Managing Internal Dynamics of Your M&A Team

Hello M and A friends. This podcast is brought to you by dealview. M&A is coming back. Would you like to avoid wasting hundreds of hours managing Excel Trackers and building PowerPoint reports? Do you want to make your process more efficient? Well, I have great news for you. Deal Room is MNA management software to save you time, headaches and improves collaboration so you realize value faster. Learn more@dealroom.net here's to the deal. I'm Kisam Patel and you're listening to M and A Science, where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies, and what actually happened during MA Deals. Foreign welcome to M and A Science Live, where leading M and A practitioners share lessons learned from their experience. When you use proven techniques in M and A, more value is created. If you're interested in keeping up with the latest from M and a science, visit mascience.com and subscribe to our newsletter. Again, that's mascience.com your host, Kisam Patel, CEO and founder of M&A Science in Deal Room joining me today is Randy Tinsley, Vice President of Strategy and Corporate Development at Synopsys. Randy leads vision, strategy and execution of all facets of corporate business development at Synopsys. Synopsys is an electronic design automation software company, and today we're going to talk about managing the internal dynamics of your organization. How are you doing today, Randy?

I'm doing great. Thank you for having me.

Hey, thanks for taking the time out of your day with me. Can we kick things off with a brief introduction on your MA experience?

Ah, sure. I've been at this craft for about 34 years. Started life as a lawyer, saw the light, and transitioned out early on. Done it at Intel, Amazon, and here at synopsys for 17 years. I had the good fortune of traveling the world, meeting folks and buying companies of all sizes and types of It's a lot of fun. I really enjoy it.

That's a pretty diverse background. I always find it interesting when you come from a legal background and get into corporate development, because I think there are some added benefits of it. I don't know. Do you see the same thing?

Oh, it's been invaluable. Understanding the process and flow and invariably some of the biggest issues of indemnification and investors trying to look out to cover their rear ends a little bit. It helps a lot. I've had situations where these startup CEOs thinking they're all that, who say, hey, let's leave the lawyers out of this. It'll just be the two of us. And I just laugh and say thank you very much.

The things that the lawyers jab about when it comes to risk in a deal, you sort of look at early and start addressing it sooner than later.

Yeah, I know you can foresee it. And in the sort of informal discussions that happen leading up to a deal, you compare the target company and the decision makers about what's to come and start to orient the conversation in a much more constructive way as opposed to surprising them at the end that they're going to be on the hook for everything for the rest of their life.

Right. You've been doing this for a while. What's the biggest challenge in your role?

The biggest challenge ultimately is aligning everybody to make smooth, efficient decisions. You can be a fun negotiator, you can meet all these different things, but you know, at the end of the day, if you can't make a decision, nothing gets done. I focus on how we make good efficient decisions so that we don't waste time and we get the best deal possible.

Walk me through that a little bit. Because it is tough to get people thinking in the same direction. I'm curious how you approach it.

It's in a very highly collaborative an environment with a sense of urgency. These event driven activities are, they're fascinating to watch people, everybody wants to get involved and have an opinion. How do you get everybody's opinion without really necessarily having to do anything about it? It's let people speak, but not necessarily listen to exactly what they're saying. At the end of the day you have to move forward. But if people don't get to participate, then there are all sorts of challenges that happen later.

So I'm hearing encouraging people's voices getting heard.

Yeah, absolutely. And let's face it, we're dealing with some usually high powered individuals who think highly of their abilities and they usually are justified in doing that. They have great experiences and they want to add value. And having too many people wanting to add value can be a bit of a challenge at times.

Now you got a double edged sword. You encourage the different thoughts and that's.

The art of it all is, hey, where in the process can I get your and your perspectives but yet still be efficient about moving along? And that's the art of managing the process.

Let's back up a little bit to when you start assembling your team. Can you walk me through that?

My team that I've had great fortune and when I've been most successful, have been folks that I'VE pulled usually from within the organization in various capacities, very stereotypically finance FP and A type. Folks who understand the business, who probably have an mba, who probably have some sort of aspirations to do more, those have very fertile ground. Have also had great success in pulling folks out of the HR organization when I've been more focused on the integration activities because the folks at HR tend to understand how a company is run in a very practical way and frankly where all the skeletons are buried. It's just where the hot buttons are. And that blend has usually been very effective in helping build effective M and A teams. And then when I'm talking about a team, I'm talking all the way from sourcing deals all the way through integration and that whole flow. So those folks have been really good at it. They set to be great project managers.

That's actually interesting. So you got one part where you're pulling in some various finance folks internally, but then you got this other unique approach about pulling in the HR people, which I feel like sometimes they often get overlooked as a resource.

