Integration Focused M&A: Why Execution Should Inform Strategy Before You Sign

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In the show notes. Now back to the episode. I'm Kisan 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.

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Let's jump in. I'm your host Kisam Patel, Chief Scientist at M and A Science. Joining us today is Chiprian Stan, an experienced M and a professional integration specialist. He's the Integration Manager at salesianer. They're an industrial textile laundry business, family owned, based out here in Austria. They operate across several different countries in Europe. Chiprian has got his awesome background working through integrations.

He's worked with all kinds of deals, managed cultural fitness, operational efficiency and strategic alignment.

Chiprian's also worked with various industries including real estate, facilities management and brings firsthand knowledge to both structured corporate M and A and more personal aspects of dealmaking. His insights into freelance M and A work and his practical experiences make him.

A valuable voice in the space.

In today's episode, we're going to talk about the importance of cultural fitness and integration, the value of a buyer LED framework, and ensuring deal success. We'll also talk about how freelancing is shaping up the M and A landscape.

Shiprian, how you doing?

I'm great Kison. Thanks for having you over.

Thanks for hosting here live in Innsbruck, Austria.

We have two hosts today.

We got a meet in between, I was on my way to St Anton to go meet a friend to go ski and you made the trip over from Vienna so we can have a live conversation.

Certainly it feels great to have this face to face.

Can we kick things off a little bit about your background going all the.

Way back I'm a computer science engineer. I was grown and raised and educated in Romania, most of my time in Bucharest around university, my first job and my first real jobs. Let's say I was pretty lucky from the early stages on because lots of people trusted me to manage things for them even when I did not have the skills or the credibility to do so. But my first job halfway through university I worked for a publishing media company called Linge. Tried everything I knew about computers where I was learning on their infrastructure. That's where I had my first real projects and I learned a lot things that I still use today. From there I moved to General Electric, was building a financial institutional bank in Romania at the time G money. There I led infrastructure and the buildup of a data center which is still standing here is running well and slowly things crept over my day to day job into business. So I went into change management and transition with Johnson Controls. Again a lot of projects, a lot of technology transitioning and the people element became more and more important because we were taking over services from clients and transferring over to us where people were actually the most important asset. CBRE acquired the FM side of Jones Controls 2015 I became part of CBRE where I got more operational exposure again unplanned involvement into M and A when that transfer happened. From there I certified into M and A integration specialist and started working for Polygon in the damage restoration area where I helped establish a framework and I managed and was part of a few deals that were very educational and tested all of my knowledge and made use of my background. I have to say after that I went on to start with Salesianer, a textile laundry and rental family business, very well established, Austrian owned, doing great things around central, eastern and southern Europe and.

Here we Are how many integrations have you worked on altogether?

The ones that I was brought on had started by the time that I joined. I'd say 15 or 20. And the ones that I got to take care of from the early stages, around 20, 25. Number, Mark?

Yeah, about 40 plus.

Yeah. Depends what criteria you apply for what integration is. I think that number could be fair.

So I gotta preface this conversation.

We've known each other for a number of years. We've collaborated on content before. So some of this stuff. I'm hoping we get to have a little fun in the conversation and keep it pretty lighthearted. What's like the cultural difference between Romania and Vienna or Austria?

A lot of similarities, A lot of differences. I embrace cultural differences because they give me a job. First of all, I would have no job if things were just ran smooth, no edges, no variation. There would be no need for integration and transition change management. Vienna is a capital of a former empire, basically. And you see it everywhere is a walkthrough museum, outdoors museum. A lot of people from all over the world go to Vienna for cultural reasons or history, arts, technology, and just the fact that they love the look and feel. It's tested my ability to learn a foreign language that has nothing to do with any other language that I speak, which is not many. So Romanian and English. So learning German has been a humbling experience and still is and forever will be. That's what I think. A very famous writer, Mark Twain. Yeah. Who said infinity has been invented so that you can end up learning German after all. Or something along the lines that will fit my milestone of finally achieving fluency in German.

Wow. Yeah, you can. All is good. First time you got exposed to M and A.

First time when I got exposed to. It was not by intention. I was not interviewed. CBRE acquired the FM arm of Johnson Controls 2015. I was the wrong person at the right place and time because I didn't have any qualifications. But they said, oh, you look like the right guy to do it. So I ended up managing the integration part of the FM business in Romania. I ended up being given the interim D for that unit for a couple of years. That's a great annoyance to your day job because you're already busy, you don't need any extra stuff, but you're being pulled into a project where you're going to learn a lot. And that's where I started to be with a lot of guidance from my. From my seniors and mentors and coaches in management. Got to execute the M and A integration portion of it, basically. And that was something I enjoyed a lot.

Was that more focused on the tech or was that running the whole program across?

It was the whole program mostly would have been processes. Not a lot of tech because tech would have been already standardized in both companies, but a lot of processes. And what the FM industry calls the cmms, the Computerized Maintenance Management System, which is a platform where you turn your air conditioning up and down or you ask for furniture to be changed all the way to big projects.

I feel like we were dating ourselves earlier when we were talking about your first tech exposure. I'm like, if you remember Microsoft DOS, Windows 3.1, what was the first tech platform?

