Managing M&A on a High Scale

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 Mascience, visit mascience.com and.

Subscribe to our newsletter.

Again, that's mascience.com I'm your host, Kisan Patel, CEO and founder of M and.

A Science and Deal Room.

Joining me today is Jeff Bender, CEO at Harris. Today we're going to talk about how to manage M and A on a high scale. How are you doing today, Jeff?

Very well, thank you.

Can we kick things off, Jeff, with.

A little bit about your background and M and A experience?

Absolutely. I've been with Harris and Constellation. I'll use Those sort of two interchangeably for actually, believe it or not, over 20 years I looked at the calendar. I was like, wow, it has actually been a long time. I joined Harris as its director of finance after starting my working career at one of the big accounting firms. So I'm a CPA by background. That's the my, my sort of education. One of my first learnings when I joined Harris was even though I fancied myself as quite a reasonable auditor of financial statements, I quickly learned that preparing them was actually something that I was not very good at and actually did not quite understand. So I think it was was a quick dose of reality. When I first joined the Harris organization and actually was at Harris where I started to learn how to so we refer to it as capital deployment. So how to deploy capital actually. So I took my sort of seven years at Deloitte's. I had not done much in the way of M and A at all. So basically I sort of came fresh into Harris and the Constellation family. And really it was Constellation, Mark, Leonard and Bernie answered and the Constellation board that sort of coached and mentored me over the years how to do it. And then I would say I just learned from the school of hard knocks and hands on experience. So the Harris organization, we've done over 150 acquisitions. So again, lots of hands on learning, learning and experience. And over the last five years I've also been investing. Some of the word we use at Harris or one of our acronyms is tea. So it stands for time, energy and attention. I'm always working with our leaders to make sure they understand where they're spending it, how they're spending it, and perhaps how they can get a higher return on their tea. So anyways, I spend some of my TEA now actually working with private so really to understand how they think about capital deployment, how they think about operating their businesses, and really creating value both for the businesses and clearly for their limited partners. So if I have a very good working relationship with TA Associates. And so basically I've been able to sit on some of their portfolio company boards as an independent director to get a more of a firsthand insight on how they do it relative to, you know, how we do it, which again, we both do the same things. We just do it kind of different.

Oh, that's a lot of acquisitions over 150.

I definitely started off slow, so I would say zero in the first few years. There's a chart. I don't use it all the time, but if you go back and I can graph for you the dollars of capital deployed and the, the number of acquisitions and it just sort of goes 0, 0, 0 and then it 3. I think our busiest year so far. I think we, we hit over 20 in a year. So basically, obviously we're always working on ramping our capacity and our ability to do that, but definitely it's a big part of what we do.

From what I understand, Harris is an operating group under Constellation. Can you tell us a little bit about that?

Yeah. So Harris is definitely one of the six operating groups. There's been six for a while now. I call them my sisters. So we have Harris, the group that I'm responsible for. We have Valeris and Jonas and Vela and Perseus. And then some people would also be familiar. It used to be called tss. Now we call it Topicus. And actually we just spun Topicus out as its own publicly traded company. So we still consider it to be an operating group, but it technically actually is its own public company, as is Constellation. With no offense amended to any of my CSI colleagues. When I always explain to people how the Constellation structure works, I like to say that all of the magic actually happens in one of these six operating groups because really it's the operating groups that have all of the employees, all of the customers, all of the, the, the products and solutions. So all of the businesses reside in one of these six operating groups. They're all very autonomous. Decentralization and autonomy are core tenants within the CSI culture and correspondingly the cultures of each of the operating groups. So the head office itself, I would say is, I use the word lean, efficient. Again, not a lot of individuals there. And really their focus is to support the operating groups. I think as it relates to our deployment of capital as practice sharing, to do a good job of getting us to get together and to share that. And then they do some of the high level financing and obviously the governance related to being a publicly traded company. Most of the business is in one of the operating groups and then you have this sort of, this group of very talented professionals at the CSI level that are helping us be successful and.

More financial support, if anything.

Yeah, financial, legal, I think not really strategic because I think the, you know, the board level is more focused on capital deployment. What are our hurdle rates? How are we thinking about it? Are they comfortable with the opportunities that we're bringing forth in terms of deploying our capital?

What kind of deals do you typically do?

