Top 10 Things That Make M&A Successful

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I'm doing well. I'm excited about this, man. I've probably seen most of the 300 so far.

You got to be easy with me on this one. You know, usually I'm drilling you about a specific topic and I got a clear cut job to do. But I think it's like a whole challenge of its own to sit there and reflect Back to here's 300 of these interviews and then there's actually quite a few. We we do and we don't publish. We're like, nah make the cut. And then you got informal stuff and all the prep behind it. But, but to sit there and think like what are the best learnings? And I came up with a list. You've helped me shape it a bit. I think we had a pretty good list of the top 10. I've actually had some AI help format a little bit, so I think it flows pretty good. But why don't we kick things off with introductions.

Michael Frankel I've spent my whole career doing deals, been a investment banker, M and a lawyer, corporate development officer, cfo, target of acquisition, and now I'm a private equity Investor, done about 120 deals in my career. And I, I love M and A. Not just for the great outcomes, but because I think it's such an intellectually interesting process. It's this one place where you are touching on change and technology and people and finance and real estate and culture. That's why I think it's just an incredibly fun area. And this list is a good example of how cool and interesting it is.

I'm going to do an intro myself since we're doing a drink conversation here.

Yeah.

So Keystone Patel My background actually originates from doing M and a advisory for 10 years in a boutique advisory practice, working on buy side sell side advisory in hospitality and also got to do some work in FIG. And then the recession happened 2007 I wanted to do a startup and that bombed out and failed and that led to the first experience working with software developers, but finding myself very intrigued in how they were using JIRA to manage business building software product. And that led to the idea of why not a project management tool for M and A, which led to the creation of deal room in 2012. And then there's a bunch of trials and tribulation that led to finally finding a product market fit with corporate development or more of the buy side orientation and that workflow, end to end pipeline diligence integration. And then a good friend of mine, marketing, was giving me some advice and building out marketing and one of the things he emphasized was like, hey man, why don't you go do a podcast? I was like, what the hell's a podcast? Long story short, eight years later, our 300th podcast interview, I would say what I love about M and A, it's always uniquely different. Every single deal is completely different from the last one. I feel like for somebody like myself, it fits the profile of add. You just get bored easy and this is one thing you don't get bored with. Even now on supporting variety of Organizations across industries. You don't get bored. You're just like constantly learning about different industries. So I think that's the one thing I love about M and A is how unique it is and of course how challenging it is. How keeps it from getting boring.

A hundred percent. I used to tell people my ideal job is one where I'm not fully competent to do more than 70% of what's on my desk. Because you want to always be learning and always be challenged. And you're absolutely right. That's the cool thing about M and A is no two companies are exactly alike, especially once you get past the financials.

Should we run into our top ten?

Yeah, let's hit it.

Number one. Crystallize the vision of the end state. Every successful M and A begins with a clear shared vision. Every it acts as the North Star that guides every decision, ensuring everyone understands the strategic goals and objectives. This clarity is the foundation upon which all successful integrations are built. I had to put this one first.

Yeah.

Of so many conversations I've had with practitioners, it all rolls back to this. Like the biggest threat was misalignment, things go awry. But it was always about, oh, we just weren't clear on the goals of the vision and what we're trying to achieve. So that's why this one stuck out to me. Love to hear your thoughts.

Yeah, 100%. The word shared is super important. There are two different minefields that you can step into with this one. The first one is not actually thinking through what the end state is. And especially the non financial end state everyone always gravitates to. We'll create a financial model. That's what the end state is. But financial models and financial performance are an outcome, they're not an input. The input is all this complex stuff like what's the product? How are you going to build it? What customers are you going to target? How are you going to get to them? How much are you going to charge them? What feature functionality do you want to build? How are you going to sell it? What's the brand going to be? How much are you going to invest? All of that is going to determine. You can put anything into a model you want, but if you don't also plan all the steps along the way, you won't get whatever the financials are that come out of the model. Not just saying what do we want this thing to do financially? But what do we actually want this business to be? Is super important. And it's a much harder question to answer, especially in the heat of diligence and in the heat of integration planning. But I think it's super important. And then the word shared is critical, especially in a large corporate organization. It is so easy for someone to put up PowerPoint and go, this is what we're doing here. And then everyone's quiet. And then a year later people go, I didn't buy into that. I didn't buy into building that product. I didn't buy into that pricing. Legal didn't buy into us taking that approach to deal structuring. One of the big challenges a corporate development officer has is to not only establish what that is, but then really drive the leadership of the organization to sign off on it. I know one corp dev leader who I love working with who actually wrote a memo and the memo outlined all of this. His sort of half joke was everyone needs to get the memo. But what he meant by that is he made all the leaders sign it so. So that there was clear alignment. You can't be passive in this. You either need to say, I don't believe in this vision or I'm on board. I've seen so many deals blow apart because either nobody thought this through or there wasn't mutual agreement. To your point, Kisan, if you don't have that, everything else is going to go awry.

