How a Public Equity Analyst Evolves to Executing M&A

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A scientists Here at M A Science, our goal is to continuously expand our understanding of M and A. Use that knowledge to create top notch training programs and resources. By visiting mascience.com you'll find all the information you need to take your M and A skills to the next level. Get started by signing up for a free weekly newsletter to stay up to date on the latest courses, upcoming events and expert interviews. Again, that's mascience.com I'm your host, Kisan Patel, CEO and founder of M and A Science. Joining me today is Greg Stein, Vice President, Mergers and Acquisitions and Ventures at Xerox. Xerox sells print and digital document products and services in more than 160 countries traded on NASDAQ under XRX. Today we're going to talk about how a public equity analyst evolves into executing on M and A. Greg, how are you doing today?

I'm good, Kisan. Thanks for having me. Appreciate it and happy to be here.

Thanks for taking the time from doing deals to have this conversation.

It's a busy day today, so I'm glad I have a little bit of a reprieve right now.

This will be good. I don't know it's much Varice said, because we're just going to keep talking shop here. Hey, let's kick things off a little bit about your background.

My background's definitely a little bit untraditional. Most of my career has been spent in public equities. A lot of people that come into my role, it's either a baking background or legal side. You'll be an M and a lawyer at a hold bracket and then work in house. So that's really the path. I never really went through banking. I did actually do one summer in college after my sophomore year one of my junior year I decided I did not love doing pitchbooks and decks at 3 in the morning. I wasn't doing the interesting work at the time. And my calling, it seems like at least at the time was the public equity markets. Spent a summer in equity sales, ended up moving over to research. This was at Lehman brothers which in 2008 was when graduated was definitely a fun time to be there but got to see a lot of interesting things, really hit the ground running. And the person I worked for actually analyst Craig Huber covered media. It was very interesting first of all because I was obviously at a company that had trouble. We were covering secularly declining companies, newspapers, scenes, things like that. Definitely a fun time. But the first person I worked for and I worked for him for actually almost seven years honestly couldn't have been a better mentor. Two things he taught me to this day and actually helps me in my current role. The first is work ethic and style. Work ethic. He started super early every day. And it wasn't just about the long hours though. It was really about the focus and quality of the product and being resourceful. And that's actually helped me a lot today because definitely came into this role with a very focused skill set. And there were certain things that I didn't bring as much where maybe someone with a banking background would. But I think I am very resourceful. Obviously I may not have every answer, but I'm good at figuring it out. And once I know it, I don't have to keep going back. I learn it and I build upon it. The second thing is he was very non consensus. Generally equity research analysts, they tend to be overly bullish. An analyst covers 20 stocks. They might have 16 buys, four neutrals. We always had more sells than buys and he didn't believe in equal weight. So we had a lot of sells. We didn't make friends with management teams, but we called it as we saw it. In fact, actually my first initiation report I worked on company Monster Worldwide. I'm sure a lot of you knew it as the job board with a funny commercials 20 years ago. But at the time everyone was around $1 consensus in earnings per share. I think the lowest on the street was 90 cents. We came out with a 10 cent loss. We were just completely out of the box. And what that allowed me to be was a little bit more free. And I don't really care what everyone else is thinking. Why don't we form my own perspective and not be influenced by this group thing. So this is again something that I've really tried to instill as I've moved forward. Obviously you want to stress test your assumptions, but at the end of the day that's super important. From there, went to business school, made a switch to the buy side, worked at a couple of different hedge funds as a public equity investor across broad tech media, telecom and also risk arbitrage as well. And that's where I got my real first taste into really digging deep into M and A. Did that for several years but ultimately I was dissatisfied with the direction of the industry. The way the hedge fund world is moving is more multi manager which is focused on market neutral, factor neutral, eliminating beta. And while these are great strategies for investors and Millennium and the citadels of the world have done phenomenally well and rightfully so, it wasn't really what I was looking for. I'm not the type of person that necessarily cares about the print or the next quarter. It's about where is something going to be three, five, ten years down the road. What motivates me and drives me is also to take part in that and shape the future and leverage my ability to allocate capital strategically. I decided I wanted to move more into an M and A role. So joining I was at a startup telecom company. I was leading M and A for them and I joined Xerox here in late 2020. So I've been in the seat for about two and a half years or so and it's been an adventure, it's been a ride, but I've enjoyed it.

How many deals you've done since you've been at Xerox?

I want to say nine deals. Might be off one or the other, but most of them have been in the lower to middle market. That's over two and a half years now.

I'm still trying to wrap my head around your background because I'm very familiar with the investment banking career track that evolves into corporate development and some shape or form the public equity analyst. You're the people at the end of the earning calls with those questions for the CEO and cfo. Right?

