How to Tie Deal Origination to Strategy Development

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I was enviva about three and a half years. For those who don't know us, we are a sustainable renewable energy company looking to grow more trees and displace coal in the world. Doing good things around here. Public company, NYSE listed and I've been here for about, like I said three and a half years. Before that though I started my career as a lawyer. So technically I'm a recovering M and A lawyer. Was in private practice for about nine years both in the dot com world back in the early 2000s and then brick and mortar after that. Went in house for some general counsel in house roles and then had the opportunity which I jumped at. Move to the corporate development side, work for different companies in that role and everything from smaller acquisitions and middle market stuff to trying to close five a year and looking at 120 plus targets in a pipeline a year. Been lucky enough to work on 80 plus deals. Now that way more than half of those have gone to closing. It's been a wild ride.

Lawyer to corporate development. How can we trust anything you have to say?

Oh come on.

Just kidding, just kidding. Them and attorneys are the good ones I tried to distinguish that.

I know insert joke here, that many.

Attorneys are the good ones. That's in fact do most of the.

Work according to the other attorneys.

Let's get into it. How do you think about buy side origination?

I just referenced the fact that I had a company that was very acquisitive trying to grow four different divisions through acquisition. Mainly some, some organic, but a lot of inorganic growth as a strategy we had to keep a big pipeline. It was a company that had not necessarily done that in the past, probably gotten to a point over the years of doing few that we weren't thought about. Filling that pipeline was a challenge. I always think about in terms of origination and sourcing as understanding what you're trying to get to and then backing into having an adequate deal funnel. You can go out there. There's the big firms like McKinsey and Bain, BCG have all done the research on this. And you get this funnel concept of if you want to get to one closing or five closings, you gotta be looking at a lot at the front end. The old adage of you gotta kiss a lot of frogs definitely applies the M and a context for the buy side. How do you keep that robust pipeline going? I think that's the challenge because you think about it, you got 120 targets. Are they all actionable? Never. And how do you get those through that funnel? With the funnel gates, how do you start targeting and then prioritizing those targets? How do you approach those targets? How does that turn into an offer? Including the timing, which is a key thing that I'm sure we'll talk about throughout this session. Then you go into different levels of diligence, then get into negotiations and hopefully get down and you pass all these stage gates and get your internal approvals and it's still strategically aligned. And your integration process has already begun, hopefully much earlier in that process to get to that one closing or to get to those five closings, at least from a strategic acquirer standpoint. Obviously folks that are in very, very large companies with large acquisition goals or private equity, that is the job. The whole business is based off of the acquisition side. But for most corporate acquirers, it's something you need to look at, but it's not necessarily got the same attention with all the horsepower. So you're asking folks across the organization to step in and do something beyond their day job, apart from the people on my team. And you have to weigh all those things as you go through that funnel and decide where do I want to Allocate my resources.

Let's talk more about that funnel. How do you track your pipeline?

