How Successful Diligence and Integration Planning Frames Successful M&A and Valuation

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That was my lovely daughter Shila. If you want to keep up with the latest on M and A Science, our live streams networking events. When we release new resources, visit mascience.com and subscribe to our newsletter. You can Also follow our LinkedIn page to catch highlights of our interviews and if you like our content, please tell a friend so we can keep growing our community of forward thinking M and A Practitioners the HR m and a roundtable's annual conference has gone virtual for 2020. This world class event focuses on one of the hardest parts of M and A the human side. Join me in a great lineup of expert practitioners as we share how to deliver transaction value through the people, leadership and culture elements of a deal. You can save 10% on your registration when you visit manaroundtable.com and use the discount code SCIENCE now onto the interview. 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. I'm Kisan Patel, CEO and founder of dealroom, the greatest software to manage M and A. Today. I'm here with Eric Levy, Group Head, Corporate Development and M and A at DMGT plc. Eric is a highly experienced corporate development executive with deep experience building and leading best in class Fortune 1000 acquisition, investment and portfolio strategy. Eric has completed over 150 acquisitions, minority and venture investments and strategic partnerships. Today our learning objective is how successful diligence and integration planning frame success of M and A and Valuation Eric, can we kick off with a brief background on your experience and maybe tell us a little bit about dmgt?

Sure, I'd be happy to. And thank you again for having me on this webcast. I've watched some of your previous interviews and took part in the happy hour last week and I think it's a really great community that you're building. So I've been doing corporate development for over 20 years at a number of different organizations, but really in earnest got started in my career as a corporate development executive. After business school. After business school I spent four and a half years doing management consulting. And the common knock on management consulting is that you get some really great skills but you don't really build deep knowledge of a specific company and sometimes not even a specific industry. And after four and a half years I really wanted to settle down in both in an industry and the company and so left where I was after four and a half years and went to a diversified media company by the name of Prime Media. Doesn't exist anymore, but was there for four and a half years. Started off in a FP and A role and then transitioned into corporate development. As part of my role there I did a good number of acquisitions and alliances but also did a bunch of divestitures. So many divestitures that I ended up selling myself out of a job and then left Prime Media and went to LexisNexis where I worked with Michael Frankel who I know is a good friend of the dealer room and M and A Science and was there for three and a half years and then went to DMGT where I've been for almost 10 years. And at DMGT I lead corporate development and MA. And for those of you who aren't familiar with DMGT as a holding company, you may be familiar with some of the companies that we have as our operating subsidiaries. Our operating companies really fall into two different groups. We have B2C businesses and as part of B2C businesses we have brands such as the Daily Mail which is the leading newspaper in the uk. And then we also have the Mail Online which is the largest English speaking news website in the world with over 220 million uniques. And so that's really on the B2C side. On the B2B side we have a number of must have information providers to professionals in different industry segments. So we have a company that provides software in the edtech space. The name of that company is Hobson's. We have a company that provides data and analytics to the asset backed industry, that's called trep. We have a business that provides catastrophic risk modeling to insurers and reinsurers called RMS and we have several others. Didn't mean to leave any out but just trying to stay focused. And across that portfolio of businesses we do both bolt on acquisitions as well as acquisitions of of new operating companies. And we also do do some minority investments and obviously alliances and from time to time like any good acquirer we do do divestitures but that is not sort of per se. Our M.O. we buy and hold businesses for the long run. We have a fourth generation family as a significant shareholder in our company and that really does allow us to have a long term perspective at the end of the day. The Daily Mail newspapers have been around for 125 years and a lot of our companies that we have we've had for over 20, 25 years. That's a bit about me and where I am today.

Pretty well diversified all around. Background, current strategy, current portfolio. Let's talk about what types of valuations should be done at different stages of an acquisition process.

