Tying Up M&A Strategy With Integration

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Joining me today is Darrell Heaps, CEO at Q4. The Q4 Capital Markets Communications platform is leading the digital transformation of how publicly traded investors and Investment Banks engage. Q4 is traded on TSC under Q F O R. Today we're going to talk about how to tie up M and A strategy with integration.

Darrel, how are you doing today?

Wonderful. Keesen, how are you doing?

I'm fired up.

Anytime I get a chance to give a CEO a hard time about M and A, I get super excited about it.

Awesome. I've been looking forward to the session here with you today. I know we'll have a great conversation.

Can we kick things off a little bit about your Background?

I started Q4 back in 2006 and it was my third company so I had two companies before that were more bootstrapped and built up. I they were both web companies. I sold the first one in 99. Actually didn't sell the second one but started Q4 out of that and so both of those were built on cash flow and profitable companies and then Q4 was where really wanted to build a subscription based business like a SaaS company connected to consistent demand and I've always been in and around the capital markets so really Felt that building a solution that fit in between companies and investors in the capital markets would be a really durable business. And so went about doing that and subsequently raised money through private rounds and then VC rounds and pe and along the way did a number of acquisitions. So we've been utilizing that. So we've done five acquisitions starting back in kind of 2015, 2016, and then progressively kind of those getting bigger and more material. And really have a feel that acquisitions M and A is an essential component to our growth strategy. Something that I'm pretty, pretty passionate about.

I like how you went through the whole life cycle, from the bootstrapping to vc, getting the markets, then private equity, then going public, then doing acquisitions. And it's all a relatively short period of time too. This is all still living it and doing more acquisitions?

Yes, absolutely. When you're living it, it's a lot. But when you look back, you can achieve a lot over a relatively short period of time.

I'm excited of what we're going to uncover from your experience. Why does integration need to be tied to the M and A strategy?

There are many deals that look great on paper. If you look at it just purely from strategic fit, from financial engineering, all those things can make a ton of sense. But for the any sort of M and A, but acquisitions in particular, to actually deliver value, the integration is everything. It's all about how it gets executed after the deal. Arguably you'd say that getting the idea, the deal, the negotiations, all that stuff is actually the easier part. Getting the integration right so that you can actually deliver on what you thought on the vision. That's where the rubber hits the road. In our experience, you really see that it either is going to deliver like the revenue synergies, the cost synergies, etc. If those aren't really well planned out and then executed and managed against, then you never realize the value. And the thing with acquisitions is that they cost a lot, they take up a huge amount of time, but they also take up, in many cases, a lot of your capital or your equity. And so they're typically very expensive. Getting them right is really all about integration. You screw that up, all the value evaporates and then you're out all the time. And the money that it took to get to that point.

When did you learn that? After the first deal? Second, third?

The first deal that we did, I think we got very lucky. It just fit so well. Strategically. There was a great fit. It was an adjacency in terms of like our product portfolio that made A ton of sense. Our customers were already buying it. And so we did the deal and it just worked. And that gave us probably, I guess sell a false sense of capability of just wow, look at. I don't know why all these people talk about these challenges in M and A. This seemed pretty easy. Not that there wasn't some challenges. There was a little bit, but it went incredibly smoothly. So I would say a lot of it came in the second one where we then rolled into the second deal and, and that one we didn't do the same level of kind of what the way that we now look at deals in terms of really understanding both diligence and talking about like how you go through diligence, how deep that has to go. And then looking at your kind of 30, 60, 90 day integration plan and expectations, that's where we saw that by not doing that well, that things just take a lot longer. So our integration and getting the value out of it and the second deal we did took about twice as long as we thought, cost us about twice as much to be able to implement for us to actually realize the value. That was a scar, like a deep scar for me and that it was one of those things where like never again. Now we've learned the lesson about not really planning out the integration in the back end of the deal enough and paying the price for it. Then that really fed into being much more purposeful in terms of how we went at it in the third deal and then the fourth deal and the fifth deal and they've just gotten stronger and stronger as we've done each successive deal.

So on this second deal where you really got some exposures, some pain points and problems, and it sounded like the negative consequences were the deal took twice as long, cost twice as much to do the integration. Yes, you looked at the root cause of that all planning was that the main focus or the other parts of.

