How to Execute Successful M&A as a CEO

Hello M and A Friends. This podcast is brought to you by Deal Room. M and A deals are more competitive than ever. Your teams need to be collaborative and aligned to act fast and win deals. An M and A lifecycle management platform allows your team to spend less time coordinating and more time executing so you can win more deals. Check out why the best in the industry use Deal room. Go to dealroom.net to learn more. Again, that's dealroom.net join me on September 25th for the M and A Science Fair. This is a hybrid event that showcases best practices and practical insights in M and A. Isn't your standard conference where you're sitting in on panel after panel. From fireside chats to breakout sessions, we'll be featuring impactful content led by M and A practitioners from Whiffley, Sullivan, Cromwell, Jamf and Oakbridge Insurance. Together we'll discuss everything from MA change management to best practices with deal terms. Visit mascience.com to register again. That's mascience.com See you in September. 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. Hello M and A Scientists. Welcome to the M and A Science Podcast where we learn from the best in M and A to uncover proven techniques for enterprise value creation. If you're interested in learning more about how to optimize your M and A practice, want to get involved with the community of forward thinking m practitioners, visit mascience.com subscribe to our free weekly newsletter and if you want to keep up with us on the go, head over to LinkedIn, follow M&A Science. I'm your host Kisan Patel, CEO and Founder of Deal Room, Chief Scientist at M and A Science. Joining me today is Sanjay Poon, CEO of Cohesity. Cohesity is a privately held information technology company that develops software that allows IT professionals to backup, manager, manage and gain insights from their data across multiple system or cloud providers. Today we're going to talk about how to execute M and A deals. Hey Sanjay, thanks for taking the time. I know you're got a lot of things going on running a company at Cohesity. Can we kick things off a little bit about your background?

Yeah, I've been with the company now two years. I was prior to that COO of VMware and helped build the company. When I joined it was about 4 billion and then when I left with about 12 billion I had two roles there. One was running an end user computing division and then probably the most formative role was COO where we doubled the revenue, which was a great run there. Prior to that I was president of SAP and was involved in building the analytics business, growing the company from about 10 to 20 billion. So involved in two great companies had a tremendous impact on my life, analytics and what we would call modernly AI today in the world of SAP and security and cloud in the world of VMware. I'm a tech person at heart. I started my career at Microsoft and at Apple. Very fortunate to work with some incredible people through my career and on some incredible opportunities that really are the junction of this world of cloud now and security and AI.

Sanjay. So it was Steve Lucas at BOOMI that advocated for me to chase you down, get you on this podcast. The big thing he noted was just your experience at VMware doing M& A. Can you tell us a little bit about some of the M and A deals that you worked on?

Yeah, Steve is a great guy. He was actually my right hand person working for me when we did several of the key M and A deals. He came to us from an M and A deal. We did business objects at SAP. I came by right hand person and eventually when I left took over was part of my role at SAP. So he has experience with me on business objects and what made that successful. We then did Sybase and that was all very successful at SAP in bringing in that database DNA that we needed for Hana. At VMware I was involved. We had just done niceer after I joined, but I was involved in the Air Watch acquisition and also in carbon black. So had seen many of these M and A deal in terms of what makes, I think when I look at the carbon black Air Watch sideways and projects, some of the bigger deals and then probably a smaller deal. Outlook Soft and SAP and BMW. These four or five deals taught me a lot. You always want to take some experiences from that that are positive. But there's also things that you could correct if you could do some of those deals or new deals. And here we are, we've been, it's a smaller company cohesive. We're not a public company with a lot of cash flow. So we've been cautious. I think we've done one or two MA deals in our history here. But this year we announced our intent to acquire the data protection business of Veritas, which is the biggest transaction in the space. It's a very creative deal. It hasn't Closed as yet. They expect to close later this calendar year, but we announced in February. And I think the deal has gotten a lot of the attention, both if you were a customer or in the industry in terms of what the potential for this new entity could form, but also for M and A dealmakers like yourselves in terms of what is the anatomy and how did the deal came up. So I ended up talking fair amount about this deal in the recent few months.

So interview. We had a lot to talk about. Now you had these big roles at SAP, VMware and yeah, give me a sense of just that leadership experience, how that has shaped your M and A approach over time.

SAP and the leader in systems of record, they do systems of record really well. Accounting systems are systems of record. How do you move from that to systems of engagement that are these systems that can give you visibility into the core data you collect. VMware was sort of the king of the virtualization phase. Really did things like thermal virtualization and the core cloud infrastructure better than anybody else. But as we looked at devices and end user computing, we needed a play there that would allow us to get to mobile devices to endpoint security. So there was always an aspect of an inorganic move getting us into a new market and going faster than we could on our own. Before you think of an M and A deal, you always have to ask yourself, what is your portfolio strategy? What is your strategy as a company? M and A is not a way out of a strategic mind. You have to have a strategy very well understood in terms of where you're going. And your first priority should be organic building a product, not an M and a deal. Because if you don't have an organic strategy to innovate, at every one of these companies there was a core organic innovation strategy which is always you got to build first before you buy. And in fact, I would argue even before you buy you need to have a partner strategy because sometimes you may want to date a company before you marry them, so to speak. So this idea of having a inorganic strategy that complements a build and a partner strategy, the right way to approach things.

