How to Score Culture Fit in M&A with Sharon Van Zeeland

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The show Notes Foreign.

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.

Hello and welcome to the M and A Science Podcast. This podcast is part of a mission to rethink how M and A is done. The old school.

Settle that approach.

It's dead fire led M&A is about strategy alignment and efficiency, putting value creation at the center of every deal. And let's be real, it's not just about closing the deal, it's about making it successful. We uncover what truly works in M and A by learning directly from the best Today I'm excited to have Sharon.

Van Zielen Vice President of Strategy and.

Corporate Development at Rockwell Automation Ticker symbol ROK on the New York Stock Exchange. Sharon brings a unique perspective to corporate development, having built her career from engineering.

At General Motors and Aptiv, through business development roles at Fairmont Minerals, and now.

Leading the full spectrum of M and A integration, strategy and venture investing at Rockwell Automation, the world's largest company dedicated to industrial automation and digital transformation. What makes Sharon's approach particularly fascinating is how she's brought an engineer's analytical mindset.

To the softest parts of M and A, creating scoring systems for Culture Fit.

And finding creative ways to get deals across the finish line when traditional negotiations stall. Today we'll explore how to develop a systematic approach to evaluating Culture Fit during.

Due diligence, including specific questions around decision.

Making, authority, secession planning and operational speed. Sharon, how are you doing today?

Very well, thank you.

Hey, thanks for taking a break from doing deals to hang out with me here in Manhattan.

Thank you very much for having me. It's a pleasure to be able to explore these unconventional ways to get MA done with you. So thank you.

I'm excited to learn from your experience. And I got to give a special thanks to vrc, largest privately held valuation company, for letting us use their office space to record our interview today. Can we kick things off a little bit about your background?

I need to say I really love your mission around M and A in terms of getting things done with value creation at the center, both financial and other strategic factors. And to your question, it's true. My career journey has been very interesting. I've taken a non traditional path. I went from electrical engineer to strategy and corporate development leader in the C suite. However, the Engineering Problem Solving foundation really of looking at all variables helps me drive outcome and performance. It gave me a basis for evaluating deals from all angles. And it was very early that I learned deal success was not due to just one factor. In many cases those factors were related and they were correlated in unexpected ways. It wasn't linear. For example, employee retention, not just at higher levels in the organization which we all watch, but at the lower levels impacted things like new product introductions. And it became clear that future success was not just about buying the hard Assets, manufacturing facilities, intellectual property, all the things we think about buying, but things like retaining talent was critical to ongoing deal success and they're all contributing factors.

I've done a number of these podcasts. I'm really convinced people with engineering background are completely different animal altogether, but they work extremely well in M and A. You mentioned the sort of correlating things and you use the employee retention as an example because this general ability that they can really zoom into problems and get to that problem solving mindset, zoom back out, look at the whole picture. Also think about that problem solving mindset which relates to the example that you just gave.

Wholeheartedly agree.

Is there anything else I'm missing from that? It's unique. It's something I'm even trying to encourage my kids go get an engineering degree because it just wires you to think different. Especially this era of AI that I don't think you're going to get in a lot of other fields.

I agree. I like the wide angle view of looking at all the variables. Sometimes when you're trying to solve a problem, you have to look at variables that others wouldn't consider. So for me it's been a great foundation and it's a problem solving journey in corporate development as well.

What's something you wish you knew before getting started in corporate development?

Again, it's back to what your mission is talking about. Corporate development is more than just closing the deal. It's really creating value. And that includes value for all the stakeholders, including customers, employees, both of the target and the company that's acquiring that target. Shareholders, investors, and to some extent even the communities where these companies operate. So again, it's a wider angle view in terms of beyond financial impact. And I also wish I knew early on to relentlessly monitor the post deal closing what was happening both strategically and financially.

Fair point. You sort of got the whole life cycle of the deal and then you got the impacts the deal itself makes and then you got the wide view of all the stakeholders involved.

It's more than just closing the deal.

It is. That's tough. You got to keep a lot of people happy. You mentioned one of the things at Rockwell. You recently expanded your role to include strategy along M and A and integration. Can you talk to me about owning the full lifecycle? What does that mean for you? From going through strategy all the way through integration? How does that change the way you think about deals and your approach?

It's truly a privilege to have that whole life cycle view. Having that expanded strategy piece has really driven me and the team to think beyond again just the valuation model. That is, does this transaction really advance Rockwell's strategy of driving the factory of the future or advancing industrial operations? And how do we accelerate toward that vision? So I would say we're way less siloed now. It's not just one deal at a time. We have an enterprise wide view of the entire impact of these deals. And on the integration side it really gives us a clear view of execution and monitoring against that original deal thesis. We do quarterly reviews of all these deals now and we include the strategy team, the integration team, the M and A team and we circle back with lessons learned and approach to refinements in engineering terms. Can't help it is a closed loop system and from my view is fantastic the continuous learning along that journey.

So you got this enterprise wide view when you look at all the deals happening and then you have the integration side. So that way you're looking at this, how things actually come in play, sort of outcomes and then we can actually reflect back with all the stakeholders involved in the whole deal life cycle. So that helps with the learning. Retention.

Exactly.

Has it made any impact on like success metrics?

Certainly. We definitely have refined our metrics and again, previously maybe it was we were just looking at financial performance, but now we're able to drill deeper down into what are the factors that impact that things like retention, Customer complaints. There's a deeper layer and then there's also a strategic tie in to what was the strategic thesis and how do we measure that?