So I do need to correct you, only because again, I'm going to be sharing this internally with our Paris leaders. So we don't do deals, we make investments. This is a pet peeve of mine. So basically a lot of people refer to them as deals. I like to call them investments or transactions. The difference for us, and I think the reason I call people out on it and try myself not to use the word is really, I think it starts to tie back into our buy and hold forever. And really one of our core focuses is once we have a business, we're very much focused on making sure we operate it to the best of our ability and make it the best business that it can be. So we make investments as perpetual owners of these businesses. So we would do both platforms and tuck ins. I would say we're agnostic as to what they are. We do both. I think if you were to numerically add it up, we probably do more tuck ins than we do platforms. Typically platforms tend to be a bit larger. Obviously the larger the opportunity. I think we're known as value buyers. So I think we're probably a little bit less competitive. The larger the opportunity. Our opportunity to get into large platforms is probably limited. Whereas Tuck ins. We tend to be more successful there, but I'd say we're happy to do both. The one thing I think some people find surprising is we're quite happy to have a large number of small businesses. We're not very much focused on synergies that come from sides. That's not something that we now that we don't believe that they can exist. We don't just don't believe that's where the value is created. We believe value is created by keeping your employees and your customers and your focus on smaller groups of customers and markets. So again, we might actually even buy companies that compete with one another and actually keep them separate. We don't always even combine them to try and create a larger entity. Sometimes we do, but sometimes we don't. The Harris Group, we've used that a couple different times and we call it customer choice. So taking to your customer a number of different solutions and letting them decide which solution best meets the set of criteria that they've laid out in terms of the decision decision that they're making. So we really would do a high volume of what most people would consider to be a small number of investments. So again, high volume, but not necessarily. We're not doing typically billion dollar transactions, doing lots and lots of small transactions.

That's interesting. I gave the example of competing products, but you still let them operate independently.

It can be definitely challenging for sure. In our utilities group we first experimented with it not really by design. I think as we were looking to acquire. Typical strategy or reality for us is once we get into a vertical with an investment, we then become very acquainted with what else is going on there. And then because of our acquisitive nature, we're always looking then to build from that initial starting point. So we did that in utilities, which is the foundation of the, of the Harris when it was first founded back in actually 1976 and we were end up buying a number of our competitors and there was obviously market overlap, some market, I would say specialization or focus, but some overlap. And we actually just decided to keep them separate because basically when you took a deeper, deep dive into what was happening in the market and you looked at all of the win rates and who was winning, it wasn't clear that one solution was actually any better than the others. It was really about the customer going well in this case, this is what I'm looking for. And we thought we would actually get more market share and create a stronger group of businesses by actually keeping them separate. My biggest fear when we did that was that we would drive innovation out of the business that we would not become or we would lose some of our innovative capacity. And I would say actually over the course of time it's been the reverse. Like we were super innovative. The groups, even though they compete, they still share ideas and knowledge. It's been a very interesting way to go. So I think it's again, it was good learning for us to be able to not be afraid to experiment with different types of business models or even integration approaches. It's not always just bring it in, tuck it into something bigger and create something bigger. We're actually quite happy to keep small things again very focused on the, on their markets.

Between doing a platform and a tuck in, how's the approach different? It seems like with a tuck in there's an element of working with the existing management team on that transaction.

Like most acquisitions, I think even though they all have similarities, they're all unique. Given our sort of our appetite for doing acquisitions and given our buy and hold forever and our commitment to our markets, we're super flexible on what the seller in most of our cases that would be the owner manager is looking to do. And we don't keep a bench of executives just like waiting for us to, to do acquisitions. We typically are reliant upon a founder or you know, it could be the management team that founder has built and developed over time. So again it's very dependent on is it going to be a platform, so what does that look like? Or if it is a tuck in? Certainly obviously we're going to leverage our existing management team. But that could be a great opportunity for the owner manager who perhaps has a passion and a strength. I call them superpower Superpowers and kryptonite Superpower. Perhaps for sales, perhaps it's for product development to return to to their roots and spend all of their time doing the things that they actually love and are great at. Versus Sometimes as your company grows and grows, you have to spend a lot more time dealing with people and customers and things that you don't necessarily want to do. So we give them that opportunity to potentially return to their roots and extend their career further into the future.

Possibly extending their life.

Absolutely. Exactly. Yeah, for sure, for sure. Or again. Or if they're looking to move on to their next chapter. A lot of the companies that we purchase, this is the monetization event for this owner manager and basically they're going to move into their next chapter, which is likely some sort of retirement chapter could be still doing advisory services or Board work, but it's sort of in a non operating capacity. So again, we're more than happy to facilitate their ability to do that. And we try and take care of the baby that they've created and the child that they've raised because again, they tend to have, you know, a lot of passion for their employees and their customers and their solutions. And again, we try and be able to let them know we're going to take good care of what they've created.

I've seen that before. And a lot of these founders fall in one of those two camps either, hey, I want to get alleviated from a lot of the pressure of all the effort and ownership versus they might just be a builder and that's what they want to do is go on to the next thing to build.

