How M&A Turns a Chemical Company Into a Tech Business

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Now back to the episode. I'm Kison Patel and you're listening to M&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&A deals. Hello, M&A scientists. Welcome to the M&A Science Podcast. This show is part of our mission to rethink how M&A is done and build the operating standard for buy-side M&A. That old-school seller-led approach— dead. Buyer-led M&A is about strategy, alignment, and execution, putting value creation at the center of every deal. It's not just about closing the deal, it's about making it successful. And that comes from learning directly from the operators who've done it before. If you want to go deeper, we got you covered. There's tons of free resources on our website. Frameworks, guides, tools, all built from real operator experience. We also have the M&A Science membership, which gives you the full system, frameworks, templates, expert Q&A sessions, direct access to me, and the AI-powered intelligence hub. If you just want to stay sharp, sign up for our free newsletter. That's how to keep up with everything that's happening in M&A. You can find all this at mascience.com. Again, that's mascience.com. Let's jump into it.

I'm your host, Kison Patel.

Today I'm joined by Chandra Dev Mehta. He spent his career leading corporate development and strategy at major players in the chemical sector, including LyondellBasell, Honeywell, and is now driving M&A and business development at Hexion, a global specialty chemicals company. What makes Dev's perspective so interesting is that he's not just running deals. He's using M&A to answer a fundamental strategic question. How does a legacy chemical business evolve into a technology-driven company? That's a challenge a lot of industrial incumbents are wrestling with right now. And that's what Dev has real experience navigating. So today we're going to talk about how to build and execute a deal thesis in a complex asset-heavy industry and how valuation negotiation and strategy alignment play out differently when M&A is being used to fundamentally reshape where your company is. Dev, how you doing today?

I'm good, Kison Patel. How are you?

Thanks for taking the time from doing deals to have a conversation with me. Can we kick things off a little bit about your background?

I've done investment banking for about 10 years, working with clients on their capital needs, but more importantly, M&A and strategic advisory. I've worked in New York and Asia as well. So I've seen more of a global phenomenon in terms of cross-border M&A, as well as focusing on strategic needs that drive M&A and investments. And then for the last 10 years, I've been on the corporate development side, running strategy corporate development for companies like Lionel-Bizzell, Honeywell, and now with Hexion, where we are seeing M&A as a tool to accelerate our focus on strategy and portfolio shaping. I'm happy to be here and share my thoughts with your audience.

So that's like 10 years investment banking. We probably got a lot of reps in on deals, 10 years in-house. How would you like contrast the experience or the difference in those roles? Do you sort of have like empathy with the bankers and the deals you work with, or do you look at them as points of friction?

[Speaker:KISON_PATEL] Yeah, I've been on both sides. I think it's a little bit of a different role. On a banking side, you are more of an advisor supporting your clients and guiding them, whereas in a principal role, you are making things happen. One big realization on the principal side has been is that you can execute a really strong deal, you can get a really good price for it, but unless you integrate that transaction and create the synergies and create the value that you have put into your deal thesis, everything is irrelevant. So spending more time on thinking through strategy, thinking through the fit, thinking through the value creation levers and how do you accelerate them to achieve the outcomes you want. That is the focus being on the principal side. And that's what excites me in that role.

Strategy synergy. All the way through execution, and you gotta be on point. You can't miss.

Absolutely. And everything comes down to value at the end of the day, but more importantly, how do you think about how are you going to line up your supply chain? How are you going to line up your procurement? How is the IT systems going to have the backbone? How are you going to focus on from a commercial standpoint? A lot of those levers become important from a value standpoint. And that's where I focus on in a principal role with the main key driver being strategy, defining where we invest and focus. From a deal standpoint.

In the last 10 years, going from Honeywell to Hexion, has just your philosophy or even just the way you think about M&A has evolved or changed?

Yeah, look, again, it depends on where the company's strategy is, where do we want to focus on. At Hexion, I can tell you is that we are a chemicals company, but we are transitioning more into a technology-focused chemicals as a service enablement business. We actually acquired a business in the AI space, Smartech, a year and a half back, and we are in the process of integrating where we bring the world of chemical as well as the world of technology to say, how can we create more value, not for us, but more importantly for our customers? How can we give them more through that transaction and integrating that and leveraging that to get to the next level has been the core focus for me. It is bringing together M&A as a tool to accelerate our focus on strategy for becoming chemistry as a service for Axion.

Let's break that down. Can you walk me through? Because it sounds easier said than done. Hey, we want to evolve, be more of a tech company. This hits a lot of industries, even nursing services, that we want to become more of a tech company. Give me the basics of going from that strategy to execution. What makes it hard?