Been lucky enough to have different mentors, talk to different colleagues. Everybody kind of narrowed it down to how do you prioritize, how do you track, what metrics would you use? I don't think there are anything spectacular that I do. I think it's pretty standard for folks. But you do need to find a way to force rank the targets. Otherwise you're just shooting in the dark or taking a shotgun approach, which in my experience is not a great way to have successful acquisitions. Because then you're not driven by strategy, you're not driven by the analytical rigor on why this target right now and how's that going to ensure that we achieve our growth goals? That is always the reason you're moving forward with an acquisition. So in that realm, I look at market attractiveness. Is this a market that we're trying to get into there? A sales vertical? We're trying to get into a different geography, understanding the market size, market growth rate, kind of the high level things that stem right off your strategic development, the profitability of that sector and just using things like Porter's fines forces to look at a target within a market and then you tailor that down to specific targets. How's that target fit within that market? What's the revenue size, growth rate, their cagr, what's their profitability within that marketplace? And how does that fit with your strategic goals? Does it align or is it some new adjacency and you want, you can't go after the market leader, you want to enter in through another party or do they fit that metric? The all important thing that comes next in my opinion is the fit with the company. How does it fit with your company? You know this is where you get into the cultural fit. How it fits with your strategy, your talent, organization, your market position, if it's in your existing market. Nowadays I think reputation, reputational fit is more important. Esg, goals, alignment, are they going to be counter to your sustainability goals? And then for those that are in businesses that are more on the innovative side, how do they align with your innovation goals? Is it going to be a drag or is it going to be an accelerator to what you're trying to achieve? That kind of hits the big three. I think one that some companies don't think about in the beginning is the integration complexity. That's the way I like to phrase it, integration risk. This is an all important factor to be considering early. Taking those things around, fit with your own company and deciding is this company going to be a challenge to integrate? Is it in a geography around the world where we don't have any current folks in the company or we've never done business there and understanding whether that means that maybe shouldn't be prioritized as a target because it's going to drain maybe an already stretched group of folks within your company doing the one that's next door in your same state has a higher chance of success because of that. So aspirationally you might want to acquire that company in India. You've never done business there before and you need to expect that to have integration complexity and that should factor into how you prioritize that target. And then the last thing, why are you buying them? Hopefully there's synergies and that's a broad word definitely gets overused. I think we definitely need concept of negative synergies in conjunction with positive synergies. And that's when you're looking at things like is our procurement team going to be able to add value or is there it's going to add value to ours. Footprint consolidation options, their organizational integration, is there opportunities there, R and D, sales breadth, sales channel access, what's their manufacturing geography or sales geography? How does that play into what you're trying to achieve as a company? Are you going to be able to add to them? Are you a global distributor and you're going to be able to distribute their products globally? Are they the distributor and they're going to help you get access to more sales channels globally with your product that you haven't been able to do and accelerate that financial reporting sophistication where as a public company we've got a lot more things that we need to do to ensure that we accurately financial report our numbers. And if you're buying a target that doesn't, that could be a negative synergy for them because they've lived in a private world and haven't had all those things. And when you put in the lens of stocks compliance and SEC compliance, that might be a struggle to integrate that company. You got the basic things on process capability, synergies, that's your inventory management that you might be able to bring accounting skills, export control understandings, things like that, customer commonalities, you have the same customers, do you cross paths with their sales team all the time? Do you have different views on your lead times, same thing on the credit side, do you have different terms and so that you're going to need to try to integrate competitors, customers who are used to different credit terms, Is that going to be a chance to lose a customer? The reason you don't have in the first place is because your terms are not what they want from a, from a vendor. And all those things need to come into play as you look at these different issues across the ranking of those metrics. I'd like to think about the attractiveness of an acquisition. This goes into the deal structure. Is this going to be a bolt on? Is this going to be a simple, could you do it as an asset deal? Could you do it as a stock deal? What's more advantageous for your company? How is that target's ownership structure? Is it a single owner? Is it a single company, is a subsidiary? Is it got 150 different shareholders, all who might not have the same view on selling the company? And is there a majority shareholder that can push that along? And do you need to worry about pushing out minority shareholders post close and is that something you're willing to move forward on? Obviously the number of employees and offices comes into play as you think about integration, number of product lines they have. If you're in a space where there's multiple product lines, ultimately I think you also have to layer in there. Is an acquisition the right way to move forward to achieve the strategic growth goal? By looking at these things at the early stage, you might look at a target you maybe had hoped that would be an acquisition target. And maybe they're not hitting these metrics the way you want. But that doesn't necessarily mean that's the right answer. And there's other answers. Maybe you should be pushing for a commercial relationship in hopes that building that relationship with them over time could lead to an acquisition. Maybe a joint venture is a better way of keeping the value that you're trying to achieve and capture with a long term goal of acquisition steps that could be worked into a joint venture agreement. All different considerations that really need to be thought about this early stage as you're building and prioritizing that pipeline.

This is all before having a conversation with the target?

Well, yeah, hopefully, or it's continuous process. But you start it before you've had that and you continue it as you get more information.

All right, I got some follow up questions. I want to go over what we just discussed in terms of prioritizing targets. You're looking at market attractiveness, looking at the target itself's attractiveness, the fit with your company, hypothesized synergies, estimated value add and then the ease of integration.

Those are my big buckets and this.

Is essentially your qualification model for a. This is a qualified company to prospect.

Right. And how that ties into the strategic goals that are prompting you to look at acquisitions as a strategic growth.

It needs to make sure it ties back there. So I want to ask you. To date we've worked with over 150 corporate development teams. We have seen one extreme where all this basically rolls up to a gut feel the CEO and they ultimately decide if they're going to go or no go. Or I've seen it on the other extreme where it turns into a really complex scoring algorithm and that determines if they're going to go or not go. I'm curious on your thoughts of that because I feel like there's got to be something that is a better balance because it goes from one extreme to the other.

Kind of depends on the volume because there's other realities. I kind of make this comment as much as I referred to some of the McKinsey and Bain work around statistics around the number of targets at the front end to get to the closing. We all have a feeling, I think when we're in these roles of which company is going to be a good fit and it's going to fly through those stage gates and which ones are more of a stretch. If it's somebody that you guys as a company have identified as a key target, when they become available, you want to buy them, this stuff gets expedited. So on one sense like bolt ons and things like that, this is a much simpler discussion. These are companies that you probably know well, competitors or adjacent competitors in the marketplace. Whether you're doing, you know, a bolt on of a competitor, you're going up and down vertical integration or up and down the chain. These are all things that you know well when you go to say, hey, I think it's time to enter into an adjacent market. We want a new platform to build off of for our long term success. Maybe we've been in industries that are mature products are in the late stages or life cycle and we want some things that have more tailwinds or more Runway for long term growth and you maybe spend money on outside consultants to help you identify those spaces where there's niche markets that meet these growth profiles or profitability profiles or that maybe are interesting markets where a big roll up strategy will be of interest. Then I think you can find a whole bunch of targets. There's lots of people you can pay to give you a big target list, but you got to sort through those because they're not all going to be the right fit. That's where maybe when you got 50 targets using something that gives you a metric that at least gives you some kind of a force ranking is helpful. And then you get to those top five and then the gut comes into play. The gut backed by data is the best way of putting it, but I think there's both. I've heard from CEOs that just thought they needed to get in this space. I listened to CEO VF Corporation he was in and they started getting into the brand side and they changed VF from a clothing manufacturer to a brand house. From listening to him speak, it wasn't like this set plan with all these targets and metrics. It was like, I think we need to pivot. And they did. And then that was successful and then they continued the path. There is no one size fits all approach to that Isan. And I think you just got to understand your executives are goals and then you're there in corporate development to draw the connections through the strategy, put the rigor in and hopefully increase the success of achieving your CEO's goals.

So we just can't build a bot to help make these decisions.

Some people think it's that scientific, there's still people involved. When there's people involved, then those things become a little more squishy.

What I do get from you, it sounds like the further away from the core that the acquisition target is, that's when you're going to actually put a lot more considerations into those areas that you described.

You benefit more in those scenarios because it's a new space, you don't know it as well in the existing space and you're, you've been in that space for 50 plus years or 10 plus years. It's completely different than saying, oh, I want to be there, I want to get into this brand new market. You wonder, we've seen a lot in the news these days of the large oil and gas companies shown. BP recently acquired solar developers and you wonder what kind of thought went in to pick which solar developer. Because there's a lot out there that they wanted to acquire. That's a new space. Obviously it makes sense for them to try to get into more renewables with what we're trying to achieve around the world. But wouldn't surprise me that they did a little more of a hypothesized synergy ranking around this stuff before they pick the companies that they've recently acquired.

Outside of defining these areas and seeing how they line back up to the strategy, are there any other approaches that you take to remove any biases or the deal fever.

I don't feel like I do anything specific. I always take the approach and tell my team to take the approach that we're kind of a neutral party with an organization. I obviously I kept saying no to deals. I won't be at that company for very long. But we also need the one to avoid deal fever. We are the professionals to understand M and A. We need to tie it to good decisions and help provide the information that allows executives to make informed decisions. Not perfect decisions, but informed decisions and keeping a neutral view on that. Not being reactionary to targets is one of the things that corporate development can really help drive that discussion.

What about data to help identify these targets? Are there approaches, resources that you use?

We have used buy side advisors to help do scans of spaces that's been in new markets like platform play or new geographies where we might not know all the targets out there. One of the things in lots of spaces, especially if you're looking at a new niche space that you've done enough research to know that it looks like it meets your metrics for growth, profitability, ability to win in that space. But there could be a whole lot of small companies, the ability to know all those companies. It's gotten better over the years for sure. The going online and searching will identify more than you used to. So when I started this, you definitely would benefit from folks that were in that market that you could pay to help you identify the targets. You can do a little more of that internally. But sometimes I still think you benefit from getting that buy side help in order to populate your pipeline.

So buy side advisors, any other data sets or anything like that that's been helpful.

There's the different software packages that kind of try to track this. We're not paying for them at the moment. The investment banks obviously all have these because that's one of their jobs, to try to identify potential sell side clients. But any of the big programs out there that track markets and the players within that market. I think the limitation is it's easy to track public targets you might get. It might be a little easier to track those that are owned by private equity because there's more publicly available information that's out there just from announcements. When you get to smaller privately held companies that might be family owned, that's not always as easy. And if you get into other jurisdictions around the world, it gets even more challenging. And that's where you need a balance. Maybe you identify big companies and you're only looking at things at a certain scale and those usually are available. But if you want to maybe find niche players with interesting technology, I think you got to dig a little deeper. And you can either go visit. Now that we're post, hopefully post Covid, you can get back on the road and just go around to some areas and go to conferences, industry conferences. Used to be, and hopefully will be again, a great place to find some hidden gems that are at those conferences and make introductions there.

Yeah, that's the tried and true approach you've ever had. Anything just real unique way that you've came across a deal. I had a guy tell me he sourced a deal at a hot tub at a ski resort.

What kind of deal are you talking about?

It says one of the acquisitions.

There's an old ad, one of my old companies that the deal happened over a poker game between the two CEOs and they agreed to it there.

Beyond betting the house, I'm going to bet the company.