Yeah, we have a couple of great examples of founders of smaller companies that we purchase. Actually the first company that I was in charge of acquiring, that I found and nurtured and closed, he is actually one of our, we call them group presidents now, basically running a multi hundred million dollar portfolio. And I think the company that we purchased back in 2002 was I think less than a million dollars in revenue.

Wow.

I was speaking to one of our leaders this morning before our call. We just moved him to the United Kingdom. So we bought his business. He stayed for a little while, then he quit on me. He called me one day and said, Jeff, I just, I can't do this anymore. I don't have enough control. I'm not enjoying it. He went off and did some other entrepreneurial things and then I think realized perhaps the grass wasn't as green on the other side and came back, has continued to move his way up in senior management and now is again having a next chapter leading a bunch of our businesses over in the United Kingdom.

I got to ask, the volume of.

Deals that your organization does, how do you typically source these deals?

The bulk of our sourcing, I would say would fall into two categories. So we have a team, a group of business development professionals that basically are on the phone daily calling out to prospective owners and managers to, to initiate a conversation or to maintain a relationship. So we would call that nurturing. So we have this nurturing function. At the Harris level, we're doing that in the thousands. At the Constellation level, where we're doing that in the tens of thousands, basically again, just this army of professionals who basically are just making sure that we understand, you know, where the company is in their development, in their life cycle, in their thinking in terms of what might be important? You know, as much as I think we would want them to say when it's time for them to look at a transaction, to only bring us to the table, I, you know, I try and say I'm a bit more realistic and say I just want them to think about us. I mean, I love it to be a sole source, but in today's day and age, with the amount of capital that's flowing in the markets today, that's not necessarily a realistic expectation. But as long as they allow us to be part of the process where we can again put our value proposition on the table and perhaps be able to, to do something. So I think that's the main way that we do it. And then a bunch of our senior leaders, beyond our professional business development group, they also would maintain handfuls of relationships over the course of time. I remember one of the companies that we acquired, it's probably like you know, a decade ago, but I had the relationship for a decade with this CEO constantly just talking, having dinner at trade shows until it was time or he was ready to transact. So that's very typical of what we do. We track lots of statistics and data. The average time that we would have, identify a prospect and then move to, to, to a transaction or make an investment could be upwards of four to five years.

Wow.

So we're not just sort of speed dialing, looking for someone who's ready to sell. We're really trying to build out a relationship and an understanding of the markets that we're in and just positioning ourselves to be at the table when the transaction happens. Number two then would be we definitely also understand the dynamics of brokers and advisors. So I would say we spend a fair bit of time doing just like we will nurture an owner manager, we will also nurture and develop relationships with again, advisors and brokers to make sure, you know, they understand what markets we're in, what types of businesses we look at, what we're currently looking to do. Most brokers and advisors, they don't always love the price that we're willing to pay because I think as I said before, we're value buyers. But what they always appreciate is our ability to get a transaction done. So again, if we're at the table, we have the capability, we have the financial wherewithal to actually get a transaction closed. And obviously if you're a broker advisor, you're in the business of getting transactions done. That's a super strength that we have. And then we spent a little bit of time, I Would say the third sort of sourcing is we've had some great success over the years, what we refer to as corporate carve outs. So basically large entities that they could be software entities. A lot of times they're not software focused entities. But over time they end up either thinking they want to be in the software business, perhaps they've acquired something else and they've acquired some software assets. And usually over the course of time, if they're not really into software or they've acquired software assets that aren't core, there comes a time when they're willing to get rid of those assets. And we like to be there, ready to do that because again, we can do the transactions again very quickly. We understand what they're looking for and again, we feel that we're a good home where they're not going to end up in the paper with the buyer having done something terrible to the business. They're just disposed of. So basically we take good care of these businesses that we're able to buy. So I think those are the sort of the three main ways that we source our investments.

To do everything on scale, you got to do business development on scale. We talked about having the team that's actually doing a broad outreach sort of keeping tabs on companies and nurturing those relationships because it's not an impulsive decision to go sell your company. And you mentioned it takes upwards of four or five years for that to actually happen. Then your management team is actually networking and keeping some of those relationships as well over time and keeping that depth of networking, also developing your network of advisors and brokers and then also looking at the opportunities from large corporations that may be potentially carving out businesses that you could then acquire.

That describes it perfectly. Sometimes it's a great combination sometimes of a business development professional with one of our, let's call it business leaders or business professionals. Because again, you can have such a rich conversation about what we're seeing in the markets, typically other similar markets. Some of the challenges that we're having or that they're having, it can be a differentiated conversation than just an acquisition money conversation because we can talk about some of the same things that are important to the owner manager. So we try and also make sure that we bring the right people to these conversations. Being able to talk about how they would fit within the broader Harris or Constellation organization is typically top of mind for these sellers.