Ms. DOS. Yeah, I remember reading an Ms. DOS book, if you can imagine that being a pastime for a teenager. And I learned how to change the prompt. So instead of prompt semicolon, I don't know what the cursor signs was, I learned to change that and make it all confusing for all the kids in the lab.

Oh, that's so funny.

All the. All the computers changing the prompts randomly for the Ms. Dos. I guess that would be it. And then I had some good friends which were also into computers. Were Spectrum at the time. I still feel strange by calling them computers, but they were. And we tried all sorts of things and went to try Linux and some basic computing, which. Basic was a language at the time, not a paradigm. But yeah. And reading the Hobbit magazine, which used to have.

What was the first computer you had?

It was a Romanian build called HC85.

Okay. I remember mine was a. It was a Radio Shack. That was Tandy TX1000. All right. For the folks get nostalgic on the old tech. I'm curious on this CS background because you had a pretty significant CS background. If you look at how that relates to your approach with integration today, they find these engineers to be a little dangerous when it comes to M and A. How do you think IT shapes the way you actually execute integrating businesses?

Biggest danger is that you still believe you have the skill set you had then. And I tell the IT people right now, don't trust me to patch things or change wires or reconfigure stuff. But I will understand what you're talking about. That's the benefit of my background. I know lots of senior people that believe that they can still put a prompt on a black screen on a server and try to configure something and completely bring down the network. I'll not do that. But the benefit is that we get to speak a Common language and it is the bloodstream of the operation. Anyway, it needs to be set up properly. It needs to be set up to standard. The first thing I recommend being done on an acquisition is secure, basically the parameter in defense terms. So you need to make sure that you're not going to lose any data, you're not going to lose any uptime and make sure that you can control your data, both the existing one and the incoming, and have a program to roll it out properly.

We're going to get into some conversation here, but I wanted to just get a high level of your philosophy when it comes to integration because I done a number of these interviews and people can get super focused on the cultural piece and we can talk more about just different range I've seen and how that gets approached. But then there's also some where it's just the tech and data part and it just like hyper focus on getting systems integrated and to be aggressive about it, then let everything else figure itself out. Yeah, I want to at least know, given your background, like where do you sort of sit when it comes to integration?

We're going to say some controversial stuff. Business wise we're going to try to keep it elegant, but business wise we can afford to say some controversial stuff. And I'll give an analogy from an outside field, which is legal. A good friend and very good colleague moved from legal to executive management and she said she believes now she understands what people used to say to her face and she completely disagreed at the time, that it's a necessary evil. And you can say that about any field now. And once you've moved off that field into a different one that controls your previous field of engagement, in my case AIT computer science, I can say that there's an element of necessity to it that lots of people take as the single one, the most important thing. None of the fields involved in integration is the single most important one because they all together should work as a whole. And if you've disregarded one of them, you're going to be dropping a ball. For me, it is very close to my background. I'm going to be very interested to get it from the early stages. I'm going to be interested to understand how the incoming company's IT background looks like, what they have live, where do they store their data, how well do they secure it? Is there any, any risk to my group's data that the incoming company is going to carry over and make sure that all those things are addressed early on because in the end the business is the whole that needs to be protected, integrated and improved as a result. In summary, I don't think that you can put only one work stream at the top of the integration.

That's some real systems thinking there. I wanted to get that out of the way just to know where we sit in the broader approach. When we look at being a proactive buyer, that's where a lot of things are shaping. When you look at an organization as they do a number of volume of deals, their process evolves, they become more proactive as buyers. What do you see from that process early on that you should proactively start doing or how you seen things evolve so that you can set up deals for success.

Being a proactive buyer, first of all means understanding buying. Why are you interested in that target? And you will have certainly seen a lot of impulse acquisitions where people say, oh, we need to buy because the market is buying, the market is moving. We need to be on this wave. And there is some truth to that. You need to be playing in the same space where everybody else in your competition is playing. But I would not think that buying for that single reason. It's a good strategy. You need to understand what kind of need or gap you're going to be filling and addressing by your acquisition. It can be geographical. It can be services that you're not able to still deliver. It's going to be clients that you don't have access to. People, technology, intellectual property. All those things are good reasons to get engaged in M and A. But you should only pay once you've had that figured out. That's what a proactive buyer should do. First and foremost, you need to be clear about your purpose to the target. They should understand why you're doing it. I've seen a lot of deals go off track because they did not have this aligned. And halfway through the integration will after closing misalignments and surprises. The worst time you can have a surprise is integration. If you're going to have surprises, have them in due diligence. So basically, that's a proactive buyer in my mind.

I agree with this. It gets a little soft and fuzzy at the same time. Because all this stuff sounds good in theory and I hear it, but I want to get it into more of a practical sense. And I want to get a sense like, what does that mean? Because I feel like you're right. Each person can convince themselves this is a good deal. There's a deal I'm looking at right now and I can see how principal investor, I'm in With deal room, this will help grow revenue to expand our market share. Is there a real gold nugget out of it that's going to give us something unique that we really are seeking after? No.

Right.

That's where I feel like now I'm on that bucket where you're like, what are we doing this deal for again? We're trying to keep the growth going. That's the thing is five years from now we're trying to go from 10 million to 50 million plus revenue. So I want to get a sense of maybe an example. I feel like it's so easy to make a deal sound good. Like I said, hey, we're. Our goal is to get to this growth. Sure. But like, how do you really. How have you seen it where it's okay when you really truly got it down?

