How PE Should Support Portfolio Company Acquisitions

This is it. M and A Science is expanding with our first M&A conference introducing the M and A Science Fair this October 5th in New York City. This will not be like any other M and A conference. You know the ones I'm talking about where it's panel after panel after panel until you're bored out of your mind and need to hit the bar for tequila shots to restart your brain again. The M and A Science Fair is built around peer driven conversations in a design thinking format that encourages real collaboration. Bring your challenges, workshop them with your peers and leave with practical solutions you can apply to take your practice to the next level. The M and A Science Fair is exclusively for heads of Corporate development and heads of M and A integration. I know it's pretty limited, but we want to make sure this first event drives the best quality networking. We'll probably expand it from there. If you're interested, request an invite@mascience.com Fair again, that's Masscience.com Fair.

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 Barack Rothenstein, Vice President, Corporate Development at Profile Products. Profile Products is a provider of sustainable soil health solutions to promote vegetation in horticulture and environmental solutions, the portfolio company of New Mountain Capital. Today we're going to talk about acquisitions through the lens of corporate development and high growth private equity. Brock, how are you doing today?

I'm doing well Kassan. Thanks for having me. Happy Friday.

Happy Friday. Thanks for taking a break from doing deals to have this conversation. Can we kick things off with a little bit about your background?

I've spent most of my career doing buy side M and A before I got into M and A. On the buy side, internship at a law firm doing transactions from the legal side which I learned I didn't like. From that point I tried to transition into the finance side where I worked at a family Office PE firm I focused in healthcare, was there for about two and a half years, had a really great experience buying and building companies. From there I transitioned to a publicly traded strategic we were doing 20 to 25 deals per year, an M and A machine. A lot of growth, a lot of deals, a lot of great responsibilities there. From there transitioned to a private equity backed business in the biotech space that we sold to another private equity firm. Stayed on there for a few months before I was recruited for my current job working with Profile Products which is backed by New Mountain Capital. The past few years have been exclusively focused on growing high growth PE backed businesses, developing M and A strategies, executing and then integrating businesses.

A pretty diverse background on the buy side going from private to public to private equity. Digging into the second point about telling more about private equity acquisitions these days, you sort of seen it from private owners, public private equity. How have you seen acquisitions change over time?

I don't know that I've seen acquisitions themselves change over time, but I have seen the differences in what matters to family owned private equity firms, publicly traded companies and what has to get reported to the market. And just a high growth PE firm that all they want is acquiring businesses versus ones that might be a little bit more strategic in what they acquire, when they acquire and when they take time off from acquiring and integrating businesses. And seeing the use of capital, depending on the capital needs of the business has been fascinating. But over the past decade I don't know that I've seen differences in actual M and A, but I have seen based on where the money comes from, the strategy changes.

How about more specifically with private equity acquisitions these days?

Today what I'm seeing pretty regularly is, I guess it depends on the size of the fund and the size of the business itself. But some are just buy, just buy. We'll figure out integration or we won't figure it out integration and that's okay. And businesses are operated independently as long as it fits a paycheck that either the business can write or they can debt finance or they can infuse more equity into the actual business then buy it if there is some relatability to the business. But I've also seen the let's make sure that the strategy makes sense. Let's not over capitalize the business. Let's make sure that we're not breaching any lending facilities because we want to make sure that the long term growth on an exit will create more value than just bolting on businesses. And what I've seen on that side is the Integration is highly valued compared to where it has been at. Just bolt on companies and buy them and we'll figure it out later. And the integration and hiring integration specialists and bring them on during the diligence process to help integrate a business on a post close basis. To me it creates more value. I like doing deals that create value not just for the investors but for the actual business and the customers and the stakeholders of the business. On the down the road side and leveraging the integration specialists, I've seen a lot more value on the back end.

So do you say there's generally a greater emphasis on ability to integrate the companies and capture those synergies from the integration?

Yes. I've seen publicly traded companies operate like private equity firms too where you buy businesses and they're bolt ons or they're loosely integrated. Maybe financial systems, maybe HR systems, but that's kind of it. But I've seen buyers walk away from private equity processes because companies aren't integrated enough and they don't want to spend the time and the money to integrate a business into its own entity because it's not integrated. It operates like 10 or 12 separate companies owned by one parent company. It's a different target when you're on an exit. One of the questions that we like to ask internally is what do we want to sell our business as down the road and how can we integrate our business now to get there in three, four, five years from now? And I don't know that everyone's asking that question, but we're talking about it every time we have a deal on the plate.

Very interesting point there. Wouldn't that be an opportunity of its own to buy business like that? Isn't that integrated? Integrate it all together, get some cost synergies, maybe figure out revenue synergies.

