Partner Before You Buy: The Pre-Acquisition Strategy Corp Dev Teams Skip

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Hello, M&A scientists. Welcome to the M&A Science Podcast. This show is part of our mission to rethink how M&A is done and build the operating standard for buy-side M&A. That old-school seller-led approach, dead. Buyer-led M&A is about strategy, alignment, and execution. Putting value creation in the center of every deal, because it's not just about closing the deal, it's about making it successful. And that comes from learning directly from operators who've done it before. If you want to go deeper, we've got you covered. There's a ton of free resources on the site, frameworks, guides, tools, all built from real operator experience. We also have the M&A Science membership, which gives you the full system, exclusive frameworks, templates, expert Q&A sessions. Direct access to me and the AI-powered DealPilot. And it's also the home of Buyer-Led M&A. We have a free newsletter on the website. It's the best way to just keep up with what's happening. You can find everything at mascience.com, and that's mascience.com. I'm your host, Kison Patel, founder and CEO of M&A Science. Today, my guest has done M&A from just about every angle— investment banking, big pharma, surgical robots, synthetic biology, and now pharmacy automation. Homer Stavitzky has led corporate development at companies like Surgical, Pfizer, Ginkgo Bioworks, and most recently joined Omnicell, traded on NASDAQ under OMCL, as their SVP and chief corporate development officer, where he's walked in and built the function essentially from the ground up. What I find compelling about Tomer's approach is something that we're calling partner first, buy later. This idea that most strategic acquisitions don't start as an acquisition at all. They start as partnerships and the way you structure and manage those relationships, especially when it's PE ownership or competitive dynamics are in the mix, is a skillset most corp dev teams haven't really built. So we're gonna get into all that today. What you're gonna leave from this episode is a concrete framework for using partnerships as a pre-acquisition strategy. How to map the market, tier your engagement, protect yourself when ownership changes, and build toward an acquisition when it's not possible in the near term and set it up for the long term. Tomer, how you doing?

Doing well. Yeah. Thanks for having me, Kison. Good to be here.

Hey, thanks for taking a break from doing deals to help teach me some things. Can we kick things off with a little bit about your background?

I have been in the corporate development deal-making space for almost 20 years now. Started my path in doing investment banking consulting back in BDO, Then decided to switch to the industry side, focusing on healthcare specifically, on healthcare dealmaking and dealmaking of all types, M&A, investment, strategic partnership, JVs, and things along these lines. Started with Pfizer, J&J, moved over to Convatec, gradually grew through the ranks, got more and more experience in the space. Then Intuitive, where I led the corporate development for the digital business unit. Then had stints with smaller companies, including Ginkgo Bioworks that you mentioned and Allurion Technologies. And then sort of had like a period of a year plus where I did some independent consulting, more fractional corporate development where I was helping companies with anything corporate development related, particularly startups and small companies. And then had the chance to come across Omnicell, who is a quite interesting company in the pharmacy automation space. Lots of opportunities for the company, and I'm very glad to be at the helm of the corporate development function, building it up, looking for all sorts of interesting opportunities for the growth of the company.

We've done an interview a number of years ago previously when you were at Intuitive Surgical. So if you can't get enough of Tomer, look for that interview as another reference point. But the thing I really admired and reason I got excited when I reconnected with you, you really understood the end-to-end lifecycle of M&A, At that time, you had ownership all the way through integration. So there was this sort of clarity in like why it was so important to put this integration thinking early in the deal process and what it meant for your end results. And that's where it's like, all right, this is somebody that knows this stuff. I'm sure that's compiled from a lot of your work and deals and plus working the different angles. But is that fair to say is my shortcut interpretation of your background and what it's resulted in?

No, yeah, that's spot on, uh, Kison Patel. The period where I worked independently right before joining my current company Omnicell, that was actually pretty helpful to work directly with entrepreneurs, see basically the lay of the land and deal dynamics from their vantage point. It's how they're thinking about selling their company, how much they want to invest in engaging in a partnership with a large company, what is it going to yield to them and when. When an entrepreneur wants to basically run their company effectively and they're trying to raise money and they're running out of it. So they want to always move fast. It's the opposite with large companies. They want to typically move slow depending on what space they're in, of course. It's interesting to try to find a bridge between the two. I learned a lot to be able to sort of be that bridge, playing it from both sides.

Yeah, it's actually added on to the experience since then. I got a bunch of questions for you, but before we jump in, I gotta put a disclaimer out there for everybody listening. That Tomer's here representing himself independently and just not of any company he may be associated with. And this also lends to— none of this construes as investment or any kind of professional advice. Now that we got that out of the way, you've jumped into these roles in corporate development where you essentially had to rebuild the corporate development function. I want to understand what's the playbook for doing that, because I've done a bunch of interviews in the past where someone has to build a corporate development function from zero. They might be the first corporate development hire, and we've had a number of interviews where you walk through step by step what that entails. But when you are there with something that's already there, maybe it's just more of a rebuild. What does that framework look like in taking that approach?