As we thought about strategy, the commodity chemical sector is obviously pretty challenging. You're always a price taker versus being able to differentiate yourself. And we have some differentiating products and we'll continue to do that. But more importantly, as you think about M&A as a tool to accelerate strategy, we had looked at it and said, if we can acquire a business that has a technology element to that, combining that with our chemical portfolio, now you can certainly create a lot more value from a close integration standpoint. M&A became a tool to accelerate that strategy that we had put forth. And bringing on a business that is in the technology space, but not so much in the chemical space— we have our chemicals portfolio, Saying, okay, how can we integrate those two where we leverage the toolkit that we got from the new business? We understand the customer requirements as well. We also understand in terms of how we can bring our domain knowledge of the sector to leverage the AI and the tools that we have acquired for the new business and layering in that domain knowledge to accelerate the product development, having a better product roadmap. To achieve the outcomes that are important for our customers. And that's why we also went and did like a VOC to understand what are the pain points for our customers, where are they needing more help, how can we drive more efficiency for them, how can we drive and manage more costs for them, which will create value, which eventually everybody gets benefit from. Bringing out our experience, our portfolio, our domain knowledge, along with the technology toolkit that we acquired, that kind of gives the whole bandwidth from a portfolio standpoint that we can provide to our customers that drives outcomes for them. And that's what we have been doing it. I mean, it's early days and we have a lot more work to do, but again, this is an example where strategy leads, where we focus on M&A becomes the tool to execute on that strategy. And then we have to diligently execute and focus on creating value from an integration standpoint and understanding the portfolio composition standpoint to achieve the outcomes that we want. That's why the whole lifecycle becomes important here. And it hasn't been done before. If you go and look at the other chemical companies, not a lot of them are focused on technology and AI. And we are trying to be unique in that manner because we can afford to. We are a niche player that can have technology enable our products to a different level. And we have that ability to do so. And that's what we are going to continue to accelerate our efforts on.

I'm kind of curious just from the beginning, how this strategy shapes— I know you mentioned quite a few different elements here. You have your existing business portfolio. You have the technology, essentially your tech toolkit that you're acquiring. You have this customer requirements/voice of the customer, and then your domain knowledge and how you can leverage it to bring these things together on the technology acquisition. Like, where does that start? If you look at it, is it— here's a business strategy that we came up with, and how does that evolve and shift? Or is it more bottoms up with these conversations through the customer? How do you sort of get to that point where you can build a deal thesis on what kind of businesses you need to acquire to make it happen?

I think it is both ways. Some of it is you need to understand the customer pain points and understand what are their challenges. Again, this is a sector which has been challenged because a lot of exposure is around building and construction markets, which are subdued right now. And so as you think about talking to the customers, their focus is on how can we drive more efficiency? How can we drive more throughput? How can we drive more cost management? And then we go and look at our portfolio in terms of what can we provide that can service those needs. And there is only so much we can do sitting with our current portfolio. But as we looked at it, we said, okay, if you enable some of this with technology, if you can enable this with more AI enablement where you are providing more predictive analytics, you are providing more agentic analytics. We said, okay, if you layer in that along with our portfolio, that certainly starts to become more meaningful for our customers. And then it became a discussion on build versus buy on how do we achieve that outcome. We looked at doing more internal building as well in terms of how can we build those capabilities, build that awareness in terms of product development. We looked at that, but we also looked at, is there a faster way to get to market through a potential transaction, potential acquisition, even a partnership? We looked at different options to achieve that outcome. And it just so happened that we were able to find a company that suited our capabilities, that was aligned with what we were trying to do. They were trying to penetrate in that space and we felt that combining our business with theirs would certainly accelerate the efforts and it is 1 1 4 and not just 1 1 2. And that's why we decided to move from an M&A standpoint instead of trying to build it ourselves. And this also accelerates our go-to-market and we have already been deploying that product with our customers. We have been already seeing some early green shoots in terms of success.

So this isn't just moonshot bets. There's some validation with these customer conversations. —by bringing in these features and capabilities, you're going to have some unique benefits that you provide your customers. So that's where you start shaping your strategy around that. And then the deal thesis, what precedes it is this build versus buy versus partner analysis. Can we talk to a little bit more about that? Seems like a tread lightly across it, or like how much depth do you actually have in doing that analysis? And then when do you sort of really get that? Because you even mentioned you found that right fit of a company versus you could almost easily say, hey, let's just buy it, want to solve the problem faster through an acquisition versus using the other means. Yeah.

Every opportunity has to be evaluated on its own merit as I see it. And we have done that in different ways and there are places where we have gone and built it ourselves too. It all depends on what are your core capabilities as a company, as a business, what do you bring to the table that can help you develop that product set? Are there opportunities out there that are actionable? Because you have to find a company that is one actionable, that aligns with what you're looking to do and it actually accelerates your efforts and not just pushes you back from a development standpoint. The stars have to align for you to go in one direction or another. The easiest answer is to obviously build it ourselves because when you build it yourself, you know what you're doing, you have it from ground up, but it also takes time. It also takes effort. There is also a risk of getting to commercialization. Whereas if you look at buying a business which has already been commercialized or at least close to getting commercialized, you de-risk a lot of your go-to-market strategy and you are already more than halfway there. Plus there is already a product that is far advanced from a development standpoint. So the timing-wise also you are much more advanced. And as we looked at it, we felt that go-to-market and speed to market is important. And when we found an opportunity that kind of fitted with a lot of our requirements, nothing is 100% accurate, but as it fits with most of our requirements, we thought that we could With our capabilities, we could certainly enhance the product, enhance their capabilities, and we would be a better owner of that business to be able to go to market a lot quickly than we would do if we have to build it ourselves. And we looked at partnerships as a third angle, but partnerships was just challenging given the nature of the market space. So buying versus build became the right answer. And then it came down to time versus resources versus de-risking one versus another. Especially when we found an opportunity that was actionable, that fitted our requirements, it just became an easier conversation to move towards buying and integrating that quickly.

So buy versus build, I get. There's essentially lower risk because you get maturity of your solution, and two, speed to market. That sounds clear. On the partnerships, I'm curious about, because I feel like things are evolving where even the marketplace is getting more partner-friendly, where you can essentially license IP, be able to leverage it that way without having to take a big cost of doing the acquisition and a lot of the overhead and time that goes with it. Do you see that shifting at all?

