How to Set Clear M&A Objectives: M&A Advice from a Former Marine

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. In this episode, Ken Marlin and I discuss business strategies and setting clear long term objectives. Marlon has a diverse background that includes being a published author, a CEO of a company, and running an investment bank. He shares advice on closing transactions from the buy and sell side and how to be upfront. During advising, we discuss knowing the right time to sell, identifying companies weaknesses, and the importance of discipline. Here's more on Ken's background.

I'm Ken Marlin and I hate talking about myself. I bore myself. The short story, I suppose is that I I spent the first 10 years of my business career at the Dun and Bradstreet Corporation back when Dun Bradstreet was trying hard to model itself a little bit after Warren Buffett's Berkshire Hathaway. So it was using the Dun and Bradstreet credit information business as a vehicle to buy other business to business subscription based information companies. They bought companies like AC Nielsen, the Gartner Group, IMS Health, a bunch of software companies. We owned Moody's, the bond rating agency and 23 different other sort of major information based divisions. And that's in a lot of ways where I got my education on the information technology world. I do tend to talk about my first 10 years in the business world. Prior to that I spent 10 years on active duty in the Marine Corps and that shaped a lot of the way that that I think about problem solving as well. When I was finished at Dun and Bradstreet, I spent a few years leading a technology company owned by a bunch of Swiss banks. Amongst other things they had purchased a technology company that they really didn't understand. And to take a long story and collapse it down into a short version, I wound up buying from the the Swiss company, the company that they had bought and that formed the nucleus of a company called Telesphere that I ran, built and eventually sold to Bridge Information Systems in 1997. Bridge was a private equity backed firm that sold information and technology to the Wall street world. We had a pretty good run. I left there after a few years, mostly because it was clear I was not gonna become the next of Bridge. But that company did go from $40 million in revenue to about 1.3 billion in about five years. It was an interesting run. A lot of that growth was internal, but they also acquired a number of small Companies including mine and including some that people have heard of from the day one called Teller 8 you may be familiar with. I left there, went to the merchant banking, private equity world with a company called Veronis Suler, and helped them to both advise and to invest in the same kinds of companies that I worked with when I was at Dun Bradstreet. That was a pretty good run until 2000. If you remember March of 2000, NASDAQ crashed, the tech markets crashed, dot com crashed, 2001. A bunch of people flew airplanes into buildings in New York and D.C. and that didn't help the global economy much either. People were not making money in private equity. There were no exits. People were not making money in investment banking. And sometimes I say, when everything is going right, then everybody is your friend. It's when things are going the other way, you start to see exactly what they're made out of. There were some very good people at Verona Suler. There were also some people that I didn't particularly like the way they were reacting to a tough market. In any event, at the end of 2001, I sat around a kitchen table along with some of the people I worked with, and we mapped out a plan to build an investment banking advisory firm of our own. We took office space in February of 02, and that's 16 plus years ago. And we've been growing ever since. That's us in a nutshell.

It's a very diverse background, going from corporate development to CEO of a company to running an investment bank. So you ended up writing a book called the Marine Corps Way to Win Wall Street. And that's what caught my attention. The things I really enjoyed about the book were the lessons that you took from battlefield to boardroom, and specifically the examples you used in both. You know, first thing that just comes off top of my mind, what's it like living on a warship?

I spent two years at sea, which is a lot more time than a lot of people in the Navy spent at sea. I quite enjoyed my time at sea. It was, it was all on the USS Tripoli, which was a, for lack of a better description, an aircraft carrier designed to carry Marines and Marine Corps helicopters. It had about 3,000 people on it and about 6 million gallons of fuel. And we spent huge amounts of time cruising the East China Sea. This was what turned out to be the tail end of the Vietnam War. When I joined the Marine Corps, the Vietnam War was still very much going on and still very hot. But I went through enlisted training and then before I got sent Overseas, which is what I thought was going to happen. I got selected for Officer Candidate School and so then wound up going through another year of school. And by the time I was done with all of my training, the Marine Corps was largely coming out of Vietnam. The war was still going on, but the Marines were still coming out and the US presence was winding down. So we spent the better part of two years on that ship cruising the East China Sea, mostly in support of the South Vietnamese. It was an interesting time. It was. I was in my 20s and we went to a lot of interesting places and did a lot of interesting things.

It's a long time to be on a ship.

It's a long time you're not at sea that entire time. We were home ported out of Subic Bay in the Philippines. And we would go out. We might go out for several weeks, we might go out for a month, but then you'd come back to port and refuel, restock and, and have some relaxing time.

What's the culture like?