Again, going back to volume and scale, what's your evaluation approach look like?

There's nothing fancy, so we're discounted cash flows Discounted cash flows we use after tax with the assumption though that we own them forever. So again, we're not playing sort of terminal value games or making wild assumptions after three years or five years. Basically we're building out very long term models in terms of the way we look at it. Our board sets for us the hurdle rates that we need to achieve. Typically now they're geared based on size of the business. Again, depending on what the size is, there'll be a different hurdle rate that we need to model to. We do use First Chicago. So basically this means we create four independent scenarios of what we think would happen. So again, we have a winner scenario, we have a modest win, we have a walking wounded and then we have a wipeout and then we probability weight those, those scenarios and then basically come up with a weighted average or an expected value. So again, that might be a little bit different than what some people do. Still all geared around discounted cash flow though, nothing sort of special about that. So I said Harris has done over 150 constellation. I must admit I've lost track of the number of over 600 acquisitions right at the Constellation level. A few years ago we started using our own data. So actually we make quite extensive use of base rates. So basically we can on a number of metrics we understand what similar businesses that we've already purchased, how they've performed again relative to these metrics. And then you can take the existing investment that you're proposing and the thesis that you're proposing to put forward or to execute upon and you can actually graph it against the base rates and you can go, wow, I'm proposing that this business will be in the top quartile or the top 95 percentile of every any business ever bought by Constellation. Does it have the same characteristics? Or perhaps maybe my modeling needs to be. We should relook at some of the assumptions that we put in our modeling. So again we make quite extensive use of as well, which again is probably a little bit different than some other organizations because again back we have the volume, we have the scale to be able to do that. We try and do that, take multiple.

Views, really get comfortable with the transaction and what the potential is. Then you just sign off and go at it. Or is there a formal approval process?

It's all geared right now on size. So again, because the operating groups are fairly autonomous, what I do at Harris is not necessarily what my peer would do at Valeris as an example. So in our organization. So basically I have approval up to a certain dollar Value above that dollar value, it has to go to Constellation. So in this case it would just be the cio, which is Bernie and Mark would typically take a look at it of a certain vol our value, sorry. Then it goes to the board of directors. So they would actually require their approval. And then within the Harris organization, I have also provided dollar value, we call them hunting licenses to some of our senior capital deployers who've done it many times themselves. They don't need my approval. I will look at after the fact and provide comments. So they can basically do it. So again, this is all helping to try and again operate at scale. We're doing a large number of transactions. You've got to be able to have a flow of how it works. So again that's typically how it works. And as we grow we just keep adjusting the dollar values as time sort of by the dollar value now that the CSI board looks at is larger than it was five years ago. The dollar value that I'm allowed to approve is higher than it was.

So you don't get five blank checks mailed to you once a quarter.

I do not get five blank checks mailed me to a quarter. Yeah. We're a very disciplined, rigorous group. We take our capital deployment very seriously. Our compensation system at the senior level is driven around return on capital because we don't sell our businesses. If you've done something and it hasn't worked out, it is in your capital base forever. We just use them for storytelling. We have great stories and great stories. We have great stories that have given us great returns. We have great stories that have given us horrible returns and we like to share them both with everybody to basically make sure that, you know, we don't repeat the same mistake and try and accelerate the learning. It's challenging for people to learn from others mistakes without having made the same mistake themselves. We could find a way or a system to leverage that better. I think that would help us scale faster. It honestly just people believe, yeah, I understand what you're saying. I understand that turned out poorly last time but my situation's different or it's just a little bit different enough that I don't need to. And I think again, we haven't quite found the super recipe card. I think just to get people to do it. We share lots of learnings, we share best practices, we do all of those things. People still seem to have to live the pain to actually go, oh, I.

Don'T want to do that again on your results.

We want to make sure that we have Opportunities for people to learn where it doesn't cost a lot of money. Sorry, we're not. Not doing this on big capital deployments. You're trying to let them learn on smaller deployments so that they build up their skill set and their experience set in their repertoire so that as they get to do larger and larger ones, they have a better foundation on which to to deploy.

Have you guys found good ways to share lessons learned across your org?

We do a lot of sharing across the Constellation. We do a lot of sharing within the groups. Is it great? Is it perfect? No Constellation, we put on an M and A conference every year. We have hundreds of people attend and we have all kinds of breakout sessions again on lessons learned and how to do this well. So we do that. We actually we're doing. We do it for M and A. There's one coming up next month on organic growth, the two lenses we deploy capital. We also operate our businesses. We do that on people understand how they could drive higher levels of organic growth. So we bring people together. We share best practices. We create content where we share it. I would say the best process we have, although sharing is. Is still I think somewhat complicated. Back to my comment on people seem to have to learn from the experience themselves is we have a process that was created by Market Constellation a few years ago called a par. So a post acquisition review. We typically do this about a year after we've completed the acquisition and we've operated the business and we sit down actually I just, I actually sat one yesterday and we just go back through all of our major assumptions that we made during diligence and we say what did we learn? Did we make a good assumption? If we did, what do we learn from it? In a lot of cases do we make a bad assumption? Why did we make that? Why at the time were we comfortable making that assumption? Or what did we do to validate it that perhaps wasn't well thought out? And then we try and share those learnings out with everyone else. We also have a checklist. So basically if you're proposing an acquisition within the Harris organization and you're preparing, we have a financial model that we prepare using this for Chicago modeling. We also prepare an investment Memo. Typically in PowerPoint there's also like a checklist that we ask people to go through to also just sort of continually make sure that they're not making like almost like silly or stupid mistakes. So sort of you try and squeeze that part of it out. It doesn't necessarily help you with really bad thesises. Or just pure mistakes and diligence. But it definitely gets you sort to tighten up and again adds that rigor to the process, which again is very important for us when you're operating at scale. So, you know, we have a, a checklist. We're constantly updating it. I can't remember how many items it has on it now. Quite a few. And we just asked the person who's signing off on the investment to go through and actually just initial that they've actually considered or it wasn't appropriate all of these different items, which one of our thesis or our return levers was. We were going to increase some pricing on the maintenance contracts. Well, did you review are there any contractual caps or is it a timing issue? Right. Where have you put it in the model at a time that doesn't coincide properly with contract renewal? Because again, these are lessons learned in the past that we don't want to sort of repeat in the future and get them to go, oh, you know, yes, I did, or oh, let me go back and make sure I did that. So you try and squeeze out some of the more simpler things. Like I said, it doesn't help you on their super complicated things, but it helps you on some of the simpler stuff. So pars checklists, reviews. And typically we have lots of people with lots of capital deployment experience. So again, if you're proposing an acquisition, it has to go through a couple levels of review. I'll spend some time with it. It's larger. It'll go up to people like Bernie or Mark, who have obviously extensive experience. You're able to get a lot of feedback on things that you should think about.

So really interesting multifold strategy between doing the events, having these resources or essentially artifacts for people to reference, doing postmortems on your deals, having peer reviews, got some checks and balances in place.

We have some checks and balances, yeah, for sure. It's a very, again, disciplined, rigorous process, but so much a part of what we do that it's no different than if you went into one of our businesses and you sort of looked at all of the operating things that they do. It's a very similar playbook on the capital deployment side because again, it's not like we're doing onesie twosies. Over the years we've done over 640 and fast forward three years from now we'll do another 600. Like, I mean, we're not stopping. So again, like it's a core part of our DNA in terms of what we do.

We move along through the deal and get into diligence. And this is where I see large strategics will heavily rely on internal functional leads and private equity will have a myriad of consultants that they'll leverage. What's your approach look like?

Yeah, so we're pretty much self sufficient. Although I must admit partly coming from my experience working with, with private equity and just seeing a different way of doing the same thing I find quite interesting. Mostly, you know, we have our own internal legal resources and we have a team of internal lawyers. So we control our own process that way we definitely bring in external lawyers to the extent if we're looking at something unique. Certainly if we're entering foreign geographies, we would typically always be partnering up with a legal firm in a different country. The core business diligence and modeling is probably 95% done by internal, Harris or even Constellation resources. So basically a common combination of our full time M and A professionals. We have, I explained, we have these full time business development professionals. We have a team of full time M and a capital deployment professional. So they're the ones in, in the data room doing the diligence, doing the analyses, preparing the investment memos, building the model so we do it internally. We'll also involve business leads or resources. Again if we're already in the vertical or in the space and we think they can help us, whether it's finding the strategy, understanding the market, understanding the competition, understanding the feature and function set of the product. We might involve one of our technical sort of R and D experts if we're trying to understand the tech stack and we're concerned about technical debt or something like that. And then we're starting to, I think, experiment a little bit more with using some external professionals. So I think sometimes we don't buy a lot from private equity, but we will sometimes buy some of our companies from there. Their expectation is to move very quickly and sometimes I think internally we're not as fast as we need to be. And so I think there we're willing to supplant some of our internal expertise and resource with a little bit of external consulting support. So I'd say we're starting to scratch a little bit more at bringing in some external professionals if we think they could help us speed up the process or just bring a set of expertise that we may just not have internally. But I'd say, you know, 95% internal, maybe 5% external. If we go into a new market or so a new geography or a new version to coal, we typically will always do A fair bit of work to try and understand the market a little bit more. We don't bring it with us so therefore we want to make sure we're understanding. You know, one of my pushbacks on our diligence teams all the time is the owner said is not diligence. Just because he said it doesn't mean like that's not diligence like you need to be. It's fine to listen to him or listen to you, but then you got to go and basically validate that with, with you know, actual real external data. So whenever we go into new markets and new geographies, we try and reach out to external experts or professionals to try and make sure we understand the dynamics of the market that we're about to enter.