Yeah, it happens. If you're out there enough, you'll meet people. It's a fun part of corporate development, in my opinion, is being able to be out there and. And randomly meet somebody on an airplane who happens to start talking to you. I mean, some of these things are just changing. It used to be for better or for worse, you talk to the person sitting next to you on the plane. That's. That's not exactly the case now. We all tend to put our headphones on and try not to interact as much as we used to. I met people there and travel that had interesting things that might have introduced me to somebody else. This wasn't for an acquisition, but I recently had someone reach out around opportunities that had nothing to do with acquisitions. That they're just asking me, like my background in talking to them about what we do here. They're like, oh, I have this company that I know the CEO of that might be they're looking to partner with somebody who does something like we do. I'll put you in touch. And that's still a great way to meet people. There's so many companies out there when you think that you know them all. There's the. There's another one that just popped up. Maybe that's the right one that you should be going after. In this case. I think maybe this will turn into a commercial arrangement because of the nature of this one. But that all came from a random conversation I took because someone reached out on LinkedIn about something completely different.

You got to have feelers out in A variety of different places to ultimately go through the qualification process and get into the pipeline. Let's get into the fun stuff.

Outreach.

Yeah. Tell me how to make that first outreach.

I will caveat all of this with a couple of things. One, I think it's not a one size fits all. Everybody's got to figure out their personality and how that fits. A lot of the things I'll probably talk about are geared towards the middle market space. Two, large public companies acquiring each other is a completely different animal. I don't think it has all the challenges, to be honest, of smaller acquisitions. And it's not the same game. People know each other and you can have direct conversations between CEOs or boards talking to each other to drive those transactions. So with the lens of the middle market and companies that are maybe owned by a family that started it or an entrepreneur who started it, sometimes private equity owned things. That's where I'm going to focus on. I think it all still starts with soft sales skills, to be honest. These basic rules of how to engage somebody you've never talked to before all come into play. And these are the types of skills that get better with experience. So anybody who's listening, who might feel that, oh, maybe I'm more of a type B, or I don't feel comfortable having those conversations, you can learn that I'm, for those who know me, probably more of the type A talk to anybody. And I've got people I know that are much better than me and some people that don't feel as comfortable. But everybody can be successful in this space because ultimately I feel like people want to sell to people Again, cliche for sure. And obviously having a bunch of money never hurts to throw at something. But to get good deals and to find these hidden gems or to convince someone who hadn't thought about selling to sell, which is always what you hope to do, because that's the proprietary source deal. When you're a strategic acquirer, avoids going through an auction process where you're one of the many bidders, and you're going to go through those too. But that's not the best way to get the best deal done, in my opinion. The first thing I like to do is. And a company is trying to figure out, does anybody already know them? One of the more embarrassing things that happens is when people don't have good tracking systems, know who they've talked to, and you reach out thinking that you're talking to them for the first time, and they're like, oh, this other person Your company called me three years ago and I told them no, it's an embarrassing thing from where I sit. It's also embarrassing from where they sit because they're thinking, how could they not remember? Because the perception isn't that they told somebody at the company and it gets forgotten. The perception is that I told you, you recorded that down and you understood where I stood on that. That's an unfortunate thing. But as far as finding contacts, maybe our CEO knows, maybe a senior executive knows, or maybe somebody else has a contact there and can work their way up. I think that Corp Dev's role in a lot of ways is to make this a professional approach. I've found at other companies that most likely on the sales side people have the contacts because they're out there in the marketplace more. They're going to these conferences, but their contacts tend to be the counterparty sales team, which is in my opinion one of the worst groups to go into a company to make an outreach one they tend to talk more. It's also a group that probably might be the most nervous about an acquisition. So it's the wrong team to have any view that there might be a discussion going on, talk about keeping things confidential later. So finding the right avenue that's going to keep things quiet and get directly to the decision maker is what you want. That doesn't necessarily mean the president of the company if it's owned 100% by a family, this happens a lot in Europe. You need to talk to the family. The president doesn't make the decision to sell. The president just works for them as an employee. It's the owners of the company that get to decide whether they sell. So you need to figure out a way to get that conversation. When I don't have a natural contact, whether it's a connection through LinkedIn or somebody at the company already knows them. The next thing would be to try to do some online research and find those owners and see what I can figure out and decide the best way to approach them. One group, and I guess it's because of the legal background. It naturally comes to mind that I have successfully used is to use my outside counsel who knows their outside counsel, going in through a trusted source and it's somebody's outside counsel. That relationship partner for the company tends to be a great trusted advisor and it's a good way to get an introduction. If you go through your outside counsel, it can be done on a no names basis if you're worried about keeping it confidential. Or you can use that to Open up a conversation and say, I represent this client. They were bringing this up. I think this might be a good way of making an introduction. And I've found that lots of partners at law firms would love to be the person that brings in a potential acquirer or somebody who's interested in a business unit that's a. It's a positive for them and they care about and understand the business. And to be honest with you, they're going to be working on any deal that moves forward anyway. I had an example when I was. We were looking at not in vivo but prior company. We wanted to get a contact at this company that was in Switzerland, good friends with a German lawyer who we were using for one off things, but not trying to get this done. And I was talking to him about it, he goes, I happen to know the partner over there. He's friends with his other partner, happy to make a call. And he actually knew the family that owned the company. So it was a great way to make an introduction. In a culture like the Swiss culture, that's a positive way to come in. It worked completely to our favor and we were able to get a meet and greet in Zurich that came out of it. The bigger challenge on that, to be honest, was our expense for deals were pretty low and trying to stay at a nice place in Zurich was more of a challenge than making the introduction. But it turned into a great dinner, that turned into great drinks, and that turned into a serious conversation to move forward with discussion. You just got to be creative but smart if you want to use somebody in the company. I think that makes sense a lot of times to use a business party because again, it doesn't come across as this corporate development team who's got some. They're going to be aggressive. They've got a perception of what corporate development's like and having the softer touch. Intro. Coming from a business party in the company, it can often be to your advantage. It's about purposely doing your outreach, not just random outreach, that sending blind emails might be the right thing, but do it because that's what you decided compared to all the other options. Not because, oh, I got their email, I'm just going to send it, if that makes sense.