The culture in the military in general and in the Marine Corps is one of work hard and play hard. It's a lot of camaraderie. You know, certainly when I was in, it was an all male environment. I'm aware that there are more women involved, including women on combat ships today. That was not the case when I was around, you know, we were up early, we were up before dawn, we worked hard, we worked late, and then we probably consumed too much alcohol.

Still had some fun.

Yeah.

So reading your book and one of the first principles or chapters in the book was having the long view. And particularly you speak about clearly articulating long term strategic objective. Can you expand on that?

Sure. You know, that first chapter is one that sets the tone for the rest of the book. And it takes me back to conversations I had with people before I wrote the book, where I would get exasperated, frustrated, peeved, just sometimes reading things in the newspaper or otherwise watching people in business do stupid things. And I used to say to people, why can't people just do things the way we were taught in the Marine Corps? It would be much more efficient and they would be less likely to embarrass their parents. And people said, why don't you write a book about it? And, you know, my answer at the time was I'm not exactly sure what I would write about. And so what I started to do was assemble ideas into a folder on my PC that I cleverly called book. And a lot of those ideas formed around the idea that Marines have that all tactics ought to be designed to advance the organization towards some clear long term strategic objective. And so if the objective is to seize Berlin and take control of the German government in World War II, why is it that Eisenhower and the American military first launched strikes in North Africa? Are those things related? They are related. They're related because there was a plan to go through North Africa, up through Sicily, up through Italy as part of a two pronged front to get to Berlin. They were related because the American military decided they needed to learn to fight the Germans in small bits before they took them in large bits. And so those tactics, while it might not have been obvious to everyone why landing in North Africa related to a long term strategic objective in Berlin, it made sense to the military. We see people all the time, and I still see it today, engage in tactics that are not particularly aligned with any long term strategic objective. They open offices and cities because they can. They add product lines or make acquisitions because they're opportunistic. And too often they waste money. They're a diversion of management, time, energy and attention. And in some cases they cause businesses to fail. And so that is the first chapter of the book, which has to do with know where you're going, know where that long term strategic objective is, and make sure that all of your tactics are aligned with helping you achieve that objective.

Why is that? I mean, is that human nature? We just get distracted chasing shiny objects or what do you think the reason is?

You know, I think in a lot of cases it comes down to what I call bad leadership. I know lots of people who talk a good game about focus, but I tell people all the time that focus is not about what you do, it's about what you don't do. It's about the ability to say no. And it's about the ability to say no sometimes when you need the money, when you have a goal. But a customer says, I'll give you money if you'll do something different. When a salesperson says, but the customer will only buy if we do something different. Or people see a shiny object, they see an opportunity to go do something, and, and they claim to be focused, but they're not.

One of the things you mentioned too was asking the hard questions up front. Can you give me some examples of that, how it correlates?

You know, we see all the time in the banker world and the consulting world a desire by the advisors to be nice to the client, to tell the client what they want to hear. If the client comes in and says, I have this company and it's a wonderful company. You agree with them and you tell them how wonderful it is and how strong their management team is and their product is and their customer base is. And if the customer tells you they think their company is worth $100 million, you say, oh, it's worth at least 110 or 120. And there's this desire to blow smoke, as they say. We try to call them as we see them and we think that in the main that gets us more respect from the customers. I'm not saying it doesn't occasionally cost us a potential client assignment. We have a potential client that we're going to talk to on Monday and he has a company that I actually think has some interesting products. I think it has some interesting potential. But he's got more than $60 million worth of revenue. He has little growth and he has no profit. And we're not going to tell him it's beautiful. We're going to tell him if you really want to get the price that you're looking to get, you need to make some changes. It is clear to us that this company has too many people. It is clear to us because we see lots and lots of companies in the same sector and that he's got 50% more people than similarly situated companies and we know roughly where they are. It's also clear that he's paying some people significantly more than the current market rate. And we'll have some tough conversations with him about what he needs to do if he really wants to sell this company and get a good price for it. But by the way, those things are things that he ought to do over time anyway if he wants to run an efficient company.

So thinking in terms of staying aligned with the long term objective. And we talked a little bit about getting distracted and the things that you don't do. Constantly new ideas are coming up, new initiatives. How should a leader go about making sure those new ideas and things that come up align with that long term view?

Well, first of all, the idea of being focused is not the same thing as the idea of being rigid, particularly when you're talking about small companies. So we see small companies all the time that start with a strategy and have that strategy evolve over time. Not only is there nothing wrong with it, with having a strategy evolve, it makes sense. You know, if you think you're making dog food, you can have all the intelligence and research in the world about what's good for dogs. If they don't eat the dog food, it's a problem. So you start tweaking the formula to see if you can get them to eat it. And by the way, if cats come along and they suddenly start to like the dog food, maybe what you just did was make cat food. And you should recognize that what the market is telling you, and you do need to be aware of innovations, not only so that you can keep your own product relevant, but also so that you can stay ahead of the competition. So it is the nature of business in general and certainly the nature of the technology enabled businesses that we work with, that people, people need to constantly be aware of what's around them, aware of what the competitor is doing, aware of what the customers are looking for, and aware of what the technology allows to be done, else they put their business at risk. So we're certainly a big believer in people taking advantage of opportunities to leverage innovation. But they do need to keep their eye on the prize. Where are they trying to get to and what are they trying to accomplish.

While still having a multi angled view on what else is going around them?

I used to climb mountains. I don't do it much anymore, but I used to say that running a business is in some ways like climbing a mountain. You have to have one part of your brain that's focused on the root, the broadly defined route and where you're trying to get to. And another part of your brain is very narrowly focused on where the next four inches where you're going to move your finger and the next three inches where you're going to move your foot. And you have to be able to do both.

That makes sense. And make sure you're putting in the right places. Taking a stand means being confrontational. Assess the situation, make decision, taking action. Why does that fail today?

You know, I hate to make generalizations. I'll make one. Someone will point out a thousand exceptions to it. But I find myself, particularly in urban environments, surrounded by a bunch of confrontation avoiders. People just don't like confrontation, they run from it. My wife tells me I'm a confrontation seeker. I'm really not trying to poke somebody in the eye. I certainly am not looking to poke my clients in the eye. And so when I talk about taking a stand, I'm not talking about being rude, I'm not talking about purposely angering somebody. What I am saying is that people hire us as an expert. They hire us as a trusted advisor and not as their secretary and not as somebody who will do whatever they say and believe whatever they believe. We had a client as an example a few years ago. It was the New York Stock Exchange and they were looking at acquiring a company. And there was a reason, there was a logic, and it did fit with their long term strategy. And they asked us to help them. Along the way we came to a couple of conclusions. One was simply that the asking price was too high. It was hard to justify the asking price. Two is we came to realize that the company that they were looking to acquire had a culture very different from that of the New York Stock Exchange. And that the only way that they were going to be able to achieve the strategic goals they wanted to by acquiring this company was going to be to really do some pretty complete integration of the new company into their culture. And that was going to mean cutting out some of the leadership of the acquired company. And we had lots of conversations about the implications of that. Someplace along the way it became clear that the acquisition was not going to go through because of the difference of opinion on price. And the executive at the New York Stock Exchange who was leading the effort, who's a guy, had and still have a lot of respect for, had a conversation with the CEO of the target company and they came up with this idea. What if the New York Stock Exchange just buys 25% of them? Now, as an investment banker, somebody might expect me to say, okay, cool, if we can't make a fee off of acquiring the entire company, at least we can make a fee off of them acquiring 25% of the company. And so the right answer from an investment banking standpoint was to say, okay, cool, let's go make that happen. But I felt it was our obligation as the experts and my personal obligation to tell my client what I honestly thought of the idea, which was that it was dumb. That was my opinion. And it wasn't dumb in my opinion because the company wasn't good or because the leadership wasn't good or because the products weren't good. It was dumb because I didn't believe that acquiring 25% of the company would in fact advance the New York Stock Exchange towards its strategic goal. It would leave the, the other company out there, which was a competitor to part of the stock exchange, and it would leave them out there pursuing strategies that had nothing to do with what the New York Stock Exchange wanted to do. I just didn't think it would advance them towards their goal. They would own 25% of the company. Why don't you just go on 25% of a car wash? It will equally help you advance towards your strategic goal. Now. So I felt it was my obligation to take a stand in the sense of saying that out loud to the leadership. Now, that resulted in an intelligent conversation, which we had. And at the end of the conversation, the guy who led that part of the exchange said, okay, Ken, I hear you, and I appreciate your opinion, and I don't agree. And I think, you know, we want to go ahead and buy 25%. At that point, it wasn't illegal, it wasn't immoral, it wasn't unethical. And at that point, I said, okay, if you insist, I've now given you my opinion. I'll now try to help you get the best deal you can possibly get. Build in as many protections as you can. I didn't feel the need to resign out of some peak or, you know, some feeling of moral superiority. I had taken a stand. He heard me. He disagreed, and that's his right. And as I said, as long as it didn't violate some moral, ethical, or legal standard, okay, I'll help him get the best of. But first he had to hear me.

So given sort of an answer response that's emotionally detached. It seems like a lot of times hesitation comes just from somebody not wanting to hurt the other person's feeling or. What do you think?

