Perspectives on Modern M&A Consultancy and Divestitures

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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 today. I'm here with Kelly Haggerty, who has over 15 years of experience in acquisitions and divest. Before starting her own advisory firm, Near Co Transaction Advisors, Kelly led integrations and divestitures and authored M and A methodologies for top consulting firms and Fortune 500 companies. Kelly and I are going to discuss her experience as an M and A advisor and the lessons she's learned regarding what makes a strong, efficient deal and how consultants can better prepare their clients for long term success. We'll also discuss divestiture strategies and common challenges. How's it going Kelly?

Going great, Kisan. How are you doing?

Well, let's talk about what are some of the largest inefficiencies faced in the industry and how have you helped your clients overcome them?

That's a really great question. I think that most of the inefficiencies, if you go back to the root cause of them as far as the M and A integration is concerned, is misunderstanding about when to involve the integration experts and start taking into account the integration considerations. I really feel strongly that the right time to do that is right about the time a letter of intent goes out. So that's the ideal time to get involved. You're about to send the letter of intent or you have just sent it. And the reason that I advocate for such an early involvement of the integration resources is I've noticed that neither attorneys nor investment bankers typically have any business operations experience, so they're making estimates about what they think the integration will take and what it will cost. They're putting that into their analysis. They're beginning to write up deal agreements, purchase agreements and so forth in draft. But they don't have the operational experience to know how that actually should be looked at. And I think the understanding that they have is that the company executives will actually be able to bridge that gap during this time period. When it's early. You don't want many people involved is the perception. But asking the executives to bridge that gap is kind of like asking someone who knows how to operate an electrical outlet or a light switch to actually come in and wire the house. Two very different things to know how to effectively operate what is already there and how to build from scratch or recreate from scratch in the case of integrating into existing infrastructure. And so you really need those integration experts in there early.

Makes a lot of sense. So getting them early. And then when you mentioned considerations, what are some of the considerations often get overlooked when it comes to integration?

There's really. I talked about kind of two pillars in regards to that. There is what needs to go in the deal agreements themselves. I spend a surprising amount of time editing things like purchase agreements and other documents that are going over that are being created by the attorneys that are going to form the basis for the deal. Because what you include in there in terms of language and sometimes what you omit can really have a material impact on whether or not the integration can be done efficiently, how much it's going to cost, how long it's going to take. This is particularly true if you have any kind of a long tail on the transaction. And what I mean by a long tail is, is if there is an earn out agreement or some sort of joint operating agreement, or it's a divestiture and there are transition services, anything that's going to keep the parties involved for an extended period of time. You definitely want integration to rationalize those deal agreements for you. The other area would be in the actual deal model, what a lot of corporate development or investment banking resources will do is is put in an estimate for integration cost. That's either roughly what it was on the last deal or a percentage of the deal cost. Neither one of those tends to be a very, very good estimate of what it's actually going to take to do the integration and percentages in particular. You know, I can give an example. There were two deals I did back in the 90s that were both in the 20 plus billion dollar range. But one was two large food companies and the other was A copper mine in Indonesia and a gold mine in Africa. Obviously the food companies they integrated completely purchasing, distribution, and the more they did, the more synergies they realized. But there was very little integration for the mining company because it wasn't practical to do so. A light bit of back office integration and that was all. Even though the purchase prices were similar, the integration budgets and timelines were radically different. So that's why you can't use a percentage. So I would say the attorneys for the deal agreements and the investment bankers for the valuation, both of those groups benefit greatly from having the integration personnel involved early.

It seems like there's a lot of companies that I spoke with. There's always this very distant separation between corporate development and integration. But it seems like to really get more involved in it, there needs to be a real form of a partnership. Has there been anything that you've done to really approach and drive that type of partnership?

You know, I'm starting to see the serial acquirers realize this as they've done postmortems on their deals. And more and more they are pairing the two together and they're structuring the performance objectives and the incentive compensation to help the two work together. And that would be my best tip for companies out there. If you incentivize corporate development on doing deals, they will do deals, they may not be good ones. So you want to make sure that they're incentivized on doing successful deals. That gives them the incentive to partner with the integration team and helps them do so a bit more collaboratively because it changes their driver to being. Is this going to be a successful deal? Is it going to generate long term value instead of just how many deals can we get done?

Yeah, not just how much revenue we're acquiring, but the actual outcomes.

Right, right. And I mean acquiring revenue can be good, but if it's not extra accretive, if it's only accretive, you probably aren't going to earn your premium back. So it's really important to take a good hard look at those numbers and get everybody around the table confident that you're making the right move.

Makes a lot of sense. What are some of the strategies you've implemented with your clients to create a more successful deal? Outcomes.

So I typically use kind of a three tiered strategy. The first one is what I call the value driven target operating model, which sounds very consultancy and has acronyms in it and everything. But what that really means is we take a look at the deal rationale and we keep that front and center throughout in everything that we're doing. There is a reason why this acquisition is under consideration. It fits some part of the company's strategy, the acquirer strategy. It fills a gap and that needs to stay in the forefront no matter what you're doing. If the company is being acquired because it's highly innovative or creative, or it's the next blue sky engine for the acquirer, then you probably want to integrate it very, very little enough to meet your compliance requirements and maybe achieve a few small back office synergies. But experience shows if you integrate those companies too much, what winds up happening is you kill the goose that lays the golden egg. So value driven target operating model says we look at the kind of company we are, the kind of company we're acquiring, our rationale for doing so, and we pick the level of integration that optimizes our investment objectives. So that would be the first strategy, the second strategy and the third. They're tied together and that is the toolkit and the staffing. So most consulting firms, certainly large firms, use what I call a pyramid model. And that is they will bring one very experienced resource, two to three somewhat experienced resources, and then lots of very inexperienced resources. So you have the pyramid, very experienced person at the top, middle layer, slightly experienced people, bottom layer is the largest and consists of inexperienced people. And the reason that they think they can staff that way is that the consulting firm's toolkit and methodology is supposed to be so easy to follow and so prescriptive that an inexperienced resource can be successful. That does not work in M and A. It works fine for some other types of engagements like benchmarking and so forth, but it is an absolute disaster in M and A because M and A is not the same from one transaction to the next. And you cannot use a rote toolkit. So the other two legs of my strategy, toolkit and staffing, I have a very flexible toolkit. It's been used successfully across deals of various sizes from I would say 20 million up to several billion dollars. And it flexes and adjusts to the different target operating models and strategies that the company might want to deploy. And I will make changes, probably change up to 30, maybe even 50% of that toolkit on each deal based on the parameters of the transaction that we're actually looking at and the industry that the acquirer is in. The third leg, the staffing model, I offer full time, part time and ad hoc consulting with Nearco. And I think that's been really important. There are a lot of clients that need A lot of help up front, then there's a slack period and then they need some more help for another rush period. I have found that the flexibility in staffing is really advantageous for them. And also I use agile staffing within NIRCO where I bring in experts as they are needed. And so I can get the right person on the right puzzle and then roll them off and get the next person that you need much more quickly and much more efficiently than the large firms are able to do. So those are the three pillars that I use.

This is a big shift from the traditional consulting model and it seems like a trend that's occurring as well. Maybe we can contrast the difference a little bit because I think a lot of other companies are identifying some of these challenges that you started mentioning about working with a traditional consulting model. But we've even seen that there tends to be a lot of other challenges in terms of information chasms and some of the structural issues as well.

There are, there are. And we've got a convergence going on in the industry right now. I'll call it, I hear. I called it a three way convergence on a previous interview that I gave. And what I mean by that is you've got more and more skilled professionals going out there making themselves available to the public. So you can get a skilled advisor much more quickly than you used to be able to. And you can vet them and check them out just like you would a traditional consulting firm. Some traditional consulting firms are starting to appreciate all the inefficiencies and problems that you mentioned. And, and they have begun actually hiring the experienced resources as subcontractors. So what is very interesting now is if you hire big consulting firm incorporated to do your work, you may get several resources, even resources near the top of the pyramid that are not big firm incorporated employees, but are in fact independent contractors which you have maybe even previously reviewed yourself because you found them directly. So we're starting to see convergence there. Another area of convergence is firms and increasingly large, even Fortune 500 firms are growing more comfortable with hiring directly and picking the contractors themselves. When I first started in consulting, if you were not with a large firm, you weren't going to get through the front door of a Fortune 500 company because they had a very strict vendor policy. And as an independent contractor, you would not have the level of EO insurance and the balance sheet and so forth to pass their vendor questionnaire. Now that they're seeing the kind of results that they're getting with going direct to the market and the kind of help they're getting and the difference it makes in outcomes. Those vendor questionnaires are getting kind of shoved to the side and ignored and big companies are hiring small contractors directly. The third leg of the convergence, and I think, you know, companies like Uber have been kind of the tip of the spear, if you will, on this, is that companies are starting to realize that they can use contractor versus employee model more extensively than they have in the past. And I think they're growing comfortable with that. But we still need to see what the regulators do. I think the Uber lawsuit in California will be an interesting litmus test. My personal view is that the contractor model will survive and the regulators will adapt to it because I think the gig model is here to stay. I really think we will have a gig workforce and we'll see convergence on that soon.

I'd really be interested just to hear about how you, I guess a little more specifically how you would contrast the traditional consulting model with how you work with companies. Because I know you mentioned a two in a box model and then be really helpful to hear a little more about that.

And in talking about the two in the box, my preferred way of working, what that means instead of the consulting lead at the top of a pyramid being the point of contact for the lead at the client, and that's really how all the information needs to get shared and creates inertia. In my model, there is a consultant paired up with the functional leads, one and one. And that does two things. One, it allows the functional lead to be in more than one place at a time because they can send their delegate to meetings. But two, as the two work together, the expertise that the consultant has is transitioned to the in house resource. So eventually you can roll the consultant off and the internal resource is ready to stand on his or her own and on the next transaction they can get started much more quickly. They've been through it before. They that knowledge stays in house with the company's resource instead of transitioning back out with the consulting firm as happens with the pyramid model.

I think that's a major value difference between the two models.

Definitely.

You're essentially outsourcing work and it gets done. And there's obviously challenges with that versus having somebody that can help evolve your internal process, which I think is a much better long term investment.

Yes.

So you've also led and authored strategies and divestitures. Can you explain some of the common divestiture challenges and how your approaches seek to overcome them?

Divestitures are a specialty of mine. I love them because they're really, really fascinating puzzles and they're definitely not at all integrations in reverse. Almost the exact opposite of an integration in reverse, which is how companies want to think about them. So there's a lot of challenges in the legal agreement structuring, particularly the negotiation and execution of any transact transition agreements. And without giving too many specifics, what I can tell you about transition agreements in general is that if you've got more than one country involved in the transaction, if it's a large multinational, you can almost count on the tax authorities requiring a separate agreement for each geography priced in the local currency, subject to the local invoicing requirements and you know, done in accordance with local law. So, you know, I did a transaction where we had, let's say 23 countries in scope for one simple business process like processing accounts payable invoices. You've got 23 divestiture agreements for that one process. Multiply that by the number of processes you have, which is usually hundreds. You are doing all of those for 23 countries in different currencies. There are dependencies in between them. It gets to be a really, really fascinating puzzle really quickly.

Wow. Sounds like a lot of challenges and just the whole transition of taking this business out. And I know you mentioned earlier about transition services, but it seems like those tend to be very complicated to negotiate as well.

They are, yeah, yeah, that's what I'm referring to. With all the different agreements we round up with about on that particular deal that I referenced, we wound up with about 180 unique legal contracts just because of the structure of the deal. So definitely, definitely a case where you needed the integration and divestiture experts in there during deal negotiation. It's tempting for companies to want to postpone that part of the work, the transition agreement negotiation, and until after they get the purchase price nailed and the APA done. But there are actually very, very critical components of the transition agreement that need to go into the APA that go beyond just referencing the Master Services agreements and the existence of transition. So there's language you're going to want in the APA in order to do this efficiently, you're going to want a really good Master Services agreement and then the TSA schedules. And the reason you want to do all of these right up front is not only to get the APA correct, but you can imagine an extreme case where someone's willing to sell you a company for a dollar, but then they want to charge $1 billion for the transition services that you cannot get by without. So just From a pricing evaluation standpoint, as well as getting the contracts correct, it's important to have the expert in there early during that period. And then once you've done the agreements, you've negotiated them, you've got a tentative close date out there. It takes, in my experience, between three and six months to set up the organization that will be needed internally to actually manage the transition service agreements. So that's something that a lot of people kind of forget, is that the companies that are selling their businesses, they are not typically in the business of offering outsourced services. So they need a lot of Runway to set up a group that can invoice for these services, answer questions, manage the services, et cetera. And the acquirer needs a group that can receive the invoices, negotiate disputes, and if there are reverse transition agreements, which often happens, invoice for those agreements as well, back to the seller. So it becomes a rather large setup and administration exercise as well. And three to six months is about the minimum amount of Runway, depending on deal size.

Okay, so you'd actually have to spin up a group just to help facilitate this transition of the divestiture.

You do. You do have to spin up a group. And, you know, you have to be really careful because there is a cartoon that I always post when I'm working on a divestiture, and it says, when you're up to your armpits in alligators, it's easy to forget your initial intent was to drain the swamp. So if you're on the seller side, you have to remember the seller wants to stop spending time and money on the business that they're selling. Now, they'll be willing to work with you to an extent, but their tone typically changes quite a bit after the day of close as well. And they become much less cooperative, much less eager to pick up the phone because they've been paid. So getting the agreements ironclad up front and putting some good penalty structures in there and so forth to make sure there's enough teeth to it to keep the people involved and the services being done properly while you integrate on the buy side, that's absolutely critical.

What are the challenges you see when it comes to actual execution?

I think the execution, you've got to really watch culture in a divestiture. You've got people that feel. They may feel betrayed, they may feel like they are at risk of losing relationships with people that they've worked with for years. The company is being carved out of an existing organization. So you have to really watch the culture. One of the things that makes that challenging is for legal reasons and compliance reasons. You also have to really watch the separation and make sure that there is not commingling post close. So you are trying to keep people engaged and feeling the right way about this while you may actually be building physical walls around them and telling them they can't talk to the person they've been sitting next to for 20 years. So I would say culture making sure that you get through the integra or the. Yeah, the integration if you're on the buyer side and the separation as quickly as possible if you're on the sell side and negotiating through the execution of those agreements because once they're signed, there's still additional negotiation that goes on with regards to, oh, we need an extension over here or we need some grace on the KPIs for this service for one month. Those wind up being puts and takes. So it's a good idea to make sure that everybody's on the same page and has a good attitude.

Any tips to overcome those cultural challenges?

Communication. You want to start really early. You want to have a really good cultural assessment and a really good communications plan in place when you start to think about the divestiture. And you want to make sure to, you know, to offer the kinds of things that you would typically offer, incentive compensation, work arrangements and so forth that incentivize people to feel like this is the right decision for them. And I think you want to be honest up front about somebody who's just not willing to stay on the wagon and make the decisions that are necessary to give them a soft exit and fill that gap before you move ahead.

I know we spoke before Kelly, and I know you spend extensive amount of work. In fact, you've created a predictive model for integration. Tell me about that and how that relates to the actual cost drivers of the deal.

Okay, so we talked a little bit about why percentages don't work. The amount of money that you pay for something and the amount of effort it will take you to integrate it are not correlated at all. In fact, I've seen deals that were very large 20 plus billion dollar deals done for just purposes of financial arbitrage. Changing the capital structure of the company that had nothing to do with integration. And in fact there was no integration. So to apply a percentage would not have made sense at all. So percentages don't work. There is a floor to what your integration is going to cost. And this is something that often frustrates corp dev. They bring you 3 billion dollar transaction and you say integration costs this much and then they bring you a $20 million transaction and the price for integration does not go down in a corresponding amount. And they get really frustrated. And the reason that there is a floor is if you're a publicly traded company in particular, and you're required to meet information security compliance and financial and tax compliance, and you're going to therefore need to put this company on your ERP system, et cetera, you know, it costs a certain amount to do that, even if the company is small. Now there will be some differences with regards to scale, but what is often frustrating and that companies overlook is that there is that floor, you know, to rebadge a certain number of employees, to sign them up for benefits, to integrate their data into your ERP system, it's going to cost a certain amount of money. I think what companies often want to do is they also want to over integrate. So we got to go back to that value driven target operating model and say for this type of transaction, how much do we integrate? Will we achieve additional synergies if we integrate more, will we achieve additional cost synergies? And if so, do those come at the expense of revenue synergies or not? And then you find that optimal integration point. My classic example for this is one of the transactions I worked on was PepsiCo Quaker. The more they integrated, the more goodness and light there was. They had synergies on distribution, on purchasing, et cetera, all down the line. And so two very like product companies, the more integration the better. But that's often not true in creative industries, in high tech industries or entertainment. So you really want to look at how far do you go and make sure that again, keeping the deal rationale front and center, the target operating model you choose makes the most sense. It optimizes all your synergies.

So none of this is standard and there's a lot of good variables that are involved.

Exactly. Some of the key cost drivers, I would say one area where we could talk about key cost drivers would be staffing model. I throw out an acronym because I'm a consultant and we have to do that. It's required. There's a law somewhere. But there's an acronym I use that's called squirt and spelled S Q E R T and that stands for scope, quality, effort, resources and time. Scope is how much you're going to do, quality, how well you will do it, effort, how hard you will work, resources, how many people you'll use, and time, how long it will take. There is a rule that I can do absolutely nothing about, and neither can any other consultant, that if you change one element of Squirt, you probably change at least one other. If you change two of them, you probably change all of them. And even the most brilliant people, no matter how smart your internal resources are, only have 24 hours in a day. So those are two things I can do nothing about is the law of squirt and the number of hours in a day. An integration lead on a full integration, you can expect that to take at least 75% of their time and probably creeping up towards 90% of their bandwidth. So that gives you an idea of kind of what it looks like in terms of hours requirements. So one of the big cost drivers for an integration would then be staffing to make sure that you've got good coverage with regards to Squirt and that you've got that 75 to 85% of your experience, resources, time dedicated to the transaction. If you want to mitigate those costs, there are things you can do. You could put in a centralized staffing model so you're not managing multiple contracts and multiple statements of work that can help. You can do two in a box, like we've talked about, which will be a higher cost upfront on the initial couple transactions, but then a lower staffing cost later on. If you plan to be a serial acquirer because you will have built the expertise internally. You know, whether you go with two in a box might depend on your strategy for the future. You can do what I call uplift and backfill. That's where you kind of promote everybody temporarily into their boss's job as far down in the organization as you can, and then backfill at that level. It's usually less impactful to backfill further down. And it is a very good thing culturally for your people to be given the opportunity to stretch. It's also less expensive to backfill for a resource further down. So that's a way to save money on staffing as well. Or you could just do it in an ad hoc way and kind of staff here and there as you needed. I see a lot of companies go to that by default. I have yet to see that be the least expensive way to staff a project.

There's a whole variety of approaches to take on integration that ultimately affect the actual costs.

There are, There are, yeah. So staffing model is a. Is a big part of it. Another, I would say you got to remember most of your costs will wind up being due to some sort of pressure on time or duration. So the T in the squirt, we talked about the R, now we're going to talk about the T in the squirt and your major duration cost Drivers are going to be any kind of red tape. The first thing I ever look for when I first walk onto a transaction is where is the red tape? How many regulatory approvals do we need? How many taxing authorities need to weigh in? Do we have bonded assets or economic incentives that we're tied up with? But do we need licenses? Do we need building permits? Red tape equals time equals money. So getting the red tape identified and addressed is one of the first things I'll work on to save integration costs. A couple other drivers with regards to the T, I would say pick up and put down time, holidays, cultural differences. If you're working in a country where they take the month of August off or they take siestas every day, et cetera, that's going to impact T and is probably something you're just going to have to accept but needs to be budgeted into your cost so that you understand the ramifications for deal valuation. And then other duration based items are your long tail integration items, kind of your medium long which will include data and contract migration. So customer contract migration, customer data migration typically are two long tails. There are ultra long tails. But if you structure your program correctly, you should be able to close down the program management office and let the consultants go before these costs come about. And that would be things like building brand new buildings or re implementing new ERP systems, etc. So I wouldn't really consider those kind of ultra long tail items integration costs unless directed to do so by a cfo.

So can we recap these milestones? Because I always often hear, especially in private equity world, the whole fabled 100 and 120 day plan, that hey, this is where you get the most momentum and you really need to get all the high value activity out of the way by then. And then it sounds like there's additional milestones to consider as well. Could maybe give me a quick overview on that?

I will do a hundred day plan because mostly because if I don't, people think I don't know what I'm doing because that's such a phrase that's out there. But the hundred days is absolutely arbitrary. There's nothing magical that happens between day 99 and day 101. But nonetheless I will actually plop some milestone on day 100 just to have a milestone to put in the 100 day plan. And really you Want to look at it more in terms of number of days. You really want to look at it in terms of major initiatives. There is a lot of value to be captured up front and you do absolutely want to burn up the road, but there's not much you can do about the red tape. Right? The government's going to take as long as they choose to take. And there's not much you can do about the cultural work methods unless you want to create additional personnel problems for yourself up front. You want to have the organization design done, you want to get people onboarded, get them their badge, get them their email address, make sure that they are equipped to work. That's got to happen up front. You want to do as much of the data work as you can so that the tools are up and running. But how much of that you're going to get done in 100 days? Again, we go back to squirt if this is. If you want your data completely migrated in the first 100 days, that is your scope and your duration, you've got to work with effort and resources on that. Remembering that resourcing can be one strategy, but you realistically cannot get 10 people to operate on a bird. The 100 days winds up being a bit arbitrary, but yeah, you do want to get a lot of the work done up front. You want to burn up the road, there's value generated. But again, you said it's pe, it's bankers you hear this from. They're not the ones that really know how to sit down and look at the red tape and look at the operating model, look at the systems and data and contract migration and make a realistic assessment of what can happen.

Sounds like the main thing is to clarify the goals and build timelines around that.

Exactly. And the goals are going to be tied to the deal rationale. Why are we acquiring this thing and what must absolutely happen. So, you know, if I'm acquiring somebody that's in the government contracting space, they must be able to bid for government contracts by the bidding deadline. If that means leaving the company separate, because that's the only way to do it, fine. If it means pushing very hard to be fully integrated by then, fine. But you've got to be realistic about what you're going to be able to do and willing to spend the money to do it. If you're going to. If r Resourcing is where you're going to put the pressure because that will come with a substantially higher cost. And you know, there's an admin cost as well to Using a high resourcing model. I don't try to talk anyone out of it. I just try to make sure they understand what they're signing up for.

Big case on why integration people should be involved early.

Yes, exactly.

Kelly, what do people do wrong? I want to hear about what are they doing wrong in diligence integration that you see.

And you know, I guess just underestimating integration is probably a big one, not costing it out so that you really know what it is you're signing up to do, who's going to do it, how much it's going to cost you. That would be one thing. Overlooking compliance, information security, compliance, pii, personal information and finance and tax compliance. These are costs that are drags on deal value. So I would say you've got to know what those are. What else are people doing wrong? Assuming that smart people have more than 24 hours in a day, you know, I've yet to meet somebody smart enough to have more than 24 hours in a day. And assuming that they're very smart people will stick around if the expectation is 60 hour weeks for two years. Because the better your person is, the more options he or she has available to just find a better quality of life. So I think, you know, those are probably some of the key things that people make mistakes on.

Great. So a lot around planning costs and some of the compliance challenges that may be unforeseen. Exactly what are some of the biggest innovations you currently see transforming the M and A industry and how will these changes impact operations and the overall marketplace?

Well, we talked about the transformations with regards to companies using independent contractors more. I think that's going to be one thing that we're going to see kind of develop and change the M and A specific another. I think we're going to see more industries begin to acquire innovation than we have in the past. So in the past it's not been unusual at all for technology or pharma companies to let small startups try to innovate and then the ones that are successful, those get purchased by the big companies. That's been the model for quite a while in those industries, but less so in other industries. And I think we're going to see more of that. And part of the reason is just the pace at which technology is progressing is not really anything that any one company can hope to have experts in in house. I mean there's everything from blockchain. I have a friend who has a blockchain company and I help him with his consulting work. We've already had two sovereign nations approach us about replacing their fiat currency with a crypto. So that's happening much more quickly. At least it's in discussion much more quickly than I would have anticipated. What will a transition to cryptocurrencies in certain countries of the world mean to a company's business strategy? Well, that might take a team of experts to figure out. They may need to acquire that team of experts. Artificial intelligence, another area where we're seeing a lot of developments. And how will that apply to a particular company or industry? Again, they may need to look at some of the technologies that are being developed by the AI startups and find what they need to buy that will actually bring AI into their organization and optimize some of their business offerings. And of course, early mover advantage is critical on all of this. So I think we'll see more acquisitions to go out and acquire these cutting edge technological capabilities, bring them in house and try to be the early mover on that kind of operation and get a competitive advantage so we have better.

Access to expertise through the growth of independent contractors and more acquisitions driven by innovation.

I think so, yeah. I think those are two things that are going to be relevant over the next 10 years.

What's the craziest thing you've seen in MA?

Oh my goodness. So many secrets.

No names and dates. You'll be totally fine.

No names and dates? No, never. So I just recently did a follow up blog post out on my NearCo blog from a transaction that I analyzed earlier last year. And this was a company that they had a cash cow, they had a product and they had sold it successfully for years. But what happened to them was a company in another industry developed a substitute product and began to give away the substitute product for free. So the company's cash cow basically had no market value anymore. There wasn't anybody willing to pay for it when they could get something just as good from this other company for free. So the way they wanted to approach this is they wanted to get a new product in their portfolio, something that they thought was complementary, and create a bundled market offering with this complementary product and therefore kind of get a little bit more life out of this existing cash cow, not have to pay for so much innovation, grow their customer base a little bit by acquiring customer base of the complementary product, etc. So they went out, they found such a company and they did an acquisition and they paid a very, very high premium for it. And when we were doing the, they brought me in to look at the integration along with a couple other people that I work with. And what we learned almost immediately when we began looking through the materials is they had done a very good job on their due diligence with regards to looking at the finances of the company that they were acquiring, the executive team and so forth. But what was the deal rationale? The deal rationale was buy something that fixes the problem of our product having no market value. Well, it turns out the reason that the company they bought was for sale was that their core product had recently encountered a readily available free substitute. So they doubled down on the problem of having products with absolutely no market value. To make matters worse, the customer base of the company they acquired had more than an 80% overlap with their existing base. So the only way to create a bundled offering that would have had any value and help them recover the premium was to sell their existing customers something that they could get free for more money than they were already paying to get it today. So definitely, definitely a big mistake. And from a standpoint of the post mortem on that, they're stuck. Price has declined 14% over the same period that the S and p has risen 16% for a very, very significant loss in investor value. Most of their executive team has resigned and they are now currently shopping themselves around looking for a buyer in a distressed sale because they can't cover their debt. Strategy matters. And definitely keeping the deal rationale first and foremost throughout is absolutely critical. If they had done that during diligence, is this the right acquisition to fix this challenge? They would have never bought that company.

That's a great lesson to take away.

Yeah.

Kelly, thank you so much for your time and we're going to put your information in our show notes. So if anybody wants to reach out to Kelly, learn more about her practice, that information will be available. And thank you again for your time.

Thank you. Kisan, I really enjoy listening to your podcast, so I'm thrilled to have the opportunity to participate. Thank you again.

My pleasure. Thank you. Thank you for taking the time to explore the world of M and A with our podcast. Please subscribe for more content and conversations with industry leaders. If you like our podcast, please support us by leaving a five star review and sharing it. I enjoy hearing feedback and connecting with our listeners. You can reach me by my email. It's Kisan K I s o n ealroom.net M&A Science is sponsored by Dealroom, a project management solution for mergers and acquisitions. Additional educational content is available on Deal Room's blog at dealroom.netforward/blog. Thank you again for listening to M and A Science. See you next time.