We are looking at partnerships too. We have actually put in place partnerships with our customers to drive more adoption. That's one way where we see partnerships as a great tool because we have the product, we can partner with them to co-develop, co-join in terms of drive more adoption. And that's where we feel partnerships are valuable, where they can test us, we can test them, we can jointly learn and grow, especially for a product that is relatively new in the marketplace. And that's the one where we feel partnerships are a great tool. And we have already had 2 or 3 different partnerships that are in play right now with different customers, drive more co-development and co-adoption. So we look at all the different levers that make sense for us from an engagement standpoint, and the acquisition of the software and the AI was the right way to do it. Partnerships in terms of driving more adoption is the right method, we feel. So that's why we are doing it both ways.

Can we talk through putting this together? Walk me through what chemicals as a service looks like. What are the options on the table?

Like, how'd you actually get there? Chemicals as a service means, again, understanding what are the pain points of the customers. Right now, all we do is just sell our resins into the marketplace. But with a service, you're not just selling a product, you are providing them a service where It is helping them make their operations more efficient, helping them drive more growth from a top line standpoint, also driving more of their cost management. So you are becoming a partner with your customers in terms of helping them scale better, helping them drive better margins while also you benefiting in the interim because you're also kind of engaging more regularly with the customers versus earlier where you were just selling the product and then that was it. Creates more of an aftermarket deal for us with the customers, allows us to monetize our install base better, allows us to be more closer to our customers, and then be more of a service provider that is working jointly with our customers instead of just being a supplier of a product. And that's where we see long-term as our future, as our business future in terms of being more of a, not just a supplier of product, but being more of a partner with our customers in terms of helping them solve their problems. And helping them across the value chain to drive more efficiencies and create value for both of us in the meantime. That's where we want to be as a business. That's where we want to be as a company. And we feel that being in this business of providing more of a service, that is the right place for us to be given our capabilities, our domain knowledge, our ability to understand the customer set, our understanding— we are also one of the largest players in the sectors. We have a much more broader penetration of where the market is. We also understand the customers better. And again, that makes us a lot more unique in terms of being able to monetize this better than our competitors or even with our other technology providers, because we can bring a lot of unique capabilities that neither pure technology providers can bring in or neither our competition can bring in. It is a very significant edge of being able to drive this much better with our customer pool.

How do you think about like the implications to the model? Because you went from traditional chemicals where you're essentially selling a product to now services, looking at more recurring revenue. Is there sort of impact on valuation when you think about that?

[Speaker:KISON_PATEL] Yeah, the business model is undergoing change and that is changing across the industry as we speak in some ways too. And we are all trying to adapt and adopt. Things are again, I would say early stages and we want to try and do more of, but in terms of how do we drive the mentality from a customer standpoint too, they are not used to paying for that service today. How do we make sure that they understand that value where they pay for that service? How can we bring that value up front to the customers so they see that value that they are going to pay for? And then in the end, how do we create a win-win where they see the value, we see the value, and we both get paid for it? So that business model is evolving, and that's why the partnership model is important because now you are jointly learning some of those nuances and then developing some of that model and the thesis together, which is exactly what we want to do. It is not just we want to go to the customers and say, this is our model and take it. It is more about how can we work with you, develop a win-win model that works for both of us. And that's why driving adoption through partnerships is one of the right ways for us to go to market. And that's what we are pursuing.

Can you define that, like what that means to go to market through a partnership versus how you'd otherwise go to market?

So otherwise you can go to market as I can call the customers and say, this is the service we are providing and just buy it. That's one way to do it. Where we are going to the customers and saying, look, this is what we can bring to the table. This is what you can bring to the table. How can we work together to develop the thesis that we have, the product that we have to jointly create value for both of us? And that's why it drives adoption better because the customers feel that they also have a skin in the game of evaluating and jointly developing it with us versus just taking a product and testing it on their side. And we also feel that instead of just selling a product, which may not be fully there, this allows us to also co-develop and have a product which is more attuned to customer needs and addresses their problems more so than selling them a solution, which may or may not get them there. It is a win-win for both of us. And that's why we feel driving that adoption with that model is a better pathway for us.

Are the commercial terms different in that approach or is it more of just the relationship framing?

Commercial terms will also be different. You are just selling a product versus selling a service. So the commercial terms will be different. As we see the software as a service that has been out there, I mean, there are different ways to go to market on selling that software. How do you drive more recurring revenue? How do you drive more adoption? How do you drive more margin development? How do you drive your product roadmap to make sure that is staying current with the customer needs? A lot of those things which we are not doing today from our product selling standpoint will come into play as we get more on the servicing side. So all of that will change.

Commercial terms will change. I guess I was looking at the framing of working with the customers instead of saying, hey, I'm selling you this solution. We're sort of approaching you as a partner and providing this solution. Does that sort of framing lend to different commercial terms?

Absolutely. And that's exactly where it is because now we are talking on different levels. We are not just selling them a resin, we are selling them a service. We are selling them service which can help them improve their efficiency. So some of that might be tied to their value metrics. Some of them might also be tied to How can we help them drive more efficiency and accelerate their efforts? And, and then also how can we bring our domain knowledge to support them on a regular basis? Everything will change in that manner where it is not just the commercial terms, but also our engagement. Now we are going to be a lot more closely tied with our customers. How are we going to provide them with aftermarket servicing? As we understand more of the data set for a broader customer, how can we use that data to influence how we drive more AI enablement for these products. That is something that we will have to continue to keep doing on our side as we engage with these customers, because it will benefit them to look at the various data pool out there and how that can change what they are trying to do with their product.