I maybe want to start off by saying there could be a couple of different scenarios. It could be a scenario, let's say, where the company has been doing deals in the past and the function existed in full force. There was a governance process, but then They decided to stop doing deals and maintain a skeleton crew for that particular function. And then they decided to restart it. So this is a situation where you would come in and essentially have to pick up the different pieces and the collective organizational thought process and the history and basically try to make sense of it all and basically rebuild it towards an effective new process. And then there would be situations where the company's not done dealmaking inorganically at all. And you sort of really have to build everything from scratch. I kind of go back and forth in my head what is actually more challenging. I feel like the one where there's been dealmaking and you have to come in and rebuild it is maybe a little bit more challenging because there is a way that people know about doing things. And if they did it in a certain way for a long time, they still have that collective memory. But then you find that people come in and out of roles, you sort of have these gaps. So it's almost like certain functions Let's take an example of HR. So let's say the HR person is still in the company and they remember the past deal, so they know what happened. So you have something to build from, but then you have a new function. Let's say there is a new person in legal or a new person in commercial, new person in product. Then it becomes more challenging. You don't necessarily have a process to kind of tie it all. So this is where the framework comes in. You have to first assess which are the functions in the company you work for. Actually matter and should be engaged when it comes to dealmaking. And then you have to make that inventory for basically every single deal type. So it's not necessarily going to be the same exact people for the partnership and the same exact people for the M&A. There's also going to be different people within the team. So then you start off by making this inventory and then you basically, it's as simple as making conversations with the people, trying to understand where they are in the learning curve. And then essentially not telling them, but guiding them, coaching them, mentoring them, and essentially bringing them up to what it is we're trying to do. So it's essentially about giving them clarity and also giving them a process. In the beginning, in my role, I have to play multiple roles. So I'm not just guiding the deal on a deal-by-deal basis. I'm also building the inorganic strategy. In a situation like this, I'm also building a process. I'm also managing up, down, and to the sides for everybody that needs to be sort of involved in this process. I'm explaining to them what's in it for you, what to watch out for, what are we going to get? And I basically need to basically sell everybody on the vision. Why are we doing this? Because people don't necessarily always have the time to do stuff like this. There's like a lot of growing pain when you build something like this. There's like a lot of evolution. A lot of people have things to say, a lot of people don't necessarily say what they should say. For example, certain functionaries, you know, you'd expect they do something specific in a deal, evaluate the market or evaluate the product or evaluate the tech. So you need to actually guide them towards getting them to actually say stuff like that. In some cases, they don't even know they need to say stuff like that because they just didn't have a chance to go through deals. And then you need to evolve this process as you go by. You need to basically have a couple of runs at it and evolve it further and always be executing, how they say.

I guess my question was on the strategy. I always think of those three things: strategy, process, people. How do you evolve it? You get that alignment on strategy. And then I feel like the people part, there's that element of the appetite to do M&A where people aren't resistant to do it.

Yeah. So the strategy, that's a very interesting part. My approach to this is to start by understanding what the company has done historically. And basically, as I talk to all the different people that are supposed to be involved in the process, whether they're specific functions, whether they're board members, whether they're leadership of the company, all the way from the CEO to basically CTO, CPO, whoever the function is, basically ask for their views on the strategy. And, you know, you can find a number of variances. You can find that everybody are saying the same thing. And, you know, this is like the right answer. What the company needs to do to move forward and succeed in the market. You can find everybody are saying the same thing, but it's actually not working. The company is not succeeding in the market. It's not growing. It's not profitable enough. And then you can find situations where it becomes actually more complex, where you have a board member that says one thing, you have a leadership team member that says a different thing. You have somebody at the middle level that says a completely different thing. Like everybody have a different understanding of what the strategy is. Or was or needs to be. So that's where the magic starts to happen, right? Function like corporate development is optimal. It should be the center of everything. Have this vantage point on what the company is actually very realistically, what the company is, how it operates in the market. If it's a public company, for example, you could just look at stock price and you can compare it to the stock price of the competitors. You can look at the EBITDA, you can look at the revenue growth. You can even look online what people are saying on it on Glassdoor, for example, or on LinkedIn. As this particular function, you have the opportunity to actually come at it very fresh and look at everything holistically. They're gonna look at what's happened at the company. You're gonna look at what the competitors are doing. You're gonna look at what are the spaces that the company is active in. Where are these spaces going? Where's the innovation? And then you're gonna be taking a really honest view about the portfolio of the company. That's another thing. So even though the function is inorganic, you need to look at the organic stuff as well. So you need to understand where are the gaps. In the company. So then you start building this cohesive, holistic picture. What are the competitors doing? Where is the company needing to go? What are the spaces that you need to actually invest in? And then you start making decisions. Okay, I'm going to build this. I'm going to partner in this. I'm going to invest in this. Build, buy, partner, essentially. So it's sort of bringing everything together and just being mindful of people's time while you're doing it. And as you're doing it, you also need to Essentially guide them on this process. Like, why are we doing this? This is going to pay off. The stock price is going to go up. We're going to be able to better serve our customers. Revenue is going to go up. EBITDA is going to go up. You need to be constantly motivating the people as you're doing this because it's a lot of work and it's sometimes pretty uncomfortable where you come to people and you suggest that, hey, the way we've been looking at this market is actually not the best way to look at it. This is why we are where we are today. And if we do XYZ, we do this investment, we do this partnership, we do that, we change our portfolio, we could evolve and we could be here. So you also need to sell them a vision, but at the same time, you need to be realistic because garbage in, garbage out. At the end of the day, it's about bringing all of this together, just being consistent at it, learning from mistakes, and basically shifting your approach to every single person to the best way possible.

