How to Formulate Your M&A Strategy

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I'm Kisam Patel and you're listening to M and A Science, where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and what actually happened during M and A deals. Before we kick things off, I'd like to send a big thank you to you all, the listeners of the M and A Science podcast. I was just reading some of our recent Apple podcast reviews and feedback emails. I'm truly flattered and grateful we have listeners that are getting real value out of our podcast. Also wanted to point out that between mascience.com and dealroom.net we now have over 1500 pages of content online. It's the largest publicly available collection of M and A content on the Internet. Anyways, thank you. Now onto the interview.

If you're interested in keeping up with the latest from M and a science, visit mascience.com and subscribe to our free newsletter. Every Monday we share highlights from our interviews and invitations to events as we build the greatest community of forward thinking M and A practitioners. Again, that's mascience.com I'm your host, Kisan Patel, CEO and founder of M&A Science. Joining me today is Matt Arsenel, VP of Corporate Development at jamf. JAMF provides device management solutions, currently trades on NASDAQ at a 4 billion market cap. Today we're going to talk about how to formulate your M and A strategy. Matt, you ready to kick things off?

I'm ready.

Tell us a little bit about your background.

I've been in and around M and A Since probably about 2008, which was actually a terrible time to start your M and A career. If anyone remembers back then M and A stopped for the whole year. I was a consultant and I was more on the accounting side of due diligence, left and started to move to a small company where I was on the integration side and have slowly worked my way through different deals as CFO of an acquired division, an alliances person, and finally running an M and A team, but have been in and around M and A for over a decade now and have a lot of lumps and bumps to sort of prove that.

All right, not new to the game to get things started. Can we clarify for those newer in the audience, what's the difference between a corporate strategy and the M and A strategy?

One of the things that I learned very early on from one of my clients, and they were a serial acquirer, they had a very strong corporate development team, was that M and A is not a strategy in itself. M and A is a tool of a corporate strategy. Ultimately, M and A strategy has to fit what the corporation is, what is its identity, what is its differentiation, what is the corporation's main goals for growth. M and A has to be seen as a tool to develop those things and really has to have that internal element. So M and A strategy, in a lot of ways is subjected to or secondary to that idea of the true north of corporate strategy. And so ultimately, corporate strategy sets the idea of what are the markets you're going after, what are the geographies, where you're going to be present, how are you going to solve customer problems, Is it going to be through a product or through a service? Those core elements and balance have to be set before you can get to M and A, because in a lot of ways, you have to understand how much you're trying to change your company through M and A or fit something into that strategy. And so M and A strategy is about finding the best fit to that corporate strategy and enabling and accelerating the timelines of corporate strategy. In a lot of ways. What I make sure I'm doing in M and A is thinking about where we want to be anywhere from 24 to 48 months from now, and finding ways to accelerate that and own something today. Because if you think about the integration period and the period to value, it takes that long to get that platform in house, get through the transaction, start the integration work. If you want to be somewhere three years from now, you've got to start to acquire things today, to work through that cycle of storming and forming and building the company together. So ultimately, my M and A strategy is a bit further out than the corporate strategy, which might be about what we're going to attack this year or in the next quarter. But ultimately it has to be complimentary and fit into that overall vision and guidelines.

Is it fair to say that it's a subset strategy that Focuses on inorganic approaches.

Yeah. And the places that I've worked that have had the strongest M and A strategies have a very strong build by partner framework first. So we want to go somewhere, we want to do something. Are we building it ourselves? Are we buying or licensing something? Are we partnering to get there? And then acquisition is just another element of that. Ultimately, that kind of build by partner framework that a lot of product teams will put out there is a good framework to add acquisition to because it just becomes a means to that end. And that's a good way of thinking about M and A strategy is it becomes the means to a direction that the company would like to take.

Can we talk about the importance of an M and A strategy?

It's an amazing thing, especially in today's market. There's a lot of money out there and people are throwing around a lot of it. Whether it be the financial sponsors or corporations or even governments of the sovereign wealth funds are buying up whole sectors. If you don't have a strategy, you don't know where you want to stretch to get into. And so an M and A strategy is very important because you have to have an understanding of what you need and a sequence to what you need in order to understand where you're willing to stretch into some of the valuations that you see in the current business cycle. If you can afford to be patient, you shouldn't overpay for an asset. If you need something in house because of that timeline of delivery for a customer requirement now you have to be willing to spend a few more turns on either EBITDA or revenue in order to understand it. So that M and a strategy of where we're going and how long can it take is really important to have because you have to start to filter out what sectors or segments or markets are you going to pass on in order to prioritize the things that are really needed because there isn't unlimited capital in corporate development.

What are mistakes people make when really thinking through building the M and A strategy?

It's easy to get disconnected from your customers. As somebody who sits and is more listening to our product team or our sales teams, you hear a lot of we need this now, we want this now. And it's really hard to get back to that customer and actually understand how that solution would fit into an overall solution for a customer or the customer problem. And so a lot of the mistakes I've seen made are either that misunderstanding of what your customer wants or a misunderstanding of how hard it is to serve multiple customers at the same time. And I'm not talking about customers as in companies, but really those end users and the people who benefit from your product or service. Trying to build a solution for a chief Information Security officer and a Chief Information Officer at the same time is actually a lot harder than people give it credit for, even though they may be in the same department. If you're trying to do that same thing for the head of supply chain, the head of it. Now it becomes an even more difficult problem of bringing people together within your customer organizations to show value across it. Ultimately, that disconnect from the customer or that disconnect from the end user workflow where your platform will benefit the end user. Those are the two biggest mistakes I see made. That you actually believe that an adjacency or a market is closer to where it is. And it might be from a technical perspective or it might be from a customer perspective, but you have to weigh both of those steps and understand how difficult it is to bring on a new Persona or new customer Persona into your profile or to bring on new technology that the company does not have readily available today.

That's a really interesting point around the focus on the customer. I feel like M and A can be viewed very different. It can be viewed as exciting opportunity for growth. Then you get fixated on that, evaluating the company, but then may overlook the fact that they serve a totally different.

Customer base or serve a totally different workflow. And I think that one of the strengths of being in SaaS based software, as opposed to some of the industrial side where I grew up in, is it's a lot easier to tack additional functionality onto a workflow. If you think about how ServiceNow or Salesforce, they started in total opposite ends of the spectrum. Salesforce from a CRM perspective, ServiceNow from an IT service management perspective. But both of them have now moved over where you can get tools from Salesforce to have IT service tickets and ServiceNow, you can have tickets for customer success issues or customer support issues. And so a lot of people see that opportunity and they look at those companies and they say, wow, they've had such an ability to grow across that workflow. And it is enticing to do that. As a company that serves it, you always want to be able to get closer to that customer or expand the number of teams that are adopting your solution. What a lot of people miss is the two things that ServiceNow and Salesforce had was billions and billions of dollars to make those move. Similarly, on the industrial side, the idea that GE could do engines and renewable energy and power and healthcare. The reason that those things could be done is just because of their size. That understanding of where you are in your growth curve and how difficult it is to actually make those bets, to step into new spaces, that's a really important part of an M and A strategy. And you have to be able to say no more than you're willing to.

Say, yes, we start shaping the strategy, socializing it in your organization to get everyone on the same page. So it's not something that just sits with you in the C suite, but goes beyond that, and then probably talk about the benefits of that.

That's the key here, is building out that process of strategy. And if the process of corporate strategy is in there, making sure M and A is is tied into that process. But it basically comes down to an understanding. And I've listened to a few of the other podcasts where people talk about doing diligence on yourself first or repeatedly, and I do think that's an important part of this strategy. Make sure that you're talking to the product management teams, make sure you're talking to the customer, talking to the sales teams, talking to the partnership and alliances teams. You want to have an understanding of how all of those different folks are moving. Because really what you're trying to do is score out that entry into a new market or a new growth opportunity. And having people contribute and think about it more consistently is important and allows you to have those conversations back to the C suite that says, hey, I know you guys really don't like this next market or think that it's too far apart, but here's why. The team thinks it's different. And so building that consensus at the individual contributor level is important and making sure that communication is open. As I joined jamf, one of the first things I said to anyone as I was introduced was don't hesitate to reach out with an idea. That was all the way down to individual sales team leaders. And to this day, I get some great ideas from people who you wouldn't expect to have ideas as to where to step in, because they're close to that customer listening to that problem.

And it helps you source deals.

It does. Because again, no matter how many systems that I have to monitor, right. Whether it be a database or Google or an expert network, what a customer is using is or trying out or thinking about, those are much wider reach. So the way that I think about it is at Jamf, we now have almost 2,400 employees. It's better to have 2,400 employees thinking about Corp dev than the small team of three or four or five that we have on a consistent basis. We source ideas, we crowdsource as much as we can. Brings us two tests to the strategy. One is how many customers are talking about this, how many people are talking about this need. The second thing that it does is it identifies companies that quite honestly might be earlier in a locale or different that wouldn't be available through those typical search terms or banks or brokers. Some of the best deals that I've ever done are three guys and a dog. And sometimes the dog doesn't even come is what I joke about. But if you can find that technology early, you can find that innovation and that entrepreneur and you're able to invest in them, those are the things that are beneficial because you're not competing on a more established business basis. If you're able to have that vision and share that vision with an entrepreneur. Those are the things that can really change the trajectory of a company. But they're the hardest to find and they're the hardest to understand how they would fit.

What does it look like when you're sharing this strategy with the broader team? Is it one on one with key leaders? Are you doing this at a broader presentation? What does that look like?

There's a lot of one on one time to build it, but then there are broader presentations that you do across the leadership team. And what I would say is the best organizations that I've seen have actually had a consistent framework for how things fit or what are the white spaces around what we are trying to do. And the broader you can share those topics across the team, the better you will be a management off site, that's 50 people will have a much bigger consensus and a much better understanding of where you're trying to go to than an off site that has 10 or 12. Part of what you try to do is tie into that annual planning or tie into that strategic planning that the business is doing in order to get more of that feedback. And I think that's the important thing again is to try to get as many people to look at the adjacency, look at the sequencing and make sure that you're not making those mistakes about how hard will it be to enter a new space or how different is the technology. That is probably one of the benefits of my career. I came through finance and financial planning, which means I have no idea about technology or customers. So I rely on everyone around me to help me understand and therefore I'm not Weighted more by the go to market side or the product side. I'm able to balance those two things and really understand again the voices that are coming from both sides and not be more judgmental. Because my background was product or my background was go to market.

I like how you utilize it as an opportunity to get feedback, continue learning.

And that's the key piece here. M and a strategy has to be dynamic and you have to be willing to learn on a day to day basis. And that gets back to my sort of statement that you have to be willing to say no more than you say yes or get told no more than you get a yes. That's the other sort of element of the strategy is you got to test it out as you go along to really feel how that changing or how the market pressures are being forced upon you. The key element there is an M and a strategy cannot be sent once a year or once every two years. It has to be dynamic. You have to understand what other people are doing around you and have that competitive intelligence. The role of corp dev, or at least the way I think of the role of corp dev is to continuously learn and listen to the different inputs and then aggregate that up in a presentation. That can get other people to understand the complexities.

Where does the CEO fit into all this? Because if I talk to them, they take all the credit for doing the deal end to end.

They do. The CEO is important in a number of different ways. Unless you want a very short career in M and A, the time you get told yes cannot be done as a yes without the CEO. A CEO will always be part of the corporate strategy. They're setting the guardrails for what is possible, the strategic choices. And working for JAM is probably the first time in my career where the strategy has been one of selection. GE or EMC grew out of something and into something else by continuously expanding. Whereas JAMF made a very strategic choice very early on to focus on Apple and Apple only. That gave them the opportunity to excel in a smaller market. Even though there was pressure always to expand, whether it be through competition or through customer saying that they wanted to have other devices. But that idea and that trade off that was made early, that CEO sets that vision and they continuously maneuver through that vision. So again, as part of M and a strategy fitting corporate strategy, the CEO is present. The CEO is then present for the understanding of what adjacency do you want to move into In a conglomerate like GE or Honeywell or the like, the decision to move into healthcare or automated businesses Right. Where it's buying a huge business to do that, maybe the CEO is less into those strategies, but in the middle market, even the public markets, that adjacent market analysis or understanding where things are, the CEO is very present. So the CEO is going to help me set where am I looking when we start to narrow down sourcing and we've got notes the CEO is in that process too. Right? That says I found 10 companies that fit this market that you think is interesting. Here's what we found. Who do you want to talk more to? They're in that process of narrowing the funnel and then ultimately the CEO is the one approving in many cases, the letter of intent or the initiation of the letter and the one who's requiring the M and A team to give the integration. So a CEO in a well developed strategy or a well developed corp dev team is always there. They're contributing continuously, not all the time, but they. There are those built in checkpoints to check with and make sure that it isn't disconnected from that vision and from that strategy. And so yes, CEOs will tell you that they had their fingerprints on every deal, because they do, and they should, because again, M and A is a tool for them, not its own strategy.

A lot of ways you're helping to amplify some of those efforts with the.

Strategy, it's amplification or acceleration. I think that's one of the things that in a lot of CEOs they have a better sense of. For instance, is there the talent in house? Right. The buzzwords of AI ML have gone around the tech industry forever. But there's a very specific type of person and data scientist that can deliver some of those capabilities. A lot of software companies want to believe that any engineer can do it. It's not the case. CEOs have an understanding of what talent is available. What would it take to hire that talent? They know what's going on our recruiting teams, they know what's going on with hr, they know how our attrition is working, what the cost to maintain someone or hire someone is. And so in a lot of ways they're able to make those trade offs of what is the cost to ramp up this project internally versus find that team and acquire it. And it's part of again, that build or acquire framework where the CEOs are usually the ones that have a lot of that in their head and have that ability to make those decisions quickly because they have so many inputs and they're tied to a lot of the operational aspects of the Business outside of.

Yourself, the CEO, who else should be involved in developing M and A strategy?