And there's some unique individuals because of their backgrounds. Maybe they've been exposed to some. Some different things. You'll be surprised when you start to dig deep in the background of some of these HR folks. And so it's. And it's getting that program management skills and blending it all together. And then I created an environment where I try to get everybody to learn how to do all facets of the transaction so that they are comfortable walking through all these processes and know what to expect when it's their time to step up.

Let's talk about that. The whole training onboarding, really setting them up for success. What does that look like?

For me, it's defining very quickly what the role is going to be. You have to design it for success so you know what they want to do and how they're going to do it. See, that's what I want you to focus on. But my expectation is that you're going to be involved in the whole deal flow and you're going to attend the meetings, you're going to attend all the discussions, you're going to have input and I'm going to look to you to give me your advice or. And what you think might need to happen. It takes time. It's not six months, it's years worth of doing that. And it may not ever get there, but it's the journey is what I'm trying to drive. And it makes I think frankly the job a lot more interesting for these folks than just be pigeonholed into one narrow facet of the M and A flow.

Is there any point where you sort of really try to understand what the person's goals are and maybe try to align that with their role or activity?

I actually think that's one of the very first things. Most of the folks who do want to get involved in corp dev are very career oriented, driven people. They're not afraid to ask for more and if you're not feeding them the meat, constantly upset and angry and they're frustrated. They want to do more, more, more and more. My goal as a manager to keep them as busy as I possibly can so that they are feel like they're adding value and fully engaged. And that's the kind of person I want. I want someone who's completely fully engaged and driving me to give them more. It's a magic challenge, there's no doubt, but it's a challenge that I want.

You're defining the role, but you're also identifying the strengths with your different team members and positioning them to play off of those strengths.

Absolutely, absolutely. And it's all about setting them up for success and understanding what they want.

Walk me through how you run your team.

I'm very fortunate. The team's been together for a while now. It's nice and it's casual, but there's that underlying tension of we have deadlines, we need to get things done and I'm all about getting things done and not wasting time. And then the team and so I sign each one of them their deals as they come along and manage the workflow so that no one person's doing too many at the same time and I turn them loose and they go. We meet every week and talk constantly about what they're working on, but I want them to be front and center and they know that as well. And so my job is to make again, make them successful, make, get the deals done, make our group look great and I'll be a happy person if I don't have to do the deal myself. I'm okay.

That's great. I feel like we're both in bit of the same. I wouldn't call it trap, but luxury where we have mature teams that we can rely on.

Yes, I've been very, very fortunate, frankly. Synopsis. Having been at one place for such a long period of time, the company's developed a really good capability of being able to execute on transactions. You got to be careful about getting too lackadaisical because that's when suddenly Something breaks and you have a big problem. But fundamentally, everybody knows exactly what they need to do and how to get it done. So my job is to give them everything they need and get out of the way.

Well, let's step out of the pretty picture for a minute. I want to hear about a little bit more of the chaos about the team that isn't as smooth sailing, that scenario, or even you're building a brand new team and that's a whole. I look at it as almost like playing a hand of cards and you kind of have to swap out some cards so you got the right hand to play.

And it also happens if you can get overwhelmed with too many transactions at the same time that you have that similar kind of pressure because there's a lot of demands and you need to get things done quickly. And frankly, that's just where I'm the benefit of 34 years. I get to step in and take the lead and make sure I bring the folks along so they can learn through just observing. And I have no issue asking them to get things done. You have two hours. Go get it, we'll meet again and then we'll deliver our whatever our deliverable is at that time. It's the operating plan or whatever. At the end of the day, it's all on my shoulders and that's okay. I'll just drive it to the finish line if I have to. But I want to make sure that the folks learn why it is the way it is and evolve so they can do it and I don't have to.

What are the challenges when you don't have that smooth sailing team? What typically comes up that you have to overcome More often than not, the.

Biggest challenges is interfacing with executives within the organization and being able to handle the pressure of tense conversations and having the confidence of being able to push back. It's not easy for younger folks who are earlier in their careers who are may think that they defer a little bit too much to the title. And in reality, this is the advice I give either young associates or young people in their careers. These folks want you to push back. They want your opinion. They want to know that you're thinking and engaged and involved and don't be afraid. You'll earn huge respect. Know what you're talking about? It's don't defer to the title. Do the job.

But you just can't be always a yes person.

No. Particularly in this role when you're trying to move quickly and have lots of things that need to get Done. You can't just say yes to everybody all the time and you'll never get over the finish line.

This is a skill that they don't teach you in school. How to have tough conversations? No, because as a leader you have to have it if you got to let somebody go or do something of that sort. But then as an up and coming practitioner like you gave the example, you need to talk to executive leadership and have those tough conversations.

When I'm looking to bring people on to the team, I'm looking for folks that they may or may not have it at that time. I know they can get there, they have confidence and they want to be able to do. They're not shy. That's really important.

Is there a way to develop it?

I do it by leadership and demonstration and I try to put them into roles, into situations where they can be successful and I'm right next to them, but I expect them to do the speaking, not me.

So demonstrating coaching feedback.

Yep. At the end of the day though, the CEO looks to me to get it done and I'm the one who's held accountable. So I have to be there to make sure it gets done. I really try to make sure that my team is the ones that actually do it. So the way I look at it, where we've set things up is I really want the team to drive the deals. The execution machine is the team and I'm the oversight veto of the corporate conscience. We have a sort of two roles of we are charged with getting it done. We're also trying to look out for corporate interest at the same time. And I bifurcate that a little bit. And I will look out for corporate interest and let the team execute and drive and that way if there's something negative has to be taken care of, I can do that without necessarily sabotaging relationships that are very important to build. And I just have the luxury of being able to have done it for so long. I have the trust relationship, so I can do that. That's how I demonstrate to the folks on the team what are the issues they're going to need to be have to focus on and be prepared to deal with at some point in their careers.

So you developing leadership skills within your team makes life a lot easier for you.

There is some method to the madness.

Other than having the tough conversations. What are other areas you see skills that are important to develop?

Looking beyond just the obvious, it's easiest to reach out to the whoever the decision maker is, the GM of a particular company of A business within the Synopsys, but there are three, four more other people who have insights that you need to make sure that you touch base with and understand what their inputs are. So it's going beyond just that. First yes answer is looking a little bit deeper and understanding a little bit further how decisions are made. Who's doing what to do within the organization. Where's that nugget that says, oh, this is really important, we better make sure we look out for it. And it doesn't always come from the top.

It's like that drive to go above and beyond.

Yeah, that's actually a good way of describing. And that's what I was talking about earlier. Having folks who are driven and passionate about what they're doing because they really enjoy it. They're learning along the way. This is complicated stuff. We are a big company, 15,000 employees. We have locations all over the globe. We're like the 15th largest software company in the world. I mean, there's so much to learn. And the science that we're doing is not easy. And we're super technical company. I want people who are curious and want to understand everything that's going on around them. And this is why the skill's so important. Because invariably will come up in a diligence question, in a demnification question, a customer contract question. And if you don't understand how our business runs and what's important, you can't really be effective. So it's asking those extra questions to go deeper because you have that curiosity.

I like it. You're challenging them and setting expectations.

Yeah, but all have a good time. It has to be rewarding.

Absolutely. Any other areas to develop outside of interfacing with executives and having the actual drive?

The other one is developing the professionalism of interacting with the outside world. There's two completely different worlds. You have the internal machinations of how decisions get made and who cares what about whom, and all that kind of stuff. And then you have interface with the outside world. The bankers, the lawyers, the accountants, the target companies, the founders, the investors. And being able to walk in both worlds is not an easy skill.

Very true. Let's take those apart. What are the steps that you do to ensure you get internal alignment?

Internal alignment is all about process and transparency. The very first step in our process is once someone has a gleam in their eye that they might want to buy a company that they need to grow inorganically, they have a few ideas. We gather as a team all of the decision makers and we review why you want to do this. What's the strategic rationale? You really want to go spend X number of millions of dollars to go buy your way in? Why don't you build it? What's going on? And this is a strategy meeting more than anything else. And we've talked, I laugh about it, but it's really about getting the hunting license. So that means you're qualified. Someone has thought this thing through. You're not going to go out and jerk some people around. You're not piss off some bankers. You're not going to irritate a founder. You're coming in with some support that the management team is interested in trying to get something done. No false starts. That is one of the worst things you can do as a corporate acquirer. Start the engagement and go, oops, just kidding. You get a bad reputation. The bankers don't want to call you founders. They talk amongst themselves in the industry. They know who the good acquirer is and who's not and when you're backing out of deals anywhere. It's just not a good reputation and it harms your ability to be effective acquirer. And we call it a target company overview. Silly name, but it really is a strategic alignment meeting where the key decision makers are briefed on the strategy. And these invariably are some of the richest conversations in the company. You don't frequently have an opportunity to come together and talk about strategy around a concrete step that you're planning to take. But without having to make this big decision, we're going to spend billions of dollars today. It's a much more inviting, warm, engaging kind of environment. And you just get to talk and you have some data in front of you and you learn and you refine your thinking in a way that isn't normally done. These are great conversations to have. The CEOs love them. We have two CEOs. They're very rewarding and it's easy because at the end of the day it's hey, this makes sense. Let's see if we can figure out something. So it's a low pressure but highly important step in the process of creating executive alignment. So that you are now beginning the decision making process with confidence.

I like the phrase you use getting a hunting license. It sounds like that process essentially stress testing that proposed deal against the strategy.

And it's amazing how these strategies can be a corporate strategy. Or maybe it's the business unit strategy for growth. Whatever. It stress tests their strategies in a very concrete way. Because you want to take action on this right now. It's easy to talk in the abstract, our strategy is to dominate the okay, but when you say, I want to buy this company for this reason, suddenly it becomes real and the discussions become different.

What's the process look like when you start, continue and really look at selecting targets?

So we have a target in mind when we come to the table to discuss the strategy so that we have a level of information and sometimes we have a lot because the bankers are representing them and running a process. So they've done some of the hard work already and have pulled information. But I try to keep financial information as much as possible out of these strategy discussions because you can quickly go down a rat hole and focus on those numbers and not be able to have that rich strategic discussion. But invariably some of it comes up that period after we have our license, we engage with the target with confidence. And now we can start to ask questions and get the NDAs in place. I'd like to have those after we've had this meeting so that I don't waste again people's time. And we start to pull the information that we can, the financial information, the market information, get to know the founders, the leaders a little better. Our team is actively involved now and is driving the process. The technology evaluations begin. That's all because we know we have the support of the management team to start this process. If we like what we see, if the sponsor of the deal within the company wants to move forward, we will come back to that same team that we met with earlier and that same team, our CEOs, our CFO and our COO. It's the top four decision makers in the company. We come back with a sort of a strawman operating financial plan, what we think we can do with it. Some of the information we've learned about the customers, the technology, and affirming a lot of the assumptions that we might have made earlier. And we'll come back and say, based on all this, we think the price is in this range. This is what it makes sense. We like to get the okay to negotiate a term sheet consistent with something in this price range. So that's the financial discussion that I think probably every corporate acquirer has somewhere in their process. That's when we have it. And with the goal of getting the okay to issue a term sheet with a valuation that has been established in that meeting. Those are tough, and they're supposed to be tough, and they should be tough because they're very, very, very concrete. I mean, we're getting ready to engage. And my philosophy is, if I'M going to make an offer, I do it with the expectation I'm buying it on that day. I don't want to have to say well I just want to keep looking for a little while longer and just guess I want to make that decision that day and then I will do my diligence to see if I made the right decision.

What kind of conflicts or disagreements come up?

Oh, all the time it comes up. It's the valuation is always a big one. Everybody has different views of what something is worse and how to go about it and that we go round and round on that will pick apart the operating plan because we're very focused right now on driving a profitability profile for our company. And so we'll spend a tremendous amount of time looking at those numbers and trying to understand how is this going to affect our corporate goals and objectives. When it comes to financial metrics I get a lot of that. And then there's a tremendous amount of discussion on what's the go to market strategies, how does this work with what we want to do and where we're headed. So rich discussions and always run out.

Of time to get this right. In the beginning when you start having the early conversation on the deal you mentioned, you downplay the financials. It's not as big of an emphasis. It's more does this deal really make sense pushing around the angles of the strategy? It doesn't seem like it's till later on when you start going through some levels of diligence. And can you give me an idea of when that is still pre loi or we're starting to get more serious about it.

So it's pre loi. We're getting very serious about it and we're now asking for the detailed financial information from the target their five years historical whatever their projections usually outrageously optimistic and we are picking them apart and then running doing our own analysis what it looks like, what our company can do. And so we build out a three year plan actually it's five but three to five year plan during this period between the strategy gathered meeting, the hunting license issuance and the term sheet approval meeting, we are building a full on P and L for the target company as it would look operating under synopsis. That's a fair amount of work and that's all because the second step in our process is very financially driven by design.

Yeah, I like that because then you're putting more weight purely on the strategy part and I don't know about I'm sure others are like me. I Just jump right into the numbers and start modeling things out.

No, there's some people who just love strategy, don't need strategy. And there are people who just got to have the number. And it's very difficult to put those together into one single effective meeting because there's too many opportunities to rat hole, go off in directions and you lose sight of what you're trying to accomplish. So we've effectively divided it into two. Do the strategy first, come back, do the five minute review of the strategy, but everybody should already know it and why we're trying to do it. And if our diligence during this period comes up with a different conclusions, then we'll bring those to the party, we'll talk about it right then and there. But the bulk of that discussion is financial and it's going through the number, it's going through the assumptions. And you use your strategy of why this makes sense. It really is a financial discussion at this period.

I like that. It makes a lot of sense to really split those things up and really get the attention and focus in the areas that need to happen. We mentioned some of the conflicts that come up around valuation. What's your approach to conflict? Disagreement resolution under promise and over deliver.