Oh, yeah, absolutely. I like where you're going with this because I tend to default to the latter, where I impulsively want to email the CEO directly and try to get a response. But I like that approach of stepping back, checking your internal team to see who may have some contacts over there and then using some of These external relationships that you have that may also have relationships there with that company.

We can even make arguments that even in the US different parts of the US require different kind of cultural skills. I think that's more true today than it's ever been. But definitely when you're dealing with companies outside the United States gathering all the publicly available information, just like an interview, you expect the candidate, in this case somebody who's interested in your company, to have done research about your company that's available online. I always task the team and myself to find every publicly available information I can so I don't walk in there blind. This is all about the purposefulness about your approach. If it's a foreign culture, I'm going to refresh myself. If it's a culture I've never dealt with, I'm going to see if it's one that I feel like complementary to something I've done in the past or that might be the time I want to choose to have a buy side advisor in that geography in that country helped me make the introduction because they're going to understand the cultural norms better and be able to make sure I'm on my best foot forward when the introduction does happen. If you want to throw the biggest check in the world at something, people will always listen. That's the old adage of everything's for sale for the right price. That's not. Normally the best way to acquire a company is to spend way more than you need to. So you need to approach these things and look like the best suitor in that situation. And it's about building trust. I can't emphasize that point enough. And I've. I feel that the most successful M and A practitioners, folks that are the best at this, know how to quickly build honest trust. Not insincere, used car salesman old adage, trust. I'm talking about they honestly believe that you're interested in their company and what they do and the possibility of a beneficial acquisition or relationship. Or maybe it turns into a joint venture or a commercial relationship or collaboration. Those are all things that they need to feel comfortable with because they're going to be sharing information. You want them to share information to feel comfortable doing that in a great world. Sometimes before an NDA, but definitely after an NDA and not be scared that you're just using this to get competitive information or that you're not a serious buyer. It's a big problem when you don't have trust in the marketplace or you can't build trust with an ownership of A target.

People will talk about you.

I was with a company that had for a long time and I'm not saying it wasn't strategically driven, but the perception in the marketplace by the time I got there was they weren't serious buyers, that all they wanted to do was go under NDA, get competitive information, but would never put in a serious offer. And I'm not, I wasn't there when those were done. So I'm not going to judge whether that was the motivation or not. But perception is reality and I had to rebuild perception in the marketplace as a of us as a serious buyer because this was a company that we needed to get to looking at 120 targets a year and I can't. I need investment bankers to send me opportunities or to tell me about processes and not assume that we are not a serious bidder because they don't want serious competitors there. We ended up building a buy side pitch deck, which I think is important when you make those first formal meetings, but maybe not the first introduction that can be done over dinner or drinks these days. Video call, I still think a personal contact in live is better. But that next meeting where you're like, okay, let's have a discussion like going in there, you're going to find out about them but tell them about you in a positive light. And these are all different tactics that I've found to be helpful and caused me to be successful over the years. Getting deals across the finish line.

That's a good example of that reputation being so important.

Yeah. So in the case that I talked about, we spent a long time, we went to a bunch of industry things for the investment banking industry, which is not one association of corporate growth is what it was. Heavy with advisors and investment banks and private equity, but not necessarily heavy with strategic acquirers. I remember the first time we went, people were like, why in the world are you guys here? Corporations aren't sending their corp dev teams here. But the reality was you got to get to know these folks. You go and have drinks and conversations about what you're trying to achieve and you come in there with a strong strategic goal that you can communicate an elevator pitch around it. But it's also that they want to call you, they want to do a deal with you. Going through a deal process is a stressful thing. If you think of it as dating. They want to date somebody they want to be with, not somebody they don't. In markets where sellers are driving the deals, they can be picky. You need to be somebody they want in that process, it could be a legitimate buyer. Besides that outreach and being somebody that they saw as a viable buyer that they would bring into a process, we also have to make sure we're efficient because corporations have a notorious reputation. Learn being more slow and methodical compared to a private equity acquirer. It could be much more efficient and quick. And how do you compete with them? You need to prove it. Actions speak louder than words in that situation.