Look, I think there are a lot of reasons for people wanting to avoid confrontation. I just think mostly they're wimps. This idea of not hurting somebody's feelings is something I certainly understand and appreciate. And, you know, it's the question, you know, when your wife says, does this make me look fat? You know, okay, you can. You can moderate your response appropriately. I'm not saying one has to be stupid about it. I am saying that in a professional world where, particularly where we are hired to be an advisor, I tell my guys all the time, our job is to advise and our job is to tell clients. Give clients our honest, unvarnished truth, whether they agree with it or not.

The biggest hesitation I see with CEOs is firing people constantly. I used to host a CEO roundtable, and it seemed like the bottleneck was always, I know so and so needs to go, they're screwing up. We're not progressing as fast unless we move that on. And there's always this prolonged hesitation. Giving an example like that. How would you take somebody like that and sort of really show them why they need to go beyond that and take a stand?

Well, you know, when you talk about firing people, I do think it's very easy to be glib. I've run several businesses. I always say it's easy to fire and hard to hire. I do think that one of the things that corporate America has a sort of a self imposed limitation is this idea that when somebody is messing up, your only recourse is to fire them. I've taken people on more than one occasion and metaphorically hit them upside the head with a two by four. You know, I've brought them into my office and said, okay, here's the deal, you're screwing up, right? It's a problem. Here's how you're screwing up. And you have some period of time in which you get to convince me to not fire you. And you need to get their attention. You know, I think it's. Firing somebody is a very serious thing. It's something I've done on more than one occasion. It's not something I take lightly. I hate the saying that you hear a lot. It's not, it's just business. It's not personal. Firing somebody is extremely personal to the person that gets fired. They have lives, they have families, they have kids, they have mortgages. And I am always very conscious of that. When I've contemplated firing somebody, I try really hard to give them way more than fair warning.

It's interesting you brought up a really good example that having that proactive confrontation can actually avoid that sitting down with that person, detailing out where you see the problems, are addressing it. So that could be a good point where if somebody's not doing that, then it sort of leads to too far, too late situations.

And I do think that's part of the confrontation avoidance that I see in a lot of people is this unwillingness to have those conversations that are short of firing somebody, that are tough conversations, that let somebody know that their job is on the line in an unambiguous way and that clearly tells them what they need to do in order to save that job. You know, I've had it in other ways as well. I had a head of sales at one point that probably fit the description you were just talking about. I understood this guy was never going to be the head of sales that I needed. There are limits to what people can do. You know, you can yell at me all you want, but I can't get taller and I can't grow hair. There are limits to what I can do. And I called that guy in and, you know, told him the situation and basically said, okay, now we have a race. We're going to see what happens first, whether I find your replacement or you find a new job. So you're going to go as soon as I Find your replacement. I don't hate you. I didn't, you know, didn't catch you with your hand in the cookie jar. But I am going to replace you. Meanwhile, feel free to go look for a job. If you need some time off to interview, come tell me. You don't have to sneak around. I'll help you with your resume. And meanwhile, I'm going to be interviewing for your replacement. We'll see who gets there first.

I agree. That makes sense. That's a lot of good, logical way to go about it. So from your book, many people, including many Wall street bankers, don't spend enough time thinking through the strengths, weaknesses, capabilities, constraints and motivations of the people on the other side of the negotiating table. Why is this important?

You know, it just makes me crazy when particularly buyers and I will, this is not limited to financial buyers, but I happen to have just recently had an experience with a financial buyer who think that the only thing that matters to a seller is money. And they refuse to contemplate the other things that affect the motivation of the sellers. Particularly in situations that we see a lot where you have founder owned or founder managed companies. We had a situation not long ago in which we were advising a family owned company of decent size, $75 million in revenue company. It was a pretty decent sized transaction and they were looking for a private equity partner, somebody who would buy a significant portion of the company, allow them to de risk and help them to grow the company. And they had spoken to people in the past and they wanted a partner. And we thought we had found them a couple of good potential partners and one in particular seemed to be the lead. And we emphasized over and over again and the need to be collaborative with these people and to think in a collaborative way and to demonstrate that they could act like a partner. And at one point the private equity firm invited the three senior members of the firm who are all related to each other, a father, a son and a nephew, to come to a meeting at the private equity firm's office. And they get there and the private equity firm introduces, introduces them to a person they had never before met. And they said, this is the guy who we're going to bring in to be the president and chief operating officer. And here's the plan that we've laid out for you. Well, all that did was make the family mad. There was no discussion, there was no collaboration and there was a plan that presented that was facile, that just, you know, was, you know, if you really understood the subtleties of the business Wasn't going to work, and they walked. You know, they told these people, go away. You are not the people that we want to work with. You are not people who understand the concept of working together as a partnership. We see this all the time. You need to understand the people on the other side of the table. You need to understand their weaknesses, their strengths. You need to understand what motivates them if you want to. To get a transaction done. If you think it's only about the money, you will lose.

So what would have been Ken's way of approaching that situation?

You know, I'd actually had several conversations with a private equity firm and said, you know, what you want to do is invite these guys. Or actually what you want to do is go to them as opposed to having them come to you. Right. And how about you spend some time listening, listening to what their plans are, listening to what they'd like to do, having a conversation, maybe making some suggestions. If you think it's appropriate to bring in somebody from some leadership from the outside, how about you raise that as a suggestion, hear their objections? If you think it's a good idea and you think you should interview somebody, why don't you have them be part of the interview process? And if you think that something that should be done before you make a final investment decision is to understand what the plan is for the next couple of years and what the investment requirements are, that's fine. Why don't you go to their location and work together with them to develop that plan, but make them part of the team. They just didn't want to do that.

Wow. So it sounds like the key would be to ask questions and really learn from.

And listen.

Exactly. Listen as well. And take more of a collaborative approach, because it takes both sides to equally put that effort in to make things work well. In the chapter called Know Yourself, you mentioned, you should know what it is that you do better than anyone else on the planet. Can you explain the importance of that?

We see CEOs all the time who come to us and talk to us about their company. And it's a question that I commonly ask, what do you do better than anyone else? And I would say that the majority of CEOs we talk to do have a sense of what it is that they do well. But periodically we run into the one that either can't answer the question or their answer to the question is, well, we're almost as good as somebody else, but we're less expensive. The problem is that that's a losing strategy. The best Ones have a clear market definition of the market they serve, the customer base they serve. They often answer the question in terms of a problem they solve for a clearly defined customer. The worst ones define themselves in terms of their product. We have the best pink left handed drill bits in the planet. The pink is absolutely beautiful and they're left handed. And the question is, who cares? Why do those features appeal to the customer base? Is there somebody who really will buy your drill bits because they're a prettier pink than the other guy's colored drill bits? I mean, it's a feature without a benefit.

Makes sense. What do you do better than everyone else?

I believe that we are the clearly the best investment bank to help buyers, sellers and investors into middle market technology enabled companies anywhere in the world. And I think that we understand these companies at a strategic level as well as at a financial level. I think we combine an ability to give them clear strategic advice as to what to do and how to do it, as well as give them tactical advice in extra getting transactions accomplished.

Another line from your book. Too many people overestimate themselves. Their capabilities, capacity, know your strengths, weaknesses. How do you identify and validate those strengths and weaknesses?

I do think that it is important that the CEO of a company understand their weaknesses as well as their strengths. We have seen time and time again acquisitions fail. Or to put it a little bit differently, companies fail after making acquisitions in part because the acquiring company does not sufficiently understand their own limitations, doesn't understand that in order to make an acquisition work, it requires you to divert your intellectual horsepower into making it work. Your head of sales, your head of technology, your head of finance, the CEO in many cases. And that means that they are diverted from other core activities of the business. Sometimes they have the people and the ability to do that. Many times they have the people and the ability to do that. But not always. We've seen people underestimate the costs in dollars, the costs in time, the cost in energy. People just haven't sufficiently thought it through. That's not only with mergers and acquisitions. We've seen it happen when they try to open. We've seen European companies try to open American offices and underestimate what it's going to take and underestimate their own strengths in doing it. And we've seen American companies have the same problem trying to expand into Europe or Asia.

I hear this a lot with when it comes to estimating the integration process and MA transactions, what would be that approach where you can try to really validate things and understand those weaknesses so you can be better prepared when it does come time for it.

You know, I think that this is about understanding that for a banker, an M and a process sort of concludes with the transaction. For the people that are involved on either side, the conclusion of the transaction is simply a phase point. And we always advise people who are on the buy side to not pursue a transaction unless you've clearly thought out what happens afterwards. And, you know, you. It takes a tremendous amount of planning to assign goals, roles, responsibilities, to set out milestones as to what should happen in day one, day two, week one, week two, month one, month two, month six. And then to have ways to follow up and check and see if you're hitting the milestones, to assign clear responsibilities. You know, assigning responsibilities to a group or a committee is assigning them to no one. You know, specific individuals have to have clear goals and responsibilities. And usually the top leadership has got to hold them accountable for meeting their milestones. And the companies that do well are companies who understand that and who do it well and who think through what happens, particularly in the first year. And the companies that fail are ones that don't give enough attention to what happens after the transaction is completed.

How about I send your background from the Marines? Was there a similar approach in terms of doing the same thing?

Well, sure. You know, you plan for an amphibious landing on a beach in the Marine Corps, you know, it's not over when you land on the beach, right? You know, it's like, okay, we're on the beach. Now what? Where are we going to go? What are we going to do? How are we going to get resupplied? You know, what are we going to do if we have wounded people, how are we going to get them out? What happens on day two, day three, day six? Where are we going? What's the objective? It's not over when we hit the beach.

So you have one aspect from the leadership, top down, making plans and wanting the team to execute. How do you foresee the weaknesses, where those points are? Because to me, it seems like the people executing are more likely to see that. Is there a way to sort of bridge that perspective into it? I'm curious to know, how would that happen?

Let me say two separate things. One is, from my very narrow, parochial standpoint, we're not a consulting firm, nor do I want to be. So our job is very transaction oriented. I'm happy to have conversations with CEOs and leaders about some of the things seen and some of the things that have worked and haven't worked, but I don't want to be their post integration consultant. I'm happy to emphasize to them the importance of doing the post integration planning, but I don't want to be a consultant. It's just not our job, not what I choose to do. I do think, though that it's in part about identifying weaknesses. It's also in part about identifying contingencies. What happens if it doesn't go right? What happens if my head of technology that I'm counting on from the acquired company goes and takes another job someplace? Or how can I make that more difficult for them? Maybe I should have a big financial carrot for these key guys to make sure they're around in a year because otherwise they might leave me. So how do I anticipate some of the hurdles and then how do I put things in place in case the guy leaves? I'll come back to the issue I said before about people who think everything's about money. It's not all about money. And sometimes motivating people to stay in the acquired company is about showing them love and respect. And that's as much as a reason as any as to why people in acquired companies leave. They don't feel that they're appropriately respected. So there are things you can do to make sure that your key players stick around and one of them is just paying attention to them.

So probably spend the time and talk to them through their headset.

Spent a lot of time doing what? I didn't hear you.

Oh, just talk to them, see where their head's at and, well, talk to them.

And you know, I mentioned that a long time ago, I sold my company Telesphere to Bridge. One of the things that Bridge did well, and this came from the top down, was they had a culture of saying, okay, we have a whole bunch of acquired talent. We're going to figure out who's the best in various positions. And if it's somebody in the acquiring company is not as good as somebody from the acquired company, we'll take the one from the acquired company and put them in charge. And they didn't have this mindset of we're the winners, you're the losers. You know, we get to stay and you guys get nothing. And that's a great mindset. And Bridge, Bridge acquired some great talent doing that.

One of the things you talked about is controlling timing. What are examples of controlling timing in M and A?

I do think that in many cases we see buyers buy companies in a reactive way. They buy it because the company has decided to put itself up for sale and there's an auction process and if I'm going to buy it, then I have to react and buy it now. As opposed to in a more holistic way. Looking at the long term strategy, figuring out where they want to go and if acquisitions are a part of that strategy, figuring out what companies are out there that are best situated to help them achieve that strategy, and then proactively going after them when the timing is right for the acquiring company. If your entire M and a strategy is reactive, it's potentially problematic. It's problematic for a whole bunch of reasons. One is you could be in the midst of acquiring one company and then a different company comes up for sale. And now can I do it or can't I do it? And do I have the resources in order to be able to make the transaction work? Do I have the people, resources, do I have the money? It just becomes all reactive. Instead of being proactive, the same thing. If you are a seller, you can wait around for somebody to come beat on your door. It's like if you're selling your house, you can wait for somebody to drive down your block, walk up your walk, knock on your door and offer to buy your house. Or you can work on controlling the timing and we would argue that you'll have a better result if you control the timing.

What do you think is commonly overlooked when you're thinking about controlling timing?

We see people make several mistakes. One mistake is that the best time to sell a business is when everything is going well, when revenue is growing, when profit is strong, when the overall economy is strong. And that's a time in which often people feel no pain. Everything's going great. Why should I sell? It's I'm making money. You know, it's been, this year is better than last year, next year will be better yet. Then you come a time when the market flattens. Suddenly the dogs aren't eating the dog food, revenue has flattened, profits are flat or down, and they say, ooh, ooh, let's sell. Well, sorry, you should have sold last year because now there are fewer buyers and your price is probably down. So, you know, people need to control timing. They also need to be not greedy.

My favorite quote in the book that you took from Marine General James Mattis, be polite, be professional. I have a plan to kill everyone you meet. Can you explain what that means?

Well, I'm a big fan of Mad Dog Mattis, who is now our secretary, Secretary of defense, and one of the few people in the current Administration that I have some degree of respect for. There's a couple of others, but I do think that what Jim Mattis was saying, and in that case to his Marines in Iraq, but is that you always need to be prepared for the unexpected. And you need to be fully prepared for the unexpected. You need to have a plan. You need to have a plan about what you're going to do if things don't go right. And while you can't plan for everything, you can plan for a lot. And from a mergers and acquisitions perspective, that's important. From running a business perspective, that's important as well.