That's a great snapshot of just here's corporate development, how it functions as a whole. Can you walk me through the partner-first approach? What is it? Why aren't more teams doing it?

You know, the partner-first approach, I'll just maybe start by saying that it doesn't fit all situations out there. So there's going to be situations where as a corporate development leader, you're going to come and say, okay, I want to acquire this company. This company is going to fit filling whatever gap I figured out they need to fill, or this company is going to help me grow in revenue, or this company is going to make me more competitive. It could be. Numerous reasons why you want to acquire a company. And there could be situations where it's very clear, I want to partner with this company and just partner. They're a vendor for me. There could be situations where you say, okay, I just want to invest in this company and I'm going to maybe change my mind later and potentially acquire this company. But there could be situations where you say, okay, I know I want to buy this company, but they're not ready to be acquired. And there could be a variety of reasons. It could be either they're a small startup and you don't want to basically dilute your earnings or consolidate them, or you're not sure about their technology or their approaches. So you want to, let's call it, date before you marry. There could be situations, for example, where you find a private equity-owned company. You think, okay, these guys are really a great fit for me, but unfortunately the private equity owner is not ready to sell. So they have certain milestones they're trying to hit. So let's say they have a, I don't know, 5 or 6 year holding period. And you hit them at tier 3 or 4. So they're not quite ready unless you pay them a super big premium. So then in these kinds of situations, again, very specific situations, a partner-first approach could be useful. And just taking this PE owner example, you can start by engaging in a parallel track, both the PE owner and the leadership of the company that you're trying to partner and acquire later on. You don't hide anything from them. You're trying to be as like open as possible. You start by telling them, hey, we find these interesting synergies between our companies. We understand that you guys are not ready to be acquired yet. We might have an interest in sealing this kind of transaction later on, but let's start by proving out initial value first for some time. Then you define the timeframe together with them. You define the use cases together with them. And you typically start with something that you're able to demonstrate value pretty quickly. I'll say within 6 to 12 months at most. Once you actually start running with it, the whole point of this entire exercise is to get both of the teams, you know, the other team from the target company and the PE owner see that naturally both you and the target are a great fit. So it's about shifting their mode of thinking that we want to actually wait, we're like in the middle of our holding period. We have a lot to prove by actually demonstrating to them, hey, these companies are going to be great together. So then they would actually end up coming to you and telling you, hey, do you want to acquire this company? We've done these great things together. Our technologies are complementary. Our people culture is complementary. We help each other grow. We appear in the market, you know, in a great way. So I'm trying to really simplify it here. Obviously there is a lot of execution and a lot of finesse and We obviously don't go and say to a company, hey, I'm going to acquire you in like 2 or 3 years. You negotiate an option or some kind of ROFR or something. But generally it's about this process. It's about getting them to actually come to you rather than the other way around.

What's a ROFR?

It's a right of first refusal. So it's essentially the ability to buy the company or a chunk of it in the event somebody else wants to buy it or invest in it.

Okay. So what I picked up so far is this isn't And you just don't use it for every single deal. There might be something—

It's very surgical. It's very surgical. Yes. You're like a doctor, like a corporate development doctor. As funny as it sounds, you come to a situation and you try to diagnose it first. So it's not like about, okay, I'm going to attack head on and say, I'm going to buy this company or do a partnership. So you come with like an open mind and you try to use all tools at your disposal. So this is where the approach we're discussing here might differ a little bit from most of the companies out there. Yes, there are companies out there that sort of use the approach I'm describing. Describing, but more often than not, I'm finding that companies typically sort of divide. There's a very clear divide. So there's almost like, okay, we have an N&A team, we have an investment team. Sometimes N&A and investments are one. Sometimes I even see partnerships in a very separate function managed by somebody else. There's all sorts of flavors, but I find when you think about everything holistically, whether it's by corporate development, basically doing all of these things. Or collaborating with the other functions very tightly. I find when you sort of bring everything together, you maximize your chances of actually doing the deals you want to do. It might take a little bit longer, but I think you also increase the chances of success here. In these situations, by partnering first with a company, and then if it works, you seal the deal and you move forward.

I'm gonna, with open mind, there are situations where it's like, hey, we're not going to buy immediately. This is an auction process. There's like a clear driver for us to do the deal now. But it could be reasons where I feel like we'll play in our bias in this interview, more bias towards software. You obviously more in the biotech area, but if the company's not ready, they're just too early. So there might be, hey, why don't we just partner with them and maybe we can start looking at learning the technology, see what the appetite in the market is for it. The second is not ready to sell. The owner has different milestones they're trying to achieve, owner not ready to let go. And then there's a lot we can do with validating what our thesis is. Can we validate this tech is what we think it is? We validate the culture of the people working together relationship, which is huge. They say most of these deals, integration failed because they always blame culture, but we get some validation of that they're working together. And then like I said, this partnership, we can frame it into getting some kind of first right of refusal. It gives us access to buy the business later. I want to get back into when you think about mapping this market, you kind of mentioned that open-minded, Is there any other specifics of how you decide whether you're gonna push towards a formal partnership versus who's staying on this watch list?

Aside from the readiness and the willingness of the target company, their potential owners, whether they're independent and leadership or investors on the company, or it's a PE firm, we have to consider the internal dynamics of the company itself. If the company that the corporate development function is working for is the company itself ready to basically absorb the company that we're trying to eventually acquire? There could be a situation where the company itself is just overwhelmed or distracted with other stuff at the moment. Also, some like leadership changes or changes in the marketplace or new product launches, and it just might not be best suited right now to basically absorb the company. That would sort of lead you towards saying, hey, Let's partner with this company because it's gonna be different functions that are involved. If you acquire the company, you're gonna need to integrate it. In some cases, the integration function in some of these companies where you start up corporate development again, whether you build it from what was already built in the past or you started new, the integration function might not even exist, or it could exist, but somebody's maybe doing it part-time. So there's all sorts of flavors in the world. As a corp dev, person, our role is essentially to assess the situation both internally and externally and basically decide on the best combination. That's where you would decide, am I going to do an investment? Am I going to do a partnership? Am I going to do an M&A? It's taking all this information together, diagnosing the situation. I said corporate development doctor and essentially trying to make the best decision with what you have right now. And then it's also about showing people the options, showing people internally the options and getting them essentially on board with that. So it's not about who has the loudest voice in the room. It's about being able to present a variety of options and then make a decision that's best for the company and also best for the target. You're trying to find a balance, essentially.

I want to dig into this optionality. Again, I'm using my software cap. I'm thinking of Dealroom. We think of different software partners. And a big one's always private company data. People always want to integrate private company data. Where do you get this partnership to do a deep integration? And I feel like there's always several options there and things change. Somebody may be lead, somebody's neck and neck with another. What do you do in that point when there's like 2 or 3 potential partners? Do you try to warm them up without signaling who was like the real target?

Yeah.

What's your strategy there?

In an ideal situation, if I had the right resources at my disposal, for a company I would work for, I would try to, at all points of time, keep 2 to 3 targets warm because what ends up happening, and again, there's different flavors. Some corporate development teams I see, they're like really enthusiastic. Let's say the business is really enthusiastic about one of these 3 companies, or maybe they just found one company. So then they go around this process where they basically diligence the company, they get all excited. They say, okay, let's do a deal. And then for some reason the deal falls apart. So before you know it, they went through 6 to 12 months and even sometimes more. And now they're back to the drawing board. Now they need to go out and find more companies as backup. And sometimes what people would find is that some of these other companies that people talked about a year ago, they're already either not on the table anymore or they're not interested or They went bankrupt or yeah, they could be available. To me, it's sort of a gamble that sometimes teams take and maybe they don't do it in a very deliberate way. Maybe they're just thinking, okay, this deal is going to work. I'm sure it's going to work. So we're going to go with it. The point is trying to keep a couple of targets warm. It really depends on your approach for the space. Talked about software, so I'm going to take this example. Let's say, for example, you're building an ecosystem. Let's say you're a medical device company or building an ecosystem, and then you're inviting players to basically participate in your ecosystem. You're basically giving them channel access and you're giving them the opportunity to basically work with your own customers. So if it were me in this particular case, I would maybe choose a couple of the areas that really matter to me, and I would pick one strategic partner for maybe a couple of these areas, but there is gonna be areas where you're not gonna want to pick one company. You're gonna want to let a variety of players choose where the solution itself is more generic, potentially, or you don't want to commit to anybody. So in this kind of case, if you ask me, this is the approach I'll take, but it could be a different case where there's no ecosystem. You're just trying to find like the best tech to actually integrate to your own tech stack, again, borrowing from software. So there you really have to think hard. And you would probably need to commit to one of these 3 companies. You don't necessarily need to say to these other companies, we committed to someone. It's up to you. It's about being able to keep the optionality when you're actually not 100% sure that something's going to succeed. So there's like a lot of nuances here. If you already passed the hump, if you're like already commercial with something and you're seeing great uptake, then maybe it's time to say to the other parties, hey, we partnered with somebody, right? You don't have to say who it is unless it's public. It's all confidential information at the end of the day, but it depends on the stage, right? So development stage, I'll probably keep the other people all more close because development could fail. But if you see commercial uptake, there might be not necessarily a need to keep them more at this particular point in time.

Essentially there's multiple factors. There's keeping optionality. You have a higher probability of getting a deal done. Then there's optionality and just the nature of this partnership. If there's more of a commoditized technology and it's like, okay, it only makes sense where if it's very unique, and then I guess that's where I wanted to bring in using exclusivity as a tool or as a protective motion. How would you think through that in conjunction with trying to have different partnerships in those different scenarios?

Maybe borrowing from this ecosystem example we talked about a minute or two ago, imagine we're identifying a couple of sub-areas. Let's take like a medical device. So let's say we have a 3D imaging space, we We understand 3D imaging is very important to us in this particular scenario. So we want to essentially be able to be exclusive, be able to maintain exclusivity with this particular partner. So we essentially tell them that you're going to be exclusive. We need your exclusivity because this is important to us. We're going to have potentially so-and-so volumes. So I can see the other side basically asking for some kind of volume commitment. Typically the large companies would want to avoid it. Because they might be paying for exclusivity in a different way, like through development funds. But there could be also situations where the company is maybe not paying too much for a redevelopment. So then they can say, okay, I'm gonna be able to commit to 100,000 scans at so-and-so dollar amounts every year. If we don't meet these numbers, then we have a certain timeframe to basically cure it. If we're not able to actually cure it, then we essentially Shift to a non-exclusive mode. So it doesn't mean the parties stop working together. It just means that there is something that's non-exclusive where the other party can go and work with the competitor.

For example, I was starting to think about these situations where the signaling of, hey, we're doing this partnership, or we're doing this partnership because we eventually want to buy you. A bigger component of the signaling is if you're actually investing with that.

Correct.

Relationship of it too. Just being on the other side of the deal, because then it's obviously very clear. And then you also mentioned that commitment part. Hey, if we are doing this down the road, we can at least have this expectation of what value was generated from this partnership and have some metric if this was successful or not. And then maybe that ties to that first right of refusal.

Yeah, it does. I mean, in this example, we took like a big corporation and maybe a small or medium-sized company on the other side, but In this particular example, it also really matters how much the big company is actually moving forward with pushing, or should I say promoting, the other target's technology or offering within its ecosystem. So you can pretty clearly see big companies typically move slow, but after a certain period of time, you can pretty clearly see if there's commitment in there. So it's almost like the story tells itself. If the big company promotes Very significantly the other company's solution and sort of talks about it in a, I don't know, it's customer then it's conference says, you know, whatever. And they do corporate promotion, then it's going to be pretty clear that there is a lot of value here. There could be an acquisition down the road if there was an investment in the beginning, but the tough situation is where it's not really clear, like the big company is almost promoting it. It's not promoting it enough. It's up again for the corporate development person and hopefully the corporate dev person is still involved in some capacity. In these deals as they become operational and go to the business. Corp Dev person, I find, can play a really nice role in sort of making sure that things are ticking correctly. So this is where it could be interesting to consider, and again, not all companies do this, but in these investment slash development slash commercial deals, it might be beneficial in certain situations to have sort of a, I'll say, integration function like you have in an M&A situation. Because the corp dev person or this integration person, they can bring a different perspective to the situation. Like, how are we thinking about the next step? Sometimes I find companies that they're basically executing for that particular stage, not necessarily thinking about, hey, we said initially in the deal thesis, we want to potentially acquire this company. So they're only executing for their specific part. And this is where these kind of deals could fail. Kison Patel, if they don't get like the right monitoring or guidance.

So this is like taking the same buyer-led principles, like you want to see this all the way through and you want to bring those thinking in the front end. This still applies in this partnership model, you know, hey, how are we taking this technology to market? How are we, if we're going to incorporate it, if we do go exclusive and having that thinking all the way through. Okay. So that's a key part. You want to have those integration leads. Involved with this just as well as you would on an M&A deal, I guess.

Essentially, just to clarify one more point, yes, you do want to have that integration function, but you want to be obviously mindful about it, right? Because, you know, corp dev as a function, they have a lot of deal work, a lot of strategy work. They don't necessarily have the time to go into each and every partnership or investment and be active at it. So you need to be very mindful of, you know, how much energy and time you spend. A good model could be to have the corporate development function essentially coach or maybe guide or mentor the functions that sort of act as like the integration or project manager in these roles and just sort of inject to them the thinking that, hey, this is what we're doing this for. It's not only about this particular stage. There's also a bunch of other stages. We might acquire this company. Just be mindful towards this and how we're— what we're transmitting, what we're signaling, you know, to the outside in our actions, whether directly or indirectly.

What's your sentiment on how you should be direct with this company about it? Because I feel people get excited just even early stage company partnering with a large company. They get excited about that and they don't maybe have as much of understanding of how you think about it in terms of the sort of assessment of partner build versus buy.

I like to be a little bit more forthcoming with the target. Obviously there is a level of how much forthcoming you can be. When I approach situations with targets, especially when they're young companies, young startups, I try to basically explain to them what are we trying to do big picture. Again, I can't share every single detail because there's a lot of confidentiality and a lot of things, but I try in general to explain, hey, this is what we're building towards. Let's say we have this ecosystem. This is where we see you essentially fitting in. We think it's actually going to help you achieve X. We think it's going to help us achieve Y. We're really excited about this. We see so-and-so potential, it's going to help us do so-and-so, right? Not giving you any concrete details here, but it's more of a framework of how I look at the situation with the target. If they want to be acquired, that's their desire. I'm going to be forthcoming with them. I'm going to tell them, hey, we need to do X, Y, Z. Like we need to test your tech. We need to test market acceptance, market adoption. We need to see that actually revenues are coming in. We need to see that there is scale. To this particular situation, you know, after we do these things, and obviously there's a lot of in-between. So I also do the in-between with the target. So after we do all these things, we can proceed to do the deal negotiations for acquisition, if that makes sense for both sides.

I understand this, like working with the business. Go back to a situation where they have a private equity or even VC owner behind the scenes. I want to understand, how do you sort of triangulate that relationship or not? Are you just primarily working with the business trying to validate thesis of the deal itself? Are you sort of backchanneling to understand the perspective and timelines of, I don't know what you call them, their parents, but the private equity ownership? And what does that look like?

Yes. You actually do a dialogue with basically all these parts of the equation, but the dialogue doesn't need to necessarily be the same. Let's say for example, if the company itself, it's a little bit more detailed, it's more operational. If say for example, you started activating the partnership, you actually started selling the products in the market or the service or the software, whatever it is. And you sell them on that vision, especially when it comes to the leadership of that company. And you sort of like have periodical touchpoints with them. How is this situation, whether it's partnership, investment, whatever it is, how is it going? So you serve as a corporate development leader as almost the escalation point for the teams that do the day-to-day. You can help with all sorts of things. The financial system is not capturing things correctly. So let's escalate it to finance. We're not doing the technical integration with the products, right? Let's escalate this to maybe one of the directors or maybe even the chief product officer if it's important enough. So we sort of serve in that escalation point. And then with the owners, you know, let's say they're a private equity firm. You talk about things bigger picture with them, you align on if they're supportive of this and you're interested in this, you're relying on the acquisition case to start talking and basically monitoring the situation throughout this cadence of process. You tell them, okay, this is, let's say for example, this is where we are now with testing the product. You know, we've seen such and such things. We're on a timeline to move towards the next stage where we'll do market adoption testing and we'll size the market. So you sort of like build them into your vision. In a more high-level way where there is a working level of the company itself. And obviously with the leadership, if interacting with, say for example, the CEO of the target, then you say things that are similar to what you say to the PE owners. But obviously there's a level of difference between the things you'll say. Maybe you won't start talking about the numbers of exits and stuff like that with the CEO just yet. You need to first run it by the PE owners and then filter it down to them. Again, just to stress, you have to sort of manage all the different parties to get towards the end goal. And you have to make sure people are like aware of these chats. So people don't think you're saying one thing to one party and then a different thing to the other party. So it's also about making that connection, right? And making sure information is free flowing and they're talking to each other. And there's going to be some meetings where you're going to have the P owner and the leadership of the company. So it's about orchestrating all this thing. Towards completion. Yeah.

And then just different perspectives. Private equity's probably gonna have a mature view on what their investment horizon timeline is, something that you can manicure. Obviously they would probably be pretty incentivized or motivated about a strategic acquiring something in their portfolio. So there, there's some interesting angles there. Can you tell me a story? Walk me through, I know you worked on some really cool deals, but I'd love to just hear about like how this actually played out in the real world.

What specific examples for—

Just like the partner to acquire, like when you actually did this where you partnered up, what were the key things that went went well, if there's things that didn't go well, you still got the deal done?

I'll give you an example of a software company that we first partnered with at one of my previous employers. And then, you know, then we sort of acquired it, you know, after a certain time. So we started by actually seeing what the technology is about, how it actually feeds into the market with customers. So we saw that there is interest. Let's say we identified 4 segments of the market for this particular company I worked for. For opportunities for use cases. So then we kind of saw, okay, there is some pretty good uptake for, let's say, one of the four use cases. However, we didn't necessarily care as a company about this, this use case, if that makes sense. We cared more about the three out of the four. So we identified that these three other use cases, they actually seal gaps for us from a technology perspective and allow the company that I work for to become more competitive. And there was actually a straight line we found between these 3 use cases and our ability to actually grow the business of this company and also help our customers along the way. For this first one, it's more of an adjacency, if that makes sense. So therefore buying that particular company at that particular point in time didn't make a ton of sense because you'll be paying for stuff that you don't necessarily need. There was also no ability to actually divest it at that particular point in time. Unfortunately, there was just no interest for that particular asset in the market. So what we ended up doing, we ended up actually starting mapping out a partnership option. We built a financial model the way every corporate development team does. We identify the size of the pie. We found some pretty nice synergies for us to basically just slot this product in, even just go out and sell it. So we found that we can just take the other company's product and just go out to hospital customers and basically just sell this product. We didn't necessarily even have to do a tech integration. So we started with that. And then we also implemented a light integration approach. It doesn't get us to commit to this particular company that would bring even more value to our customers. So this is where we actually charge for that integration. So there's actually like some kind of SaaS component. In this as well, this was a hardware play with Assassin's Point. So we ended up actually proving out the value over a certain period of time. It was around a year and a half. And actually stayed close to this deal again, just to demonstrate the approach I was telling you about earlier, where a corp dev person kind of stays close to things to make sure they, they tick. There were multiple times where I played a role to basically escalate things and give the big picture view to remind people what are we trying to do. Because at the end of the day, I was building this up as a situation where we're going to buy this company if we prove out commercial success and also the slight integration success. The people in the team, again, they don't always remember this on the operational level. I had to escalate various things around, hey, how's the integration going? Is it getting integrated correctly? How are we scaling this integration for our customers? There was always all sorts of hiccups. And by staying close to it, I was able to sort of escalate it to the relevant colleagues to get things moving. Things ended up delaying a little bit, but in this particular instance, the commercial success and the technical success was good enough to actually justify buying the company. And by the way, we also negotiated a right of first refusal. This actually became a semi-competitive situation where somebody else wanted to go out and buy this company. So then we talked about potentially like carving out that business that now became much more significant. For these 3 out of the 4 use cases. We ended up understanding it's not going to be possible or worth anybody's time. And the other company wanted to just buy the whole thing. So we ended up making a bid by this company and we ended up integrating it for that particular business I worked for. It ended up working well, but, you know, I think the reason it worked well is only because the Corp Dev function basically stayed close to things and didn't fall into the trap of just handing over everything, basically letting things run. And yeah, sometimes it happens, sometimes it works, sometimes it doesn't. But in this instance, it worked.

That's a great example. One of the things I was thinking about, it's like that conversion from partnership and acquisition, and you had a good example of like the case where there's some turbulence because now it got competitive and you still had to fight that case to validate enough that it was compelling to do the deal. What do you see as like the most common mistakes when it comes to converting the partnership into an acquisition?

Probably the most common mistake is choosing not the right timeframe to do this particular thing. So you can find situations where people are like very excited and they say, okay, I have enough proof points, but I'm only like halfway throughout the process. Let's say we said we're going to make this decision at the end of, I don't know, like a year and a half. Okay. Whatever the situation will be, we'll make the decision then. So now, you know, somebody with like a very strong voice in the business comes and says, okay, now I know we're only like 6 months through. I'm already seeing such a nice adoption with so-and-so customers, so I'm pretty sure it's going to work with 100 other customers. Let's say this is somewhat of a risky decision. We haven't talked necessarily to these 100 other customers. Sample set is pretty small. We're pretty early in the process, and sometimes people with the biggest voice in the room can just get a decision made. It's just the reality of business. So this is where I see companies make sometimes misjudgments. And yeah, sometimes it works. Sometimes it works. Unfortunately, often it doesn't. So to me, it's about finding that fine balance. I'm not saying let's wait years and years, but let's find this right set of proof points and let's design the process in the beginning. So we actually don't only seek out 10 customers, we seek out a little bit more. We need to define between ourselves and the company what is sufficient scale and what is the right timeframe to actually hit that button and say, okay, let's go ahead and become a closer to the company.

That's a huge point. Like you just can't predetermine the timeline and really want to look for some evidence that makes sure it's worth buying. I do want to talk about the application of this partner-first approach across industries, because obviously you've worked across a variety of industry. I'm more on the software focus. And even when I look at this current market where it's just very— every conversation's got the word, everybody knows the two letters and it's just constantly AI, AI, AI, AI, AI. But the thing is about here, we're going through a big hype cycle. Like I've seen it in the last year, I was CEO at Dealroom. There's like 100 point solutions that's AI for X and M&A. And I'm like, okay, like I've seen this before. We've seen this movie with the blockchain companies, with the crowdfunding and give this cycle like 2, 3 years out, it can foresee there's going to be a number of these like zombie 1 to 3 million companies out there, which I know that's going to get written off because they're just raising unbelievable amounts of money. But I think there's some value to collect out of them. So that's where you keep them at bay. And I'm wondering, like, is this an example? Is there a partner model that applies in that situation? And then also maybe closer to the example you gave earlier, When I look at— here's a business where we have a lot of success in selling into corporate development, and we're very ambitious about adjacencies like the private equity and the investment banking. And we see providers that sell maybe like a pipeline type of CRM solution into those spaces. And then that's a thesis like, hey, can we buy one of those products to accelerate our go-to-market? Because now we're selling a full lifecycle solution to those companies from a single point solution. Is that another good situation for a partner-first approach? So that's where I get some free advice out of you.

Yeah, it very well could be, Kison Patel. So it really depends on, I think I want to say, how certain are you? And there is functions that compose your business: product, technology, commercial, sales. This is like the way to go. So you have to be certain that this is the one company that could actually achieve what you want. So I'll say. It's probably good to go back and basically chart what's your outlook with this company? Not only a financial model. Do you feel like this company is situated to actually develop version 2, version 3, version 4, version 5, or maybe they're just like the current version and you're going to milk it out and you need some other people or some other tech to get you to the future. To me, it's making sure that this is sellable. This is upgradable. They have a relatively good reputation in the marketplace. You have the ability to help them. Increase their business essentially through your existing channels or some new channels that you're going to get in. So it's sort of like the cohesive picture needs to tick a lot of boxes and you need to look at it really, I'll say, not with like green glasses. You need to inject some devil advocate into this entire process. Don't just rely on just, let's say, your Chief Product Officer perspective or a CTO's perspective. Also inject some what could go wrong perspectives. Then once you have all this information, it's almost like you become this AI model and you try to make sense of everything, right? In the end of the day, you're still making a decision for better or worse. But this is something I've seen happen more than once. I'm finding that some teams, they just become so excited about something. They intentionally not do a 360 sort of diligence and they say, okay, yeah, this is great. These functions told me this is awesome. Let's just go with it. You spoke about AI, so I'm just gonna make this comment about AI. Sometimes it's table stakes to move super fast and break stuff. The large companies can maybe afford to make these mistakes like Meta, Google, OpenAI, when they go out and acquire this business within a couple weeks because it's table stakes. You have to become more competitive than the other one. But to small companies, it could make or break your business, especially if the acquisition is significant.

Yeah, those are really good points on like poking holes. And also I guess the key thing like you mentioned is identifying the strengths cuz if you kind of give examples. Okay, here's the product. In this case, maybe the product's okay. Are we betting on go-to-market, figuring out like where's going to be the muscle add, putting this business together, and then poke holes at it so you know where things are going to potentially be the risk or fall apart.

Yeah. And I also add like execution. A big execution risk is when you're not being, I'll say, realistic about this business has some things we need to fix. Like maybe the go-to-market is broken, maybe the software architecture If it's a software solution, maybe it's just not good. It needs to be upgraded and modernized. So if you're not being forthcoming about this to yourself and your company, then you're just going to find yourself in a situation where you're constantly doing like a fire drill and you're just getting surprised that you're not meeting milestones. So that particular chunk of activity is also super important when you go into the deal.

Yeah.

A lot of these like fundamentals of doing the deal itself, like passes over with the same approach. I got to ask you one more thing. Tomer, what's the craziest thing you've seen in M&A?

Kind of connects to what I just said about AI. I'm seeing actually more and more companies these days that just run into deal processes and they feel the pressure from either the bankers that, you know, trying to sell the company or the company itself that wants to get sold. And they just again decide to forego certain diligence areas saying, yeah, it would be okay. We think this is a great team, but then, you know, they close the deal and they suddenly find all these surprises. These are exactly the things that cause the impairments. Yeah, I've seen some things I'm like very surprised about, like the strength of the customers. For example, they've seen situations where somebody paid a very significant chunk of money to buy a company in the medical space, and then suddenly they realize that there's no good IP protection. That's a big surprise because IP is a big thing in the medical space. I saw some other situations where somebody bought a company and then a big customer ended up leaving shortly after the acquisition. So these are things that have been missed in diligence. It's hard for me to wrap my head around without knowing the exact details, but there's been some cases like this where the acquirer just loses immediately so much of the value and they might end up actually writing the whole thing off.

It is wild. You've seen all these like crazy acquihire valuations. It's gonna be interesting. We've yet to see the craziness with AI deals. Hey, Tomer, I want to thank you so much for taking the time. This is a great conversation. I enjoyed it. I learned a lot about taking a partner-first approach. You've helped me become a better M&A scientist.

Of course. Happy to be here. Thank you for the opportunity.

Hey, those that tuned in, I appreciate your participation. It's a lot to get through this whole interview. Feel free to reach out to me. I love hearing feedback on these interviews. You got some tips how I can do my job better, make the content more interesting, valuable. If there's topics I haven't touched on that you'd like to see, Let me know, reach out, connect with me on LinkedIn. I got my privacy guard down, so it's easier to connect with me, but put a little note so I know you're an actual podcast listener because I get a ton of spam every day on there. Till next time, here's to the deal.

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