Yeah, I like that and I like how you outlined the SAP example. Can we walk through like a similar example of VMware and maybe more recently at Cohesity, in terms of how that thinking applied when you did those acquisitions like Airwatch and Carbon Black, that sort of go beyond just virtualization business.

For VMware, the transaction cohesity is a little bit different. But let's cover very quickly in the case of SAP acquiring business objects. That speed Lucas came from it was going from systems of record to systems engagement and providing the set of analytical and visibility tools that could allow you to get visibility and engage with your data in the accounting system. That was a breakthrough and it provided us the opportunity to become the leader in analytics. I was talking Today with the AI type of systems in the world of VMware, we had the server virtualization cloud infrastructure fairly well figured out on premise. But this end user computing business, which was mostly virtual desktop, didn't have a play for mobile devices. So the ability for us to inorganically move to secure not just laptop or virtual desktop, but also mobile security tools to protect devices paid by mobile device management. When we acquired airwatch, we instantly got the leader in that space and we were able to then build on top of that a very big digital workspace business. And as a result of that, we were able to get something that could innovate much faster on the end user computing front. Similarly, carbon black brought us even more endpoint security as we did that and further growing that end user endpoint security capabilities. Those would be examples of inorganic moves that expand your portfolio because you can go faster through an acquisition, of course, digest it, make it successful, than if you would try to build it on your own or partner. And the reason you're not partnering because you believe that capability needs to be core to what you do. In the case of cohesive veritas, there was much more consolidation in the industry. We felt the industry was too complicated and too fragmented. There was an opportunity, there was obviously some portfolio overlap, but the most part of it was they were doing certain things in data protection for backup, in what's called a disaggregated backup, where you backup and store the data somewhere else. We were doing things in what's called a more converged or hyper converged stack plays itself very well to where the cloud is going and that sensor is complimentary. And where there was overlap, there wasn't much overlap in our customer base. We felt that number eight, that's us growing really fast. Combining with them, number three, that's highly profitable, would structurally provide the industry a new number one, that's where we become that's both profitable and growing fast. And that's a profitable growth company better than a company that's either highly profitable less and we are just imminently free cash flow positive and then that's not growing as fast, but highly profitable. That's the nature of the game. And today, if we were waiting to go public, we could potentially go public now. But we felt that we delayed the ipo, put these two companies together, we could go public as a much stronger entity in the next year. That was the idea of why we announced this deal. And once we close it and integrate it, it should be a much more powerful combination than if either of us were to go public on our own.

I like that view on consolidation. Take number eight plus number three equals number one.

And the distance between us and some of the other competitors that we play when we're number one is significant. And none of the other players we compete with, that honorable competitors are profitable growth companies, you know, at scale. One of them highly unprofitable, growing decently, but highly unprofitable. And the other is slightly profitable but not growing very fast. So the idea in any of companies to create SAP and bm. In my experience, there were highly profitable and growth companies at scale. In the case of BMW, 12 billion. In the case of SAP, now today, 30 billion. But when I was there, it was from 10 to 20. I think the experience gives me a lot of ideas of what do we do to make sure that we build a profitable growth company here. And I think there's a path cohesively to create a $5 billion revenue company. And that's what these moves, these M and A move helped us get to.

I heard this is your magic at VMware, just being the CEO and just operationalizing these acquisitions to really come together and get that. Because, I mean, this is putting some pretty big companies together. What's your secret to do that? Like, how do you actually make those deals work? Because we always hear after the close is when the disaster happens.

