Why Beacon Created an AI Committee for M&A—and What They’re Testing Next (Part 2) with Harrison Thomas

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Buyer led M and A.

Most M and A tools were built for sellers or bankers, but if you're in corporate development doing two or more deals a year, you need something built for how you work. Dealroom is purpose built for the buy side from pipeline through diligence. It gives you centralized control over every deal, clear visibility into tasks, timelines and ownership, and reduces manual work with bulk updates and templated rooms. And when your process lives in one place, you're not reacting to the seller, you're driving the deal. And that's buyer led M and A. Whether you're looking to speed up diligence, keep integration on track, or just cut down on chaotic email threads, Dealroom gives you the structure to scale. Go to dealroom.net or hit the link in the episode description and check it out. Here's to the deal. I'm Kisan Patel and you're listening to M and A Science, where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and what actually happened during MA deals Foreign welcome to the M and A Science Podcast. This podcast is part of a mission to rethink how M and A is done. The old school seller led approach? It's dead. Buyer led M and A is all about strategy, alignment and efficiency. And let's be real, it's not just about closing the deal, it's it's about making it successful. We uncover what truly works in M and A by learning directly from the best. I'm your host Kisan Patel, Founder and CEO of Deal Room and Chief Scientist here at M and A Science. This episode is part two of our conversation from last episode. If you missed part one, I recommend giving that a listen first. Today's guest is Harrison Thomas, Chief Growth Officer at Bay Beacon Specialized Living Services. Harrison leads growth and M and A in one of the most operationally complex corners of healthcare home and community based services. From acquiring unsophisticated mom and pop providers to navigating high touch integrations across fragmented state systems, Harrison brings a nuanced boots on the ground perspective on what it really takes to scale in this sector. In this interview we're going to talk about the unique challenges of MA in a highly regulated, Medicaid funded healthcare service and learn how to approach due diligence in mom and pop businesses with hidden liabilities. Let's pick it up right where we left off, what we already talked to with just the nuances of the business and liabilities itself and then adding that all these states operate completely different and you need to understand that regulatory environment and figure it out. Yep, sounds like a lot of fun.

It can be fun.

As you progress, you're getting more people involved. You got third parties. Outside of like Q of E, what other third parties are you leaning on?

We have a really good legal partner that does most of our transaction work for us and has been working with us for over eight years now at Kilpatrick Townsend. And that team is great. They actually know enough about our business to almost be my headlights before I ever get there. And finding that stuff, that's going to be the deal breakers. We also have started working on chart reviews. So in healthcare, chart reviews are very commonplace practice. That is not as much of an issue in the way we do what we do because our billing is typically with the states under the auspices of their Medicaid program, the HCBS programs. And if the cash is coming in the door, they'll do audits on the documentation associated with billing. And because of that there can sometimes if when we do spot checks and chart reviews, we can find some stuff that's maybe not right on the billing side, but a lot of times that chart team is going to do kind of a compliance audit for us to make sure they're addressing the OIG compliance standards and some quality issues. So there's certain quality metrics that are somewhat standard in our space and we'll have them look into that as a third party because inherently I want to get deals done, my team wants to see the business grow. But we need that third party check to really validate that what we think we're seeing is accurate.

How are you managing the process? Like visibility into diligence, historical conversations, decisions.

Documentation, our process really kicks off. Usually it's that build a relationship first. We have to win people over, even though we're close. A lot less deals that we're sourcing, we're seeing a lot more deals that we're sourcing. You end up walking into kind of a cold space of building that relationship from the get go of somebody that may not even realize they're wanting to sell at this time. So that's really the first step is convincing people to even share their diligence with you, to even sign an NDA to get that information shared with you. So once we've kind of gone through cursory diligence, we try to get people comfortable with what is on the table. So we get to an IOI indication of interest before we ever get to an LOI and that indication of interest at least to say, hey, what are the dollars we're talking about? What are the general deal terms we're talking about? If we can get someone through assigned I.O.I. at that point, we kick off the formal deal room process. We actually will start a room for transaction. And what we've spent a lot of time on our side is trying to squeeze down the number of questions that we ask people in core diligence. And when we originally built out Dell Room, I think we had 474 unique requests. I think our core request list is now down to 147 requests. I sneakily slide in some Excel documents with additional questions in there so that it's not overwhelming to them so they can kind of go through a questionnaire. But we put everything into deal Room and the beauty of the platform for me. And again, I'm not selling it for other people, but I'm a huge advocate because combining the data request with the data allows us to frankly just ramp people in our process much more effectively. And I always tell people I want to have the history of all requested information and all the answers from the seller in one spot. So sellers aren't answering, the Q of E team, answering the legal team, answering my accounting team. There's lots of people that ask the same question. So that's how we use the platform.