It as well started with diligence. So I think looking at diligence and starting from first off, from a broad market perspective, that I think in any deal there is a, a tendency, first off, we did this well in that I think all M and A should be driven by strategy. And the more focused the strategy is, the easier it is to measure should we do this or not? Because what can happen as the company grows? You can, there's like the shiny object that something comes in, it's not part of your strategy, but it looks interesting. And then management teams can convince themselves that as to why it makes sense. But that's the tail Wagging the dog. And it should be the other way around. It should be that you have intent about what it is you're trying to create. And M and A is a tool to achieve that, to accelerate it. We did that well on the second deal. But what we didn't do is then really look at, okay, out of all the different targets that we could go after, is this the best one? So that's one thing from like a market check perspective and then also from a diligence perspective. The lesson we learned there was around both culture with the first one being to really dig into understanding who is going to be the operating team, what is the culture that they operate and how is that going to be integrated into how the business operates. And that's something that's a very kind of soft component of it and not something that shows up on a spreadsheet. But that's an aspect that we have really focused on subsequent to that. Because the issue with that is when the deal gets done, everyone's on their best behavior during the deal. It's like everybody's on their first date. But then once the deal's done and now you're operating, then you really start to see how different the cultures are. And that ends up being like oil and water. So then you have to have more time as you change over people, which just extends the execution timeline. And then the other was around the technical diligence. And the integration is like, how are we going to integrate this technology into our platform? That was done not at the level that we needed to. So we were still discovering many things post deal. The output of that was that when you get into deal done. Okay, let's start. Let's execute the integration plan. It gets thrown out the window very early. This is based on an understanding that's not accurate as to how the technology actually works, what we actually need to do. So then everything gets re estimated and that's where everything takes longer and costs more money.

So I got one part with the strategy to close in that aperture and buy things that are really in the strategy. The second is around the people, the real culture, and understanding how that's going to come together and then the mechanics pieces and the operations. And that's where probably some of that prior experience helps you understand where you need to expand more into the planning and be prepared for those things.

Yep, absolutely.

If we were to walk through how to tie up M and a strategy with integration, are those the main pillars? Are there other things around that to think about?

Those are the two main buckets. That's outside of actually getting the deal done, which is the other one too is you've got your strategy saying this is what we want to do, then being able to find it and it making sense from a value perspective in terms of what you're hoping it's going to achieve and what it's going to cost. And then the integration bucket is the big aspect of delivering on what you think this deal is going to do for your current business.

You know what would help me is maybe we walk through the timeline just to get an example. And the thing I'm trying to get a good understanding as well is when you're kicking off integration planning in against the timeline. Because a common thing I hear from folks involved in the integration side is they weren't involved early enough to really do that level of planning that you described to have those successful results. Can we walk through just an example?

The way that we do it is like a cross functional approach. And the size of business that we are today, we look at M and A and all the deals that we've done have been part of how we're operating. So larger businesses will have the deal team and the integration team and those are kind of set up as bigger teams in the organization. So the size that we're at, we still do that across our management team and our operating teams.

I just want to make sure I got this right. There is a big difference and a lot of times for folks listening. In our podcast we interview a lot of public companies and you got to imagine you got a corporate development department. Sometimes it's a couple people, sometimes it's tens of people. And then you have a whole integration IMO set up. You're on the earlier side, you're still in doing more of the real hands on organic. As an executive, maybe give me the key people involved because it sounds like you don't have a dedicated corporate development or dedicated integration function right now.