Well, a single acquirer. So people that buy one company or have one acquisition every two or three years, they have this ironed out. They, they know this is the space that we need to improve. We're going to need to look for this target wherever they lie. Maybe they haven't been created yet, but we're going to start looking and then three years later we're going to find the right one and they can afford this. If they play in this industry that's not volatile in the way that you need to buy now, this month or this quarter. So they will have this strategy already much more settled and they'll think about where they want to improve. The people that act in the way that we've just described is we need to increase revenue. We're getting into quarter two and we know we're not going to make our numbers. So we need to buy something quick by the end of the year and then you end up most time botching it. If that's the strategy. It's usually the case that your competition has just opened a site in the north of your country where you're not well represented and you need to react to that. Most of the times it's going to be a response to something that you've got on your risk, your business risk list, and that has one curve is if you're reacting to something, you're going to play it in one way, which means find your alternative. If you already don't have a business reaction strategy plan, find the alternative move that's going to compensate for the competition's move and then go in that direction. The one that is the most healthiest, I would say M and a strategy trigger is when you have your plans ironed out and say, I'm going to grow this year here, next year there, and so on. And then based on that, you map your M and A strategy and then you will know exactly what you're going to be looking for and where. A real example is we looked in the north of France, which is by far, if you could turn up France upside down, is Sweden. Sweden has 40% of their population in the lowest 20, 30% of the country. These numbers may be wrong, but majority is in the south, vast majority, and it's a long vertical country. And France is probably not as cute, but is hair is heavy basically. And we needed some presence in the south. So that was the trigger. And we looked in the south. We found the right target and it was a great success because we did it properly. It was a lot of research. We found the right people with the right equipment with the right numbers, basically. So that became a good solid footprint strategy for the country. And that's the action mode for a lot of successful M and A players. But at the same time, to come back to the grounds, to the philosophy of question, there will be a lot of jockeying in a company or position in front of the approval makers. And whoever brings a strategy or story that I may have the best idea if I haven't researched it properly, I don't know what the targets detailed numbers for the last five years are. What are their prospects? Did they lose a managing director in the last year? Did they lose any big clients? Are they coming to the end of a new tender? All those details that you need to put in your research paper. When you ask for approval for an acquisition, somebody else is the same room, one of your peers or somebody asking for approval for money. They're going to be asking for money from the same pot and that year their project is going to go forward and that happens. That's the reality in any company that is an M& a serial acquirer. You just need to research your story, research your business case, make the best of the opportunity and then put it forward.

I like the way you framed proactive versus reactive. So there could be a scenario where one, you're just chasing revenue and broad growth. There's things competition does. All of a sudden you're trying to react to it. They did some MA activity, something like that, and now all of a sudden you're reacting to it. And the way you describe proactive is being very deliberate. This is where you also reference the timeline when you sort of control that gives you some leverage. But then it's also Ultimately building a great company like you're staying focused on a real north star of this company that you're actually building versus getting caught up in those elements that do push you to be more reactive.

The successful ones are going to be companies that can afford this kind of thinking. We're going to look at the Ciscos and the HBS and Microsoft to the world, Google's. There are not many of them, but that's why they're big, because they can afford this kind of strategy. And that's how they address the competition. They either silence it or buy it basically or come forward with a better product before the competition has a chance.

I could talk to people on the front end of the deal and they're the ones that come up with the strategy like burp dev leaders and so forth. You're on the back end, you're the one that they get blamed if it doesn't pan out. I'm curious because it's like, hey, those folks in the strategy, I talked to them and they're like, oh yeah, we talk to our customers, we see what unmet needs they have and that helps us shape our strategy, that helps us identify what companies that we should look at acquiring to bring in capabilities or expand distribution, et cetera. I'm curious on your view what actually validates that kind of thinking through of what you actually see pan out? I'm trying to fish for things that like our lessons that on the back end that can be brought up to the front end of a deal process, especially like making sure we're doing the right deal.

Sometimes there's too much urgency that this connection doesn't happen. So the strategy dictates rather than explains. And they say the strategic thinkers have come to a conclusion after lots of debate and they say this is the direction. Not a lot of time to ask questions or debate constructively and then that gets executed. The way I try to compensate is to get involved in the early stage of the discussion. If you're going to be integrating something, you need to understand why do we buy this company? Because I might go differently. If you tell me we're buying it to mothball it, then I'll put it on my deal with later list. If we're buying it to react to the competition or to something that's happening in the market or to a client need, as you said, our biggest client or one of the biggest clients needs us to be able to deliver the service where they're opening a site. So we need to buy something in that region and be present for them. So then it's going to be top priority. And then I will understand this needs to get done. Because in corporate terms, everything is urgent, but there is urgent and then there is really urgent. Integration people need to understand why are we buying the company early on. And they need to be involved in, in the red team, as they call it, need to be asking questions and poking holes in the business case and probing the plan and saying what happens if and what options are allowed or valid for this scenario. Because you have the risk of producing a plan in echo chamber. You give it to the integration people and they're going to say it's not going to apply. We cannot execute this in three months. And the strategy people might not be aware of this reality. And then integration works with some tools that will be shaped by the realities on the ground. And they're going to know we cannot hire a big enough venue to get your event to advertise in March. We need to do it in, I don't know, September, because it's formula one or some event in that town where you want to have your conventional supply meeting or clients meeting. So integration will know, will have details that will help you shape your deal early on. And that's why involving integration, even if you're not going to have them decide for you, they're going to be asking relevant questions that are going to help you shape the deal.