How do you go about that or get your mindset to start thinking about all these different things that can go wrong?

Look, I never claim that we think of everything. I'll never claim that anybody can think of everything. There are some things that people do in business. One is they don't get too far out over their skis. They don't get too far extended people. You know, I always say accountants won't allow you to put debt capacity on your books, on your balance sheet as an asset. But debt capacity is an asset. And if you use up your debt capacity, then you don't have any left. And there are lots of ways that you can be reasonably aggressive in growing a company without being so aggressive that you're constantly putting everything at risk in case there is a downturn. We see this with small companies quite a lot where there are a half a dozen different ways in which disaster could strike. They are single threaded through one key software developer. And if that guy leaves them, they've got huge problems. They are single threaded through one or two customers. They have technology risk, all kinds of things. And you need to assess those risks. Often there are only limited ways in which you can mitigate them. But whatever those limited ways are, you ought to do that. You know, we as a firm here have no debt. You know, I'm proud of that because it gives us some capacity if things should start to go the other way. We've been doing this business now since essentially either late 01 around my kitchen table or early 02, if you want to look at it that way. It's 16 years. We've never had to lay anybody off. We've gone through some dips in those times, but we've managed to remember not to spend all of our money and hold on to some of it and be prepared because downturns will come.

Thinking about the position and not only identifying all these probable risks, but putting weight on them as well.

You can't identify every possible risk and you know, you can't know how long the next economic downturn is going to last. You can't always anticipate all the things your competitors are going to do. But you can do your best. You can do your best to protect yourself. You know, I see people in life who, you know, get themselves, you know, too extended and maybe we're talking about too much about financial things. I see them take other risks that they probably shouldn't take.

Yeah, it's hard. Sometimes the opportunity to gain is there and you sort of overlook those things. One big trend I see and I think goes along the lines with some of the things you mentioned around verifying assumptions and building confidence. We're seeing more of the preparation earlier when taking a company out to market, getting the sell side Q of Es done some more market studies and things of that sort of. I guess I'm curious just to hear your thoughts and the importance of that. And specifically one of the things you mentioned is verify early to look more confident.

Well, I think that preparation before a company goes through a sale process is hugely important and too often overlooked. So we're on both sides of these processes. We often advise buyers and we sell see how sellers have prepared themselves and we often advise sellers and we help them to prepare the companies to be sold. When we're advising a seller, we spend huge amounts of effort making sure that that seller is ready. We're a big believer in momentum. That is, once you start the process, you want to keep it going. It's everything from when I first reach out to somebody to tell them or ask them if they're interested and they say yes and do I have a non disclosure agreement ready to send to them because I don't want to then be fumbling for it. And if the guy scribbles his signature on the NDA and sends it back, do I have other material ready to send them? And then what's going to happen after that? Are we going to invite him to a meeting? Are we going to ask him to bid? Do we know what the next step is and are we prepared for? I'm a big believer in thinking out at least three or four steps. I know there are chess grandmasters that can think out 12 or 15 steps. Okay, that might be a bit much for us, but we're always trying to be three or four steps ahead and to be fully prepared. At some point there's going to be a virtual data room that's going to be needed. We're preparing that thing well in advance because we know how hard it is and how, how long it will take. If we think we need a quality of earnings analysis, then we'll have that prepared. If we think that the accountants need to be doing things, we'll be pushing them to get it done. If we think that disclosure schedules are going to be a problem, we'll be pushing lawyers and others to get those prepared so that the momentum continues. And we see it very poorly done often when we're on the buy side and we see. See companies that give us financial forecasts that are completely unsupportable. You know, I'm a simple guy. Revenue is price times quantity. You gave me a revenue line. I get it. How many are you selling at what price? If you can't answer that question, it's a problem.

From our earlier discussion you mentioned, people go into transactions too loose, not enough prep, and they take shortcuts. How do you get over that?

I believe that this word discipline is interesting. The word discipline and the word Marine Corps are often put together, but I do think that people misconstrue the word. Too many people think that the word discipline has to do with somebody giving an order and somebody else saluting, saying, yes, sir, and carrying out the order. That is actually not what Marine Corps discipline. Discipline is about. Marine Corps discipline is about doing the right thing for the right reasons every time. And it's training people as to what those right things are, what the right steps are, and then not skipping steps. It's about doing it the right way. And we try to impose that discipline on the MA process. We try to implement, impose the discipline, if we're working with a buyer on the discipline in doing valuation analyses and structuring and due diligence reviews and contract negotiation and employment agreement negotiation and a whole bunch of steps. And it's like, don't skip them. Don't say, oh, well, we'll work it out later. Let's do it right. And the same thing with a seller in being prepared for what's likely to come. And we've seen what happens of people being loose way too many times. One time we were working with a buyer and a seller had a really loose set of financials, and we couldn't. We just couldn't get them to tighten them up. And finally we said, okay, here's the deal. We'll agree on a price based on the financials you gave us. And then once the deal is done, we're going to have our auditors come in and we're going to audit the financials and if they're different from what you said, then we're going to adjust the price. And if it's better than what you said, we'll pay you more. And if it's worse than what you said, we'll pay you less. And he said, okay, fine. And then we went through this process and he would have had to give the buyer back all the money because it was, it was that messed up. Now they didn't actually have him do that because that would have created other problems, but it just created Sturm and Drang because the guy was just so loose. We've seen this too many times with people who had, oh yeah, was I supposed to pay sales tax? Nobody told me that. We've seen it in a lot of cases, seen people who think that open, open source software means that they can rip off just anything they want and there's no rules. It's not true.

You emphasize developing a repeatable process. How do you strike a balance between repeatable process and out of box thinking?

Repeatable processes have nothing to do with out of the box thinking. Repeatable processes mean we're going to go through certain steps each time in order to make sure, sure that we're not skipping steps and we're doing things right. But you know, one of those steps may be we're going to conduct a review of the, of the software of the acquiring company. Now within that step you have to say, okay, what does the situation on the ground require? And there sometimes you do have to do out of the box thinking that the software is located in Bulgaria. And you may have to come at that review process differently than if it were in Silicon Valley. You have to be willing to be flexible and come up with other ways to accomplish the goal. But the answer is not oh well, it's in Bulgaria, so we don't need to review the software.

So the combination of both following a repeatable process but also incorporating out of box thinking within those steps.

Yeah, there's nothing wrong with being creative. We encourage people to, to be creative.

What's the craziest shit you've seen in banking?

Oh, there's so much crazy things I've seen in banking. You know, you asked me about the craziest stuff and my mind reels with some of the crazy things that I've seen. I will tell you that I do not understand bankers who talk people into things so that they can earn a few fee when the thing they've talked them into has great risk. And there have been a Lot of things in the press over the years. There was some examples down. I think it was Montgomery, Alabama, where some bankers talked the county into refinancing their. I think it was their water system, their sewer system or something, engaging in a bunch of swaps. And people didn't understand the swaps went the wrong way against them. And suddenly Montgomery county was bankrupt and owed millions of dollars. It's like, how do banks talk people? Why do they talk people into things like that? We've seen things like that happen. There are other times we've seen where people have just gotten. I don't know if they've gotten lazy or what. There was a European company owned by a husband and wife that had some voice recognition technology, if you use Siri or any of those things. And they developed some voice recognition technology and they hired some bankers to help them sell the company. They ran an auction process. The lead bidder was a publicly traded company that wanted to, you know, was going to pay with stock. And they took the stock at the recommendation of their banker. And shortly thereafter, the public company that was the acquirer went belly up and the stock was worthless. So now the couple is out their company and they got no money either because their stock is worthless. Okay, so somebody says, okay, that happens. It's terrible. It's too bad. We feel bad for them. It shouldn't have happened. The only problem I have with that story is that the private equity firm of the bank had looked at the acquiring company, had done some due diligence and had concluded that the stock was way overhyped and they were not going to invest in the company. Now, somebody would say, okay, the private equity arm of the bank doesn't talk to the investment banking arm of the bank, and there's no reason why the investment banking arm would have known that. Well, A, I say that's too bad because they should talk to each other. But B, if that's the case, what it does show is that it was possible to do due diligence on the acquiring firm and figure out that its stock was overhyped and there was some risk. And if we are advising a client on a sale and the purchase price is going to be in stock of a publicly traded or privately traded company, then the seller has a right to ask us to help them to do some due diligence on that stock to say, is it worth it? And we ought to do that. Now, my one caveat is I have had a couple of occasions where I've offered to do that and the client has told me not to. But I do think that it was possible to do due diligence and warn the couple. And the couple says that never happened. Nobody warned them, nobody talked to them about doing due diligence on the stock. And so now they're out their company and they're out their money.

Thanks for tuning in to M and A Science. We hope this podcast provided valuable insights. If you have interesting M and A stories or suggestions to share, reach out to me. You can find my email in the Show Notes as well as any links or tools mentioned in the podcast. Join us next time when we uncover more perspectives to successful M and A transaction. This podcast was brought to you by Day One Day One takes an agile approach to the management of the entire MA lifecycle process. We develop strategies to drive innovation to create the highest return on M and A transactions. Day One can work with you to implement custom solutions for your most complex problems. Visit ondayone.com to learn more.

Sam.