I think that it's important to talk a little bit about that understanding of what the business is and what your differentiation is. Ultimately, M and a strategy is a tool. I say for five things, some say for four things, but ultimately the it's talent, acceleration or acquisition. It is technology acquisition or acceleration. It is expansion of either market. So I want to do something new or I want to go somewhere else. I want to enter Brazil. Okay, do I acquire a company or do I hire a couple of guys and go, there's the aspect of market share acceleration. So do I acquire one of my competitors because I want to own a certain market in order to step into my next market? And then the one that I add, and this is probably because I came through the financial world, is finance, financial aspects, right. Is the space that I'm going into growing faster? Is the company I'm acquiring growing faster? Are they more profitable? How do I fit that into my overall vision? And I think depending on your company, you're not going to do all five. And depending on if your company is product led or sales led, the M and A strategy is a little bit different. And so what I would say is you have to understand where your company is and what are the elements that they're trying to accelerate. And so if they're trying to accelerate technology and talent, you want to bring in the product management team very early or the product strategy team very early. If it's more about market access or market expansion, you want to start to talk to your sales leadership and set the idea of why do we want to be in Brazil? What is the opportunity? What are the customer overlaps that we might have? Do we have any customers there present? And so it's really the CRO and the CTO are two key people very early on, and then the teams underneath them that help set that strategy of why we would enter a space or how quickly do we need to enter a space? And then as soon as you start to formulate or narrow down your sources from the markets to the targets, that's really where you want to start bringing in the chief legal officer, the head of hr, the head of finance, where you can start to say, how difficult is this going to be? How hard is it going to be for us to operate a $10 million company in Brazil without having that input? You tend to trip over some of those expansions. And I use geographic as an examp here, but it could just as well be the Next market. I don't have a product that is currently FedRAMP certified, so I'm not going after the US federal government. What if I acquire a company that has a product specifically built for the federal government? How does that change how we interact even in an existing geography? And what would it take to change the processes in the background in order to make sure that we meet that new high compliance market? That expansion and that build into that strategy even before you get to LOI is really important. And that's where you really do have to start bringing in senior leaders across the company.

Great examples. Let's get to the fun part. How do you create the M and A strategy? Don't miss any steps here, by the way. Everybody's taking notes.

Step one, hire a consulting firm to tell you what's due. Step two, blame the consulting firm for being wrong. This is where this is a continuous thing. And I do think that you have to understand the market you're in and what you're trying to do to solve those customer problems. I was brought on in my previous role at the same time as our head of strategy. And one of the first exercises we got asked to do was a market map. How far away is the market from a customer perspective, from a technical perspective, from a buyer perspective? One of the problems we got to very quickly is we wanted to try to score everything on six dimensions. Buyers, customers, technical solves, how much interaction there was from a human in the loop versus automation. And so one of the first things you've got to do is simplify your view and get back to what are the kind of bridges that you're trying to build. The second thing that you really have to understand is how different is that market. That gets back to some of those standard frameworks that are out there. Porter's five forces, or SWOT analysis, or things that management consulting firms do make a lot of money doing, is how competitive is the market? Are your customers overlapped in that market? Are the technical solutions similar? That idea of Salesforce moving from a CRM to an IT ticketing system. Why? Why would you do that? Why would you think of that? Or what are those steps to get there? If you start to think about those workflows, it was really a services workflow that they built once they had the customer support workflow. That idea of what problems fit this, what are the elements there? And then you really have to understand again that market or set of capabilities a customer is understanding and how far away from that is your core. And then the third kind of way of doing it, once you kind of understand that is starting to make the plans on what it would take to for you to get there organically. And I do think that's one element that a lot of corp dev teams skip over. But it's an important exercise to say where's the change that this acquisition is going to accelerate? So if you think roadmap fits perfectly within product and there isn't much of a stretch on the product side, is there a big stretch on the sales side that will test that theory of how far away things are? And this is another spot where consulting firms can help is customer interviews. If vendor A was going to offer something that vendor B does that is away, would you buy it? Do they have credibility? Do they not? What does the brand say? That voice of the customer in the process is again very important because it tells you do you have the authority to step into that space or not? I think in the example that I've given throughout this call, it was easier for Salesforce to move back towards it than it was for service. Now to move towards the customer. When you solve that revenue problem for a company, you have more visibility, you have more credibility with that management team that you can solve another problem that's of less importance to them than the actual interactions with their customer. Right. The idea that I can issue a ticket to solve someone's password lockout as an employee, if you're solving all of my customers problems through a customer support ticket, you can probably do that for my employees too. Versus if you start where the employee is and try to move towards the customer, you have to really fight uphill a little bit. And those are those elements in understanding as you're building that strategy of testing how far something is away, testing your authority, testing your ability to serve those different customers or different problems and make sure that you have a good set and an honest view back of truly how hard that is. And once you've got those things laid out, then it's really about sequencing the opportunities. It's amazing because you can lay out within this workflow or the customer solution, there's usually anywhere from 12 to 25 different markets that corp dev would love to step into. Which ones are ones that we should step in through partnership. So go back to your BD teams, go back to your marketplace teams and talk through how well are they penetrated into a certain space through partnership, which ones is in roadmap already and we think that we're going to deliver and you start to narrow down that dozen to two dozen target Markets to the ones that you M and A should be primarily focused on. But then you get to the okay, which one's next and why? And that longer term view of what's now, what's next, what's later is really important. It can change. But you've got to have to start to take into that account of not just the attractiveness of a market or the authority to step into a market, but what's important for you to have now as opposed to later. And I do think that's one of those things where as you go through that adjacency analysis, you may actually see one market and capabilities starting to come closer to you, whereas one where you thought you had it is further away. In the visual diagram, you had two boxes for those markets. They might have started right at the adjacency. Next to what you do, one starts to drift and you actually realize that you have to do the first step into a market before you get to the next one. And those are really important realizations and help with the sequencing.

So that makes a lot of sense. I was initially thinking of just purely prioritization, but now get the element of sequencing how one could feed into the other and how you want to think that through. One of the things you mentioned earlier that got my attention was the distance from the core that when you did acquisitions, a lot of times we don't think about that. How close to the core is this opportunity that we're approaching? Because there's different factors that it would implicate in terms of how you would drive value from the acquisition. Could you tell me a little bit more about that? In terms of when you're looking at the opportunities that are close to your core versus further away, how do you start thinking about that?

Again, I think that there's that first element of do I just want to own my own market, for instance? And I'm going to use an example retail. Think of your regional chains. Do I just want to be the best sub shop in Boston, or do I want to be the best national sub shop? Do I want to be Subway or do I want to be Sam La Grassa's, which only has one place to go in downtown, and I don't even know if it's still there. You've got to understand that market and what that core is. What is your choice of where it is? And then that idea of do you just acquire the restaurant next to you, do you acquire a hundred restaurants around you? How are you going to grow out of that core? And so I Think the first analysis is really about what are your competitors in what you do very well or very narrowly, and what do you want to treat that competition as? Meaning, do you want to just try to acquire it all? Do you want to try to beat it? How do you think about it? And that's really an evaluation of what your core is at its center. Then you have to start to think about what enables the core. In my previous role, what we were doing is creating the critical event management platform and it was built on basically mass notification. So the ability to send a text message or an email anywhere in the world. A lot of the enablement was where are my employees? So you had to have information around HRM systems and then if an employee was traveling, where are they today? Now you had to have travel risk management elements, visitors, who was on site. So a visitor management system and you can start to see that just that idea of who is in the building or where is one of my employees becomes a hard problem to start to solve. And now you start to understand how those could complement. So part of that understanding of what are customers asking us to connect to our system, what are the things that we're using in conjunction with our system? If it's an IT tool, is there a backup and recovery system, is there a remote access system tied to it? All of those elements of what are the other tools that are enabling the workflow of the person that we are selling to is really important to understand in order to understand that next adjacency and then finally that third or outside ring of innovation, which is I'm not going to do something with my products for a new customer, or I'm not going to do something for an existing customer that is a minor edit, but it's the same person, same workflow. I'm going to try to tackle a new customer and a new problem. Those are really hard to do as even a somewhat sizable public company because it becomes a distraction back to that core. And so you have to start to understand how an acquisition or markets fits into to that idea of how far away you want to go and that natural step out from where you are today to things that you know your customers are using or things that you can develop technically or can reapply your platform to. Technically really becomes a big step and is usually a transformational type deal.

So it gets a lot more complex further away you're getting from your core. But thinking that through, you get a better understanding of that. You ready to put your McKinsey hat back on and walk me through the steps of creating a scorecard.

The key for me on scorecard is again tying back to the process of the company. You don't want an M and a scorecard to be too far off of how your teams are being managed. If you're a sales first organization and the metrics that the company is measuring is percentage of quota attainment, effectiveness per rep, time for rep, productivity, customer churn and success cases, time to close. If your organization is really deep on that side of the house and your scorecard doesn't have any of those items on it, you're going to be in a little bit of trouble. Conversely, if the company is really thinking about technology and they have a lot of metrics around customer requests for enhancements or quality releases or time to deliver roadmap commitments, those are important as well. So this is another thing where again, you got to get back to the core of the company to make sure you understand what are the things that are important to measure internally before you start to apply them externally. Internally, there are ones that M and A has to have that are more about the change management. What I mean by that is this metric of either sales effectiveness or product development doesn't take into account the potential for disruption. So an M and a scorecard should have a lot around culture, around people, around distance. In time zones, you might find a company that's amazing, but it's in New Zealand, and a company that's really good, but it's in your home country or home time zone. And that could make a big difference because again, you're not able to collaborate as effectively with someone halfway around the world. This idea of creating that scorecard that takes into account the more mundane geographical and change management elements is important to have those in your scorecard as well. That says if I'm really taking that leap from this acquisition into a new market with new customers, doing that with a engineering team that is 12 hours ahead or behind and trying to innovate the two platforms together, that's going to take a lot longer. Longer. And so understanding those elements that are more transactional and getting those into the scorecard are about that change management and making sure that you are able to start to think about the differences in there. But the scorecard again starts with what your management team is tracking on a consistent basis and expands to have some of those things that manage out the change of an M and A acquisition.

So I like the inward assessment then putting in factors beyond just financial metrics, components of culture, the things that would attribute to the Change management to actually get the results that you're intending on.

Yeah. Going back to some of the topics we covered previously. If you're scoring a specific M and A target, how many customer overlaps are there? How many times have your customers asked you to enable that technology or company? What are the underlying technology stacks? Are they a.net shop and you're a Java shop? Some of those things are at what seemed to be a mundane level, but it really does talk to how easy is it going to be to pull the teams together and get them back into a singular group to take on the market. It comes back to understanding that core, understanding who you are and understanding the differences to that in ways that are not necessarily big bang, but could be impactful on the integration side of it.

Expands to a lot of different areas because now you're looking at how things impact your customer, your internal workflows and those people elements that often get overlooked.

That's the important thing is now not necessarily M and A strategy, but M and A culture. Much like companies can be go to market or customer centric or technology centric, your M and A sort of backbone has to be centered on something. Is it the people you're acquiring? Is it the customers you're acquiring? Is it the technology? So having an understanding of how your M and A strategy fits and what are those those must haves in that strategy, it is difficult to push on those things because you can't be disconnected from your company in too much of a way. But you also have to put some of those elements a little bit more because of the change management. Meaning the way I've always said it is day one of an M and A is the first time in a lot of people's careers they're going to work for someone they didn't choose. What does that mean? What would you feel like in that instance? And so that employee centric approach is something that needs to be brought up a little bit more in this because it is different from recruiting someone. It is different from building a team from scratch and getting people to buy into your culture. That sort of employee view becomes more pronounced in M and A than the customers or the technology. But you can't go too far off of what your core is at a company and add that focus on people. It breaks down quickly.

So I think we can agree that there is no cookie cutter template for this that everybody can universally use. It's very much dependent on a lot of these factors that we talked about, which are very unique to the strategy itself.

Yeah, What I would say is every company should have a scorecard for internal and all corp dev teams should start from that scorecard.

Let me get to some of the details about scorecards because I've seen a variety of approaches on this where maybe you got some real basic assessment in some key areas to here's some Amazon review scoring systems and maybe these five or six areas to some pretty damn complex algorithms to come up with their scoring card.

Where is the right spot?

Just some organizations I've seen they have a large corp dev function. The thing just maybe there's a lot of inputs and it gets pretty complicated and some and it gets complicated point where you don't really understand it or why things are being considered for what it is. Then you get some that just I don't know if there's even a scorecard. If it's more of a gut feel play. At the end of the day, where's the right balance there it comes to.

The elements of nesting. So if you have a scorecard that has 45 items on it, great. But then you have to have an idea of what are the 45 are under others, meaning the metrics of a SaaS organization. ARR is driven by new accounts that come in and churn. So if on your scorecard you have arranged annual contract value or new sales and churn, you have to understand that those are actually nested ARR might be the first indicator and then you have things underneath that you want to keep going. So I think you have to have a thoughtfulness of how all those metrics would interact and that will help you to narrow it back down. Because ultimately what you want to be able to do is waterfall for executives. What metrics are you tracking and why at what level? And to understand the interaction of those things is important. The secondary thing is you have to go back to the sort of strategy of a deal. And this might be a topic we can cover separately, but ultimately you want to start to set those strategic imperatives. Those strategic imperatives will then have milestones. Those milestones then have deliverables. The metrics should mirror that and build into those. It should just be a measure of the success of a different element. And so in that instance, the strategic imperative of the deal might be to accelerate arrangements growth. Okay, now the milestone might be reducing customer churn or increasing annual contract value. And then the deliverables on reducing contract churn might have 10 or 12 other things. You have to start to understand how the plan around step into a space or into a company is tying and make sure that scorecard ties to that strategy. The scorecard becomes a measure of an input or an output, but that is something that is reflected in the overall plan. And so a scorecard on itself doesn't give you anything if it doesn't tie to the actions. And so what I would say is the right level of scorecard is based on the operational effectiveness of an organization and how complex or how many people are in the project so that you can assign somebody to own that metric. And that metric is almost never or never owned in Corp Dev. So it also becomes part of this buy in to the deal. Right. So, so I have a metric and I'm going to hand the customer churn metric my customer success team. And they better feel like they're part of that because if they don't feel like they're part of that, they're going to say, matt, why did you give me a churn improvement? I don't understand how I'm going to do it and I don't know what we're doing and I don't understand why this is a value driver and I'm not going to do it. And that's where deals start to fall apart. I think the elements of a scorecard that are important are the ability to understand how they interact with each other and the nesting of those scorecards so that you can get to different levels, levels of summary and then ultimately the ability to tie those metrics to an action item and a person to deliver on those action items. Post close.

I like it. I like the nesting component of it too because that allows you to make things complex. But then roll it up so you can keep it simple.

Yes, because ultimately when you're going to your board, you don't want to show the green, red or yellow for 45 different elements. That's hard to do and that's hard to maintain. You may want the five to 10 things that are really important and those can change deal by deal. But you want to have a consistent sense of what are the ones that are driving the overall company's value.

What are the lessons learned? Where you've seen it in the mature state and you've done it where you had to help build it up from scratch. What did you learn along the way?