I like the point of emphasizing the network with the bankers. What about the P firms? Do you network with them? Are there things maybe you missed a deal but you want to keep tabs on it for something you could pick up down the road?

Yeah, there's plenty of times where we didn't hear about a deal. The good thing with private equity is they usually have a strategic goal to monetize that acquisition within that five to seven year time frame. Plenty of times that I reached out either through the investment banker who had done the deal that we happen to know or didn't know, or directly to the private equity firm and said, hey, great that you guys do this. Congratulations. I hope it's successful. When you guys are looking to exit, I want to be your first call. Let's stay in touch. That has been helpful to get a first look at things at times because that's their job is to monetize that asset over time after they get to the right point within their investment plan. And obviously having buyers in the wings is a better way to approach it. And maybe for some that can avoid extra fees because you build it up and you save time on diligence and you've already got a view on value and you can align early and it's a better deal for both sides. Everybody wants their lives easier. We have the same thing on the other side where I had private equity reach out to us saying we have this asset, this is something you'd be interested in. So everybody in that space is doing it that way because that's the best approach.

Network of bankers, PE firms you talked about, the attorneys, anybody else that would be good to network with. I'm wondering if there's even other folks in house that may be able to help identify some potential targets.

Depends on your company for sure. Like I said, the commercial team, the sales team always is a good source. I always collaborate with them to identify who's out there because you should be tracking the spaces that you're playing in anyway. That's an easy way to get some base targets or companies into a pipeline. You know, if you have a Big R and D shop, they tend to run across the new technology. So if you're looking to make a technology play, maybe it's your R and D team or your innovation team that's got the best pulse on the market to know who's out there, who's up and coming. Maybe they're working with universities and there's an incubator there and there's things that you should be looking at there and that might prompt you to do an early investment into the incubator itself to be in play when that company is ready to come out of the incubator. So it's being proactive rather than react. But that's. That was a big thing for me. One of my previous companies, they were being very reactive. And in fact, I might have said this before on the show. They thought that the only way companies were sold was through a sales auction process. And I was like, usually never buy deals the process. Because the best way to get the best price. So just helping educate people that there's lots of ways to start building the relationship and the trust with somebody that you are interested in. It might never turn into an acquisition. That's okay. You gotta kiss a lot of frogs.

We have these approaches, how we can identify targets, the angles, the relationships we can use. We don't have any of that. We do have to go cold. How do we do that?

I've had to do that plenty of time. I had that come up once. And making yourself the most available, you guys have to do it, I'm sure all the time on the sales side, right?

Absolutely.

How can you get that conversation? Making yourself available in the most convenient way for the other party is the best way. I had an example where I was working on another deal in Europe and was flying through Munich. And there's this company we want to talk to, but we said, okay, we're here. What if we can convince them to meet us at the airport? So we just called him out of the blue and said, I'm actually going to be in your city. Is there any chance you'd come out and meet us at the airport? Or we'll sneak out, run the risk of missing our flight. You got to inconvenience yourself, make yourself convenient to them, and people will take the time. Obviously, being in a corporate development role, you're going to have a perception that might get through the door faster than if somebody perceives you as just trying to sell them something. That's a side benefit. But cold call works at times.

Are you calling? Are you Sending emails? Are you sending LinkedIn messages? What's your first touch look like?

I think that's evolved over the years. It would have been phone calls only back in the day. Email bill is in my favor but sometimes it's a note. What I do with email is the email isn't talking about why I just say I'm interested in talking. I mentioned in your company, here's why, here's what my company does and we'd be interested in having a conversation. But it's the same thing I do for any kind of commercial relationship to be honest and it's not negative if you do it that way. All I really ask for is ultimately I want to get to these days maybe a teams call rather than an in person meeting. All thanks to the world of COVID I'd like to get back when I can to doing in person. So sometimes an initial phone call that goes well that you keep brief, being respectful of people's time. You have a trip. There's lots of times where I've said that I have a trip for another reason which is completely not true. That trip is completely the reason to bring me into where they are.

Hey, I just so happen to be in town, thought it would be great.

To connect and yeah, I've done that plenty of times.

What does the messaging flow look like? I'm big co and you're little co. We should talk. What is that key messaging?

I don't approach it with size. I've worked for all size companies and dealt with it. I never had the luxury of being such a big branded company. Whether I'm a Microsoft or Amazon or one of the large bmg, you name it, where people will take the call because of who you are. I've worked for companies that people might not know us. I've approached it with humbleness. I've approached it with sincere interest in what that company's doing in my introduction and just wanting to learn more. Most people who own or run a company are interested in telling people about the company that they own and run. So if that's my intro part, I don't want it to come across as insincere. It is really sincere. I do want to learn about these companies. I find that to be one of the most enjoyable parts of doing what I do for my career is seeing all what people do and what they're trying to do around the world. It's pretty amazing. What people do is owners and entrepreneurs. So just start with that and maybe it turns into there's plenty of times it turns into nothing. You'll give a brief introduction on us. Sometimes people are directing, like you get on the call, and they're like, why are you calling me? Trying to buy me. And I can say that could be where it goes. But I really would like to learn more because I see what you're doing in the space. This is what we're doing in the space. It seems like there's some potential to help each other, or we should at least know each other. And I'm not telling you now's the right time. This goes back to another point you and I talked about getting to, which is the timing around these deals. I was just talking to somebody here recently about the fact that if I want to do something in my anticipation of when it happens in two or three years, that doesn't mean I'm not having that conversation today. I look at that as it's my advantage to find a way to start the conversation today because I have more time to build trust. The more challenging thing is we got to get this done in six months and I've got a cold call somebody. It gives me a much more truncated time frame to try to build the trust, which is not to my advantage as a buyer. So I'll just be seen as a transaction. And therefore things tend to be focused more on money only. And that's not always the easiest way to get a deal done. Definitely not the best way to get a deal done.

As an acquirer, cold outreach, we're basically framing it around interest. Let's open up a dialogue. Let's learn more about each other, how we could potentially help each other. And it's not directly I'm looking to acquire. We're not putting that kind of messaging out there. Maybe it's better to partner with, who knows? We just want to get a conversation going, see where it goes. Is that initial gist of the messaging?

My beginning days when I was working, doing M and A for the tech industry, we had big clients that everybody would have known. If you called up mall shop, they were just thinking, oh, great, I'm going to get my exit. And that's easy. You just have the name of the company there and the person wants to be acquired. That's their goal for having started their technology. It's just a matter of what you're going to get, and there's not as much challenge there. I'm not saying that there's not hard work done by those teams. There definitely is. But this gaining the trust issue is not the same because you already have an eager seller. You already have a reputation that's well known publicly because you're a very large branded company that's got a different impact. And these situations where you're a B2B business that people don't even know you exist because people don't think about where this piece of the thing that they use every day comes from, that might be the exact valuable target that you're going after. I do want to learn about what they do. It's intriguing to me, sincerely. I find that's the best way to get to know people. There's the cultural things too. Certain countries, you're not going to start talking about business right away. Obviously, you got to know that you can put yourself into a disadvantage. Not necessarily disadvantage, but you're going to be perceived. If you're from the United States as well, you're a typical American straight to business, you'll have validated the view, the stereotype they had in their mind when you called. If you show up, on the other hand, and you understand the cultural norms, approach it that way as if you're more like a local, that can be to your advantage. When you think about targets in Europe, there's still bias towards selling to other European acquirers versus a US Acquirer. You might sell the US because you make them pay the most if money's going to be a driver. But there's plenty of times a European seller is like, you can pay me whatever. I'm not going to. I don't want my culture to be subsumed by your company's culture. So you got to approach it differently, approach, be sensitive to those types of things. And if you don't do that at the beginning stage, at this outreach stage, you're going to have a hard time trying to backtrack that.

Let's talk about building trust, because this is going to be a key element in that first conversation, even first meeting. How specifically do you do that?

If we all ask ourselves, why do we trust anybody that we meet for the first time? It's no different. You're meeting somebody for the first time. Some people seem superficial, some people seem pushy, and some people seem like if you're in a room and you're at a party and you meet somebody for the first time and that person's like looking around at who's more important in the room the whole time, you don't feel engaged. So it's as simple as looking them in the eye and not checking your clock or checking your emails. It's basic person to person conversations and asking questions and letting them talk and listening. Lawyers are always taught we're not all the best at it, to listen 80% of the time and 90% of the time and talk 10. But this is one of those occasions where that's what you want. So if you can get them to talk, if you can build the ability that they believe you're sincere and you're not wasting their time, that's how you can get to the next meeting. The next meeting, you have an opportunity to build more trust. And the next meeting after that, you build more trust and you do what you can to avoid breaking. There's always times where I end up having to be. If I got a business leader in the company involved as well, I want them to stay good cop. And I know I'm going to have to come in at some point, be the bad cop, negotiating when there's certain things that we're not going to be able to push back on. And that's fine, because if that business leader will ultimately be the owner of that target in charge of integrating it, I don't want to ever burn their relationship. That will be bad for us during the integration stage. But usually in the front end of this, I get to be honestly who I am as a person, which is I am intrigued and want to know you. You're another human on this earth and I'm not wasting your time. I'm sincerely interested and I'm willing to give my time to learn more about it. You start with that and that turns into longer conversations about what they're trying to achieve. And during this whole time you're taking in the information because that goes back into does this target really need to be prioritized? Or you learn something because you're listening that says this is an interesting target. But I heard some things that make me think that they're not going to be a good fit right now. So let's lower them on the list. We'll keep them warm. My job is to keep them warm until it might be time to push forward. And how do you know when to pivot in those discussions? Because you also don't want to go in hot, heavy, actually. You're going to buy them and then all of a sudden just cool off out of the blue. That's not a good way to keep somebody warm because they'll feel like you just wasted my time. You were lying to me the whole time about your sincere interest in wanting to buy me. Starting with I want to buy you tomorrow. That sets an Expectation that if you can't live up to that expectation because then you're going to have to go through your diligence and you're likely to find issues that you're going to raise and start telling them why their business isn't as good as they think it is. That's not a good approach.