That's correct. So we run that with myself, the CFO and a couple of folks from the strategic finance group within the finance department. So that's something where we're kind of working on the deal and we do have as part of our product management group, we have partnerships as part of strategy and partnerships and corp dev sit in our product strategy group. So when we're looking to do things again, this is where it's being driven by strategy first saying here's the outcomes we're looking to achieve. So we want to be able to do this with our platform. We want to be able to deliver this value to our customers. We want to grow this much. And so then looking at M and A first talk is a tool in achieving that, saying, okay, we're going to allocate capital to do this much organically, but we're also going to earmark this much to accelerate the plans through M and A. So then go find the targets that fit within that aperture that we can accelerate our plans. So as that happens, then we're able to identify targets. Then the outreach happens either through someone in a product group or through myself to be able to then facilitate those conversations and start having them. And then what we're doing, as we get into an opportunity, as that starts to harden, even at the point before we sign an ally. So even at very early on, we're already asking questions across that team, saying, what does integration look like here? What's the risk? Where's. How much risk are we taking on in doing this deal and what do we need to be prepared for? And that helps us to understand how we want to structure the deal. Do we want to acquire client contracts and kind of the economic benefiting and acquire customers and we're going to move them all onto our platform, or are we acquiring new technology that then we're going to integrate? As we understand that, then we start to broaden out the team that's involved.

This is before you're asking for numbers and stuff and saying, hey, let me see your financials.

It's in parallel. So we're looking at the financial. We're trying to understand that. But then we're also saying, what's it actually going to take to deliver this? On our side, it's going to be acquired for a dollar, but then we're going to have to invest another $2 to actually realize the benefits. We want to understand that as early as possible. So that when we're thinking through the ROI on the deal, when we're thinking through the timing of it, all of that's included as early in the process as possible.

You're understanding the financial performance of the company, getting a sense of that. But you also want to understand what's your cost going to be to realize your intended value. That's against the strategy you're executing.

Yes, exactly. And how much risk is in that? Trying to understand those questions. And we probably don't know the answers to those, but we'll be earmarking things, saying, we think that there's a technology risk here or there's a people risk or culture. We have to. These are things we're going to have to dig into in diligence to really make sure we understand what we're getting involved in. So we would do that on the front end, but it's kind of surface level. Then after signing an LOI and then digging into diligence then we have a cross functional team that is built for that deal in our business. So this would be. We're pulling people from depending upon the deal might be from technology, from customer success and from other areas of the business where we put together a deal team that is focused on finalizing the economics of the deal but also then building out the integration plan that when we getting close to the line we know as much as we can about what are we acquiring, what do we see the value being, what's the output, what's the cost that we're going to have to invest to be able to get to that and where are the areas of risk? So what are the things and how do we de risk it? So what are the aspects can we do either within the deal or how we're integrating that we can de risk it to make sure that we're going to realize the value that we think we're going to.

You're fast now I got to slow you down. So take me back to loi. Getting to LOI and some of those things you mentioned around the risk, the culture. How straight up are you with the target company CEO about that stuff as you get into loi, try to be.

As transparent as possible in terms of this is how we're thinking about it because don't want them to be surprised as we get into diligence that this is what we're going to be looking at and here's the areas that we want to prove out. Now you're still negotiating. There is a degree of what we're sharing in terms of here's what we're going to be looking for but not necessarily telling them. Here's at the LOI stage, here's exactly how we see everything at that moment. So if we want to set expectations from a process perspective in terms of how we see things playing out and here's what we're going to be focused on but exactly how we're thinking about that in the context of the deal, we're probably not sharing a ton of that at the loi. Like in terms of how it's actually going to impact how to structure the deal or any sort of value drivers.

Maybe some general things around. Hey, here's how you want to understand culture and some of those things that you mentioned earlier. Earlier, but not anything real specific.

Yes. The culture, for instance, would be, we're going to want to go deeper into the Org than just the management team. So it's not just about my discussions with the CEO and saying, you and I seem to get along. So let's just assume that the rest of the business is all going to get along and it doesn't work. So then making sure that they understand, as we get through diligence, we're going to want to go down into the Org and really understand how this is operating. Now, having said that, you can't go through the whole org while you're doing diligence because obviously there's issues in terms of they don't want you going through the entire company until the deal is finalized. But setting that expectation that let's identify who we're going to be bringing into the tent, who we want in the tent, who we want to engage with. Because we need to have a broader input in culture than just you and I. I think culture is something which is in a lot of cases. I know companies that are super experienced and they have a lot of, like, programmatic M and A know this. But I think for people that are relatively new into using acquisitions to help drive growth and accelerate their strategy, in my conversations, I typically find that culture is not given the appropriate weight. Now, if you're not buying any people, like, you're just buying something which would be like, we're not bringing any people over. This is just contracts or a technology acquisition that has no people, then culture doesn't matter. But if there's anything to do with an operating business where you're going to be working together, I think people underestimate how essential it is, how core it is to success, because it's all about execution. And that's also where all the deal can fall down. Like, you end up acquiring something and then there's two battling cultures.