There's a part of me that loves the art of the deal and loves the idea of doing things. I'm not a. I would say a deal junkie, but I do think that appropriate bold moves coming to this country. As an immigrant, I've known only one gear which is to move fast. And sometimes the best move to move fast is to swing for the fences. I would describe the and do it and have a bold move. I think the move by SAP to acquire Business Objects and Outlook stuff, which was the analytics move with a bold move. SAP then followed up. It was the biggest back position SFP ever did. VMware Airwatch was the biggest acquisition until we did pivotal and carbon Black, which was even bigger. These moves were bold moves to get us into a new market. Pending the close of this deal, this will also be the boldest move this industry has ever seen. The data protection industry and it reshaped the industry quite a bit. You want to stay humble and hungry. It's easy to look back at a deal and I would say the four or five I was involved in, whether it's business object, sidebase, Air watch or carbon black, I would say I understand what made some of those successful and also why some of those weren't as successful as they could have been. And I also know now, obviously, pending the closeness, I mean, listen, the jury on the context of Cohisti and Veritas will be out two or three years from now. So it's too early for us to celebrate this. This is now just an announcement. We have to close the deal, we have to integrate it. But if we're having the same conversation, I don't know, circa 20, 26, 27, we'll have some early indications that it's been successful. Clearly, I think within even 12 months we will know that it is being successful because we will be making a plan, we'll be on a path to go public. So I always like to talk about deals in retrospect because strategy on its own, without execution will be meaningless. So while I'm very excited about what we announced in our intent to acquire Veritas, I would more likely want to come back and talk to you a year, year and a half from now, close the deal. Integrated and successful. It has tremendous potential. Don't be wrong, I'm excited about it, but you can't bask in the glory of a deal until after it's done. And even then it's not me. I might have the idea and have a deal team that's helped me do it. It's an incredible teamwork of a village that makes these things successful. A lot of product engineering, a lot of go to market integration. A lot of people like working business objects, you bring in people like Steve Lucas, There were many people at business objects that brought a lot of good DNA and then worked inside SAP that were very successful years and then went on obviously do great things. One of the things most important to me in the art of not just the acquisition piece of it, but the post merger integration piece of that you got to get really right because most often these M and A deals fail because people leave. There's a Harvard Business Review study that said 90% of these M and A deal failed and it's not often because of strategy, meaning some product issue is wrong or some process issue, meaning you weren't able to integrate the company as well. Because people leave, especially in tech companies, software Companies are assets, are people. They come in in the morning, leave in the evening. We've got to do everything to keep people for many years. You can never keep them forever. But you want an M and a deal for the brain trust of that company to stay for two to four years beyond just. You can put golden handcuffs on them, which are cash and equity driven, that's fine. But when they get excited about building a big business inside your big company as opposed to leaving to go start the next big startup, I think then you've got the possibility. And that's usually for a person either architecting that deal or owning it. That's the job we have to do as business unit leaders, or now in my case, CEO. We've got to make sure that the integrated team can act as one team. And we're doing everything to break down the cultural barriers and making sure that. For example, here's one example. I advise people when you are doing an M and A deal never to come in with an Occupy mindset. Remember, like when the Allies finally won against Germany and all the kind of Axis powers in the 1940s of the end of the World War II, the Allied forces occupied many of those countries. What ended up resulting in the Soviet Union coming to Germany and the US Coming to Germany. The US and the Allied forces pulled back and gave Germany some control, but the Soviet Union took over East Germany. And you know what happened? Until Germany was reunited, East Germany was just stalled from kind of production and the Germans were separated into two countries and a company that's applying other companies to be very careful not to come in with that Occupy mindset, which is, hey, we now own you and you need to do what we tell you to do. Obviously, if you have ways in which you can make them better, you want to help them, but you want to let their innovation and their ideas be the ones that drive the company. So these are just the kinds of stars on the back of everyone who's done M and a number of deals that allows you to allow these deals, whether it's small or big, to allow to be successful.

Does that approach changes by like size of company going for a smaller company and this is like more current case of a company that's even larger.

The mindset in a smaller company is you're tucking it in, you want to try and keep it intact as much as possible. You don't want to decompose the acquisition into its arms and legs. And typically when you acquire a company, all the business units come in and say, okay, I want this piece, I want that piece. You don't have a plan by which you can keep it intact. The more you could keep that company requiring intact and have as few people whose managers change that allows that unit, if they're doing good work, to continue where it needs to change, especially engineering. For example, you've got a product team that's building a product. Why discombobulate it and put it on the new people? And it's just let them keep innovating. Of course, if they need to move faster, you help them move faster. But the moment you make org changes and integrate things in and new managers appear and sometimes the parent company that's acquiring it, all these people come out of their corners to try and eat headcount out of the acquiring unit. You want to as the executive protect that from happening. You want to try and keep that unit intact as best as possible and allow that unit to flourish. I mean certain DNA functions maybe fails in marketing you can integrate so that you have a unified approach to how the company is operated or how they go to market. But engineering teams, I usually think you want to keep that intact because you don't want that innovation, especially if it's an innovative company moving really fast for it to change. The more you stall that innovation, the more likely customers are going to lose that speed. Especially with a smaller company in the context of Veritas, it's a bigger company requiring in a smaller company you really part of the reason you're firing them is they've got some speed advantage that you don't have. The worst thing you can do as a bigger company is stall that speed. And I encourage usually you want to keep the CEO of that company for, for as long as you can give them the freedom to run things, give them always some goals and then provide them a little bit like this is the example I do use. Imagine you're acquiring a company and it's like for them the experience is going from walking up the stairs on foot to getting on an escalator. They're still going to have to use their feet. But all of a sudden this system SAP for business objects or VMware for Airwatch allows that person to go faster. And that's where any CEO of their dream if they can take their business that was, I don't know, airwatch was about 100 million I think now inside and use a computing business Airwatch probably a billion. So it's one of the most successful acquisitions perhaps of that size in most recent times. But imagine you could tell the CEO of Airwatch, hey, that 100 million you're doing on your own, I can double it faster than you can on your own. Oh, the CEO sign me up. I want to do that because they want their baby to be successful. And in the case of Airwatch, the CEO of the gentleman named John Marshall, the chairman was a guy named Alan Dabiri. They were excited about that. They stayed. They didn't stay. They stayed for two, three years, helped us get to that goal and then new people and said Airwatch came in that could help us take it further. And the Airwatch people today, I still get notes from them around Christmas time, whatever saying, hey, thank you for all that you did to help Airwatch be successful. For me, that's a tremendous joy to have many of these Airwatch people who even to this day, it was done in 2014. So like 10 years ago, you want them to be proud of that moment because for many of these people it's their baby. And it became the heart and soul of some of the key aspects of what VMware now calls Workspace 1. I think that's the same way you want as you look back at these deals in the grand arc of time. So I would look back and say Airwatch, very successful asset that VMware changed the landscape of VMware's end user computing business. And I hope the same thing here. If you came and talked to us five or ten years from now, or even well past, I'm retired and gone for cohesity, 15 years now, whatever have you, if this company is becoming a great company, 5 or 10 or 15 billion, this deal will be a key part to the reason it became that size.

And due course find the right mix or the right plan for integration and it's almost there's a view of you can over integrate and be careful not to do that.

Yeah, absolutely.

So as a CEO, when you're looking at a potential target acquisition, what are the key factors that you're looking at really looking into at the end of.

The day, beyond the CEO, you're looking for a company that on its own is a leader in its category, that when you've talked to customers, we did a lot of due diligence on Airwatch before we acquired them. We want to know what customers were doing. I had a lot of experience in what Airwatch impact was in the market at SAP when I before I joined VMware because I was running the mobile business at SAP and I knew air watches position in the market and what they had as they what was happening to them and how they were doing. So I had a lot of kind of data points from customers. So I talked to customers a lot. And in talking to customers, you get a sense as to how well that product is appreciated and doing the due diligence. You want to even talk to more customers. And then I spend a lot of time with the CEOs of companies that we are looking to acquire. And you want to get an old sense of that culture, what drives them, how they view life and break bread with them. And as you get to know them. And in the case of BusinessObject, it was actually interesting. We acquired Business Objects and they folded my division underneath the CEO of Business Objects, John Schwartz, who was a friend of mine. So I actually was working for about a year for the CEO of Business Objects. He left about a year or maybe a year and a half later. And then I took over all of the analytics business, including Business Objects. It doesn't have to be the case where you're acquiring the CEO and they work for you. In the case of Business Objects, I was working for the CEO and it was the right thing for me and the company at that time, which I had no ego about it. I want to see this business be successful. Whether you're acquiring the CEO and they work for you or you're working for them, if your goal is to create a big business, in my case, I had a passion to create the best analytics strategy and business. That's what I came to SAP for. It just so happened the company had now decided they were going to buy Business Objects, and it's great. Now my analytics business gets me bigger. I'm not going to worry about whether I'm the CEO of that business or not. Eventually I was running that whole business, but not at the outset of it. So I think that's the way in which you want to be thinking about what's the best way to create the outcome. The way I approach Veritas is it doesn't matter whether I'm the CEO of the company, that their company CEO is the company, or that the board decides a new CEO should come in to run this joint entity. We need to do what's right for Cohesity and Veritas and then let the people decisions be decided by the board. That's, to me, the way any unselfish leader should operate. You got to do what's right for the business and for your customers and for shareholders. And then the board comes and says, sanjay, we want you to run it. Okay, good. I'll run it. But if they came to me and said, sanjay, we don't want you to run this, I would say, who's the best person in the industry to run this company? Put that person in charge of that. And then we're all CEOs. We are personalities and leaders with skills. And I'm not saying we're all indispensable, but you don't want to create a position of indispensability that you're the only person that can run things. And even if you are the CEO running things, you want to create a succession plan of people who can run things after you leave. For example, in the case of Business Object, that person was Steve Lucas. And my job was to groom him and get him ready so that eventually, five years after we acquired business objects, I think, yeah, 2013 was when I left Save was ready to take over a good part of my role. So I think these things are ones where, when you think that way about what's the long term. There's a really good line in Stephen Covey's book, 7 Habits of Highly Effective People. It says, start with the end in mind. It's a life lesson, which is if you were to write the narrative of what's on your tombstone, what would it be? What would people say about you on your tombstone? That is the end of our life. But same thing, I think, in business. What do you want to be said about this business at the end of your journey, which is not the end of the entire business or some five, ten years, and write that narrative now so that you can begin plotting towards that goal. We had a goal at SAP to create a billion dollar 5 billion. And then a $10 billion analytics business on top of a $10 billion ERP business. Okay. So that we could have a system of engagement that was just as big as the system of record. BusinessObject brought us a 1 or $1.5 billion business. We added it in the half billion dollar business. The things that we were doing. We were already two. That business got to about four or five. Then we had an HANA that was another four or five. And before you knew it, this was a $10 billion business. That's the way you want to be thinking. How do you create a. In our case, we want to create a $5 billion revenue company here. And this deal is a very critical step to making that happen. $5 billion revenue goal is a very big, hairy, audacious goal for a company like our size. It was probably an easier goal for VMware SAP to get to. But for a company that's a little over half a billion today, our size to get to 5 is huge. Many of our competitors will never get there. So I think that for us, that's the way we think. That's the way I was taught to think through my experiences at SAP and VMware. And that's my advice to any business unit leader or CEO contemplating an M and A deal.

Look for the leader in a category doing diligence from their customers. Understand their impact to the market, culture and vision alignment. The culture piece. I want to dig in a little bit because I feel like it's pretty subjective. What would be the red flags to get a sense of this is going to come together and this teams aren't going to match up. How do you figure that out?