That's a clear case on why you should have your integration lead in early on the deal.

Yeah.

Okay, let's break it down where we have the main events that happen. One is signing an loi and then the deal gets signed and then close. Yeah, I want to poke holes at that part of the timeline. I'm the deal guy. I'm playing the deal guy. That again, I'm. Sometimes I'm just wanting to do the deal, to do the deal because it's chasing the shiny thing. But now you're bringing me to reality. Let's focus on building a quality company and control our timelines. Be very deliberate, proactive. Okay, sure. But when I go to getting loi, I want my deal person. I want to build a relationship, get the rapport, get somebody, get the deal actionable. And you're like, hey, I want to see an offer from you guys. And that's where I get pretty quick. I want to build a model and build a business case for why we should do this deal and get the deal actionable, where I can start talking some number figures and know that we're in the realm to get A deal done and I get LOI signed and it's a game on up until that point of signing an loi. Help me take what you just said and saying, okay, how should I be thinking about some of those things that you described? Again, the challenge with this point up into loi, it's like you're super limited on the information. I'm intentionally keeping my initial request list on point. Even the one when I look at these little tech companies. My ask is only 10 items. I'm just asking for some of the financials, I'm asking for some of the demographics on the people in the company, kind of understand revenue, quality and stuff like that. I'm wondering, how do you start taking some of those things that you're describing? Because I feel like the challenge I have is once you sign loi, you're committing to this purchase price within some limits. Ideally, I don't want to go back and renegotiate the price.

Ideally, LoI is the time you're going to start finding out stuff about the company. So you need to be open to change the price after the LOI will be subject to these things happening and those risks not panning out. I'm ready to pay something around this number. But then you lift up the hood and then you find the data server in the kitchen. All sorts of things that you have risk assessments and all sorts of novelty that cascade down from the auditors or whoever you have running due diligence for you. It's the time where the target starts to share information because they feel like, yeah, there's a real proposition coming here. But it's also the time where they think, if this deal doesn't happen, this person or this company is going to have unfair knowledge about me and my business. You're probably playing in the same space. So you're going to be competitors. And one of them, the buyer, prospective buyer, is going to have unfair knowledge about the prospective targets. So they're going to be very guarded. They're only going to be sharing information with the third party that represents both of you fairly. To an extent. You do commit and it's very hard to change that number by orders of magnitude. But you have to be ready to be flexible and for the right reasons, you're going to be shifting the value up and down to your point how to address the time before the LOI and make sure that you don't over or under commit, have scenarios in mind and discuss them with the target and say, these are the things that make our deal go in different directions. It can be more than one or two, but there needs to be some allowance for different speeds and milestones to be achieved depending on how swiftly and quickly can move both buyer and seller. And be very clear about your intentions to the limits where you don't want to tell them stuff that you don't want them know unless you buy them.

I'm sensing there's two schools of thought around this. There's one view where you could front load more diligence upfront and just have a higher level of confidence that this is the price. Unless there's some material risk that we discover we're going to stick to this. Now there's a phrase investors use. I'm careful where I thread here, but you can only kick someone in the balls once. The idea there is you'll quickly get an offer. You'll like have very light diligence, you'll get an attractive offer, get the LOI signed and then you go through diligence and then you come back with the updated price based off of all these things you pull up in diligence and then it does, they're going to get pissed off. But you just through that one time and then now you got the adjustment and then you move it to close.

I agree there, there will be the public companies where everybody has pretty much same information about them because they're public. But if you're buying somebody that's a mom and pop shop, single million digits revenue which is I'd say the largest amounts amount of deals done in Europe at this time. I was just surprised to see that Europe is higher than the US in number of deals but half the value. And there will be lots of small shops, brick and mortar or mom and pop or whatever you want to call them. They will not have information advertised anywhere. You're not going to find their year end numbers on any website and so on. And those are the ones that you're going to be trying not to over promise before you learn the details. If you're going in the public space listed companies, you're probably going to know a lot about them before you an offer or even write the loi. But I agree with the two schools of thought. Luckily I don't have to deal with this.

I was going to say you don't have a choice, you're forced in one or the other.

Yeah, I'm happy I'm not fending off this risk, but I do understand the complexity. The one thing that I discuss with the deal makers, the transactional people is let's try to build in our model the risk that this might go up or down. And we try to prepare scenarios in which some of the scenarios will say no deal, no offer. We need to be very mindful that we don't invest into the pipe dream of let's close this. Because it's. Once you've set your mind on something and you imagine how that's going to fulfill your business case as a buyer, it's very difficult for you to say, no, I'm not going to buy this deal. It's probably the mature thing to do in that situation. But it's lots of people try to patch things, patch the business case. So it still makes sense, which is a human natural thing to do. But yeah, I agree with the split in between the two schools of thought. The smaller companies, I see them as being as part of the second one. They're not going to be sharing anything. You cannot find out anything about them until they open the books to due diligence.