What I got was beyond the financials. There's a lot of things and pieces beyond the financials. Are we sharing on that vision? What's this ultimately going to look like in the market's view? I loved how you emphasized shared. That one actually stuck out even more that sometimes you have your vision, but it's like how do you sort of have it adopted as mutually agreed on that this is shared. The other piece is you got into a lot of depth in terms of the people involved when you described the shared vision. When I initially thought of this, I was purely thinking of usually the two executives driving the deal on the front end. Sometimes it doesn't really get crystallized. There's not an emphasis and maybe that's part of the picture is so much in the financials, it's not so much of what is this business going to look like is going to be your brand underneath ours? Is it. What's it going to look like in the customer's eyes? I thought it was pretty cool that you took it and added that depth to it because it's got to be even stickier or more than just you.

And I, especially if you have a large corporate acquirer. There's so many people who have an ability to do a passive veto where they, they're not going to speak up when the deal is going on, but they just won't do their part later on. That can be every part of the organization. We agree that we're going to compensate these employees in a certain way. And then HR goes, no, we're not going to do that sales. Oh, we're going to push this through our sales organization. Our sales organization goes, nah, we're not going to do that. We're not going to prioritize training on this new product. So there's a large community. There are the two leaders, but then within the buyer, there's a large community of 5, 10, 15 leaders that have an ability to do a little pocket veto on your deal. If you don't get them committed up front.

That's a good way to space out the influence in a deal that goes more than just the execs on top.

Yeah.

Let's get to number two, Deep dive into values and leadership styles. Understanding the cultural fabric and leadership dynamics of both entities involved cannot be overstated. This deep dive helps tailor an integration approach that respects and leverages the strengths of each organization's culture and leadership. I thought even before that, talking to the other executive, we always hear this integration goes awry because of a mismatch of culture. Like it always gets blamed integration. Like, what am I going to do about that? But just even from the early onset of the deal, if executives can talk about culture of their companies, which probably is built around value, which is built around values and understanding values that should lend into how decisions are made in the organization, which then lends to leadership styles. I think there's so much of a thing I personally learned is emphasizing that early and really understanding it. And it gives you this like, dynamic that is directly correlated with how successful this deal potentially could be versus missing it and find out that's your biggest impediment is something that is really hard.

To change and overcome, often impossible to change. In the interest of being positive, I'll put a positive spin on it, which is sometimes you acquire a culture that's different than yours on purpose because you want to imbue. And that gets to sort of the reverse cultural integration. So sometimes we have a problem because the target's culture is really casual and really loose and really developer driven. And we're not a technology culture. And that could be a problem or it could actually be a solution to our problem because we're trying to evolve into a technology culture. There's both down downside and upside to it. But recognizing it early on is key to figuring out can you mitigate the problems and can you create value? Especially in any business where people are an important asset, which is, frankly most companies at this point, doing the analysis on culture is critical to identify the positives as well as to identify the negatives. But it's massively critical because most companies today are very employee focused. Employees are a large asset of most companies. There are probably a small number of exceptions out there, but certainly any technology company, any company with a lot of ip, any company with a lot of brand employees are a critical asset. And if you acquire a business and force a culture on them that they don't like, they'll leave and you can end up with no business. And in fact, hearkening back to our first podcast together at Kisan, I told this story about how early in my career I acquired a small business and we didn't think at all about employee culture or about employee perception. We waited a month to travel out and visit the company, and by the time we did, about 40% of the employees had just walked out. They were all tech employees. They all had a good alternative. And my joke at the time was, but for one airline ticket, 40 polo shirts and 10 pizzas, we could have prevented that. It brings home how you can't assume because you buy a company that those people will stay. You either need to figure out a way to make the new culture attractive to them, or you have to be willing to let them stay in their culture. And you might do that or you shouldn't do the deal.

All this makes all the HR folks happy that we put a big, big emphasis on culture. I think everybody should be embodying HR as part of it. If you work with hr, I know how important it is. Everyone on the team should embody that thinking 100%.

What I think people often fail to do is recognize two things. The first one is that the employees and the embedded expertise and knowledge and systems that the employees have is not easy to replicate. And the second is they can leave any time, and especially if it's a strong market. But even if it's a weak market, if you're not thinking about the human aspect of the transaction, you're missing the majority of it.

I was just thinking, I'm going to hear from my HR head. Because she hates the term hr, we rebranded it to People in Culture. Which People in Culture is actually pretty fitting.

Yeah.

Number three, Pre Loi joint, go to market Planning. Now crafting a joint, go to Market strategy before even signing the LOI ensures that we're not just merging companies, but visions, customer journeys and market aspirations. It sets a proactive roadmap for market integration that lines with our overarching strategic goals. Yeah, this goes to another theme where I talk to a lot of integration folks and why integration fails and they're like we're figuring our go to market like after we close and that's like right there like we're dead in the water. When you have talked to a lot of the best, Carlo Sesta, I remember a good interview with him and he was, he's had a number of places but he's had a corp to like Densu, Aegis and Verizon and, and, and number others. But just having that down where you can look and agree on jointly an idea, an outline of what a joint go to market's going to look like peer to peer as executive leads on the deal and say okay, this is what we're going to do. We're going to combine and go to market this way. And I think also like an element too he described is looking at it from the customer journey perspective. What is this going to ultimately look like from that customer's perspective? How does this go to market going to be perceived and really building that outline out and then letting your integration strategy evolve from there.

