How Integration Has Changed Over Time

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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 M and A deals. Welcome to M and A Science, where leading M and A practitioners share lessons learned from their experience. If you're interested in keeping up with the latest from M and a science, visit mascience.com and subscribe to our free newsletter. Every week we share highlights from our interviews and invitations to events as we build the greatest community of forward thinking M and A practitioners. Again, that's mascience. Com. I'm your host Kisan Patel, CEO and Founder of M and A Science. Joining me today is Pat Belotti, vp, Corporate Development Integration at Zendesk. Zendesk is a service first CRM company that builds software designed to improve customer relationships. Since Pat has an extensive M and A integration career, we're going to discuss how integration has changed over time. And Pat's also really passionate about go to market, so we'll touch on that as well. Pat, how are you doing?

I'm doing great, Kisan. I got to tell you, I've probably watched or listened to at least two dozen of your webcasts and podcasts over time, so I am incredibly flattered to be on this auspicious event.

I am likewise flattered to finally get you on the podcast. So let's jump into it. Can we kick things off with a little bit about your background?

I got into tech many years ago and I kind of bounced around in a bunch of different functional areas, but I finally landed in the very first Acquisition Integration Group that was created at Sun Microsystems about a little over 20 years ago and I focused on sales integration for my years at Sun. Then I moved over to Cisco where I continued in sales integration. So I did about 10 years of just sales integration specifically. Then I moved into general overall integration lead work and I've been doing that ever since. At Cisco, at DocuSign, at Microsoft and now at Zendesk, do you prefer the.

Large M and a function at scale versus the emerging M and a function like you are in the current role?

They're very different. Even at the large company you end up doing small deals. So you've got small deals and large deals and things like that. I think all of them have unique aspects. I guess one thing that's quite different, and I'll actually probably talk about a little later, is at the more established firms where they've got a really built out group of functional leads. The integrations leader's role is a bit more strategic and a little bit less program management. At a smaller company where you're working with volunteers from the functions, you have to do a bit more program management. So that's one of the kind of the distinctions between the two.

Interesting. Going back to your career, you've done integration for over 20 years, starting with Sun Microsystems, and you've seen a lot of change. Can you share some of your thoughts on the changes you've seen throughout your career?

It is really interesting. It was about a little over 20 years ago that the high tech firms, and I'm speaking specifically of high tech and maybe I'm even speaking of high tech on the west coast, but prior to that time, for decades corp dev groups in high tech would do deals and then they would just turn them over to the business. People would be recruited as volunteers to help. And frankly, when you got tapped on the shoulder to help, you didn't want to help. There was no organization, there was no best practice, there was no retention of learnings. It was pretty frustrating. So about 20 years ago I was at sun and they decided to create a formal acquisition integration team. And Cisco had done that before them. Cisco and IBM were out probably a couple of years ahead of everybody else. Cisco was very generous with sun and gave them their playbook and sun modeled their program after that. So now we started to have formal integration programs. But they were very lean. Maybe you had an integration lead, maybe you had a dedicated person, maybe in hr, maybe in finance, but it was still pretty lean. And everybody else was a volunteer. So the role for the integration management team was very program management oriented. The because again, you were dealing with a lot of volunteers. Part of the value that you brought to those volunteers who had probably been helping out on other deals before there was an organization was that you were going to try to make life a bit easier for them. So they kind of embraced it. And so you moved along the Next thing that kind of happened and that kind of went along for a few years. But then companies started to do more deals. They wanted more formal program management. And so that was the era and I'll call that sort of the 2005-2010 or 15 where heavy program management came in. Heavy tracking tools, lots of levels of detail that people wanted to track and they made the functions track them in a big tool. And you had to have a lot of program managers to help you keep track of everything you were doing. If it was a big complex deal, I think you could justify that. But a lot of times we were applying that to deals that weren't that complicated. And so it was a lot of overhead, particularly for the functions. So while that's happening at the same time, those functions are actually getting better and better at their jobs. So they're getting more and more experience. I don't know if you've experienced this Kisan, I'd be interested to hear, but don't you find that most people that get into this practice get addicted to it and don't want to leave, they want to keep doing it.

I think they get weeded out really quick. Either run away right away when you go through your first deal, you never want to do it again or you get hooked, the thrill of it or something that keeps you there.

I think you're totally right. You're right. There are those people that run away, but for the ones that stay, they really want to stay. So what happened over time is the functions got really good at doing their job and when that happened, frankly they resented and rightly this heavy handed program management of the detailed level of their plans. They're like, I don't need you in there. You need to know about five or 10 key milestones for me and I will keep you posted on those. Of course the ones that have deep interdependencies are important to track. But let's lighten up. So a lot of companies lightened up and the IMO person actually then had some bandwidth to actually try to move earlier in the process, get closer to corporate development and the business units and actually try to do some influencing earlier in the deal. So that was really positive. That could bring us up to the last five years. And in the last five years I think there's a few things I've seen that have again, there are a logical progression. One of them is that a lot of integration teams have taken over program managing due diligence. And personally I think that's a great place to manage due Diligence, due diligence is a process and corp debt people and legal people, I'm not sure they love doing program management, whereas integration people, that's what they do. So I think it's an excellent group to give the assignment of running due diligence to. Also we're pretty neutral. We're well suited to that. That's one thing that's changed. Another thing that's changed is people are looking at less cookie cutter, more agile, more revisiting of the plan as we go along and different styles. For example, I know many companies, several companies have been acquiring gaming studios over the last few years. Many companies have done that. You can't integrate a gaming studio like you integrate a software company where you're going to embed their technology. Gaming studios are artistic endeavors and they have their own cultures and it's very collaborative in the way they work. And even their business model is very different. So. So you'll see companies saying, okay, we're going to treat that very differently than we treat these others. So you're seeing more diversity in the approach.

Thank you. By the way, that was a great history lesson of M and A integration. In my head, I'm like, you're summarizing a good 20, 30 interviews I've done with integration leaders. Yeah, I really like when you picked up with here things started out pretty lean. It reminded me of the Constitution where we started with some good intentions and some pretty lean philosophy to it. Then it gets complicated like crazy, which the program management approach you got into the imo, which then things get more involved with corporate development pushes. Earlier in the deal, I was particularly interested, probably more of an emerging trend is the integration spearheading diligence and really running that. I don't think that's as common, but it is definitely emerging. I can't think of one interview I've had where they said that doesn't work or there's a real reason not to do that integration. People like it because it gives them that control from the beginning to move the pieces they need to. And then Agile, which obviously, you know, I'm a big advocate of since we published a book out there with Agile in the title. That's another big trend is like the big challenge. When you gave that gaming example, you got a totally different scenario that's not in your playbook or easy to standardize that way. So how do you approach it in a way that's going to be adaptive as opposed to following a plan?

You brought to mind another thing about diligence. There's another diligence trend that I've seen. It was particularly prevalent ahead of 2022, but let's say from 2020 to 2022 you saw that it was a bit of a seller's market and the sellers wanted fast due diligence. And so they were actually, I think there were probably deals where one potential buyer would have been favored over another because the one buyer was going to give a pretty lean due diligence list and the certainty of deal conclusion was going to be higher. So the risk to the seller was less. Some companies I think could adapt to that. Other companies could. They've got their 300 line DD list and they want every single one of those things answered to the nth detail, regardless of the risk that the line item represents. It's a very hard thing to get large organizations to get law firms, especially external legal, who this might not be in their best interests to actually say we don't actually need to answer all those questions or the risk of an answer that's problematic. The risk is really low. The answer is problematic, but the risk it poses is pretty minimal as well. So that's the other thing that I did see some companies looking to try to reduce their diligence lists or reduce the level of subsequent questions based on the risk. So I think that's a really sophisticated way of doing it, but it's really hard. And I'll say one other thing about this progression. If a tech company enters, as I talked to 20 years and maybe five stages, if you were a new tech company coming in today, you're probably going to go through those same five stages, but you're going to go a lot faster. It's not going to take you 20 years, it's probably going to take you three or four years because A, you're going to hire somebody into that first lead role with tons of experience and they're going to skip a couple of steps. Like they're going to skip the throw it over the fence step and they're going to probably skip the heavy handed program management step and they're going to end up somewhere in the third or fourth step right out of the blocks. They'll still go through those stages, but much faster.

You had an interesting point in the recent years with diligence. Like I've never in my career seen that, especially in those competitive processes where you're trading off so much of your diligence to get the deal. But it's like you're doing away with the application of intelligence because you Want to do smart deals. And just by taking a bigger bet at the end of the day, which I don't know, it builds a stronger case on why you should find your own deals.

It's a hard sell to the lawyers to maybe wait on something, but sometimes you just have to, you have to pick out the those things that are either critical because there could be a legal or a suit or something like that. And those things that are key to the value proposition of the reason you're buying it. Those things you can't shortchange, you have to make sure. But there's other sort of extraneous stuff that just gets in there and soaks up a lot of time.

And how would you contrast from your integration hat integrating a company from an auction process versus a proprietary deal?

I think it's harder when there's other people in there definitely because there's a lot of pressure to move really fast.

Is it that you don't get the time or people access to do as good integration planning? What's the real difference?

I think it's a time pressure thing with a small proprietary, privately held company where it's not an auction process, frankly, you can take your time. Not that it's a great idea to spend gobs of time with a small deal. The people preparing the diligence, it's probably two or three people and that's pretty painful for them. So it's not, oh, I should take forever. No, I should still try to be selective in my questioning and move it along as quick as I can.

Yeah, you just maybe get a little more consideration about how you're going to integrate the company. If you do get that little extra time in the process.

You think yes, it's true. When you have more time, you can spend a little bit of time doing non pure diligence, basically learning about two companies learning about each other. That could be part of what goes on during that diligence period. When you're really condensed, you're not going to get permission to spend time getting to know each other. You're going to be told, look, if it's not specific to diligence, we don't have time to be talking about it right now. And so it's true by the time you get to sign, not necessarily close, but by the time you get to sign up for the purchase agreement, when you're rushing, you don't know as much about them. And so now you've got a lot of catch up to do. And if the close is tight, maybe there's no regulatory or anything. And it's tight. You better be really focused.

That's what I was curious. Like, what are you actually trading off? When you go through this auction process, which is essentially the express checkout at the grocery store and you're getting out there as quickly as you can, then.

You have to pick, okay, what has to be done for clothes? That's your next one. What has to be done for clothes? Other stuff is going to have to wait.

When we're talking about how integrations have evolved, you mentioned the integration leads free up from a lot of the program management time to get involved with the deal earlier on. Are there advantages for corporate development and the company in doing that?

Yeah. I could make a little plea to people listening in who are in corp dev. Please engage the, at the very least, the integration lead early in the process. Certainly well before letter of intent, even before you make that first formal approach to the target. And the reason is that one, the integration leads usually have done dozens of deals. Corp dev person probably does one a year or one every couple of years. And the business unit person who's the sponsor of the deal may never have done a deal. So the person who has the most experience is actually the integration person. And they can bring to the table in those early discussions some learnings from the past. There's so many things that get said early on that can really impact the long term success of the deal. So I don't know that very many corp dev people or business unit executives are saying what they used to say all the time, which is, nothing will change, nothing will change. Don't worry about it. You will be still in charge of everybody. And they make all these commitments about nothing will change. They might make commitments about who's key. They might make commitments about levels of autonomy. Oh, we're not really going to integrate you. You can be standalone. And again, they're not intended to be misleading. They're probably what the person actually thinks about. But then three or four weeks later when they've gone through a bunch of stuff, they go, oh, I can't do that. I need to integrate their product into my product. I can't integrate their product into my product unless we're all on the same network and we're all using the same tools. And I just told that guy, nothing's changing. Oh boy, I got to back myself out of that. So I think that the integration elite can help a lot there. I think they could provide some realistic insights on how the people might be feeling, how long the engineering activities will Actually take those types of things. It can provide some insight and I think it's super valuable to have that early on.

And those insights are really around timelines and capital expenditures.