Yeah, so again I think really depends on the circumstance but I think at the exploratory or indicative stages of an acquisition that is either you're doing some outside in work on a target or you're just getting into a deal process, you probably want to do a relatively high level evaluation where the goal is to model out the target with your working hypotheses for business drivers such as revenue thinking at a very high level, what type of market share pricing volume assumptions should I be taking into account in my valuation and what kind of operating leverage can I get in terms of how expenses are going to scale with revenues and then what type of capex investments are going to be needed? And I think there are a couple of reasons why you want to keep it at a relatively high level at an early stage. One is the information you have on a target can be limited at the beginning of a process and you don't want to over complicate evaluation with low fidelity data. The veracity of a model is not any better by having a lot of detail but not a lot of good inputs in terms of assumptions. I think the other is that doing a detailed evaluation is a significant call on the time of not only the people running the evaluation but also the people who might need to provide inputs. And I think, you know, in this environment, really any deal environment, you should be looking at a lot of different targets and you only want to, you know, and people have day jobs as well, I mean running the, you know, the operating companies. And so you only really want to have them focus on detailed assumptions if this is something you're really going to be pursuing in a meaningful way. And then the third is, you know, you don't, if you have a very detailed model, you're going to start needing to go out to a lot of different people in different disciplines in terms, you know, and you want to keep the involvement of people to a small sort of group in order to maintain confidentiality which you're going to be bound to probably because of the NDA you've signed. So it's a whole bunch of, you know, practical reasons why, you know, initially you want to keep it to a relatively high level model. But I think, you know, once you start to focus on a particular target and or get into, let's say a post LOI stage, then you need to have a relatively detailed model that has revenues modeled out at the product and product market customer segment level and have it be a volume price based model, volume being based off of the size of the addressable market and the penetration you think you can get. And then cost really modeled at a relatively detailed line item level. And then obviously multi years, as you.

Progress through the deal, you're getting more detailed on your valuation model in terms of mapping that on life stages.

I.

It seems like there's sort of pre LOI and post loi. Is that how you would break it down or is there other segments that you would break it down further than that?

Yeah, I think that's a pretty good way of thinking about it. I mean, you know, it also depends on, you know, the amount of resources you have and how many deals you tend to look at. But you know, I think there's just a practical limitation of the amount of information you're going to have pre loi and I don't think you're, in most cases you aren't going to have enough information to really have a very detailed model. I mean, I think, you know, in your initial modeling you really want to be very much focusing on, you know, the 8020 rule and you know, maybe even 7030 rule, if there is such a thing. But I think, you know, once you get past, you know, LOI or past the first round of a deal, you know, that's when you really need to start, you know, boring down into some pretty nitty gritty issues. And I think you need to be building a detailed model and I think that's a little bit because I think one, because I think you want to get to, you know, a robust valuation. But also as we'll talk about, I do think that also ensures that you're doing detailed due diligence and integration planning.

Got it. How does the approach to valuation affect the success of diligence integration, the overall success of an acquisition?

Yeah, so I think in my opinion valuation, diligence and integration are inextricably linked. And so I think you could just as easily say that the approach to diligence and integration frames the success of valuation and the overall Acquisition. I mean, at the end of the day, valuations very output driven and due diligence and integration planning are the inputs. I mean, most deals don't turn out well because either the due diligence wasn't thorough or the integration plan wasn't detailed enough or wasn't followed, or believe it or not, that plain old wasn't an integration plan. But having a rigorous valuation methodology keeps you honest and ensures that you're looking at not only the quantum but also the timing of synergies and the performance of the base business. And so, you know, if I look back at some of the key reasons why we were materially off on some element of our projections, it's usually because we've got the quantum and timing of that element wrong. Not that we didn't ever consider it. So, you know, I think also if you do diligence and integration planning in tandem, you're also probably going to have a robust and systematic valuation process. So, you know, I think once you get to, you know, into a more detailed phase of a acquisition, let's say into a second round, that's when you need to have a detailed financial model. Having that detailed financial model is going to require detailed diligence and integration planning. There are a lot of things that you're going to find in due diligence and integration planning that don't find their way into a model. But a detailed model absolutely does need detailed diligence and integration planning.

It's interesting how you have that view where it's around diligence integration that ties back to valuation. I'm curious if your view on that too, because if you look at the process of diligence integration, it's continuous and there's all these discoverables of things that obviously couldn't predict. But then would your view to be to adjust that valuation as you go through the process?

Oh, absolutely, yeah. I mean, you know, I think. Absolutely. I think the evaluation model, I mean, listen, I think all these things are living documents as you go through and a living process as you go through, you know, the acquisition process. You know, I think you're continuously. I mean, certainly the integration plan and the valuation model are living documents. Due diligence, you know, there is usually a discrete beginning and end to it. Although you do continue, you know, I mean, you know, I could be doing technology due diligence and that's going to clearly impact HR due diligence and product diligence. And so I may have thought I finished my HR diligence. But if technology diligence is still going on and they find something, you know, like maybe I need a new cto. Well, that's got to be factored now into my HR plan. But you know, I think often when you'll go into a process, you'll have a range evaluation range. But then as you go through the process, you need to give a number you're going to be at. And having a, you know, I think getting into, you know, getting that 80, 20 down to the 95, 5 or whatever your threshold, you know your threshold is going to be, is going to take time and that means your valuation is going to bind over time. You know, I don't think you're going to discover major changes to it. But hey, you know what? If you do, you do. But yeah, absolutely, it's not. And oftentimes as you go through an acquisition, you'll find some additional upsides that you had initially thought and obviously you don't want to offer those up if you don't have to. But if things go. Unfortunately, auctions are sometimes the reality of how deals get done. And if things start to get bit up, having a detailed valuation model where you taking into account so the pluses and minuses that you discover may allow you to go higher if you need to, but only if you need to and can.

This will be good to revisit when we talk about how you actually measure success off of this. What are the key considerations in executing the valuation diligence, integration, planning that should be taken account to maximize the success of a transaction?

I think once you get to a, you know, let's say a post loi, I think you need to be. There are a couple things on the valuation side. I think you need to be doing it at a relatively granular level. As I said, modeling revenues at a product and product market, depending on what's appropriate, it could be customer segment, geographic segment at that level. And again, you need to be doing it at a price and volume granularity. And then I think to the extent that there are going to be revenue synergies in the acquisition you're doing, I think you need to be modeling those out as well by line item and very importantly getting the timing of those synergies correct. So how are they going to layer in, what is the quantum of the synergies going to be and how long is it going to take for those synergies to layer in and what are the costs that are going to be required in order to achieve those synergies? You need to be really making sure that you've got that all those things account for. And then I think on the costs you need to be thinking about how are they going to scale over time, both the variable and the fixed costs. And again, if you're modeling out revenue synergies, you need to figure out what are going to be the costs that are related to those revenue synergies and also model out cost synergies. If I'm going to be able to find, if I only need one sales organization or one and a half sales organizations, then okay, I'll have some cost savings. But over what time can I achieve those cost savings and what are the costs going to be to achieve those cost savings? That is redundancies, termination of leases, that kind of stuff. All those savings you have from redundancies and from elimination of leases, they have upfront costs, you know, severance, early termination. So again, it's really, you know, I think taking a granular line item driven approach to modeling, I think that's sort of quite important.

Well, there's a lot of factors in there and there's a lot to get right. And I'm assuming that this isn't all you, that you just haven't developed the magic touch from doing 150 of these deals. Who are you leaning on in terms of your resources to really be able to develop this in terms of how you make sure you're getting the right people involved as well?

Yeah, so I think there needs to be different people for different things, obviously. So I think in terms of the modeling, there needs to be an owner of the technical model. And that's a, that's, you know, it's important to have someone who's good at Excel and has the capability and bandwidth to make, you know, to sort of run the model. And that can either be someone at corporate development or, you know, in finance. But that's very different than who owns the assumptions. The person who's running the model can certainly help develop the assumptions. But, but who owns them needs to be someone in the business who's gonna be responsible for delivering the projections. You know, it can be. And you know, so you need to have involvement from sales, from marketing, from product. And those, you know, the people who are developing the assumptions are also the people who need to be doing the due diligence. And I think similarly on the cost side, people are developing the assumptions that go into the model need to be the owners of the various cost centers. So technology, real estate, hr, those are the people who need to be owning the assumptions and inputting them to the person who's running the model. And I think ultimately the CEO and CFO of the business that's doing the acquisition needs to own the projections and make sure that they understand the explicit and implicit assumptions that are being made in order to achieve them. And they need to be comfortable that the diligence and implementation planning that's been done makes sense. You know, I think so Just going back to, you know, your question before about what are the key considerations in order to maximize the success of a transaction? I think the other one of the things that I think maybe some people understand that I think maybe not everyone does, because it's always easier to sort of delay things. But I think integration planning should start as soon as you start due diligence. And that sounds quite early, but I think if you look at what goes into an integration plan, it is everything that you find out in due diligence. And so the day you start due diligence is the day you start integration planning. Everything I find out about the organization's products, how they sell, how they, you know, their product roadmap, their employee base, that all has to be taken into consideration when I think about integration of the two businesses. And so it's often the same people who are doing the due diligence that are going to be involved in developing the integration plan. Again, similar to a model, there can be an owner of the integration plan who facilitates bringing together inputs from various people to come up with the plan. And I think developing an integration plan, there are definitely best practices, and there are people who are well practiced at that. And I think either within corporate development, you can have a competency or someone who's quite good at that or focused on that. And oftentimes corporate development teams do have a integration lead, but you can also work with an outside firm to help you pull it together. But again, I think I really firmly believe that the people in the BU need to be the ones who are driving the diligence and the thinking around the integration plan. You can provide tools to them to help facilitate the development of those plans. You know, integration planning, and I'm sure we'll talk about it at some point, but that is one of the key reasons why acquisitions don't turn out well is because either the integration planning wasn't done, wasn't well thought out, or was well thought out, but just wasn't implemented well or something, or it got difficult and people decided to put it off.

Okay, we covered a lot here. So we have. In terms of the model, you'll have a resource in corporate development or in finance to sort of own, own the technical aspects of the model. And then from there, in terms of the assumptions that go into the model, that actually comes from the business unit primarily owned by the CEO, the cfo, but then they're relying on various functional resources to be able to validate some of those assumptions as well and bring that into the model, which then they own and then these assumptions as well. We're connecting with the diligence process as well as we want to be able to start developing our integration plan in parallel with diligence. And I 100% agree with that because in doing a number of these interviews, you typically hear about the knowledge chasm, what do you call throwing it over the wall and these things, which probably lends to a bad integration execution. Yeah, I'm curious.

So sorry, I was going to say, I think, you know, as I think think about it, they're really sort of three artifacts. One artifact you have is the valuation model, which is the projections and it happens to have DCF built on top of it. Fine. Then you have the due diligence reports. And those are, I think, as I said, the valuation model is a living thing. The due diligence reports tend to be a bit more discreet in time in terms of you start and stop due diligence, but you can keep them open for quite a while and people add and revise them and you have due diligence reports on commercial, legal, hr, finance, technology, and then you have the integration plan. So obviously there's a bunch of different due diligence plans. So those are really three artifacts. And then I think it's important, it's important that everyone sort of sees what's going on in each of their work streams. And in order to promote that, one of the things I found that's really useful is having a weekly or twice weekly call where you have all the stakeholders. So the person who's running the model, me, the owner of the various due diligence streams, then the owner of the intubation plan, having them all on the same call once or twice a week. And if you don't need a call, then obviously cancel it. But even if you don't, you know, let's say that hr, you know, the person running HR has finished their diligence report, you know, or thinks they're finished their due diligence report. I think even, you know, having them on the call, even if they may not be particularly active participant, is important because they may learn stuff from hearing what's going on in other live due diligence. So you know, if for example, you know the person who's running technology diligence says that, you know, they've determined that in order to meet the product development goals of the, let's say the joint organization, once you integrate the two companies, you're going to need to hire 10 additional developers. Well, that's something HR needs to know and pretty quickly build into their integration plan because now they need to build in both. And then model needs to go into the model too. But you need to model the cost, but also how long it's going to take to hire them, how much are you going to have to retain a firm to hire them. And so I think you may think you're finished, you know, some part of diligence. But it can get real pretty quickly, which is why I think it's helpful to have as many people as you can on that call. And if you know, you know, you keep them pretty, pretty short, you know, half an hour, 45 minutes. But I think it's important, particularly in the later stages of a really, I think anytime the second you're in the second round, I sort of put standing meetings and if there's nothing to talk about, you cancel it. If you need an ad hoc, ad hoc call, you schedule one.

Cool. So I like that how you're encouraging collaboration and developing that cross functional grouping together to really be able to bring this together. And I think that's probably where you start bringing these assumptions back. And do you have that person that owns the model, maybe the technical person sitting in on some of that stuff and they're using that information to update the models?

Oh yeah, no, absolutely. I mean you always have that person. You have me making sure that, you know, if there's a piece of information, there's a piece of information coming out. So you know, we're getting, let's say we're getting an update from so and so on the customer, you know, from, you know, let's say we've retained a third party to do customer interviews and on this particular weekly call we're having that party report back on what they heard. Well, I think everyone should hear about that because that's going to impact everything from the perception of the culture of the company to sales to product. And so everyone's going to be interested in hearing that. But if, you know, I hear something and if I think someone on the call has missed what this person said, I'll usually follow a post call and say, hey, I just want to make sure that you're taking into account the fact that customers are all uniformly saying that they would like access to this type of data. Let's make sure we build that into our roadmap and let's make sure we have the cost. Also the benefit of adding that in the plan. I think also we typically immediately set up a Slack group so that we can all communicate, see what's going on. So I think it is really important that. I mean it sounds like a lot of distraction having twice weekly calls, but when you're spending sniffing amounts of capital, you really need to make sure you're looking at all different elements of things. It does help to have a lot of people certainly involved and my role is definitely to make sure that we're using their time efficiently. But I think all these things are so intertwined that I don't think it's a big call on, you know, let's call it 15 people's, you know, time for six weeks to get on a call for 45 minutes twice a week. Obviously there's a lot of work going on outside of that, but there might be some inefficiency. But I think any potential inefficiency is way outweighed by the gain that get by having the right people hear things.

Yeah, it's a way to do risk. I'm pretty impressed you guys are using Slack and find that interesting. Are you using other tools to help with collaboration or distribute information?

Well, I mean, first we use Microsoft 365 so OneDrive to sort of share all our documents and then it took me a while to understand why Slack was better than Outlook for certain things, but I think I'm a convert on that. And so we just slack outlook in OneDrive.

Just so you know, someone from Deal Room is going to be reaching out to you the next couple days and explain why you shouldn't be using Excel to run your M and A process.

Well, no, we obviously use data rooms too, but usually it's the person who's selling who's using the deal room.

We got a lot of fun to work with you on. We're going to run the whole buy side process and template it out so you can run it from the very beginning. I got a question here from Samantha regarding Business Case. At which stage would you write a business case to request sign off and approval of the acquisition from the board? Would you do it before loi or after due diligence is complete? I've worked for different organizations which all write the business case at different stages. Curious.

Yeah, I think the answer is both. So I think in order to and I think different organizations have different thoughts about when do you get approval to start looking at a deal. But I think DMGT and I wholeheartedly agree with this is that we take the issuance of an LOI quite seriously. We don't like to sort of LOB in Lois too flippantly. And so I think if we issue an loi it means that we have buy in, at least conceptually for both the strategic and financial rationale at the valuation that we're putting in an loi. And so in order to get that buy in from our CEO and cfo, we put together a, I don't know, it depends on these target but a 3, 4 page document that sort of explains the strategic rationale and then the outputs of the high level model that we put together, which is financial rationale. And depending on the size it will go to the exco, which is a committee that has our chairman, CEO and CFO and one or two other people or if it's a larger acquisition, will go to the EXCO and the ifc, which is the Investment and Finance Committee, which has both exec and non exec members on it and will get their approval to issue an LOI at a certain level. That sounds a bit laborious, but it's not. You know, the ESCO meets on a weekly basis, IFC meets on a monthly basis, but they meet on an ad hoc basis very nimbly. So you know, it shouldn't come to, I mean, I guess what we don't want to do is have fired our number because most of the things that we end up looking at are companies that we've been tracking for a while. And so we're not going to be caught off guard that there's a process or if there is a process, we're going to have a point of view because we've been looking at it for a while, it's been on our radar. And I think you, at least here, and I think this is best practice, you want to put together a brief, the strategic and financial rationale pre LOI and then assuming you put the LOI and you get into the next round when it gets time to submit your final bid and you want to go back to the whatever the relevant governance body is and do a more detailed paper, which you can use the first paper as the framework for it, but then you fill in some of the more detail you have. But it shouldn't be sort of a regurgitation of all the diligence, I think the, you know, our executives are assuming that we've done all that, you know, they'll want to, you know, but I think it's just, you know, to the extent that we have more color on this, on the strategic rationale, and we have more color on the financial plan and very importantly, we explain how we're going to do the integration plan, who's going to be involved and given a high level outline of the integration plan, I think that is one area that they are really focused on is understanding integration plan. Because as I said, I think if you look at the literature out there, integration reasons why acquisitions fail is invariably something ramped up 75% of the time, 80% of the time, because something went wrong, the integration planning or integration execution. And our management team knows that both from some tough experience, but also from seeing what others, what happens to others. And so they're very interested in seeing that. And so oftentimes we'll staple on back of the paper the full integration plan. It's a virtual statement.

That's actually interesting and good to hear that you're bringing that up into the approval process. I'd add on Samantha's comment, I'm pretty convinced no two companies have a similar approval process. They're going to be pretty unique, company to company.

Yeah. So I think the earlier, I mean, at least from my perspective and depends on the organization you're in. But I think the earlier that you can get your executives read into a deal, the better because I think it's going to give you more backbone when you're in the process, being able to, certainly when you submit an loi, being able to say that this has the backing of the CEO and CFO of the, you know, of the PLC is an important thing.

I feel like this would be an interesting roundtable discussion actually put together a few different lens around this. I want to get into this, the whole view around what we started getting into a little earlier about defining success of an acquisition. Basically, how should the success of acquisition be measured?

Yeah, I mean, you know, I think at the end of the day it really should be on the how well you've attained the strategic and financial rationale that was laid out at the time of closing. At every organization I've been at, I've made sure that post acquisition we have acquisition reviews at regular intervals. So, you know, here we do it every six months for the first two years. And then depending on the size of the acquisition, we may do it more frequently. You may go further than two years. But there are really sort of two or three things that we're trying to accomplish. One is there were some key strategic rationale that were set out, so we sort of memorialize those. And close. There are some key financial metrics that were set out at the time of acquisition, and we memorialize those. We take a snapshot of the projections and some of the key metrics, and then 6, 12, 18, 24 months, we look at how we're performing along the strategic rationale. So how far along are we in the achievement of this? Of each strategic sort of thrust of the acquisition has one strategic. You know, there's one strategic thrust proven to be unattainable or not relevant. Take note of that. And then we see how well we're doing on the achievement of the financial projections. And to the extent there are deviations, we explain, you know, the under or over performance as it may be. And, you know, I think there are really sort of two reasons we do this. The biggest is really so that we can learn from what worked well and what could have worked better, so that, you know, we, going forward, we can focus on the areas where we need to do better. And I think, you know, as I may have said previously, you know, invariably, most of the time that we're off on our projections, it's not because we didn't estimate the cost synergies correctly. Those actually, we tend to do a pretty good job of estimating because those are most in our control. But it tends to be around revenue synergies and both the timing of the achievement of revenue synergies and the ultimate quantum of the synergies. That's not surprising. And those are the toughest things to get right, because all kinds of factors, everything from customers to competition, and people tend to underestimate the difficulty of achieving those.

I like the idea of the model that iterates through your stages of diligence, and you're really benchmarking against that model at the time of close. That gives you that time to sort of take what you will from what you learned in diligence, adjust it with your assumptions as you validate them and get the information. And then when you go through that, you obviously have strategic goals and some financial goals to measure up against that model. How does that play out when you start integrating the company? Because don't you integrate the financials at some point and bring it together?

Well, yeah, no, absolutely. So I think when you're doing the modeling, you're not only doing the modeling of the standalone company, but you're doing it for the combined company.

Okay.

Yeah. So I think you may model the acquisition. So if I'm acquiring something and it's integrated into an existing business, I may decide to model this standalone business and the synergies separately. But then I'm going to layer those into the existing business and put them together and that's what, that's how I'll measure it.

Okay, so then you do you have them separate, but then you can still benchmark them combined.

Yeah, but I can still measure usually the, you know, how much of the combined company. I mean, I can still usually track the synergies. I mean, you know, I think you're getting, I mean you're raising an issue that, which is why you don't usually want to go up further than two years. Because to measure how much of the performance of the, of the larger entity is coming from the synergies versus the base business gets more and more difficult as you go further out. So that's why typically wouldn't want to measure it further than two years out. But I think, you know, likewise if you're, you know, let's say you're acquiring a standalone company where it's not going to be integrated into an existing business, you still can measure the performance of that standalone company. But you may, you know, two years post acquisition, you may do another acquisition in which case it starts to get more and more complicated to measure, you know, so I think, you know, you need to be flexible and you know, perhaps change some of the metrics based on if you've done subsequent acquisition. But I think measuring success more than two years out gets to be problematic for a bunch of reasons.

Sounds like somebody can make an app for that. Measuring post closed success in M and A.

That would be a good thing probably.

I got a question here from Jeff that sort of ties into the biggest contributions of failure that I had on my list. But what have you found works to improve the sense of ownership that the business division leaders have in delivering the Synergy projects.

Post closing there, as I said, there are two reasons why you have the acquisition reviews. One is to learn what worked and what didn't so that you can hopefully improve future acquisitions or improve the performance of future acquisitions. The other is for accountability. And so I think Most of the CEOs and CFOs we have don't need an acquisition review to remind them of the importance of doing a good job around, you know, the diligence in integration planning. But I think if they did, then that's not a Bad way to remind them. I think the other is, you know, tying their compensation to performance. And I think there's an element obviously that base bonus and then a long term incentive plan that's based off of a multi year plan and when they do an acquisition, that multi year plan gets adjusted by the acquisition. So they're going to use know they're going to be responsible for delivering the numbers that they've set out and that they're going to be compensated off of that. So I think, you know, it's really threefold of how you make sure that people have accountability. One is you hire good people who you know, are driven and accountable and aren't looking to Host Management 101. Second is the acquisition reviews and the third is making sure that the long term incentive plans of individuals or even bonuses are adjusted for acquisitions.

Do you ever feel like if there's a deal and in terms of perception and maybe mindset difference between if it was sourced through corporate development or sourced through the business.

Sorry, so whether the deal is sourced by corporate development or through the bulk.

Yeah, if there's sort of a perception of a difference in terms of ownership because of that.

Yeah. I mean, listen, I tend to think that the best deals are the ones that are sourced from the bu because they're the closest to the space. But the reality is a lot of things do come in through corporate development. Now I would hope it's not a, it's not a company or a deal that the BU has never heard of because that means that, I mean they probably don't know their space too well. That doesn't mean that they necessarily know when something is coming to market. And a lot of times corporate development will be the first sort of protocol or something like that. For whatever reason, the banker or the CEO of the company that's being sold may not reach out to the CEO of our bu, but I would certainly hope they know each other because that's one of the things or CEOs are supposed to be doing is to developing a deal pipeline. But you know, I don't think there's any, you know, not invented here issue. I mean, you know, if I call up the CEO of one of our businesses and says, hey, company XYZ is actually being launching a process, you know, it's 95% chance that the CEO knows that business and for whatever reason didn't get the first call. But if it's an acquisition that's going to help them achieve their goals of running a good business, then I think they'll be more than happy wherever it came from. I have never had a sense of this is a good deal or I never got the feeling that the CEO knows it's a good deal but is trying to thwart it because it can't came from corporate and not sourced by them.

Yeah. Curious. I got another question here from John. What are your thoughts on the best tools to show progress against integration progress? Is there a way to give the extended teams a self service view how their work is contributing to the value proposition put in the buy plan business case?

Yeah, so the integration plan, I mean this is a very high level. I mean there are different views of the integration plan. So we don't have a specific tool other than Excel. I mean there are specific tools obviously that help with integration. There are several software packages out there that help all different stages of the M and A process. But we haven't subscribed to one of those tools yet.

Someone from definitely giving you a call there.

Yeah, I know, I was just waiting for that. Yeah. Not to say we wouldn't be open to, you know, someone who wants to give us a free trial for a year or two but there are different views. But you know, there's a high level Excel view but then you bore into a particular area and you blow that up and you can sort of see by a week or by month what is the progress. That's what's being supposed to be being made on a long basis axis of integration. And so I think you can look at it that way and sort of map out how you're doing. And then I think just looking at the financials, I mean you're going to model out the first year of your financials probably at a monthly level and you'll be able to sort of see how you're doing along both sales, sales volume as well as other sort of metrics that are tracked in the financial plan. So I think there definitely are ways to sort of see how you're doing. Easy view to plan.

Yeah. It sounds like you definitely found value in taking that approach to create that level of transparency.

Yeah, I mean, you know, I think it's, I mean integration plans are painful to develop but I think that can largely be absorbed by having either having an outside firm or an individual who is sole job is to sort of own not the delivery of the integration plan but the, you know, the construction of integration plan and then even post close making sure that all the things are happening. Sort of an integration lead. The integration lead is sort of the quarterback if you will. Making sure that integration plan gets pulled together and then post closed for some period of time that the integration plan, everything's all the resources are coming into place to affect that integration plan and then measuring against the integration plan. If we're falling behind in a certain area, clearly the work to do the integration falls to the people in the bu and that's sort of where the rubber hits the road. But I think just the pulling together, the sort of, just the physical point is just like the person who's going to be owning the technical model, the pulling together, the technical integration plan can be quite a chore. So I think having someone fully dedicated to that is important and ideally you want that person from the bu.

What's the biggest reason these deals fail?

I think, as I alluded to earlier, it's usually not because someone overpaid for a business. I mean, I'm sure there were instances where someone so wildly overpaid for a business that it was just doomed from the outset. But my sense is it's not that usually it's more that they didn't do sufficient integration planning or dare I say any integration planning and figured they could do that post close or they actually may have had a decent integration plan but just didn't fully see it through. I mean, if the integration plan, I mean, you know, I think one of the things you commonly see an integration plan where you have, you know, two software platforms coming together is, you know, we're going to have two software platforms but over time we're going to migrate to one software platform and we'll move over, you know, all the customers to that one software platform and sunset, you know, the legacy platform. And you know, that may work well when you're doing your customer interviews that people say, oh yeah, we'll switch over all this kind of stuff and it may work well from a modeling perspective and integration plan to say that. But I've seen more cases of where it takes a really long time to get off of those two platforms and that there can be significant costs in running some of these legacy platforms because, you know, it's because customers just don't want to switch. And you know, if you have a large number of customers who don't want to switch and you have to say no to them. So if you have to tell them, you know, we're going to shut you off, that's tough. If you have a large number of large customers who you're saying that to, you're going to be afraid of losing revenues. So my sense is it's either in the development of the integration plan or the implementation of the integration plan. Obviously every now and then you'll have, particularly on the PE side, just a good business, good integration plan, but just a tough capital structure that the company hit a bump in the road and it got sort of consumed by its capital structure and sucked all the attention of management from running the business to dealing with the capital structure. And it was a vicious cycle. But I don't think that's. I think it's usually something around integration.

Integration makes a value or destroys the value.

Yeah, exactly. And I think there's also, I mean, this is sort of a stack rank of probably 10 top reasons. I think lack of integration planning or quality of integration execution I'm sure is right up there. And I'm sure you have culture to sort of incompatibility of cultures sort of right up there. Paying too much, I presume, is, I would think it's towards the bottom of the top 10.

Last question. What's the craziest thing you've seen in M and A?

Well, it's funny, I thought I'd seen some crazy things, but I think the craziest thing is actually the most recent thing I've seen. It was Trump wanting to take a deal fee on the sale of TikTok.

No, I didn't catch that.

No. Yeah. So it was at the top of. Was on Bloomberg and the top of our website now online. But he said he's okay if Microsoft buys TikTok, but he thinks the US should get part of the proceeds. Wow. So that's one of the greatest things I've seen in M and A. The government trying to take a deep. Aside from that, you know, I'll just give a brief anecdote. It's one of the craziest. It's one of the craziest things, but it's actually one of the best things I've seen is way back when mentioned the company, they've been able to figure it out. We had. This is obviously not where I am now, but a couple jobs ago we had a bunch of print assets and this is right when the Internet was becoming a thing. And so we had the foresight to sort of see that print was becoming a thing. So the people who were running the print business said, all right, well there's this other company that has similar topics that we have in print, but they are all online. So why don't we just acquire this company and that's going to be our solution for creating online versions of our product. Print sort of assets. So they did the acquisition, but then when it came time to integrate the business, they just saw that the editors were just spoke, obviously both spoke English, but just everything else they spoke different languages, different writing styles. The print folks didn't understand the importance of SEO. You couldn't teach them how to write, you know, to optimize for search engines. And it very quickly became clear that this was not the solution to bring our print assets online. And so I think that was one. You know, what happened is the businesses actually stayed separate and we ended up selling the online business and actually made, you know, actually did pretty well on the sale of it. So I think where that's an example of the integration failing miserably, but actually that's one of the best things that could have happened because had you put the two things together, they would have both imploded and you would have had two destroyed businesses. @ least this way you preserve some value by not integrating, which is not what I've been talking about just now. But that is sort of a good failed integration story that we're able to sell the business that we acquired because it was still standalone.

That's a great example. Integration is tough for a reason.

Yeah, exactly.

Hey Eric, I really appreciate your time. I enjoyed the conversation and learning lessons from you.

Great. Had a good time and look forward to staying in touch with you.

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