So it sounds like Finance legal. It's essentially centralized for your group, but across the platforms. Do they have their own HR function or. I'm just trying to get a sense if you like hr, it is that sort of centralized in the group to support all the businesses and you utilize those those resources or are you pulling them from within the business?

It could vary by Constellation operating group. So again, Constellation again back to this autonomy and decentralization and control at the OP group level. So again, just because I choose to do it one way doesn't mean that one of my peers, they might do it slightly differently. And actually they do some things differently. So we definitely operate with a centralized GNA model. So finance, payroll, HR, legal and IT's are centralized services that are provided to our businesses and then obviously provided to our M and a function from this sort of this central group of resources. Right now we've grouped all of the Harris businesses into sort of four larger groups. So a lot of that provisioning is at this group level. So each group is a couple hundred million dollars. So there's provision there. And then as we get more geographical, you're getting a bit of a geographic overlay as well because obviously doing for an Israel or for in the UK if we're in Australia, you have to have some local expertise. You can't necessarily set sort of one head office. And again we're Canadian in Ottawa doing everything. So we tend to have our professionals spread out across the world. When we buy a company, even though we centralize the functions, we'll often keep the G and A professionals that were at the company. They just join our greater corporate team and either provide services to the business as they were before or perhaps to additional businesses. So it's all about capacity and scale. We're Always looking for great people. So if we find them, we try and find homes for them as opposed to exiting them from the business.

Really unique structure. I'm trying to even imagine how you're communicating with thousands of people across all these different businesses while still maintaining this centralized structure for the support of them.

Communication is definitely more challenging. Today we have over 6,000 employees. I would say it's not even just the number of employees that makes it challenging. I would say we have geography issues now we have language issues that a lot of our employees don't speak English. It's not their first language or their second language. And we also have so many different verticals that what you communicate on can also be different. So I'm a fan of multiple communication channels. I try and use lots of them and really let the employee pick and choose which ones they like, which sort of suits their preference. I do use email as much as it's the old standard. I still send out company wide emails. They just go out in lots of different languages, not written by me, translated from my. My starting English. I have also a lot of subgroups. So basically again, communication with lots of subgroups. So again, I send out an email every Tuesday morning to everyone involved in our deployment process. It basically has a number of statistics and data and encouragement to be doing certain things that I feel we should be doing. And maybe we're not doing them as well as I would like us to do them. Every Friday I send out an email to all of our senior leaders, give them things I like them to think about over the weekend, typically also sharing best practices. If I've talked to a leader during the week and we've talked about a best practice, I'll put a link or a document to a best practice that may or may not be relevant to them. So we sort of have that cadence of communication every six weeks or so. So I send out what I call a food for thought. So they call it like a newsletter. It looks like a newsletter. So this is just a number of articles and books and podcasts or other media that I've been consuming. I'm a sort of a voracious reader that I think might be useful to people. So actually I rate the book. So I give them. I have a five star rating system. So I basically I rate them and give you a little sense of what the book's about and then perhaps if that's of interest to you, you can go do that. Covid has been. It's been challenging in many aspects, but one of the actually the Good things is. Is we're creating so much more content now. So we're recording almost, I'd say everything. We're recording a lot more of the content that we were not recording before. So we do a good job of recording all of the presentations that I'm giving internally, that I'm giving externally, and we're making those available for people to watch. As you and I were chatting before we kicked off the podcast, I have my own little. Nothing compared to yours. A little mini podcast series where I try and interview Harris leaders and again, just give people across Harris a different understanding of what's their background, what have they done, what is their career. The last one that we did, actually, that was the one I was the most uncomfortable for. And so we did one on inclusion and diversity. And so we had four of our different leaders really sharing their stories of inclusion and diversity, both at Harris and some of their other experiences. So just again, trying to share with our employees different ways of looking at things and how we're thinking about different things. They created for me this. I call it this quirky little avatar that kind of looks like me that I. Sometimes I use when I'm recording shorter, little targeted messages, which Rick reminds me, I haven't used them in a while, so perhaps I need to go back and use him. You try and use all kinds of different ways that connect with different people for different types of communications. But I do spend a lot of time thinking about it because with so many employees, I try. And obviously I haven't been traveling for quite a while, but I did the lady that keeps me super, super organized and make sure I keep my tea focused where it needs to be focused. We would actually, at one point, we were counting the number of employees that I would have that I got up and spoke to over the course of a year. And I always wanted to make sure that number be well over a thousand people. You know, what event am I going to? Okay, I saw 400 people here. I saw 50 people here. Just to make sure that we're constantly communicating with different groups of employees and making sure I don't get too internally focused. The bigger you get, you spend a lot of your time just talking with your very small leadership team versus getting out and speaking with more people. So I try and make sure that I get out as much as I can.

Communication is key to make integration successful. What's your integration process look like and how are you involved with it?

Yeah, so, I mean, my involvement is certainly nowhere near what it used to be. I think If I was to be honest, that might be one of the things that I miss the most. That I think in spending more time with our actual business leaders, I have more of an operational bend to me. So again, I like getting into the details of businesses. Whereas so before I would very often go on site and do what we call the day one presentation. So we would typically when we buy a business very shortly after acquisition, could be day off of just depends. Get them in a room, walk them through, introducing them here, here's who we are, here's what we stand for, here's what we're all about. And then spend, you know, the day or a couple days with them, meeting them and bringing them into the process. It's always good to remember, even though we might have been dealing with the owner and the senior team for months, working through the investment, most employees find out about it on the day of close. And I think again, they're not part of the process and I think obviously can be a very unsettling and anxious time for them. So again, over the years we've tried to really hone our message down to being very much about the employee and really what they're going through and how can we make that easier? I probably was terrible because I used to get up and give three hour presentations and you take you through the formation of Harris and Constellation to our strategy for the business. And obviously, yes, this is the payroll cycle and the vacation policies and all this kind of stuff. And then we realized that you really just needed to hone in on the really important things, which is, is my manager changing, changing who is here and who is no longer here and am I getting paid the same amount of money and when am I getting paid? And if you're depending on what country you live in, if you're in the United States, what are you doing to my benefits plan? So we stop with all the other strategy and this and that and we just get really focused on that. And then as the days go by, we share more and more as people get more and more comfortable with what it is we're doing. So the integration process itself, I think again it depends on platforms and tuck ins would be different. So obviously if it's a platform acquisition, our process would be slightly different. If it's a tuck in, we have a mix of full time integration professionals because we're acquiring so much. We have some people like their full time job is to be an integration manager, the integration management concept. So we have an integration manager for every acquisition that we do. Again, sometimes they're full time employees who. That's all they do. We also like the integration management experience. We think is really good as a leadership development tool. So again, we'll often pull people from existing businesses and provide them with the opportunity to be an integration manager because typically it can be anywhere from three to six months. So again, it's a sort of, a relatively short sort of experience. But it really helps them understand what it's like to be an employee, how we think about acquisitions and that kind of thing. We have an extensive playbook, lots of checklists to make sure we don't forget the stupid stuff or the simple stuff, but leave enough room for the agility of what you need to do. We're fairly, I wouldn't say hands off. So obviously we have a core financial reporting system and a reporting tool that sits on top of that system system. Everybody gets on that system as soon as possible. We have one, I would say HR system. So we use workday. So again, that's the system that we basically would roll out to all of our employees in all of our businesses. The other systems, if it's broken, we're going to fix it. But I would say we don't basically say everybody will be on this system. What we typically would do is say here's five different CRM solutions that are used across the Harris family. Here are the businesses that use them and here's the business leaders that could tell you what they like and what they don't like about about them. How about you reach out to them and decide for yourself what you think the best right solution is for you. So again, we don't actually mandate a number most of the systems that are there and again, if they're not broken and there's so much going on in the initial integration that we try and really focus on fixing the things that don't work and again, really supporting the employees through that process because they're the ones that are moving your product forward, engaging with your customers. We want them to feel as supported as possible. So again, we don't typically force changes. And then again, I mean the final piece, I would say every investment that we make make has a thesis you're going to do these things to the business to be able to earn the return that we think we need to earn. And that obviously links right back into our integration to make sure that we're doing those things in the right timeline so that we're able to earn the returns that we forecast to earn. So that might change some of the timing or the cadence around integration.

These are great rundown of your integration approach. And I particularly like how you prioritize the communication with the employees of the newly acquired company and what's important to them.