Can we agree on some must haves before an LOI sign? And part of this is, do we have a thesis of how we're going to integrate the company? Are there some things that we know are going to be a big risk that we should try to at least address before LOI signed or figure out? Is go to market is other big thing. Should we start at least have an idea or outline as part of our integration thesis of what the go to market is going to look like? Are there any must haves before loi.

Before LOI that transactions people keep that for good reason, confidential. Sometimes even internally, you're going to have those codenames inside the company. It has a. The name of some prominent, I don't know, mountain in the area or something. And before the loi I don't see a lot of communication between transactions and integration. I try to keep close to the ground, keep my ear on the ground to understand if something's coming. There is a pipeline being shared and if you have that pipeline going through the pipeline every half month, every month to say how likely is this to happen? And that's, I would say, a very good and healthy exercise to have between transactions and integration people. Because repetitive discussions about the same target brings out certain risks, certain patterns, and then together you can come up with strategies how to approach those. If I would put a list of mandatory things on the pre LOI list, it needs to be to do with how fast could we close this deal? Does it make sense for us to be able to even engage if we don't see a future that we close in the next 612 months. If the target has never heard about us, first of all, they're going to be surprised. Sometimes they will be ready. You may have the fortune that they were thinking of selling. They never told anyone. And then you ring, you call them and they said, ah, you read my mind. And that's a good way to start a relationship. But it will have to do with the macros of your business, the buildup of your products. The financial construct is how much revenue can I realistically bring in in the next year by acquiring this company? How much money am I willing to spend? What's going to be the price? Build up the allocation per share? So am I going to pay cash? Am I going to be able to give them an earn out? Do I want to go the earn out route? And these things will shape the deal dramatically. And that's why I think you need to keep an open mind at loi time about how you're going to execute.

A lot of these deal terms, how they're going to actually affect the way you're going to ultimately integrate the business and as well as like knowing your timelines so that you can actually validate these things and get that clarity on how the business is going to get integrated. Because you're more or less in that second school of thought of I've been.

More exposed to it rather. Yeah, I think it's fair.

Man, this industry is still changing. We're advocating for something different here. That's why I'm trying to learn it. And I'm just like, hey, there's different views on this stuff. Not to say it's one's right or wrong. And somehow I think like maybe you gotta figure out what's best for the seller at the same time.

Well, I've been going your direction, so I've been pulling things forward, bringing things forward as much as I can. I'm a big advocate of getting everybody informed and involved as early as possible. Let's not forget that I come from the space where integration found out signing day. That's the nightmare scenario. If you get involved in a project that's been running for a while, yeah, that's fine. But if you're in the same group of people working on the same side of the buying and selling and there's some confidentiality reasons and then integration people find out very late, there's very little that they can start preparing for on day one. You're already late for integration.

Yep, absolutely. That's the thing we've seen that broadly in the industry is that shift to push more of this earlier in the process. I'm sure we're going to get more tactical about that in future stuff we work on. When we talk about schools of thought, another one that comes to mind is culture. I feel like let's break it down again. The old school is classic. You know what, we don't really need to worry about culture because once you combine the businesses, they're going to create a new culture. Let's say that's the classic view of just don't worry about the culture. After close companies will combine, they're going to build a new culture anyways. No big deal. And then we have more of this progressive. We want to understand culture because it can help us shape how we'll integrate the businesses. Our integration plan better. We understand both organizations culture we can understand. I used the example. I looked at a deal based in Europe. I had my model forecasting synergies. I was like, okay, we're going to combine the engineering team. I bring my VP of engineering onto one diligence call. And he's like, you know, there's no way we're going to combine engineering teams. You know exactly what I'm talking about. He's like, completely different operating. They have to stay independent. I had to go back and change the model because of that. But that's like one example kind of like learn the cultural differences. It's like they're not going to seamlessly combine and we're going to realize these synergies, eliminating some of the roles and things like that. So we're not going to get any of the cost savings. That's a progressive view. And then there's this third view which I find interesting is a few companies I've seen do it and it's not a common thread. But using culture as your strategy, one of the drivers of value creation, that you're very upfront, that, hey, we have this unique culture in our organization that drives our success and that we're going to transform your organization to fit into our culture and we're going to be very proactive. And that's just being very upfront about that. And a lot of times they will make that a big part of their plan. They'll bring in a lot of coaches and things to really push that kind of transformation in their organization. Anybody that wants to look at references of that, look at Barry Wehmiller. Bob Chaplin, I know wrote a whole book around it. Jason Lippard we've had on the Podcast from LCI Industries. I know there's a handful of others. That's almost their approach. They look at culture as this work stream of its own, but it's so just proactive of how they're going to transform that business to really bring it in. Where do you sit on this? That's my view of these kind of three schools of thought around culture.

They're all valid. There will be certain deals, they're more recommended for. There's the old school of surveys, cultural surveys. And surveys get you some knowledge and they work for certain company models. You're not going to get anywhere with a survey. If you go into an engineering shop where the founder, the business you're trying to buy, wears overalls and a hammer to the office first thing in the morning, they write out the orders, they pick up a van and they go on the field. If you put a survey in that room, they're not going to return much. It may even make people awkward too early. It also comes down to why you're buying the company. And there will be situations where you buy the company for the equipment, for the intellectual property, for the geographical presence. This good friend of mine, Jos Arends M and a very experienced silverback, as they call him, he says, what's the secret sauce? What makes this company tick? You need to protect it from the early stages during transaction negotiations and definitely integration. And based on that, you can understand how your culture is going to be aligned or not. I'm a big fan of face to face interactions. You need to spend as much time as possible with the people. You need to understand what the founder is all about. Are they willing to sell to settle down and then not to do anything and to retire early or late? Or are they only selling because they want a bigger group behind them to achieve even greater things? There will be two types of founders and then you understand what the whole organization is all about. Because if they sell and leave, then you're going to have to deal with the culture on your own. If they sell and stay, they're going to be your greatest ambassador and sponsor. There's also different views. How long should you keep the founder around? Should you keep the founder around? Should you keep them on an earn out or not? And you're going to have all sorts of examples. I know of an example where the founder took a part of the earnout which was in the upper 50, 75% and they did not show up to work second day. And what about the rest of 25%? You can keep it. It was their exit. They just wanted out of the probably burnout stress. Whatever reason, the 75% was good enough for them to say, I don't want to deal with this anymore. The more you get a chance to understand where they're coming from, the better. If this conversation would have been honest, it would have been a better outcome for both sides. Even if he would have said, I just want this price and I'll be out of here, it would have played out differently and the company would have, I'm sure, invested the other 25% to drop whatever missing pillars would have been there. But you need to try to understand the seller's intentions early on. And they will have built. The founders will have built the company in their image. If they have good, strong values and you align with those, you can expect that the company is going to be like that as well. The process is going to be like that. They're going to be built for resilience, long distance running and the team is going to be like that. You need to be very mindful of red flags. But there's a divorce lawyer that has a saying I like a lot. He says when you're wearing pink glasses, all the red flags look like flags. He's advocating against getting to divorce and he says, be mindful when you're only trying to get to the end of the deal. So when you have your new relationship glasses on, you only see the end of the deal. You don't think about the risks. So you have to be mindful of the risks and have somebody that's not as driven as you are in closing the deal. Run through the risk list and give their own opinion. Because you need a cool head. You need a red team in the room to test your business case. Coming back to cultural fitness face to face, getting to see the people that do the work at work, bring some of the people over to your environment and expose them to your reality and say, this is how we do things. Do you see any gaps, any differences that we need to think about and plan together? And ideally you're going to find a common platform. You're going to both want to build the same good result for both. My strong learning is don't trick the seller, the founder, into selling on your terms because they're going to find out later on. It's like lying in your cv. You're going to be found out pretty quick and then it's not going to be in anybody's advantage. It's going to cost everybody more time and money. If you're open and honest in the limits of confidentiality, and you understand both angles, both sides, then you're going to have a very good chance of building something that works better for both. The proverbial one plus one will equal three. If we do this job properly in integration.

This is what I picked up. One, a key thing is the driver of the deal helps you understand how important the people actually are. You want to at least get a sense of that. The other is the founder, key leadership. Are they continuing with the business? They're not. That's a big dynamic that could change things dramatically. And then I think you're in that middle, that progressive view in terms of learning these things, figuring out what the red flags. But it's using it to adopt to the plan and make those adjustments. But ultimately you're trying to create a working relationship that's collaborative at the end of the day, so that both teams are objectively working towards the North Star and what's best for the business and the customers.

Yeah, no, absolutely. And one element that we should be mindful of is people are going to be the power, the wind beneath the wings of the business. We need to make sure that they are well represented in the deal during integration. And if for strategic reasons, they cannot be exposed to the deal before signing and closing, which is most of the times the case, we need to make sure that they will have a shock. Even if you bring them in a room and you say you're the first person to hear about this, they're gonna say, wow, so we're selling this that we've been trying to build up since we were teenagers or whatever. The reality is, and there's a huge difference between entering a company through an interview process as opposed to an acquisition process. You apply for a job, you get tested, trial, you get through these stages, you interview two, three times, you meet different people. At the end, you have closure. You've proven and you get accepted and you negotiate terms and you get signed in and you start. That's a forward move from the person. If you buy a company, everybody in that company, you run the risk that people in that company will feel like they've been sold. And you cannot allow this risk to creep in because that's going to be damaging your integration. You need to make sure that they hear about it in a early enough, reasonable manner from a person they trust so that they can be behind the business plan and business case. And they're going to understand why the company's making this move is selling the business. They won't Feel betrayed, they will feel welcome by the acquirer, by the buyer, and they will feel part of the integration all the way through the process. And that's a success mechanism.

Basically how early I feel like even you get an LOI signed and then you're going through confirmatory diligence to get to sign. You're still very like hush, hush about all this stuff. And everybody says that you do this announced, you want to avoid all the fud, all the fear, uncertainty and doubt with employees, but then you're confidential about it up until all of a sudden it's announced to the whole world.

Yeah. First of all, when you announce it, you need to make sure that they understand this is not a hip shooting move. We've been thinking about this together with our future partners for this long and we've been thinking about you, the people as well. And this is what we've planned for you. This is how you're going to help us integrate. It depends from deal to deal. You know better than most people, every deal is unique. We have a framework we try to put. We're still going to customize it. In the end, most of the deals in the pipeline never happen. So you cannot tell everybody every six months, hey, we have a, we're going through LOI with this buyer or this potential buyer because then that's going to be like adrenaline 24 7. And that's not healthy for any organism. You need to let your critical people know. Ideally, get involved more than just the seller, the owner and their cfo, because this is usually the safest route that people play and they don't want to expose the news to anybody else. But you do need your production, your work doors to be represented in that conversation. And sometimes the founder will be part of them. Part of the group depends on the size of the business as well. But you need to make sure that this is presented in a timeline where they have time to mentally make sense of the news. Because otherwise it's a shock after a shock, another shock.

That's what I mean. How do you get that time?

I'm a big fan of leaving space between signing and closing. It's very difficult to convince people to do I want a month between signing.

And closing, unless it's forced with some regulatory approvals. But what is the ideal time between signing close?

At least a month between signing and closing.

Really, A whole month?

I would love that because that's the time when you can freely ask questions and not be rejected.

I feel like most integration folks I talk to a similar view at least weeks. I don't know about a whole month, but at least weeks. And a lot of times they get exposed to it because it was forced, like there was some rhetoric, reason. But then they're like, we got to nail the plan down. We got to socialize it with the target team. We got to get that all those things that you described, like settled. And then once we got closed, it's like boom.

And for some people, the people that this is happening to and on whose help you're going to be counting to support you through the process is a huge difference between telling them it's done, there's nothing you can do about anymore. We've signed and we closed, it's happening deal with it. As opposed to saying we have achieved the first important milestone which is signing, we still have a very important milestone which is closing. And in between this, we're going to be working day and night to set this up properly so that you land softly in the future organization as little as you can squeeze in there. There's first of all for the people to get accustomed with. But that's the time when you can legitimately ask questions that will not be subject to confidentiality anymore because there's no risk. This is not happening anymore. It will happen barring the competition clause being allowed. But you can ask detailed finance questions, detailed benefits questions, detailed operational questions. You can ask all sorts of. And the seller has the confidence that this information is not going to be misused. The deal will happen.

I know the big concerns like gun jumping laws you want to avoid, but it seems like you can do tremendous amount of planning, socialize those plans without triggering any of those gun jumping regulations. So it'd be interesting to do like a roundtable about this, about time between sign and close and just put together since there is zero standardization around it or even like really defined best practices.

I can be convinced depending on the type of deal. But a carve out, for example, oh, I'd love as much time as possible. I would be day one news on a carve out is a nightmare. So depending on the type of deal, it can take more or less time. But if you have some buffer between critical milestones in your plan, between loi signing, closing and integration is going to pave the way for a better outcome.

Can we talk through some examples of his cultural alignment? I don't know why, but I think of a situation where maybe you're buying a direct competitor and you've kind of always had these conversations on how you're trying to beat them. Out and you've gone head to head with them so much. And I'm just wondering if there's clear cultural mismatches and things and I don't know, I just want to hear some stories from the field.

There's both good stories and not so good stories. A really good one for me was when CBRE acquired the FM part of Jones Controls. I was being part of the object of transition, moving from one place to another. And they had a program called a buddy system. And I get an email from a guy called Ben Lovalho, the great guy, and he says, I'm your buddy from the aquarium side from cvre. And I thought, so what does this mean? We book a 15 minute chat. You just tell me how the world looks like from your side, I'll tell you what the world looks like from my side. We get a coffee next time you're in London. You ever need any kind of information, where's the printer? How do I get this chart or this form? Who's dealing with that subject in your company? How do I do expenses in you? Whatever. I'll either have the answer or know the person that does for you. And all of a sudden I felt like I was being concierged, if there's a word, you know, welcomed into the new organization. Somebody dealt with me as a one to one level and I thought this is great thinking. And I found out I was not in any way a critical player in the deal. I was just one of the people being transferred over. There were many more important figures and executives and strategic people that had to be dealt with. But they went down to as far as they could and afford in terms of investing time from the existing organization to welcome and receive the people coming in. And that for me was a great modeling success. And I've tried to use it everywhere I went. After all, I didn't realize this is an M and A thing, an integration thing. But I thought that's what I want to make sure that I do. Next time I get people coming into my organization, I want them to feel like that somebody's been expecting them. And it helped my settling in a lot because I. I didn't feel like I was grown into just a new organization, foreign strange environment. I felt like somebody expected that I joined.

This is a term, don't they call.

It two in a box when they pair people up or there's probably a different even term for it, but they'll do that. They'll pair the peers up as part of that integration and seems to be Like a pretty good practice.

Absolutely. I can vouch for it. I've been at this subject.

Okay, that's a good one. Give me the chaos. Tell me.

You need to make sure that you understand who you're partnering with. And as we spoke about earlier, are there any red flags? And one of the red flags we should have probably caught earlier, I've seen a write off happening after two years into the acquisition, after the acquisition to integration.

Wait, wait, there's a write down where you're talking about write off?

Yes, I'm talking about write off.

That's the whole investment.

And that was the first good thing that happened in that project.

The growth of full.

Yeah. So a lot of red flags. Hindsight is always 2020. We should have thought about this, we should have thought about that and we should have allowed questions, hard questions to be asked and answered because you're going to have people asking questions and people that are just interested in doing the deal will say, ah, we'll deal with this when we get there. This is one way to saying, I have no idea how we're going to deal with this. We'll cross that bridge altogether. We ended up in a space where we wanted to make sure that the deal gets secured without scaring off. And this is one of the reason that acquisition people will say, and I've seen this written in an email, don't bring the integration people in because they'll mess up the deal. I was at the early stages of my certification in the post merger integration program and I thought, surely this is a spell check mistake. I thought, if you don't bring in integration people, is that what you meant? The deal is going to be. No, no, no, no integration people, they always scare the deal maker or the target off. Okay, So I thought, yeah, I understand the scaring part, but doesn't that mean that you're, you're sugarcoating everything and you're painting everything in bright colors for the seller? That's also a no go for me. I wouldn't recommend doing that just for the sake of closing the deal. And there would have been a serious amount of questions that should have been answered and the risk list was reasonably long. And the way that you deal with probability and impact, when you look at the risk matrix and everybody says, we think this has a probability of happening of one to three and everybody's around the table is offering their best guess and the other people are going to say, this is the impact in case this risk happens. This is the impact on the business. And based on that you sometimes end up saying, yeah, sounds like a good deal, let's go ahead, we can afford this. If you've misevaluated those risks and impacts, then you have a highly chance you're going to be ending up in a bad place. But there's always the behavioral element. Dan Ariely has a very good piece on behavioral people adverse to risk that end up spending a lot of good money after bad for the sake of protecting their initial investment, even if it's been proven wrong 15 minutes after and they still invest into that bad initial instead of writing it off. But yeah, that was a very hard learning point. And that's where I finally got to introduce something which was like a go, no go checklist. Let's look at this. Do we have a preliminary integration plan? Do we know what we're going to do with this business? 3, 6, 12, 24 months later? If we have an idea, how much money do we plan to invest in this if we have these risk, if our biggest client is going to disengage because they think that we're becoming a monopoly. This was another case that we had, real case, a client. Nobody could have seen that without going and discussing this one to one with our biggest, let's say five clients and say we're planning to invest in this space and we're probably going to be growing and we're going to be probably buying another one of your suppliers. Do you see any strategic risk here that you're going to be continuing with us? Because immediately they said, no, we're not. And we didn't know. This was a surprise. There could have been people that knew. They did not share the information. This is an exercise that I have in my prep list in my due diligence. Have you spoken with your biggest suppliers and your biggest clients? Is there any conflict of interests if we go ahead increasing our footprint in that region or that product? Because some of them will have internal regulations that we're not aware about. They cannot work with suppliers greater than this or clients greater than that because that creates a risk for them. In case we go sideways, they're going to be losing too much of their supply chain or the revenue. These are not easily topics to formalize, but you can have a conversation and they're going to tell you right away, I cannot put this on paper, but you need to make sure that you don't grow higher than that or you don't become a single point of failure for us. And those are all lessons learned the hard way.

That's something like during confirmatory diligence, you'd want to have those conversations with the customer and just start pressure testing where you're planning to do exactly. Integration wise, what else blew up that deal? I feel like it sounds like integration wasn't thought through, but how do you completely write off value? Part about putting good money after bad, what did that actually look like?

Some founders are going to be so interested to sell and they're going to be wining and dining you and they're going to feel like, wow, this is more than I would have expected out of this conversation or this interaction. And then you get to see the site or you get to the details of the business and look around and say, you don't want to sound awkward, but for the value of one of these meals that you've taken me out to, you could have easily fixed that roof, which doesn't look safe to walk on or under in the warehouse. Or I mentioned the server in the kitchen earlier. There's plenty of servers in kitchens near the microwave and the water cooker. That's in my mind a risk you're.

Literally very little about. That server in the kitchen.

Yes, yes.

Just never seen a server in the kitchen.

I have, I have. And I've tried to make a joke about it to bring it up because obviously if somebody has a server in the kitchen and they bring you over, they don't think it's a big enough red flag for them and you'd like to raise that and say, ah, so everybody can just plug into this and pull information right out of your server if they need it is like the fast. If the WI fi is down, right? And they realize that is this still joking or serious? You switch to due diligence mode. Now, there will be a lot of surprises in the early stages and that's the time you want surprises. Due diligence. The moment you delay surprises. If they go over signing and closing, that's the worst time for surprises. Regardless what kind of surprise you have later, they're bad. You can get good ones. Like, we once had a supplier that had not been renegotiated for three years and we just scrapped half of the cost with that supplier right away because they had not nobody thought about them. They said, it's our supplier, it's a house supplier. We've had it three years. We never thought about looking at the price on the market, but this commodity went down 50% say, oh, we just bring them to reality. We don't need to negotiate. 50% off, but you're not going to have lots of good surprises later on, and even those are not going to be you don't want surprises. Either way, they're going to mess up with your plan. And some companies will tell you, I understand you're bringing more money in, but this means you haven't done your homework. Put this in the business case. This should have been a synergy and it's not. Why not? You can be certain of one thing, that you will have surprises. So the fewer and the least impactful they're going to be, then the better for your outcome.

That concludes Part one of our interview with Chiprian. Stay tuned for Part two, where we continue the conversation, get in more depth about best practices when it comes to integration and the cultural alignment, setting up deals for success, but also our future outlook for what the M and A industry looks like on the technology and the emerging field of independent freelancers. See you in Part two.

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