If that's your sole investment thesis, I don't know that you'll get the return that you want. But what you probably will see is that you will have faster growth on your bottom line because you can cross sell better. You can have synergies on your suppliers and you'll actually see the increase in margins because of that across the board. Whether that's your sole investment thesis, I don't know that I invest in that. But I think it's important for businesses on a long term sustainability run.

Have you got integration figured out? That is your differentiator.

I am not the master of integrations, but I am one of the drivers. We make sure to bring on experts in the space because we know that their expertise in Systems and how systems talk and how companies work together as feeling and working like one company instead of just saying we're one company. There's a feeling to it, not just a technical can IT system from company X talk to company. Yeah, it's do the people actually know each other? Do they work together? Are they calling each other when they have a question? When there's a hey, I'm, I'm at customer Wise office right now. I think there might be an opportunity, do you have five minutes to just talk to them on the phone? And not having those connections on a personal level, you lose opportunity. So building that has been interesting.

How is that with the overall go to market when you start looking at deals and thinking about how they're going to be integrated?

It's important. There are different levels of the strategy that you assess when you look at an acquisition. And to me one of them is how are we going to approach a customer? Are we occupying more share of wallet at the same customers we're talking to or is this so adjacent that we won't be able to cross sell and we're just entering a new market which might be the play depending on the size of the deal. But you can't really roll up businesses in a completely new field unless you're buying and starting a whole new vertical that's going to be targeting a whole new customer base. I like to make sure that we understand what we're getting into. Whether it's a 15 million revenue business or a hundred million dollar revenue business. What are we buying and how is it going to work with our current business today and how are we going to work to grow it down the road? Because our resources are focused on growing our core. Is this part of our core or is this so adjacent to our core that we're going to have two cores and then you have to have a whole new thesis behind why you're buying it.

How early are you thinking about that?

Probably from the first call with the management team. I want to have a high level understanding of how this would fit with our business before I can bring it up the chain. I don't find value in coming to our CFO and C suite and CEO and talk to them about a business that is so adjacent it's just buying another business. I want to know that my thesis has cross selling opportunity, has supply chain synergies, has some sort of management leverage or new product we can cross sell to our current customers. I want to make sure that I have at least a high level thesis whether the Technical parts work out. That's for our experts to determine down the road. But I want to have that thesis when I pitch it internally before we start spending more time on it.

How much ownership do you take over that in your various roles versus you have a business unit leader that's driving a lot of that strategy and view on this acquisition, I'll go with a lot.

I like to get C level buy in before we spend business unit leadership time because business unit leadership has a lot of commercial activities that if it doesn't fit strategically at a C suite and potential board level, then I don't want to waste people time on it. I want to get that check mark before I approach someone and start spending time because to me the next call would be great. Let's get the business unit leader on the phone with this guy. And I have our C level people in there too. We'll do an hour, learn more about these companies, dive in and want to make sure that people's time is used wisely. So I try to own all of that initial work before spreading. Unless they brought me the opportunity. If they're the one who brought me the opportunity, then I already have their buy in at that point and then it's just running it up the chain.

Where do you typically see most of your deals coming from? Up the chain or through your function?

It's split and I think it depends on PE involvement and the history of the business and M and A in general. Years ago we were sourcing our own transactions. Jumping to publicly traded company where people are in the business for 15, 20, 30 years. They have relationships with competitors, they know they market, they already have regular touchpoints and you're just jumping into an existing relationship. If you're building a function that doesn't have a background in it, which not all of these PE back businesses do, you're kind of starting from scratch. And the scratch isn't no relationships. The scratch is you're leveraging the relationships that you don't know exist yet to have the calls that can get you a pipeline to source you a transaction. And training folks and building muscle memory that okay, this is what we're looking for. Help me learn about this market, who your competitors are. When you walk into a customer, are any of them interested enough that there might be a unique fit? Whether it's having more tools in our bag to sell to the same customer or a competing product, or getting rid of a competitor, whatever the strategy is, building that muscle memory is important. So I've seen it across the board on how you build the pipeline. I try to get my hands in the weeds no matter what because that helps me learn the business more and helps me have a better conversation with the target, with the customer management and the board.

What's the appetite been like on international deals? Have you seen those increase, decrease?

We've just closed a couple in the past year. We bought a company in India and a company in the Netherlands. My first time buying company in India and it was very complicated.

You don't have to hold back because I'm Indian. You can say it was no pain in the ass to deal with us.

There were local regulations that we didn't think about that just made it drag out. Like opening a bank account took three months. It was some painful things to do and we needed to open a bank account so we could transfer funds to our entity to actually be the acquirer. Like it was small things that just dragged on the deal for a lot longer than I want. Whereas if you have an existing entity in India and a bank account, like things get wrapped up a little bit quicker. So there were some things that were really painful. But I went to India for 10 days and it was one of the best trips of my life. It was awesome. I had a great time, beautiful country. I saw the south and the north to get back. I think it depends on what the business needs. I know a lot of people are avoiding the Baltics right now just out of pure fear and unknown, but other parts of Western Europe and other parts of Asia Pacific, Australia, I think people are hungry for deals right now.

Let's go. Still strong appetite for international deals. How about in terms of actual strategies at play? Are PE firms still mostly executing roll ups?

There are two different strategies. One is the roll up increases your core competency. If you can strengthen your core by rolling up competitors in the space by rolling up complementary products that fit into your core, then I think roll ups are a great way to go. More share of wallet with your same customer base. Maybe getting you into an adjacent space just because the products that you're already selling are applicable, that you didn't know about the market or you're learning more about the market and you're learning more about the applicability gives you more cross selling opportunity. But there's also the horizontal move and to me that always depends on the size of the deal. I don't know that I want to spend. I'll give you an example. If Your EBITDA is 50 million, the business that you're working for and you're buying a 4 million horizontal business, which would give you new vertical, to me, I don't think that would really make sense and be worth your time because it's not big enough of a bite to chew to make a material impact on the business. But if you're in the double digits at that point and you're looking at a 10 or 12 or 20 million EBITDA business, that could create a new vertical, arguably to me. And that creates a whole new level of value if depending on the end market and the customers. But both to me are important at this stage.

Can you walk me through how a private equity firm looks at acquisitions?

There are a few different ports that are important to them. You have your economic and financial variables making sure that the business is healthy and growing and the EBITDA margins aren't decreasing the value of the portfolio company. Having something that's either growing quicker, equivalent or higher margin or a plan to get to higher margin post close with synergies is increasingly important. Buyers at the end of the day, when P goes to sell, want to pay for growth and adaptability and knowing that they have a business that's going to continue to grow, which is how you're going to get your multiple. So not depleting your margins at the end of the day is important, obviously. Strategic fit. How do the businesses fit together? What's the story that you're going to tell? What's the story now? Does it actually make sense and why this business is important to buy or why this space is important to go into for the portfolio company? And then you have your cultural HR reasons and I use that kind of rawly, making sure that there's cultural fit. Because if you don't have cultural fit at the end of the day, companies aren't going to work together well. And I've seen deals blow up and not get across the line purely because of cultural reasons. Then I've seen deals post close blow up because of cultural reasons. I don't know that people are always taking it and giving the consideration that it needs. Sometimes you do a deal because you want to just get a deal done. Unless you're looking to change management and kind of wipe the slate clean. Having the cultural fit's important.

Have you ever walked away from a deal from bad culture fit?

Yeah.

What'd that look like?

It was messy. It was messy. You spend a lot of time essentially dating this company, getting to know them. If you're post loi or pre loi, it's different. The level of going under the hood is different post loi it can get really messy. There's a lot. There could be views of breach of trust down the road depending on how you relay the message. Obviously you don't want to say, I don't see a cultural fit between us. I don't think this is going to work out. But being honest is important too. Earlier. It's an easier conversation to have. It's easier to break off a relationship at that point. But further down the road it can get messy. I've also seen personal lives of people kill appeals too. So we had a deal few years ago where we were doing a background check on one of the business owners and it turned out he had a criminal record that we didn't know about. And granted it was like 15, 20 years ago, but it got people a little anxious and fearful about doing the deal. And there was a different personal issue of the guy that blew up the deal. But the personal lives to me have been something to actually get to know a little bit more since that happened because they have a high impact on the deal. If someone's going through a divorce and they don't want to split proceeds with a current wife, soon to be ex wife, it can blow up a deal. Getting to know a founder or a CEO or management or whatever is needed to make that final decision to close is important. On the cultural level.

What do you do to do that besides take them out for drinks?

Spend time with them? It's like developing any relationship. Spend time with them as much time as you can. Go to their facility, spend a week and call them every day. It takes time.

Long walks in the park. I don't know.

Yeah, walks in the park, meals, dinners. Get to know spouses, get to see them in their element.

Do you walk from a deal from bad culture Fit post loi?

Yeah.

What'd that look like?

The hard part about that conversation isn't just how do you relay it to the target, but it's how do you relay up the board that I just don't trust this guy or I'm not getting good feeling from walking around the facility and seeing the interaction with employees. Like there's something that just stings my gut because a lot of it is a gut feeling. A lot of it is hard to measure with metric unless you have a really high turnover ratio or something that's indicative of a cultural issue. But seeing it and smelling it and tasting it, it's a hard conversation to have. It's hard to relate to a CEO who's really excited about a deal and if it's in my opinion that it doesn't make sense after that kind of assessment, I try to encourage the CEO getting to know them on that kind of level too. Not encouraging the negative, but encouraging the relationship. And forming a relationship is important because on a post close basis, depending on reporting structure, you're going to need to have that kind of interaction. It's hard on all levels, but you.

Just got to do what you got to do.

Yeah.

Can you talk to me about you as a corporate development leader and your relationship with private equity firms? I think this is interesting because you've gone through this. You've gone through multiple owners and PE firms, different port codes of different funds. What does that relationship look like? How does it vary?

It varies highly. I'd say in general it's felt supportive, but depending on the trust from the private equity firm to the actual portfolio company, there can be a lot of distance in between conversations. There can be a lot of distance in terms of help. So I've seen highly supportive weekly or biweekly, like twice a week or every other week calls down to monthly or even less, depending on the M and A environment and the environment of trust in general. To me, the way that I've seen the relationship and how I've enjoyed the relationship is frequent touch bases. I think it's hard to have connection without it, even if it's for 15 minutes every week just to catch up on things that are moving. I found that to be the most supportive environment versus the okay, M and A is a little slow or we trust you. Just let us know when you have something M and A to talk about. Because everyone wants to know what's going on at the board level. M and A wise. Having frequent touch points helps create more trust, helps create more transparency, helps floating ideas of A. Hey, I'm looking at this. Do you guys want me actually spending time here? It was floated across my desk. Just want to make sure that we're using our resources according to what the board wants us to do. So the more frequent the touch point, to me the better.

What are the extremes from. Is that basically the fundamental very low amount of communication versus high amount of communication. Give me a profile of what the ideal PE sponsor relationship looks like and what the not so ideal PE sponsor looks like. There's gotta be more than just communication. Is it over critiquing every single deal that you're looking at? Is it being too conservative for you to get out there and be competitive in the market?

It's a good question. I think There's a balance. Like for any relationship, their job is to maximize shareholder value in the long run, to make sure that they can get a good exit. And my job is to make sure that management's working together to build a company at the vision and thesis of the private equity firm. So making sure that all hands are aligned whenever we do something, it's important to me. The best cadence is either weekly or every other week, touch points with formalized meetings and agendas to walk through everything that's live on the table and pipeline down the road. Making sure that we're aligned on strategy, make sure we're aligned on execution, make sure we're aligned as things are getting more real, that we have the right resources involved and the approvals that we need to have the conversations that we need internally and with targets and stakeholders. What I find valuable when things get overwhelming, Private equity understands M and A. My job is to be an extension of them. Essentially. They want to buy more portfolio companies and they want to trust port Dev with growing their Portco with M& A. But when things get kind of wild on the portco side, they go, okay, you got too many live deals, let us jump in and help you with that. And to me, that's been helpful. We actually had that in Q3 of last year where there were just too many live deals and they jumped in and they helped get a couple across the line. And it was incredibly helpful. They didn't even ask. They're like, listen, we're jumping in. We can see that you're drowning here. Let us help you. So having that kind of relationship of we're here to help is important.

Where did the conflicts happen in that relationship?

I've had deals that we've really rallied for as a company and as a leadership team that private equity did not want to support and didn't support, but wanted to give us the motivation, encouragement that they will support us doing deals. So gave us the leniency to chase. And being an advocate of being realistic and creating boundaries is important. So if you don't want people poking their head and this to Chase in space, let us know so we don't spend time on it. And by us, whatever the portco is, I've sourced transactions before that turn into new portcos for the private equity firm, whether that's helpful or not, probably we're making the introductions, we're giving them the download of an interesting opportunity. But staying out of this sector or this industry, the earlier that they can let us know is always not best.

Goes back to communication. How about the approval process? How do you see that vary from PE owner to PE owner?

I've seen it as highly formalized where they want really highly sought after pitch decks that break down every level to just put together a one pager and that we can move forward at least with an LOI to at a strategic level. They're looking for a higher level of diligence because of the the cash is all coming to the bottom line. Your net income per share is what's going to be relayed. Not just your ebitda but on the private equity side kind of anything is game depending on what they want to spend time on. So learning that kind of upfront is important. How formal it is, how much detail they want in initial phases and what they want to learn down the road. Everyone has their standard diligence items that they're looking to track upfront and progression throughout the close of the deal. And they're all close. Some value, some items more than others. So having clarity around what's valued and why is important. But they all want different things.

Yeah, it sounds like there's quite a bit that varies there. You just got to figure out what their expectations are.

Yeah.

I wanted to talk about sourcing. I think there's a few lines of how private equity look at sourcing platform opportunities versus how they look at supporting helping the portfolio company identify opportunities. Could we talk through that? And maybe even how it differentiates from the corp dev's role and how they look for opportunities versus how the private equity firm may help them do that.

From what I've seen, there's a higher reliance on banker relationships for acquiring portfolio companies, whereas it's only the smaller investment banks that'll represent what a typical Portco would acquire. If you're not a multi billion dollar Portco and you're in the middle market, few hundred million of revenue range, you're looking at only a few investment banks that'll represent the tens of millions of revenue kind of businesses to get deals done. So you're more reliant on at least in the corporate development side, relationships. A lot of relationships. Relationships with owners, longevity in an actual business trade show. Who's putting up a booth and getting to know people on that kind of level versus going out to meet investment bankers at different networking events like JP Morgan.

How's the support from the PE firm? Is that a big driver for them identifying opportunities or does that still fall back on your lap? The mix.

It's a mix. If they're bringing in a corp dev person. They want acquisitions and in order to do acquisitions, they need a pipeline.

You better do your job.

Yeah, gotta show my value, gotta show that I can get stuff done. It depends on what they're looking to do. Each private equity firm has their own resources and each one will give you access to what they're comfortable giving you access to. And by you I mean the corp dev guy or girl. There are a lot of great resources out there that I'm sure you've seen that helping diligence companies or markets or getting details on companies to narrow down opportunities is helpful, but also building a resource bank of internal exports which could be on the board. It could be third parties that they trust. It could be whatever they're comfortable with. I've worked with private equity firms that don't want to spend money on third parties. They don't want to pay banker fees, they don't want us paying banker fees. So we can't reach out to third parties to help us source deals. And I've worked with ones where a deal is a deal and that's a one time fee. So let's get a pipeline built. And depending on what the appetite is, it's communication but understanding what the boundaries are that I can work within and corp dev can work with it.

It sounds like if they're willing to provide resources to help source, you'd probably want to leverage it.

Yeah, I can say that We've had a lot of resources in New Mountain Capital. Building that pipeline is important. I started here about a year ago and it hasn't stopped the trajectory, the pipeline building, the sourcing. There's a lot of activity going on because we're spending time building relationships, getting to know companies, exploring new industries and adjacencies that help build our share of wallet for customers and it creates opportunity down the road. Whether we want to do a deal now or in a month from now, we have opportunities because we're spending the time and energy building a pipeline.

How does that support continue from sourcing into diligence and integration?

I think it depends on the preferences of the private equity firm. Some of them like being involved in managing third party advisors, whether it's their relationship or the company's relationship. Some of them like to be involved that you want to be involved with your financial advisor, your tax advisor, even your legal advisor. And I think depending on what they're looking to be a part of, whether they want to manage the relationship or just have the option to join a call that's happening or just see the diligence output down the road, it's all going to be different based on the level of need of that firm and the reporting structure within.

Tell me more about reporting structure. I could see that varying as well. So what is the expectations range from how you report back to the PE firm?

I've always had regular touch points with the PE firm and regular touch points with the C suite at Portco. I'm an employee of Portco. I have a reporting structure, a formalized reporting structure. Currently up to the cfo. In past lives it was up to a CEO. We have formal M and A calls with them every other week where we give them a full download on everything that's happening. M and A wise and it's my job and the rest, our M and A team are C suite to deliver that message. But anytime I have a question, pick up a phone, call them. Having that open line as needed is helpful, but it's not formal. It's more of an informal dotted line reporting line to them.

I think there's two things to segment. Here's stuff that gets rolled up and then the C suite has their own communication reporting responsibility specific to M and A activity. Obvious is the pipeline reviews. But then beyond that, what other things would you be reporting back to the firm?

From what I've experienced a lot of regular touch points between the C suite at the Portco and the board or the private equity firm. There's always interest in live transactions. So whenever there's something live, making sure that those to whom I report have the knowledge to relay the correct messaging and next steps and where we are with various levels of activity is important. And keeping the PE firm on my own terms with on a line call or one offs, making sure that they have the knowledge is important but my job is to report everything up the chain to RC level to give them the tools that they need to report to the private equity firm. And at the same time I have a dotted line to the PE firm as well. There's no formal reporting structure but we get on the phone once a week, catch up, make sure that if I have any questions or they have any questions, they're reporting up to at the PE firm as well. And they're going to get asked by their superiors how the M and A is going on at Export go and make sure that they have the knowledge that they need can report up as well. There are two kind of levels there. One is more informal and one is more formal. But not just pipeline, but I guess pipeline live transactions. And then how are the integrating businesses or integrated businesses performing on a post close basis and giving them the weekly or bi weekly or monthly knowledge that they need to report up their chain so they can have the yeah, this business in India is doing great. It's up year over year, month over month and we're glad we could deal or it's not and here's what we're doing to fix it.

So we want to have some measurements of success. What's advice for private equity firms to best support corporate development in their portcos And I feel like I see so many that are in the early stages of it where they're just shaping corporate development as a function in their portcos and they're just see a lot of them at that stage. So it's new for the company and some of the key firms that aren't in the top 50 list, it's relatively new as well.

Yeah. My advice would be just like getting any other deal done, more frequent communication is better. Whatever the relationship is, the more frequent the communication the better. Especially in the early ages when you're trying to build the function and create the boundaries around how the functional operate, how report what you want it to report, how it'll actually conduct M and A because there's I've seen times where the PE employees feel like they're being overruled by the Corp dev folks and I've seen relationships build or need to build a bridge to try to fix and repair some hurt ego on both sides before. So the frequent communication and the understanding of working together to building kind of a team to know that you're going to tackle deals together and that Corp dev is going to handle this and PE is going to handle this and how we're going to work together when we get to deals and if we have one deal it's going to change for if we have five or 10 deals. But having the relationship and having the frequent communication is important.

You ever felt overly policed by a private equity owner?

No. Overly policed? I don't think so. I have felt that sometimes the amount to report might be overwhelming depending on what's going on. But I've also seen PE firms say listen, we know you have a lot going on. You don't have to report all of this stuff. Just tell us about xyz. And again it's having the open relationship to raise your hand and say I got too much going on right now, I need to skip this meeting or can I give you a shorter brief on what's going on or can you help me with something because there just isn't enough time in the day to get stuff done. Again, it all focuses on that relationship that you build with pe.

I was going to flip that advice around for that first time corporate development leader that is under a portfolio company or PE firm advice for that person to make things work and have a good relationship with the V. Be open.

Be honest, be vulnerable. You're going to be thrown to new things and raise your hand if you want advice. And one of the early pieces of information that I had I would have one on ones with one of the partners at one of the private equity firms and asking for help on sourcing and pipeline development. I didn't realize that they go through at least in the PE side they have to source their own deals too. And they're measured based on their deal flow and their pipeline development skills. Being able to generate a pipeline, not just company performance and exit value and return on investment but actually be able to bring deals to the table. So there's a lot of similarity and asking for help, leveraging the knowledge they have. Don't be shy to ask for help.

I like to ask for help. Learn their process. You can probably learn some things from them. Yeah. So much of this has been around communication or relationship. Let's break that down some more. Give me some tips and tricks around it. Obviously you're a nice guy, Brock. Give me time over here. So maybe there starts off with some fundamentals there. But are there ways you stage meetings to make them productive? Any little more tactical things they can teach me?

It all comes down to being open and vulnerable and transparent. Whether it's upfront in the interview process or after you've been hired because you weren't sure how to go up on a touchy subject. But be honest. Say listen, like my level of working with this skill set is this. How can I leverage you guys to help me get better and improve my skillset? Can we do weekly calls for 30 minutes? Can we do bi weekly calls? Can I work with your team member on leveraging these resources or that resources? What resources do you have for me to leverage? How can I work with you guys to help me do my job better? And they'll tell you, they'll tell you what the opportunities are. They'll tell you what they want to give you time. They'll tell you if they don't have time for you. Asking for what you need, which I found is useful in all aspects of my life, not just work, is going to help leverage that relationship and give you the tools to succeed in your corporate dev role.

Oh, you're absolutely right. That is key. What does the reporting structure look like internally for you when it comes to having an activity?

I report directly to the CFO with a dotted line to the CEO. It's a dotted line because I'm not a formal report. But everything needs CEO sign off, not just business unit leader sign off. Before it goes to the board, I like to make sure that they both learn about M and A opportunities at the same time. I'm bringing it to their attention whether it's an email or a phone call or a maybe a 15 minutes to jump on a teams meeting. We had this interesting call and then creating a more formal meeting with actual business unit leaders. But our job is to support the growth of the entity, making strategic decisions, helping analyze opportunities, getting company alignment and then presenting it to the board where we think it makes, in my opinion, cultural, economic and strategic fit. Making sure that you have a good relationship for me with our C level, our executive team for why deals make sense. I'm in full support on yes, this deal makes sense. We like the people who run it today. We can work with them and we can really blow this market up with these resources. Again, it's the story. Everything working together is important and when you have that feeling of this is a superpower to have, we buy this. It's a home run every time.

Are there key little elements within that really clinches the win in terms of the nailing that story down or having specific points around how it aligns with the strategy or finances. What are those real golden nuggets that you think are the key to pitching a deal?

I think there are a few different parts to it. I'd work with the team on who relays the strategic message for why a deal makes sense. Knowing your audience, which is the board or the P firm or your M and A team or whatever you call them, and knowing who internally can relay the why for why the strategy makes sense. It's not always the CEO, it's not always Corp Deverett, but it's from my experience, it can be the specialist in the field, whether it's the business student leader or the head of sales or whatever the commercial arrangement is. It's finding the right person for that opportunity who can really tell the story for why a deal makes sense. Leveraging their expertise for that part of the pitch. The rest of it is just data. You lay out their financials, you know, layout your thesis. You lay out how you would roll it up or share resources or synergize. That's all like you read and you have follow up questions. But the story itself is important because it's going to change the shape of the future of the business and making sure that you have the right pitch and the right pitch person can change the trajectory early up front.

Great tips on the execution side. Where does private equity draw the line? I feel like at some point they're like all right, you're on your own. From what I'm seeing or have heard, it tends to be around actual post close integration activities. Is there any level of support they give you a list of consulting firms. You should go higher. What does that look like?

I've seen it differ at different private equity firms. Some of them like to know that you can cross sell or your financial systems are talking and some of them want you to get a third party advisor involved. And some of them want to hire a resource to dedicate to integrations. I think it depends on what the goal and the thesis of the private equity firm is. I spoke with a private equity firm a couple days ago and they didn't integrate businesses at all. Once they acquired them. They would do deals to build up the portco and then sell it. And the next buyer would focus on integrating potentially and acquiring new entities. And depending on what the goals that the the next exit are, I think the levels of integration differ. And the different levels of private equity based on their experience, they understand this and you'll see it depending on what they do with their current, their current port goes asking about an interview process, about how they integrate, what kind of integration they're looking for and what they're looking for on exit and kind of in general will give you that kind of view about what they're trying to do with the business. But to me, I find integration to be highly time consuming and incredibly value creative. If it's done well, the time is worth it. If you can do it well, you.

Think there's like a maturity curve for that private equity firm and how they view that approach?

Probably it's all resources. Their primary job is to spend that fund to make sure that they can get the returns for their investors. And some of them just focus on that spending the fund, they're smaller, less resources. They don't have levels of associates and analysts that can dive in and work with companies on how they're integrating and why and what the outputs are going to be. And some of them don't care from what I've seen. They just want to know that you can cross Sell and you can roll in the financials and put together a package on an exit.

And you're right. Size has a factor because if you're working a bigger fund, you can set up an operating group to support pork foes in a very different way than a smaller fund.

You also know when to pause certain capital activities to focus on integrations. This has been a heavy year. Let's take off six months, make sure we integrate, make sure that we can go to market as one entity, not as two or five entities approaching the same market. Let's spend time focusing on that. And again, I think this level of sophistication, which comes down to typically size and where they spend their own time.

What's your approach with relationships with the target company look like?

My relationship with a target company, I try to build it so that we create a personal relationship depending on kind of nothing. I want to make sure that I get to know the people who own the business or the CEO if it's not the owner. Because deals don't always happen now. And having someone that I can call in three months or in six months or in a year from now, or send them an email and know that they'll respond or pick up the call or respond to my text to me, there's more value in building that relationship for a no specific time period versus a I'm coming in because I purely want to buy her business. It's I really want to buy her business, but I want to get to know you as a person. And getting to know them as a person. It helps check that cultural box to see the fit. But it also helps you reach out when there might be better timing. People don't always want to sell their company. From what I've seen to someone just because they have a checkbook. They want to make sure that their legacy is going to be continued down the road, that their employees that they've had for the past 15 or 30 years are going to be kept. They want to know that they trust and they want to work with the people that they're going to be getting in bed with. Because this is a lot of these folks, their legacy that you're buying. So having the trust in the relationship goes a long way.

You find a variance in terms of how collaborative people are on the other end and how do you get around it or do things to enable better collaboration.

I'll give you a couple of examples. I bought a business from a founder a few years ago. The guy had started the business in the 60s. He sold to me in 19 or 20 and the guy had run it himself. He had a couple lieutenants and his plan was to walk away after he sold it. And by the end of it he was sending my kids gifts in the mail. So we built this level of connection that was whatever you need, just let me know, I'll do it for you. But I've also worked with targets where this is the information that we're going to give you that we're willing to share and that's all you're going to get. To me, that shows the level of cultural fitness because when I want to spend not just money but time for myself, my colleagues and my team to, to learn about and dive into a business, we want to make sure that on a post close basis we're going to like working together. And to me that's a red flag cultural fit wise that they're not going to let us fully under the hood, only going to lift apart whether they're, they're hiding things or not enough trust or we just don't want to show you stuff because we don't want to do the work. To me those are all just yeah, I don't know if this is going to work red flags. So the better the connection, the easier it obviously is to get done. But when you're working directly with a founder or CEO or family that's selling the business, the better the relationship typically the better the outcome.

It sounds like that's the whole theme of M and A. There's so much lift that people don't emphasize in terms of building relationships. What happens when you don't grow your company to the ideal targets of the PE firm for their holding period?

I think there are a couple different outcomes. One is they hold it longer until you are growing it to meet the metrics or they could sell it at a lower multiple and just try to get out. I can tell you from the Portco side, when we've acquired businesses that haven't performed according to our initial estimates or even our pre close estimates with an updated budget and performance and it's all about okay, fine, what are we going to do now and coming back with a plan or how are we going to turn things around? It might not be in six months, but it's probably going to be in the next year or two, what's going to change in the market? Why is it going to change? How are we going to do different? What resources are we going to allocate? How are we going to cross sell or market differently? Coming up with A full plan for this new business is important.

Yeah. You got to manage with what you have to work with and get the best outcomes and best financial returns. Do you see PE firms buy other PE firms?

I've seen PE firms make investments in funds of PE firms. I remember seeing a couple years ago that a smaller PE firm was bought out by a larger PE firm and they just bought the whole portfolio. I don't know enough about that to really comment on it. You're entering in a whole new level of risk when you buy a portfolio of businesses. It's fascinating though, right? If you're a mega fund and you just have 10 billion that you need to spend, so you spy a middle market PE fund that's got 5 billion under management, that's a unique return, potentially. Buy them all at once, see what happens. It changes a lot of relationship dynamics, which you don't know how port codes are going to react. You don't know how new investors are going to react. I can foresee a lot of challenges there. What I've experienced is that sometimes mega funds will invest in funds of middle market PE firms as a way to diversify. And that's interesting. Depending on the relationship and the access to opportunities, you may have reach into pockets of other private equity firms and their resources and lots of potential leverage.

Yeah, I know I'm drifting off topic. I just was curious how come we don't hear too much M and A news within MPE space itself? Hey, before we wrap things up, Brock, can I ask you what's the craziest thing you've seen in M and A.

Craziest thing I've seen in M and A? I was looking at a business in Eastern Europe a couple years ago and I remember the initial conversations. There was a historical relationship, CEO to CEO and it wasn't their first conversation. But I remember hearing this guy was, he had a really interesting business, not making a lot of money, say low millions, but a really high $100 million plus purchase price that he was wanted for the business and it was sky high. It was, there's no way we can get there. We give him an offer and we're like, before we give you the offer, we don't want to insult you, so we're just going to tell you about it while we're looking on the phone. And if you don't want it, we get it. Maybe as the business grows, we'll talk about it down the road. I've seen that guy actually achieve his exit value because instead of going pe, he went strategic and the leverage of the resources and the synergies between PE and strategic, there's a different share of wallet, there's a different pocket opportunity for who can write larger checks. That to me was fascinating. That evaluation could be achieved, which to me didn't make any sense in any world except for this one. So I think when people, a lot of times you talk with company owners and they might say, well, my company, I think it's worth X million. And I'm like, oh, it's not worth X million to me. But if you find the right buyer, they might be willing to pay X million. But if you want to work with us, this is what we're willing to pay. Understanding that deals are all different when you come up with your own valuation based on whatever metrics you want to, but at the same time a lot more that goes into it than just the numbers.

Yes, that's a good point. And then that perception of value is all the holden to the buyer.

Yeah, yeah, yeah.

That is interesting. It is interesting how people drive value in some of these deals too, because just makes less and less sense as the years go by. Rock. This has been great. I appreciate you taking time to have this conversation and teach me a few things about operating as a corporate leader within the PE environment.

Thanks Kassan. It's been a great conversation. Thank you for having me. Really enjoy the time.

Hey, you're helping me become a better M and A scientist, so those of you still with us hope you are as well. Until next time, here's to the deal. Thank you for taking the time to explore the world of M and A with our podcast. We love hearing feedback. Tag us on a LinkedIn post. Add a review on Apple Podcast we'd love to hear from you. If you need help standing up an M and A function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email Kisan K I S o n a science.com or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter. Again, that's mascience.com here's to the deal. Views and opinions expressed on M and A Science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual. This podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions.