My Daughter Interviews Me About M&A | Holiday Special Episode with Shyla Patel

My new book, Buyer Led M and A. The framework is officially out over 400 episodes of M and A Science. I've talked to the best corporate development leaders in the world and one thing is clear. Traditional M and A is broken. Buyers chase auctions, sellers control the process. It's reactive and inefficient. This book takes those conversations and distills them into a practical framework for how to flip that so source deals directly, build relationships earlier and stop being auction chasers. It's not theory, it's what leading teams are doing right now to increase deal volume and take control of their pipeline. If you want to build a proactive M and A program that founders actually want to engage with, grab your copy. It's available now on Amazon. Head to dealroom.netbook to check it out again. That's dealroom.netbook foreign. Science episode is sponsored by SMP Global Market Intelligence. If you need to map out niche industries like cloud infrastructure or health diagnostics, then find comps and assess operations for a private company. Target SMP Capiq Pro has you come covered with data on over 58 million private companies, including extensive coverage in Europe and APAC. You can dive deep into headcount analytics, granular ownership and corporate relationships data and rounds of funding insights. You can also streamline analysis with new AI powered features. Explore their private company data@spglobal.com PCD that's spglobal.com PCD Science I'm Kisam Patel and you're listening to M and A Science where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and what actually happened during M and A deals.

Hey everyone, welcome back to the MNA Signs Podcast.

You ready for this interview kid? You basically grew up around all this stuff.

Grew up around it. That's like a nice way of you saying you drafted me at 6.

However you want to frame it. We've done a lot of things over the years. Do you remember the first time I took you to the office when you're six years old?

Yes. Reading off of scripts and like filming videos.

Total natural back then.

Then around Covid you made me do all kinds of stuff like live streams. Oh, and I remember the first M and A Science Summit together and you put me on a live broadcast in front of thousands of people and then you made me do a stand up comedy for the closing session.

You totally crushed it. You did better than most of the grown ups at that event.

And then we kept going and doing more kinds of stuff like doing commercials, promos, walk on remarks at the science fair, and of course, our Boss Move series. How could I forget that?

50 interviews with all different kinds of influencers. That was probably my favorite father daughter series that we've done. And you did an amazing job.

And that was even before I hit middle school.

I learned a lot from that series. And. And I watched you go from such a shy little kid to a total beast.

Okay, I'm 15 now, so.

Yeah, I know. You're too busy for anything. Too busy for me. All your times with your boyfriend. Yeah, I'm missing out.

Okay, but most teenagers don't want to be with their parents, so.

Doesn't make it hurt any less.

Well, at least I showed up today. And you're surviving my teenage era. Like, barely. But here we are.

I'm so thankful you're here. You ready to get into it?

Let's do it.

Let's do it.

This podcast is part of our mission to rethink how M and A is done. The old school seller led approach that's so outdated. Buyer led M&A is about clarity, alignment, and execution that actually works. So today we're diving into the new book that rewrites the operating system for M and A. Hi, I'm Shiloh Patel, a high school student at Stevenson High School. Today I'm interviewing my dad, chief scientist at M and A Science, and the guy who dragged me into content creation before I could spell the word content. He's also the author of a brand new book, Buyer Led M and A. Built from interviewing more than 400 practitioners across corporate development, private equity, integration, banking, and founder led companies.

That is like, one of the best introductions I ever got. Proud dad moment.

So how are you feeling about this interview? Are you excited and ready?

Yeah, I'm super ready. We're here in the North Chicago suburbs. Super cold outside. Holiday season. At least it's sunny out. How you feeling about it?

Feeling great. Ready to kick things off. Can you give me a quick intro about yourself?

Besides being your dad, my career has mostly consisted of M and A for the past 20 years. I started as an M and A advisor for a boutique practice, meaning I was helping people, consulting them on buying businesses, selling businesses, and I worked mostly with hotel properties. And then I also spent time working with financial institutions where I would help bigger banks buy small banks and then help small banks sell. And then that ended up leading to the recession when during the recession, it was like really hard to get deals done. So that's when I wanted to do something else. I had a lot of interest in tech and I ventured off to do a tech startup. It didn't work out very well, actually failed pretty bad, which is a whole other story and podcast. But in that experience, it was the first time I got to work with software engineers. And I was so intrigued how they were using this product called Jira to manage building the software product. And that's what gave me the inspiration and idea to start deal room in 2012. Basically, why not bring project management software to M and A? That business started and it was tough. It took a good five years to really figure out how to work with an engineering team, get to product market fit. We spent three years selling to the sell side to the bankers. And they weren't the early adopters. They didn't care about new technology or changing their ways. And then by accident, we had an opportunity to work with a client and take them public on the Toronto Exchange. And after that, they ended up doing three acquisitions with our product. Like, wait a minute, they're buying companies, not selling companies. And we just started building around their use case of how they buy companies. And that's how Deal Room really evolved into this whole buy side management platform where it covers a whole life cycle, pipeline, due diligence, integration. And then around 2017, I had my friend Andy. I don't know if you met Andy before, you have met Andy. Andy came to me one day and he was like, hey man, you should do a podcast. And I remember, I look right back at him like, what the hell's a podcast? And he's like, don't worry about it, this is gonna be the next big thing. You just gotta do it. I still didn't believe him. Like, it took me a while, probably the fourth or fifth time, in fact, he got to a point where he is like, hey, I'm going to this podcast conference. Why don't you come with me? I actually got to talk to all these other podcasters and I got interested at that point. I'm listening to their stories and the impact they're making with their podcast and the reach they have. I thought, I'll give it a shot. Even though I knew it back then, I was like, very introverted and shy and it wasn't my thing. But I pushed myself out of my comfort zone to do it. And I just started recording some podcasts and got some of them out there. And Here we are eight years later with about a reach of 50,000 people that listen to this podcast, step down as CEO of Deal Room and am carving out MA Science into its own business and really going to focus on making an impact in this industry.

Wow, that's a lot of series of events that you went through. It's very cool. It's amazing that you're starting up a new business, moving on, taking another step. Okay, I'd like to ask you a question.

Sure.

What problem in M and A were you trying to solve when making this book?

I feel like there's a couple things that are happening. One, I did about 300 of these podcast interviews, and I wanted to reflect and really understand what I learned from doing all these interviews. I talked to all these people. I think the thing I've concluded was, like, there's this maturity curve for an M and A team that the first deal they do, they make a lot of mistakes. In fact, most of the time they're very reactive. They usually. The deal comes to them. Maybe a banker brings up a book, you know, where they're presenting a deal, and then they help that company justify why they should buy that business. And they oftentimes may be in a really competitive process, and they're basically being pulled along by the sellers in that process, and they end up closing the deal. And they're not really ready for all the things you have to do after you buy the business. Because once you buy a business, you're buying a business for a specific reason. There's something you want from that business that you think is going to create more value for your business. It could be the customers. It could be some technology. It could be helping you get into a new market. It could be the talent that they have. They could have some really good engineers, and that could help your company out. And after you close, you need to figure out how to maximize that value. Do you have to get those teams working with your team? Do you need to get their product and your sales go to market? Those are the big things that get screwed up. Especially the first deal. You're not prepared for it. You don't have a plan. You scramble. And then the worst thing that happens is people freak out because they don't know what's going on. They have a lot of uncertainty and doubt about what's happening. They have fear for their job. And then recruiters know that they'll start calling and offering them jobs with their competitors. And that's the worst thing could happen is like, a lot of people quit after you buy the company. That happens in the first deal. And then when you look at a company around maybe the 10th deal, things totally change. Like their whole Process is different. It is very much buyer led. Like they've known, they've gone through this and been burnt enough times before that they take control of the process. In fact, at this point, they probably have a really clear strategy of what exactly they're trying to do. Like why would they buy this business? Which allows them to have a really clear criteria of what exactly they're looking for in a business that is going to help them achieve their goals in their strategy. And that makes it really easy for them to look at opportunity and say, okay, this is a good deal, this is not a good deal. And really figure that out quickly. So don't waste a lot of time and resources. And then as they go through that process, they are planning on how they're going to integrate the business. How are they going to maximize the value and get all those things that they bought the business for? Right. Because when you close that deal in the company, it's like you basically have a promissory note. It's all the work you have to do after you close, which creates the value. Why do these companies all have to learn it the hard way? Why do they all have to make so many mistakes and spend so much money and really do a lot of bad deals before they can do really good deals? And that's where I thought, hey, why don't we take all these learnings and put it together in a framework so that way other companies can study it and saying we can get ahead of this. If we can follow this framework, we can really understand how do you build an M and A strategy early so that you can create that strong criteria? How do you lead your deal process with integration? Like really thinking about what that end state is like, what are we ultimately trying to achieve and build your process around that? That's what I was trying to do with this book. So it ultimately makes M and A better for the whole industry.

This book will definitely like help a lot of people out. I also wanted to ask, were there any specific experiences where you realized that people were just like doing their deals wrong?

Yeah. When you talk to people, they tell you of things that go well and things that don't go well and you hear a lot more about things that don't go well. That's what made me realize that there's an opportunity here. There's just so many lessons learned when you start asking people. There's a lot of different things that people learn the hard way. People often talk about when they buy a business and they're trying to bring the whole Team over. Because when you buy a company, you're basically bringing all the employees over from the company you bought into your company. Now, if you can imagine your company has a way of working, think about in school, like your friends. Will you have one social group of kids, There could be another social group you have. I don't know how it is in your school now, but like we used to have like pretty preppy kids. Then you have maybe the rock band kids. Then you have just nerdy kids. Did you have that in your school? So you might find like the cultures are different with these companies and you can't just magically expect them to come and be happy and work together. It's just like same thing. Like if you all of a sudden you're like, all right guys, you now off to be in the same friend circle. Are you expecting them to all get along and just be happy together? Probably not. So that's like the same thing with businesses. Just an example, like knowing that ahead of time and building this in your process, you can spend a lot more time earlier in the deal to really understand what that social culture is between the different companies. Like your company, understand what it is, how it is in your company, and then how it is for this target company that you're looking to bring all the people over. Sometimes it may be so dramatically different. You're like, wait a minute, maybe we shouldn't do this deal. That's not always the case. Usually you at least get an understanding so you will have a better idea of how you should integrate the company. You may find out the marketing people would probably get along pretty well. That would integrate nice and smooth and we can like fully integrate the marketing team. But the engineers are so different. Some are following a really old waterfowl type of style and the other teams following agile. Like they might actually need to operate separately and we should just update our model around planning that and doing that versus forcing something that probably isn't going to work. That's like an example of why it's important. And you can get ahead of a lot of this stuff.

That's very cool. What was your biggest aha moment from interviewing over 400 practitioners or dealmakers?

I think the pattern was probably the aha moment was that you really see a pattern with all these interviews on how much of the success depends on how well you integrate the company. And how well you integrate the company depends on how well you plan for integration. There is a clear pattern there. The better you plan for integration, the better integration is going to go. And Companies that plan earlier usually have integration that goes smoother. There's things like that that we saw that validated that there's clearly some pattern here with the companies that we saw. That's probably the biggest one that's like, wait a minute, we can distill this down. I feel like when you think of technology, what technology means is building something that's repeatable. You can create something that allows you to get the same input, similar output. And that's where you get the science in M and A. You just find a way like, wait a minute, we found something to prove in here. Seeing the companies that were most successful had a very similar approach to integrating companies.

Okay, so about like integrating companies when deal making, like, what other issues have you seen them doing while they were integrating companies?

Yeah, the big one is not understanding the culture. We talked about that. I would say there's alignment on how you're going to integrate the company. So if one, if you can plan early, you can also align with the people coming into your company from the target company about the integration plan. So they understand it and they know their role in integration. Also there's like due diligence.

You familiar with due diligence studying another company?

Exactly. So now think about reverse due diligence, where you have them understand your company and that way they understand how the puzzle pieces are going to fit together. There's another thing that often doesn't happen. You're keeping them as like, hey, they're targets and we're going to tell them what to do. But you really got to think of them as partners and a real collaboration that can be really open. You can share what the plan is and how you're going to integrate and then you can share with them what your organization looks like. So they understand and they know and then they're part of the journey. It gets them excited and motivated about it, versus they just get surprised with announcement that somebody bought their company. And now it's tough. You gotta remember one big thing when you buy a business. Those employees didn't choose to come work for you like you're bringing them along. So it's not a fun experience for them. That's why the more you can do early to have them understand why the deal makes sense and get them more motivated and excited and understand where they're gonna play a part in it. That's like a big thing that that gets messed up. Definitely a lot of planning stuff. If you don't plan, how are you going to go to market? Because if you think about each company, the purpose of each company is to serve their customer. You remember the examples from Deal Room. That's what we pursue is serving our customer. We give them software and we really want to make sure they're happy. Every company exists with that same purpose. Like their number one goal is to make their customer happy. And when you think of M and A, each company uniquely does it. But when they're combined together, like how are they going to do that together? It comes together. And from that customer's perspective, what does that look like? What does that customer journey look like? Because now these two companies they worked with are now, or maybe separately or they're now one. Is it just one combined experience? Is it going to be one sales team that they're going to work with? They each operate separately, but they refer each other at the right time. Those are like the big things that you want to think about is how are you going to market together? And then also the reverse diligence. Those are examples of things like how do you go to market together? But then the people coming in, do they understand your organization? Those are some of the big ones that stick out.

Yeah. Doing diligence on other companies before you buy them is definitely important. But also doing reverse diligence so you understand the company and having them understand you. Why does M and A have a design problem, not an execution problem?

I like to use the phrase focus on closing the deal versus focus on making the deal successful. Because a lot of times what you see is it's a lot of work to get a deal closed, especially for the company selling. There's a lot of work for them to do and the buy side too. A lot of times you get in this focus of all the things you gotta do to get the deal done to close. And there's a lot. There's a lot. Because all the different departments from the buy side are gonna do diligence. The finance department, the it, the hr, tax, legal, they're all gotta coordinate and make sure they put all their findings and everything. And they take that information and write a purchase agreement. That's your contract that you're ultimately going to have that lays out all the terms so you can purchase the company. And they're all focused on that. But the best acquirers, while they're doing that, they're also focusing on what it's going to take to make that deal successful. That's the design issue. If you don't design your process that you have parallel work stream that runs along your diligence for integration Planning, integration, we're focusing on, we're going to maximize the value, and you have this work stream that runs along. So while you're doing your diligence, starting the business, looking for risk, you're also building your plan on how you're going to maximize value. You're going to lose out because you're only focusing on clothes. You got to do both. You got to focus on clothes and focus on making the deal successful. That's where that design problem comes in. That's a big thing that we talk about outside of making sure you buy the right companies and proactively source deals, is designing your process that you can make the deal successful.

When it comes to making a deal more successful, what other factors can, like, cause less design flaws in M and A?

I almost want to preface it with mindset. If you think about it, there's like a whole mindset to this approach that you have to lead in with. We talked a little bit about bringing this end state to the front of the deal process. Say you're a business owner. I'm a business owner, and I want to buy your business. I'm trying to convince you. I'm like, hey, Shyla, I know you used to have a jewelry store. So you're online. So say I was trying to buy your I'm a bigger jewelry store business, and I wanted to buy your jewelry store business, and I was going to approach you, and I'm trying to sell you on this end state of like, hey, better together. Because your brand is really good and unique and you serve a unique set of customers. But we have this really big distribution. Like, we're in all the big distributors out there and all these boutique jewelry stores and fancy places. We gotta deal with Tiffany's. We can help you expand globally or take your product globally. But now it's like, that's an idea, that's a thesis. But how do we even take that further, really crystallize, like, what does that look like when things are done? So if you imagine going to Tiffany store and there's going to be a little private display with Shiloh's jewelry, your boutique collection. So when a customer goes through, what you're really known for is your unique jewelry pieces, they're going to see that right along all the other stuff, and they're going to associate it with that same level of quality. You're really trying to, like, really understand what's that ultimately going to look like when the business is combined, especially from that customer's point of view. What's our Operating model. How is your team going to be working? Maybe we're going to promise you some independence or maybe we got to fully integrate you. Let's be honest about that. We want your team members to join our company because we want them to be part of the same culture and really work and be able to achieve these goals that we had in mind. So it's bringing that end state to the front, I would say, is one key step. The second is the culture piece we talked about. Because every company always talks about values. We talk about personal values. Do you remember personal values?

Discipline.

We had personal values. Discipline. Continuous learning. Empathy.

Empathy. Yeah.

Yeah. So a lot of these companies always have their values. A lot of times these, they're pretty broad words. They may not mean so much, but they mean things to the organizations. And what you want to do is like really understand what those words mean so that you could have a conversation to say, hey, because it could. Same word could mean different things to different companies. But when you do understand that, you really understand values, the values it lends you to start understanding the company's culture. The culture gets tricky because people have different interpretations of what culture is. But it's essentially the way of working. Like how does a company work together and get the work done? Which then helps you understand their leadership style. It helps you understand leadership style. It helps you understand the way they make decisions, the way they handle. Like when problems come up. Those things you want to understand culturally about the company. And then when you have that understanding, you really start thinking about your thesis of how you're going to integrate the company. That's also about again going for mindset. We're starting to think early, really early, about how the company is going to come together. We have this end state in mind and you start painting that picture. You have at least an idea. The challenge you have is early in the process, you don't get all the information you want because people are pretty sensitive about it, especially a lot of details. Employees, how much they get paid, all this stuff. Their customers, they're really sensitive about it. You basically just come up with an idea of how you're going to integrate the company, but you're starting to think about it because you're going to build your investment thesis of why we're going to buy the company and you're going to have your financial model and all these things in there. But along that you'll have this investment, this integration thesis to go along with it. That way you start seed seeding the early thinking, which includes that go to market what it was a joint go to market, going to look like, you build an outline for that. And then once you actually sign a letter of intent, you start laying out the terms and you agree, you start agreeing to the purchase price, time frame to get the deal done and all the key elements. Then you start moving into confirmatory diligence. And that's when you really start putting a lot of effort into the due diligence. But then you put more effort into integration planning. So you iteratively update your integration plan as you do diligence. A lot of information you get in diligence is really helpful for planning integration. Big mistake we always see is companies don't do that integration. People come late, they come maybe a couple weeks before close and they end up scrambling, trying to re diligence the deal all over again. And they plan just enough to get through day one, but there's still a lot of questions and then they still scramble to continue planning after day one that end up taking a lot longer to integrate the company. The big important part of it is you got to get ahead of it.

With mindset, I can see how mindset would definitely have a greater impact on doing like M and A design. Also talking about due diligence during the diligence process, how would you get information about the other company when it's not.

Fully like open one? When you start in the deal, you try to go online and do as much as you can. Sometimes you try to be a little sneaky, go try to talk to some people, maybe there's other companies they work with and you start talking to them. That's what you do really early in the process. And then when you start talking to the company and get them interested that hey, they were interested in doing a deal, you'll sign a non disclosure agreement because you at least get to the point where they're interested enough to see an offer, then you will have them agree to non disclosure agreement. And sometimes you negotiate that because if it's like a direct competitor, they're going to be super sensitive about the information and they may have more strict terms than a company that's not a direct competitor. So you'll negotiate that, which is basically your agreement that you're not going to share this information with people that you're not supposed to and that if the deal doesn't work out, you're going to destroy the information that you get. And sometimes they may want to make sure you're not going to take information and go try to like hire people from the company or do stuff like that would be harmful for the business. And once you agree to that, usually people are pretty comfortable getting some initial key pieces of information because usually there's some real staple stuff that you want in the beginning. This is where companies have to play smart. They got to ask for not too much information because then it's like, whoa. It seems overwhelming at first, but you want to ask for just that right information. A lot of times this is key information that allows you to follow up and ask for more information. So a lot of times I will ask for three years of financials and if they have any projections for the coming years, I want to understand how well they financially performed the last three years. I'm mostly software, so other industries a little different. I will then want to get the customer breakdown. So I want to get a. They call it a customer revenue waterfall. I don't get the name of the customers, but at least I see the different customers, how long they've been a customer, how much they pay, what their terms look like. And that gives me a really good understanding of the quality of the revenue coming in. You might see, wow, there's customers that have been around for so many years and they keep renewing every year. There's a really high renewal rate or maybe they're not. Maybe they're really short term customers and they're constantly churning and they have to spend a lot of time getting new customers. I want to understand that. And then a lot of times I want to understand what their investment situation looks like. Is there a bunch of different investors and they have a cap table that tells you who all the different investors are. I want to be able to understand that. Sometimes it's a little tricky, you're talking to one person. But they might not be the main decision maker like they represent. They are. So it's always good. Sometimes there's multiple people. So I like to have that cap table to know who are the actual people that need influence to make the decision. And then the HR just at least like a roster. I don't need the names, but I want to know what people they have, roles they are and maybe how much they're getting paid. That gives me an understanding too. Trying to think of like org charts of how our companies would come together. We usually start off with getting that basic information and at least it gives me an idea of what we would pay. There's some key things like it's really important that we integrate the technology and I might go deeper in there and say, hey, it's so important that you're the tech gets integrated. We really need to understand what your tech stack looks like. In fact, maybe it might be good to have our VP of engineer talk to your head of engineering, let them exchange some details so they're confident that they can integrate the technology together. Usually most of the people will get comfortable to, to share information. Once you sign a letter of intent. Once you sign a letter of intent, it's like you're really, you're both sides are committing to working together to do the deal. At that point, you really want to do that. And for the buyer, once they sign a letter of intent, they really want to make sure they're getting what they paid for. Because a lot of times you just don't have a lot of information before you sign a letter of intent. It's even crazier if you're in an auction process. All of a sudden you have pressure from the bank to hurry up and put an offer in. So a lot of times you'll skip a lot of steps and just take the bare minimum information, put an offer in. But once you sign the letter of intent, like you really want to make sure there's no surprises. It could be anything that could pop up. Maybe the financials weren't as good as they should have been. There could have been some adjustments that they could make or should have made that would have changed the whole financial situation. You may find out a key person's leaving, like all those things. So you really want to do your diligence to make sure you don't get those surprises. And if you find a surprise, you got a few things you could do. You could either create mediation plan, figure out like a mitigation plan of like, what are you going to do about it if they owe taxes, okay, we'll just have to budget paying taxes and we'll pay the taxes, or we're going to require them to pay the taxes before close. Sometimes you may have to go back and say, hey, there's like a million dollar difference in the revenue than we expected because we had a third party look at the numbers and they showed us that this stuff wasn't reported correctly. You may actually renegotiate the price. That could be another thing. Sometimes you may find something that makes you just want to walk away from the deal. You may find out somebody that the main VP of engineering, that you're the big prize talent and team that you're after, is going to leave and go to another company. It's not worth us doing the deal. Anymore. So those are things that may come up, but you gotta build that level of comfort. That's why trust is so important. M and A, you gotta try to build relationship. Good trust is not only getting the information, but stuff comes up, you find a surprise. There's never a smooth deal. Something comes up and then you gotta work together on it.

I get that. Having a lot of trust in others and having people trust you is definitely like a big step in working together to integrate one company. That's amazing. I'd like to ask you another question. So what's the number one mistake buyers make during diligence? I know we kind of already dug into this, but you can elaborate a little bit more.

The number one mistake that buyers make during diligence? Integration planning. They don't really do the extra work. I feel like anything you do in this world, you have to do the extra work to be really successful at it. Remember we talked about, how do you be the best at anything? We used to talk about purpose. What was the purpose?

Find what you love to do and be the best in the world at it.

How do you do that?

Having a burning desire, having goals.

You got goals and you have this like, burning desire to go after it. Give me an example of that. Like, why is that important to have burning desire?

So when you have burning desire, like, the more that you want something, the more you're actually going to want to work for it. If you really want to win this track race, you're racing against other people. This one person just doesn't really care if they win or lose compared to you. If you're actually working hard and actually trying to win the race, the one that has more desire is obviously just going to chase after it. They're going to want it more, so they're really going to try hard.

That desire amplifies the effort that you put in. Most of the time, not always. The person that puts in the most effort usually wins. I think the same goes with M and A. It is very competitive in a way, and maybe you won the opportunity to buy the company, but you still have to be as competitive to make the deal successful, which is putting the extra effort in. This is one thing. It's a lot of work to go through diligence to get the deal close, but to even do all the integration planning along with it, that's that same level. You have to have a real burning desire to make this deal successful, to put that extra effort in to get that outcome.

Specifically, what do people, like, ignore when it comes to Doing diligence, like what should they be looking out for? But what do most people just like ignore?

I think this still leans into integration. There's who actually owns the outcomes and the integration oftentimes where if you don't plan early, that same accountability doesn't get assigned so early. So really knowing who's going to own the value capture and having them involved early so that they can do all these planning and things like that, that's the big other area that would be amiss. If you don't have that alignment, you end up also having this knowledge chasm. And if you think about you sign that ownership or identify the ownership later. A lot of times they're playing catch up. They're going back. They don't have all this information that the people that worked on the deal earlier have, so that they're going back and trying to catch up all that information. That's what causes problems.

Yeah, I see. So why should integration start with diligence before anything else?

We talked a lot about getting the mindset in early. But you know, integration, it should, because it's like what you're ultimately trying to do with the company. It's really figuring out the how as early as possible. Now there's always the why is pretty clear. Like you figure out why you want to do it and it is effort to get everybody on the same page. You have a lot of employees in the company for them to understand the why. But the how, if you can really focus on the how early, that allows you to have that comprehensive plan that you can ultimately get both sides of the companies aligned on how they're ultimately going to bring those businesses together, how they're going to achieve that value that they wanted to whatever that goal was, was it enter a new market? Was it to get the talent from the company to bring the technology to their company? Sometimes it's to get a market product out to market faster. Actually, one of my favorite was we use Alexa. You still use Alexa. Alexa was actually created through three acquisitions. So they bought three unique technologies together and they just integrate them. Well, it's like a prime example, just acquisitions that allow them just accelerate their roadmap and get that product out to market.

That's very cool. So integration is like the main point in a deal. It's like what everyone's trying to like.

I think it's the most important. The thing is you don't want it to be forgotten is all the how. What are all the things you're gonna have to actually do to make this Deal. Successful. Slick. The hard work, that's where the work really starts. Kinda like for a startup, they get all excited about raising a bunch of money, but that's not a thing to celebrate and be excited about. That's like when the work actually starts. Especially if you raise more money, it means you have more work to do. That's a lot more work to manage that kind of money. The same thing when you do M and A. It's once you close, that's when the work starts. You gotta go do all this work to get that value that you planned on.

I see.

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Can you walk us through the five pillars of bioled? M and A? Which one's the hardest?

So pillar one is never M&A by impulse. Pillar two, unified process tools and data. Pillar three, synchronized diligence and integration. Pillar four, built for scalability. Pillar five, a win win approach.

Okay, can you break them all down?

Sure. Let's do the first one. Never emanate on impulse. That means you don't want to just do a deal because you're just so excited, you're reacting to it. And this could happen where a banker brings you an opportunity, a book, and says, hey, here's this company, and they get you excited about it and you get other people in your company excited about it, and then you're in the process that way. Or maybe you're in an auction and they're like, hey, all these other people are bidding on it. You should bid on it too. And then you get excited about it and then you're bidding on it just to try to win that deal. And that's again, you're being more reactive to that process. You want to really spend the time and look at your company and understand your company strategy. Every company has a strategy. It's like, where do you want to be 10 years from now, how are you going to get there? You know, in the deal room like five years from now, going to be $100 million business. We have these organic growth levers, but we know along the way we're probably going to end up buying a business. We're probably going to end up buying adjacent technologies and things to help us really expand and cover the whole buy side of M and A and be the number one platform for buy side M and A. And while we have that strategy defined, we can look at how M and A can help us accelerate it. And maybe for example, if we find this company doing something similar in another market like in Europe, that could be part of it. We want to geographically expand faster and be global to reach our goal. Well, we're going to use that as part of our M and A strategy. So we have a clearly defined M and A strategy. And then you can go as far as defining your M and A criteria. I know exactly which companies. I might get to a point and say, hey, we're specifically looking for companies that are similar that are in Germany, France and the uk. That's the markets we're really going out. And then we have that criteria. And it makes it really easy to know which companies say yes or no to, but it allows us to actually go to those companies. We can start building relationship with these companies before they think about selling. And sometimes you can actually get them warmed up to the idea to sell. You say, hey, there's a better together story and you can get them excited about it. And that's what we call making a deal actionable. That's something I want you to work on one day is learn how to make deals actionable. Because these are companies that may not be actively trying to sell, they may not be in the market to sell, but can you convince them to sell and you make that deal actionable? That's what we want to do with pillar one is really be able to take that approach of being reactive to opportunities. Instead be proactive where we can go out, build these relationship with people in the companies. So even if you're not thinking about selling or I don't get the deal actionable in a week or a month, maybe a year goes by and all of a sudden there's a reason you need to sell. It could be any number of reasons, but you think of me right away and you call me and I'm your first phone call. And again, that's where we want to be. Very proactive and deliberate. Not an impulse, never. The second is unified Process tools and data. And we've talked about this with like deal room as an example is having a home for your deal. Because the old model you'd always have information all over the place. You'd have some in Excel, email and then you have a data room and it was all these like disconnected. And then when the deal's done, it just gets archived somewhere and forgotten about. And now the way that things are evolving, you want to really connect everything. If you connect everything, you get a single source of truth. You have a place that enables you to collaborate with your team internally, collaborate with external team. You may hire like a lawyer or a consulting company to help you with the deal and collaborate with them easily. Then you can collaborate with the counterparty, the one you're going to work with to buy the companies. Because when you're done with the deal, you're going to be working together. Collaboration is really important along with that collaborations priorities. Like you always want everybody working on the highest priority items throughout the whole process so that that having that unified tools helps you with it. And then also the reporting is really important because you can have reporting for your whole pipeline that you want to know what deals you're looking at and tracking that your due diligence, you want to know, maybe want to make sure the different people are different, teams are doing what they're supposed to do and contributing and you're managing the details, making sure things are getting acted on. And same thing that goes with integration. You want to make sure you're making progress towards capturing synergies. I would say the emerging thing is AI. You know, when you have all this stuff unified, you can better leverage AI. And that's becoming really important. As you were seeing it now look at our company, we really try to connect all our tools together so we can run AI across all the information in the whole organization. Pillar 3 Synchronizing diligence and integration this is when you have two separate teams, one for diligence, one for integration. A lot of times that's not a good thing. You really want to try to have them working together as one team or as a true partnership. And this is where we use the example of if you have a work stream to go due diligence and you have people internally, your external team, counterparty, all working on that, having a parallel work stream that works in tangent with diligence so that team members can plan integration alongside diligence, right? That way you keep everything synchronized, all the information can be synced together. You can repurpose a lot of information from diligence into your integration plan. That's where the synchronization of diligence integration comes in. The built for scalability. It is one thing to do one deal a year. There's another thing to do multiple deals in a year. But if you're trying to do multiple deals at the same time concurrently, then it's a whole different game. You do need to design your process for scalability because you're using the same resources, you're using the same people, same departments. You got to have a real setup that scales and drives that efficiency so that you can keep doing that. So that's really important is like building your system for scalability. There's a lot of nuances so you can achieve that. The other pillar is a win win approach. You think about the people. We talked a lot about the culture, but if you break it down to the individual person, it's like setting them up for success. You're setting up your current team to welcome all these new people and work and collaborate with them. But if you think about all the people joining your company, how do you set them up for success? How do you make sure that they're really set up, they're motivated and you're ultimately creating a real good experience for these people coming in ultimately want to make it a win win. That's what's really important in M and A to make it successful. It's not just one sided.

So having all of these pillars are important for all the processes of M and A.

You said the hardest one. I think it might be the first one. Sometimes I found myself even in the situation where you start investing time into a deal and you get really excited about it and it's hard to say no. It's like you fall in love with the deal because you want to do it. Then you along the way you start finding red flags. You're like, oh, this doesn't look good. Wow. There's one main customer that makes up 30, 40% of the revenue. That's not a good thing. That one customer is gone. That's a. We're going to lose a lot of value there. Start looking at that. But then it's so hard to walk away to get the point where you're like, all right, we shouldn't do this deal. That first one is when you got it. Because the better you intentionally are about that criteria and disciplined on it, you're going to make sure you buy the right company to begin with. Wow.

So when you know your true intentions, it's like you already know what you want with yourself in the values of your company.

Yeah, I use this analogy a lot. When you think about M and A, it's a lot like getting married. Like you go date around. If you want a long term relationship, you want to make sure those things that you're looking for you have in common, which is like the values. And then you want to make sure there's likability. The more things in common you have, you get along. Like those are really important. So that's why. And if you saw some red flags in that, but you're like this personal change or something like that, that's not good. You go to that point and then when you sign a letter of intent, it's like getting engaged. Then when you engage, you're like, really? You're planning the marriage and getting there. You still got a chance to run away, which you usually don't. Usually you really figure it out, make it work out, and then once you get married, but then the work starts, then you have you're married and then you gotta really work together. That's like integration, like the hard work to make that successful. I don't know if that analogy helps at all, or it might scare you away. I don't know.

That actually helps me understand M and A a lot more. Now when you compared it to dating, now it makes a lot of sense. I'm sure it would help other people too. Anyways, that's a great example you pulled out. Now I want to ask you another question. So could you explain the three coats of conviction? Why are they so dangerous?

So if you look at the three coats of conviction, there is the base coat, which is reactive positioning. That is like you're entering a process and it's already in flight. There's an auction going on. You get in, you get really excited and you're like jumping in, trying to catch up as quick as you can. You are totally reacting instead of leading. This is not good for anything. This is like when we're watching a movie here with like your brothers and you come in and you're trying to catch up on what's happening and you're joining the movie like halfway through. That's not good. The middle coat, it's like integration negligence. This is where integration is really important, like we talked about. But you can easily get caught up into this. This is a later problem. We'll figure it out later. Don't worry, we'll get to it later. We'll have other people deal with it. Let's focus on getting the deal closed, that's not good. It's like if we are going to design our kitchen over here, right, we're going to remodel the kitchen and I'm not going to talk to the person that's actually going to do the cooking. That's not good. That's the same thing with integration. Like the person that's actually going to execute and do all the work, you're not really including them. The top coat mirage is the model mirage. So you always have to make a model for all your deals. That really lays out your assumptions. It's really easy to make a model look good and you do, you do need to make a model look good to get it approved. But it can be a mirage. It looks good and you fall in love with the way it looks. You have these assumptions on your cost synergies. Oh, we're going to combine these companies. We're going to be able to eliminate all these costs which will help the business become combined company be more profitable. And then you have revenue synergies. Or we're going to cross sell our products and make more money that way. Get excited about that. That's going to help increase revenue. But you really got to pressure test it. What did you actually do to validate those assumptions? Those are like the three coats that you always see pretty common on these deals and why things go sideways.

So what can people do to avoid making these errors when it comes to the three coats? Like what advice would you give these people so they don't make this mistake?

This goes back to values discipline. You got to have some real discipline. You can't. It gets, it gets easier to do this. It gets easy because you can get an hear about an auction and get excited. You want to. But if you have your process designed so that you have clear criteria set up, you're not going to fall into reactive positioning in an auction. If you have that real discipline on how you plan integration and you follow through, like you're not going to run into integration negligence. And same thing with your model. Like having those integration leaders involved early. They're going to pressure test that model. They're going to help validate those assumptions because they're the ultimately the ones that have to go execute and deliver on those assumptions.

So having a lot of discipline and having a good mindset when it comes to this seems very important to avoid a lot of issues. Okay, moving on. What similarities do elite buyers have in common?

We talked about early alignment and there's alignment between both buyers and sellers. On what needs to be done to make the deal successful post close. Because a lot of times you can get the person that's selling the company, he's gonna get a lot of money and he's gonna get the money and just buy a boat and go away. But you wanna get him involved early in terms of what's gonna happen post close, what his role is gonna be, and then your internal team. What's the plan? How are we gonna integrate this company? That's gonna be like, really important is to be able to have that model laid out so that you have early alignment. And then you're also clear on the ownership too, because you have a clear plan on how you're going to integrate the company, but you also know who owns what. There's usually going to be some main owner of the overall integration and then you have the different departments that are going to own their parts as well. You really want to get early alignment with all the key stakeholders and also the accountability. And then the operating model is the other thing you want to define really well. That's big part of integration plan is like, what is the operating model going to look like when the company's combined together? And then overall, like, you're ultimately building M and A as a muscle. Like, the more you're trying to do this, you're trying to really improve and build a muscle for doing M and A so you can keep doing deals better and better.