When I was on the sell side that was the case. You could find some old transcripts of me asking Questions I'm trying to translate.

This to how does it qualify you for the current role you're in?

At the end of the day, you're ultimately digging into companies and trying to find the value of the company. So I get for the execution side there could be a learning curve, but I think if anything it actually prepares me better to break down a company to understand what it's good at, understand the path of that company, understand the overall landscape it plays in. Because sometimes when you're looking at one transaction, you may not understand all the different contexts, all the players, the addressable market, the growth rates, where it stands competitively, where when you're an equity analyst, you might be maybe not so broad and wide, but you're focused on one sector and you are the expert in that sector.

So as an equity analyst you're looking at companies, you're really fleshing out what their strategy is and how likely is they're going to be able to achieve on that strategy. But how does that come in play with M and A or understanding how that company is executing on M and A against the strategy?

It depends. A lot of companies first of all will outline the strategy that they have. Here's an example. I covered the broadcasting industry for many years. There was essentially one type of strategy there because at the end of the day broadcast ratings keep going down. But for many years it was only advertising based. So the trend was over time to buy up stations because over time the belief was the cable providers such as the Comcast, the charters of the world, would pay the stations for retransmission revenue, basically the right to carry the station. And that's why you see all these different fights with the Sinclairs and Nextars of the world. With some of the larger players, it's because they're ultimately fighting over fees. And these are more attractive fees because instead of the past where you're just focused on advertising, they were getting initially 10 cents of subscriber, up to 50 cents, up to a dollar, up to two, up to three and figured over time that would keep growing and growing. So the broadcast industry said, listen, we want to grow, retrans as quickly as possible. This is sticky revenue, we're focused on it. So ultimately they laid out a strategy of we're going to roll up now there's restrictions and limitations and ownership apps. But at the end of the day their job was let's find station groups that ultimately don't have much retrans revenue. We've set up our contracts with these cable providers that anybody we buy we could roll onto ours. They were getting paid 10 cents a subscriber, now they're getting paid 50 cents a subscriber and I'm getting X amount million homes. And you would see ultimately that strategy and that would be one thing and you would focus how they're executing on it or another. There's a lot of other things that are completely misguided. I mentioned the broadcast roll up strategy being good. I've also had to witness secular decliners that feel like certain transactions will ultimately provide efficiency, make them more lean, make them more nimble. Going back 15 plus years, McClatchy, which bought Knight Ridder and ultimately went bankrupt, I was very involved when Time bought Meredith. I used to follow both companies. The whole point there was oh, we have 400 million of savings and 400 million of savings here and we're going to get. That's going to roll into EBITDA and this market presence because we own these magazines. We're going to build this digital platform. It didn't happen. And I think understanding the past and knowing you need to learn lessons from the past because history could repeat itself again. That has helped me even today in my seat where I hear someone talking, whether it is a management team I'm speaking with or whether it's a banker providing their perspectives, I could see through some of the things they're saying and say I've seen this story before. So at least as I plot out the M and A strategy and at least executing it, maybe not necessarily on the ins and outs of actually the deal, but what is the right strategy to set. I'm pretty good at deciphering what I think is going to work and what won't work from my perspective, what I'm maybe most proud of, even though I'm proud of some of the good deals that we've done at 0x, I'm more proud of the deals we didn't do, those are the things that truly destroy value. And I don't know what the quote is, the majority of M and A deals ultimately destroy value for a variety of reasons. I think I'm at least good at sifting through the noise and making sure based on what I know and based on what I've done, the correct strategy.

Is this something you accumulate over time? As you look at these companies, you understand their strategy. Now you're essentially assessing how well they're executing on M and A and the results of it, if it's accretive or not over time. I mean, is that where you're basing this experience off of that you've looked at these companies, you essentially benchmark how well they're executing M and A. But the ultimate results of those M and A deals, at the end of.