You know, it's a little bit like there's this psychology test called Myers Briggs. I encourage everyone to do it. I did that multiple times. And all of us in the world have different Myers Bricks. You probably have different Myers Bridge than Maya. We all have different personalities and that in itself doesn't mean that we all won't culturally get along. But you, as you get to know somebody, you get the sense a little bit like a friendship or a marriage. I hate to use the word marriage because you're not married to a company for life. You can eventually leave if you don't want to. It's like a really good friendship. That's a better example where you know what's the dynamic in a friend of what makes that person a really good friend as opposed to just an acquaintance or your best friend. There's something about the personality and there's a chemistry. So you're able to detect as you get to know that company, as you talk to references, I talk to a lot of people. Hey, what's the especially the people you're going to deal with and you get to know them and you ask other people what are their strengths, what are their areas. You get a sense because often the culture of a company is very reflective of what's at the top. The company often reflects the values of its CEO and leadership team. So as you get to know the CEO of the leadership team, you get a sense as to what's that culture. And I spend a lot of time with the heads of hr, both companies asking them what the people like, what are the things to make them take. We look at the talent down like today we're doing that with looking down at talent down to the L4 L1 as the people report to me, L2, L3, L4, L5. I hope we don't have many more layers than that. Maybe it's just L5. And I've made the commitment that I'm going to inspect every manager role. It may be several hundred that we have in a new company. I may not know all of them, but I want to see the spreadsheet of PowerPoint to see who those names are. And in certain organizations I'll have a very strong opinion of the end world. Not to say my role there to be dictatorial. But if there's a cultural misfit or I haven't met that and often I would ask to meet people myself. I have done number or face to face or zoom calls now with people just to get to know and when the CEO of the new company is willing to do that. Not just for the L1 people reporting L2s, the L3s, the L4s, it sends a signal. I talk publicly about the fact that my management philosophy is very different from a top down sort of military ruler. I'm very much a bottom up servant leader driven person. Which means I've talked publicly about the fact that the power of an organization is at its least level, meaning the first level engineers. The individual contributors are engineers and the individual contributors are sales reps and then their first level manager, meaning an engineering manager or a district manager. The power of an organization is there. So what does that mean? If I say that and an incoming business I'm acquiring cures that the people at the lowest level of the company want to meet me. Now I can't meet everybody, but they know that the CEO of this company is approachable and if I send them a note that's important, they'll read it. It's likely there's an issue that I need to address at a customer where I need their help as a rep. I'll get it. That's the way in which you want to build a company and when that's the way I run business units. That's the way I running cohesive. It doesn't matter if it's 100,000 person company called SAP, a 40,000 person company called VMware or a 2,000 people called Cohesive that when we come together Veritas will be over 5,000 people. It doesn't matter. I seem big. I've seen small that principle of how I choose to run the company. So leadership stays the same. I'm probably a little more approachable now in a smaller company, but it's easier for people to get to me. And there's fewer people whose names I need to remember. But it didn't matter. In a 40,000 person company, I could go to Germany and there'd be 10,000 people there. And I loved meeting the people there and ensuring that they knew that I was approachable. I would spend long hours and evenings and nights in their beer gardens talking to them. That approachability you want to have so that the rank and file of a new company feel like, you know what? I'm inspired to join this company because the leadership at the top exemplified it's not just the CEO but the entire leadership team. They're approachable and they're not sitting in some ivory tower.

Have you ever convinced somebody to sell.

Their company any like art of a deal is a buying and selling process. So these deals don't happen without an airwatch. It took me several goes that the and it wasn't just me, it was the M and A team to Alan Dabiri and John Marshall. But they finally agreed. There's a combination of cultural soft factors and then there's hard factors, price. So it's never just one.

Is it like a series of conversation, then you're waiting for them to raise their hand and saying, hey Sanjay, let's talk about doing a deal. Or is there sort of this proactive approach of convincing someone to do the deal?