Have you done a deal and realized that that culture missed the mark?

Yeah, that second one.

And then that's where you saw that teams weren't working together.

Like, I don't want to go into too much detail.

I'm trying to get a sense of the impact.

Is this. Like you mentioned, things that took longer to get done or do things actually blow up.

Our culture, one of our main values is hustle and hustle. The way that we look at that, which is a, like, move quickly. Speed of execution is one of the biggest determinations of success. Speed of execution and iteration move quickly and Learn on the go. We will also subscribe to doing things like a ready, fire, aim approach, which is like, we will run ahead long into something knowing it might not be perfect, but we'll be stronger if we just start executing. Whereas then another business would be very analytical and slow, but feel like we're going to analyze and get much closer to perfection before we execute. Then you have those two cultures coming together and one side is hurry up, you're moving slow, and the other one is you're not thinking things through, you're not being analytical enough. So like decision making is at odds with those two cultures. You can't underestimate how much that will screw things up. The infighting comes and then again, us versus them, and eventually what has to happen is something gives. Something gives. Is typically the acquiring company at some point says, okay, enough is enough, we need to clean house to be able to get everybody into the same culture. And that's what just extends the timeline, extends the cost, et cetera, to be able to actually get to the value.

I'm so glad you explained it that way to me. Now I understand and actually have even more emphasis about this.

The other way to think about it too. Depends on the number of people. You've gone through this hiring process and you're hiring 10, 20, 100, 200 people all in one shot.

Yes.

The same way that if you mishire an individual in a leadership role, how much that can slow things down, it's just amplified to a huge degree depending upon the number of people you're bringing on and fixing. That takes a huge amount of focus and time and attention and it can actually erode performance on the other side of the business. So it can become like a cancer.

Yeah, exactly. You have a bad hire, that's what happens. You do a hundred bad hire.

Exactly. And culture there isn't. I want to be clear with that too. It's not like I'm saying that there's one good culture, our culture is good and that culture is bad. It's not that they're just different. Every company has its own culture. So really understanding that is one of the keys to success of M and A, I think.

Really good point. We get LOI signed. This deal team you mentioned, they're doing both diligence and integration planning.

We typically, depending upon the deal, we will bring in third parties to help on diligence. So whether that's from a technical perspective and certainly like accounting and legal, we're bringing on third party firms to help us in that. From that perspective, but outside of that, from a kind of confirmatory diligence perspective, when we're looking at specifics like our technology and the integration, those are the same teams that are doing that.

Got it. Can you walk me through that? What does their timeline of events look like? How are you involved?

So it really depends on the deal because it depends on what level of integration is required. So we've done some where it's client acquisitions, where you're basically a client acquiring client contracts and relationships. In those cases, the team structure is very different from if you're acquiring a set of technology. In that case, we're integrating billing systems and accounting systems, getting that all integrated into our systems. But we're not doing anything technically. Whereas if we're acquiring technology, then we're going to have a team that's doing all the diligence on the technology and then building out the integration plan as to how we're actually going to tie all this together. Those can be very, very different in terms of the team structure. But again, we have a good idea what that's going to look like as a part of the like very early in the process. So even before we sign an loi, and I should have mentioned this before, we're building out both a investment memo that we're using for the board to get approval from the board, but we're also then building an internal memo and plan as to like, how are we seeing that we're going to have to execute this? And so that then starts to build a kind of like overall project plan, project charter in terms of here's all the different moving pieces we have to organize. In my role with that, I'm certainly not one of the drivers of that. So that would be either we have our PMO office or project management team. We'd have a project management leader that would be assigned. And then we build out overall deal and integration team. They build out all the timelines and all the back schedules and all the checkpoints and everything that needs to be put in place. And all of that needs to be approved and finalized before we'll close the deal. Trying to again to trying to mitigate any surprises and any sort of additional costs or timing or anything that's going to happen post deal closing this investment.

Memo, internal memo, how big are those documents?

Investment memo is maybe depends on the deal again, but 10, 15 pages.

That's your pretty detailed executive briefing about what you're trying to achieve with the deal you're doing.

Yeah, that's like the market thesis, financials, risk Factors how we're going to mitigate risk. All of that is that's all part of the investment memo. And that gets built up over time. Like from as soon as we start to really engage something that we have intent in terms of going after, then we'll start building that memo very early on. The internal memo and decks are ones that get created more so host loi signing. Once we get into diligence, we start building out the plan.

Then the that part with the internal memo, how big does that get?

It gets pretty extensive. It depends on the scale of the deal. But some of the larger deals we've done, you get into decks that are many pages long. As I go into like extensive detail in terms of how this whole project is being planned.

And they're probably getting feedback from different functions.

Absolutely, yes. And then you get multiple work streams. So you have one main deal team work stream and depending upon the impact, and you've got all the different departments that are being impacted by the deal and the relevant work streams that they have as to what they need to do. The challenge is like how to do that and for it not to derail the rest of the company so that you're not just myopically focused on this new deal that's coming in and not running the rest of the business, which has worked well for us, but you have to be able to silo it off as much as possible.

Exactly. I like the emphasis you have on all this integration planning. I'm trying to visualize it because we talk about our Agile M and A framework that we put out there and the concept around it is running diligence and integration in a very parallel process so that your integration planning is starting as early as possible and getting iterated on. Which sounds exactly like what you're doing.

Exactly. I can understand why as the companies grow that they start to specialize and it happens across the business in many different ways. But to have an integration team that just wakes up one day and says, oh, here's the deal, okay, figure it out. Like we've done all the deal, it's done now here, build an integration plan and they're like, wait, what is this? Why are we doing this? I think that creates a lot of challenges because inevitably they're going to find things or uncover things or think about things different that weren't contemplated from the other team because they're not thinking about integration.

And.

And it comes down to the fact that stats will show consistently that most M and A doesn't deliver the value that the Acquirer thinks it's going to. And that doesn't fall down because of strategy or deal terms. Typically, it falls down because it's a lot harder to realize the value, which is integration.

I wanted to ask you about building integration muscle, but even before that, I sense that you need M and A as a culture in your company.

Yes.

Because as the size you are, there's a lot of people we've discussed that are involved with this, and you don't want this to be like pushing a big boulder up a hill. How do you foster the culture of M and A in your company? Just announced everybody, hey, I found a deal. We're going to buy this company.

Until you start doing it, you can't just talk about it because it's like you. You need to get into doing it. So I would say the way to do it would be to start small, look for opportunities to be able to do smaller deals that are easier to get your hands around because it does get exponentially more complex. The larger the deal, the more moving parts, the more integration there is, the complexity just starts to skyrocket. If it becomes part of the company saying, this is what we want to do ongoing, then start small, start doing those deals, start to get the feel for what those look like, and then build from there. It's constant iteration and learning. I'm happy that we've done five deals, but that's not a big number at all. There's many larger companies that do five a quarter, so it's not like that's a big number at all. But those five have been certainly very helpful at us learning and building strength and getting a. An approach that we think we can continually improve.

The muscle part in terms of getting your team comfortable with the lessons learned. But I'm assuming over time, too, you have some people leave, some people don't. You have a varying degree of M and A experience and just getting them to understand all these things that we discussed. And I'm thinking specifically for that company that is going through the first or second time, and they wanted to build that muscle as quick as possible. How do you do that?

Work with you guys.

Be in the trenches, working with them.

Yeah. Let's listen to this podcast. Kidding. Not kidding. It comes with intent. Like it. It does come from companies that will get into doing M and A. And they do it in a reactive state. So the same thing, it comes back to strategy and being about, like, how are you going to execute growth? Because if you are an organic company, so you've built your whole company organically. You know how you operate. You've been able to have success and you have a certain amount of success. And then this shiny object comes into your view and it's, oh, that's interesting. We should acquire it. But you haven't built anything or thought about anything to do with acquisitions. And now you're going to be like, there's something, let's just do that. That's a reactive approach to it. It's going to be more difficult than you think, and it's likely not going to work as well as you think. Now, you might get lucky like we got lucky on the first deal, but we had intent, we had our stack in terms of what it is that we wanted to have in market and we had built out the first two aspects to it. But we knew there's this one piece and two pieces that we're going to acquire to get into those segments. And we knew that ahead of having this kind of coming into our radar. So we were already preparing for the fact of how to do it. So talking to our investors, depending upon who's backing the company is, can be very helpful. So the VCs or private equity have a lot of experience in acquisitions. It's also helpful when you're looking and raising money if you have the opportunity to where you have choice in terms of this investor over that investor experienced in M and A, in my experience, really does separate investors. That can be very helpful as to how to think about it, how to structure deals and what other advisors can be brought in. It kind of connects into everything that if you're going to say, I want to use acquisitions as part of my growth, this is where we see them fitting. Then you start to say, okay, what do I need to build in the company? How should the board look for us? That's also something that's really important. Having people on our board that have bench strength in M and A is hugely valuable. And a lot of the muscles that we've built have come from the directions of our board because they've been very helpful about here's the different pieces that you need and then as you hire and grow the business, our cfo, now she's got extensive experience in M and A and her coming on board was really helpful. So again, as you're recruiting and as you're building, it's something that you're looking at building. Your people, your process, your board, your investors all have this other aspect. If it's part of your strategy, I think that's the way to do it. But none of that happens quickly. And that's the thing. If you've got someone that wants to do one deal or two deals. The reality with all this and everything I'm saying is that timing is essential because you could have a great deal, it looks amazing, it's a great fit, the timing's perfect. But you don't have anything about what I just talked about in place. I'd probably still hit it, you know, and learn on the go. Which is the beauty of being an entrepreneur in a startup is in a lot of cases being a little bit naive as a competitive advantage.

Sounds like that's a big thing, fundamentally, is retain your learnings as you're going through doing M and A, but then also make friends in the industry. If you can bring them in house and make them family, even better.

I do think it's the aspect of as you're recruiting your management team, recruiting your management team, the board, investors, et cetera, starting to look for those people that can help you with M and A is a key way to build that cultural strength around being able to execute on M and A effectively. Because it's quite good now. Like, when I think about the way that we operate, we bring something forward that's not strategic, our board is going to blow it up. Like, they're going to be like, this is. This doesn't fit anywhere. Where is this coming from? Because we're really clear about strategy, we're clear about where we're going after, how it's all going to work. It helps you build in that kind of feedback loop that can tell you, because sometimes CEOs, entrepreneurs can convince themselves of all sorts of things about what makes sense and be very bullish on what the output is going to be. So I think having that feedback loop is helpful to test all those ideas.

And they got vested interest to make sure you don't screw up.

Exactly. And it's not to be negative because I do believe in M and A as a key growth driver. But it's understanding that most deals, it's not that they fail, they just they don't deliver the value that people think they're going to. So knowing that going into that, that most deals fail, most deals are not going to deliver the synergies and the value that's on paper. I think having that kind of cynical approach to it is then, okay, what do we need to do to ensure success helps you have the right kind of mindset going into it.

You must have been a straight A student all through school because you're looking for the extra credit right here. What are we going to do above and beyond to just really make sure like we're going to get an A. That's sort of the way you describe it.

When you're in a high growth company and you're allocating capital to M and A. In all cases, capital is a limited resource. Even if a company's extremely profitable, there's only so much money at your disposal. And so when you deploy it against a strategy like M and A, you're using up a lot of it, using up a lot of it to commit to one strategy. And if it doesn't work, you can't get that money back. So I think that's the way we've always looked at it as well. Being like this is a big bet. So what's everything we need to do to make sure that we're not just going to burn all this money? If we're not absolutely sure, then let's put that money into organic. Let's just keep organic because we know that works. We're just going to keep ticking along and growing organically. There's no risk there. So de risking M and A is essential at making sure that when you put that, when you put the whatever X millions into this deal that you're going to get a return from it. Once you do that, you're not getting it back. So you've got to make sure that it's going to return something free.

You have to have discipline, be prudent with your capital here.

Yes, a hundred percent. Without it being strategic, without all the stuff that we've talked about, if it's just on the front end, you can convince yourself of almost anything and it all looks good on paper, but it's not. As we all know, building a successful business is not just plugging it into Excel because Excel's super easy. It's, oh, I want it to grow more. Just plug in the numbers and like, wow, look at this crazy business we're going to have. But that's not what execution's like. Execution's a lot more difficult.

Speaking of that, to counter deal fever, we talked about having some experienced folks with M and A and giving you feedback. Is there more of a formal approach around how do you give the go, no go decision or prevent from you just running around with the check signing up?

For companies, it's that process of investment memo, board approval. That process is what really helps because everything is tested before going ahead. No one has like a blank check that we can just go ahead and do something without it being completely vetted through our internal channels, which I think most companies operate that way or if they don't then they will probably shortly after a disaster.

When do you need to pick your lead for integration? Is that something you're involved with? How do you go about doing that?

Myself and CFO are really involved in that. But our CFO was our COO as well. So she was our COO for three years and then took on the CFO role. So she's very integrated into all the operations, really understands the business. But it would be between her and I and we decide who would be the lead from like a project management standpoint. And then you have all the different workstations streams that come out that have various different leaders that are assigned into that work stream.

When it comes time for us to do our first acquisition, what's advice you'd give me to make sure I don't screw it up?

What's your strategy?

The strategy is by probably something adjacent to us like one of the data providers that we could feed into one of our pipeline product. So likely it's going to be a sizable where they have a full product and go to market and sales team. We need to think about how we're going to go to market together. So there's some work. It's a little media acquisition. Let's say we're a hundred million company acquiring a 25 million company. It's a pretty sizable deal for us if we're just putting some good chips on the table. I want to make sure I don't screw it up. I'm reaching out to you. I probably will when that time comes again. But what are your immediate thoughts of make sure I don't do this?

It's good that you have that kind of clarity around strategy. Like what is it that's going to make sense? A couple things. One would be like really evaluating that strategy and like digging into it being okay, testing the strategy is why do you need this and what do you think the output's going to be? Not for today's conversation but it's. That's the one aspect of really thinking that through about like why are we doing this and what are you expecting the output to be? And then the other would be to build relationships with long term targets. And many of those are never going to work out. There's nothing will ever come from it but building personal relationships with the leaders of companies that at some point down the road there might be a deal to be done and being on a First name basis with those individuals, having a friendship with them. In a lot of cases, these are competitors. They can be competitors, they can be in other industries. But I think doing that for me that's been very helpful. Because when, if and when the time comes that you want to advance something, you're a known entity. You're a known entity, you have a relationship. If you call them, they're going to pick up the phone. You can just get through those first phases much quicker. That approach is something that I've deployed for many years.

And so the five companies you acquired, what's the median time you've gotten to known the executive before you got a deal done?

Maybe three to five years.

Wow. Okay. Now I agree. I think a lot of people don't talk about that with M and A. So much of that relationship you develop.

There'S a huge amount of trust that especially for smaller as businesses get bigger and there's larger corporate M and A, more financial engineering, perhaps it's not as relationship driven, but if you have a business like a company that's doing 10 million is going to acquire a business that's doing 5 million or 2 or 3 million or something like that, and it's founder to founder negotiation, the relationship is everything. Because the other one being like out of the blue, hi, we've never met before. Give me time and let's talk about me acquiring your business. That's a tough conversation to have. Another founder is going to look and be like, I don't know, who are you? Where's this coming from? I'm not going to tell you anything about my business. You're a competitor. It takes time.

Isn't that your tactic to accelerate the sales cycle? Throw a ticking time bomb offer out there and get something going quick?

That's not my approach. No, these ones are. And some of them are partners too. I think that's the other strategy. Not all the deals we've done have come through partnerships, but some have. That's the other way to look at it as well. Like building a relationship. Is there a way we can partner with, start to work together in some way? Because that's a fantastic way to vet culture as well. If you can't have a partnership, you can't start building a relationship. Or if you just generally don't like each other, if you meet another target and you're meeting the CEO or the founder and you're like, this person just rubs me the wrong way, it's probably a good indication that it's not going to work long Term so you can vet what would potentially work down the road. But the long term relationship planning, long term kind of relationships in the market, if M and A is a core component to your strategy, does help open doors.