The day, I don't know the ins and outs of how their process is going. As a public equity analyst, you obviously hear the announcement if there is some sort of regulatory, regulatory approval needed or a shareholder vote or something like that. Obviously there's a delay and you sometimes get interim updates. But you're not really in the weeds on any of that. Really. What you go by is what they present. It's here's what our strategy is, here's the synergies, here's the offerings, here's where we're going to compete. It's certainly a consideration with myself and what's right and what's wrong and what works and what doesn't. But at the end of the day, every company's strategy is somewhat idiosyncratic. So there's only so much I could take from it. It really comes down to what are just some of the pitfalls. And that's where I really try to step away. Not to go off on a tangent here, but many transactions that I look at, it's like a V. The company has been going down for a couple of years, it's about to take off. We're the luckiest buyers in the world. This is the opportunity of a lifetime. You can get it at a good value. You have to be able to sift through all of that stuff. And coming from my background and not that, at the end of the day, it's obvious if a company's in decline all of a sudden, they're going to grow, that's probably not going to happen unless there's some actual good reason for that. But seeing over and over again these pitches where management teams have talked about what's going to happen, what they're going to accomplish and all that, you start getting a sense of what's achievable and what isn't. One example I like to bring is the synergy discussion. You have the cost synergies and the revenue synergies. Cost synergies are fine. They're very often achievable. But it's foolish to think that if you do X amount of cost synergies, there is zero impact. Maybe you take a case in Silicon Valley where there's all these side projects and you can just shut them down. But if these synergies, whether it's cost synergies, less so on shared services and things like that. They're going to have some sort of an impact. So there's probably going to be a revenue impact, at least to an extent on the revenue side. I hate forecasting revenue synergies. I think it's all optionality. But at the end of the day, if you bake in a revenue case in your M and a plan in your target, you're just setting yourself up to fail. And it's always nice to have a margin of safety.

So don't be too bullish on your revenue synergies.

I read a book a couple of years ago from the former CEO of Honeywell and he wasn't an M and A guy, but he ultimately he had a section on M and A and Honeywell's like a really good for the listeners here who haven't read, I think David Cody is the CEO's name. There's a strategy on M and A and he talks about that over the 15 years when Honeywell did M and A and they were wildly successful, average eight transactions a year, created a ton of value stock worked really well, bought growing businesses, divested dogs essentially. But they backtracked and decided and followed how much of the revenue synergies they could hit. The number was 10%. It is so hard to hit revenue centers now. That doesn't mean we don't try. The last acquisition I did in the uk, a big part of it was a focus on go to market and how we could work together and there was a really good fit and we're seeing fruits of that labor now and we're achieving them. But it's hard to do it. That's hard to focus investment case on.

Be realistic as possible. I'm curious if you've seen what kind of correlation or trends between announcement of a deal and stock price.

Depends.

It's a big variable. Obviously it's perception of the market. It's an interesting thing I've noticed and I'm just curious since you've watched more deals or your sort of takeaways from it.

Well, the broadcast example I mentioned was the stocks usually popped because at the end of the day you're buying a company at let's say eight times EBITDA and your pro forma on day one is four or five times because you could just roll over those contracts. Historically, most deals tend to especially larger deals. Stocks tend to drop and I don't have the exact numbers, but they tend to drop day one because ultimately if you're buying in the public markets by paying some sort of a premium 30, 40% or so on. That's assuming that's not an overly competitive deal where there's multiple horses which could obviously be much higher. But then clearly the amount of debt matters. And if you're levering up obviously in this market especially, but then you've also had in Silicon Valley where if you just announced you're doing a deal the last several years, the stock works and it's just a matter of how supportive the market is. There's basic tenets to follow. Obviously if it's analogous to your industry and you think there's go to market opportunities and product extensions and ability to bolster your technology and obviously the most important thing people look at is it accretive or not, which that's another side kind of road I can go down because you could technically make anything EPS accretive, especially with cheap debt. I could buy doughnut stands and make it. I don't think that would be a good acquisition. But there's no fast and true kind of way. If there's day one synergies, consolidation, those usually work. Obviously when you start paying up to go outside of your comfort zone or to buy growth, that's when the market doesn't like it because at the end of the day that's not necessarily what you're good at. And Xerox, we understand we're a value stock, clearly we want growth opportunities. That's important to us. And a lot of the areas we're looking at are natural extensions beyond print, whether that's IT services or digital services. But at the end of the day we're probably not going to buy something 20 times revenue and the stock would probably deservedly go down unless it was a Pandora that we don't know about.

Can we go back to your transition from this public equity analyst role into corporate development? What was that like? What were the skills you had to acquire to be successful in the role?

Some of it. In my last shop I picked it up, we were on the opposite side. So we were trying to raise capital, but we would then raise capital to buy a couple of companies. So I was multitasking there, but I was putting together sims, working with bankers. Then also we were putting together term sheets and a lot of it was contingent upon the financing. Coming over to Xerox, I've been very lucky. I have a fantastic team here. Being in the role I was in, it wasn't like I didn't have any of the basic experience, but clearly some of the legal intricacies just without the repetition Obviously, I didn't have to the extent of someone who's been in the seat for 10, 15 years or so. But I have a wonderful team here. I report into our chief strategy officer, who is a lawyer in his past life and probably one of the best lawyers I've ever seen. Learned a ton from him. We have two people on our legal team as well on the M and A side who come from corporate M and A Law. Ultimately, I've tried to run the deals and lead when I can, and if there's any questions that I have, I've been able to bounce it off them. So what's helped is we've been extremely complimentary to each other, and as we've worked together, we've grown over time and learned from each other, and some of the things we could do now are fairly interchangeable. But I think ultimately it matters who you work with, and that will be what sets you up for success. So I never felt that I had a gap or not. But yeah, certain areas in a rep and warranty policy, that's something that obviously I'll definitely ask for advice and so forth, but hasn't really been that steep of a curve. And I think it's part of it is some of the reasons that we discussed before where I've been exposed every which way into this market with maybe just probably a little bit less on the execution side. Negotiating, sourcing. All that sourcing I've done for 15 years, negotiating. @ the end of the day, I've interviewed so many different management teams as a investor that you're trying to ultimately find certain answers that they may not want to share and really trying to find the true value of a company. So it's obviously a different perspective, but at the end of the day, it hasn't really been that hard of a learning curve.

Okay, we'll come back to more pieces around that. Can you walk me through how do you evaluate a business? What's the first thing you look at.

Taking a step back in my seat, is what is our strategy? What are we trying to accomplish? Is there a need? What's our biggest need? And if there's a need, would something like this be a fit? That's where I might get a business team involved. And the deal flow really goes both ways. We either bring them in or vice versa as well. There's different types of acquisitions. We might be looking at certain technology. That's one of them. Could be different offerings, be different capabilities, go to market capabilities. Another thing we look at is it accretive so not just from a P and L perspective, but irr. And then afterwards we'll run the numbers, kind of a high level look at the synergies and ultimately try to figure out if it makes sense or not. So as I mentioned, I think we try to be very conservative in our multiples, in our assumptions, our exit multiples. But at the end of the day, in kind of the simplest form, I see myself as having one job and that's to create more value than I consume. That's really it. I could be grandiose and say I'm trying to transform a company and I really am trying to do that. But not every transaction is going to be completely game changing for a business. I try to look at everything and work with the teams, whether it's the M and A team I work with or the business teams and have that in mind, will this transaction drive value? Will we be better off for it? And then there's obviously the conversation of build versus buy, which also factors into that situation.

What about the soft skills, working with the counterparty, assessing culture, fit and those things Seems like a very big picture. Numbers to back up the big picture oriented.

I don't think there's a secret sauce for that, to be honest. I think it's really more on the person and the personal skills.

You ever walk away from a deal? I can't deal with these people. This isn't going to work.

Not necessarily. That's a bad answer. But ultimately there's a reason to be concerned. Then that's a big factor. You don't want to example is it's never ideal to buy a company where maybe the CEO owns 100%. Not that we wouldn't do it, but there could be, I guess two different ways where if you lose him, the company's done and it's all based on the relationships. But the other is the CEO is such a strong personality that every decision you make, everything that goes forward is going to be questioned and they're not going to like it as well. So that is something you have to keep in mind is can they fit in the organization? Are they excited to be part of the organization? What's the reason they're trying to sell for us? Obviously everyone wants the highest price, but do they want to be part of it? And every conversation I also go into try to get a feel of what the fit would be. And you can get those in the early conversations. So the early conversations, it's generally approaching companies with the intent of learning more, listening to what they want to Accomplish listening to what they're good at. When you get the opportunity to get a little bit behind the curtain, meeting kind of that second layer of management and then discussing with them how one plus one could equal three and based on their responses, based on their openness to that, that informs my decision of ultimately how we can go forward and hearing what they have to say, have a good sense of what our culture is. But there's going to be companies that don't fit in our culture and there's going to be companies that do. And a lot of those early conversations with the CEO, with some of their senior leaders or sales managers that helps determine it. I don't have a secret SA for it. I don't know if there is, I probably question it. But that ultimately is how I've gotten about it. And at least I feel like we've done a pretty good job. And there might be one exception where it's been a little bit more challenging. But overall, at least I've been here, we've done a good job of integrating the businesses and having the cultures mesh. We're professional culture, we try to buy organizations that are the same way.

When you start considering integration aspects, yeah, right away.

And this is I guess where the difference in my public equity background shines in. From a public equity perspective, you wouldn't necessarily think about that or at least you think about very high level kind of the financials. But an M and A deal, you can do everything right. From sourcing, paying a fair price, filling a need for the company, bringing the right culture. But ultimately if you don't successfully plan for integration, it'll fail. Simple as that. We initially try to figure out, at least at a high level, what we think their reporting structure will be, what are the offerings, go to market, how each of these will be rolled out. Just for example, we actually spent a lot of time looking at a specific transaction late last year in the ITS space and we ultimately passed on it for a few reasons. But even though we didn't put in a formal LOI bid, we had already built out a preliminary integration timeline. So give you an example of that. We'll put in what do we need to do prior to acquisition? So that could be choosing an integration leader, developing day one plans, defining longer term goals, identifying synergies, KPIs, things like that. What are we going to do in the first six months? 6 to 12, 12 to 24 months and beyond. Some of those will be implementing a leadership structure, onboarding, comp plans, branding, synergy, realization, integrating the Offerings, delivery and service, which is really important for Xerox, just given the legacy of our company, the sales coverage. So these are all things that we try to think of beforehand. What I think of beforehand, I very often think of what can go wrong and build my way back. What can we do to make sure everything goes as smoothly as not everything always goes according to plan. We had one acquisition about a year and a half ago or so where there was a miscommunication with payroll and there was a hiccup and it caused, when we switched over the payroll, short delay. And fortunately all of that got settled. You want to do things that ultimately does not lead to any consternation with the target company. It's really important to maintain that trust between each other because ultimately that's how a transaction is going to be successful. But our track record's gotten better. My team has learned off it with each iteration, learned from prior experiences. And now when we essentially look at a transaction, we keep all that in mind. Then we build upon that even further. Post loi, when we're negotiating the transaction docs, we always put a formal integration checklist which defines the legal things we need to do, the operating things that you need to do, guiding principles of the deals, closing matters. So that's obviously signing docs, getting approval, setting up wiring accounts, an RWI policy if needed, and then post closing matters, setting up a program management checklist if needed, integration workshops, and then obviously any marketing comms around. Both external, internal. So you've done this a bunch of times. This is something that we really focus on. I mentioned at the top of the answer that you could do everything right and if you don't do integration well, it will fail. It's a number one important thing. I actually noticed and sometimes look at your trivia questions you put out and one of them was when do you start planning for integration? It seems like other people agree with that. It's a day one consideration.

What are other things that you anticipate could go wrong on a deal? A pre mortem, which I think is a very good exercise. What are the things that could potentially go wrong?

I just assume Murphy's loss. So everything, everything I mentioned, the easy one we talked about, or not the easy one, but the one that we just spoke about is culture. You don't have a culture that buys in. You're going to have massive attrition. You have massive attrition. The engine starts to break sometimes if you can't fix that in time, it's irreversible. So that's one thing. Communication is very often the reason why things don't work out where you ultimately have a plan but it's not communicated to the right people or the right people don't know what they're supposed to do. At the end of the day it's not just the M and A team or even the integration team and we're pretty integrated. But you're going to need people on the ground really helping facilitate all that. So you're going to need the leader in the region. If you're moving facilities, you're going to need to make sure that they have a place to sit. If there's delivery and you're taking over, you're going to need to make sure that is going well. HR functions, I mean across the board, that's going to be important. What about AR and ap? If you're moving it over into our systems? That's the thing people don't really talk about that much, at least early on. But what are you going to do? All your systems? Are you going to migrate everything over? Are you going to move to one instance of Salesforce? Are you going to move to a certain ERP system? These can be very cumbersome and if they're not handled carefully they could be a problem and they could disrupt the flow of the business.

It sounds like too when you start thinking of those things, this lends into how you prioritize your diligence.

Yeah, it's broad early on in the diligence. So we have a couple people before an LOI usually look at things. We'll get basic high level from a couple business people. But then once we sign an loi, we always do. And this would be the same thing. Honestly, if you're divesting a business as well, we're buying a business. We do a kickoff call always internally and externally. So the internal one is we gather everyone we think will be relevant. We NDA them. There's usually 15 different work streams. We'll work with council, we'll put together a question list. Obviously need to see their diligence reports, which is table stakes before you close a deal. But we try to get as many people involved as possible and identify every possible issue. Some of those people will not have any part in the post close, but some of them will have part in the post close. And to get them aligned as early as possible and understand what we're trying to achieve is super important. And I don't have every answer. The people on our team don't have every answer and we Rely on others to tell us what are some considerations, what are some market dynamics we should consider. What aren't we thinking about that we need to. That ultimately when we close this transaction that we're not missing anything again. You're probably never going to bet 100% or 1000 I should say. But the goal is to make as few and small as possible mistakes there are. And if you do that and if you put together a reasonable base case for your transaction, feel pretty good that it will ultimately achieve what you're trying to achieve.

You mentioned guiding principles when we talked a little bit about integration and some of the pre and post close things you need to do. Can you talk me through what are guiding principles?

Think of the deal by itself. Will this deal create value? That's kind of the first one. How we're executing it, how we're getting people involved. And then ultimately it's a post mortem of did we achieve what we wanted to. And we obviously look at that kind of in the steer codes that we do, which are monthly post close. I don't really have necessarily a defined list of it. It really depends on every single deal. Ultimately it will be what is this acquisition trying to achieve? We bought a company last year in the UK called GoInspire. Our principle was to extend our product offering which would allow us to be more competitive in the marketplace, to provide more services and features for our customer base. It was to work together, to introduce ourselves to new accounts, to cross sell. One of the benefits of that, and this is a marketing performance partner, is they worked with a bunch of customers that we didn't work with. And ultimately we said it that we were going to integrate to an extent these sales teams and ultimately try to leverage kind of our skill sets and Xerox offerings to go inspire current customers and vice versa.

That's a good example. Can you walk me through the timeline of a typical deal and who gets involved when? Just trying to get a sense of how that expands as you progress on the deal through integration.

The deals either come in through our business team, probably one of three ways through business team relationships, through brokers, or the work we do. And it's actually been across the board. The transaction that I just mentioned before that started off of a cold call. We worked with the head of our digital services business. We looked on both a geo basis and an offering spaces of what we needed. We put together a target company list. I reached out to about 15 or 20 companies, had a variety of discussions with them and this was a conversation where I Reached out and ultimately asked for a half an hour and tried to understand what they were looking for and what we were looking for and took it from there. But usually early on it will be myself, it'll be the associates of my team who are helping me with the analysis and it will generally be a business leader who understands what they're trying to achieve. So it could be the head of our digital service business or IT service business. It could be a regional head, a country head. You know, sometimes it could be multiple people if it's a functional offering, but in a specific region where you might need a couple people involved. This is pre, you know, LOI stage. We'll work together, we'll come up with kind of diligence request lists and we ask a lot of questions and we'll try to get in a place where ultimately we think it's ready to go in front of our executive committee. So if there's any kind of outstanding issues to bring that case to the executive committee, we'll go to the relevant experts. So if we think there could be a tax issue or there could be an accounting issue or well, maybe this is going to be a strain on our delivery network will go to them as well. But we do keep it fairly high level. One thing we do is every LOI generally gets, has to get approval from our executive committee. And I like to think of really that as the test run where we actually put together a fairly robust business case and get approval. The hope is that once we go for final approval before deal closes, it's more of just a formality and answering any questions that they had and figuring out any red flags that were there. And obviously if there's big red flags, we would call off the deal. But if there aren't, then we wouldn't, but we'll get their approval. So ultimately by the time we sign an loi, we have full buy in to do the transaction. And then at that point we'll get all the subject matter experts. And I had mentioned it, besides the ones I mentioned extends to real estate tax, hr, so forth. It becomes quite broad over time and we realize that we're there to facilitate the transaction. We're obviously there to play Switzerland. We need to make sure that we get people involved across all levels of organizations. So depending on the acquisition there's probably, it's a small acquisition at minimal, 10 or 15 people are looking at it and it could be many multiples of that. It's going to be across function or across region or so forth. And we're a matrix organization, which also plays maybe a little of that part. It's not like just every region is siloed.

Do you have overlap with people doing diligence versus doing the integration planning? And ideally they're progressing that during diligence.

Yes, we're all on the same team. There are certain people that work more on the front end. So I have associates reporting to me that focus more on the sourcing, focus more on the modeling, financial work, the QE work. And then I have a member on our team who is more focused on helping me lead the diligence and then obviously the integration. Our council as well do that also. So we're an integrated team and I really think that's the best way to do it because ultimately we have the most knowledge of the transaction. If we hand it over to an integration head two weeks before the close and say go run with it, they're not going to have the answers. They may not know where to look. They may not have the relationships it's allowed me when I've seen a potential problem brewing to squash it immediately.

I like that approach. Who ends up quarterbacking the deal process? I guess diligence versus integration.

Generally it'd be me or one other person on our team. We just promoted someone to run any IT services deal and then really everything else falls in my bucket. So I'll quarterback that from sourcing negotiation kind of diligence into integration. Now, I may not be leading the integration and I don't lead the specific integrations, but I'm still involved in almost every conversation. I'm still involved in the steerco. Anytime I look at the numbers, I'm the one who asks a million different questions. Maybe it's my personality, but I get very in the weeds on that stuff. I just think the interplay helps. We could solve things very quickly by understanding different perspectives and where things are coming from.

I want to go back to your public equity analyst hat here. When you do preliminary diligence on a company, are there any things unique coming from that background that you would do that maybe a typical corp dev person doesn't, I don't know, teach me some stuff.

Depends the size of the company. Obviously in a public equities, you're looking at generally more mature companies just by nature. A lot of the companies I look at are in the role just for how it's been tend to be maybe lower middle market where it's tens or hundreds of millions in revenue. So it's definitely different. I think what helps me is I've spent so many years focused on a company and where its play is in the marketplace. I try to use that to my advantage and try to basically say is the story they're saying makes sense. I've seen it play out this time or that time or so forth. And just being in the public markets you get an advantage on perspective. You look at so many names, you look at so many situations, you get a more encompassing view, you get a better sense of appropriate valuation and ultimately transaction success. I mentioned just kind of my banking background. I think limitation there is you focus on the deal, you're trying to get the deal done and then you move on. And sure you could look back, but you're not necessarily focused on that. It's onto the next deal, onto the next. So the advantage in the public equity markets of having that perspective I think is huge because it's a skillset that others don't have. And I personally, and maybe it's in my mind, I think it gives me an edge in every process.

You ever go into Companies S1 filing to get some dirt on them?

Yes. Not from my seat right now. From public equity markets. Yes, in my seat. No.

I've done that in my early days. And you discover some very interesting stuff when you dig deep into the original paperwork they filed.

Oh, a hundred percent. I covered Groupon when I was on the sell side and some of the stuff in there and obviously wework and all these other companies that I'm not trying to pile it on. But yeah, maybe that could be a.

Podcast series of its own. Greg, see what you can dig out of S1 filings and we'll do interviews about it.

When I covered Groupon and we had a sell on it because of course we had a sell on everything, they had a metric called adjusted consolidated operating income. It basically took out, it showed how profitable the company would be if it wasn't so unprofitable. So it just took out every cost you could imagine. It was ridiculous. But that's what companies, that's the Silicon Valley and a lot of the business models in Silicon Valley. Listen, SaaS business models are fantastic. Obviously we would love to have 90 something percent recurring revenue with 130, 140% net retention rates. These are very good business models. But at the same time people are willing to believe a story. Seeing story like that play out over and over again, history repeat itself over and over again has allowed me to be effective and not just on the super growth side. But again, this is not necessarily exclusive to what I'm doing now. But I do get pitch transactions that would ultimately heavily lever our business and it's rolling the dice on it. And I came in and I saw Tribune go private and Sam Zell put 11 turns of debt on it in the ESOP and kind of all the employees get wiped out. And another example was when I was covering telecom GTT buying Interow, which was a Tier 1 provider buying a massive fiber footprint in Europe and I didn't really get it and they were leveraging so much and they were buying a company that had growth problems and two years later they filed bankruptcy. That's stuff that tying it all back and trying to decipher through the message and also just making sure that I avoid pitfalls. That's half of my job. Some people tie success in this role to the amount of deals they complete. Absolutely ridiculous. If you're compensated on that, if you tie your success with the deals you complete, you should just not be involved in this industry. It's the exact wrong way to look at it. If you complete no deals a year or 10 deals a year, everyone should be focused on am I driving value, Am I creating more value than I'm consuming? I mentioned that and that's something that really just underpins everything I do.

What else can I learn from you? You got any good tips for negotiations?

I actually really enjoy negotiating. I took a class in business school where you learn all the zone of possible outcomes. I forget the exact terminology but for some reason that's one of the things that have lasted with me since school. But it really just depends on the counterparty what are we trying to achieve. And there's a lot of things that it could be. It's not just price, it's terms of the deal, it's the liability, it's the size of the escrow. Obviously there's different perspectives if you're a buyer or a seller. From my perspective, if we're buying it, was it founder owned and led? Is it PE owned? Is management staying? Are they going at the end of the day? I'm always trying to get the best deal for the company and I'm pretty firm about it. But at what cost? The last thing I want to do is try to get the very best price, antagonize the person that's coming over, have them not want to be part of the company and then hurt the company. So if I know the leaders are going to be leaving, yeah, I probably might push some things more than if I'm going to have to work with that person for the next 1, 2, 3, 4 years. I do try to make it where the other party also feels it's a deal and everyone's winning. But obviously I push on things and I try to get terms that will ultimately benefit Xerox, whether it's on price, whether it's on liability and things like that.

Do you put the first offer or do you really try to fish around and see where their head's at?

Oh, I always try to fish around. Why set the price?

I think that's a golden rule. You don't want to negotiate against yourself.

Absolutely. One of the things, and this is another public equity trick I learned, the first analyst I worked for asked the same question over and over again to the cfo. Eventually the CFO would just break down and to give the answer all public information. You try to get a sense of what they're trying to do, what they're trying to accomplish, any potential things on the horizon. And I'll very often do that too. I'll push on things over and over again, because even if I don't get an answer, you still get an answer with body language. You could tell how strong someone is not by what just they're saying, but kind of how they're reacting. I try to always be reasonable, but you clearly want to position yourself to come out with the best outcome. So I'm always transparent, I'm always honest, but at the end of the day, I still do things that will ultimately position us for the best possible outcome.

A lot of mind games behind all this. What's your best advice for people that would like to transition from public equity role in 10 million A I mentioned.

On the advantage side that the skill sets and the kind of encompassing view of the market is a huge advantage, and anyone who's trying to make the switch should lean into that. I think you get a different perspective, you get a broader perspective, you get a sense of ultimately where things are going, probably more so than where you're just deep in it and you're looking from one angle. With that being said, until you're in the seat, never really know what it's like to think like an operator and all the considerations that go with it. So there is a learning curve to that. You have to be able to have interpersonal skills. You have to. And that's both internally and externally, because there's a lot of people within an organization you're going to have to speak with. It's much different than a normal person in a public equity role, whether it's a hedge fund Mutual fund, so forth. Being organized and having checklists certainly comes in handy just because there's so many people I need to speak to, so many tasks I need to complete. So I don't think I've ever put together so many different checklists because things could fall through the weeds. I make sure my emails are organized, I make sure the tasks are done, set reminders. That's something that you need to do. And another is managing a team. Unlike in a public market role, it's much more collaborative, much more team oriented. So it depends the role whether you're a junior person or senior person. But leveraging your team successfully could make you so much more efficient and so much more effective. And it could also fill in areas where you lack certain expertise which we highlighted, talked about obviously having this financial acumen and when I joined here that was why I was higher, that's what I was told. But obviously there were expertise on the legal side and playing off of that, those are definitely some considerations you want to make. I've never bought into the theory that you need to have a certain type of job and a certain type of background to be successful in a role. I really think it's all person dependent. You need to have certain interpersonal skills, you need to have a certain drive. Obviously you need to have functional understanding. You need to understand how to look at a company, how to build a three statement model, basic things like that. But it's ultimately the type of person you are and what drives you, what motivates you and maybe not having a confirmation bias, knowing what deals are good, what deals are not and also when to pull the plug.

Great advice. More importantly, I got to ask you, what's the craziest thing you've seen in M and A?

I've had crazy reasons for delay. I had a deal last year where we spent much of the night correcting the sell side on working cap and fund of flows just because there were so many different mistakes and couldn't go to bed on that. Another was we lost the deal after months of due diligence. We were diligencing a company for about six months, probably in the eighth inning on transaction docs and then the owner decided you know what, had very little comments. So it seemed to be didn't seem to have much pushback. And then the 8th inning he said I want 50% more for the transaction. And we're like okay, nice knowing you. So that was frustrating but I do actually have a really good story. One of my colleagues first job out of law school, he was representing a tech company selling to a big PE shop and on the morning of the close the founder, CEO, largest shareholder called him. The most junior member on the team, no one else, none of the senior lawyers. He called him on the morning and he said he was in the middle of divorce proceedings and the judge had frozen his assets, including his stock and therefore they couldn't complete the deal that day. And lo and behold, this person knew about this, had a one page decree and the judge for months before decided not to tell anyone, including his own counsel. And obviously all the reps, title ownership and so forth didn't say anything and obviously caused consternation. I mean the postmortem is that the deal ultimately happened, but it delayed it by a month or so and obviously added complications. That's probably not a nice surprise to have when you're about to close a transaction and then you find out that the largest shareholder is going to have to give half of his stock to his ex wife.

That's not a good surprise.

I thought that was a funny story. There's so many variables, as you're well aware of in a transaction that anything can happen.

That's true. There's no surprises kept. I guess they'll tend to shake out at some point in time.

You hope that everyone's truthful for each other, especially between the client and counsel.

This has been great, Greg. Thanks for taking the time. I appreciate the conversation. I learned a lot. You've helped me become a better MA scientist here.

It was great to be on and enjoyed speaking with you and hopefully my background's interesting to some of your listeners.

Those of you still with us, thank you. Till next time. Here's to the deal. Thank you for taking the time to explore the world of M and A with our podcast. We love hearing feedback. Tag us on a LinkedIn post. Add a review on Apple Podcasts. We'd love to hear from you. If you need help standing up an M and A function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email Kisan K I S O N 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.

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