Nirvana is a complete joint go to market strategy. But at the very least you have to have this conversation and I can't tell you how many times I've looked at a deal and the business leader said we'll just funnel it through our sales organization and that's how we'll get all the revenue synergies. That never turns out to be the case. Combining two different products, two different sales organizations, often things like different pricing structures, different go to market rhythms, different sources of lead gen, discounting, proofs of concept, channel partnerships go to market is a very complicated area. And so you can't just make that simplifying assumption that one plus one equals three. It's really critical to have that conversation up front. And then the positive side to it is you'll discover integration challenges but you'll also probably discover synergies you weren't aware of. You're going to have to combine two go to market rhythms. You also combine two sets of go to market capabilities.

If you were to make that a quick little how to hey, let's agree like whereas the customer overlap, we primarily sell this customer base. You're selling to this customer base mechanically of like what that's going to look like on the other side. I think it's an exercise of its own. Is flipping around to how's the customer going to see this? Are they a combined sales team or is your sales team an addition or a specialist of your product? Is everybody going to be the expert on all our product lines and they can introduce it, or does our team call in your sales team as the expert SWAT team on the product expertise and they act as generalists and flip around and sell it?

That's right.

Do we go to that detail, though? Priya Loi I feel like there's got to be a line of like, all right, yeah, like we get it enough or got some thought around it.

I don't think you get to a detailed plan, but I do think you at least surface all the issues that you're going to identify. What's the combined value prop? Who does the main selling? Who does the sales engineering in your organization? Our organization. What's your pricing structure? Do you use channel partners? Do you go direct? It's almost more of a. I envision everything in spreadsheets. I'm envisioning a spreadsheet with the 30 main variables of a go to market organization. And you should compare yours and mine and then say, okay, how would we imagine merging these and where are the potential problems with merging them? You might not have all the answers, but at least you'll know. As an example, if my Sales team sells 47 different products and your sales team just sells yours, we're probably using a structure like you described where the acquirer sales team will be the sort of traditional sales rhythm and then the target sales team will become more sales engineers. Well, I'll tell you at a high level about all our products. And if you're interested in product 23, Susan's the expert on product 23. I think it's ambitious to think you're going to solve all these problems, but if you can at least identify them. So number one, is that a problem or is an opportunity? And number two, what are the challenges going to be in integration so the integration team doesn't get blindsided by it? I think that's a big accomplishment early on.

It's easy to skip this, but it makes sense to click into it. And as a buyer, I'd say you'd have to take lead because the seller's got enough to consider in terms of just parting with the control and exchange for some cash and equity.

Absolutely. Speaking from the acquirer side, you can't make this simplifying assumption. I'm going to get free beers from all my friends who are sales leaders when I say this. You can't make this simplifying assumption that a sales organization can just sell more and more stuff. There's a capacity limit to how many different things a sales organization can sell, especially if they're different. You have to actually get into the weeds on what will the sales rhythm look like. Can the sales organization absorb a new thing both from a capacity perspective and from an expertise perspective? You got to actually dig into the weeds on stuff like that to know if you're going to get that usually gigantic synergy of revenue synergies that gets.

Into a whole topic of one that that actually improves bid accuracy. It can be a whole podcast conversation of its own. Next summit we do, you should host a webinar on just bidding accuracy.

I have very strong views on bidding accuracy. I'm a big believer in later stage Lois with either no range or tight range.

We'll pick that one up. Number four, parallel diligence and integration planning. Connecting diligence directly with integration planning from the get go frames our approach to be both adaptive and strategic allows us to set the tone for how seamlessly and effectively we can integrate even before the deal is closed. This one I like a lot of. I take a lot wholeheartedly because I've seen it. I've wrote a book about it called Agile M and A that was all about connecting the diligence integration process. The biggest thing I ever hear from integration folks is 90% of the time they're brought in too late. And here you're getting the thinking with everybody about integration planning. And also on the deal room side, this is probably the one thing that we do better than anybody else in the world is building this workflow where you have a work stream for diligence, you run another work stream for integration planning. Different people may have different access at different times or you're able to like seamlessly grab information from diligence and just start iterating on your integration plan. I think that's like the number one factor in terms of having it ready to go at close to increase all the alignment on the priorities and what needs to get done. Not only higher likeliness of things to get done successfully, but it comes together faster.

Yeah, this is a huge point and if you don't do this, you're going to have two bad outcomes. The one that people more commonly talk about is what you just talked about, which is integration will be bad. The integration team, number one, they'll start from zero the day after close which means your integration is going to get delayed two, three months, whatever the outcomes were. And secondly, there'll be bad surprises, there won't be the right resources in place, things like that. I think the other less spoken about impact is the reverse flow which is integration planning influencing diligence outcomes. And this is one that it's a little more subtle but I think it's incredibly powerful. The diligence team, any corporate development diligence team at its core are generalists. And unless they have specialists from every area involved in the diligence, especially the pre loi diligence, they're not going to know the meaning of some of the things they find. A great example would be a diligence team looks at a set of HR benefits and goes oh, those seem like fine benefits. Not thinking about the difficulty of integrating them into the corporate benefit system and maybe not knowing that you're not allowed to have different benefits for different people in a corporate. So in the absence of that feedback from the integration team, the diligence team be like oh this is a non issue when this could turn out to be a gigantic issue. Going back to culture, what's going to happen when we tell every employee in the target company that we're gutting their benefits because they don't align with our benefits? So I think that diligence giving integration info so they can start doing integration planning well before close is one value prop. But the other value prop is which I see happen less often but I think is really powerful is integration feeding back feedback and due diligence and going wait a second, you said they use what system? You need to ask some more questions cause that could be a huge problem.

What it sounds like you're describing is integration led diligence. Yeah, I love this cause you took a best practice and made it a best practice which I would confirm the number of interviews and it is a bit far and few in between that do this or at least standardize on it. This is something like Jim Buckley in interviews with him we talked about but having an integration led diligence process, huge benefits and a lot to what you described.

And this gets back to org chart in a lot of ways. Some of the companies I've seen that do the best M and A execution are ones where deal execution, diligence, integration and in a perfect world some portions of strategy all are under the same organization. And it's not to say that people can't collaborate when they're not part of the same organization, but it's hard to get that sort of we're one team kind of dynamic if you're totally separated. And the other thing I'd say is it's a big pitch for integration and diligence experts because if you're just pulling people out of the organization, unless you're an organization that does massive amounts of M and A, the people you pull out of the organization aren't familiar with diligence, aren't familiar with integration, and definitely aren't familiar with how those two feed off of each other. Having at least some professional integration people and professional diligence people, usually the corp dev people, is important to create that connective tissue.

I love it. Number five, incorporate reverse diligence. Reverse diligence is pivotal, offering the target company a transparent lens into our world, helping them understand where they'll fit within the larger puzzle. It fosters mutual understanding and sets the stage for more cohesive integration. This has been interesting because it's come up in interviews of, hey, you get so focused on how you can integrate this company, what are you going to get them to do? A good practice is to flip it around and say, hey, why don't we spend the time to educate the target company about us, what our organization looks like, how it's structured, where are they going to ultimately fit in? I like that for a lot of reasons because I feel like now all of a sudden the dynamics are changing. Where you think about the psychology of it, like we're making this mutual. There's things like I'm trying to get from you, but I'm giving you like this is very bi directional in terms of how we're going to collaborate and work together, or at least setting a tone for collaborating and working together.

I think it has a bunch of benefits. One benefit is just the messaging and the tone. And that's important because the reality is a lot of the integration work gets done by the target. You want the people in the target team to have a preview so they can start thinking about how they're going to integrate. The other reason it's important is you want the seller to raise alarm bells if there are characteristics of the way you run that would be really damaging to their business. And they won't know that unless they get that reverse diligence. So you want them to come to you partway through the diligence process and go, look, it looks like you are planning on integrating us. I'll give you actually a great example from a deal that I saw. The acquirer had a standard set of titles and they just assumed that they would merge the target's employees into their title structure. What they didn't know is that the target company operated in an industry sector where certain titles were not relevant and certain titles were relevant. Basically, they came. We were the buyer. They came to us and said, look, to be clear, if you make our people change all their titles, our customers will stop talking to us. They won't see them as senior. Now, I know in your industry this isn't an appropriate title. It's too senior a title. But in my industry, that's table stakes for getting a client meeting. You're either going to have to make an exception to your title structure, or all of my salespeople are going to become less effective. And there are a million examples like that. But that transparency helps. Now, there is the danger that the seller sees stuff that scares them. So you have to be prepared for that. But my view is better to know that now than to, like, surprise them with it after closing. Because as we talked about earlier in this conversation, all those employees can walk. If you have something in your operation or your culture that is not going to work for them, way better to find out. Free clothes.

I think this is the general theme here, is shake out your problems early. Go ahead. Probably similar to, like, dating.

Yeah, A hundred percent.

Number six, stakeholder engagement and communication strategy. Perhaps one of the most critical aspects of any M and A process is how we communicate and engage with stakeholders. Developing a robust strategy ensures everyone from employees to customers is informed, engaged, and aligned with the integration process. Yeah, it's a big, like, fundamental. Like, it's something you have to do.

Yeah.

But it's like, to what degree of thoughtfulness and detail do you do that? And I think that's like the big difference. It's one of the success. But I feel like you're just like, highlighting how important it is. And maybe we could add some color about who those key people are, because then you think about who that message goes to. It's more than just the employees.

Oh, yeah. There are a whole bunch of different constituencies. And one of the things I like about this is effective communication is the closest thing to free positive outcomes that I think you can find in a deal. Sending an email to customers is a costless exercise. And if you can do it in such a way that it makes your customers happier and it makes them more excited and makes your offering stickier, it's like a preview. Good news is a great asset to leverage. And I think there are a bunch of populations of people that are not naturally considered. Everyone considers the employees, although oftentimes they only consider the target employees. Hey, you're about to be acquired by Frankelco. Here's how it's going to change your life. You should be sending messaging to your own employees as well, because they're all going to leap up and go, what does this mean for me? Is this a negative? Am I becoming less important? Is this the shiny new toy? Or is it a positive? It's going to expand our company. It's going to give me new opportunities. So it's not just target employees. It's also your own employees, ecosystem partners, the general market. Messaging to competitors, signaling to competitors, vendors, and suppliers. There's like a whole universe of people that anybody who can be directly or indirectly impacted by the transaction. A, you want to avoid a negative outcome by not messaging them, but you can also create a positive outcome. It's a great opportunity to. I'll make up something, reach out to a vendor and go, hey, just wanted to let you know, we're doing this deal. It's going to create a lot more opportunity for us to buy your product. And obviously we'll want to talk about. Maybe there's volume discounting that we can discuss. You've got the basis for talking about repricing your vendor relationship. I think it's really important to do, and it's very important to do with the lens of two things. One, what are you trying to accomplish? But equally or more important, what's their perception going to be? If you're messaging employees and you go, yay, we've done this thing that's great for the. For our company, the employees may go, I'm glad it's great for the shareholders, but is it good for me? You have to assess your messaging based on what they're thinking to the best of your ability.

Glad I brought you in on this. This is perfect color. I needed. I got to ask, though. Since starting this podcast, I think I've seen. I don't think transparency is the right word, but the way M and A has been communicated, like, in terms of general press releases, has been far more articulated, where it's almost like a. It's really. You're reading off an investment memo.

Yeah.

This is like, specifically why we are doing the deal. The value we see. I feel like I've seen that change where before it was just very vague. It wasn't. It's just, hey, we're. We're doing this deal very short. But now it's just like, we want the market to understand why this is such a good deal, why it makes so much sense, why is that one?

And this goes all the way back to like the 90s. There's that classic McKinsey study that the majority of deals fail. Investors and the public market have become a little more aware of the potential downside of doing M and A. So it creates an incentive to go, we're not going to tell you we did a deal. Let's explain why this is a great thing. People have become more familiar with M and A as a tool. And so all the different functions in an organization, including the comms group, have become better at telling the story. And we've all started to realize the impact that these deals have on all these different constituencies we just talked about. And oftentimes you either can't send a direct message to those constituencies or you can't do it super fast. So a good example is if you're announcing a deal, you're not going to want to send some kind of blast email to your largest customers or to your biggest ecosystem partners, which means that the conversation you have with them, one on one, is going to happen after they've read the press release. So now we got to make sure that the press release at least has enough in it to create an initial positive impression. Because by the time you get to talk to them, they'll have already seen it and come to some conclusions about how it impacts them.

Makes a ton of sense. There's one we just got to keep top of mind. Number seven is continuous learning and improvement. Every deal is a lesson in itself. Embracing a mindset of continuous learning allows us to refine our strategies, learn from our missteps, improve our approach with each acquisition, make your M and A practice more robust and resilient over time. Everybody can agree with this. Again, it's like the same thing. Yeah, you gotta keep getting better. But then how pragmatic you are about it. I think that varies quite a bit because it's almost like, hey, here's expectation. Or we just hire around experience and people are, this is all left to themselves individually versus hey, we get together and we do a retrospective on a deal. At the end of the deal we look back, talk about, well, what didn't go good post mortems. But I think retrospective is different because you can build that into an ongoing cadence. You can take a specific meeting, whether it's like a weekly, biweekly monthly meeting, and attack in there as, hey, let's have this 10 minute discussion, or have a separate meeting for it. It's like a huge difference. I did a podcast interview with one of the Harvard professors that's like the agile expert. He made this point of you're going to make some improvements. Those conversations are going to find things to improve your process. And if you did twice a month, you had 25 different improvements that you make incrementally, which over time is going to be dramatic improvement versus hey, we did five deals and we had five post mortems. I thought this is a pretty powerful one of continuous learning, but how do you sort of make it mechanical?

Yeah. And sustained. I 100% agree with you. And part of the fundamental problem is that, number one, corporate development teams are super small and when they're busy, they're super busy. They're wired quite reasonably to focus on deal execution. The core of my job is deal sourcing, deal execution, and depending on my job title, maybe deal integration. It's hard to carve out time in sort of a more fire drill like job for this stuff. Building capabilities and best practices and documenting them and creating processes is valuable over the course of a 10 year cycle of doing lots of deals, but it takes a backseat to any individual deal at any individual time. And so you have to have a discipline about it and say this is important. And I would argue it's important for a few reasons. One is, and you sort of made this point, you may have corporate development experts, but the vast majority of people involved in any given transaction are not corporate development experts. They either maybe have done a deal at some point in their career or they've never done a deal. So having best practices and taking them out of your brain, that's the other thing I hear from corp dev people is, oh, I've done 100 deals, I have all the best practices. Yeah, you have them in between your ears, but that 20 person team that you assembled for this deal, 18 of whom are not corporate development professionals, doesn't have it. The other thing I'd say is best practices are not just corp dev best practices. Generically, they are specific to an individual acquirer. What works at General Motors is not going to necessarily work at crap. So you can't just sort of take a playbook off the shelf and be like, poof, these are the best practices. You can start with that, but you have to adapt that to what's the best practice for our corp dev organization inside of our company. Not to make a plug, but this is where platforms like dealroom help as well, because it forces you to structure your process. It forces you to take My approach to best practices, that's sitting in my head and put it into a system. The appeal of that is now everybody uses that system, everybody absorbs the best practices. And especially if you have a corp dev team that isn't static, some corp dev teams are the same five people and they'll be the same five people in 10 years. But a lot of corp dev teams, especially at the junior and mid level, are rotating. So if you haven't developed your best practices, continuously added new tools, new approaches, new standards, you're going to start from scratch every time you hire a new person.

This is the crux of building your M and a muscle.

Yeah, a hundred percent.

Any free plugs in deal room? Tag me on social. All right, ready for number eight? Number eight, Anticipate legal, tax and HR challenges. Proactively addressing potential challenges in legal, tax and HR areas can significantly smoothen the integration process. Early identification and management of these issues prevent them from becoming roadblocks down the road. This is like a reoccurring theme being front and center on these areas early. Again, it goes back to that, yes, you know this. But then it's easy to do this later than earlier. And if you can really put this front, the typical thing in the lawyer interviews, like getting involved early, getting tax involved early, getting HR involved early. But it sounds like those are the big three.

Oh yeah. I might throw finance in there alongside tax. And sometimes there's a couple of other enabling areas like back office, IT or real estate.

But yeah, well, factor in a variable if your thesis is so much around the tech and that's specific to it. Okay, yes.

Yeah, you're totally right. And speaking as an ex lawyer, I'm particularly sensitive to this. These three in particular are topic areas where there is a potential for gigantic minefields. Those practitioners are constantly frustrated when they get brought in at the end of a deal and they get told, this is what we're doing and if there's a problem, we can't go back and change everything, we're just going to have to deal with it in post. And what I would say. And this sort of circles back on the first point we talked about all the way at the beginning about crystallizing your vision. I always think the trade off to those areas, legal, tax and hr, is I'm going to bring you in early, I'm going to bring you in super early so that you are not the person coming up with the problem all the way at the end. And as one of my friends would say, peeing in everybody's Lemonade. You're going to come in really early. But here's the trade off you own identifying and then solving all the problems that you identify. You have to buy into the vision that we have. What you can't do is just be an issue spotter. You can't come in early and go, that's a problem. And that's a problem. And that's a problem. And I'm going to lunch. The trade off is I'm going to bring you in early, but then you're my partner in addressing these things and figuring them out, staying true to that vision that we all agreed to.

Great way to tie it together and set it up. And one takes more work.

So yeah, but I will say most of my experience with legal, tax and HR professionals is they love that approach because they hate being the bad person. They hate being the person who gets brought in at the end and goes, yeah, that won't work. They would much rather. Most of the ones I've dealt with and I've dealt with some phenomenal ones would much rather be at the front end because they want to help accomplish the business goals. They're not trying to be a naysayer. They're just responsible for an important area in that area. You know, they don't want anyone stepping on their minds.

Getting the seat at the table early gives them a good strategic position.

And by the way, this is where we go back to the one we just talked about. Not that I'm trying to take this backwards, which is process helps. One of the arguments a corp dev person will make is they do not have time all the way at the beginning. Free loi be having lots of conversations with all the different specialty areas. That may be true. That's why if you set up standardized processes, standardized communication engines where we're going to put a little mini data room together and we're going to send an alert to our point of contact in legal and tax and HR and wherever else and go flag up. Deal started. Please review this material. We will be back to you later in the process. There's a way of doing it that doesn't become a big distraction.

Number nine, empathetic leadership. @ the heart of every successful integration is leadership that not only understands but empathizes with the human aspect of M and A. Leading with empathy ensures the process respects, supports and uplifts the individual who make our organizations what they are. I think this is just one. Again, easy to forget, easier to say than do, but it is. It's just being compassionate and understanding that this transaction is going to drive a lot of change, who that's going to impact, how that's going to impact them. I like taking the extreme form of empathy too is when you have a dispute and instead of defending your view to death, is take the empathetic approach. To truly understand how that person thinks, why they think that way, how they feel, why they feel that way, until you get to that point when you really agree with it. Now you're not creating that path to come up with the right direction, whether it's identifying where there may be gaps in their thinking or your counter argument or just you changing your mind and realizing they're actually right. Taking that same view of just the empathy. And I almost feel like again, making it mechanical. Can you remind your leadership team of taking this empathetic approach with a company? What's your take?

I'll make a bold statement, which is I have never negotiated with or worked with a company. Companies are piles of paper. You negotiate with a human being who has a family and hobbies and biases and interests. That represents a company. And recognizing that everybody involved in the transaction is not an automaton. They're not a I am the lawyer bot, or I am the corp dev bot or the finance bot. They're a human and they have their own embedded biases and interests and perceptions. Is step one in every deal process. From a counterparty perspective. I find it insanely helpful to start exactly where you suggested, which is before you engage with a counterparty, understand what makes them tick, what do they care about? What do they not care about? When there's $10 on the table, you're trying to get six, I'm trying to get six. But oftentimes, if you really understand the counterparty, you can make the $10 on the table equal to $12 on the table. I love finding the thing that you really want and I don't care about. That's great. I've just created value for you and it's cost me nothing. And then of course, in exchange, I'm going to ask you to create some value for me that costs you nothing. And the same thing is true with every human that's involved in a deal process. They all have their inherent biases, from fear of change to excitement about opportunity to ego. And what does this make me look like? One of my running jokes is the single biggest driver of M and A. I would argue is probably deep down inside the fact that it is much more impressive to your friends and family to be the CEO of a $10 billion company than to be the CEO of a $5 billion company. I'm not saying that M and A doesn't create value for shareholders, but I am saying that M and A is definitely a tool to make my company bigger, better, cooler, larger. And that has an effect on me and my management team. We probably get paid more, we look more impressive. People recognize our company's name at cocktail parties. A lot of people would say, oh, come on, it's an efficient market. Corporate executives just optimize for shareholder value. I'd be like, come on. If you say that you've never met a corporate executive, their life biases merge in. And the same thing is true with every one of the enabling areas. It's your HR people, your tax people, your legal people, it's the employees, it's the service providers, your lawyers, your accountants. Everybody has those little things they do differently because of who they are. And if you understand that, you can achieve a better outcome and you can achieve a better outcome for them personally as well. I find the human psychology aspect of M and A fascinating because humans are most interesting when something dramatic and unexpected happens. It's like every murder mystery we've ever seen where there's a moment and the background music goes dumb and everyone turns like that. And so M and A is when that happens. Suddenly everyone's world gets shaken, having that empathy and understanding. These people are not just their titles, they're individuals. They all have different personalities and characteristics. If you understand them, you can create a tremendous amount of value and you can avoid a lot of value destruction.

I like how you took that and brought it to the higher level of overall the impact of the psychology on the deal, the human psychology of at least having that approach of, let's really understand why people do what they do.

Yeah. And what will get them to do what you want them to do. I'll give you a great example. I've acquired companies that have dev teams where the dev team really cares about their dress code. It's not just that they care about their dress code. Conceptually, it for them is a sign that they are like pirates on the high sea. They're creatives. They're like. They're not big corporate people. And so psychologically, telling them that they can't wear shorts to work can be way more damaging than telling them that you're cutting their pay by 20%.

That's a good example. Number 10. The ROI on strong preparation is huge. For both buyers and sellers, proper preparation is crucial. Buyers need to have their diligence resources lined up well, particularly in a fast moving process or they risk missing key points. This is a big theme. It comes up on any sell side perspective of just how much the prep is important in that especially the competitive process and then divestitures. We've done interviews about this and it was prep and the buy side. We've actually talked about it in terms of you even prep to take on integration and absorb the company. This is a good one. Again, another easier said than done. But what's your take on differentiate? Thinking you're prepared to really have prepared?

Yeah, I think number one, I'd say you can never perfectly prepare. So 8020 rule. If you do your best and take preparation seriously, you've accomplished the vast majority of the value. And the difference is are you pretending to prepare or are you actually preparing? Pretending to prepare is just saying we check the box. Actually preparing is making real change in an organization, whatever that change might be. I'll take the harder example because everyone talks about the sell side, but on the buy side actually having conversations with your organization in advance about what you would be willing to change in order to make an integration successful. Are we going to allow the developers to keep wearing their shorts? Are we going to be willing to change our technology architecture? Are we going to be willing to change how we compensate salespeople or whether we'll switch from a direct sales model to a channel model? If you're out shopping for a certain kind of company, if you're a good corp dev officer, you can probably predict a bunch of the challenges to integration on the buy side, at least conceptually, and start to prep for them. I think it's not just sell side, but it's also buy side. But yeah, the ROI is huge. I think I've said this on your podcast and I've said it on a couple of other ones. If you're selling a small company to a large acquirer, it drives me nuts when I look at a small company and think to myself, if they've done some basic stuff differently over the last two years, I'd pay 30% more for this company easily. Open source code is the extreme example. All these companies that misuse open source code because they're small and they're never going to get sued have to understand that the buyers assume they're going to get sued and so what they're going to do, what I'm going to do is either not buy your company or I'm going to budget the cost for my super expensive development team to rebuild all of that code, I'm going to add a premium for the risk of doing a. I'm going to add a premium for the time that we're going to have to not be going to market and I'm going to remove that from whatever the purchase price is. It's pennywise and pound foolish not to do that kind of prep in advance. The ROI is really huge, especially when you consider that a lot of this is not large investment dollars, it's just changes in behavior.

Yeah, it's a really good point. Just doing prep around all these different variables and different potential directions they could go.

You can't plan for everything, but there's definitely an 80, 20 or a 90, 10 rule. So if I'm a small tech company selling to a large company, I need to use open source code correctly. I need to have all my technology and my product documented. I need to have a clear roadmapping process that people understand how I'm building my product. I need to have standardized contracts to my customers that look like the contracts of the big players and have the IP protection terms of the big players. So I might not be able to get to every kind of prep, but I can probably identify the majority of things that can increase my value to a buyer. And a lot of the stuff I just listed doesn't actually take a lot of resources. It's just doing things different.

A hundred percent. There we have it. That's our top 10.

Yeah, that's a lot.

But we got one more. And in the light of my favorite question is always the last one. What's the craziest thing you've seen in M and A? So this is a reflection on some of these stories.

Oh yeah.

And the one I would say Michael, is the multi billion dollar transactions and what ultimately drives the value, the purchase price on those. And it's not a complex algorithm. So the bonus takeaway is deals are often about much more than the purchase price. I've seen this. Where you gotten these stories of deals that swayed billion dollars is just egos at the table.

Yeah, yeah, I think it's egos at the table. And it's also stuff that is not purchase price but can have a financial effect. When I think about corporate divestitures, oftentimes corporates, especially if it's a small deal, aren't as concerned about purchase price. They're concerned about let's not make my customers mad, let's make my employees happy. I don't want the spinoff to play with my competitors. So how do I prevent that? Maybe I need to license back technology. So there are all these other things that I care about more than the purchase price. And then if you have. That's just like corporate stuff. If you have founder sellers, then you can get into a lot of really soft stuff you can get into. I want the brand to say the same because it's my brand. You got to promise not to fire my people, got to take care of them. I had one guy, I was looking at a founder owned company in a small town in Ohio. He said to me, I just want to tell you up front, one of the deal terms is going to be that you can't fire anyone for the first two years unless for cause. And I paused and looked at him. He goes, look, you have to understand, this is a town of 2,000 people. I employ 10% of the town. I live here. If you guys come in and fire everybody, I'm not going to be able to go to my golf club anymore. The most extreme one, which I think I may have told you about in the past, is I had a $300 million deal where the founder walked into the legal negotiating room, whispered in his counsel's ear, left. And his counsel looked at us with a lot of embarrassment and said, yeah, we have to add another deal term. He wants to keep his BlackBerry. So this guy was going to take $300 million off the table, but he also wanted to keep his BlackBerry and for him, that was worth interrupting the.

Negotiation more than the purchase price. Yeah, this has been fun. This has been a great conversation. I know this is switched up a little different style than what we usually do, but I thought in, in the sake of continuous improvement, that we do some reflection of our own. I really want to hear from folks listening to this, especially folks if you've listened to the M and A Science podcast for, I don't know, like more than 10 hours, I'd love to hear just to get your take on the value you get from the podcast, but also from you. How can this be improved? I'm always open topic, ideas, recommendations on speakers and so forth. Except I do get a lot of inbound pitches of people that want to come in to sell some products and services, like too many, like 300 a year. We're not looking for those. We want, like some badass folks that really got some good wisdom and knowledge to share to keep learning and get better at what we do. So I welcome that feedback. There's a commitment I'd like to make just to keep pushing this mission of learning from experienced practitioners and Identifying proven techniques, what actually works in the industry. I think the thing I'm still wrapping around is the community that's evolving and shaping to my surprise from doing this podcast where I'll visit towns, we'll do roundtable events, and I think that's been really cool to see in shape. So I'm hoping we continue to grow that as we continue these conversations and just really build on this knowledge sharing community and that network that really helps you improve. And I think that's what this is all about. It's about the pursuit of being the best.

I'd say being the best you can be. But now I think that's right. We talked about at the beginning what we love about M and A is how complicated it is, how constantly changing it is. We've talked about a bunch of those variables, a lot of the human variables that make it so that deal number one is not going to look like deal number two or deal number three. That's both challenging, but it's also what makes it fun. And I think it's what makes the community so powerful because the population of people that do M and A is so small. We're like this little bit of a special club because every deal is different. We're all learning different things. We all have experiences that the other one hasn't had yet that we can share.

I don't know about you, but I want to be best in the world.

That is why you're an entrepreneur.

I'm going to do that by learning the best practitioners in the world. I think it's a wrap. Michael.

Excellent. That was fun.

Hey, those of you that have stuck through again, welcome to Feedback. Michael, you've helped me reflect and become a better M and A scientist today. Till next time, 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 Kison K I s o n at 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 Masscience.com here's to the deal.

Foreign.

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.