So your third parties are actually putting all their requests.

I require all of our third parties to work through deal room. If they don't work in deal room, they're not allowed to use an outside data room. Their request list have to actually reside inside a deal room because I want everyone to be able to reference that. Because so much of this is me managing the mom and pop.

You have full oversight of all the third parties, who's doing what.

When people tell me that they haven't had time to get through something, I can go and see very quickly how much time do they spend in dealroom, how many items that they look at. I try not to weaponize that information, but I also don't let people pull stuff over on me if they're not doing their job.

Yeah, it's interesting. I've used it like for some of that tracking, but not to that extent.

It's honestly holds my internal team accountable. When we bring new functional leaders in our company into the process, we go, hey, just so you know, we can see when you're looking at documents or not, we've had people say, oh yeah, we've been in there. I've been looking at deal room and I can pull up and see person by personal. You've spent all of 37 seconds in the platform and since all of the content resides there and I want all of the community communication to be captured there, the back and forth of answering from sellers. If people aren't in the platform, I know they're not engaging in the process.

So single source of truth or place to run your whole process. What about the experience for the seller?

How does it impact that?

What's interesting about that is the sellers don't know how good they have it because these are people that own their own company. This is all they've ever done. When they get into a sales process, I don't care how good you make it for them, it's a huge burden to them. It's a million questions. And very often I've got sellers who they don't even have an accountant, they don't have an HR person. So they're answering every single question. I know that deal fatigue can run people away from a transaction and I'm always being cognizant of keeping them engaged. Keeping them engaged. And our CEO and I talk about often we try to get people over the valley of selling the business. Once they've signed the ioi, that's the first hurdle that they've committed to it. But once they've gotten to a certain point in diligence, they've just got to push through it. They got to push through it. They got to push through it. What I have seen positive feedback. We work with brokers who work with a lot of other people that do deals in our space and all of those brokers commend us and give us a lot of credit because they go, your deal process is tight. We know that you're keeping a lot of the burden off of our seller.

But don't they want to use their system? These makers always want to use the old school data room.

I tell them no, it's just a point blank. If you're going to sell the business to us, you're going to put the data in our data room. And once we sell them on why look, all of your requests are going to be here. They get to answer the question once they get to work through the process once. I've not had any pushback. Once we've done that. The only time I ever had pushback was that when Beacon when we actually went to recap the last time and we had big investment bankers representing us out in the market. I took their team through Deal room. And I actually built a deal room for us on the sell side. I said, here's all the questions you're going to want to answer and if the buyers want to ask us additional stuff, feel free to. But rather than us just upload data into a data room. And it was funny because the managing partner said this is so much better than us going and using third party X, but we still have to go do that. And oh, by the way, you still.

Got to spend stupid amount of money.

Crazy amount of money to use that platform as the seller. And it just, it was a very frustrating process. But yeah, they're stuck in their ways.

Because it's just one day we're going to dismount that.

I would love it.

A warning shot to all the bankers out there. I'm coming for you.

Yeah, exactly.

In that situation, bankers, brokers, you're getting them to use it. But what about, is it a competitive situation? I was wondering if there's like a point in time when you're like, okay, we're signed and now we're going to go use it.

That's right. So prior to us being able to sign the ioi, were engaged in their process.

When you say ioi, it is IOI and then you go to purchase agreement. It's not ioi. Loi then purchase agreement. IOI is the loi.

Yeah, Touchy subject here. I smile because our board, they're very focused on making sure we keep a positive relationship in the marketplace. Because of that, the LOI is a hurdle that requires additional approvals by people at the board level and our capital partner level. And I can use an Iowa, but I also get a lot of deals that don't get to the finish line. If I had to get the level of approval I have to just even negotiate deal terms on the front end, everybody would hate me. So we use the IOI as a kind of an in between to be able to get a deal. The key deal terms, purchase agreement, escrow, non compete, stuff like that captured. And then if it's a larger deal, we actually do get to an loi, but on a smaller deal I can use the IOI and those deal terms. And we've tried to skinny down a purchase agreement with our legal team and work on getting that as refined as possible and just a solid IOI and a solid purchase agreement and we can hopefully get one over the finish line.

I like it. This is just taking a buyer led process to really having a defined process and keeping it consistent and standardized. How about the integration what does that look like? You're running through diligence. Sounds like a good system set up for that. But then how do you make sure that goes well?