And I understand this whole relationship framing is completely different with the depth of relationship that you're acting on, how you're building that relationship to make the value tangible, the metrics that you're trying to align with on the customer. Now that makes sense of why the partnership framing. Yeah.

And I think you have to partner not just with the end users, but also with the service providers, with the system integrators, because a lot of those players are also as part of the ecosystem. We are trying to partner with different stakeholders and different players to make sure that we can create value through different routes. It is not just going to the end user and saying, I want to just partner with you, but it is also partnering with the OEMs that are supplying into the marketplace. There are the players who are in the sensor space that are also a big player supplying into the marketplace. There are system integrators that provide these larger systems for the end users. And how can you work with them to make sure that you are providing that service through them. So it is a partnership at a multifaceted level that'll help us penetrate the marketplace much better.

Awesome. Let's talk about execution. What does that look like in terms of finding these opportunities? And we can talk about how to evaluate them, but how do you like, what's this model look like for sourcing deals?

So for sourcing deals, we have had a multi-pronged approach. We are going to our customers and showcasing them what we can bring, how we can bring, how we can create value for them because That is the pull side of the equation where the customers have to feel the pull to have this. And then there is a push with the OEMs and our partners to say, look, this is the service and the software service that you should enable along with your products because it is going to create a lot more value for your customers. And that'll also help you differentiate in the marketplace as you win these contracts. That's the push element of it. And then there is a pull element of it. So we are working on both fronts to identify deal source and saying, okay, One or the other is not going to be enough. So making sure that we are working the partnership angle to push, but also working with the end-user angle to pull and driving the deal sourcing from both sides is what we are looking to do. And again, some of it is also regional-based. US versus Europe versus Asia, the dynamics are very different. Asia is a very crowded marketplace in terms of how they play there, more local players, smaller players. Europe has larger players, more family-owned businesses, mainly doing it through partnerships. And US is more direct end-users driving decisions. So regional layer, as we do more deal sourcing, also comes in play. It is complicated and challenging, and it is not just a straightforward answer.

Well, you described a lot of angles that are proprietary deal sourcing from these customer conversations through your own research. Is there anything that comes in through a bank process, inbound, stuff like that, that you're acting on? Or is most of it all proprietary deals?

From a deal standpoint, we get opportunities to look at either services that we can attach to this one. There are companies that are either developing products or developing services that are in that ecosystem. That might be a good add-on to what we are trying to do. And secondly is that adding more to our core portfolio, which could be further enabled from an AI and a software standpoint. So those are the two areas where we feel we get inbound from bankers and saying, okay, these are some of the additional products you should add to your portfolio. And yes, we can add those products today, which can then be further enabled from a servicing standpoint down the road. That's one way, and we continue to look at those opportunities as well. And then the second set of opportunities is where we are looking at how can we get more services or software that is add-on to what we are trying to do. And that can again accelerate our development efforts or go-to-market instead of having teams develop it for months and months. Now we can certainly own those businesses or own that product development, which can accelerate some of the service attach. So both the areas we are also looking at it from an external standpoint.

I want to pick on you because you have half your career in banking side and half in-house corp dev. When you get a pitch through the banker and sometimes you can get it where they land the pitch pitch, and sometimes it's completely off in left field. Walk me through that. How can a banker really nail the pitch down so it's actually on point and really gets your interest versus when they do it wrong?

Kison Patel: I've seen lots of bankers being on, at least on this side, and as you can imagine, the organizations I've been with have been heavily banked. So you can see a range of bankers in terms of how they think about it. One key element that differentiates good bankers from others, I feel, is folks that know your business and have given thought about why certain things make sense. You have these bankers come in and have 50-page decks with 20 targets on it, which is just throwing whatever out there and saying, okay, whatever sticks, we will take it. And then there are bankers that come in with 3 ideas, but those are the 3 ideas that make real good sense for you. And then the second element that differentiates good bankers from others is having an angle into those ideas. And everybody knows the companies out there, but what is your angle? What is your ability? What is your understanding of how the management team, how the board is thinking about it? Because unless you have that kind of engagement and understanding, it is just tough to differentiate yourself. The good bankers versus the not so good ones, I would say, are the ones that know the companies well. They may only know certain companies, but they know which companies they know well. They know them really well. They know how the management team is thinking, how they would, they would entertain or not entertain an approach. Why are they the right fit for us? Because they understand our strategy pretty well. Sometimes the good bankers will also push us on our thinking. They're like, okay, you have not thought about it this way, or you have not thought about it this way. And that also sometimes we would appreciate because we like to be challenged. And I like to sit there and say, okay, how can I be challenged on my thinking? And I'm open to ideas and good bankers will try to push you on your thinking for the right reasons. And then that's what differentiates as well. So these are some of the reasons I would say you can put bankers in one category versus the other.

Bottom lines, like go very narrow and deep. I'm curious if you were to go back to banking, How many companies would you try to cover?

Yeah. So see, that's another thing too. I mean, when you have to cover a broader set to have an understanding of the companies, but on the same token, you also want to make sure that which are the top 8 or 10 companies that you really want to spend time on and be their trusted advisor, because you can't be a trusted advisor to 20 companies. It's just not possible, whether it's 5, whether it's 8, pick your number, but you want to understand those companies really well. You want to spend time on them. So you have to make bets. I go back into banking. You have to make those bets of whatever the 7, 8 companies that I want to spend time on, mainly because I have a better I have a better understanding of how they think about it. I have a better understanding of that space and what they can do in that. And I have those unique capabilities. And that's why those companies make sense for me, not just because they are the 7 companies I found off the list. Spending time on thinking through where you want to spend time in banking is super critical, especially in today's environment where it is so heavily bagged and everybody is talking to everybody.