Okay, so it changes. It's just not purely here's a financial metrics you're actually looking at retention. Customer complaints I think is a good one.

New Product introduction. Let's go to the positive side. Are we fulfilling customer gaps quicker?

Mpi, we'll throw some acronyms in there.

Thank you, I appreciate it.

Yes, that's right. And then. Yeah, how this benchmark against the thesis, How'd your role evolve? Did you come from the deal side or the integration side?

I started just M and A traditional and then it expanded into integration because I was really interested in how are the deals performing post closing and then it expanded up front to strategy and I've also recently taken on venture as well. So went downstream first, then came upstream.

Downstream wasn't enough for you. You just wanted it all, didn't you? Yes, it's so interesting and we're going to talk a lot more about this. But. But just what drives success of a deal fundamentally is having all this integration consideration early in the deal process. It's interesting to see how you've been able to pick that up as part of just your role, evolving to cover that full life cycle. Let's talk about the cultural element, because this is something that comes up often. I know you particularly had a story on how Rockwell learned this the hard way after some acquisitions. Can we talk more about just some of the thinking around cultural due diligence?

Let me back up for a minute. So Rockwell is a very large company. We're in 100 countries, we have 25,000 employees. So the success of our acquisitions is just not the M and A Corp dev strategy team. It's also our business leaders contributing and driving those activities with us. But along with that comes a very structured process. And most public companies are. But we have systems around purchasing, sourcing, information technology, all of these very stringent rules on describing activities and ways of performing business. So we acquired a very small company that had a software solution that was spectacular for our customers, particularly in the life sciences space. They helped drug discovery and drug development go faster and our customers embraced it. And we continued to accelerate. But what we missed in due diligence was that one of the tools that the company used to help their customers go faster was a third party software application. Rockwell didn't have any licenses for that. So right in the middle of drug development with one of our customers, they needed that application. The smaller software company would just go buy them. They didn't have all these rules and regulations. We put a halt to that, our purchasing our IT systems because we have to check for cybersecurity, we have to negotiate contracts. So we had a little bit of a customer issue in that we slowed down their drug development for that one activity. What we've learned through that from due diligence is that we flagged it early now. And we know to think about decision authority processes much sooner for smaller companies. When you think about culture, you have to think about what are the ways that they operate for decision making, what do they think about for approvals, and how do we get more aligned early?

What resulted from that? Like how did you change things after that?

We have a playbook for purchasing and sourcing and acquiring technologies that companies need. And we have different processes depending on whether it's a small company, mid company or large size company now for acquisition.

Ah.

So if they come in as a small company, you may not have as much rigor and kind of work with them so they can keep up with their speed that they operate on.

But keeping our safeguards that Rockwell needs so we've identified what the priority things are. That what we need right away. Yes.

That's good. That's actually interesting. A good example. I like this phrase you use, decision authority process. Is there another way that you describe that? The reason I bring it up, this comes up a lot. And the thing that's underestimated integration is the number of decisions you ultimately have to make. So if you have organizations that are very slow at making decisions, then integration can just painfully get dragged out. And that's one of the bottlenecks I'm curious of. Just like, how do you actually think about this sort of decision making process?

So we have a very regimented playbook and we have raci charts, which talks about who's responsible, who has to be informed, but who the actual decision maker is identified. And we also have them time bound. The decisions have a certain amount of time and a milestone, and it gets elevated if a decision isn't made to make it happen faster. So they're time bound and they're documented in terms of decisions needed and who's responsible.

So you have a framework just to say, hey, this stuff's gotta get done fast, otherwise it's gonna be escalated to somebody that will just make the decision.

Exactly. Cool.

One of the things, when it comes to the culture side, you developed a scoring system for culture Fit. Can you talk to me about that?

First of all, Rockwell takes culture very seriously. Our cultural tenets are a very prominent piece of our overall strategy. And in fact, our company is shaped through great employees who are enabled and inspired to do their best work. We know culture is the foundation for profitable growth and accelerated customer success. So we do measurements of our own internal culture every year. For us, it's just normal. So everyone's used to the assessments and the scoring. For companies we're looking at, it's a little bit unusual sometimes, but we share our philosophy and our own culture performance early in the process, and we start to gauge their receptivity. Are they open to it? Culture indicators are front and center along with our financial requests. So we send out requests at the same time. There's no surprises. Most leaders, once they start to understand it, are curious and they're open to understanding their company's culture. And we also emphasize there's no right or wrong answers for culture. Every company's a bit different and things like adaptability or process consistency, understanding the company's mission, those are things that could be on either end of the scale. Again, it's not bad. It just provides a definition of what's working for that company.

So you start off with this self assessment that you do on a regular basis.

Yes.

That kind of helps with framing the assessment on the company. And you mentioned a few pillars that there are certain areas that you look at.

We mentioned adaptability, process, consistency, understanding of the mission. Those are the critical ones.

Can you talk to me like, how does this come about? If you look at where in the lifecycle of a deal do you start thinking about cultural assessment? Where does it come out? Is it like a conversation? Are you sending surveys out?

It's usually post loi and part of our due diligence. So it's usually in our HR due diligence playbook. We do send surveys out and we do talk about the numerical scoring and the differences between the company that we're acquiring, the business unit that it's coming into within Rockwell as well as overall Rockwell.

What about before loi? Is there any conversations about culture or just even like gut feel around culture?

We often want to have a meeting with the management team to get a sense of ethics and virtues of the company. So we start there. But the more in depth analysis is post loi.

Do you ever get red flags early before loi, or does it tend to be like an interview, everybody knows how to put the smile on and do the song and dance? Is that typically the case? And then it's more of the real stuff happens after loi?

It's a good question, but I would say for Rockwell, we've done some behind the scenes diligence even before we get to loi with some partners or customers or just general industry trends. So we have some non traditional looks ahead of time. So I would say if we get to loi, we're pretty confident there would.

Be instances where you would have red flags on culture before you get to loi that would steer you from doing a deal.

We wouldn't issue an LOI if we.

Were in red flags. You wouldn't have that far. Some of it I feel like almost like reputation in our industry. I know there's companies that just have a certain reputation. I already know that. Yeah, it's tough to do deals at that point.

Yeah. I would say for us, ethics is critical.

You have some level of confidence to get to the point to do loi, but then it's really getting into the specifics after loi. And this is where you have more of this systematic approach. You mentioned that you have a numerical system. Can you talk to me more about that?

We do kind of a ranking system, 0 to 5 in these categories. So again, back to the engineering and math and data look. We acknowledge within Rockwell there's differences in culture between our businesses. The software doesn't exactly match our hardware business or our lifecycle services business. So the differences are expected. But the data shared in a graphical representation, and again with them and with us, and those graphs are worth a thousand words in terms of where the gaps are. The other piece is we don't look just for gaps, we look for similarities. Where can we leverage the things that we're very much aligned on and how do we help those accelerate the business gaps and similarities?

Do you have examples?

I have a very strong one. There was a business leader when we had done the internal Rockwell assessment, that was not showing that his team understood the mission of his team very well. And that was shocking. It was one of his blind spots. But once we shared that with him, he spent significant time communicating and talking about it, and the team's performance accelerated quite nicely the next year. So just the types of things in terms of communicating, hey, you think you're being clear about the mission, but the data showing, not so much.

Interesting. That's an example of like, here's a gap you identified. You actually shared that feedback and they used it as a means to improve performance. Does this same approach work internally? Is it like the exact same approach you're using?

Yes, we do it not only at the time of deal closing, but we'll do it a year later post deal closing to see if the assimilated group has moved in a similar direction. So yes, we use it for ongoing tracking as well.

When you say similarities, what does that specifically mean?

So let's say if both companies are very focused on customer resolution, that could be an area from culture that they just respond to the customer 100% of the time very quickly. So that's something we should leverage. We should highlight in our customer discussions and our contracts that we have fast response time. So that sometimes gives us an advantage in a contract win situation. So things that we know we can leverage.

It's almost like that kind of creates some camaraderie between the companies. Hey, we know this, we both believe in this. And you're like, yeah, exactly. Interesting. How do you capture this data? When you turn this into a ranking system, what goes into doing that? Is that more of like a quantitative sending out surveys or is it qualitative? You're doing some interviews?

It's a little of both, but mainly a survey. Again, I'm focused on data and the engineering numerical analysis. So it's a 50 item survey quick. Doesn't take more than 20 minutes. And it's a proven technique that works.

You like tough questions like, what's the most important to you? People processing technology. Pick one.

No, we should add that, though. It's a good idea. I'm going to write that down.

I'll be biased. I would say tech, then.

HR would say it should be people.

Exactly. Process. They all have to work together.

They do. Okay, so a lot of it is based on the surveys. And then you'll actually do some qualitative interviews too.

We do, absolutely.

What does that look like? How does that make an impact?

I would say it's typically our HR leader and their traditional feelings around succession planning. How do you grow and develop your talent? Those types of questions. So it's more people focused and traditional hr.

So that almost gives them that kind of picture from the HR line. Like, how does company actually operate? Hey, what do you determine factors to promote people or something like that? Okay, so that's helpful. So you gather this data, then you start creating this ranking system. Do you break that down by departments or does it go down to each individual? Like, how do you actually start aggregating all this information?

We have functional leads for kind of each of the key areas. So when you think about hr, it, finance, all of the functional leads plus the business units, it's a really strong influence on integration planning. So how do we think about what's critical to align? On what speed can we merge things? For example, if we merge IT systems, is that gonna be challenging to them because they like the fast, quick tools that they have or they'll be okay getting a broader functionality with a slower system, or do we need to think about decision authority processes Back to that? That's a really big one. And do we need to think about other ways to support the culture differences?

Interesting. So this, ultimately, it's not so much about getting red flags that, oh my God, we should renegotiate a deal or we should reconsider a deal. It's actually more about shaping how you're going to integrate this company.

Exactly. And accelerate our path to value.

Yes. Because if you do have the right plan that you're tailoring based on these cultural factors, do you think that makes the biggest impact when it comes to integrating a company? I feel like there's a lot of tactical stuff of just like pure it. Like we need to migrate this ERP system over, which is like a big thing. And some of that couldn't have been miscommunicated. What else is there you feel like it's it the people, ultimately it's the people are the most important asset.

Yeah.

And then the strategy, the leadership and strategy behind it.

I agree. They all have to work in concert. What we've gotten better at is as we move towards the right IT system for both parties, whether that's ours or theirs, how do we culturally make sure that both teams can work on it together and at the right speed. So that's what we've fine tuned. And I'm very grateful for the teams that have been continuing to improve that process and really be thoughtful on the approach.