When we spoke last time, I told you that there's kind of beacon 1.0 and 2.0 in this new world. When I carried a lot of different hats for the organization, oftentimes it was don't break what they do. And when we say don't break it, it's really don't break the culture, don't break the delivery of operations, don't break the relationships with the individuals being served. The don't break it approach was so operationally focused that a lot of times you didn't change PTO policies, health benefits, the technology being used, the ehr. So what that led to for us, we had a lot of strong individual companies, but even at that time, we didn't have a strong enough team on our side to standardize our technology platform, to standardize certain policies and procedures or benefit structures. Because of that, we let a lot of people run in silos. Anyone who's in M and A will tell you you can see exactly where the problems were going to start rearing their head a little bit down the road, which is now you can't do consistent reporting effectively. You can't use back office support people because every state has a different policy, procedure or process that they're engaging in. As we looked at those silos, some of these things come in sequence as a company scales and as we scaled, we had the resources to invest and better people had better insight as to what does a platform look like. We've really evolved in the last two years into a consistent set of processes and technologies and procedures. And some of those are still evolving. But as we have that platform that we migrate towards now, we've got to bring everyone onto the platform. That's where with our M and A committee, we start spending a lot of time saying in a deal, what are the terms or the issues that we would allow to sit outside of the Beacon platform or not? As we've kind of grown, our concept is called One Beacon. We're forcing all elements into one Beacon. And that even then gets into the cultural elements. That's where from an integration perspective, you've got to start thinking about not just, okay, this is what the new ERP H R I S looks like. That's easy. It's the when I tell them these are the policies and procedures. When I tell you this is the data you have to enter into the platform. When I tell you what your new title is because we want to have a consistent titling structure. Most of these people are just caregivers by nature. It's not a white collar workforce. This is a blue collar hourly workforce. And they are willing to sacrifice their entire lives to support people with caregiver challenging needs. They've worked for a mom and pop organization for years. Those people founded the business. They saw them every day in the hallways or come by the home at least once a week and it had that feel. So we've got to try to maintain that feel, that high touch, help people be seen, help them feel like they matter, help them know that what they do is important and say, and I still need you to engage in our process.

You got a lot of threads on this one. You got this managing this culture shock, I guess of its own for them to transition as this unsophisticated operator to being part of professional system. And you got your own initiative of really creating that standardization, which lends me to believe you got a backlog of integration work you're also tackling while trying to implement this sort of new go.

Forward, build the jet while you're flying it, that's where we are. And fix the jet that didn't fly behind you. It's a lot of balancing, a lot of internal communication to try to make sure we're addressing that. We brought a few of our seasoned team members over to be focused on integration and just project manage all of the various elements because so many of the people, we're not a large scaled corp dev team with people that are solely dedicated to accounting or HR training and therefore they're making sure those integration elements are there. We have a few generalists and then we're bringing in all of our functional leaders on top of their day job, on top of changing everything that they're actively doing to say, oh, by the way, learn how this company does it and then help me write a migration strategy from point A to point Z. It's a lot of complexity, but what we've gotten good at is being able to say here are all the steps now, here is what the playbook is and here's what a reasonable timeline is to get through those various elements. So there's a lot happening in real time.

Has your process changed now where you are doing more integration planning and structuring like in the diligence phase?

I laugh when people talk about the difference between diligence and integration because it's just one giant gray line for me. Once I feel that we reach a certain threshold of diligence that I have certainty that the deal's going to get through. Once we get through a quality of earnings, that's the first thing that can disrupt the deal. The numbers aren't there. The numbers aren't there. But once we get through the Q of E and once we get through some core licensing assessments, making sure that the quality issues aren't going to be problematic, I bring the integration team in immediately. Again, I'm trying to mitigate the seller telling everything twice once they start unpacking how their business operates. What are people's key roles, what are all the pieces of the business doing? Because keep in mind, a lot of times I'm working with sellers who do not want to tell anyone on the team about the deal until the day of close. You've got one knowledge party who's sharing everything with us and we're trying to take that person's word for how the business is actually run. Because they know in their space that if you open up and expose other team members to the transaction that it's very likely this is a very tight knit community and the business could fall apart. So we bring the integration team in early. They're listening to diligence questions up front, they're helping us write summaries, and diligence and integration pretty much run in parallel for the last 60 to 90 days of a deal.

Last 60 to 90 days, you got both diligence and integration running parallel. This is all before close. How long does your deal timeline take?

120 days is probably pretty standard because.

This industry is so regulated.