You got to know the whole space and then pick your 5 to 10 companies to go deep in. Let's talk about valuation. What moves valuation when you go from IOI to close? What are the red flags that tell you to stop?

It all comes down to strategy in my mind. You evaluate the opportunity early on. You say, okay, these are my must believes and this is why I would do this. And then you test it out after your IOI in certain ways and say, okay, these are my must believes I had said, am I still on track to believing in those? Can I make a difference in those? Are those still my challenges? Or can I risk mitigate them? And if the answer to all of that starts to becoming yes, then I think that's the deal that you want to do. But if the answers are still, I don't know, it is probably still risky. I can't mitigate it. I still can't have this must believe in my pocket. Then I think that is a deal that you should pass on. And that's where the red versus green flags come in. And you get to know some of it after you submit an IOI through engagement with the management. You get to meet them, you get to understand them, understand the business. You also get to review the diligence in a lot more detail and you basically start answering your questions to make sure that it clicks. Now, if there is a lot more value that you can create than you initially thought, then potentially there is a way to get higher on value, but then also it comes down to process dynamics and everything. But again, that's something that you are able to create a lot more and that view starts to become even more interesting because now you have better returns on your investment than you earlier thought. But the reverse could be true as well, where you struggle to even meet your existing ROI requirements that you initially thought, and it might be even more challenging. You may have to invest more capital, you may have to take on more risk and still may not be able to get there. And that's where you should decide to move on because if it doesn't check your boxes from a strategy and a value creation standpoint, then any price you pay is not going to get you there.

[Speaker:KISON_PATEL] So it sounds like even going from initial look, either IOI to LOI, you're essentially trying to validate your thesis. And then when you go from LOI to close, you're trying to validate your actual execution on the deal.

Yeah, absolutely. That execution and integration phase should start right after your IOI, as you get into the diligence phase, because you want to start testing that alongside and saying, okay, these are the value synergy drivers or synergy levers we have been talking about. Are we still on track of it? How are we going to achieve them? What do we need to do from a function standpoint? What are some of the things that we need to start tracking? Who do we need to bring on board? So that integration phase should also start ramping up as you get deeper into the diligence before you get to a final bid stage. By the final bid stage, you should have a pretty clear idea on your integration model, your value creation drivers, your path to getting there, timing. So all of that should be very crystal clear by the time you get to a binding bid, because once you have the binding bid in phase, then you're just moving closely towards getting to a transaction signed. And then once it's signed and hopefully it gets closed soon enough, then you are on your own to integrate. If you're not ready by then, it just becomes more and more challenging.

So LOI, you have an integration thesis, and then when you go through all your confirmatory diligence, you're still thinking through integration, but again, you're validating the execution of your ability to actually execute all those plans that you're going to do post-close. Absolutely.

So that's why you need to name your integration leader early on. Make sure that they have a buy-in into what you're looking to do and they own it. Because if they don't own it, then it'll just be something that you give it to them later on and they may or may not be able to deliver on it. You don't want that. So that's why bringing them early on, defining their role and giving them that accountability and responsibility to be able to create that game plan, that becomes super important because then they own it and make sure that they deliver on it post-close.

They're describing a very buyer-led M&A approach, strategy leading your approach to source proprietary deals, and then the execution. You're constantly— I have a thesis on how you're going to integrate, and then you ultimately continue validating it, building your integration plan through all the confirmatory diligence. Very buyer-led. I'm curious about your approach between a proprietary deal versus an auction deal, where a lot of times you got some very, very tight timelines. To really force certainty to close and optimal pricing. How does your approach differ between those two scenarios? If it's a proprietary deal when there's more flexibility on timeline versus an auction where it's highly compressed timelines? [Speaker:KISON_PATEL] By being on the buy side, you mean? [Speaker:TREY_LOCKERBIE] Yeah, exactly.

[Speaker:KISON_PATEL] In a competitive deal process, you need to be crystal clear that's an asset you really want and that's an asset where you can really make a difference and create a lot more synergies. That conviction has to be pretty solid for you to be aggressive in a process. In organizations that I've been in, my philosophy has also always been that you have to be disciplined and not get carried away in those processes because it could get crazy at times. And at that point, you need to know when you need to walk away and you need to know your walkaway points and walkaway thesis. And if that's where it hits, then I think that becomes the right answer. But doing a deal for deal's sake is never a good idea. Making sure that it is aligning with your thesis. Now the process sometimes moves at a pace where it is dictated and we have to match up to the process and say, if the deal is the right deal for you, if it's the right opportunity, then you obviously want to match up to it. And we have capabilities to be able to move faster if there are requirements. So I don't think that has been a limitation that I've seen in any instance, but you have to be careful on why you're doing that deal and not get carried away because of the process dynamics. Your deal thesis has to be pretty intact. Is it easy to get carried away? Sometimes it could be, you know, people get emotional at times and when the deal is that close and You don't want to lose a deal over one or two terms, but I've seen deals getting not done because there are some sticking points that just couldn't get through. And it all comes down to risk allocation. At the end of the day, it's all risk allocation and value. You have to balance both. And if the risk allocation is not in one party's favor with value being in the other party's favor, I think it just makes it challenging for whoever is trying to get a deal done. As long as you can get to a win-win with appropriate risk allocation and value measurement, everybody comes out Okay. But at the end of the day, like I said, it all comes down to risk allocation and how you define that.