I like the emphasis on listening. Agree. It's the key approach in building trust. When you can actually listen. And then I like your how you also added about really trying to understand what they're trying to do. Because you take the time to do that, then you can really align around what their goals are. That's better positioning than just shoving down. Point of trying to cut them a check for their business. What other best practices would you want to share?

We talked about tracking system a little bit earlier on. You got to track this stuff. This is one on one for sales teams to make sure you're tracking all your contacts and who talked to what, when, how, who did you talk to, what was said and make sure that you're recording that because you need to track that so it doesn't get lost. Corporate development teams notoriously have higher turnover. People move into bigger roles in the organization or move on to other teams. And you can't have all that knowledge get lost every time somebody leaves. It's not a good way to keep these relationships warm and keep a good understanding of who these people are. The target. And that includes keeping up with people leaving the target. If you wrote it down one time and then a year later you go back and you're like, oh, I'm going to call the same person and they don't answer because. Or you get a rejection on their email. That's a bad thing. How serious were you about tracking that target? So keeping that cadence. And there's lots of tools out there now around pipelines and being able to maintain the information that you learn. Those are great. You can do it on Excel. I've done that plenty of times. Or you can use one of these software packages that are out there now, which are great, as you know very well. And insert pitch here for you guys. But I think those are good tools that people need to consider using to build a more robust kind of front end of the M and A process.

Okay, so getting a good tool and anything else. I get that the information you want to centralize, manage.

One thing I think I gotta say, and I'm bad at this at times because this is one of the most fun things that I get to do. Meeting new people around the world and getting to know them better. Make sure you let the junior members on your team do this. Put yourself back in their position. You always wanted to be the one doing this. Give them a chance. Like I said earlier, these are the types of skills that some people naturally have, but a lot of people need to learn from experience. And if you're not at a minimum, bringing them long and letting them watch you, that's how I learned a lot that came from a sales family. So I had some benefit from my dad and my grandfather. Other people need to learn by watching and then let them go out there. And most people aren't going to make a mistake so bad that you can't recover from it. But you got to let them stretch their. Stretch their legs and get a chance to do the fun part because you want them to do it anyway. Because you can. If you get your team to be able to do this. It's a multiplier effect. I had ended up developing a really great team, and I have one here, too, that I could be like, well, you follow up with this one. And you. I'll follow up with this one. And it just is a force multiplier, which again, helps you make sure you have a robust pipeline. Don't hog it as the leader. That's my advice.

Share the experience.

Yeah. All the juniors are saying yay with that.

Scott, I gotta ask, what's the craziest thing you've seen in M and A?

The first one that comes to mind is the one that I think you and I talked about last time, where I took a risk on something and ended up having people actually physically shaking hands. Got the deal across the table, which was nice. I think. A crazy thing. I'll do a different story. Is it taking almost nine years to get to a JV with an Indian party? Very large company that was worked on where it was like, we go almost to the edge and then they back off. And this happened year after year for eight years. No one lost faith that this was still the right thing to do. It was all about timing. And the timing just wasn't right year after year until it finally was. And it turned into an amazing deal in the long run. So just don't give up on these types of things. Because that's your comment on the PE firms like, so you lose it and a private equity buys it. I never thought that was a bad thing. I might have to pay more for it in a couple of years. But that didn't change the fact that my company might be the right owner of that target. Ultimately they just got in there first, but they're going to want to get rid of it and I'm going to be there and maybe they get things better straightened out and I don't have to spend the money to do that.

Nine years?

Yeah, that was a crazy one.

India is a tough country to do.

Business with, but yeah, that's long even for India.

But hey, it's all persistence in this game. Never give up.

That's right.

Scott, thank you so much for taking the time with me. I enjoyed this conversation and enjoy learning the lessons.

Always great speaking to you son.

Well, cheers. And here's to the deal. Thank you for taking the time to explore the world of M and A with our podcast. Please subscribe for more content and conversations with industry leaders. If you like our podcast, please support us by leaving a five star review and sharing it. I enjoy hearing feedback and connecting with our listeners. You can reach me by my email. It's Kison K I s o n dealroom.net M&A Science is sponsored by Dealroom, a project management solution for mergers and acquisitions. Additional educational content is available on Deal Room's blog@dealroom.net blog. Thank you again for listening to M and A Science. See you next time.

Time.

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