Could you elaborate more on, like, what needs to be done when it comes to early alignment?

What can be done to get early alignment is just having the tough conversations early. I've even been in a situation where it feels a little awkward. It feels a little awkward. The first time I was in a deal and started asking questions about culture, I wasn't used to it. I never did that before. I always just. I was very much the numbers person and wanted to make sense of the numbers and then we go do a deal. But then I was like, tell me about your culture. And you want to understand how they actually work. And those are the things that you want to do for early alignment is just ask these tough questions early. You want to also, like, get a sense because you might find out that the person wants to sell a company and just get out as soon as possible. And you might have expected that person to stick around for a number of years. And they sometimes may tell you they're going to stick around for a number of years, but you're really not. So that's why that alignment piece is so important. You really want to dig into it. That's why it's important to spend time with people face to face, get that level of trust established. Like, those things are really important to build alignment.

So you're saying, like, knowing true intentions. Yeah, that goes back to what we were talking about earlier.

Got it.

Okay. How is relying on inbound slash bank deal flow dangerous?

Relying on inbound deal flow. They're not the best deals. I can tell you wholeheartedly from experience. The best deals are the ones that you work harder for and go out and find yourself, and then the ones that you find that you're not competing with a bunch of other people. When the deal comes to you, usually they send it to a bunch of people at the same time, and then all of a sudden you're competing with a bunch of other people. And you're probably not going to get the best deal. If you're going to win, you're going to have to outbid. And a lot of times you spend a lot of effort on those deals and you don't even win. So you don't even have certainty to win the deal. And then that's not your narrative. It's not your story. Like, you get pitched on why it makes sense for your company, but you're not the one that came up with the narrative. And then you're ultimately very reactive in the process. You're not leading the deal, the deal is leading you.

Okay, so, like, putting in more effort shows that the deal would be better compared to one where you don't really do as much.

If you put in the effort to find your own deals, ultimately you're going to find. Do you know this house we're sitting in? You know how I bought. We found this house and bought the house.

Sending a million envelopes to many people in this community.

Yes. So we went, we looked at houses, we toured. You came on some of the tours. We looked at houses that were on the market and they were terrible. This housing market about two, three years ago wasn't very good at all. People weren't moving because they have a really low interest mortgage. They're paying low payments on the house, they don't want to move. And the houses are coming to the market, were in really bad shape and they were super overpriced. I was like, none of them were nice homes to live in. So instead of looking at the homes on the market and the brokers were showing us that all these other buyers are also looking at. Even when there's a good home, it's like there's 50 people lined up to look at the house, and there people are actually bidding more than the asking price. Instead, we started sending letters out. I sent a letter out with a picture of you and your brothers, and I put a little note that said, looking for a home to raise my children. If you think of selling, please think of me. That was all I put, is a couple sentences. And we send that letter out to about 300 homes. And we had about six replies. So about one out of 53 were asking for too much money. One was actually asking for below market price. But you and your mom thought the house was too small. And then one I like, the one on the golf course I wanted. But you didn't want people walking around the house. But then we ended up buying the house that we're sitting in, which is a beautiful home that sits on the forest reserve here. And then when we met the sellers, they told us, like, hey, we're just thinking about selling the home. And we end up giving a verbal offer that same day. And they accepted it. And it turned out to be such a smooth process because they wanted to wait about three, four months before they moved out of the house. And again, there was no pressure. There was no auction. We're not competing with all these people. Cash offer, this and that. We're like, hey, we're very flexible. Or, absolutely, we can get the deal and we can give you extra three months to move out, no problem. Like, we're in no rush to move out. We still had a lease on the last place we lived in the city. And the sellers were so nice to work with. We ended up getting a lot of other benefits from them. Got a lot of furniture. You got the nice little piano behind us and all these things. That was the best deal, was the one that we went out and found ourselves. We did the hard work. Now, a lot of people that go out to buy a house send 300 letters out for the picture of their kids. That's why it's important to do the hard work. The discipline is what allows you to find the better deals.

That makes a lot more sense. Finding deals that you actually work and the ones that you find yourself are more likely to come out better than the ones that you're stuck in competitions with.

Yeah. Proprietary deal sourcing.

Well, that just shows that M and A can be compared to everyday life situations. That's cool. What should functional leaders know about their Role in buyer led M&A?

Functional leaders. They're partners in the process. Like, they're the ones that Ultimately are gonna own the end results. So you think of them as co creators or co architects. And what's important is that they're helping to shape the assumptions and also validate them early in the process. Now if it's only the CEO and executives doing it, then it's. You're gonna get less accuracy in those assumptions. But if you involve those functional leads, you can get more accuracy because they're helping to validate it and give you their perspective on it. They're trying to keep all these expectations realistic.

That's a good, it's good to know about the role. Give me a quick summary.

Sure. Functional leaders, their role in the process is to be co architects. They gotta help validate assumptions. They help create some of these assumptions and really be there to support the plan, to create value early in the process so that they have more accountability and ownership and to make sure all the expectations are realistic.

So more of them are better than just one leader.

Exactly. You get more people involved that are going to be actually doing the work than just the people from the top that ultimately make the decision to go or no go.

That makes a lot of sense. Okay, now could you tell a story from the book that illustrates buyer led M and A in action?

There's some good ones, you know, so there's two, I'll give you. One was Unilever. I'm thinking of Brigitte. Cause I'm actually going to do another interview with her. But she worked at Unilever and she built out the health and wellness division there. A big healthcare company, a lot of different divisions and products, but they didn't have anything in this wellness area with all the different vitamins and things like that for personal health. But she actually built this whole division out completely through acquisitions, where they did about 10, 11 acquisitions and they built a whole entire division out of the company. They truly took a buyer led approach. Like these weren't things that came to them. They were proactively. She built a team all in house and they defined a strategy, defined their M and A criteria. They proactively went out to these companies and they found a number of companies to buy and they kept acquiring them. And they literally built out an entire like billion dollar division all through acquisitions. That's a great example of buyer led. The other one I really like is LCI Industries. Jason Lippert. Jason, CEO of Lippert Industries. Probably a $3 billion company actually, if you remember, you did a podcast with them for Boss Move. So the thing I really admire is the approach on culture because when we talked about how culture is important, they are so proactive about culture. They look at it as their competitive advantage. In fact, they take that as approach, when they approach companies to how they're going to help them change their culture, to adopt their culture. And then when they buy a company, they have all these leadership coaches and they're really involved, they're really proactively trying to change this company's culture. And they use that as basically a strategic advantage. And that was like a pretty new perspective for me. And then later I ended up interviewing Bob Chapman and Kyle Chapman from Barry Wehmiller, which are. They're one of the originators of that model. So that. That's another great example of taking buyer led and using that to get the best outcomes in a deal process.

I see these strategies used from buyer led help them with their deals. What specifically made them more successful? Using buyer led, like breaking it down. What made their deal more successful?

I would say the way they look at integration, owning value. When they look at the cultural alignment as a big value in that LCI example, they really brought some big ownership around that on owning how the cultures assimilate. They just did such a good job of it. That's what really made that successful, was that ownership of the outcome, ownership of the value. It's not just this handoff is the thing you always hear about when you hear the traditional model. You don't think about all these things in integration and there's just a handoff. There's a deal team and integration team. Deal team closes the deal and they hand it off to integration team and say, hey, it's your turn. You guys go integrate it. Now that's an old model. Now things really should come together. Should even be the executives thinking about how the company's going to integrate. Everybody should be ultimately thinking about how the company is going to integrate. And you can design your teams too, where deal team will actually have ownership and accountability of how well the company integrates, because that's what ultimately determines if a deal is going to be successful or not.

What's the single most important idea listeners should take from Biolet M and A?

I think the most important thing to take away is how you approach the deal is really owning the assumptions that you own them. You don't just make them up, but you actually do the work to validate them, to understand how you're going to approach executing to achieve those assumptions. Taking that real ownership, like doing that extra work, there's some serious work involved to doing that, whether it's focused on cutting costs or increasing revenue, like defining the how and validating it, making sure that's achievable. That's the real work. And then I think just leading the process. It's so easy to get reactive and the seller is driving the process. But the buyer led approach ultimately allows you to better plan integration and create better outcomes for both sides of the table.

Okay, so you're saying that taking extra work and ownership but also leading the process are the most important.

Yes, exactly.

Everyone you heard my dad should definitely take that. Especially because it's one of the main points in Biolite M and A. So the most important and helpful, like you said. Okay, I have one more question for you. What's the craziest thing you've seen in M and A?

I get asked this question. The craziest deals I worked on was actually I was pretty early in the career, I worked with a real estate developer and we would buy properties and usually we're planning to convert them into boutique hotels. And the financing before the last recession, right before we had this 2007, 2008 recession happened, it was a crazy time because it was so easy to get a loan. Even for a house, it was so easy to get a loan. And that's a problem. They gave these loans, they had these adjustable rates that the mortgage, if the interest rate goes up, the payments go up quite a bit. And it was just setting up a big balloon. The commercial loans were just as crazy. I would do some of these deals that were 110, 115% financed. Like we didn't put any money down payment. We would walk away from the closing table with a property and cash. Those are some of the craziest deals that I got to work on. Part of a number of them that to me was probably the craziest era that I don't think you'll ever see. There was a time when you'd have a bank just you could have them and you architected it a little bit. You know, you'd either do like construction cash back or you could do a double closing. You could do a creative financing back then and pull a lot more capital out on things that you were buying than what you needed to. And that allowed you to basically finance more than what the property's actually worth.

Wow, that's crazy. That seems like crazy time I'll never get to experience.

No, there might be a different crazy time for you. I don't know. We'll have to see.

And I have one more question. I Could have asked this in the beginning, but what's the difference between traditional M and A and buyer led? Just to summarize everything.

Oh, to summarize everything between so traditional M and A. Usually there's an investment banker, they have a company, they want to sell it. They'll create like a teaser sheet that gives you high level information about the company and they'll send it out to as many people to get a group of people excited about it. And for them, the only thing they care about is certainty to close and the highest price. That's it. After the close, like it's up to the buyer to figure it out. Buyer LED approach is very different. It's like having this clearly defined strategy and criteria, exactly what you're buying and why you're buying it. And that allows you to actually go after them before they even go to market or to the banker, before they're even actively thinking about selling. And that way you get an opportunity to work exclusively with them. And then when you work exclusively with them, you get to control the timelines. It's not a big pressure to close a deal. It's like, hey, why don't we work together to make this the best deal for both of us? We can make this the best outcome because we want to achieve the specific outcome of why we think the companies and our teams will work together. And then likewise, we'll make it a good experience for you. That's why that buyer led approach, in my opinion, is the best way to.

Do M and A. I see how buyer LED can make a greater impact on all deals. Okay, dad, that's all my questions I have for you today. Are you proud that I didn't roast you too hard?

Honestly, I think this is probably the most collaborative you've been in months.

Well, I'm just a teenager. It's in the job description.

I'm just happy you're still making time and you gave me some time to do stuff like this. You still got your boyfriend I'm doing my unofficial due diligence on.

Please stop treating my boyfriend like he's a target company.

No promises.

Anyway, everyone listening, Check out Buy or let M and A, because apparently writing a 200 page book is what dads do now.

Hey, thanks for hosting, kid. You're still my favorite collaborator, even though I only get you on special occasions.

You only get me twice a year. Maybe three if you bribe me with sushi.

Deal.

Thanks for listening, everyone.

If you've listened this far, this podcast, I more than got to thank you for a little special edition here with fellow M and A scientist. Let me know what you think. I am really curious. We're having fun with this. I wanted to talk through some of the points of this book I published and what better way to do it than have my free labor around the house to help me with it. But send me a note. Connect with me on LinkedIn. Love to hear folks that listen give me feedback. Let me know what you thought about this interview. If you have other topic, ideas, criticism, I'll take it. It's how we get better.

Till next time, here's to the deal.

Thank you for taking the time to explore the world of MA with our podcast. We love hearing feedback. Tag us on a LinkedIn post. Add a review on Apple Podcasts. We'd love to hear from you. If you need help standing up an M and a function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email Kisan K I S o n a science.com or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit MA for a lot more content and resources. That's where you can also subscribe to our newsletter. Again, that's mascience.com here's to the deal. 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.