This is invariably it's some folks fall in love with the technology and want to do the deal, others are much more financially constrained. They don't fall in love, they're looking at the numbers. How do you strike this balance? And boy, sometimes it's easy and sometimes you don't get there. And sometimes we only feel comfortable going to a certain level that's just not going to get the deal done. And that's how it is. There's no magic bullet here. I tell the GMs in our company who are trying, we have a very strong sort of cultural thing that every deal needs a champion and they need to come from within the business units. Very few top down driven transactions. I love this because it means I have people who are passionate about ideal. They own it, they're going to operate it and they really want it. And I think it gives it the highest chance for success. If the GM is not pounding the table, say I have to have this. It can get very hard to get a deal through. So when that tough moment comes and you need an extra 20 million in order to justify the deal and if the GM is not pounding it, then that probably doesn't happen. The GM's pounding the table, he'll get 30 because he's so passionate or she is so passionate about it and that is how I think at the end of the day, someone who's putting their neck on the line, who really believes, usually gets it over the finish line.

So if you had a really confident, compelling, driven champion behind the deal, that is a critical component.

It makes it easier. It really does.

What about the size of the deal? Does that make a difference? Where maybe you got some various views on doing the deal, not doing the deal. But then you have this other point of, hey, it's a billion dollar deal. We're really looking at the risk in this way versus it's a $10 million deal. Does that sort of shift between deal size?

We're really in flux a little bit on deal size and how that works within the company. We have do deals of all sizes and the smaller deals are hard to do. It almost doesn't matter how many zeros there are behind the first number and the purchase price because they're the same issues. A software company that's only doing a couple of million in revenue and you acquire it, you have the same risk and liability exposure issues. If you're going to incorporate their technology into our core products and we're going to start selling it, we still have IP liability all over the place. And it doesn't matter how much you paid for the company. So you have to do a certain level of diligence no matter what. You have to protect yourself to a certain degree in the documents, no matter what. So these smaller deals are just almost as hard to do as the big ones, except there's no materiality. So when an issue comes up, you can say, oh, it's only a couple million bucks out of a billion, it's okay. But when you it's a couple million bucks out of a $5 million deal, that's huge. So you can't just brush things under the carpet away because of a materiality threshold. So you end up negotiating everything to the nth degree because everything matters. And we are very analytical, we're very focused and we're very disciplined. So it's very hard to pull back and say, don't worry about all this stuff. And so we're trying to develop a competency around focusing on only the most critical things that matter in these smaller transactions. So we can be much more efficient and take a little more risk. We're a big company, we can survive. Nothing's going to take us down, so it's okay, but it's not in our DNA. We are evolving. It's a very complex question. Smaller little deals are hard to do. But they are also easy to do. You can just tuck them in and get them done, move on. It's five people in the way you go. The billion dollar deals get all the attention in the world because they're material. But guess how many professionals are involved? You got all the bankers and multiple lawyers. There are many, many, many more people involved to help drive this and to make you feel better about your decisions. Yeah, we did all the diligence in the world and at the end of the day, strategy will carry it and you'll get it done. It's the in between ones that could be really tough. It's the 200 million to 100 million. Those are big, but they're not so big. And those are challenged.

You're speaking from a lot of maturity and experience.

I got the bruises to show and.

The reason I asked because my initial impression is smaller deal, less risk, bigger deal, more at stake. But I like your view at the hey, there actually is a lot more risk than you think on these smaller deals.

Yes, that's right.

Do you think that's really evolved with this pure volume and maturity of the corp dev function itself, that if it was take this back and this is maybe deal one or two that you're pursuing in a brand new corp dev function, is that maybe the outlook that you have is with that sort of initial thought that hey, smaller deals and then you sort of learn it as.

You go and and so smaller companies evolving their M and A capability, just fooling around, just getting started, starting those small deals are great because you can make all those mistakes and you're not betting the company on the purchase price. You could still trip up and give away all the IP by accident. You can stub your toes, you can make some mistakes on the smaller ones, but once you start getting very efficient at it and you understand all these concerns, it's hard to go back and unlearn some of the things that you did. Don't worry about that. So I have spent the last three or four years really trying to drive our team to only focus on the things that really matter on smaller transactions and, and we're getting better, but the legal bills are still too high.

Well, there's so many attorneys on these.

Little companies and in mind I'm free when it comes to it.

What were some of the big lessons learned as you went through the experience of doing these deals? And like you take note of, there's a central learning curve that's hard to avoid. But I'm curious, what were some of the things that stuck out that, oh, not going to do that again.

I guess the first thing is it's a continuous learning curve. You think after X number of deals. Yeah, I got it. And dang, the next one comes along and you've never seen that before. And how do you handle that? And particularly when you start crossing, I'll say bodies of water, I have this saying, is that every mile of water you cross, the complexity of deal goes up by two. So by the time you get to the uk, man, these things are really complex. Or if you go over the Pacific, it gets really complex. So when you go international, it just. It gets so much more challenging. You think you'll know it, but it's very different. It literally is everything. The investors and companies have completely different rules they operate by in Europe than they do in the us. They're all after the same thing. They're making some money, but the rules that they have to operate under are very different and the laws are different. We battle whose law is going to control. Is it US law or is it UK law or Romanian law? And don't even get me started on the internal conflict within the company about, is that something we could even think about doing? Because the legal group is going to say, no, it has to be US law. That's the only one we know. So we have that battle. There's no easy answer to your question. Every deal has its own dynamic. I learned about, I didn't know it was even possible. We were doing a transaction in, I think it was Portugal. I didn't know it was possible that when you buy a building, you have to ask to see if the land comes with it or not. The fixtures, the law of fixtures, the buildings on the land. Of course, you get it. Wrong answer. You can divide there. So if you buy the building, it doesn't mean you get the land. And we learned the hard way because we got the building and then we had to go back and get the land.

So the biggest lesson is have a huge appetite to learn, because you're only going to keep learning.

You have to be open and ready and expect it. It's a challenge. And I tell the CEOs these companies when we get started, especially younger ones, I look at them, I say, hey, we know what we're doing. We've done this before and I promise you we'll make a mistake along the way. We're going to piss you off. It's not intentional. Just call me and we'll talk about it and everything will be fine. But we will do It I promise you that. And invariably it happens. And it's not because it wasn't trying. Anyone's trying to do a great job.

Randy. So the last couple years of doing these interviews it's been a big emphasis constantly integration. More companies realize this is sort of make value or destroy value activities.

Absolutely.

The case how do you align your integration?

The way we do it is early on in the process. We will identify what we'll call an integration captain who has to come out of the business unit and they are part of the deal process from early on. This person needs to have strong project management skills, needs to understand how their business unit operates, what who does what to whom, why, what the priorities are, what it takes to succeed. And they're early in the process when we have our last meeting of our three step process which we call our deal approval meeting. Very original. This is before I can sign the contract they need to get the okay. And to do that this is a forward looking meeting. We finalized our operating plan. The numbers haven't deviated much. We review the results of our diligence and whatever mitigation steps are going to take to deal with some of the challenges we might have under covered. And what's the integration plan and how are we going to make this work. Who's going to do what, what's the organizational changes we're going to need to make. So it's a forward looking gathering. The integration captain is now pretty much taking right to the front of the discussion and we're getting ready to hand that person their roadmap for success. Then they run it. It's their job. And my team is in a support role there. We know we've done enough of these now that we know and how the back office stuff works and what HR needs and all that sort of stuff. So our job is to make sure that the integration captain has the support they need to drive the integration forward. All the infrastructure groups look to us to help represent them in that process. And we can do that. But the value is created within the business unit and where the R and D is going to happen and the product integration is going to happen. And that's where the focus needs to be.

Okay. So we gotta identify our integration captain and this person should have some project management skills ideally come from the business where they really know the ins and outs of the business, how it's wired together and how the incoming business is gonna get tacked in there. And then it sounds like you're creating a tentative plan early essentially before you sign that you have a rough outline of what the integration should be like and then they essentially take that over.

Yes.

What happens from there? How are they involved during your actual confirmatory diligence?

Through close, we have weekly diligence meetings, sometimes twice a week when a deal's in flight. And they're attending those meetings because that's where they're learning and hearing about what's going on again, who's doing what, what are the challenges, how things are working at the target company and formation of that integration plan that's happening during this period. So that when we, when we sign and close, it's off to the races. But it is, it's no big surprise they've been effectively doing it. We've been having integration informal or formal discussions with the target company all along. And sometimes I actually have to say, guys, slow down on the integration. I got to get the deal done first. Because they're anxious to get engaged and that's literally just happened on one we're working on at the moment. So they're anxious to get engaged, involved, and start running with it and create value.

You immerse them in diligence.

Yep, that's exactly right.

You mentioned to me before that you track your deals 3 years out post close.

Yes, we do.

How do you do that?

So as part of our deal approval, part of that deck has what we call success metrics and that we identify for each and individual deal. And then on a quarterly basis, I track all deals that are still within the three years of close. And I have a template that we've created that has all the financial information of how the revenue and the orders numbers are they meeting, the three year plan that we use to justify the deal and what the success metrics are. I score it with some input from the business unit, but it's intended to be an objective. Look, I don't have a stake necessarily in the outcome of how I'm not measured by how deals perform post close. So I can give it an objective view of what I think is how it's doing. And then I give it to the board on a quarterly basis and they invariably will ask me questions about one little deal that happened two years ago. Why is it deviating from this or that? And so that's when I get my rear end of the sling. So I actually feel like I own all of them because I'm the one ultimately seems to have to answer for the years after they close.

Is there like a giant scoreboard in the boardroom that sort of maps all this and tracks it.

There's a giant scoreboard that goes with every quarterly package I send out with the board. I have a score of all the ones that are actually tracked.

Wow. So that's got to be a pretty sizable list of companies.

These are all within three years. After 3A they come off the board. Although I always give them the list of all the deals that we've closed in the history of the company.

So that's really interesting that you would track them that way. Going from the sort of measuring success and how you get measured with those companies. When we go back to the whole team aspects, how are you managing the internal dynamics in your organization?

The way I like to do it is I like to give every individual in my team. So I have a three person, three professionals who work for me. I have managed the pipeline with all the things that we're looking at. And I'm very careful about assigning each deal to each individual based on the pipeline and making sure they're not overworked or under worked to our earlier conversation. I manage that way on a deal by deal basis. I work with each individual to keep them fully engaged and what's going on. They ultimately develop their relationships with the various influential folks within the company. But I manage them through each deal and how they get assigned and I try to give them a breadth but they develop areas of competence within a particular business segment. I'm going to exploit that to the max.

A lot of resource management essentially.

Yeah, it really is. All of them take great satisfaction in getting something over the finish line. There's this adrenaline rush associated with doing these transactions. M and A is sexy, it's fun, it's exciting. It's finite start and a finish and there's a lot of attention and focus. There's a lot of notoriety that is put on. It gets pressed. And these are all these intangibles that drive these folks to keep working harder and harder. And I want to make sure they get the credit for that. So I give them the ownership of it, of it.

You mentioned hiring internally. A lot of times from finance, hr is that sort of. People seek it out. They're reaching out to you, saying, hey Randy, I want to get on the M and A team. Or are you tapping people?

Yeah, it's not hard to fill the role. It really isn't. We have that good fortune. We can be relatively selective because of that. It's unique. I tell anyone this, I have the greatest job in the world. I get to see what happens at the all over the company. In order to be effective, if you really think about it, I'm buying a company, I got to map it onto my company in order to do that effectively. I got to know what my company is doing, which means I get insight into everything that's going on, but none of the responsibility of running it all. And it's so fascinating. So much to learn and opportunity to see these things working with smaller companies. And I got to look at, okay, now I got to understand that company completely in order to map it to this company so that we can have success. This is why this role is so cool. So if I'm not taking from internally, I will grab people who've been doing corporate development inside another active strategic acquirer because they understand these issues and then we have our way of doing it and they'll figure it out soon enough. But the folks that have done it for a couple of years somewhere, they can easily slot in and be effective.

So I take it if you bring an external person in, then your focus shifts less about teaching them M and a more about teaching them the business.

Yes. Who the key people are to get to know and understand the company. I hire somebody who should already have the skills. So now I'm trying to make sure they fit culturally and learn the business to be successful.

What's a good way of doing that? Do you give them a list of product people to go talk to? How do they.

The good way to do it is I give them to hear the GMs. I'm going to introduce you to all of them and here's a deal. I'll sit next to you. Let's go. Or I'll take one of the other team members and say, hey, would you work with this new person and coach them up, mentor them? And that's yet another fun thing that folks like to be. Hey, I'm a mentor. I enjoy that opportunity to teach and lead and demonstrate. And if they don't like that, then they're not on the team because that's really what we're all about.

I remember what I wanted to ask you earlier around success metrics because I'm imagining that scoreboard in the quarterly reports with all these companies are tracking. Is that fable 70% fail rate a real thing?

If other people are experienced that, that's unfortunate. We have, you know, we don't, not all of ours work great, but we've been pretty successful at what we do. I think we're a much higher rate than that. We've had failures and, and the failures are usually not a Surprise because they're a little bit of. A little bit of a flyer. And maybe it's new technology that hasn't necessarily hit the market, it's not necessarily mature, but it could be really great and you bring it in and two years later it wasn't. And that's okay. We didn't beat our numbers. We didn't have a product hit the market when we thought it was going to hit the market. But what happens is some really smart people come over, we take their DNA, it's infused into the company somehow it lives on and adds value five years down the line. We're a bit unique in the kind of product and technology we have and the relationship we have with the customers. We offer a full flow of tools in the chip design activity and so it's easy enough to integrate the technology and the people in a way is not necessarily visible and that way it disseminates out through the rest of the company in effect. So yeah, we didn't hit our numbers. So by definition I score red fail.

That's where it gets confusing where I feel like this definition of success and failures pretty ambiguous. It's very dependent on your definition.

It's relative. It is. Some folks I know because the nature of their businesses can and should be hardcore financially driven. I needed this, this kind of business for this kind of level over this period of time. It didn't happen. Gone. It's very easy to do that. We have an element of that. Of course, in technology it's a little bit different because that stuff invariably lives on in a different way.

All right, so it's a big variable. Will agree on that. When we talked about alignment, internal alignment, I'm curious, just stories, what are some interesting things or scenarios you've encountered?

So our biggest challenges, I think I alluded to them earlier, have always been around. We ultimately can get alignment because again, we have a lot of similarly minded folks. So it works out well. I mean, there's disagreement necessarily on a particular company at some time and evaluation sometimes on the numbers because we are very disciplined when it comes to, to the number we're going to pay. Those discussions are always challenging. We got lucky on one, I can tell you that. There was one where we decided to reach for the moon and do. We were unsuccessful in acquiring the company even though our bid was the highest bid. And there was a lot of consternation around the fact that we're making such a high bid for business and the seller decided not to take our bid even though it was the highest one. And sold to another company only because the founder was going to give a more prominent role in the acquiring company. And a year and a half later I was able to buy back that business for about 80% less than what we were going to pay for it because the acquirer had messed it up so badly and it was all on the sales channel side of the things. The technology was just fine so we bought it back. And then that same founder who sold out for less actually bid more for it because he wanted to buy it back and the company was done dealing with him. So we got it for a pittance and to this day is like one of the best MA transactions we have ever done. So sometimes it's okay to lose. If you take a longer term view, it's okay.

Yeah, lost the battle, won the war.

Totally. And that's the one where I learned about land and property not necessarily being the same thing. I learned that it's possible to acquire a dead employee. It was sad someone had passed and no one knew it. And we kept trying to communicate with this person and found out months later they had passed and nobody knew about it. And I go that's just not good. And we picked up five cars that didn't work that were in the parking lot that were company owned. They just never maintained they were all broken down. It's funny things that you uncover after you close.

Yeah, those are some interesting post close surprises.

Yeah.

Do you have any other interesting like indulgence surprises you've encountered?

We did one where we were engaged and deals flying along and suddenly it stopped. The sellers said we can't sell anymore. You go wait, what's going on? He said we just can't. And I got some sort of something that happened and we hadn't found any of this in diligence and six months later they came back and said no, it's okay for us to sell now. And something had happened and it might have been insider trading had happened. It was a public company at the time. They had caught it themselves and knew that they were going to be a big problem. They stopped the deal called, waited the six months in a day for the period to lapse and then came back and sold us the company.

They tell you why?

No. It was never ever officially said. This is all innuendo. The bankers and I have a wonderful relationship and so behind the scenes it's only explanation because of the timing.

This is why you have bankers on deals to the soothe stuff over like this.

It is. And the good banker can make all the difference. In the world for this kind of stuff. And it was fortunate that I had a close personal relationship with the individual so we could be very open and honest and have that discussion of, hey, what's really going on? Because feelings could have been ruffled in a really bad way that would have prevented the deal from ever coming back. And it turned out to be a very pivotal and important transaction for the company.

Wow. Really cool. What's the craziest thing you've seen in M and A?

Oh, you know, these are a couple of them right now.

I want to get. To turn it up, to get the real crazy.

Turn it up. Well, I tell you, I don't know if it's crazy. We tried to buy another one where the market ran as we already had negotiated the deal and the price was set and we ready to sign documents, and the company had a board meeting and said, sorry, we can't sell it to you. We talked to you. Our price is running up because we're doing so well. I go, well, it's no surprise. We all knew this was the case. It's too bad. We're persistent. We waited six months and we ended up buying the bullet and acquiring them for a little bit more, but not as much as they wanted. The moral of the story for us is be persistent and patient all at the same time.

It's tough when the price goes up like that. I've worked on those deals.

It's hard. It's not easy. A lot of M and A professionals have had to deal with that. And I really applaud our team for being so disciplined. But we also made the right decision by coming back and buying a little bit later.

It's tough. I remember banking deals like that, and you just set the client like, why didn't you just tell me this earlier?

This would have been a lot from my perspective. We saw the numbers. We'd already seen them. And then that's when people start looking at each other go, are you doing this on purpose? What are you saying to the market? And why are you saying it? And then, oh, man, you go down that path, that's not good.

Other countries that do that, culturally, that. I feel like there's got to be some European countries where you don't want.

To think that, but, yeah, you got to wonder.

We don't specify which ones, but there's got to be some just culturally where exactly you do that. It's frustrating. I even work on some partnership terms. It gets challenging, too. Anything else crazier than that?

No, you got me just because you're.

Recorded and you're in a public company traded, everything stays recorded and open call it doesn't Randy, thank you so much for your time today. I really enjoyed our conversation.

Yeah, thank you. It was my pleasure.

Cheers. And until next time, here's to the deal.

There's the deal, my friend.

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