If we look at the cultural assessment, what we learn from it and then how it impacts integration plan. You mentioned this kind of like decision making authority. That's one area. What were the other areas you mentioned?

We think about employee benefits as well. From a culture perspective. Do they have different ideas about let's say bonus for example. The other one is really impact on the mission and understanding the strategy and the vision. That's the critical one for longer term success.

The way they're making decisions, the way they start thinking about their incentives, benefits, bonus. And just how they get aligned and rally around the missions, communication, their whole comm structure too. Yeah. I was going to try to use an extreme example is like you used that software company earlier and I'm trying to imagine large company been around a long time, top down traditional management versus the upcoming startup that's just like triple digit growth. And they're just as flat of an organization that can be. Which reminds me of one of the vendors I'm working with right now. They operate so different. Actually went to their office and it just blew my mind how flat the organization was. You had zero sense of hierarchy at all. I was curious, I just like how do you operate? And they're just like we all kind of know each other. We just go to the person when you need it. And using that as an example, are there areas that it would impact.

You hit on a really solid point there. On the cultural side, we used to see big differences between software companies and industrial companies. But today almost every company has a software component. We're all using software tools or agile processes or best practices in that space. The biggest challenges culturally are coming in terms of company size. Exactly what you said. Small companies versus big companies. That's where we're working really hard to have separate playbooks depending on the size of the company. And the other thing about Rockwell is over the last couple of years when you think about things like the shock of COVID or you think supply chain challenges, or you think about even the tariff shocks. We've become more resilient and we're actually much more aligned with kind of that fast and adaptability as well. We're all getting a little closer together, but eyes wide open around the differences is helpful upfront in a deal.

So you adapt. Having playbook for the smaller organizations, that was what I was trying to get at is like how do you not destroy the little companies? Which is the cliche thing that happens. Everybody probably had a favorite product that was a startup, then big company bought it. Not to name names here, but I could think of a few off top of my head. And then all of a sudden, boom, product is gone and they never did anything with it.

That's part of our secret sauce. We really think about do you leave them alone? Do you partially integrate or do you fully integrate? And it depends on all these factors that we're talking about, the cultural factors, the financial factors, the strategic factors. But we have playbooks depending on that and we get sign off early on in the deal before closing that says everybody across the organization understands this is the type of company, here's its really positive things and here's how we think we can drive value together faster.

It sounds like the key is just being adaptive. At the end of the day, it's almost like you're building frameworks to specifically be adaptive and not just have one way of doing things. You mentioned the importance of the business unit. It's a large organization. How do they come in play? How do you work with them between your department that you run that's helping to execute M and A and this business unit that ultimately has to absorb these companies.

They are the driver and the owner of the P and L. Our job as I see it, is to support and give them frameworks best practices and help them avoid pitfalls and also go faster with processes and tools that we've implemented. So we're a support and a framework to help them.

What would happen if you weren't there?

A lot of the lessons that we've learned would be lost in terms of the repeatability and the efficiencies to go forward.

It's almost like you're bringing the maturity of an M and A model because otherwise it's almost like they're doing it over. But you're like harnessing it across all the different business units, centralizing what M and A muscle is as an organization.

Increasing efficiency and effectiveness.

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You know, from like an engineering perspective, like if you think about the function of M and A, it's an odd one because everybody thinks of it hr, finance. But M and A is a function. Is it fair to say M and A is a function or do you think of it as a muscle within all these different functions? How do you think about where F and A actually sits?

I think it's both. There's a very specialized skill set for M and A professionals, just like finance or HR or it. We have the privilege at least at Rockwell to look across the company and help bring that out and help our business leaders accelerate inorganic growth faster. So we're both a function and kind of support across.

So if you give me like a visual picture of what that looks like, it's almost like a function, but then it's cross functional nature because it's exactly integrates with every other department.

Yeah, we have a functional lineup and then we are somewhat dotted line support to our business leaders.

That makes sense. A lot of dotted lines.

Yes. But again from an engineering mindset, I love the view of the whole solution and the complexity of all of those variables and all of those pieces fitting together.

Now in this deal thesis, what's included.

For our deal thesis we have generally what is the strategic reason for doing this in our strategic framework? Does it accelerate customer revenue? Are there opportunities to do new product introductions faster? Does it give us the opportunity to expand market share? All those types of things. So we really think about it strategically and we think about profit as well. I would also say on the strategic side we think about our geographic footprint. So all of those things come into play. There's clearly for the deal thesis, a financial model as well. So those are the things we think about.

What about the Integration part. Is there anything that talks about how the execution or the how it's going to get done?

As I mentioned earlier, we think about is this one that we're going to stand alone, Are we going to partially integrate or are we going to fully absorb? So we do think about that early as well.

Is that in the deal thesis or that completely separate.

There's a draft of it, but obviously as we get through due diligence, it kind of materializes.

Yeah, okay, that's actually helpful. I want to shift gears. Now that we're talking about the deal thesis, let's talk about getting deals actionable. Before we talked, you shared a really good example about a land deal that you worked on.