Timelines and expense. It could be. There's one area that I think is particular for large companies with a strong brand acquiring younger companies. In order for the larger company to release the younger companies products, those products have to be up to the standards of the larger company. And these days those standards are not just internally developed standards. Like we have standards for quality, we have those. But there's also regulated standards for privacy, standards for security and other standards. It can take a lot longer than people realize to actually release a product from an acquired company under your brand, fully sanctioned brand, because there is this, what people are calling these days technical debt. There's a technical debt to get their security up to your level, to get their privacy so that you don't trip up GDPR and things like that. That's a lot of work. And again that's something that you learn in integration but you might not necessarily encounter in your business because in the business that's all taken care of. The running the business at the big company is all up to security and privacy standards. So you might not necessarily realize that, oh wow, there's a lot to do here. Now fortunately, if your team has some really good technical folks in your diligence team and I will call out, Microsoft's technical DD team is just like, oh my God, they're rocket scientists, they're fabulous. So they see that stuff and they're able to provide a quick assessment of what that looks like. But not all companies have that caliber of people available to do that work.

Let's role play this. Okay, I want to get to the little nuanced stuff because you said bring the integration leader in early. So let's pretend you're on my team. You're my integration leader. I'm corporate development for M and A Science. We're going to buy the data because that's the logical thing for us is to get some data sourcing product out there and we got this target. When do I get you involved? There's these events that happen where I did some research about it because when someone in product mentioned hey, if we could just acquire this technology and integrate it, we don't really care about their sales or anything, it'll help us get to our roadmap goals faster. And I talked to their CEO and it sounded like hey, they're open to a conversation. And we just had that initial conversation when do I start thinking about you? Because we're going to get to a point where I'm going to get him comfortable to send me initial diligence request information of some of the financials and things of that sort. And that's where we start brewing things up.

Right then, right when you just said it before, you send them that list of questions that are the sort of the preliminary diligence questions. They're the early diligent, just the basics like how many people do you have and what does your P and L look like and things like that. There's no reason not to include the integration lead. And you might say I don't want to waste their time and I suppose there are trade offs to be made there. But I think an integration lead would love to spend an hour just walking through it and talking about those things. That can be challenging. Okay, what's the location of the company? Especially if you have a couple of candidate companies. Let's say you have two possible sources for this particular technology and one of them is in a country where dealing with personnel is pretty straightforward and easy and another one, it's very challenging and you're looking at the two and let's just say for the sake of argument they both got a hundred people and you don't need their sales team and you don't need their marketing and stuff like that. You just really want the engineers. If you're going to do that deal in certain countries in Europe, you can't just lay those people off. So your business model might say, oh I'm just going to take those 50 engineers and I'm going to leave the other people. I'll just lay those other people off. No, you can't do that. There's or you're going to have to pay significant severance benefits. So you might say, oh this other place, it's in this other country, I can do something different. So there's lots of implications to the country to the type of technology to whether they have a sales force or don't have a salesforce and whether you want it or don't want it.

I'm not thinking of any of this stuff. By the way, on this role playing we're going to. We might need to flip things around actually. Yeah, I'm going to ring. Hey Pat, I got this deal I'm going to look at you need some information on your side. Can you give me do the corporate role of briefing me on the company. What are the key things that I need to start briefing you on about? This company that we're making up as we go, Sure.

I want to know where it is, how many people they've got, what do you think you want to do about with it? And at the early stage, you might not be 100% sure exactly what you want to do with it, but what's your initial guess? Are they using the same software tools that you use? Which cloud provider are they on? All these things add up to time or money. They almost all sort of lead to time or money, ease of integration, those types of things. You also have to consider, and I think of a particular incident when I was. I could say it, I was at Cisco and they wanted to acquire this company in Vienna, Austria. We were talking about it, and I brought up the point that the company had nothing in Austria except for a sales office. So there's no other engineers. So what's going to be the career path for this small team of engineers in Vienna, Austria? And my dear friend in Corp Dev said, maybe they'll want to move to Silicon Valley. There aren't that many of them. Maybe we could relocate them. And I said to him, God, I don't know. I've been to Vienna, Austria. I don't think I'd want to leave. That is a beautiful city and a lovely town. And so I don't know. I don't know if that's actually a reasonable expectation for people in that city. So anyway, we joked about that and I still keep track of that team. They're a great team. And they're all still back here in Vienna, Austria.