Having strong discipline, knowing when to walk away. Speaking of what are the biggest risks when doing environmental deals, obviously environmental liabilities can blow up a chemical deal, but what do buyers miss early and when does it usually surface?

Doing a lot of chemical deals, environmental is obviously top on my list. At a lot of times I just want to make sure there are no environmental or asbestos liabilities in certain cases and things of that nature. So all of that is an early checkmark when doing chemical deals. How do you kind of risk mitigate that? That's where the question becomes, who takes that risk? Some of it is known, some of it is unknown. Some of it is because they haven't tested it. They don't know what it is, but what if they test? Then what happens? Who takes that risk? Do you want them to test? Do you want to know it? Do you don't want to know it? A lot of those things comes down to, again, risk allocation. And I have done different methods where you can do a sliding scale, you can do a cap. On exposure, different ways to kind of skin that, but you need to know early on, on who is going to take that risk. Why are you taking that risk? Are you the best party placed to be able to handle that risk going forward? Because sometimes if you are going to own that business, only you can mitigate that risk. The seller cannot. And in that case, who pays for it? How do you pay for it? What if it goes beyond a certain dollar threshold, things of that nature, different ways to approach it. Like I said, sliding scale or gap, or sometimes it is indemnification. You can probably get through that too, but different ways to kind of approach it.

Yeah. Essentially quantifying the risks that you're taking so you know what you can handle. Hey, we haven't talked about any deals. Can we share some deal stories? Like, you got any examples of deals that really tested you out?

Every deal is a different deal in different ways. And sometimes I feel that the smaller deals are really hard to execute compared to the larger deals, because in larger deals you always find that everybody's focused on it. Everybody's looking to find a solution. Whereas smaller deals, when I have done, especially being at larger companies, trying to sell assets that are small, are relatively noise in your system, but the buyer, for them, it is like one of their biggest deals that they're doing. I had worked on a transaction where we were selling a small business from a portfolio, and for the buyer, every dollar counted. And for us, we wanted to just get it done with. In that circumstances, you have to be very careful because again, you don't want to give up value, but on the same token also manage risk on your side. What is the priority on your front? Value may not be a priority for you. The risk is a higher priority in that circumstances, given the deal size. That's how we kind of ended up doing that. We ended up giving up value because we wanted to manage our risk. And then that's what you need to make a decision on. But those kinds of deals test you because the buyer wants to check every box and you just don't have that bandwidth to do it. And you just keep on dripping on value because Every time the buyer doesn't find something that they want or they find something different, it impacts value. You end up giving up a lot more value than you initially intended, and you need to know at what point you need to stop or at what point you need to trade risk for that value. And if that trade is not happening, then also you need to walk. And one of the deals, like I mentioned, had a lot of that components in it where a lot of it, we did not even know what we owned because it was such a small business in our broader portfolio, but the buyer for them, like this was their only business. They knew our business much better than we did. And that's always a tough place to be in when you're trying to negotiate a deal where they know much better than you do. They have a better leverage in that system. So it was challenging, but I had to quickly learn the business myself, get up to speed and understand it much better, understand the dynamics, also prioritize what is important for us. And risk allocation was way more important than losing on value. And that's what we decided. And that's how we structured the transaction. And it also took about 6 months to execute on that transaction, which again, for a smaller deal, you are tying up a lot of resources and it just makes it more and more challenging within your larger organization, which was another problem that we had to grapple with.

Is it the challenge that when you do the smaller deal, that it's like getting that level of focus and people's attention to it where they're just like, oh, it's like a tiny little $10 million company, which is nothing compared to—

Exactly, exactly right. It feels like it's like $10 million company. I have a billion-dollar business to run. I don't have time for this $10 million deal. Well, okay, that's fine. But if you don't pay attention to it, you are going to give up a lot of value. You're going to give up risk or you're going to take on more risk. And you don't want to be stuck in that situation because they will read that contract and they'll continue to follow that contract and they'll keep coming after you. And you don't want that. You need to pay attention to be able to get it done. That's where it becomes more challenging. For larger deals, everybody is willing to spend time because they know there is a lot more value that they can get out of it. But for a $10 million deal in a billion-dollar portfolio, —it's a rounding error.

That makes it tough, is getting the right resource allocation, attention, focus. Anything went well on that deal?

Once we realized what is important for us and we wanted to get it done by a certain time, we wanted to make sure that we managed some of our risk. And as long as we communicated that and we gave up on value, we could get a deal done. But it took us some time to get there.

Yeah, having discipline on the timeline and then ultimately somebody had to take ownership.

Yeah. Because sometimes in those kinds of situations, the noise and the management distraction is just too much of a value destruction for you that giving up value on the deal itself is probably easier if you can get the deal done quickly. So your management team can focus on what really matters to you as a company. That becomes a priority for you. And that's what we decided to do. Pretty cool.

You got any other deals that you've been most proud about?

There are a lot of deals that are good deals that have worked out well. At LionDell Bazzell, we did the SaaS whole transaction, which has probably been one of the best deals in company's history. It was a great transaction because it was a good fit for both companies. Lyondell didn't have a new cracker in the US. Sasol had a new cracker. They needed the right partner. We were able to provide the right partnership and structure the deal in a manner which was a win-win for both parties. And both the parties have benefited significantly from it. So there are some deals that end up being a win-win for both, which come out pretty well. That's what you want to look for when you're doing transactions where 1 1 4 and both parties benefit from it more so than just one winning and one losing.

