Strategizing and Executing your Exit for the Greater Good of your Team

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Great. Good to be here with you. Yeah, life is good. I've had about eight months to reflect on the CIGNA transaction, my career and everything else, and throw a few hobbies back on the plate that I had kind of abandoned for a while. And yeah, life is good.

What's going on? I want to know what the post public company CEO retired life is like.

In my case at least, it's been deflecting some really, really nice opportunities to help out different folks and I'm helping out four startups. In fact, I'll be announced as the chairman of the board of a really interesting behavioral health startup next week. But all of it is kind of the flip side. All my work stuff is working around the personal stuff I want to do. So I'm running a factory built race car around up at Monticello. My wife and I are back in the ballroom preparing for a competition at the end of the year because we're amateur ballroom dancers. Taking good care of myself. I'm having lunch with my daughters in the city once a month or so. So I'm plenty busy with worky things on the startup side helping a very good friend. Actually two do two startups. No the grand scheme of things not part of the larger corporate environment anymore with all those dom hands that are much, much more time intensive. And I don't miss that frankly. I tell people biggest changes in life when you retire, Sunday nights every morning and fresh air. And I'm enjoying all three of those changes.

I didn't hear tee time. You getting tee time.

So I am taking golf lessons. The race car has kept me pretty busy this summer. I'm going to wind up probably waiting to the fall to actually get out and hit golf balls because frankly I have a lot more years to hit golf balls than I do climbing in a caged car and running around at ridiculous speed. I'd rather use my time this summer and next summer maybe the following to lean it a little bit more toward the high performance driving stuff.

That sounds great. Sounds like a good retirement life. Those of you listening to this interview, we did an interview earlier this year focused on the Express script sail to Cigna. You can give us a quick background, Tim.

You know I've been working almost 40 years. At the time I retired been in different industries. I was in recorded music industry with RCA Records. I was at PepsiCo for 10 years, worked for Mary Kay Cosmetics for five. Mary Kay herself actually hired me and then about 23 years ago went to Merck and Merck's Medco division and that was really my entree directly in healthcare. I had been a human resources executive up until mostly that point. Subsequent to that I really ran our large accounts. I was CEO of our biotech pharmacy at Credo. Ultimately stuck with the company Medco when we spun off from Merck, stuck with the company when we sold to Express Scripts and moved over there. Ultimate was named CEO of Express Scripts in 2015, then in 2018 made the strategic move with David Cordiani, the CEO of Cigna to build Something super special. By combining our two companies, it was signifying Express Scripts just based on the relative valuations. So I stayed for three years after that merger. In doing so helped David and the organization puzzle through the early years of a combination that's been tremendously successful on almost every dimension. Retired in January of this year. Married 40 years, got three kids. Like I said, I'm 62. Life is really good. And I'm going to grab every minute between now and however long I got.

How many years of that as a public company executive?

7, 8 years running a public company. I was president starting in 14 at Express Script, so that would have been five years almost. But I was in public companies. We spun off Metco in 2003. At that point, I did a lot of the investor work for Dave Snow. He'd send me out if he wasn't going quite often and really got to work with the street for the last 20 years almost.

Cool. So that's one end is being an executive of a public company, other end. I'm thinking back to this conversation we had that spurred up this topic. Where as a founder, should you be building a business with an end in mind or no end in mind? Should you just focus on your mission?

It's a big question. I wanted to have a colleague named John Arlotta on here with me. And John's too busy being really retired, I think, and enjoying life. But he's one of my examples because first of all, I'm a Stephen Covey guy, so I believe in the line that says begin with the end in mind. But that said, my experience in looking at companies to buy, and as you may recall, I bought Evercore for several billion dollars. Very successful medical benefit management company I passed on. I won't name some of the companies I passed on, but you'd recognize them. As I reflected in the conversation you and I had last in sitting down with you, in between that conversation and this one, what's really interesting is at least what I, as a buyer, strategic buyer, was looking for was a highly committed management team and a high performing business that added something strategically to what we were already doing. And that my investors would say that was a smart decision. And for me, a big piece of that was is that management team really in it? Do they want to be part of what's next? When I look at John and when John and I began talking about buying evercore Back in 2016, it was I got 17. John wasn't running a process. John didn't want to distract his team. John knew that he may have to run that business five or six more years before he ran a process. And the danger was if he got his team distracted on who's our next owner going to be, are we going to have jobs? Do we feel good about the price that we might get? And being minute to minute engaged in that, they would lose focus of the customer, they lose focus on building their culture, they would lose focus on hiring great employees, they would have higher turnover. All of which would cause the business performance to degrade and therefore John to be devaluing the company even as he was attempting to move on it. So what was really striking to me was that John had people that wanted to be there. He didn't have a rented management team that came on board just to help sell the company. There are circumstances where that works. In the circumstance of trying to sell an asset of that size, again, a 3 or $4 billion asset, there were not going to be many buyers that were going to be able to just take that business, take customers onto their platform and let the management all lead. We were the opposite. We wanted every one of the managers stay. In fact, a big piece of getting that deal done was engineering a three year package where they put meaningful amounts of the money they were going to make on the table for the three years. And that was because they were committed to the business. So they wanted to be in it. They weren't looking to get out and go to the beach and they were comfortable with the buyer. And John was able to arrange a merger with a buyer who was the right strategic buyer because of that buyer looking for a great asset rate management team, which in turn reinforced to the management team, you're wanted, you're needed, your culture counts, we want to learn from you. And in doing that kind of deal could even gotten a little bit more money from another buyer. I don't know that he could have, but I know this. The performance of the business after the merger was massively good. And that was in part because we kept all the employees and they knew that we were wanted. And that is because John wasn't just trying to sell Evercore. John was trying to run a successful company. The team was trying to run a successful company and in the process recognized that at some point it may make sense for that successful company to be strategically aligned with a different capital structure or a different ownership structure. But that was not what you wanted. Most of your team focused on. That was your job as the CEO to be thinking about as you built a great company. And I just think the best Way to manage an exit is to have built a great company where the vast majority of the people would want to be part of it. As long as you sold to the right buyer long into the future. And if anything, we're excited about what the buyer brings to the table that enables them, the combined entity, to be more successful. I can tell you that when I was sent down to credo, credo David Stevens and the team down, they were a very successful publicly traded biotech company, pharmacy company. They knew they needed to be inside of PBM because the world was changing. Their employees knew, holy cow, we are going to die as an independent company. So they had taught their employees already the thought about what change was going to need to come. The question for them was again, can we get somebody that's going to be the best for us? Because then one plus one will equal three. And we did that and we kept our CREDO management team for a very long time after that deal. Same set of dynamics.

Okay, I want to get this straight. Your view is more towards a founder staying mission focused so that they can build a great company with that mission in mind, make those right decisions. Ultimately, when a deal happens, there is this nature because of that, that it tends to be more people focused again and how those combined teams would work together that would ultimately create a better outcome given a variance of what the exit amount would be in different scenarios. But because you've really got this right fit around the missions and ultimate goal, that's what's going to actually accelerate or ultimately create greater value.

Absolutely. And I'll tell you another thing. The buyer, if you've built that and you've got a compelling team at the table and so forth, the buyer is going to be highly motivated to compensate that team for retention not just for six months or a year, but to bring them into the company in a way that has a longer term sustainability. I look at Cigna right now for example, and there are several folks who are in very important strategic roles who came with Evercore way back in 2017 when we bought them. And they've stuck it out, not only joining Express Scripts, but then after Express Scripts merged with Cigna. And they're having positions of influence, they're continuing to prosper in every way you want to prosper when you're part of something that gets sold. But at the same time, Cigna was highly motivated to continue to, especially in today's labor market. Man, if what I take to the table is not only a successful financially driven company and one whose customers value it but also a high performing management team. Do you know how hard that is to build today? If I get as part of a transaction a high performing, focused, talented management team that wants to be there, that has shown high commitment and isn't looking over the shoulder of the door the moment the deal is signed, that is an incrementally valuable part of a transaction and buyers will pay for that. The flip side, I passed on a company and big part of it was because I had dinner with the CEO. He was, and it's very well known, company dinner with the CEO. I liked him a lot. I knew he would be leaving. That happens. I was fortunate to have three years after the Sigma merger. Usually you don't get that much time to keep your baby kind of flourishing. But I looked at his management team and every one of them you knew was a serial sort of launch to an exit sort of leader. And it wasn't that they were bad, they had done some good work. But I had to look at that asset and say, do I have enough of my own skills on my management team or can I quickly enough assemble them to make sure that when I complete this transaction, it succeeds? It's not sufficient to get the deal done because if you're the acquiring company, you want to look smart two or three years later after you've done the deal, much as David Cordani, I believe, does and much as I did after buying Evercore and as we did Dave Snow after buying Accredo. If I bought this company, I can promise you I'd look dumb today because I can tell you the person that bought it, the company that bought it has written down 80% of what they paid for it. It was a big asset. It was a almost $10 billion acquisition. So you were putting a lot of your shareholders money at risk. For a company where you look, you have to go two layers deep to start seeing other people that are committed to sticking around here longer term.

What's core to making sure you really have that alignment, to know you're going to get a greater outcome because it seems like it's people on both sides that strong. What is really core to making sure you're on the right track really helps.

When you're diligencing or even when you're pre diligencing potential targets, to really understand the culture of the company and the performance on the human side that the company's put together, what the background of the leader is. John Evercore example. I knew John's prior two exits, quorum and neighbor care, and I knew what kind of company he left behind. I knew the levels of commitment his employees had had. And so for me, it was thinking about all of that before John and I ever started talking. I can tell you that whatever company John Arlotta would have been running, I would've been interested potentially in thinking, is there a way to buy? Because I knew he put together good companies. The other part of the he said is that what you wanna do ideally is have built a relationship, maybe even some sort of a commercial relationship where you're helping each other or working together, you've put a company into your network or you've done something so you actually have a chance to experience what it's like to work together, what the management team feels like on an iterative and continuation basis. You can't always do that. But to the extent that was, certainly I would argue the case with, in some respects, Cigna and Express Scripts, because when I bought Evercore, Cigna knew whatevercore was doing. They were the biggest customer. In fact, my biggest risk buying Evercore was that their client concentration leaned heavily to a few health minds, including Cigna. But they also had great DNA for serving every one of their customers. But I knew that David and his team were taking a look at this thing and thinking, wow, that's an interesting way to think about putting together a health services company. Is Evercore and Express Scripts and the focus both companies have on customers and they at Cigna feeling that. It's also known that we had talked with Cigna about possibly a white label deal. So we had had some social discussions. I knew a half a dozen really talented people who had left Medco after Express Scripts bought it. That had all gone to Cigna. I had said Cigna hired every employee I would have hired if I was someplace else after the Medco Express Scripps merger. So I liked the kind of people they were hiring, and I knew it would raise the odds of making merger successful. Thus it really is that you got to do your diligence on the human side, Understand pretty deeply the backgrounds of folks. I mean, you can find out an awful lot today, but it's a very small world in healthcare in particular. So we were able to really know a lot of people. And it made it socially much easier by virtue of coming in with our eyes wide open like that.

Cultural diligence, that would be our next topic. When you were describing that view around staying mission focused, the people alignment, in my head I was contrasting the strategic view versus private equity and private equity model. You sort of buy a business with a Pretty clear exit in mind because your fund terms are going to outline something around it. Does that still apply there?

I think it does. Every one of my shareholders, when I ran Express Scripts, bought Express Scripts with an exit in mind. They just weren't a collective, they weren't a singular unit of private equity. They were large funds and so forth, all of whom had different targets to sell me and everything else. My job was to build a management team that didn't pay a whole lot of attention to all that. On any given day I was driven to drive the stock price value, don't get me wrong, keep investors or attract new investors and so forth. But again, if I had management that was only focused or thinking about that, you're not going to get the same kind of performance out of them. And by the way, I think private equity gets a bad rap sometimes because I don't think the mercenary model is the only private equity model. There are some really good private equity firms who are actually long holders, create real long value and the market knows that they usually exit strategically, really thoughtfully. Companies that perform well, if you're private equity that just sticks something out into the market and gets it sold because it happens to show really good annual operating revenues and annual operating profits, but it doesn't really have a sustained sort of piece. There are buyers that will be far less interested in paying top dollar for those assets than if that private equity company is known to build good strong teams of people that are highly committed to the business. And I think that again, that may sound old fashioned and I may have been a little bit naive sometimes and Pollyanna sometimes, But you know what? I think more the next 20 years the world is going to be less transactional, more relational as it relates to creating value and attracting rare talent and keeping it focused on innovating. You don't innovate when you're looking over your shoulder as much. You just don't. So for me there's no chicken or egg in terms of that. But there are private equity firms that are very good at taking distressed things, fixing them, and usually they'll finding somebody that actually can take it and doesn't always need the management team. So don't get me wrong, there are some businesses or some opportunities where quite frankly, turning over an intact management that might want to have a five to ten year window in the future isn't actually what needs to happen because a buyer is basically just synergizing it in. When George Foz was rolling up express scripts over 10 years, he took the best from both companies but fundamentally, most of the management teams of companies he bought left because he was buying contracts. Relationships, scale. If you're just buying scale and you don't need those teams and it's a different dynamic and then you do get a rent a team that can just keep things very operationally sound and so forth. If you have the kind of business where you could be selling to some sort of a strategic where you are a string of pearls element or an added on one plus one equals three capability, which again, Evercore was for me. Accredo was for us at Metco. I think you're foolish to not look hard at how talented and committed as the management team.

He's focused on the mission of the business instead of thinking of the exit. But then the flip side is how do you plan a good exit? You got to put some time in consideration. So how do you fit that in?

So first of all, you keep your team small. My team, when I was doing the express script signal conversations with David, my team behind the scenes was less than six people that knew about this until two weeks before we announced. Think about that for a minute. I mean that's a very small inner circle because I need most people running the business. Because A, we might not have got that exit. David may have decided he wanted to go another direction. B, even if we got the deal done, which we did, it was nine months that we had to perform before the merger actually was consummated in December of 2018. And we had customers that were counting us to deliver a really strong January 1st, because in our business that was a big deal. They put benefit changes in. You were not going to get a strong January 1st, you weren't going to win new business in the marketplace that nine month period if people were all just focused on the outside and on their exit and so forth. So for me it came down to meaningfully keeping the team small. The other way you get people prepared and it's good to have someone to focus on your customers and your clients and so forth is to begin to build your narrative early. So David and I, the moment we announced that the merger was going to happen in March and again we had till December, it turned out to get done. We had people building the marketplace story collaboratively, not gun jumping, had to be very careful because obviously we were in a period of evaluation, but we got people excited about the why. And it started with the two CEOs being excited about the why. And David and I, from the moment we sat down on December 17, 2017, we were so aligned on why the two companies together could build something incredibly special for a marketplace that needed it more than ever. And it started with both of us saying, and it's not a true story, the world we're leaving our kids as healthcare executives is unacceptable. Can putting these two companies together cause us to do better in a way that's fair to our investors, but also gives our employees power? And I can tell you, again, we're on my side of that transaction. One of the things we spent meaningful time talking about was St. Louis, which was where our headquarters was, where our footprint was, and where you'd seen enough companies leave that that would have been devastating to St. Louis. And it was important to me. It was important to my board, it was super important to my employees. And interestingly, it was very important to David that we make a statement about our commitment to St. Louis, including putting a substantial amount of money into the Express Groups foundation as part of the deal. Again, if you're going to stay focused on achieving the top tier results, not average and okay results, top tier results, you got to have most of energy, which is finite, most of energy focused on the mission of the business and keeping people focused on that and having built enough trust as the CEO that they trust you're going to take good care of them. Through a transaction, you can get a lot more focus on the customer and everybody else than on the transaction that might never even occur.

I keep playing devil's advocate over here, but when I think of an exit, a lot of companies end up on the auction block as they made a decision to sell. You want to create a competitive process, get a banker and run that. Then you have a long game of, can I find more of that strategic exit? And you're hoarding those relationships of potential acquirers. Wouldn't you still want to do that? At least kind of think about what those options would be or have those relationships nurtured so you are better positioned. If there is something unexpected that prompts you to have to sell, you're obligated.

As the CEO and as the leader or the venture capital owner or the private equity owner, you're absolutely obligated to understand what your market value is and your options and how to achieve it. But once you start a process, this was John's concern at Evercore. It was my concern at Express Scripts, frankly, with David's concern as well, for different reasons. All of a sudden that roller coaster is going on the track and suddenly there's no brake pedal. We got bankers that are aware people are talking. I'm working with several founders now who are evaluating the way to best raise a substantial raise of money. And these are founders who will have access to capital even in this crazy market. And we've concluded in both cases that the consumptive nature of a process like you just described, because it's not just an auction box, you don't just show up one day and put it out there. You are spending time, you're doing management presentations, you've got your team suddenly doing decks. All of that sucks energy from the core of the business. And you better be gosh darn sure that it's the right time and that you're talking to the right people if you're going to do that, because it will consume a massive amount of energy. And if in the worst case, you suddenly find yourself holding the bag, now you got to strap in for a very ugly, long time. If you take a look at some of the health tech companies, for example, example, who went public at some pretty good multiples, they're at 15% of what they went public for. Life has not got to be much fun. I know it's not fun, at least one of those companies. But if you then look at the next tier companies, which are the companies that did capitalize themselves in a transformational way over the last two or three years, when multiples were so high, they now recognize they have to strap in. And if they have, it's kind of like selling a house in a market that goes from the buyer's market to a seller's market to a buyer's market. All of a sudden you got to either adjust your expectations, you got to pretty up your house, you're not suddenly going to put it on the auction block and get what you could have gotten. You may wish you could do that, but you actually have to change your strategy. And so I think it's the same thing with the companies you got to be really, really thoughtful about and with your board as it relates to what are the realistic options you've got, what are the probabilities of success, what are the downsides of lack of success? And for me to express this, at least having a deal that got broken be known, meaning my employees now knew we were trying to sell the company. The vulture starts surrounding you. Your valuation wouldn't probably go up at that point, even if you thought you could find a couple of buyers and your employees are scared to death. And we were in the opposite situation. We were obviously losing our largest customer with Anthem. And so folks had already gone through trauma of are we going to be around. Are we going to be okay Again, for my situation specifically, and there are a lot of people that thought we were a damaged goods because of that and untouchable. And David Bernini had vision, but also he bought a great company. We were performing at an incredibly high level. And again, if you look at the three years after the merger, it was a $100 billion revenue company that grew top and bottom line double digits the last three years after a me very hard to do. And I believe if I'm a buyer, I want to raise the odds of that happening. And the way I raise the odds of that happening in a strategic is to make gosh darn sure that the management is preparing their people to continue to perform and run well past the tape of a transaction.

So when's the best time to sell your business?

Yeah, when it's worth the most. You know, I remember being asked on Bloomberg literally hours before sitting down with David to get the first offer for Express Scripts. And even then I said, we're really not for sale. We're the value creator. I get why people would want us. We think we've got a long Runway. You've got to look at your innovation curves in your ability to penetrate or convincingly grow markets. And when you begin to see that more and more of the high probability stuff that's going to be the best for you involves having to work differently with others where you may not be as well positioned in the current ownership situation, then you start looking for partners or you start looking for potential strategic exits. If really you've built the business just because you want to pocket a great exit, then your time of selling is when it's performing like hell. So back to my original point. Your best time to sell the business is when you are strongly growing and you can get paid for a future multiple of your growth. That's fair, given the likely growth ahead of the business. We tortured ourselves at Express Scripts. Carl Icahn thought David was paying too much. He came out publicly against the deal at one point and then he backed down very quickly. But he thought David was paying too much. My board and I didn't think he was quite paying enough, but we knew we were in a zone where there was work to be done. But clearly part of the reason that we got what Carl thought was too much for Express Scripts because David and his team were able to come in and look under the covers and say, holy cow, this business is performing high customer retention. They got high customer satisfaction, they've got high employee satisfaction. They Got a management team that wants to stay. And by the way, take a look. David's got Glenn Stanton, Everett Neville, I mean, there are a whole bunch of Steve Miller, a whole bunch of people. I stayed for three years. Nobody does that. So in fact, the possibility became the reality in terms of taking that high performing company and making it happen. So the best time to sell is when you're performing really high and you think that your valuation will be, your future valuation will be more improved by being part of somebody else and having their stock in your pocket.

I like that answer. How do you identify the right acquirer.

If you're running a business that's not just focused on your internals, if you're focused on who else is my customer buying from, who else is my customer looking at besides me, who else when I lose, do I lose to? What are they doing differently? What are they doing innovatively that I can't do because they've got assets I may not have? That was when I bought Evercore. I had a competitor that was able to go in and talk about, hey, we can manage your medical and your pharmacy. And I couldn't say that all of that is really important.

When you make that decision to sell your business, do you communicate it with your team? How do you communicate? It sounds like earlier you mentioned you'd have a small team behind it. Is that the goal? How do you do that without them being scared for their jobs for months or years?

Because that is the problem. And then people are going to go look for the safer place to be. And if your place doesn't feel safe because there's uncertainty, that's scary. And they don't think you're going to communicate long before you're doing a transaction. You better have built a reputation as a leader of being a transparent, honest, authentic communicator. People will then believe you when you tell them something and when you're not talking, they'll trust you to a point. I never wanted the rumor mill to get out in front of me. And I'm also amazed at how right the rumor mill can be in a big company. But you do have to be honest with folks. So if I'm in a town hall and if I'm not running a process today, but I have an employee raise my hand and say, hey, there's a lot of M and A going on. Are we going to get sold? And they know we're owned by a private equity company, let's say. And if you, what you say is, well, you have no plans at this Time to sell the company. Your employees are going to know you're full of crap or they're going to think you're a bad leader. You got to be more honest than that. Even if you don't have any plans, explain why you don't have any plans. Say, listen, right now our business is growing triple digits. We're well financed, we have a balance sheet that can carry us for the next two to three years. And therefore, while there may be a day where it makes sense for us to be part of someone else or do something really strategic, right now, our best way to get to that point and have the most optionality is to run our business really well and to continue to deliver for our customers. And I look forward to continuing to lead you through that process. You know what, that answer people will go, yeah, I get that. It may not be 100% comfortable, may not be 1000% transparent with thoughts I may be having or conversations that may be starting. But every little premature conversation you can't be out talking to people about again, you'll distract the hell out of them for very low probability outcomes.

What's your fiddle upon your express script to tell your management team it's time to sell.

It was interesting. I mean that was one of the things that gave me confidence as the seller was my team loved the thought of who was doing the buying. It wasn't perfect. We had some concerns about Cigna. If you back up what my team understood, because we drove to this and I think every leader needs to drive to this, is understanding the external environment really well. And the better you understood the external environment through a hundred different data points. In our case, we looked and we said the world is less and less comfortable with a standalone pbm. We had a five year strategy plan that was absolutely believable and going to happen where we were going to grow double digits for the next five years, our bottom line earnings and our eps. So we would have been a grower. We were getting less and less value for that growth from the market because they were concerned about the regulatory environment as well as the sovereignty of a standalone versus inside of a health plan where you have the chance to innovate with a natural partner. That happened to your owner. From my standpoint, my team had a deep and intuitive understanding that we would be more innovative, we would be more valued to what the value we would be creating would be if we could find a way to do that inside of a strategic health plan. There weren't that many available at the time that David and I Began talking, but I can tell you had the board of Express Scripts said, hey, let's go out and begin marketing the company. I couldn't have talked to my team about that because they would have been smart enough to know, holy heck, we're going to immediately lower the price that we get for the company and raise the likelihood we get a buyer we don't want. Why don't we take a control of that situation and figure out who are the two or three buyers. We had a couple of other ones in mind. Having again, not just saying your team work for sale or not, but to your closest tightest team, they're the right people. Being able to go off site for a day and really do a whiteboard. We went out and did a whiteboard. By the way, I looked at taking Express Scripts private. So that was one of the options we had is, hey, if the market's not going to value us, we are a cash machine and we can actually do an lbo. If we can get enough debt and we could service the hell out of the debt we need to get, we can probably make this thing debt free in five years. We can build compensation plans that reward people for that. So again, as a leader, my job was to always, along with my board and my board chair George, not just accept we don't have choices, but to challenge ourselves. What do we need to do to increase our choices. And so you engage your team suddenly in the thinking of that and if you've got a mature, committed team, they want to be part of that process.

You ever had an attrition issue when that news starts going around, that company's going to sell. You ever come across that and then is there a way to stop it?

I saw it actually a bit when at Medco we bought a credo because a large percentage of the leadership there had done very well. They had worked hard to build a good company and they were done and they didn't. I hate to speak for people that are on here to defend their own view, but I don't think some of them want to be part of a big company because that is one of the dynamics if you're selling question is why don't want to be part of it? I in a smaller company, not because I think there's going to be an exit, but I just don't want to deal with some of the stuff you deal with in a big company. So convince me that that's not going to happen. But we did have attrition and it's often for that kind of thing, it's cultural or it's because they don't like the leader that the new owner sends in or don't understand the logic of the merger. In a credo's case, the management team that left absolutely understood the log of the merger. I think they felt they put the business and the employees in good hands. And again, when I sold Express scripts at one level, people would say to me, oh, my God, how great is that? The shareholders did great. I will tell you what both David and I talked in my board strongly of the view of was the employees who don't just go for company, company and exit exit and private equity firm, the vast majority of our 30,000 or so employees, they don't want this company to go away. They like their jobs. They don't want to have to go find another one. They don't want life to change a whole heck of a lot. They want to deliver whatever it is that their commitment the company is, whether they're a pharmacist or they're a packer. From that standpoint, seeing leadership leave and all of that can be very, very disruptive and concerning. And so I start by saying I prefer not to have attrition. In the case of the Accredo people who left, thankfully they left. We managed that process with them. They didn't just run out the door. We chose the right kind of people to come in behind them because that's the first set of decisions they see you make. If they're leaders who they trusted are leaving, they're wondering, who am I going to be working for? And so we got very good at assessing the internal talent, which is what I did. So if you looked at inside Makrido, for example, people like John Peters, Steve Fitzpatrick, Susan Sasowski, these names don't mean anything to most of the people watching this, probably, but those names mean a lot to me because those were people from inside of Credo that we elevated so that the employees and the folks around them saw, hey, wow, this new company sees the value of the team that I see the value of. And they're going to try to build on what we've built and honor what we've built, not just rip it apart and make it part of Medco, which is what the fear was. In fact, I had to manage back the opposite. I had to manage the Metco people back and say, hey, you've been acquired by a credo. Because let's face it, guys, we couldn't figure out how to do this. They did. And that's why we Bought them. And now we're going to learn from them and we're going to help empower them. We're going to teach them our business, okay. So that they could be part of the greater innovation that we're going to build. Because the only way the innovation was going to work is if actually the two companies could come together and build things for a payer marketplace that were at that time largely missing. So you needed people to be able to work together, but you did need people that really, really understood the business. And so, yeah, you get, you do get exits. That's why when you're doing your diligence, you don't just look at the guys and women at the top layer. You really want to look to the next layer. You want to ask the questions, who here is in waiting for the position above them and what's left to be done and how ready are they? And let's talk that through because oftentimes that's the move you end up making.

Turn fear into aspiration. Yeah, I got it. I wanted to figure out your secret sauce in this interview, and I think I got it.

If you think about that next layer below the direct layer, they may have been waiting for the people above them to leave or die for a while. They may have hoped for an exit so that that person would leave and they'd have a chance to actually run that part of the business that they're committed to. Sometimes those exits can be good, or sometimes you actually forcib manage them. The other thing is, as a CEO, when I was selling, I was very honest with David about my board and about my director courts, and who should stay and who might not be the best fit for the new organization based on how much I had learned about it from that standpoint. That turned out in David's case, to be very helpful because the board members were all wildly successful that joined CIGNA because they were the right match. And again, a lot of the employees that we brought over have been very, very successful as well for that.

How do you prepare for an exit? What's the first step?

My view, you'd better get some really good outside advisors. You better make sure you're super aligned with your board because all the energy can get moved in some really bad ways. Could not. I was. Thankfully, you can understand really deeply the value of your company and some of the scenarios around that value. Speak to whoever your investors are, unless they're telling you the answer about what exit you believe is the right one and why. Two other ones that you can describe Also are plan B not plan A. Why the exit you're going to pursue is the best one. And you get alignment around that, spend as much time as you need to on that. And by the way, you do it individually board members, not just collectively. Because you find out when you talk to an individual board member that they got the unasked question that might actually be the most important thing that didn't know could become a concern as you move down the path. And by the way, the process I just talked about, we did an annual strategy review with our board at Express Scripts where we literally, I know John did with his owners talking about listen right now because everybody wants to hear one thing, a strategic review. What's your plan to grow your business in double digits over the next five years? Years. What are the weaknesses in that plan? What are the competitive threats in that plan? And to the extent that one of the natural questions is and how do we continue to drive the results into our valuation? You get to a very real discussion at some point about, you know, listen, we're not getting credit, our multiples are dropping, not going up because the street dealer doesn't like it, thinks we're going to ultimately that we're buying business. I mean you get a whole bunch of different considerations in terms of why you may not be getting value, but from my perspective, getting everyone aligned, clear on the current state, clear on the external world world, clear on what it's going to take to grow five years and looking at each other in the eye and say not can we believe this growth, but what are the things we need to do to achieve this growth? What people do we need to hire, what functions do we need to evolve or mature? What people do we need to exit or otherwise supplement? Because it's the hard work is not exiting. In some respects the hard work is growing the company kind of off the back of your native business. But you're always wise to at least have a committee on the board, if not the whole board thinking about strategies be which would include future options and again your tactics in your day to day relationships and all of that inform as much creative optionality as they call it. Most optionality folks think about quickly is obvious stuff. The question is what's the creative optionality? What's the combination nobody would see coming and actually would be the most valuable and where somebody would actually pay us either immediately or in a payout based on performance? That's the other thing I've done these startup boards, I'm going to be counseling these CEOs list. Listen, don't just take an all or nothing view to selling your company or doing a piece. You need to think that maybe over time you're going to do an earn out or you're going to do a share gain share on what you build together for the first three years. Which again means you better have a committed management team. Which again means back to our beginning of this conversation, you better have a culture, employees, leaders who are in it for the long haul and believe in the mission of your business because they may be there longer than that. And there's nothing fun about trying to keep people focused when all they want to do is count days till they can.

You teach me how to influence the board.

That is a separate discussion. You know, I was very fortunate. I had a great board. I had a very tough board. People like Cy Sternberg, who had run New York life, famously. Thoughtful, tough man. I had George Paz. George chairs the audit committees. I think he's chairing the audit committee of Prudential and Honeywell. You know, I had some smart financial minds. I had some good operators. Bill Delaney from Cisco, Maura from Verizon. I had a hor. Kathy Mazzarella from Graybar, one of the great female CEOs of our time. The way to manage the board was simple. You had to manage the board as a group of individuals and a group of individuals, if you know what I mean. You had to do the individual part and understand where each person was at and how to meet their needs. And So I had 12 bosses. I didn't have one. Also, I was really tight with Tom McMahon, our lead director, who was immensely helpful along with my chairman in guiding the process. But in our case, it's over. Communicate. It's. Be transparent as hell. It's no one to tell the board something isn't acceptable or we're not going to do it that way. For example, Simple. My board and Satanist board never met or communicated unless it happened. And I wasn't aware of it and David wasn't. Through the entire process, I had the authority of my board and David had the authority of his board to get all the way to the deal being announced without any board interaction whatsoever. None. That's two guys that manage their boards very well to make that happen. The way you manage your board long term is to get results. When you're running your business, your board's going to give you a lot more rope. When you're getting results, you're telling what you're going to do. You're executing on what you said you would do do and you're driving the results that you said you would drive. That tends to make it a hell of a lot easier to manage your board. If they don't think you've got their hands fully on the tiller and steering the boat in a long term, strategically good way, they're going to come in and step in in 100 ways that make it more difficult to run your company as well as to frankly manage the exit. They don't get taken out of your hands. You know, I think John good example in the Evercore transaction, John had, I could feel it, I could see it. And it gave me confidence as a buyer. He had the complete confidence of his private equity ownership. They trust him. He could manage them as much as I was able to manage my board's expectations around it. And I knew if John said he could deliver something, he could deliver it. And he knew if I said I could deliver, I could deliver it. That creates a much more robust conversation when you're trying to figure out if there's a deal to be done.

What's the time strategy approach with the relationships of the board? Because you mentioned there's the relationship with individuals, then the board as a whole. How do you approach that?

I approach that as probably a third of my job during the times when we were undefined under meaningful stress between losing Anthem as well as evaluating our future. It's a big part of my job, but by the way, was able to be because I had a management team that was so capably running the day to day business. And I have a pretty good capacity to internalize details without micromanaging. So I was able to pay a lot of attention to the business without having to spend 40 hours a week just doing that. I spent a lot of time with customers, which was really important because my board really does nothing that brings a board member to the edge of their seat more than, let me tell you about the last customer I talked to. Right? You have got their contention at that point standpoint. From that standpoint, I believe really strongly you get results, the board trusts you, you lay out boundary lines. But you do have to communicate with them as individuals too, because I always got something. I had a board member named Rick Palmore who was just a terrific lawyer. He was the general counsel of General Mills. And Rick was quieter in the boardroom than some other people were. But he always was thoughtful when he spoke. And then I could talk to Rick offline and he'd have been thinking about something and he'd share it with Me and you know, you know what? He wasn't expecting me to say, yeah, I'm going to go do that. He was expecting me to say, yes, I hear you. Let me think about that. And as a leader man, it's lonely enough that if you have the kind of relationship with your board where they trust you to listen and to be accountable to constantly evaluating the status quo, they're going to be very, very helpful. They aren't going to run the company, but they're going to be very helpful in your strategic thinking.

How about when you're trying to pitch them or get them to change direction? I don't know if this is the right example, but like Evercore, when you're presenting that opportunity to the board, board, what does that look like? Are you running it by individually first sort of getting a pulse on what's the reception going to be like? Or do you just come up with a grand presentation deck and just go right at it?

No, you definitely. Well, you can do that. I don't recommend it. Surprising. The board just means you're going to have another meeting in the future because they're not going to most time. They're going to want to absorb and understand and see something ahead of time. I had a guy that helped me frame things up for the board. I'd send it to him at least a week in advance. I'd let him think about it. Of course, then the ones that wanted to talk offline ahead of time or express a concern, concern that maybe they didn't want to bring into the boardroom and be disruptive, but they wanted to make sure I knew they were concerned about could call me ahead of time. I would usually call most of them ahead of time if they had something. So a put something in their hands that outlines the thesis of why you want to talk about a particular transaction, either a sell or a buy. In case of Evercore buy, be prepared. You will have done way more work than the board will have done. And so it will one level annoy you when the board asks you a lot of questions that are like, do you not get why this is the bigger idea? I've thought about that already. You need to bring the board along on that journ on a compressed time frame that you've been on for some period of time. I never talked to my board when I first talked to John, but Evercore was in the annual strategic review that we did using some bankers and so forth to say, listen, we've got a couple different pathways to grow the company beyond our Organic growth. One of them is a string of pearls in a health services way. One of those companies is Evercore. They're owned by this company, they're run by this company. So the board had heard of them. But I did not need board permission to initiate a conversation to just get to know know what are you guys thinking about in terms of your ownership share and your strategic. Also, I will say the other thing you want to think about if you're on the buyer side is how much will you like it if your competitor buys instead of you? And by the way, if you're trying to sell, there's a good way to find your strategic and say, okay, who's going to be really annoyed if most obvious buyer buys me? Maybe I should go talk to them because they might like the opportunity to take us off the market before the big gun, who's only going to get bigger and has lots of money, comes to the table and basically wipes the table clean again. There's some really interesting ways to think about and then talk to your board about it, about who am I approaching as a CEO? So the board usually was told by me. Here's who I'm speaking with. Sometimes I can get more help than I want. But generally, you know what stakeholder management is. Pick your toughest stakeholders and talk to them first. Because once you get that out of the way, you're going to be pretty prepared to talk to everybody else and you'll know what the objections are going to be and you can think them through and decide if those are legitimate objections or if they're objections that you're willing to operate in spite of.

How does that evolve to get to that go, no go decision? Because it sounds like there's an opportunity for board members to, to challenge the strategy, give you different ideas, alternative views. And then does it come to like a voting. You got a button on the table, you push yes or no.

And we had a moment like that. That's where knowing who. Because in every board there are folks who are board members that others look to because those board members maybe got more tenure at the table. Maybe they represented a large share of the company in terms of the investment that they made at one point or another. So we had a couple of board members like that. And quite frankly that, you know, there was not unanimous agreement initially. So we had a meeting up at our lawyer's office where we fully aired out what are the concerns. Where the rubber meets the road in the boardroom is ultimately. It is ultimately the price, but the price is not at a fixed point. It's a range. It's a range that depending on other aspects of the deal, you may go to lower the high end. What percentage is cash versus stock, for example? In our case, that was a meaningful variable. We would have taken a lower. We did take, I would argue, a lower price because we got 50% cash, which gave our shareholders the chance to immediately diversify while still holding the new company's equity asset. Giving your board a chance to and being willing to take a tough meeting. But then with that, you've got to be aligned with your board chair and your lead director, whatever your governance structure is, because without a doubt, you want to know where their head is at going in there because they will help guide the others. They will know even more intuitively than you which board members might need to call before the meeting just to just to sort of have a chance to talk through the concerns. Staying close to your board doesn't mean you don't allow them to have a challenging conversation and sometimes, sometimes take a half a step back. In my case, I actually hired a second investment banker to present a second opinion which wasn't completely aligned with the first opinion. I'd rather the board see that I'm thinking I didn't fall in love with the first sort of path that I was running down, that I evaluated other pathways and that those are. The pathways had legitimacy but also weren't as good as the one I was recommending. And I also knew at least one or two board members had a better relationship with that banker than they did the banker that I was primarily working with. And so I wanted to show some respect that, hey, you know what, we are taking on board all opinions here, but at the end of the day, we are going to have to call the question. And at that point, it was my job to call the question along with the board chair and the lead director. And again, me being at least aligned with them allowed us to do. At least in my case, and I think in John's case, selling Evercore and I think in Credo's case with David and his board, we never had to get to a vote or a split board situation. But I did talk about that though, with my chairman. Again, you don't put your head in the sand or hope something doesn't happen. I had a very, very direct conversation with my board chair and my lead director, my listener. I could see that board potentially splitting here. Part of the board thinking we should sell at any price almost because it was good deal strategically. And part of the board saying that's not the best for shareholders. We need to make sure that we allow everyone to feel heard and then we do need to get to a point where we hopefully are not doing a vote. When I was buying Evercore, I had a board member that wasn't sold. One meeting away from potentially asking him to leave the board because at the end of the day he couldn't support it. The rest of the board strongly felt we needed to do it strategically and I got a board member who quite frankly was not aligned with the strategy in a way that was helpful. Thankfully, though, he made us better by asking some really tough questions. In the end, that actually changed how we did the deal a little bit. So for me, you got to be willing to let the dissenting voices fully be aired and heard because where you'll end up is likely to be a more thought out and sustained and sustainable exit.

You aren't kidding. This is a whole topic of its own. I was jotting down questions. I was curious. What do you think is the hardest part of selling your business?

I tell you, for a lot of folks. So I'm about to be named board chair. I can't name the company, but it'll be announced. It probably isn't one you've heard of, although it has a really interesting footprint, works with the VA and some really big clients on behavioral health. And the CEO there is so passionate and so committed and understands intellectually. I'll answer your question here, understands intellectually that there will be a day that he will have an offer from the strategic that his investors will say we got to take this and it's a good place for us to land and it's going to continue the mission. I can tell you though, he almost can't imagine, doesn't want to talk about. All the conversations I've had with him are about the mission, growing business, why they're doing different and that's why he will end up transitioning out of the business because he's so committed to it. He's going to build something really super special that's outperforming everybody else who's half assing it or worse. When I look at that, I just think to myself, I love the fact that hardest day he will have will be the day he turns the key over to someone else. And for me it was the same in express scripts and that's why I stayed three years. I couldn't bear to just walk away from something that I was so excited about, where it was going and what it was doing so the hardest thing is leaving. When you know you sold your company to someone that's going to make it better and you're not going to it be putting hard. That is for me the hardest part. And any founder or CEO that can say that is probably someone that's going to get a very good price for their company because they are all in every day.

Really great way to think about it. What's the craziest thing you've seen in M and A?

I thought they were making buggy whips and they had some regulatory challenges. I went to dinner with the CEO and I said, how far down the path of fixing yourself are you in terms of the regulatory stuff? He said, about 70%. I thought to myself, well Jesus, I'm not going to figure out the other 30% because you bought the hardest 35. And then I asked a question about the future of his business. I was of a view of home care versus not home care. Having to be in that space where more people wanted to be at home than in institutions. And so I asked about his home care strategy. He said, no, we don't have one. We really are not. That's not where we're driven toward. And I'm like, wow. I think this exits because they see the market going away from themselves and they don't have a strategy and therefore I'm definitely the wrong buyer. Maybe there's a buyer that would be interested in all of that, but I'm wrong. So those answers, knowing what I knew, I watched the company that did the purchase and I was astonished because it was a big price. I could see paying a relatively small price for it to be able to get into a space and then ultimately help that company transition into a more omnichannel, ambulatory sort of space. It didn't happen. The only crazy stuff I've seen has been letting really good people leave. I've seen M and A where you just scratched your head where the acquiring company was so arrogant and so served himself that they, they thought they could throw everybody out. I mean, geez, I did M and A back in Pepsi's days, back in the 80s when we were buying bottlers back and it was amazing. We joked that we wouldn't hire ourselves, but we'd let people go and quite frankly we'd hire again tomorrow. And you let talent and knowledge go out the door without being really sure that you couldn't take the business forward without it. It's crazy what happens because the businesses, that's why most M and A doesn't perform is you lose institutional knowledge. You lose and your customers see it. Your customers suddenly are a degree removed from, from you. And in today's world, most customers have a lot of choices in the services businesses I've been in and therefore, the moment they think you don't understand them and pull the rope for them, they're going to be gone very, very rapidly. And I've seen businesses lose 20, 30, 40% of their customers in a matter of a year or two.

It's all about the people.

It is. It is.

Tim, this has been great. I appreciate taking time. I learned a lot from this interview. We got to do more of these. I feel like you could do how to be a Great Public Company CEO interviews series.

Well, I don't know. I. I wasn't a great one, but I still tried hard. I was surrounded by great people. Man, I was, you know, it was very, very, for me, very validating that David and I were able to work together for three more years. And he trusted me to do an awful lot of stuff in that merger that ultimately most of it was successful. I walked out feeling really good about what I built. But more importantly, I did walk out feeling really good about where I left it. For some of us, that matters. And if you're one of those people where that matters, landing your company in a place where it's going to flourish, flourish, it's going to bloom where it's planted. You're going to see people grow into jobs that are bigger than they would have had if you hadn't done that. You're going to see their families benefited from it. You're going to see their communities benefiting from it. And ultimately you'll know that you didn't only do a good financial deal, you did actually a good human deal. It's a good thing to do.

Words of great leadership, Tim. Well, thank you and everyone else. Here's to the deal. Thank you for taking the time to explore the world of M and A with our podcast. We love hearing feedback. Tag us on a LinkedIn post, add a review on Apple Podcasts. We'd love to hear from you. If you need help standing up an M and A function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email. Kisan K I S O.

Or you.

Can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter. Again, that's mascience.com here's to the deal. Views and opinions expressed on M and A Science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual. This podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions.