How to Prevent International Deals From Failing

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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 MA deals. Welcome to M and A Science Live where leading M and A practitioners share lessons learned from their experience. When you use proven techniques in M and A, more value is created. If you're interested in keeping up with the latest from M and a science, visit mascience.com and subscribe to our newsletter. Again, that's mascience.com I'm your host, Kisan Patel, CEO and founder of M and A Science and Deal Room. Today I'm here with Martin Rischenhagen, former CEO of Echo Corporation. Martin has a vast amount of experience in M and A and today we're going to talk about why international deals fail. Our learning objective is how to prevent international deals from failing. Hi Martin.

Hi, how are you doing?

Truite mich zie kennen zu lernen.

Yeah, perfect.

Could we kick off maybe telling us a little bit about your background?

I started my life as a high school teacher for several years and then I did get an offer from a private owned steel company. I worked in that steel company for 10 years and I did do everything from sales to logistics to M and A. Already at that time I didn't know that this was a science. So we just did it. And so then from there I moved to Schindler Elevators and then to a family owned manufacturer of agricultural equipment. Finally was hired by acco Corporation in 2004 and retired from Acco this January.

Wow, that's a great career path. I'm surprised that you started as a high school teacher and then launched into a track of M and A. Yeah.

So that was actually because I studied Roman medals, which is French and Italian languages, theology and philosophy. And so that's how I became a teacher first.

Well, let's talk about M and A transactions. As a CEO, how important is it to be involved with M and A deals?

First of all, I think by coincidence it was very important for my company because the company started as a management buyout of a completely failed acquisition in the United States. So a German company wanted to make a deal here in the United States and completely missed it. And from there on the company made about almost 30 acquisitions and was very active in the consolidation of the industry, which happened basically in the 80s and 90s. I was involved in acquisitions right from the beginning because that steel company wanted to become a global, more global player. And so you always have the option between doing it in house, clean field, or maybe doing it through an acquisition. And we bought a business in the United States called Thomas Steel sip. We bought it from US Steel. That basically helped us to become a more global player at that time.

I want to understand how you get involved with these deals. Can you walk me through that in terms of what your approach looks like and just to get an understanding of what your role is?

Well, I think the role of the CEO can vary. I personally knew the industry very, very well and a lot of the targets were private owned companies. So it was always helpful to talk to the owner, to talk to the families in order to find out whether anything could be done. Some deals happened quickly after only a few meetings, but some deals only happened after years. One of the last deals which I closed at my company at Ecco, basically in maybe 2018, I talked to the owners, Dutch family, first time, 20 years before. They didn't want to sell and they were not interested in talking. And over time, basically they came to the conclusion that they might consider a merger.

So first lesson is to know your space.

You want to know your space and then when you want to do attractive deals, which in the eyes of the buyer is of course, don't overpay and pay a recent or decent multiple. Then of course it helps if you. First of all, it's better to do it with private owned than with public owned, because public owned normally have to do auctions. And in private owned, you can do some deals just for your personal relationship with the families or with the owners.

We want to have a good idea of what the strategy looks like, understand where we're at with pricing and least get a sense of how, how we're looking at these deals and the value of them. I'm curious about your approach to the whole relationship and courting. What do those conversations look like?

That depends of course, of the culture of the country where you want to do a deal. So in some countries you can be a little bit more straightforward and in other countries you need to first build a relationship before you even can think about talking about something like that, because people might find it very, very sensitive and might find it not very polite if you basically meet them and say by the I want to buy you. So that's important to know. Also management is important. So sometimes management is important in the decision making process. And when you talk to management, you need to have a relationship first. You need to think about their perspective and you might want to talk about their career, you might offer them a job and things like that.

Okay, so this is interesting. Can you give me examples? Because I think the culture part is fascinating where I feel like America is a good example of where you're pretty forward. You can almost put in the email, hey, we're interested in talking to you about M and A. I received one the other day, in fact.