Yeah, good lessons learned. Not that these things are always fun, but I think sometimes the reality is if you buy a company, we might have to part ways with some employees. Whether again, it's because we have a corporate group and we don't need those corporate employees, it's for a different reason. What we learned very quickly was that's really important for the people who are in the room and they don't know whether. Well, is Kisan not in the room because he doesn't work here anymore or is he just at home sick today or is he busy doing something else? And we never really would talk about the people who aren't there anymore. So now we go, no, no, we're going to actually acknowledge the. Here are the people who are no longer here in a very respectful way so people can start the process of recovery. These are close colleagues or they could be friends of the employees who are still staying. And I think you want to be respectful to them of acknowledging what has happened as opposed to pretending like it doesn't matter or that we're afraid to talk about. But we're a very, I'd say, straightforward organization and we really believe in being respectful but also hitting the hard truths when they need to be hit and then starting that sort of recovery process from there. We're not going to sell you in five years. Therefore you're going to be part of us forever. You might as well understand how we think and how we do things.

Really good approach. What are key lessons learned?

To be flexible and be willing to think differently about what it is, I think think is really important, like understanding the cultural fit. I think of the senior teams we've probably spent more time on now than we have in the past. Whereas before I think we were just. If it was for sale and we felt we could enter in return, we're just going to buy it. Now I think we spend more time understanding the impact on the integration approach. If we think there's going to be challenges culturally in terms of again how the businesses, how they operate for. So we operate obviously now we're, you know, we're deploying capital, capital globally. Assuming that every business thinks like North America is, that's just not a good way to do it. So again, trying to adapt ourselves to be flexible to deal with that. And again, I think you just share the learnings we share the great success stories, but we're equally willing to share the mistakes. We had a two hour meeting yesterday, one of these pars post acquisition reviews and it's mostly focused on here's the five things we got wrong and here's why we got them wrong. Here's what we learned from it, here's what we would do differently next time. But it's not like the people who were presenting it, I wasn't attacking them. It's like they wanted to share because they wanted to go again with their peers to explain what they were thinking, what they've learned and how they're going to do it differently. So I think creating that culture where you can talk about the things that didn't go well so that you don't repeat them in the past, I think is really important for people like us who basically deploy capital for a living.

It sounds like it boils down to having that feedback loop and continuous learning type of culture.

That is our intention. Intention. That is absolutely our intention for sure.

Jeff, what's the craziest thing you've seen in M and A?

So I would say that it's more, I guess, maybe funny stories. We bought an OMS and Offender Management System, a business, and we wanted to visit one of the customers and see how the solution worked, which meant we had to go to a prison. My vision when we went was that we would not be spending time with the actual people who were incarcerated in said facility. That actually was not the way that the tour worked. So the tour was basically we were walking around actually within many mates in between as we were locking the gates with the guards who were giving us the tour. And I remember at one point, I'm a very curious individual. So I wanted to see what it was like to look at the inside of the cell. So the gentleman giving the tour calls up, hey, Kisan, come down here and take Mr. Bender up and show him your cell. And so like this guy comes down and he basically goes, come with me. And I have to walk up like these sets of stairs and into his cell. And I'm looking back as my group is, we'll meet you down the hallway. As they're walking down the hallway, this guy's showing me his cell. I was trying to learn more about the INCEL technology that they were using. Using. So that I must admit, we left that. You're like, holy cow. I just spent the morning walking around an actual prison. We had one where we had some key executives that had once been married. And I would say perhaps were not fully over their separation, but it did not come up during diligence. So that made for a bit more of a fun integration after the fact. And then one of my, one of my peers reminded me that we were doing diligence on a company and we discovered that one of our full time employees was also one of their full time employees employees. So that led to a very interesting conversation with, with said employee. So obviously that was obviously not super pleasant because you're dealing with family dynamics a lot. I would say just lots of conflict between parents and children, brothers to sisters. When it comes time to sell the companies is a very emotional time for them and you can get caught up in some very difficult, very uncomfortable situations. Again, obviously we've had our share of share of those, but the prison one was my favorite.

Interesting, great stories. They'll just took you to prison.

Yeah, exactly. Yeah, exactly. Yeah. Over in the UK to boot. Yeah. So they don't even carry guns with them. So that was even more.

Wow.

Yeah. To be clear with your listeners, it was a low security prison. It wasn't like we were in with. With murderers or anything.

That's good.

Yes, it was for me.

Thank you so much for your time. They enjoyed this conversation and learned a lot.

All right, thank you son. Take care.

Thank you. Cheers. Here's to the deal.

Thank you for taking the time to explore the world of M and A with our podcast. Please subscribe for more content and conversations with industry leaders. If you like our podcast, please support us by leaving a five star review and sharing it. I enjoy hearing feedback and connecting with our listeners. You can reach me by my email. It's Kison K I s o n dealroom.net M&A Science is sponsored by Deal Room, a project management solution for mergers and acquisitions. Additional educational content is available on Deal Room's blog@dealroom.net Blue Blog. Thank you again for listening to M and A Science. See you next time. Views and opinions expressed on M and A Science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual. This podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions.