How to Cultivate Relationships with Deal Targets

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Here's the deal.

I'm Kisan 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 Live. You're tuned in to the world's greatest podcast for M and A. Putting companies together is complicated and taking them apart is even more complicated. On this podcast series we interview top level M and A practitioners to learn lessons from their experience. Learning proven techniques is key to perfect your M and A practice. I'm Kisan Patel, CEO and Founder of Deal room. I spent 10 years at M and A advisor and realized M and A is highly inefficient and the technology is basically a landfill of trash of mostly Excel sheets and PowerPoint. I started Deal Room in 2012 to pursue the opportunity to redevelop these landfills into high speed connected skyscrapers that deliver real value. Today, joining me is Michael Frankel, SVP and Managing Director at Deloitte. Michael leads Deloitte's new venture accelerator which rates bills, grows hybrid businesses that are services coupled with tech. He drives growth strategies through ecosystems, acquisitions, operational improvements, organic build strategies and corporate venturing. Before joining Deloitte, Michael led corporate development at large technology and information services company and he's closed on over 100 deals. Also joining me Bruce Bowden, CFO of Interactions, Former Head of North American M and A for PepsiCo, former global head of M and A for Nokia, Former EVP of Corporate Strategy and Development at Nuance. Bruce has closed more than 100 transactions with total deal value in excess of $10 billion. Now CFO of a leading provider of artificial intelligence for customer care. Today's discussion sourcing deals in MA is pretty extensive process. You need a criteria that aligns with your strategy and once you find an interesting opportunity, the dating begins. Today we're going to discuss cultivating relationships with the deal target. You laughed at that.

Yeah, I knew you were going to get that in there. I didn't realize so quick.

Oh, that's going to be the whole theme that's going to come back like every other question. Can you guys kick off by briefly describing your experience with fostering relationships with deal targets? Leave it to you, Michael.

I think it's one of those art, not science things about M and A that I love. But I think it's massively important. I think that relationships with potential targets drives everything from better diligence to better integration to easier negotiations to a higher likelihood of getting the deal done. I spend a lot of time thinking about how to develop those relationships. And what makes it both complicated and fun is your strategy and approach totally varies based on the nature of the target and based on the nature of the relationship you want to have with them. It adds a whole layer of complexity to it, but makes it really interesting to try to master. I love that part of the exercise, and I also love it. The other thing that strikes me is because it forces the strategy effort that I think Corp dev people are often frustrated isn't happening. Right. We all hate it when a business leader comes and goes. I haven't really thought about the market. I haven't thought about the strategy, but I'd like to buy this company, please. Doing that work months or years in advance, build the relationships also forces you to ask the question, okay, what's our strategy? What's our crisp goal? Not just what are we trying to grow, but what do we need out of a target? So for all those reasons, I love this part of the process.

I think one of the interesting things that Kaizen and Michael both know, and probably a lot of the folks on the call know, there's no substitute for repetitions in M and A. The more deals you do, the more. The more deals you close. In particular, you're seeing something new on every deal, and then maybe it slows down. But on deal number 10 and deal number 100, you may see something new. And this is one of those areas where that's most evident because you can see trends in what the relationship aspect means in a deal, but it means something different in a lot of different contexts. So this is a really rich, uncomplicated question that has different answers for different situations. From my side, you know, having been in the roles that I've been in, I've bought and sold companies all over the world. So I have cultural difference companies of all different sizes, from 5 people to 5,000 people. The dynamic of dealing with Companies of different sizes is a thing industry verticals. As Michael says, it's a, it's a soft side of this. I think you can like a lot of the soft sides of M and A repetitions help and you can also apply some amount of science to it in the end. So hopefully we can bring a little bit of useful science to what could otherwise be a very subjective thing.

These are some really good points. I see the value of developing the relationships early because then it can help make the rest of the process a lot easier by having that level of alignment and then also the variances on the strategy depending on the company's size and the overall purpose of doing the deal. And like Michael said, don't buy the company and then try to figure out the strategy with that. Why is it important to create the relationships with your deal target? And how far in advance of the deal would you want to start doing this?

The first question is what are you trying to achieve with the deal? Because that'll determine both the nature of the relationship and how far in advance. So the first thing is, do you know what your likely targets are? Right. Which is a matter of not only strategy but also the evolution of the space. Because you can invest infinity effort in building relationships with every player in the market, it's physically impossible to do that. So you have to get fairly specific and know. Here are the 5, 10, 15 companies that are my most likely targets where it's worth the investment to build a relationship. So that's number one. Number two is it depends on what you want out of the target and how likely you are to be able to avoid a competitive process. So the more likely that relationship is to have an ROI for you, the more you want to invest in it and the further back you want to go. My extreme example would be founder owned business, where there's only one of that asset. And I had a deal like this a couple of companies ago. Founder owned business. There's no other asset in the space like it. We know that the founder is going to retire in the next few years. The founder really cares about the team. These are people who have worked for him for 30 years and he's already very wealthy. So money is a variable, but there are a bunch of other variables that interest him. For us, that was the perfect storm of build a relationship. And we started the relationship two years in advance, built it up, slowly, understood him, understood his priorities, he got to know us, we did some ecosystem relationships. And so by the time he was ready to sell, we got dipped. And that not only meant that we got the deal, probably got it at a lower price and our competitor was really mad they couldn't get it, but it also meant that we'd done a lot of our diligence already. So that was the ideal state where you want to invest far in advance. But I think that these relationships, if you can. I go back to my first point. If you can figure out the company you're likely to be buying, there are so many benefits to developing the relationship. That's the deadly part is if you invest all that time in a company, decide you don't want to buy them, it's a lot of burnt time.

Yeah, I think that's all true. You should have a clear strategic view of who your target set is. I think the second question you ask is within each of those targets, who's the decision maker or who are the people? Because there are going to be more than one where the relationship is important. It might be the lead venture investor, it might be the chairman of the board, very often, of course the CEO, because if it's a good CEO, he or she probably can speak for the board or will be able to sway the board to some degree or at least understands what the board's and the shareholders interests and constraints are. So when you're operating in an industry space, you start to know who your logical targets are for whatever kind of expansion you're looking to do, whether it's geographic or product set or team or technology or what have you then figure out who the decision makers are and start building the relationships. One of the realities, I think is sometimes there's a process, right? They've hired a bank and they're going into a sale process and hopefully you've already built some relationship. If the company's interesting, but we all get surprised or we all see a shiny penny from time to time. When these processes start, you say you decide you want to dig in, so. So then you kind of have to go into catch up mode. But hopefully most of the time, as Michael said, you know your space well enough, you know the players and you've spent some time figuring it all out.

You could even go further and say it's not just relationships with decision makers, there may be other critical parties in the organization. You have a technology business, even if the CEO and the shareholders control the business, if you've got a brilliant technologist who developed it, you want to get to know that person too, because that may be a critical component of the acquisition, you don't want to lose that person. So the more you can build that relationship and your brand with them, the better you are. For a variety of reasons, including what I call reverse diligence. Right. Sellers have other variables than money that they're concerned with. I've always thought that M and A is this fascinating situation where you have two parties who have blind spots where they don't have information on the other party. And a lot of the M and A process and the negotiation process is trying to bridge the gap between distrust around those topics. Is your tech really what you say it is? Will you treat my people the way you're saying you will? And you won't destroy my brand. You'll be fair with me during the earnout process, whatever it is. So that relationship building builds trust and it also builds intel. Good example is if you spend a year working with my company, you see how I treat my people, you see how we treat our employees. It gives you a much better sense of what we're going to do with your employees when they arrive. Benefits, morale, variety of things like that. It has a lot of benefits to the seller as well as to the buyer.

There's an interesting thing that I sort of, I think, figured out over the course of the time I spent focused on M and A, which is a lot of time. Your industrial thesis about an acquisition is to fold a product into your portfolio or to access a new market of some kind, or in some ways you're going to go to market with the thing that you buy. And one of the best ways to try that out is to not buy it right away, especially if it's not in a sale process. But go to this company and say, hey, let's sign an NDA and let's talk about some of our prospects and whether if we went to them together and put our technologies or our product sets, linked them together in a more compelling way, would we be a better value proposition for this customer? And let's try it and see if it works. If it works, you've got at least one proof point for your integration theory and you're building the relationship. And if it doesn't work, you may dodge a bullet, or you, you may learn things about how to make it work better or whether it would work better with someone else. I want to avoid too much the dating analogy, but getting married after the. Before the first date, which sometimes happens, is maybe not the way to go. I mean, a lot of the best deals that I've been involved in for the companies that I've worked with have been partners that after two Years were like, boy, this is just great. We should do this for the rest of our lives.

Yeah. One of the arguments I hear against that sometimes as well. But we're gonna make them more valuable. I think that is the highest class problem in the world. I would much rather pay 5% more in purchase price and eliminate the risk that the offering doesn't work. My clients don't wanna buy it. That risk is worth much more to me than giving them a little bit of a goose in valuation in the process. So yeah, no, I totally agree. The other one that I find is subtle, but I think frankly, particularly on Juneteenth is probably an important one to point out is the subtle value of cultural diligence. I'm not saying this is a common scenario, but if you read a data room, you don't uncover a toxic culture. You don't uncover a culture with biases or misogyny or anything else, because they don't put that in the data room. And so getting to know a company and spending a little time understanding the team is going to uncover culture issues that are maybe not as extreme as that, but whatever culture issues there are, you'll get a better sense of them and then you can decide whether or not they're things that are salvageable that you can cause to be effective. Merging with your business or whether it's a non starter and you want to walk away. Those things are hard to uncover in a quick sprint of due diligence.

Others out there that have a short attention span like I do, we just talked about, it's almost like earlier, the better, essentially identify the key people that you really want to build those relationships with. Really use this opportunity to nurture the relationship, develop the trust. As Michael's point about even looking for some of these opportunities to test the theories and have a partnership to be able to even validate that before going into that kind of permanent commitment. Michael also mentioned was culture diligence as well. We can start early, get a sense of what that fit and feel is going to be like. Can you walk me through the scenarios you talked earlier about? Different strategies require a different approach and you touched on a little bit like, hey, if this person's so core to the business, I'm going to spend a lot more time developing that relationship. Walk me through the different scenarios and those different approaches that you would take in developing those relationships.

Michael already called out one sort of archetype, which is the founder owned, successful startup Target. This is a person or a small group of people usually who had a vision and took an enormous amount of risk. The entity is in some ways like their child. They have a love and a protectiveness for it, for the entity. Forget about the people, of course, they have that for the people as well. But they almost attach this humanity to the company that they've built. That's a classic archetype. And they don't care if a bad person comes along and wants to pay them a ton of money for their baby. Some of them will say yes anyway, but a lot of them just won't. So they need to trust you. As Michael said earlier, if you're buying a company that is, however, owned by a single shareholder, either a private equity firm, a venture firm or a corporation, you're dealing with a whole different dynamic. The CEO or the general manager of the business unit or whatever is going to have a say. And if they're, like I said earlier, if they're a good CEO, they'll have some sway over the decision makers. But ultimately this seller is going to make an economic decision, figuring out how to give yourself a relationship with that owner seller, more likely because it'll help you get more information that will enable you to be the best bidder. Because ultimately they may like you, but if you're not the best bidder, you're probably not going to prevail. It's not a beauty contest for them. That's really just about information asymmetry between you and the other buyers. So that's a couple of architects. I'll throw it over to you.

You're right, they're going to be very dollar focused. But you may still be able to sway them with likelihood of close. Right. So if you show them we've been talking about this business for a year, I understand it, I've thought through the issues. Then the likelihood that I walk away from the deal is a lot lower. And for them, the math is price and certainty of close. So you can at least try to affect the certainty of close part of the equation. The more diligence, the more information you get, the more you'll be able to sharpen your own pencil on price. The other variable it puts are those kinds of archetypes and there are a bunch of sort of variants in the middle. I think the other sort of way I'd slice it is the nature of the relationship that you're building. So are you building an ecosystem relationship? Are you going straight into a potential buyer relationship? Are you just developing a relationship? Because we're both in the same space, we should know each other. So there's a lot of ways to initiate that conversation depending on the nature of the company and what's going to be most appealing to them. Often the ecosystem relationship is the most appealing because it's revenue right now and they may be a little twitchy about a potential buyer. The flip side is sometimes the buyer card is what makes them open to sharing information because they're nervous about you as a competitor. So you sort of have to suss them out and figure out what their deal is. That's why I like to have some intelligence about them. Right. You know, if you come with a big business card from a big organization, you can get them on the phone through a cold call, but they're going to be nervous, it's going to be weird. It's often good. Even when you're a giant acquirer and everybody knows you, it's still good to come with a personal introduction. It puts them at ease. It starts the conversation in a way that's not. I am a buyer and I'm here to talk to you about acquisition. So I try to do that sort of soft entry. It brings up one other point that I think is interesting to think about, which is who in your organization should be doing this? Who should be building that relationship? Is it the corp dev person? Is it your business lead who would be the acquisition? Is it someone in your sales organization who's playing in the same market? Is it somebody, your tech organization, your innovation organization, who's playing with the same technologies, attending the same conferences? You have to figure that out. And part of that's based on what will work best with them and what your ultimate goal is if you want to retain the management team. I might argue that getting the business leader to build that relationship is more powerful because corp dev person walks away at the end of a deal. What I want to know is I'm going to go work for Kisan afterwards. Is he nice? Is he a jerk? Is he. Does he understand the business? Is he going to work with me? So building that relationship may be more important than the corp dev person.

I would go one further than that, Michael. And I would say, having said earlier on the call, that every situation is different. I think one thing that is almost a universal truth is that you want the business owner to build a big part of the relationship, not the corp dev person or a shareholder or an advisor or someone like that. Whether that's exactly what the seller wants or not. From your perspective as a buyer, that's the person who's going to own the delivery of the value of the deal. And so I think you want them in it deep.

How do you frame that though? Obviously you're not bringing them on the front end. You got somebody and you are.

You might. Yeah.

And the best deals that I've done, those people brought the deal to me. I didn't bring it to them. I don't like deals that go from corp dev to the business. I like deals that come from the business to corp dev and I especially like deals that come from the sales team to corp devs. Yeah. No one has their finger on the pulse of what this customer set wants more than them. And if they keep walking into meetings and the same other company has just walked out, whether it's a competitor or an adjacent offering or what, they'll know about it.

Oh yeah, you're obviously having conversations. So you're on the radar. They know who you are and the opportunity comes up and like, hey, Bruce, there's this company that would be interesting. I mean, are they making the introduction of you to the CEO of the company or what does that look like?

Yeah, very often. You know, I'm not greedy about the relationship. Other than making sure that they don't start throwing numbers around with a target without having had the corporate development team come in and make sure that they make sense. I don't have an issue with them going as far as they can in building a relationship before I'm ever part of it. Bringing in corp dev and bringing in bankers changes the whole dynamic. If you're talking to a divisional gm, suddenly the senior leadership of the company is interested or the shareholders hear about it and they want to know what's going on. People might get the idea, hey, well, if that corp dev guy is lingering around, we're about to get put in play. I better figure out how to package this up and think about a process. So you introduce competitors to the mix and it's like lawyering up. I don't think you should. The longer you can go without corp devbing up, the better, in my opinion.

I think that's exactly right. Or you position corp dev as being the ecosystem negotiator. Right. Bringing the corp dev guy in to figure out how we do a partnership or an alliance or something like that. But I totally agree. There's nothing better than a CEO to CEO relationship. And Bruce, I'll take what you said about salespeople further. I've always thought that the best market intelligence I've ever gotten is when I go to an industry conference, find a sales leader from another player in the space. And I buy them three scotches because they know everything that's going on in the market, right? They're talking to clients and clients tell them clients have no problem going, oh, yeah, your competitor was just here going in the wrong direction. And this is part of the reason this is all bespoke. You have to figure out for this particular target, what's the pitch, what's the hook, who's the right person in my organization? Maybe it's the cto, right? If you have a wacky tech company founded by brilliant technologists, they may not have an interest in talking to the GM of the relevant business. They may have an interest in talking to the CTO of the relevant business because what they really want to do is kibit's about AI application. You sort of have to figure it's, oh, God, you're dragging me into your dating analogy, Kisan. But you sort of have to figure out what is it that they want, what will make it a good experience for them, and then sort of try to facilitate that dialogue. I think what corp dev's role is sort of orchestrating a little bit and gathering the information. Right? So what are you hearing about this company? Are they maturing? Are they starting to get edgy, to get out? Has their VC been in for seven years? That sort of corp dev's job is to figure out what's the M and A strategy and how do I refine it based on all the intel you're getting from this relationship.

I was monitoring the Q and A that was coming in, and one of the attendees who's anonymous asked a relevant question to what we're talking about here, which is how do you keep the business leader under control, not making promises, signing NDAs without knowing the terms, et cetera? One of my previous employers, and I won't name which one, to protect the innocent? One of the reasons the CFO and the CEO hired me to take the job there was that M and A had escaped into the wilderness in this company. And you had people all over the world engaging in all kinds of conversations and almost making offers. And not only, not just signing NDAs, but the only way, in my opinion. It depends on what kind of organization you're in. But you have to create a process. You have to have a rigorous process. We created what's called a hunting license. And a lot of people have a similar thing. You can't say to the person, hey, well, have you ever thought about blah, blah, blah, without going and getting your hunting license? And there's a group of people that we had an M and a committee that represented all the different corners of the business functionally and in terms of operating units. Because you don't know, you know, there may be a conflict somewhere in the organization where you just don't want to be engaged in that. Maybe there's something going on commercially or maybe some other business is looking at a competitor target and you don't want to be careless about it. NDAs should always get approved by Legal Corp. Devs should have a relationship with Legal such that if an NDA comes in and it looks like corporate development context, it's flagged to you. So you have to have communicated clarity and process to the entire business so that people know you may not. Now, if people go off the reservation, then the question becomes a little bit of a cultural question about the organization you're working for. Do you fire people? Do you slap their hands and say it's fine this time but never again? That's a lot more of a practical question and a company specific question. But if you don't even have a policy, you have no chance to control it.

And you have to make it clear to them what the difference is between your role and our role. Right. And we're each going to do our role.

Yep.

Well, I'm interested on the dating stuff. What kind of pickup lines do you guys use to initiate the conversation?

Check out my balance sheet.

I love everything your company has done. Everything I learn about you just gets better every time I hear something about you. I'm very impressed. Telling people how impressive they are is a good one. There's an interesting one here from Usman. When you're working on smaller deals, do you need a large team of advisors or a small team of advisors? It's a little removed from the relationship, but there is a nexus to it. So for a 1 to $5 million deal, I wouldn't use a team of advisors, I wouldn't hire a bank for sure, I'd use a lawyer. But I think if you have a corporate development team that has some experience, you should just execute those deals without an advisor at all. The nexus to the question about relationship is that I'm sure there are investment bankers on the podcast and some of my best friends, literally some of my best friends are investment bankers. I'm not being disingenuous when I say this, but they're obviously there because in some instances they can help resolve differences and they can serve as an effective intermediary. But sometimes they can muddy the water too. When you're looking At a small deal like this, your risk of misperceptions being created increases unnecessarily by using a lot of advisors. They won't be mad about this by the way, because they're not going to make a huge fee on a deal that size. So most of them won't care that I'm saying this. Probably I would focus especially on the principal to principal relationship in that situation.

Yeah, I agree. I always apply the following logic chain, which is I don't hire someone once I know what their value prop is, right? So I hire an advisor when there's a benefit to hiring an advisor. If I have a corp dev team and it's a small and fairly uncomplex deal, there's got to be a reason why I would need an advisor. On top of that, Uzman had one other question right above, which is if you're entering a new space, would you bring out an experienced manager in the space? Here's where I'll start. I'll start with if you're entering a new space, I would, number one, be hesitant to acquire into that space. Without having some deep expertise in your organization, you really risk having a giant footfall on strategy or on knowing where the business is going. So my general view is I always want to have a business sponsor who is really knowledgeable about the space. Now in some cases, if you really are entering a totally new space and you don't have anyone in your organization who is knowledgeable, then yeah, I would try to bring in some kind of outside advisor, but it makes me very nervous. My theory is if you're excited enough about a space to do an acquisition, you. You should be excited enough to hire a fairly senior operator. Either that operator will sit on top of these businesses or will find a role in them. But there's Nothing that replaces 20 plus years of experience in an industry. That knowledge, it's very hard to find it anywhere else.

I agree with that. One of the cottage industries that the private equity community has created is these firms that basically link you into former employees or even current employees of targets and they go in due diligence on your target company by talking to someone who just. Or someone who's even still there and doesn't have an NDA or otherwise has the poor judgment to actually talk to someone who calls them. That's gold. You can hire an expert in the consumer electronics space or you can talk to the person who just got fired from company A, B or C. And usually you use one of these intermediaries to preserve your Anonymity and so forth. But usually the person who just got fired is going to tell you a whole lot more of directly relevant stuff.

Yeah, that's actually a really good point in terms of approaching that. And you got a really good point about the way you use advisors, too, especially on the front end of just having those initial talks. I mean, there's a little bit of learning curve to it, but that's something that you should just learn to do and take that as part of your life skill set. What are some of the common mistakes you see people go through when creating these relationships?

I've got one up front that drives me absolutely bonkers, and it sort of plays off of the how do you control your business leaders? I have gotten on calls with companies where I brought in a business leader, and this is to Bruce's point, it would be much better if the business leader already had the relationship. But I brought them in and the business leader sort of didn't mentally get their head around the fact that this is a dating conversation and interpreted it more as a combat conversation. They started the conversation by sort of strutting their stuff and explaining how good our offering is and how we're going to dominate. Even going so far as to point out all the weaknesses in the other person's offering. They came away from going, that's a great call. And I was like, now they purposefully don't want to work with us. In fact, they want to go find a competitor, sell to the competitor and beat us. Managing the business leader who you're bringing in so they understand the purpose of building this relationship. It's brutal because first perceptions are really important. Right. You get off to the wrong foot. Yeah. In theory, the largest price point wins, but we're jerks. Then they're going to go out of their way to find somebody who's not a jerk that they can work with.

I'll be quick with my answer because it alludes to something we already talked about. But the biggest mistakes that I've made are building relationships with people who just aren't the decision maker. It's just an enormous amount of wasted time. And you think you're making progress and you're not. And I won't belabor that, since we kind of already talked about it.

I'll give you one more because I think this is important. It's almost the reverse of what we've been talking about all along, which is falling in love two years in advance. You map out your strategy, you think you know the most attractive target and you start to build a relationship and they're great and it's really fun and you start to sell their offering in the market and you're getting along and there are a lot of steak dinners and you lose track of the fact that even though you like them, another competitor is eclipsing them in the market. Their technology's better, their brand is better. You sort of put on blinders because you don't want to lose that investment. You don't want to have the experience that Bruce just described. You self perpetuate the idea that they must be the right target because I've invested so much time with them. So it's important to keep an unbiased view because the chance that you're going to be 100% right in advance about who the right target is is zero. So inevitably some of these are going to be wasted efforts. You have to be okay with that.

Make sure your goals are aligned, especially when you're working with folks in your team on building this relationship. Make sure you're talking to the right people. You're not wasting your time developing relationships with non decision makers. Don't fall in love too early. Kind of take your time and make sure it's going to be long commitment. What do these relationships look like for us teams? Should each team be forming some kind of relationship with the target?

I think you have to go custom. It depends on the nature of the target and the nature of the relationship. If there's a co selling opportunity, then you want your salespeople talking to their salespeople. If it's a co development opportunity, you want your tech people talking to theirs. If it's just building a general relationship in the market, then maybe it's GM to GM and it may be also GM to GM and corp dev to investor. Multilateral relationships are more powerful because then you get multiple data streams, you get intel from different sources and they sometimes conflict. But you have to decide what's organic, what makes sense. My girlfriend's dad was interested in hanging out with me sometimes. My girlfriend's dad had no interest in talking to me.

I've been in situations where there was this desire to really deliberately map the relationships between okay, the owner is going to have the relationship with their owner and then the CEO is going to build a relationship with their CEO and the advisor with the advisor and blah blah, blah, blah. I don't know, I think it all gets a little tortured in some respects. The more important thing to me is that whatever you're saying to any of those counterparties you should assume is getting back to the other counterparties. I think if you're in an advanced stage, you're not planning who talks to who, you're making sure you're coordinated in your messages, or if you're not coordinated in your messages, it's deliberate because you're trying to manipulate the situation to your advantage in some way. I would focus less on the who and I would focus more on the what of what you're communicating to the different folks you're engaged with.

What about when we look at relationship in terms of how that can affect negotiation?

Yeah, I have a good story for that. When I was at PepsiCo briefly, we bought Stacy's pita chips, which is one of my favorite deals because I love the product and for a host of other reasons. We were bidding against another big food company. We got down to the last two and asked for final bids and we submitted our bids and they were identical. Stacy, her husband and their advisors went off into a non smoke filled room because they're very healthy people. And in the end they chose PepsiCo. Because our team was mostly women and Stacy is a huge advocate for women in business and she just appreciated the commitment that the company had to diversity. I would like to say that that had been deliberate, but it was just that was the right team for the deal. I didn't plan it at all, but I thought about that a lot and it occurred to me to do more in deals in the future to understand what people care about. Because you can tie break, but you can also maybe even. Michael talked earlier about deal certainty being an element. I think there's an intangible element depending on kind of deal you're. You're doing. I think it can pay in the negotiation to know what the decision makers real hot buttons are.

That's actually a pretty interesting one that people individually have different motivators and drivers of what's behind the deal. How do you get into that? It's almost like you gotta have a level of empathy to be able to pick that up. And I'm curious to know if that's.

It was a lot harder before all of the explosion of social media. But with the explosion of social media between LinkedIn and Facebook and Instagram and Twitter and whatnot, you can learn an awful lot about someone. For anyone who's really in that forum, asking to follow someone is broadly speaking, not considered an affront or over aggressive. So you really can learn an enormous amount. Even the bios that people publish about themselves, not only on their website for their Company. But if they go speak at an event or you can see where they've shown up, it's not really that hard to figure out if people are politicos or if they have an activist cause that they're committed to or kid sports or whatever, you know, it's not. It's not hard to find.

Yeah. See, Bruce's new school. I would give you the old school answer, which is you find out a lot about people over a couple of dinners and a couple of beers. One of the nice things about having a longer set of conversations, especially conversations that don't have an agenda to them, is people inevitably meander. They inevitably go, well, what are you doing this weekend? Or you know, do you have any vacation plans? And you sort of start to peel the onion. You hear about people and you find things out, by the way, wrapping into a question that came up during this Covid period. On the downside, we're not having steak dinners, but on the other hand, you know, you go, oh, what, Bruce, what's that thing behind you? Oh, it's a guitar. Oh, you play guitar? Oh, yeah, I played in a band in high school. Da da da da da. And so Kisan, basically, to your point, having empathy and treating the conversation as an exploration and just a human to human interaction as opposed to. I have four agenda items. I need to get through them. You'll discover this stuff about people. People like to talk about themselves. They like to share those other parts of their lives. You hear stories about how they built the business that'll tell you things about what they care about and what's meaningful to them. But it's hard to do. It's very inorganic to do it on the spot. We just started a deal process. Let's sit down and get to know each other. But if it happens over a year long period, the stuff just sort of pops out.

Tell me about proposing. Do you have any unique ways of approaching that?

Proposing deals or proposing marriage?

Both in a deal context, yeah. Are you lighting up a bunch of candles and sort of setting the mood?

I think it depends on the situation. Obviously, if there's a deal process, then you know that they're for sale. But if you're trying to initiate, which is great to do because if you do it right, then you get a proprietary deal. I like to start with what are your needs? This is not about me. I may want to buy your company, but your company isn't for sale yet. So right now it's about what are your needs? What are your goals? What are you Thinking about for the future of this company, what are you thinking about for your own personal future? If we're talking about a founder, then weave into it the possibility of an acquisition. But it's got to be aligned to what you were trying to get done. I can't reach these big markets because I'm not part of a large organization, whatever it is, and then frame the potential of a deal around it. Here's the other thing I'll say, and I'm curious where Bruce's reaction is. People aren't dumb if two companies are talking to each other, especially if one of them is bigger and especially if one of them is acquisitive, to say nothing of if they're talking to the corp dev person. But even it's a business person, of course they're thinking that that's a possibility. Nobody's like, what acquisition? I like to frame it with, what are you trying to achieve? Rather than just this is what I want out of it.

There comes a point after you've learned enough to be somewhat informed on what you think a reasonable valuation is. I think there comes a point where you go to the decision maker and you're just candid and you say, look, we're interested on the appropriate terms and we think that's in a range between X and Y. Y being the number that you know they're going to hear and X being a way for you to position that you're a nice person by paying. Yeah, you know, we don't want to necessarily go further if that's not interesting to you and you put it out there and you're prepared to step away. It's really hard to go lower later, of course, so you got to be careful with that. But Michael's right, people are smart. By the time you're far enough into this relationship that you're going to make an offer, they know you're thinking of making an offer. I kind of think about the next question though, which is, what do you do if you say I was thinking 10 and they say 10, I was thinking 100. You can either say, you know what, Never mind. But what people very often do, especially if they don't want to offend a person because they built a relationship with them, is they take the earn out route. That's a good way to preserve a relationship in the near term and ruin it in the long term. There are very few known instances of it all turning out with everyone happy. It can often turn litigious or threats of litigation. Someone's always disappointed.

I Agree. I think it's much better to say, let's just agree not to talk about this right now. And one of two things will happen. Either they'll get their 100 offer and I was just wrong about the value, or somebody else had a higher value, or they'll have some more conversations, they'll talk to a banker, they'll realize that they're unrealistic and they'll come back and you've preserved the relationship because you've made an effort not to offend them.

When you do a formal proposed pop the ring and ask the question and present the loi, a lot of this stuff is already laid out and there's a general level of confidence that things are going to be accepted. Or a lot of this stuff is just, hey, we're putting in writing for the first time and have a lot of anxiety on their response.

If you're not in a competitive process where you're submitting bids, I think of it as a memorialization of something that you already know it's done. I analogize it to a board meeting for your company. I don't really ever want to go into a board meeting unless I pretty much already know what the outcome is going to be.

You're pretty much sat and had this discussion and when you do do it, there's a good level of acceptance. And if there is a concern, it's usually something around the details.

Yep. Yeah. Otherwise, why bother? All you've done is spent a lot because you know, writing these documents takes time. Getting approval takes time. You might as well make sure you're on the same page before you go down that process.

Last question I had was, what's the craziest thing you've seen in M and A?

I'm talking about Stacy's pita chips a lot today, but it is the craziest thing. Between the sign and close of Stacey Steel, I got a call early Sunday morning, like 2:00am from Stacy's brother. He said, you need to get up here. And I'm like, it's two in the morning. They're like, you need to get up here. We have a problem. The only factory that produces Stacey's pita chips had a catastrophic fire and burned literally to the ground. It looked like one of those laser guided munitions had hit it because one of the pita chips came out on fire from an oven and was going down a spiral cooling rack and the belt caught on fire and the belt turned out to be flammable. And it was, I think, 2,000 degrees at the Hottest point in the center. Later that Sunday, I had a call from the very famous CEO of PepsiCo asking me if we could get out of the deal. And I said, well, we could, but I'm not sure we should. David assured me that he'd have the thing up and running within two weeks and I said it's not even going to cool off within two weeks. Two weeks later he sent me a picture with the day's newspaper and pita chips running down. They did a U turn, built a shed and got it up and running again and closed the deal. And it turned out to be a great deal for the company. I guess the moral of the story is there's no such thing as total catastrophe or try to be the cool head in the equation if you're the corp dev person.

Wow. Every deal has its hitches.

That's great. I thought about this. Kisan and I tried to come up with one that was focused on the relationship building aspect and was embarrassing to me, which I always think is the best way to end these things. I was looking at a company that I was really interested in and we'd been building a relationship with them for a while and we sort of had that dance where they knew we were a potential acquirer but we were talking about could we partner together. We license their data. They were in a really small town in the middle of Ohio. They said, well, we really want you to come down and meet the management team. They were the largest employer in this town. Right? It was a real town company. I said, yeah, no, I'm glad to. And I'd been building the relationship because it was going to be a totally new business line for us. So there was no GM and I was the strategy lead. I drove down there and the important thing to know is that I just had, and this is now good personal information. I just had a crown put in to one of my front teeth. It's important that it's the front teeth. I drove all the way to this very small town. I got to my room at the hotel in the town, giant gift basket with all these things that are produced in the town including these like caramel pretzels. I sat down to have a lovely local caramel pretzel at about 7pm the day before. I was going to do this whole day meeting with them. Took a nice big bite of the caramel pretzel and one of my front teeth came out. So I just had big old Gap right in the front of my face. There's no dentists that I could find it's like a Sunday night. So I went to a CVS and I found I've never had dentures. So I was like looking around for the right thing. I got the tooth to sort of stay in my head and the next day. But I didn't want to cancel the meeting and I didn't want to freak them out. This is the first time we were meeting in person, you know, with the whole management team. So I spent the whole day getting a tour of the building, meeting all the teams, meeting the development team, having lunch with the CEO, making a presentation about our company and what we do and how we could work together, desperately hoping that my front tooth wouldn't like fall out in the middle of meeting. I think I had like an egg salad sandwich for lunch. Very gingerly, trying not to smile too much. It all went great. Really built the relationship. And I just remember on the drive back going, the biggest thing I was worried about was not my presentation, not anything else, but just it's the only time in my life I've been concerned about like something falling out of my head during a business meeting.

Great story guys. I like it. I really appreciate the time today. I don't know if you guys have any shout outs or sign off things.

No, no, no. No promotional opportunity needed.

I'll throw a quick one. Just a shout out to our marketing team. For those of you that want some more structured content and written stuff, they'll keep learning. We're actually writing a lot of summaries from the conference that we did last week. So if you go to dealroom.net and just look at the blog over there, they got some really cool stuff, really well put together. Highly recommend that if you want to keep reading, keep learning. We're trying to catch our industry up. May take 10 years to get us to 2020. Thank you guys so much for the time today. I really appreciate the conversation.

Thank you. It was fun.

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