Yeah, that's a big consideration. And as I brief you of here's what our goals and intention, and I'm thinking of this conversation progresses ultimately to getting an offer on the table. I gotta get a bid on the table. And there's the considerations that shape from now I got you involved in getting you a conversation about what we're thinking about here. We want to pick up this company, get the engineering talent, accelerate our roadmap. Hey, we're going to get some of this diligence information. And there are things that you're. Usually, we got a template of 20 things or 15 things that we asked for. Anything there that you're particularly interested in, or is it okay? I just want to get at least the briefing before I get all this stuff.

That's right. We don't usually impact that first list unless there's something about the deal that just jumps out.

Yeah, it's. Hey, I'm gonna need to know that if we're Gonna do this and that. Okay, so this information comes in and this is where we wanna get to grinding away. I wanna get the model, build a business case. If I gotta get some hand raises internally to make this thing go forward, I wanna get on that. How am I working with you as a corporate development leader? Is there an influence from you on shaping our valuation model? Or do we come up with something and then present it to you and then you redline it and poke holes at it? How should that relationship work in general.

When you're preparing that letter of intent doesn't have a whole lot in it. But traditionally, having corp dev share even that early kind of bare bones letter of intent with HR finance and if there's go to market, there can be things, again, given the specific nature of the deal that HR might want you to word one way or the other. One of the things that one of the teams I worked with was pretty adamant about is not wanting to get trapped into identifying a specific dollar amount for retention. Post close retention. So sometimes the buyer will say, I want to say that you guys are going to provide $30 million for retention for my team. And HR would usually say that's not a great idea because at this point we don't know anything about those people. We haven't done any diligence. So we don't know the caliber of the people. We don't even know how long they've worked for the company. What if you close the deal and you find out that of their hundred employees, 80 of them were hired in the last year? Oh, do I really want to spend $30 million on retention? That would be frightening. So that would be a place where it's not a bad idea, particularly for those functions. For either it's really technology, HR and finance. Who would want to weigh in on how you're wording it and go to market usually doesn't have anything particular to say about an loi. They might have something to say about the revenue number you put in the business model that justified getting permission to do the letter of intent. They probably would definitely have a view on that, but not necessarily to the actual document.

Have you ever heard of the term synergy?

Yes.

So we make a lot of synergy assumptions. And who should really own that? Obviously there's corp dev, there's integration lead the business unit. I'm curious who should own shaping that because I feel like there's so much of our offered value that comes based off of that. And is there anything as an integration leader that you're influencing at all.

So in high tech, and particularly in software, which is where most of my expertise is, really the only synergy is the revenue. There really aren't a lot of cost synergies. You might have some procurement volume discounts that can be applied to the smaller firm, but in general you're not going to find a of lot a lot of cost synergies. And actually you're going to find some cost increases because you probably have a higher, you might have a higher salary than they have, you might have more expensive benefits than they have. So on the cost side, probably not much there. So it's all about the revenue. It's all about the revenue. And the challenge is that the price of the company is based on what it's worth to you, but it's also based on what it's worth in the market. The market has a pretty big dictate over what that price is going to be. So you have to look at your P and L and see if your P and L is anywhere close to what the market says they're worth. And sometimes you have to take a bit of a gamble. There's a delta there, but I'm going to do it anyway. I'm going to take that gamble. And sometimes people are uncomfortable with the fact that you might have a revenue number that is really ambitious in order to make that purchase. But I think most serial acquirers, they view M and A as a portfolio play. They're going to buy a lot of companies and some of them, using the baseball analogy, some of them are going to be strikeouts and some of them are going to be single base and then you're going to get that home run. If you're so strict with your modeling of synergy, you might never do a deal. You've got to make those trade offs where you're saying, okay, sometimes I've got to be pretty optimistic about the potential, but that's because I'm making a few bets and some of them are going to be brilliant and others are going to be less so. It's a hard discussion to have.

A lot of integration folks think that way because I feel like the more details, the better accuracy. And maybe that's just the type A personality that tends to be wired in that role. Your philosophy actually sounds like a good balance because you do ultimately need to take it back. And it's, I'm thinking the Bezos rule on whatever it was, 70 or 80% of the information to make your decision. Can you get to that point that you're confident enough that you're going to be, at least in that realm, about how accurate you are about your assumptions. Yeah, okay. That gets us a bit on the table. And then anything after that, I guess we got to get you involved early. That's pretty much carries us on.

You're bringing up an interesting point. So you've got the letter of intent and you've got that sign, and now you're going to dive into real diligence, your detailed diligence. And most deals go through, most deals happen. You might find some things along the way that are less favorable than you thought they were, and you might find other things that are more favorable than you thought they were. And so the vast majority of deals that get to the loi get to close. And let's forget about regulatory. You probably have an idea going in whether you're going to face some sort of regulatory hurdle. And so you've factored that into your thinking. But for most deals that don't have a huge regulatory factor, you get to loi, you do your diligence. Again, there's maybe some trade offs. Sometimes there's even adjustments to price that can happen if it's. The finding is significant. But I will say this. If you go into diligence with one or two things that you think could actually cause the deal to. To not go through, my advice is get on those fast. Go as fast as you can and as deep as you can into those particular questions. Because if you do have to walk away from the deal, you owe it to everybody to do that fast. You owe it to the sellers, you owe it to your team to do it fast. So if you knew going in that it was critical that the discussions that you had with the target, they had indicated that their particular software could do a particular thing in a particular way. And that was absolutely critical to the value proposition that you put together for the deal. And you know it, and they know it, everybody knows that is a big part of why you're buying it. Go make sure that thing can actually happen as fast as possible. And if it can't, then you need to go back to the table. Now, maybe it means you call it off, maybe it means you renegotiate price, whatever it is. But that's a piece of advice I think is important. Sometimes you have to really push people to identify what those would be. And then if you find out that in fact that thing is not what it was represented as, it's still hard to make the decision to walk away, because usually there's momentum and it's hard. But I had one executive, he said very clear. Actually, more than one executive has said this over the years. Killing a bad deal is as worthy of praise as closing a great deal. You shouldn't feel like you didn't do your job. You did your job. You were watching out for the best interest of your company.

We're going to have to do part two of this interview.

Are we going to have to do part two? We're running out of time. Oh, I guess we are.

We haven't even touched on go to market.

We should save that.

That's what I'm saying. We'll make a part two. So I'm going to have to bring you back for part two to talk about go to market. But before I let you off the hook, I want to hear more about sideways stories. Just crazy stuff. I want to ask you, I'm curious about this particular part about walking away from the deal, because it's hard to walk away from a deal. I'm curious about your experience of seeing when, hey, this organization did walk away from the deal and that was probably the smartest thing that they did versus they really went through that deal. And what did those deals end up looking like?

I have seen deals that some people thought, wow, not sure about this deal.

When he won, was that uncertainty that ended up turning out to be good. But does that happen more often than not?

That would be a hard one. That would be hard. I'm not so sure. I've seen very many of those.

So people see it coming. They see it coming.

Yeah. But the ones that. Where there's a concern. Yes, I have seen ones where there was a concern and where companies have walked away. And again, there's really only one justification for walking away, which is the company represented themselves differently than the reality. They represented that they could do abc and in fact, we found out that they can't do ABC or that their financials were this way and we dug into it. In fact, their financials aren't that way. You can't just walk away because you found something you didn't like. It has to be material. It has to be. The basis is that they said that they look like this and in fact they don't look like that. It doesn't happen often. Okay, but there are other cases where maybe as early as pre loi, you had some doubts, maybe integration had some doubts. They just saw the writing on the wall of things that would be very challenging to work around. At the end of the day, integration isn't really driving the Deal. We're not the drivers and sometimes we have thoughts about it and they decide to go for it anyway. And it's our job to make it the most successful we can. You can't go into integration with a grudge or something. You can't go. I didn't think it was going to go very well. So I'm going to make sure it doesn't go very well. That's not your job. You've got to do your best. Even when you think that, oh, I don't know about this one. No. Your job is to do your best to make it as successful as possible. And I will say that there have been a couple of times over the years where I've been amazed at the creativity of how integration people have been able to figure out how to make something that looked like a big roadblock, how to make it okay, how to make it work.

Problem solving.

Yeah, you get to put on extra problem solving hats or something.

Let's talk more about that. What I'm really curious about is in the number of deals you've worked on and the idea of running the diligence as well. Surprises. What kind of surprises do you run into in diligence and what kind of surprises do you run into after a close?

Let me try to think of a couple of cases during due diligence. The things that come up that are quite problematic would be a lack of quality or security in the technology. That's like a big painful thing and could be a deal breaker potentially. So that would be an unfortunate surprise on the after close. Surprise. Every once in a while you'll find out that a person, a key person of the deal is just actually not how they presented themselves. That there's a problem of leadership or maybe ethics that is just not what you thought. And you're surprised that somehow no one else mentioned that. Nobody mentioned that guy was actually a pretty bad boss. And now you've got them people.

Surprises.

Yeah.

I guess in my head maybe I'm too much in the finance. I always think of all these tactical things that pop up and situational, but not the people to begin with.

A lot of the finance things that would surprise you. I think finance has gotten pretty good at figuring out what those are like. Here's a classic. Back in the day, I used to always, when I was in sales, I would always ask the finance people, could you tell me what percentage of sales went through the channel each of the last 12 months before we got to where we are right now? And the reason I asked that Question is, let's just say for the sake of argument that 50% of the sales went through the channel the first six months of last year. And in the last six months, at an ever increasing rate, a larger and larger percentage went through the channel. That could mean that the seller is stuffing the channel to make their revenue number look better. I haven't seen that in decades. Probably because finance just looks at that right away. And so people don't do that. Well one, it's illegal to do that, but it's not accounting practice, so maybe that's why they don't do it. But I think the finance people have gotten better and better at knowing what all the little things people might do to bump their P and L and stuff like that. But people stuff is again, somebody would have to say something for you to necessarily know if there was some sort of hidden issue there.

Yeah, I agree. You're more exposed to the people side, which gives me an idea. I should get one of the QOV people to do an interview. I haven't done one of those in a while.

Here's an interesting thing you can do when you send your team in to do due diligence. Remind them that in addition to the tactical diligence they're doing, they're also there to get to know the target team. There's your ears on the ground. You're going to be like the corp dev people and the executives, they're all going to be in executive meetings, but you're going to send the engineers in to talk to their engineers or the finance people to talk to their finance people or HR to talk to hr. And you're going to get a good feel for that company through those day to day workers and those day to day interactions. And what if you came back and said, wow, I'm really surprised at how the managers talk to the employees at that company. Meanwhile, the executives are all like, oh, we're all consensus driven and everything's great. Which might fit your company's culture. But then you've got these people. But if you don't tell them, hey, while you're there, could you take some look, look around and see how you feel about the culture. And of course sometimes they come back and they're like, oh my God, we love these guys. These guys are guys and gals are great, they are sharp, they're on it, they all treat each other so respectfully. It's going to be a really good fit. That's a great thing to know.

Do you ever see a difference in deals where here's an opportunity that may have got sourced through a partner channel. So there's this already established relations and teams working together from both organizations versus we bought at an auction. We don't really know them that well.

Doing a deal with a company that the engineering team has been partnering with for years, those are great. Those are great because they're not going to suggest that we acquire them if they dislike them or if they found them difficult to work with. It's usually very positive. And I think many of us in, in the integration and we all get together all the time. I'll do a call out for the Silicon Valley Integration Gurus Group, which has been meeting for 20 years. But we all share stories and I did hear one thing during COVID for those two years because people couldn't go out and meet with the other folks, you know, and have dinner and a more relaxed, non zoom kind of thing. There was a high preference for doing deals with companies that you already knew. The people you were more comfortable with that because you didn't have the opportunity to really get to know them. Zoom is not the same as getting to know someone face to face.

I agree, that's true. It's an interesting point. And it's like a whole little case study to build into that.

Yeah. So anyway, so those are some, just a couple of the things that you find out some things before and maybe you know them going in. And I'll give you one other example and I really thought very highly of the HR person who I worked with on this, so she might recognize this story. There was a firm, we're in the process of acquiring it. Actually it was one of these cases where we knew that company pretty well. But as we were candid with the CEO about how the org was going to play out after close, he decided that there was going to be too much integration for his taste and that his role was going to be too diminished. And so he soured on the deal. Meanwhile, we've written him into the LOI as a key employee. He's going to be a guy there. And the HR person said, I don't think he wants to do this. Meanwhile his VCs are like, oh no, we're selling. You don't own more than 50%, so we're selling. So eventually the engineering business lead just had a heart to heart with them and said, look, we can work out another arrangement and you can just go. And fortunately, the head engineering guy was great. So number two guy was great. So we were lucky. But again, that was One of those things where it would have been very easy to just keep going and bring that CEO on. But the HR woman who I give credit to just said, I really don't think he wants to come and I don't think it's in our best interest to bring him on.

Learning that we're friends with the HR M&A roundtable and to give them a shout out, it's a pretty unappreciated role because, like we're already alluded to, it's the people at the end of the day. And it seems to be the. The big root of problematic issues. Post close hiring executive is tough. I'm trying to do that now. It's just making one hire as hard. Like, how do you bring on a whole crew of people? Because I feel like the culture thing is what drives us back to, do you have highly intelligent, motivated people or the opposite? It's not going to work. Pat, what's the craziest thing you've seen in M and A?

I think it was my very first deal, so it's at Sun Microsystems. And we acquired a company called Cobalt. And they had a cobalt blue logo. And they had it. And the employees were really. They were so attached to that color. Everything was cobalt blue. And the thing. And the day that we. I guess it's the day after we closed the deal, the employees are all lined up in this cafeteria room or whatever that has windows, whole windows here. And here's all the employees lined up with their W2s or proof of employment or whatever. And I pull around in the parking lot and there's a guy from my company and he's got a razor blade and he's scraping their logo off the back window in front of all the employees the day after we close. So I walked up to him and I said I was just talkative. So we've decided not to do this today. Like, we're not doing this today. And he goes, really? We're not doing this today? I said, no, we're not going to do this today. So he goes, okay. And he left. And I was like, oh, my God, how insensitive could we possibly be? Oh, my God. So after that there was a rule, if we are going to change signage, we will do it on the weekend. So that. That was actually a Sun Microsystem story. And we never changed signage. And frankly, you don't need to change it like that week. The world doesn't end if you're a little sensitive.

Yeah, I was surprised. I've seen Companies with. And I'm thinking of a bank actually here in Chicago with the retail footprint. It just felt like day one was announced. Boom. All at once. New business card, new signage, everything. But yeah, fair enough. Be mindful of the people experience on these deals. Pat, thank you so much for the time today. I learned a lot. I feel like we can create a whole series based on our conversation we had here today.

You ask really good questions, Kisan. You gave me some good stumpers there.

Thank you for this conversation. I appreciate this. I learned a lot and you're helping me become a better M and a scientist.

Thank you. And hey, a big call out for your product placement in that new TV series Partner Track.

Partner Track on Netflix.

I was just like, oh my God, there's Kisan with a product placement in a Netflix show.

So it was fun. We got lucky. I think they reached out a year ago. I completely forgot that I signed this waiver for them to use our branding and logo in the series. And recently I get a text message at 2 in the morning from one of the corporate development friends. Hey, I saw your feature on Netflix. Congratulations. Like, what the hell is he talking about? Then it finally clicked in and it put two and two together. I was surprised. Thank you so much. It was fun. We've seen our downloads go up quite a bit from it.

Yeah.

Those of you still tuned in, thanks for listening. Until next time, here's to the deal.

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