You're not running to get in line for auction processes, are you?

Auction processes like bank led are challenging for sure.

A lot of the way she talked about goes out the door. A lot of the careful planning, the relationship development, all that stuff's out the door.

It does not entirely because if it is a process that's run by a bank because in a lot of cases the company, it has a board, if it's got outside money in it, like outside investors, then probably there's going to be a banker involved in running the process. All other things being equal, the relationship can make a difference. You're not going to get it at a discount.

But agree, you got a lot of chaperones around to make sure things get priced out the way they do in a competitive situation. But that relationship is a big thing.

Like everything's equal again. They're going to make a choice as to who they think they're going to be able to execute better with because depends on the deal too. If it's like we're going to acquire it and the other side's walking away, then the relationship doesn't matter as much. But if there is a back end an earn out a future operating business together, I think it can make a difference.

Agree. So many times I've heard that lost a deal purely on the relationship terms were super close and maybe not close, but they lost in the relationship.

Yeah, absolutely. Auction is a whole different. How to navigate those is challenging for sure because the banker, they know what they're doing and they're driving the best price for their client.

That'd be a good interview topic. A Buyer's Guide to Navigating an Auction Process. Those little nuanced things where you push to get as much face time as possible. The management team, like you said, leverage those points where you can build those relationships.

That and then also tips and tricks on the games that that investment bankers will play during a process. They're good at what they do, they're skilled. Yeah, I think that's one thing. I've been talking to another entrepreneur recently and the thing to keep in mind is that the people that are running the process, the bankers like this. That's all they do. And they do a lot of them and they have. They've been doing this for 10, 20 years with an endless amount of deals that have come through and now here's you that has never gone through it before and you're working with them. You're outmatched in terms of how to run that. So it's understanding that is essential.

You'd rather do proprietary deals?

We had our choice for sure. Yeah. Having no competition. It's just one on one. Those are. Those would certainly be the preference, but those are unique.

Darrell, what's the craziest thing you've seen in M and A?

It doesn't make sense to me when people bluff and like really bluff to try to get something to happen and we'll try to back you into a corner or be aggressive with something that isn't real. Because all that kind of comes out like that. That's what. In my experience. So the craziest thing is seeing someone just blatantly lie about some other aspect of the deal that's happening. To say, we just got this other offer and it's X amount higher. And so we're going to take that unless you match it and then you're like, okay, bye, then fine, take it. Then it goes out and then it comes back, like through the bank or there actually isn't a deal. That wasn't real. Sorry about that. Can we get back to what we were talking about? And then you just shot that bullet, that last bullet in your gun, and you destroyed all trust in the relationship by blatantly lying. And this is at risk of a pretty material deal. It's that kind of stuff where it doesn't make sense, where people, they think they can like the gamesmanship in a deal in the negotiation, it's just a huge risk. I don't know why anyone would do that, but that would be the kind of the craziest thing. And then getting caught in the lie and then coming back to say, like, yes or I didn't mean that. Okay, so that wasn't real. Okay. There's one story in particular, like years ago that. Where I was really surprised with that.

Saying they had another offer higher.

Yeah. And then it just evaporated very quickly. And then it's a lie. And then coming back and trying to recover from that and being, yeah, sorry I lied the other day. That's actually not real. We get back to the offer that you were talking about. That's the thing. Like any of the deals not on the integration side, but negotiating is. It's people driven. So the relationships and how you behave during the whole negotiation is really key. It's. But it's rare. That stuff normally doesn't happen.

Stay away from the dirty old tricks. That's the big takeaway here.

Yeah, absolutely.

Daryl, thank you so much for the time today. Enjoy the conversation. Learned a lot. You're helping me become a better M and a scientist.

Thank you. It's been my pleasure. This is great. The podcast, awesome and I look forward to another opportunity in the future.

Thanks those of you still listening. Until 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 Kisan K I S o n a science.com or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit 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.