Listen, it's a little bit like a friendship or a dating relationship. People know that you're interested. You don't have to be explicit about it. When you go to meet them, you could ask them, hey, where's your vision of where things are going forward? Where do you see yourself going? Can we help you? You don't want to start to go and say, can I acquire you? That's not the way you, you approach it. You wanna ask them, can you help their business grow faster in the context of something we could do together. And often I might suggest starting with a partnership, right. Can we start as a partner together? But eventually then you're like, I want you to know that we started as a partner. We may eventually need to own this technology. Would you be open to the idea of being part of one company? You kind of approach this and you don't want to be sometimes too bold about the idea. You want to approach it cautiously, partially with respect. Often for a founder of a small company, it's their baby. You don't want to be presumptive that they want to sell. And sometimes people that I'm not for sale. Okay, got it. Let's Stay in touch. I'd love to get to know you better. I'd like to partner with you. How can I help you? You want to be their friend to help them, and if it's a public company, a little different because of the share price, and you've got to make sure shareholders are okay and so on. And then you want to make sure that if I'm looking at a company or I'm looking for somebody to buy me, either way, you want to be on the radar of the people who you want to acquire or you want to get acquired, too. Okay. I can tell you as much as Alan De Beery and John Marshall, the people at Airwatch, I was talking to them, they were talking to me too, because they wanted to make sure I didn't go by their competitor. And VI was a very powerful company. They knew that if I decided to walk away from Airwatch, there's another company that I could acquire that probably was similar to them, and they wanted to make sure we didn't acquire them. You always ask yourself, in these deals, there's going to be a little bit of give and take. Everyone has options. You don't want to get so in love with the company that there's an alternative. What if somebody comes and stacks that company, acquiring them before you do, and you have no alternative? So the boards, the good boards will always ask somebody, okay, what if you couldn't acquire this company? What's your plan? Oh, we have a plan B. We would acquire this other company. Oh, good. When we acquired Airwatch, we had a plan B and a plan C, and we had a everything thought. The chessboard was all thought through. Okay. So then when we were acquired them, and granted, it was not a public company, it was a private company, it was a leisure. We did this on a complete secrecy, of course. You sign exclusive. This is the way in which you get all these things done so that they can't proactively be talking to people while you're talking to. There's the M and A good M and A. People know how to do these deals. But you do it in a way that if it falls through, you never want to be the place where, when you're doing an M and A deal, if it falls through, okay, because somebody else matches them before you can get to it. Your whole in your company strategy, that's. You should never build a strategy or a plan where if somebody else buys the company before you announce it publicly. But, you know, that's how we think. And fortunately with a lot of people around me that some of whom have joined me again here at cohesive. You work hard to make sure that it's a success. And then you want a lot of people giving you input even once you announce the deal. I describe this as a post m and a announcement to then closing the deal and then integrating it. You want to have a big set of years. I always tell people, have two years and one month. The reason we're creating two years and one month. Anybody gives you input like, great, tell me. And you don't have to act on it, but you never want to be presumptive to say, oh, you're wrong. Okay, got it. Let me think about it. You'll be surprised the number of people will give you advice once you've announced the deal. You should think about this. That's great. I want to hear everybody's advice. They all want to talk to me now because we announce the deal. Great. What's your advice? I think you should do this, you should do that. Great. I want to hear everybody who's talking to me, someone who's not talking to somebody else. Okay, then when they're finished talking, I want them to ask me, what's your strategy when you complete the acquisition deal? Here's our strategy. But you only want to speak after you listen to them. What's your input? I do say with customers, hey, we are thinking about this roadmap with the joint products for heating veritas. Now, we're not allowed to officially write code that integrates these products because we're two separate companies, but we have some ideas of the roadmap that are very well formed in our head. But how did it get well formed ahead? We're talking to slew of customers, hundreds of customers that I've talked to and the beginning credit. If we have some ideas, we'll share them with you, but I'm much more interested in hearing your input. What do you think we should do? And you don't want to go in there completely open slate, like we don't know what we're doing. Then you're like, why are you coming to us if you're idiots about. No, no, we have some ideas. We'll lay them out on a canvas, but the canvas is wide open for you to change it if you think we should do something different. When you take a customer centric approach that way and your advisory board feels they can advise you, you get a great outcome. Because when you're finished with your plan, they were the people who helped you architect that plan and that's a very good way, especially in product roadmaping. Same with people integration. Okay, I have an idea of what the org chart should look like for the new company. Whatever have you. You put it out there and you have a few people in your trusted circle give you some input. Okay, it might be the board, it might be a couple of execs that you really trust. Don't want the entire company giving you input on things like that's such a non fruitful experience. But there's a brain trust of people you can trust in any of these. And I tend to make decisions in the council of several people who are. I like this idea of a brain trust. I want a small circle of advisors. I'm never the smartest person in the room, but I can tell you as I hear more advice, I get smarter about a particular area. Then finally, I can articulate a synthesis of 10 people's ideas into two or three key bullet points. That's certainly the job of CEO. You want to be able to hear everybody's advice and simplify. Hey, I think the 3, 4 digital ideas here are there for how we do anything. Whether it's the product roadmap or people integration or communications plan or financing. Time to IPO all of these things. And I'm very fortunate. We have a great team cohesive. We have several great executives from Veritas also joining. And that same thing existed in every deal we did. Business objects. We had a Great team at SAP with some great executives coming in. Cy Airwatch, great team at VMware. Had some executives Airwatch coming in. So those are some of the key recipes for ensuring the deal is success.

Yeah, and I can see that rolling up. Even how you would pitch the deal by getting all that information together. The partner approach makes a lot of sense. I was thinking about the example of consolidation where you may not have the opportunity to partner and it seems like the big emphasis on the relationships. Is there anything in the relationships approach? Obviously get to know folks and understand what their vision is. But in terms of like keeping on top of it, it's pretty easy to meet a CEO, then a year later you hear that they sold to somebody else. What do you do to really keep on top of those relationships and make sure they're healthy so that when that timing's right, you're front and center in those conversations.

It's a degree of how much you want to be able to do the deal. If it's not a priority, you can not call that person as often. But if it's really an important priority. You don't want to obviously sound over eager and be calling them 24 7. But you know, it's like any other friendship. If it's important to you, you nurture and water that relationship and spend time with them, not just over the phone and on zoom calls. You meet them in person, you break bread with them. It's no different from any friendship. I think that a relationship in business is like a friendship. You build it, you water it. You're watching very closely what needs to get done. You have to have a view that if that deal drifts away to somebody else. There are deals I wanted to do, I don't want to talk about them, Some of them are confidential that we couldn't get done because the price is too high or we had a change of mind on the head of that company, CEO of the company or whatever have you. But I don't look back at that and say, oh my gosh, the strategy of SAP or VMware was fatally flawed because you couldn't do that deal. This is the point, we move on. That's where you want to approach it in the litany of M and A deals that have been done. Yeah, and that's also why I view like M and A can't be your primary strategy for the company. It has to be a second or third strategy. You don't start a company and say, my first deal and that. You don't start a company say, well, the first deal I'm going to do is an M and A deal. You build a company, you build some product, get some substantial revenue, then you might do a tuck in acquisition or you might get acquired or you might merge. But I think that, listen, the wise process is to make M and A a second or third part of your strategy as opposed to a primary part of your strategy.

We talk about their best practices around managing large scale acquisitions and we talked a lot about leadership and alignment around leadership. But are there any other big best practices?

I think ecosystem would be another one. We didn't talk a lot about it, but there's a set of ecosystem partners in our world. The CL cloud players, security players, the system integrators, the hardware players we know in the ecosystem who are the key people you want. And I think that's the job of the CEO to really reach out ahead of time to the ecosystem, not to everybody on the planet. But there's a core ecosystem of players that are very important to you in the industry. You need to know who those are and have relationships with CEOs. So you can call and basically say, we have an important announcement coming tomorrow. I want to give you a 5 minute update. Can I call you? And many of these folks I've known for many decades or yours, I can call them on their cell phone directly for five minutes. They know me well enough that they'll take a call. That's the job of a CEO in terms of building the ecosystem relationships. Because often you play in the context of a deal with other key ecosystem players. Then the same thing with customers. I called a couple of key customers, but I did that after the deal was announced just to make sure that they knew if they were key customers of ours or theirs, that they were going to be wonderfully taken care of. And then of course, the customer outreach lasts for weeks and months, because that's not like a day one. The day one, you want to have a common plan of who you're going to call. And maybe there's a day minus one of who you're going to call. And much of that, the days leading up to a deal is very busy. Not just for the PR and the AR Preston analysts. That's an important part of the communication part. But there's a set of partners and customers that you also want to be calling. Some of them the night before I call that day minus one. Day zero is the day you announce it. But then day zero, day one, you want to. You're working the phone with customers primarily and then partners to make sure that they're very comfortable with your strategy.

Really good advice there in terms of paying attention to those folks involved with the deal. I was curious when you were talking through that, about when you think of just like global expansion or building that, that sort of footprint globally, tying that into acquisition strategy, how do you think through that? Like in terms of this, this is your natural organic plan to expand globally in certain countries. And then you look at acquisitions to achieve that. Or is it just kind of a broader. We want to explain globally.

I mean, listen, a big part of the rationale, Roberta's acquisitions, they have a very strong international business. So we look at how much we do internationally, how much they do where we're doing us. So there's some international aspect of the growth that gives us some compliment. But those are all some of the questions you ask during the course of due diligence. You want to get a sense. It's like a jigsaw puzzle. What do I have to the offer the market in terms of product and geographic presence and where do they fit in complement to that and product geographic expansion, partner ecosystem, customer base. There's a variety of those things that when you put together, you want to be able to say, okay, there's not a lot of overlap. This becomes, I like to call it a one plus one equals eleven kind of move. It's not just one plus one equals three, it's one plus one equals eleven. I like that. So those are the kinds of things that we think through as we prepare for the strategy. All this is done during due diligence, before we even announced the dx.

What about timing? There's all these market factors come in play of, hey, when's the right time to actually do the deal or pull the trigger on it?

Usually you want to be in a place where it's not being crowded out by some other major announcement in the world. Like you don't do it on New Year's Day or you wanted to get some bang for the buck so that you can time because as long as it doesn't get leaked, you can pick a day that's not coincidental with another Sometimes there's a benefit. At VMware, we like to announce deals at our conference because it's our event and we can announce a big deal there at the same time. But if it's not your event, if you're trying to announce something at Amazon, the big AWS re invent, you're going to get lost in all the news that it's not going to catch. But if it's your own customer conference or it's your own event like Amazon, they were announcing a big deal at the AWS re inventor. Again, that makes sense at your own conference. Outside of that, you pick the day that's not going to collide with the news. You want to make this. Obviously an eventful news day typically won't announce on a Monday or Friday. It's usually Tuesday and Thursday. The thing that often in public deals that circumvents that is a leak. Typically these deals tend to have a way of leaking. And once it leaks, you're like someone broken the news for you. You don't want to be in reactive mode. You also want to be in a place where once you've got it all prepped, you may have to pull the trigger earlier based on the fact that some press report is leaking it. And then you're prepared to accelerate that entire comms plan to the public if you end up having it. But I've never had a situation where news has leaked weeks before. It's usually like within the delta of days, like for example, Cohisi Veritas. We had planned I think to announce it on a Wednesday or Thursday, like Tuesday started leaking. Okay, good. Now we just pull the trigger and announce it earlier, one or two days earlier. But by that point it was so close to the outcome, it was within a day or two of what we wanted to announce anyway and it was all ready to go. We just pulled it in earlier, said, okay, let's go going tomorrow morning. So I mean those are just things that are game time calls that you can make. And a very good comms communication theme can help you with that.

What role does market timing play in your acquisition strategy? Specifically in the context of shifting trends towards profitability over growth?

We still could go public on our own cohesive. We're approaching cash flow positive very this quarter and early next year we will be cash flow positive. That's the early points of growth. So we're high growth and low profit or imminent profitability. And ve to us is lower growth than us, but high profitability, that's put the go together, I believe. I'm a believer in profitable growth. That's what I knew at VMware, profits count a lot more than growth at any cost. I think up to 2021 in the era of 2009 to 2021 of low interest rates, okay, it didn't matter if you're profitable. What did. But at some point in time you were just getting skyrocketing valuations. That's stopped, that gravy train's done interest rates and all that stuff. There isn't free money. If you don't have a path to profitability, you're going nowhere and you can go public, but you're not going to get the valuation multiple you deserve or should get. And you're not going to be able to get that expansion in your stock price until you show profitability or path to profitability. And I think I can give you many examples of companies that have gone public and have not achieved the valuation they would have liked to because they don't have a path to profitability. We at VMware and at SVP were very proud of the fact that we're very profitable businesses.

So what advice would you give to other CEOs on preparing their companies for a successful IPO following a major acquisition?

In an acquisition, you want to make sure the deal is accretive. If it's not accretive because you're diluting the company some on margin, you want to get back to the profit levels that you were in. Many of the companies we would acquire at DMWare were less profitable than us and we'd have to then make it what's called accretive so that the profitability of the core company, like when we acquired Airwatch, it diluted our profitability some, but we expanded the growth. But in due course we absorbed it in and we got our profitability levels up to what we needed to be. So for one year, hit. If you're expanding your growth and your profitability takes a little bit of hit the cfo. I'll take that because I'm going to sacrifice some growth, profit margin to grow. But if it made you highly unprofitable, you're borderline profitable, you're going to really get some pressure to not do those kinds of deals. You know, every CEO has to work that through. Having a good CFO helps decide if that deal is affordable and worth doing. And once you've done that deal, chart the course. If it's an M and A deal and then the kind of course that we're in, you want to then take that company and have at least four quarters where you can show integrated success of the company. Because there's a lot of things in a M and A process, especially if it's the bigger the deal that could go wrong. All of our plans for the merged entity of Croissant Veritas are on a spreadsheet on a piece of paper. We had to go prove it quarter by quarter. And after three, four quarters you pretty much say, okay, I think I know that this thing's got some long term viability. We can see some patterns. We're able to predict our forecast going public is just not the destination milestone. So you want to have predictability. The worst thing to do is go public and not get the long term stock growth that you expect. All you got is some temporary liquidity and then at the end of the day you're back to worrying about stock prices going high enough that you want to. I think it's much better to have a company that's got sustainable growth and has a viable pathway for a five or ten year period balance between growth.

And profitability and working with a good cfo. Sanjay, what's the craziest thing you've seen in M and A?

There are many M and A deals that have not gone through. I'm always intrigued by M and A deals that don't go through because the FTC blocked them or somebody else comes in and interlopes. And there's many so I've watched every big deal that's announced, follow ones. And talking to M and A bankers, we have a sense as to the folks who are involved in them. And then you also want to look at the most. I think the most successful deal ever done in the history is EMC buying VMware. They paid 650 million for that company and eventually Broadcom bought that company for 61 billion. Okay. And about what Broadcom announced him in 2022, I think the acquisition by AMC was in 2004. Like 18 years after they paid 650 million, they. Somebody else bought it for 61 billion. If you just look at that history of time, it was an absolute great move by emc and then eventually Delaware, EMC and Bell themselves into Broadcom. It's a. It's one of the best M and A deal ever done. VMware, maybe you could argue it shouldn't have been sold for 650 million or been, but for EMC, the best acquisition ever done. So you're very intrigued by those deals where what does a buyer want in a deal? They want a cheap price. What does a seller want in a deal? A high price. So if you're a buyer, you're very interested in deals that. How do they get that for that price? That's incredible. If you're a seller, you're like, my goodness, how did you get such a big price for your company? It's like buying and selling a house. If you bought a house for a cheap price and it's on a great piece of land and there's a great view and you go and look it up and you ask them, how did you get this? This is a steel. Or then if you see somebody else who's not a great place, but they've got an incredible amount and they sold at the peak of the market. Wow, Good for you. So this is what I mean. Whether it's buying or selling a house or buying a selling accomplice, same thing you want to be able to, in the words of Warren Buffett, buy low, sell high. So if I'm a buyer, I want the cheapest deal. If I'm a seller, I want the most expensive deal. And that's how deals are made.

That's when we got to do a feature on that, like the most overpaid deals and the best value deals. This has been a great conversation. Thanks so much. I appreciate taking the time, helping me become a better M and a scientist.

Thank you so much.

Those of you still tuned in, always love hearing feedback Reach out to me in LinkedIn. Love to hear your thoughts on this podcast and any other ideas you may have or topics to cover. Till next time, here's to the deal.

Foreign.

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