Good strategy on it. Sounds like both sides were motivated to get this deal done and it ended up being a strong value driver. What was the challenges though? What were the hard parts or the surprises that came up in the deal that actually made it hard to do?

No deal is easy. All the deals are challenging. Exactly. All the deals are challenging, whether it's the value question or whether it's the question on governance and ownership, who is going to do what and what each party brings. I mean, that was more of a partnership or a JV type of a structure. So governance became important. Who is going to do what? How are we going to drive long-term value creation? Things of that nature became a lot more prominent than the value itself.

So this JV changes the dynamics quite a bit because now you have a huge emphasis on governance and then also you got to definitely think a lot more long-term because it's almost like the marriage. It's like, oh, we'll be together, but maybe things might not work out and we got to break up.

Especially when you're doing JVs, sometimes you have to talk about divorce first, then you're talking about marriage. It's equally important. So that's why JVs are not easy to execute either.

The governance part, like how does that end up working out? Because you end up with people from both sides, but is there like an approach to figure out who's going to do what or how do you choose between people?

Yeah, that's why there is a whole theory in terms of how do you structure the governance rights are one of the keenly negotiated ones in a joint venture. Who is going to do what? How do you escalate? How do you make decisions? Who has the veto rights? If one party doesn't agree, what happens? Who is going to fund? Funding becomes an important element of what if one party wants to fund, but the other party doesn't want to fund, who takes that risk? What happens to the equity ownership in that scenario? So governance rights and governance terms are one of the key negotiated points. Now it again, all boils down to what each party brings to the table. What is their motivation? How long are they planning to stay in there? What are they looking for? Are they looking for cash? Are they looking for more involvement in operations? Are they looking for more deeper things than that? What is their long-term strategy with their business and how does this fit into it? Is this more of a cash generation for them versus a long-term strategic pivot, because then their approach will be very different here. And then also, how do you bring in more independent directors that can break the tie in certain cases? There is no one JV structure that works, but these are some of the points that get keenly negotiated in that transaction.

Sounds like a whole topic for another podcast interview, my friend.

Yeah. Yeah. The joint ventures are a whole different discussion to do.

Yeah. At least we got a little teaser on it. Give me the principles. You spend 10 years banking, 10 years in corp dev role. What are your big staple principles when it comes to executing M&A today?

My main principle is it has to fit with the strategy, has to be fully aligned with the strategy. You need to know your must-believes and your key considerations on why you're doing the deal and why you would not do the deal. And then staying disciplined on execution and making sure that you are paying the right price, you are getting to the right terms, you are making sure that the integration thing is very well defined and taken care of. Those are the three kind of main value drivers from my standpoint as I look at transactions. That's in my mind the right way to approach deals and getting things done, which makes sense for companies long-term.

Can we talk a little bit more on the execution? If you can unpack that a little bit, it sounds like there's stakeholders, but you have those things you described why we're doing the deal, but then also aligning the stakeholders. We obviously talk about so much around the integration, the building thesis, and then the actual like planning and execution of it. Through the deal process. We talk a little bit more about how do you actually align those people in and keep them aligned?

You mean the integration people?

Yeah. Or just general, all the stakeholders that you're going to have to manage through this deal process.

I think that's why regular updating, communication, making sure that we continue to test our deal thesis, we continue to drive our engagement with our partners, whether it's commercial, whether it's supply chain procurement, functional guys, finance, and making sure that we are bringing the team along as we proceed. It's not like me going and working in the backyard and getting a deal done and then telling them what it is. It is more about bringing everybody together and continuing to test each other, push each other in terms of their thinking, making sure that we are testing appropriately on the value drivers, making sure we are testing appropriately on timing, also making sure we bring in the right leadership when it comes time to integration. Who is going to be the right integration leader? Why are they the right person? What can they bring to the table? How are they motivated? Do they have the right team with them to do this? Things of that nature. So all of that becomes important, but you need to be able to manage each of your stakeholders and in larger companies board also becomes important. So sometimes in larger transactions, how do you bring the board along as well? Instead of just telling them at the last minute, you need to keep them updated, make sure that they have bought into your deal thesis. They have bought into your value drivers and have a better understanding. So when it comes time for final approval, they're already mostly there, bringing along not only your team, your leadership team, but also the board becomes important. Awesome.

I got it from the notes from the last conversation. The two are bringing the right people early, get the consensus buy-in so you can plan integration early, which we touched on. And then how do you drive IT integration, which tends to be the longest pole in the tent?

IT, like I said, is also an important element of it because it's the backbone of a lot of companies. Everything is driven by IT. Having the right set of tools, having the right set of systems, Making sure that they're aligned with what you are having. One of the companies I had looked at had so many of the SAP versions on that company because they hadn't integrated all the businesses that they had bought and ended up having different SAP systems. And how do you then take that and then integrate that? It takes a whole new effort in itself, given how technology and IT are important for every company now that they are fully vetted as you evaluate, because that might require investment, that might require time. Which will eat into your ROI and value returns. You need to be able to categorically identify them early on. So you know how much you need to invest to bring these IT systems on par up to what you're looking to do.

One of my favorite topics is like getting deals actionable. You got a lot of experience doing this. Can you tell me like, what are your sort of tips and tricks in getting a deal actionable? A lot of it comes down to timing.