Yeah, I can give you several examples. So I can give you the example of a leading company in Europe in the paint business. So this was a deal which was mainly public. CEO of the American public owned company went there, talked to the media just before going to the meeting and then wanted to make a deal. Of course, the target company saw this as an unfriendly act and an unfriendly approach. The American CEO said, oh, I was very friendly. But in the field of acquisitions, it's not friendly or unfriendly. It's not a question of your style. It's a question of does the other company want to talk or not. So, and if you, if you hear they don't want to talk, you have to be very careful in how you do it. And you have to be also very, very confidential and not try and try to limit the amount of communication to third parties.

So say you are going in a culture that is sensitive around them and a conversation, you're not going to be so direct. How would you bring it up? Is it, I'm going to have a conversation just as a general get to know you. And then later on, maybe after one meeting, or is it several meetings, then we start hinting at ideas around the strategic view of doing an acquisition. What does that look like? How does that unfold?

Yeah. At Ecco, we talk to a company, Japanese company, Kubota. The Japanese are an example of a culture which is difficult to understand for non Japanese people. I think what you need to do is you need to first create a relationship, try to find a reason why you want to meet them. Talk to the right people, which is the chairman and CEO most probably. If you have somebody who can introduce you, it can be better sometimes. And then basically the first meeting you maybe don't talk about it at all. And then after maybe two, three meetings, you start to raise this idea and it has to be somewhat generated in common discussion together. And you might also look into the verbiage, the words you're using. You might maybe not want to call it an acquisition, you might want to call it a merger. I'm on the board of a German American merger, which was actually a takeover. So Brexair of America took over Lindy, a global player, important player in the area of industrial gas. And so the chairman and CEO, the American chairman and CEO did it in a very, very careful way. They always called it a merger. And then they also came in with the idea to call the new company Lindy. So that means to do everything to make sure that the others don't feel to be taken over.

That's interesting. Isn't that a lot of traveling back and forth?

It is, yes. Maybe you don't want to do that for a 50 billion company, but when you talk about a 10 billion business or a major business, it needs traveling and it needs to meet people more than one time sometimes. Of course, this is the business of private equity and banks to do things like that. But if you buy a company, it's very easy and simple to buy a company from private equity because you already know they want to sell it. You know that the price will be high, but those are the easy deals. So if you want to do the more attractive deals and if you want to do the more financially interesting deals, it needs a little bit more work.

Yes, that's where you got to spend the time to court the relationship and be patient.

And that is why also during my active time, I always wanted to create a relationship with all competitors anyhow. So that means where can you meet them? You can meet them at trade shows, you can meet them at associations. And so I basically started already in my previous German private owned company. This is why Ecco hired me, because I knew my predecessor, I knew already, we talked before. And so when you have this kind of relationship, you already have basically laid the basework for further discussions in the future. And sometimes it won't work. Sometimes people would say, well, actually I don't want to sell. That doesn't mean that they will never sell. I can give you an example of a private owned company in France. They are in the soil preparation business and a major player in Europe. I met the owner many, many years ago. So like something like 25 years ago, I developed a very good relationship. I invited him to visit, I Showed him the factories. I was reinvited. So, which is already the beginning of a light due diligence, if you like. So, and then we ended up with a discussion where I offered him to buy his company. It was a smaller company, so the price I had in mind was somewhere between 200 and 250 million euros. He didn't want to sell, but the conclusion was what he told me is Martin ilf because we were already having enjoying a friendship. He said, if I ever sell, I will sell it to you, wherever you are. So this guy came back to me in 2020, my last year in the job, and said, now I'm prepared to sell. And we looked into the numbers and we looked into the factories and into the company and into their market position. While we were interested in buying them maybe years before for 200, 250 million, we did not buy the company for 30 million. So that means sometimes it can be too late. That happens typically to private owned companies. So I have friends who owned a very important business in switches, electric switches and things like that, circuit breakers and so on. So they were the market leader in Europe. Family owned. The daughter knew my wife, we had dinner, the father was talking about question whether he should keep the business or not. I knew the daughter and I knew the son in law. And I said, well, actually if I would be you, I would strongly recommend to consider selling the company. And he did not. He handed it over to his son in law. And the son in law, how I expected it to be, was really not capable to run it. So the company had a value of maybe 2 billion when we talked. And they ended up having to sell it because of liquidity issues for 350 million maybe five, six years later. Now comes the funny thing. We met the family again and I thought they would be depressed or disappointed. And so what the same guy said to us was, well, Martin, you know, we are only two of us. In the meantime, the daughter divorced from the guy. We are only two of us and my daughter, we are 85 years of age, we don't need the money anyhow, we are fine. That means instead of thinking about what they missed, they were thinking about what do they really need. They said, well, actually our daughter will be fine as well, forever. And there's plenty of money available for all of us, no problem. This is the problem if people don't see the window of opportunities. I talked to few private owned survivors, so to say, the industry of agricultural equipment is pretty much consolidated. And I talked to some of the family owners who Basically were German and Italian. We were talking about merging the company. So we said, well, actually if we merge the company, you would become a shareholder of Echo corporation of between 10, depending on the deal, 10 to 20%, something like that. And then you could stay in if you like, or you could also start to sell whenever you want. It would be a good investment, but it would not have to be an investment forever. So when we talk to these guys, the stock, the share price of Ecco was maybe around 50. Now it's around. While it was around 150, I didn't check today, but let's say 120 to 140. So for them that would have been a super deal. And I still know those people and I of course talk still about it. And I said, well actually maybe you made a mistake here. And they said, no, no, no, no. We didn't want to be part of a big public owned company. We want to be independent. So that's what happens very often with family owned companies more in Europe than in the U.S. here in the U.S. you have people who are more financially driven and so the family ownership and the name of the company and things like that don't matter so much to them. So when they see a great opportunity for a good deal, they might do it.

These relationships are such an important part of the deal making process. I like your approach where you're very open minded, where you don't shy away from having conversations and getting to know all the competitors in the space. Where I feel like a lot of industry that doesn't naturally happen. The competitors may talk negative about each other or something like that. Maybe that's the cliche stereotype. How do you get past any concerns maybe somebody would otherwise have? Where I'm going to meet with a competitor, I'm going to be careful of not divulging sensitive information, things like that. Is there any concerns when you're having those conversations as you're networking?

You have those concerns mainly with very big US Companies because for them legal is very, very important and it depends. So I never had a problem, for example, to have open conversations with Caterpillar because they knew us. We had basically acquired their agricultural equipment division. So we had already maybe a more constructive relationship equestrian buying components from them. They basically are one of the exceptions to do business through their very strong and excellent dealer network in the United States. Talking to them was not that difficult. Of course, everybody knows what you're allowed to talk about and whatnot. Another example is with John Deere. It was always more Sensitive. So John Deere was always concerned that we would do something illegal or something borderline. And when you know that, you have to be of course, much more careful. And you don't talk about the business so much, but about the weather or golf or whatever. In America, it's most probably golf. You can legally, in the legal framework you do business in, you still can manage to have a good relationship without breaking any law.

It goes back to that open mindedness because then you're having those conversations and like the example you provided, you ended up acquiring a business line. Maybe it wasn't for a whole company.

But what you said is true that in many industries competitors see each other as enemies, but you can change that. So I always changed it by going directly to the people introducing myself and just starting to talk. And of course what you want to do is you want to be interesting for them, so you talk about things they might want to know. They of course want to know everything about you, but don't want to tell you nothing about them. My approach was always to be a little open upfront. I never really disclosed important secrets, but I always created the impression that I was willing to share certain information which they were interested in.

Right. There's always common industry stuff you can gossip about.

Yes, it's your choice. When you have some tough CEO, old style who thinks you are his biggest enemy, just go there, just talk to them. John Deere saw me as their biggest and most important competitor. And I can understand that because the biggest John Deere dealer in the United States at a John Deere dealer meeting said, what if Martin would run John Deere? Wouldn't that be beautiful? Of course the CEO at that time did not like that statement. I heard about it and I called him and I said, well, actually you have a great deal idea and don't worry about him, is a little concerned because you're sometimes a little bureaucratic, you're a little slow and that's something you should listen to your dealers or maybe a little better. And so this helps to basically ease up the situation.

As a CEO of a Fortune 500 company working on this number of deals, what percentage of your time are you spending in developing and curating these relationships?

Maybe 30% of my time, something like that. So you basically need to keep your network alive and you only talk to people to, let's call them targets. So when you only talk to targets in case you want something or you want to do something, they smell that and know that immediately. It's not bad. After we had made so many acquisitions we were known as a buyer. That image is not completely bad because you know when people are interested in talking to you, that there's some already, some maybe base idea heading into the right direction. Can also be that somebody doesn't want to talk to you because he knows already, or he fears that you might bring something like that up. And then it depends on your reaction. If you keep it easy and say, well, actually, I understood, I'm fine, let's stay in a good relationship. I have done deals where we basically met and after two or three meetings we came to the conclusion, no, they don't want to sell. And then what I always told them is it might be that we are not interested anymore in the future, because why do you make an acquisition? So you either want to increase your market share, you want to enter into a market you are not in, or you have a product gap which you want to close. The last one, of course, if you can't close it by an acquisition, you do it by research and development. That means people you talk to. When I joined the company, we were very weak in combine harvesters. And so I talked to people in order to find out whether we could do something together. When the conclusion was no, we started our development program, which we finished in the meantime. And of course now Eko is not so interested anymore in making an acquisition in that area. And that is something you can explain to people you talk to. And then they're of course also not mad at you. When they later come and say, well, actually, now I'm ready. And then you say, well, actually, but we are done. We are not interested anymore.

Outside your 30% focused on developing these relationships, what are you using the other time for?

Depending on the company, but very important is investor relation and public relations. So you talk to your shareholders, to the street, you talk to the media. And then of course, it's important that you also have enough time to talk to your people. And I always had time also to just sit down and think and come up with new strategic ideas to develop strategies. That's also strategy is owned by the CEO and he should really do it instead of outsourcing it from consultant firms.

That's a lot to manage between the public facing sort of interest on the investment side, your internal people, according some of the relationships to grow through the acquisitions and keeping your head focused in strategy or having some airtime for it.

I loved it. And that was. Let's say I did that for almost 17 years, which is much more than the average in the Fortune 3000s. I have to say I really love my job. I was never running out of ideas and it was never boring. So it was always exciting. So there was not one day where I went to the office and said, oh my gosh, how boring is this year? So I really had a great job. And that was because of mergers and acquisitions as well. Echo was basically founded in 1989 by a management buyout. We started to talk about it at the beginning. There was a huge German conglomerate in Cologne called Kloeckner, Humboldt Deutsch. And they were almost in everything. They were the market leader in trucks. They had construction equipment, they had engines, they had heavy equipment, they had agricultural equipment. They were not very present here in the United States. And they came to the US and bought a very solid, well known company with a strong brand called Alice Chalmers. And now it's interesting to learn from that. It's almost like a case study. What did they do? The first thing is they basically fired all the executives. The second they changed the brand from Alice Chalmers into Deutz, which in America they used to call it Deutz or something like that. It's a difficult word to pronounce in English then, and that is typical for our industry. Product has paint colors by brand. John Deere is green, Massey Ferguson is red and so on. Alice Jarmer's color was orange and they changed the orange into green. So new color, new brand. So they lost a lot of identity and they lost a lot of brand image also in the marketplace. And then came a very severe technical mistake they made. The Deutsch tractor, who was mainly made and developed for Western Europe and Eastern Europe, had an air cooled diesel engine. So Deutsch was the inventor of the diesel engine. So they know about engines. So they decided to put that air cooled engine into the American tractor. So they discontinued basically the American platform and only had the Deutsch platform for all countries without a lot of testing. And they had to find out that this air cooled technology doesn't work so much in Texas and Arizona and in the hot climates of North America. So they ended up with revenues of about 250 million, only from almost 2 billion at the beginning. In the United States, the revenues were pretty much the same as the losses. So then they hired my predecessor who had no idea about that business. He was a guy who worked for International Trucks and then in the tire industry. And he came in with some colleagues and they basically tried to fix it but couldn't. And so they were very American style, very honest, told the Germans, well, that won't work. And so then the next job was try to sell it. And of course, who buys a company like that? Nobody did. And so the company ended up in a management buyout and they bought it for a very low price. What they basically bought was parts business. And this is basically how the founders of Ecco started. Very interesting was their financial model. They basically sold all the receivables, were debt free from the beginning. But they also were very lean on almost zero cash flow for two years. So that made them to be focused very much on cost. And I was watching that from the outside, but still already in the industry. From there they did about exactly 26 acquisitions. And that basically did grow the company to about 3 billion in revenues within 20 years. This was the number when I joined. What they were not so much into or what they didn't do well was the post merger integration. They didn't care so much about it. So when I came, the company had 26 grants, 60 different IT systems. They didn't have investor relation, they didn't have PR. Human resource was really not important to them. They did not invest in research and development. In 2003, the spending in research and development was 50 million. But they had a huge backlog on things which had to be done. When I joined and that's a question of whether you like it or not. I took over a kind of interesting but very, very chaotic company.

It was a turnaround situation.

Yes, it was a kind of a. Well, yes, stock price was about $8 earnings, $1 per share, things like that. So when I left, stock price was 120, revenues were close to 10 billion. We did have credit rating which they didn't have at that time. We started to pay a dividend and the spending for R and D were close to 500 billion. This was a very entrepreneurial job. I compared to, let's say when I still remember very well, when I was sitting in my office for January 2004 in Atlanta. I had the feeling to have a huge pile of puzzle parts on my desk without knowing the picture which it had to become. What I then did is I basically developed a strategy with a very small cross functional, cross hierarchical and international team with only a few weeks, which was then the picture we used. And then we started to build this picture from the components from the stones we had. And typical for a puzzle is at the end things accelerate. That means when I left or before I left, the picture was perfect. And so my successor is much younger, but a great guy also from inside the industry. And he is basically going and heading into the same direction. He's changing things as he should, but he's also. There's enough continuity that I'm very confident that this will be also in the future will be a very good player in the industry. The market is down to three players only. That's all about mergers and acquisitions, consolidation. So there's Case, New Orleans, John Deere and Echo.

This is really fascinating. I want to walk through this deal and touch on some of the highlights you mentioned because our theme is around wider national deals fail. And you got a great example of a German company acquiring an American company. And you mentioned some interesting factors around it where one, they fired executives, they changed the brand, even changing the color of the products. The tractors made an impact. You mentioned a technological change from going from diesel engines to air cooled, which in certain hot weather climates didn't perform well. And now they had all these big technical issues to overcome. It sounds like those were some of the key things that I heard in terms of just this particular example of a deal as international deal. Can we talk a little bit about like what are some of those factors that get overlooked that cause these deals, particularly the international deals, which obviously have its own unique challenges culture wise and a bunch of things within that that really make them hard and have a higher rate to fail.

We are just all watching the deal between Monsanto and Bayer and I'm very close to Hugh Grant who was running Monsanto and Baumann who is running Bayer. Now one very important thing is language. So you need to master the language in order to be in a position to really understand the details. You need to be a very good listener, which very often is not the case. So when you buy a company, your people, your team might be looked at being slightly arrogant. And so that is something you want to avoid. So you want to listen to the new team, to the people. You need to really very objectively assess the processes because you will find out that both sides might have excellent processes or not. So you need to understand what is going very well and what is not going well, but not only in the target company, but also in your own company. What I always recommend is to keep the, the management team in place for a certain period of time to have enough time to understand how good they are, how strong they are. And then you might develop them into other positions in the company. But what I would never recommend unless you have a real big problem, is to just come in and fire everybody. Because what you see then and what you will see is that know how is basically there's not only people leaving, it's know how it's experience which is leaving with the people. So that is certainly something you want to avoid. And then you need to clearly understand when it comes to, I think brands are important. Depending on what business you are in, you need to understand the strengths of the brand you buy. If it's an important brand, which a legacy, which customer identification image, then of course you want to integrate the brand rather than destroy it. When I was talking about Lindy, sometimes the brand of the company you buy might be stronger than the brand you have. Therefore you should not, just because you are the new owner, change everything into your direction.

So I got big cultural component where you need to be able to essentially speak their language and have an understanding of the culture. Another factor that leads to failure is not listening and really paying attention to these details. And then the transition period in terms of having a good approach to working with the existing management team to ensure that transition and potentially even finding other opportunities that you can work with them on the brand component where you may have a brand strategy, but it needs to be adaptive for this company and the way they may be positioned in that market could potentially be stronger than your brand.

What helps of course is if you have a very strong corporate culture in your company. And that is something I focused on as well when I joined. Actually not everybody or almost nobody wanted to work for us. It was problem to hire good people after only a few years. Everybody wanted to work with us and everybody knew that we also would be great people to own their businesses. Of course we also made mistakes. We decided to go to China where we didn't earn our presence so much. So we only had a few small factories there and we wanted to be there much more than we had. So we made a big investment in a state of the art tractor factory, including a world leading new design, all green field, which was about $500 million. So we could control everything. We knew that this would work. So we also needed then in order in our industry, you need to be a full liner. So that means your dealer should have everything the farmer needs. So we then decided to buy a Chinese combine business which was a former state owned company which then had been privatized and was owned now by the mayor of the city and some other guys. And so we decided to buy it. We came to a deal and we bought 70%. When we then owned it and looked into the performance, we figured out that it was by far not performing as it should. We had two first Class American audit firms doing due diligence, plus our own people who are very inexperienced in deals after they had done so many acquisitions. And so what had happened was that the seller basically just cheated on the numbers sold and produced. They only produced and sold about half of what they had sold us. A little bit more. That was, of course, fraud. Now the question is, what do you do? I went to meet with the seller, with the mayor, and I said to him, well, Chinese are very proud. They don't want to lose their face. They don't want to have an image problem at all. And specifically not politicians. And I was very straightforward to the guy. And I said, actually, you have two options here. Option one is you hand over this 30% ownership, you still have to ask for free. Option two is I make you the most famous person in China and you might end up in jail. And he was scared, he was furious everything and left. So he was running out of the room from the dinner table. Next day I went to his office. He was very polite, very kind, and everything was prepared. And we were the 100% owner the same day. So this was a bad deal with a mistake. I would have never believed that it could happen. Maybe it also only can happen in countries like that with an outcome which was at the end still.

Okay, that's a really interesting story. A great example of a culture clash, essentially.

Who would believe that it's possible to make, basically, Instead of selling 8,000 combines, they only sold 4,000. And how is it possible that you can basically fake all your books? They obviously were in a position to do that.

Our due diligence. Yeah. Even with that, it's still hard to catch all that stuff.

Due diligence is another very important subject. So it's very important. But when you want to do good deals, you sometimes compete with others. So to be fast on due diligence, fast and efficient and precise is a competitive advantage. The second competitive advantage is when your financial model is simple. So when you need bank guarantees, state guarantees, five banks to be involved or whatsoever, it's always much more difficult if you can do a simple deal. And in order to be in a position to do a simple deal for us was very important to have a super efficient bank relationship. And the bank we worked with was Abo Bank, a Dutch co op bank owned by Dutch farmers. And they only invest in the food and agri sector. That was a big advantage because they always knew what we were talking about. We didn't have to explain them from the creation of the world, how our industry Works. They knew that already and they were very, very, very trustful. So we bought a business called gsi. They are in protein and grain storage. And so that was a deal of about, I think we ended up paying something between 800 to 900 million or something like that. I talked to my board. We looked into it. This was owned by private equity. There were competitors. The board was not really so convinced. But for us it was a perfect fit. And it still is a perfect fit for the company. But I didn't have any finance in place. So together with my cfo, I called the bank. The CEO of the bank explained him what we wanted to do was talking about the price, which would be somewhere around 800 million. And he said, well, actually, you have my word for 1 billion. And he explained why. He said, well, actually, maybe the 800 million won't work because you might be in a competitive situation. So I cover you up to 1 billion. I had nothing in it, but the relationship was so good that we could do that and it worked out fine for all of us. And that, of course, is a big advantage. When you basically say, well, actually we want to buy the company, this is the price. The money can be wired tomorrow. That's a completely different scenario than if you said, well, actually, I can imagine that we are interested. We need to do due diligence. Everything is subject to board approval and all that things. And then we have five banks. If you can create a simple deal that is always worth money, because simple deals are always not as expensive as complicated deals.

Right? That's a great example. Then you're more aggressive on terms and get the deal done. The culture clash examples are interesting. Do you have any more stories around culture clash?

The company bought a company and a business in Finland that was very interesting because that Finnish company was state owned and just had been privatized. The privatization came with a certain request not to sell it to foreigners. Before joining Ecco, I had a relationship with this company and we formed a kind of what we called Star Alliance. We didn't have tractors, but they had. And we had all the other equipment. So we had a very, very close relationship. So then Ecco was interested in buying the business. And before even joining, my predecessor talked to me about it because he knew that it would happen or close when I was on board. And he said, but the problem is they don't want to sell it to Americans. And I said, well, actually, I will talk to them. I talked to the CEO, I talked to the tractor company who knew me very well. I Talked to the CEO of the holding company I knew very well he was a former Secretary of Economy of Finland. He said, well, actually we might want to talk to the President together. So Finland is a small country, so that means immediately we had a meeting with the president and I was introduced as the best friend of the Secretary of Economy. And he said, yeah, well actually the buyer is an American public owned company, but this is the incoming CEO. He's not an American, he's a German. He's our friend, we know him for many years. And so without any legal work, the government decided to support the deal or not go against it. And we were in a position to buy the company. So that's a very interesting cultural situation. And Finnish people are very different, so they don't talk so much. And you have to be. For Americans, that's very scary. So when I met with the management of the target first time after dinner, we ended up naked in sauna. And that is actually unusual. Americans tend to sit there then with. With a bathrobe or boxer shorts or something like that. The good thing is the Finns are people you can trust. So a word is a word. Another element of that deal was now that my predecessor, because he wanted to be fast and because of a very light and quick due diligence, decided to sell about 100 million of synergies to the street. And when I then joined, he said, well, actually now you know, we own it. Thank you for your support. Now you need to find the 100 million. And I said, well, don't you have any idea? No, no, we have no idea about it. And I said, who is in charge of it? Oh, the CEO is called the CEO. And he said, well, that's completely stupid. There are no 100 million in synergies. And by the way, I retire. So the guy who I know very well decided to leave because he saw that challenge being so unrealistic that he didn't think that he would do it. This was actually also something where you have to be careful. I think you need to be conservative on the synergies. If you don't do that, you end up in a very bad situation. Another thing is also now, in times where multiples get higher and higher, you might end up with higher goodwill. That is something you have to honestly, which has to be analyzed and you have to think about it. You have to also have a worst case or risk assessment where if the deal is still strategically very attractive and where you believe in growth, you still have to have a scenario where you basically know what happens if the growth doesn't come in? Which means you will have to hide off goodwill, and that you can only do if your other business is strong.

Right. That's the challenge. How do you keep from that happening, from being overzealous on this, catching the deal fever and avoiding that whole goodwill impairment situation?

Normally you need to keep cool when you do a deal. So I was never in a situation where I was personally so excited and enthused that I desperately wanted to do it. There were deals I really wanted to do. But finally, if the numbers don't work, you walk away. And the only exception is that you have a idea. And that's basically typically in the. Let's say our industry is going more and more digital. And so those smaller digital startups, they very often come with very, very high multiples. And then you need to think about it and you can do a kind of opportunity cost check. What would it cost if I did it in house? And then that helps you. But you still need to also plan for potential worst case impairments.

So sort of model things out best and worst case and be pretty conscious.

Yes.

What's the best advice you'd give for people in the M and A space to increase their success on deals?

I think the best advice is you need to be a good communicator, a good listener, and you need to understand your business very well and you need to understand the target business even better.

Yeah, I think that's a really good point. I think some of the other things you mentioned too, about the culture is a big piece as well. And I think at the end of this interview, Martin, I learned the relationships Trump all.

Yeah, this is why Trump was such a bad deal. He was never in a position to really have good relationship to important people.

To keep it going. What was your favorite thing about being a Fortune 500 CEO?

I think what I liked was the American culture in a way that in some other countries your image is based on how much noise you make, how much PR you do. And they call it then charisma and things like that. In America, we have a welcoming culture and you are basically judged upon the measurable results you generate. And I started at Wall street as a nobody and I ended as somebody everybody knows, everybody on the business council business roundtable in the administration knew and the nickname was the German Tractor King. And I had a pretty good image because of the performance of the company, not because of the bullshit I was telling people.

Hard work pays off. And this culture.

Yes.

What was your least favorite thing about.

Being a public company CEO, I think that is analysts. At the beginning, I wasn't used to that style. They are young, they're extremely aggressive, they're extremely impolite, they don't know a lot about your business and they still attack you all the time. And that's something you need to understand and you need to cope with.

I can imagine that being a challenge from the number of earning calls I've listened in on. Have you? I was curious on. On those earnings calls. Do these analysts even correlate M and A activity with the actual growth of the organization or do you see that as a gap oftentimes because you've been on a lot more earning calls than I have?

No, no. M and A was always important for them. So it's very important that they understand the logic, that they believe that you can handle it, that they believe that it fits into your business, that you understand what the other company is doing and things like that. So that means they are not very creative. So when you produce tractors and buy another tractor business, that's fine for them. When you are in tractors and buy a grain storage business, they might already say, oh no, how can that work? And so that needs then a little bit more explanation and a little bit more background information for them.

You're allowed to paint the picture. Martin, what's the craziest thing you've seen in M and A?

I think the craziest thing I saw is the deal between Bear and Monsanto.

Just two huge conglomerates of equals merging together.

Yes. And two cultures. Two different cultures. And then what happened, and this I think is something one could have seen coming is Americans between. Americans handle everything, including legal issues. As soon as a company is not owned by Americans anymore, all of a sudden the legal environment gets by far more tense and more aggressive. And I think that happened to Baer. So now they have to pay for maybe mistakes Monsanto has made. Monsanto was somewhat allowed to do that and then now Bear, not anymore. I'm talking about Roundup and things like that.

Yeah, that was a big element of it. Really interesting with a lot of challenges in that deal with the whole nature of the different cultures, the international aspects and just being large entities of each of their own.

And another deal I found very interesting was the merger between Mercedes and Kaisler. I know Dieter Sache very well. The guy who basically was first arning Chrysler and then he became the CEO of Mercedes or Daimler, the holding. And so that was very interesting to see because the idea behind was Mercedes wanted to basically gain market share in the United States and that completely failed. I think it failed also because of a mismatch of cultures.

I agree. That's the classic example. I actually referenced in the book I published about that transaction and a lot of the cultural challenges that happened that eventually unwound the deal.

And it's very funny. In this industry, interesting things happen. So nobody remembers but Mercedes at the beginning or the shareholder in Tesla, they sold their shares to get out of it with a loss. I think they wouldn't do that again.

I didn't hear that story. That's really interesting. Martin, thank you so much for your time today. I really enjoyed hearing your stories and insights on M and A.

Thank you very much. Goodbye. And we hope that your audience likes what we were talking about.

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