People underestimate how hard it is to monitor something that is not in a core competitive space. It takes focus, it takes a lot of effort. Imagine if you're a shoe manufacturer. You have to be an expert in software. It is really hard for someone at Nike or New Balance, Balance. To really understand what is the dynamic happening between Splunk, CrowdStrike, Netscope, especially the chief customer, you start to understand. I'm giving this extreme example because it becomes obvious. However, you start to go into some of that nuance. And I understand my customer, I understand what they want. So now if I'm CrowdStrike or Splunk, I might think I know what somebody wants from netscope or Zscaler, because I run into them all the time. They have this cool zero trust thing going on. And I can do that too. When you get closer to your core, there is a blindness. Naturally, there has to be a bit of arrogance within every company or you don't grow, you don't try to take something else on. But it's understanding that difficulty and that step in as you're setting the strategy. It's harder to maintain an understanding of, outside of your core competitors, what is happening and what is the dynamic of that market and how is it changing? The other thing that makes it really hard is what is the underlying trend at your customer? Because it might be being driven by somebody outside of your main contact. Is there somebody else in the organization taking on? And so understanding how that workflow is changing at your customers organizations is an important thing to do. It's just really hard because again, your sales guys or your customer success guys are talking to the person who does A, B or C. Maybe there's a trend where the world has decided that C is more important than A and A is just going to start to become part of C. And if you're not in market circumstances, you may miss it entirely. So that idea of staying close to things changing in your customer base or changing in the way that people are approaching problems is important because not only is the competitive dynamic, but the priority of market is something hard to maintain. And so making sure that you're able to have that one foot outside of the organization, not in a hunting manner, right? Not in a sourcing manner, but in an understanding of what's going on around you is really important. And that's where again, relying on the partnership teams or random calls with customers is very helpful so that you're outside of the purview of just what you're trying to sell or what you're trying to solve.

Pay attention to this continuously changing markets and your landscape that you're looking into.

I do want to be careful because that takes a lot of effort. So then what are the things that are more static? What markets are you going to start to monitor? And I Do think that's where corp dev teams have to start making their choices in their strategy is you don't want to set those markets and change them every three days. If you have 19 to 24 markets you're already trying to maintain, you shouldn't be throwing in five or six or taking one out or moving one over. You should be getting alignment on what you are doing more annually or semi annually. Right. A midsummer check and an end of year check that says here's what we want to watch, here's what we want to maintain. And I do think that the broad reach that a corporation would want to monitor is important to keep all those in. But I think that's where the corp dev team has to interact with the partnership teams or the product management teams. To say, okay, of the 19, our team is only going to watch four or five. Who's watching the other is important. And to make sure you get that alignment again, maybe the alignment is quarterly, the list is set annually. That idea of where we are going and where what the opportunities are has to be set and has to be somewhat firm in order to make sure that you're not just chasing the possible.

How about the imo? Should they be involved with formulating strategy?

I'm going to get myself in trouble with a lot of integration people out there. Yes, they should. I just think that there's a conscious decision to be made of where IMO comes in. Is it at the sort of narrowing of the sourcing or at the front end of some of this market structure stuff? I really do believe that the Integration Management Office is essential for the scorecarding and the selection of a potential target. I don't know how much they have to offer. When you get to that very front end of should we go into again as a shoe company, should we go into shirts and apparel? Should we go into basketball camps? Those types of decisions. Where the IMO can help is identifying how different something feels from what we've done. So probably a place at the table. But where the IMO is absolutely essential is in that sort of selection stage of sourcing because they understand the difficulty or ease of potentially bringing on something new to the organization and help to prioritize which target you're going to go after versus the understanding of where you might want to go.

I think a lot of those IMO folks would be happy to hear that here at least acknowledge most of them don't get involved at that part at all. But there's that part you mentioned earlier around the change management execution. If you're looking at scoring. That's really important to get that input from the team that's actually going to be driving on that and then it ties into that further away from your core, more complex it is going to be to drive that change management, different workflows and et cetera.

Yeah, I've always had a really close relationship with my integration teams because again, the success of M and A is not done at the closing dinner. It really is that long term value prop and making sure that the IMO has a seat at the table to understand those scorecards and push on the scorecards I think is very important. It's just where in the sort of strategic development do you bring them in and make sure that you're not distracting them from some of the other elements that they need to tackle.

Can we get them on the podcast and get their side of the story?

Yeah, sure.

All right, let's do it. What do you do when your CEO doesn't have a strong corporate strategy and their strategy is M and A itself?

Do the best you can.

We're smiling because this happens more often than not.

So it does. What I would say is I have experienced this more in larger corporations where growth at growth costs becomes the element. It's one of the reasons that I'm at smaller public companies now. I think that there is an element and that. Remember how I talked about the five elements of what you would do a deal for? I do think that if M and A is a strategy in itself, it is more about the financial management of a company than it is about the customer or the growth or the geography. Geography. So a lot of companies that fall victim to this sort of attitude are those that are larger companies. Right? Fortune even 100. My answer was quit and find somewhere else because I didn't know how to solve the problem. I do think that is something interesting because again, if you can build the process or the expectation of that process now you can stand on something as a subordinate below the CEO to say, hey, we've documented this. We didn't want to go into that space because of the competitive nature. You've brought a deal that that would be the third or fourth competitor in that space and we don't have the authority to sell. So if you want to get into that space, we should only be targeting the market leader, not the second or third player. And here's why. If you have your scorecards in place, if you have your process in place, you have something to stand behind in order to bring that back and have that Conversation in a meaningful way that says, hey CEO, I know you want to enter this space and go after a company, but here's the considerations we've talked through and we've built in. Having that there to come back to is really important. When M and A becomes the strategy.

In itself, help them shape the strategy and have them listen to this podcast is probably another good thing to do.

Just not Dean, my CEO.

Wait a minute, he's taking credit for all my hard work on doing these deals. What guardrails do you put in place to prevent deal fever? Is it just the scorecard going back to it? You've seen this before.

Yeah, I have. I'm going back through my history and I have had very few situations where deal fever has been the problem. Fundamentally, if you start to get to I want to do it, I want to do it in a lot of ways. My current organization and my last couple, I've been the one that have said, hey guys, we should accelerate, we should think about doing another deal. We should maybe want to start sourcing deals. Let's keep pushing on it. There is a balance of the operations side and understanding how corp dev fits into that. Either acceleration or deceleration of a deal is important. So making sure that you've got ready updates from your IMO to say, hey guys, look, we've done two deals this quarter. They're not going as well as we thought they were. We're having a lot of scale problems, we're having a lot of XYZ problems. We should pull back on the deal. Making sure that you have an understanding of what your customers are asking you for. Hey, you just bought six different things. You haven't really chewed them out yet. Take time. The answer is understanding what your role is as corp dev within the greater organization is essential and understanding your sort of company's appetite. And are you one that needs to push to accelerate or are you one that has to provide those facts to slow I think is really the element and it has to come back to agreed upon data. The metrics that we talked about, hey, we've done three deals now. None of the ARR growth is in place. We're still seeing customer churn issues. Until we can get a program together to improve the customer experience through M and A, we probably shouldn't do one. I think you've got to go back to those steps, back to those processes and make sure that there's buy in to the concept so that people don't just get that deal fever. I want to do another. I Want to do another.

Well said. What's the craziest thing you've seen in M and A?

Seen a lot of crazy things in M and A. When companies are looking for growth and they need to show that they're doing something with their capital, when M and A just becomes a tool to not not increase a dividend or pay down debt or do a stock repurchase because then you're admitting that you've hit your cap of an addressable market, that's where some crazy things start to happen. A lot of us do rely on the reputation of the leader of the target as at least a first or second score. But the craziest things I've seen in M and A is where you rely either solely or primarily on that reputation for somebody to be able to build. And you bet on them early. Like I said on the buy, three guys and a dog doesn't come along. If that's a deal where you're paying 5 million, 20 million for something like that's great. If you start to spend hundreds of millions on that same type of thing because again, it's a serial entrepreneur or it's somebody who has sold three companies and all of them have been successful, you start to get away from what drove that entrepreneur to start the company again anyway and they start to get a little bit more. So I guess that's my way of saying the craziest thing I've seen in M and A is really driven by the. The lack of an understanding of what drives an entrepreneur. And once that person has a hundred million dollars in the bank, it's a whole lot easier to say, I'm not putting up with your red tape. I'm not putting up with your process. I'm the smartest guy in the room because you just proved it by giving me $100 million for my idea. And it's really hard to unwind those things. So that's part of the discipline. Making sure that there's adoption, making sure that you get there and you're not buying into that hype cycle is really important. Important.

Fair. You got an example of one that you've actually seen that happen. You don't have to name a name. I'm just curious of what goes down.

It was actually a division I became the financial leader for. I was at a company. The founder of the company has founded multiple billion dollar enterprises. His second in command was the CEO of the company. Employer. I was at at the time spent a billion dollars for 43 engineers, zero customers.

Wow.

And we built that division to 265 employees across all different organizations. We got the product out in the market, but it had a very niche use case. The way I describe it is we built the Ferrari and thought it would become the Toyota Corolla. So when you built the Ferrari, there's only so many people that want to buy the Ferrari at the price point. And so there was a lot of adoption in some really complicated areas, but not a lot of adoption broadly. And so the recovery of the investment just wasn't there because you couldn't expand fast enough off of the platform. And those are the types of deals where you start to get questions as to why, but you can convince yourself that it's the right thing. If you go back to the history of those entrepreneurs and others.

That's crazy. Don't spend a billion dollars for just.

Hiring people and a great idea. Some people might be worth it.

That's true. True. That's true.

You want to buy me for a million dollars? I'm totally worth it.

Hey Matt, thank you so much for your time and walking me through how to build an M and A strategy. Enjoyed the conversation.

Thank you, Kisan. We'll talk soon.

Here's to the deal.

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