You can keep pushing for it at times. Sometimes it comes down to when the seller is ready, they're ready. But as I look at it, cultivating and engaging with the potential targets is an important exercise as part of corporate development. And you need to be able to get in front of them, tell them your thinking, your thesis. How are you going to create value combining the businesses? How are you going to maintain the legacy of their business, especially if it's a family-owned business? They want to see that. And then why does 1 1 4? And you continue to harp on that thinking, harp on that thesis. Show them the progress that you have made as part of your journey. And then you have to sometimes wait for the timing to be right. That's what it comes down to, but you need to have a more regular engagement and cultivation dialogue with these targets. So they, so you are on top of their mind and when they decide to sell or when they decide to do something, you want to be one of the first phone calls that they make.

I like that. Obviously building trust is underpinning on all this stuff that they gotta like you and trust you enough to want to do business with you, but you hit it. Here's a sort of view of why this deal makes sense for you, but then also getting their take on it, understanding what they want. I like how you mentioned continuing the legacy, which I feel like it's overlooked. Like there's some clear drivers that they have, and then what is the actual broader sense?

Yeah, sometimes they want to keep their headquarters the way it is. They don't want to change that. They don't want to have the people that go because they have been there for 30 years, whatever it is. A lot of that has to be carefully discussed and evaluated and managed.

Do you find that, that these like seller would have these kind of assumptions like, oh, this is a big corp, they're going to come tear our business apart. We don't want to do that.

All the time. They do that all the time. That's why it becomes even more important if you're working for a large company to be able to convince them that, look, we are not going to do that. The best way to do that is to demonstrate through other examples if you have them even better. But if not, then that becomes challenging because they are not going to just believe you on your word. And that's why it takes time to build that trust.

You got to take time, break bread with them so they trust you. Then you can say, hey, look, we would have a different approach, or maybe there's some trade-offs or something where it's not going to be everything that we're going to take your company apart. And then there's obviously some creative value creation. Obviously you're trying to expand and we can help you expand faster in some of these areas. You mentioned cross-culture earlier that you've done deals in Europe, Asia. I'm just curious because I feel like that makes it exponentially more complicated because then it's— if you— sure, in the US you go take a flight and go spend time with a person, go have dinner. But if you're doing a— that's a long flight. Yeah.

No, it's challenging, especially in Europe where there is a lot of family-owned businesses and going and spending time there. It's a conscious exercise.

Building trust is so different. I've worked on some deals in Europe where it's just, they don't care. They don't want to talk to you. They don't want to spend time with you. They just want you to send an offer. And it makes it difficult because I'm taking a bet on this management team and I don't know what that looks like.

You can't convince everybody out there either. So some of it is, it just may not happen at the end, but at least you can try. Sometimes Germans just want to talk to Germans. You have to find a German on the team to do it. And even in Asia, when I spent time there, it was— China was a little tough because they wanted to talk to Mandarin speakers. I had to have somebody who was more local speaker with me to deliver some of that message, break bread with them, have more engagement. So you have to understand and be able to attune to those requirements.

Is your first impression everything? You ever have a meeting with someone and this seems great, We'll probably get a deal done at some point versus I don't think we'll ever get a deal done. I'm going to write this off.

I've seen both and both have changed in one way or another. Sometimes you feel I can get a deal done and we get to the deal and doesn't get done. Sometimes you feel there is no way these guys are going to sell, that is going to happen, and then you get it done. In my mind, it all comes down to timing. It all comes down to what is right when, but you just have to keep at it.

So it's like a counter-discipline. You can't be purely emotional in this stuff. There's a huge factor in doing deals.

Sometimes there is chemistry as well, but Chemistry only goes so far. Then there's value, there are other aspects to it.

So it all depends. These are very helpful tips. I gotta ask, what's the craziest thing you've seen in M&A?

Everything is crazy in terms of whatever you look at it. Yeah. Look, I don't think there is one thing I can define as crazy, but it's the process, the grind.

You haven't seen anything crazy in a deal where it just totally surprised you and shocked you?

One of the smaller deals we were doing, we were, we thought we were negotiating the deal and they just sent us a signed contract and said, that's what we have. I'm like, okay, but we haven't even barely negotiated any of this, but that's how they wanted to do a deal. We had to work around it, manage it differently and all that. But so you see that kind of strange things all the time.

The variables, no two deals are alike. Yeah. Hey Dev, I appreciate this conversation. It's been helpful helping me become a better M&A scientist through every interview we do.

No, happy to be here and thank you for inviting me. It was a good conversation. Hopefully I was able to give you some tidbits and nuances that the viewers and your audience might find useful. Glad to have a conversation. It's a topic that is close to me and I've spent a lot of time on it. And again, it's an exciting topic, so always happy to be part of it.

I appreciate it. Thank you. And if you're still listening to this podcast, my fellow scientists, you're pretty much an M&A mad scientist at this point. If you get through the whole podcast interview, love to hear the feedback. Connect with me on LinkedIn. I got my privacy guard off of there, so I get a bunch of spam coming in every day. So make sure you put a little note that you listen to the podcast. I'd love to connect with you. Open to any feedback. If there's topics that you're interested in that we haven't covered yet, I like getting those suggestions. And also, if we can improve this format, criticism, questions I should be asking and I'm not, I look forward to hearing from you. Till next time, here's to the deal. Thank you for taking the time to explore the world of M&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&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, kison@kisonpatel.com.

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