Yeah, that land deal is the perfect example. The mining company who I worked for at the time really was looking for land with mineral rights. They were trying to get the ability to mine some minerals. And when the time got close to closing, the landowner just would not sell. He was backing away and we really could not understand why. And we took him out to dinner, which in Texas, by the way, steak dinners are always part of transactions. And over dinner it just came to light that, look, he had hunted on that land, his grandfather had hunted on that land. He wanted to hunt on that land with his sons. And it just was not feeling right to him to give up the land for any price. But what we did as a deal team is we took that back and we said, look, it's never been done, but let's extend an exclusive right to hunt on the land for a couple of weeks a year in the fall in an area that we weren't mining. There were no mineral rights anyways. So we executed a hunting land right, which is never before done that I was aware of. But he was very happy and it had high value to the seller. So this is an example where creativity, again, that problem solving mindset and thinking about all the variables can utilize things outside price or terms. And I've had other ones as well. There was a owner who had a company truck that he just loved that company truck and even though it was an asset and part of the transaction, he just didn't want to give up the truck. So we found a swap for that truck. He bought another truck and put it in the deal and got to keep his company truck. Or there was an owner one time that just really gave back to the community. He sponsored the 4th of July parade every year in the community and he wanted guarantee that was going to continue on. So maybe there's some cost to that but in general, it's not a key price or deal term. So those are the types of things, when I think creatively how to get the deal across the finish line.

These examples, the hunting land, ride the truck, the fourth of July sponsorship, they're all very sentimental.

Yes.

That's interesting because you never think about looking for your deal blocker as some sentiment.

You just have to use a wide angle and look at all the variables. Sometimes just personal relationships help with understanding what's really going on in terms of the mind of the seller as well, beyond just the numbers.

Teach this to me. Teach me how to get deals actionable, because I'm still a rookie at this stuff. I've advised on 35 ish deals and I was advisor. Now I'm working as principal, still executive chairman for deal Room, and still working on some of the M and A deal. Now it's starting to rethink some of these things because you automatically default to price or terms and you just automatically are like, okay, I'm kind of one deal right now. I think it's a price, the terms. Maybe the price is almost a symbolic thing because it's not the best scenario, but it's almost like, hey, we want to know we didn't totally lose face on this deal. I feel like the price is almost symbolic, which I think is making it sentimental.

Yeah, I just think there's a lot of different ways, and it comes down to emotional intelligence, which I know sometimes is a buzzword around that. But I do think there's an aspect to deal making beyond just the financial intelligence. And takes a good listening and a wider angle to think about those things.

Give me a playbook. Teach me how to rethink approaching deals. Because I'm like the typical finance person that's like, what's the price? This is how I negotiate with you. I'm like, hey, I know you haven't thought about selling your business. Sharon, what would be the price to get a deal done?

There's various approaches that you can use. One is, would you see the business five years from now? So sometimes you can get a sense of what their dreams and hopes are. And then I would also say, just what are you most proud of in terms of this business? What do you really like? And just try to learn what drives them.

Okay, so instead of like, how much do you want for this business? It's like, hey, I'd love to hear about, where do you see the business five years from now? Where would you like to see this business in five years? And that could be X amount of revenues. Maybe your. You have a daughter that you want to see working in the business and it's like, oh, or you want to.

See the 4th of July parade float with your company name on it.

Yeah, absolutely. That's like a big thing that's meaningful for you because you and the family go see the 4th of July parade every summer.

Exactly.

And then the other example is what are you most proud of in the business? Which I think is a really good question to ask.

Often it's people that they've employed, the growth and development of their team. So it also helps you understand who do they think is valuable, who do they think has grown and who can grow more.

I had the same with deal room. I built the company up from scratch and then I let myself basically get fired. So it was like learning to step away. They kind of had that inclination that we're going to flatline at 3 million if I just keep running the things our way to do. Brought in a leader. Whoa, this is great. Another good leader. And then find something else to do.

Good for you. You're a wise leader.

Well, we'll see if I get to keep playing. I'm happy. I'm sure that's good. Have you ever seen other things when he asked this stuff, you know, five years from now where maybe that could be pretty unique in terms of vision. But what are you most proud of? The people always comes first. Is there anything else that you typically hear or may hear instead?

Oh, for sure. The products.

Products.

Okay. The technology or the patents and the solution that they offer customers. That's the driving force behind most business leaders and entrepreneurs.

The future and what they're most proud of. That helps and gives you some unique insight. So you can start speaking with them instead of at them. Is that it? There's nothing else.

I can't give you all the secret sauce.

Okay.

But this is like a great starting place. I can get my reps in and do this and see what else. When it comes to building trust with people. What's your approach there? I feel like there's just getting the first conversation and then I have a sense that meeting face to face is a good one. The steak dinner, I think, is another one. Do you almost get a read of the person of. Oh, we're really clicking right away. Let me go invite them for the steak dinner and just try to get more time commitment faster. What's the logic? I guess. Or how do you engineer that?

Yeah, you're exactly on the right track. Face to face meetings Help outside of negotiation discussions. Help. I would also say for us, the big thing is, can we validate the information that you're sharing with us? That's a real trust builder for the Rockwell team. Is the data that you're providing factual and true? Are there audited financial statements? Is what we're hearing in the marketplace about your product true? Those types of things? So it builds from that and the exchange of data. Again, back to engineering. Show me the data to support the statements that you're making.

Early in the process, we get to a point where we sign an NDA. We're exchanging information as trust on both sides. You want trust that you can trust them as an organization, as a leadership, that they're giving you the right information and just answer truthfully and think you get a sense of them working with. And then there's the questions you ask to get their perspective on what's really important to them. And that's where the vision and what are you proud of perspectives are helpful. That gives me a good sense how to get deals actionable. When you take these things and they correlate into an offer on the business, how do you approach that? Is it based on the data? We have a pretty systematic way of presenting an offer. Or do some of these variables, like the sentiment part, give you some kind of influence in how you would structure the deal? And there's obviously cases that you brought up, which is more of overcoming the blockers, but even just trying to structure the initial offer.

Our offers are generally structured in a similar way. We have general terms and conditions and things when we think about liabilities and we think about market sizing and ongoing retention of employees. So those things are pretty traditional, but we leave some flexibility for unusual circumstances and other ways to structure pieces and parts of that.

So pretty straightforward in terms of your approaches, general in terms of how you would bucket the company in one of those whatever matrix, and then you have a way to present the offer to them. When it comes to digging into some of those areas, like you gave an example, is that when you get the pushback and it's like, hey, whatever response that you get that I changed my mind or I'm not really ready for this, is that when you start digging in more to try to figure out.

What those blockers are, we're always eyes wide open for challenges to getting a deal across the finish line. So when it happens varies. Sometimes it happens early. Just the request from Rockwell, in terms of our diligence list can be long. So sometimes that's a little Bit of a challenge. And then I would say again, as you get closer to the end, sometimes other things come to front, but our eyes are always wide open of when there might be a challenge.

I feel like the default answer or response to initial LOI is the price is too low and it feels like it's like a default response. Even though some of those other like sentimental examples are the actual issues at hand. But I feel like you're not going to get that. Nobody's going to come out and tell you that. I really wanted to have my company logo on this floating the fourth day parade and there's a reason I'm not doing the deal. I honestly feel like someone like me and I don't know if this is more of a cultural thing, but to the price I would just like give me 2x more. We're not even close.

Price is the biggest factor. One of the things that Rockwell also does very well is we're very thoughtful about our LOI price. We have done a significant amount of diligence if we get to loi. So we understand the value of the business pretty well. We know what the market comparables are, we know what our peers are doing. So I would say our prices are fair. We also offer more than just financial incentives. So it's a different perspective.

Do you ever have those situations where the counterparty wants to negotiate on price but then you sort of find ways to change the terms instead and bridge the gap that way?

Sure, that's the win.

You have examples of that. That's the thing. Teach me that. That's the biggest thing. Especially doing software deals. I feel like valuation gap. If you could teach that as a course, by all means, sign up.

I agree the valuation gaps in software can be super challenging. Particularly we're looking for profitable software companies. We're in an interesting time in that space for sure. But I do think again, I'll go back to it. What are comparable companies obtaining? What are the funding rounds looking even for early stage startup companies in similar positions and the market adjustments will drive more of that.

Where do you get that data from?

Many sources.

A lot of different tools.

Many sources.

I know they're all the we can Google. I think our deal room has like a market map of all these private company data tools out there. It's hard to get really good valuation data though. You actually you get public company comps are pretty easy.

Right.

And then there's some. I've seen where they pull the comps on private company, but I just don't trust it.

We've done some ourselves, some private company transactions, so that helps your own internal. But yeah, we go at it from many different ways.

There's a certain valuation company I'm trying to convince to prioritize all their data that they have.

That would be great. We would appreciate it.

Yeah, I'll let you know if I convince them to do that. That would be an awesome product.

Agreed.

From a buyer led M&A perspective, how early in the process do you start thinking about integration?

This is the area that's been the biggest learning for me and I would say the team at Rockwell. We've proven the earlier the integration team starts, the higher the likelihood of success on the other side in terms of value creation. The prior thoughts or when we first started were let's not bother the integration functional leaders because we don't know if this deal's going to close. Let's just wait till closing and very common.

That's so common.

And then we'll deal with it. But we had to spend a lot of time re explaining the deal, the thesis and the functional leaders. There were things that we missed. Now we start even before the loi. We marry our diligence leaders with our integration leaders. And sometimes they're even the same person on a function which is great. And that's really right after strategic fit's been validated and we pull ahead all that real world operations systems experience from the integration team up to the diligence process. As I mentioned, we won't have a full integration plan at the time of loi, but we'll have a view and we'll have a close to complete integration plan at the end of due diligence and certainly before signing.

Okay, so the problems if you don't think about integration early, you end up having to re explain this.

The business unit with more the integrational function and the business unit leaders to some extent. But usually the business leaders are with us at the early stages. They're with us the whole way.

You'll end up having to re explain it to the folks who in charge. Integration.

Yes.

Things will end up getting missed.

Yes.

And this is that phrase I heard the knowledge chasm.

That's a good one.

And then this is where you counter this by marrying the diligence integration leaders. And in cases they could be the same person, which is even better. And that gives you that continuity of all this incoming data that you get. Diligence can be valuable in planning integration. And their goal is by loi. You at least have a thesis of how this company is going to get integrated.

Exactly.

Then as you get to sign, you ideally want to have a pretty comprehensive integration plan. This is like the buyer led M&A framework. It's all about synchronizing diligence and integration. So this is a great practice. When do you socialize this with the target company and try to get alignment there to like, hey, this is what the plan is on integrating it. So that way you hit the ground running from day one. Or is that. Do you wait till day one or.

Such an insightful question. For us, we involve them pretty early because, look, we want our acquired company talent to stay with us and they want to be part of the success. So we start to talk with them very early in diligence and say, hey, this is what we're thinking about in terms of integration. So they're part of the integration team. Our integration leaders on our side have a corresponding rep on the target side as well.

Oh, okay. So your integration leads that have another corresponding person in the target company. And as they're developing this integration plan, they're socializing it with them so they get to validate it. They're like, I don't think that's going to work.

Exactly. That's exactly right. Or that's a really great idea.

That's a good idea. Do you ever heard of that concept, like reverse integration? I did a cool interview with Cisco on their Splunk acquisition. Huge acquisition. But there was just parts of the business where like, we're not going to follow the traditional integration. We're going to flip it around and actually take their process.

And yeah, for sure we don't call it reverse integration, but if they have systems or tools that are better than what our current business is using, we will also do the same. I didn't know there was a fancy term reverse integration.

Maybe you could coin something else. I don't know.

I'll work on that.

All right, we'll stick to reverse integration for now works. When you do, let me know. I will update my vocabulary. So this is really good. So that's like, it sounds like a really key element. It's not only early, have a view, a thesis on how you're going to integrate, have this synchronized approach so that information coming in. Diligence starts feeding integration planning as soon as it comes in. That goes to this iterative process to building an integration plan which gets socialized with the corresponding integration leads and the target side so that they can validate it. Close happens. Everyone's on the same page about priorities. What's going to get executed, how it's going to get done and things are going to go a lot smoother that.

We should also talk about, which is the cost of integration. The other reason we pulled it ahead was because there can traditionally be costs associated with integration and we wanted to capture that in the deal model so that back to the numbers are critical as well. So there's a key piece of that.

Tell me more about the cost. Because I looked at a deal where it's going to be very cost synergy oriented. I was told that you should plan to spend a dollar for every cost savings. Saving a dollar is going to cost you a dollar. Is that true?

That's an interesting analogy. I haven't looked at the data.

It wasn't an engineering person, it was a finance person that told me this.

I'm not sure if that's true, but I do think depending on whether you leave them alone or partially integrate or fully integrate, there are some costs associated with that. We've learned along the way that we need to think about those and we actually put those integration costs in our deal model. So our ROI calculation includes them. So we know it's a deal cost.

Also a good practice. It's like an early thing. I see organizations evolve. Like your first deals, you don' do that at all. And then. And it is, it's like at dealer we try to sell software and if it's an earlier company, there is no integration budget. And then so the integration team wants to use it, purchase it, it doesn't. Versus a mature company like any of the Fortune 500. Basically they have a huge budget for integration. Massive. That's why. Because then they learn what does that ultimately do? Okay, the integration cost, making sure you have an understanding what the budget is. But you're also like validating that budget.

Correct.

When you're going through the planning process.

That's right.

So you may have early, we think it's going to be this. But towards close you may adjust that. And that's part of your integration planning.

That's right. And it can go up or down. We might find some savings that we hadn't thought about early on as well.

What are the net results? You look at the old way of doing things where it's a couple of weeks before close, you're like, hey, integration folks, we're about to close on this deal should probably get up to speed versus what you described. Like what is ultimately the net bottom line results.

So for us it's again acceleration to value, but what we call steady state. Integration, they're on all Rockwell systems. They're functioning in terms of new product development processes that we use or whatever the integration plan had hoped for. We're getting there faster and we're actually closing and we're saying we've finished on time. I would say the ones that we hadn't pulled ahead, the integration team, they went on a little longer add a little more challenges to getting to the end state. Whereas the ones we're doing today with this approach are reaching the milestones as anticipated.

So mainly you use the term accelerate to value and then getting to steady state. So essentially you're getting an integration done.

A lot faster or as planned.

As planned. Which means you'll hit your investment thesis. That's the goal you achieve. Your investment thesis is the ultimate goal. I feel like when we talk about the fabled high integration failure rate, I feel like that's just such a misnomer because yes, once in a while deals will totally blow up. Which you go in the news probably, but it's usually the way you described. It just takes you longer to actually get that target value, the delay. Now if you do accelerate it and then you do get the target value, that's a good thing because then you'll be able to usually receive those cost synergies. Make the improve the EBITDA margins and improve cash flows in the business and do more deals. Then give it capacity. Go do more deals. All right. That's why you should plan your integration early. So another thing that you mentioned is your team has several people in each traditional M and A integration and strategy. How do you structure collaboration between these different teams to have assurance that insights from integration failures feedback into your diligence process?

As I mentioned, it's a privilege to have that full scope and view. The team is super collaborative. We're all in the same staff meetings. We're hearing all of the updates from all of the different phases of a deal. And we update the due diligence, we update the integration and the strategy playbooks along the way. With anything that anybody's learned over the course of the transaction, we always really look for those success factors again, what went well that we can leverage on the next deal. And then I'm a huge fan of celebrating the wins. That's important too.

So this is almost like a retrospective basically, that you have and you bring everybody together, hey, what can we improve? What was the good stuff that we did really well?

We do it after every phase of every deal. So even after strategy, after that's complete and a Deal's been validated from a strategic perspective. Six months later we'll come back and say, was that a good process? We'll do the same thing for due diligence at the end, maybe a year later after closing, to say, did we capture everything in due diligence? And same thing on integration. And then the integration actually has check ins every six months until steady state. So there's lots of reflection.

So your retrospectives are actually pretty far out. When you first met you, I was thinking of like you just closed the deal and it's like, all right. Which is everybody's in pretty happy mode, you know, they're finally getting to sleep again. But no, this is actually like several months out our perspective.

And we used to do that. But I would say on diligence we feel like you don't really understand how well you did in diligence until a little bit further out. Six months. Because closing the deal is one thing, but actually running the business post deal gives you more insight into what you did. Did the diligence uncover everything you expected? So that's why we let it run a little bit before we do that.

That makes sense. But now everybody's involved on those retrospects. You might have a retrospect that's focused on the strategy of a deal, but it's all those different functions of M and A involved in it.

Yes.

How do you keep people from forgetting everything from all the months that go by after the deal's done?

It's interesting because people want to share particularly the things that are a challenge because they want to make sure we don't do it again kind of thing. So we don't have trouble with people remembering and they're still generally aligned with the deal and some function. So it's front and center.

That's true. I'm starting to believe this more and more that if it's really important, you'll remember.

True.

You know, I'm always like scrambling like, where's my to do list? What happened? This and that. But it's really important you'll remember it.

That's right.

So some scar tissue.

Yes.

Now, looking at the broader industrial automation sector, how has the rise of AI and digital transformation changed the way you look at acquisition targets?

I'd say AI and digital transformation hasn't really changed our strategic areas of interest. We know what those are, but what it has done is make us be more thoughtful about our due diligence processes. So when you think about access to data or cybersecurity or confirmed source Code ownership. Those things are really becoming front and center as we think about data management and AI and open systems. And on the cultural side, I would say the people aspects continue to be high in those areas of AI. So those are the things that we're thinking about.

So you think and act more and more like a tech company.

Yes.

Does the market value the same way?

Rockwell has had a portfolio in software, hardware and services. So we span all of those kind of technologies. And I do think we're valued in the way that others are driving this transformation.

Yeah. It's just interesting to see some of the larger conglomerates how they've sort of introduced spinoffs by sector just because of the way market perception acts. We'll have to get your CFO on the podcast to talk more about that.

I think he would say he's very happy with our portfolio if you can.

Get him on the podcast. You know how hard it is to get CFOs on this podcast. I will have a reward bounty. If anybody's listening to this podcast can help me get CFOs on M and A Science, I will put a nice reward out there. But it's like the hardest Persona to get on this podcast.

They're a little busy.

I get it. They're CFOs. Sometimes the CEO actually has it pretty.

Good and they do things beyond just M and A. Yeah.

So in terms of just adapting with the industry sector, it is really fitting in with the way we evaluate technology. Look at the security component and all those aspects like you would. So you're really evolving to just mature the process for emerging technology. For the other corp dev leaders out there who want to implement more systematic cultural assessment and maybe they're just being challenged with their own organization tends to be the traditional way of just focusing on the financial metrics. What advice would you give to them to make that kind of change?

It comes back again to the data. There are other pieces of data beyond just financial things like employee retention, promotion rates. Are people sticking around and growing once they're acquired and contributing that value creation at the same rate post acquisition and pre acquisition? So are they still growing at the same speed and are there gaps that exist? And if they are, what are the indicators that might be driving that? Something from culture? Maybe it could be employee morale or it could be absenteeism. Those types of things to look at. But some turnover is going to happen when you acquire something. But if you can really look at those trends over time, that helps. We also look at rate of new product introductions. We look at again, we talked about customer complaints or customer success stories. So all those things outside the financial metrics is a good way to start to introduce some of this aspect to deals.

Yeah. Looking at the whole picture. But you get these metrics, the employee churn, promotion rate, PI, customer success, which attributes to company success in general.

That's right.

So that's why you dig into the cultural assessment part. What's the craziest thing you've seen in Matt?

I think it's the implications of AI and it's not so much on the companies we're acquiring. All M and A professionals are working really hard to understand how AI can help us enhance deal flow, help us get faster due diligence, shorten the time from strategic idea to value creation and really finding what the truth is out there. In some of these data sets, we want faster deal closings. We want data that's solid and that we can trust the integrity. So that's what excites me about M and A right now, is the ability to use some of those tools to go faster.

Is there anything that scares you about it?

Yeah, I think it can give bad information sometimes. I actually have an experience where an analyst was researching a company and the AI response was that it's a private company and the truth is it's a public company. So you have to be very careful. And the human oversight will always be needed. A human in the loop. But I do think there's an opportunity for efficiency and a whole coalescing of connecting the dots, which I'm looking forward to.

Yeah.

Likewise. I think that's probably today's time. The craziest thing is the way AI is changing the M and A process.

Exactly.

Still a lot of things in the works. Even my own personal experience when I was working with it directly at Deal Room saw the same thing. You start putting large batches of data with AI, it just hallucinates. So you want to bring it down to the smallest pieces and aggregate it together.

Exactly.

But sometimes I worry about the we get a little bit off of the people to people part. If we get too reliant on trying to automate the whole entire diligence process. We gotta have the conversations to do our cultural assessments.

Exactly.

This has been a great conversation, Sharon. I appreciate taking the time from doing deals to help me become a better M and A scientist.

You helped me as well, so I appreciate the opportunity. It was fantastic.

Those of you still listening, my M and A science brothers and sisters, I can't thank you enough. If you've gotten this far through the interview. I'm proud of you. I love to hear from you. We got a lot and we were carving out M and A Science you may have heard we're going to be doing a lot of new things. Make sure you visit mascience.com, you're going to see a bunch of changes to the website. We're going to have a new registration form for our newsletter and a lot of cool things in the work for the New year. Also, reach out to me directly. I'm usually responsive on LinkedIn. Always welcome ideas for topics I haven't covered. Any positive, positive feedback. I'll take the criticism too. That's how I get better at this. Till next time. Here's to the deal.

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