boy, when a non binding term sheet gets signed, you better cancel all your vacations, birthdays, anniversaries and everything. And so when you're in a deal, in a transaction, everything that can go wrong will go wrong at least once or twice or three times where you've got a date. Okay, we're going to sign a definitive on December 1st. Diligence didn't get complicated. Completed or this or that or they're renegotiating some terms. I flew to France to hire a small company at less than 100 people. I was there, supposed to be there for three days. I was there for a month. So I had to buy clothes. Sounds like Gilligan's island because negotiations just took forever on that deal. This role is very interesting where it's a fast forward stop, it's feast or famine.

You have to have a tolerance for the unpredictable. And to handle a large workload you.

Do, you've got to delegate. The other thing about this role is make sure you don't pretend to know things you don't know. If you're not sure of what the revenue is or the customer count or the concentration of revenue is 80% of the revenue from 20% of the customers and who are they or if you don't know, you don't know because that can come back to bite you. You got to keep in mind what's a binding agreement and what's non binding because we really try to do as much non binding up front. Okay, we're in diligence. We have an NDA, so we're bound by confidentiality. But I'm not bound to acquire you, I'm not bound to never compete with you. I'm not bound to not buy your competitor because that turns out to be a better deal. So you want to keep optionality open and reduce liability footprint and that has to do a lot with who you bring over the fence. So we do what's called an inda, an internal NDA of who we bring in on. And that aperture gets bigger and bigger as you get closer to signing a definitive. And people just talk more than they should. I've had deals where there was supposed to only be five people who knew about it. And in the bunch room half the company's talking about it. And that's why you usually want to run faster, stay ahead of it if you can.

That was a great point, Charles. What's the craziest thing you've seen in M and A?

Lots of crazy things and most of them are private funded companies. So when you have a public company, you got the scrutiny of the sec. When you've got a venture backed private equity company, you got scrutiny of that. Where you get craziness is where the founder, the CEO, the chairman of the board and the investor is the exact same person. They're doing it all. A lot of corners get cut there where you'll see just egregious behavior over just common sense on a security. I had one CEO that collected strike price on employee options and kept them. And the way to deal with that is you've got to be a bit of a psychiatrist to really get into that if that's really what you're going after. There's pros to it too, because then there's only one judge, jury and executioner you're negotiating with. So I don't have to pay off a million shareholders. I'm paying off one person. Usually consideration could be less because you're not paying VCs and institutionals, they don't know what they don't know. If you ask them on regulatory compliance, tax filing, commenting of code escrow, open source, that's not what they're They've been focused on growing a company and hiring people and a lot of those things do get zero attention. And so they're a mess. Total mess. The craziest thing is usually when you have that single individual who is the founder, the chairman, the CEO, and the financier, you might get a good deal on the company, but diligence will probably be difficult. That's where you really have to ask the right questions.

Great point. I'm sure you've seen a lot more crazy stuff out of those too.

The crazy stuff is people. Because everyone feels threatened. Because change is scary to everyone. If I'm acquiring your company, okay, do I have a job? What's my title? Do I need to find another job? Am I being laid off? A lot of corporate dev people don't have a heart in these cases and so it's a life changing event for a lot of people. Be cognizant of that. Be truthful of that. It'll go a long ways, especially if you're trying to retain these people.

Very true. That's a great tip for everybody. Charles, thank you so much for your time today. I enjoyed the conversation.

Oh yeah, I can go on for hours. This is always my pleasure. Favorite topic. Appreciate it.

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