It's a highly regulated. Things don't happen particularly quick. You've got to get through the Q of E, you've got to get through the legal diligence and then you've really got to plan for the integration elements. The deal we just recently closed was a unusual situation because we actually entered a new market within a month of the deal closing in that new market. So we got licensed as a provider and we acquired the company. And because of that, I couldn't run into a situation where I was running the beacon platform here and the provider platform there in the same geography, with the same staff potentially going back and forth between programs. So we actually had to go through an entire effort to do all of the integration elements pre close. We had to get the sellers buy in to exposing this to their staff first of all. But then on top of that actually training everybody on all of the beacon platforms, all the beacon policies and procedures, everything Beacon before the deal actually happened. So that was a tenuous situation. But because of things that we had unpacked in diligence, I wasn't going to get approval to do the deal because I needed to mitigate some of the risk that we had identified. The Beacon platform could mitigate some of that risk. Some of the historical practices that weren't being done right. So it was just this hard line, and then you kind of walk into the door. A lot of times when you get these deals done and you get to close, the staff are very nervous. When we show up the first day and no one's ever heard of beacon, we'll spend two or three days holding hands with the staff, giving them FAQs, really emphasizing the things that are positive that we're bringing to the table. Hopefully better pay, hopefully better benefits, better pto, whatever it might be. We can win over a lot of staff in that regard. In this situation, we were having to sell everybody on the deal. We didn't know when the deal was going to happen, and the state actually pushed back the approval. So everybody got ramped up, and then they had to actually hold on for another two or three weeks waiting for state approval of the deal. And because of that, it led to a lot of tension. And we almost had to win people afterwards because they had to do all this work, they do all this training, and they weren't even sure the deal was going to go through. That is something I don't want to do again, integrating pre close. But we have to do a lot of integration day one because of the amount of exposure we have. And if people are not baked into our workflows of compliance auditing and quality auditing, certain things may pop up and have popped up in the past that we wouldn't have predicted.

So I got to ask you this. It's our moment to be real with each other. You've sort of more recently created this initiative around integration and the Beacon one. The thing I'm seeing is whether you're buy or build or roll up, you are going to get penalized on your valuation. This is the trending thing I'm seeing. You're going to get penalized on your valuation if you have a backlog of integration work.

We spend a lot of time because we're in the recap cycle ourselves at different points, and everything we do is with the lens of what do we look like as a platform in that next cycle? And there is a backlog. But fortunately we've gotten a really good team in place. Now we have a great cio. As we've built the platform for Beacon, those integration elements really start to accelerate. So there are still elements, but we anticipate by the end of this year Q1 of 26, that everyone that has been historically acquired will be on the Beacon platform. And at that point it becomes so much easier to integrate another company because it's not a what's the best practice? We do it this way in Pennsylvania, we do it that way in Michigan, we do it that way in Minnesota. What does the new acquisition need to do it? Let's let them keep doing their thing because we don't know which of those three we're going to end up doing. Now that we have the platform, it really enables us to be much more thoughtful and expeditious in our integration efforts because we're very aware, and we're absolutely hearing that in the marketplace too, that if people are a disparate set of companies and it's clear to a buyer that's how they're structured and they can't produce reporting quickly, that's going to really impact their future valuation. I was talking with a banker who they had a buyer, a large P firm coming in for a company and there was a simple data request. We want to see XYZ data core, KPI elements. It took the seller two days to produce it and it was very clear that that data was in multiple different systems and they had to scrub it and build it. And so the buyer of that company walked away immediately because they said, nope, we're not doing this transaction. It's clear that you guys are just a disparate set. So that is probably our number one focus from an M and A perspective.

It's the thing I've noticed now it's like people are really waking up to it and there's more emphasis. And part of my big picture dream is taking what we learn from these strategics that do integration really well, bring it to the private equity ecosystem and hopefully it improves their model overall.

Hopefully we'll see.

Let's wrap up with talking about tech. I know we've already talked a little bit about the diligence and you're leveraging guild room for that part. But when you think about your whole infrastructure, end to end pipeline through integration, kind of mentioned pipeline, you went through a scrubbing exercise. I don't know, just want to hear a little bit of walking through. How do you think of that, your system and what value it actually adds?

Been happy that you guys have rolled out a formal CRM now we're taking a lot of advantage there because to me a deal has a life cycle because originally we were using deal room till we reached a certain threshold in our transactions. And at the same time my integration team, it was being led by project managers, they wanted to run everything through smartsheets because that's just where they run everything and they're used to doing it that way. What I have found over and over again because when I was involved in deploying new tech within the company, if people have to go to multiple different places for stuff, they're just not going to do it. Being able to have it from the beginning of the CRM relationship of what are all the conversations we've had with the seller? So I'm actually using your plugin and Outlook to actually send all of my emails related deals to the deal room CRM. Then when I actually kick off diligence, I've got the history of information sitting in my CRM that then starts to feed into the actual data room and the request list and then working my integration team into all of the integration tasks sitting inside of the platform. I like it to be a one stop shop because that way anyone that I'm asking that has a day job as a functional leader for us, they know that if it's related to a transaction, that's the one place they go to find that information.

So centralizing your process basically the whole life cycle from CRM doing diligence with the data room and then integration. And you mentioned before you had stuff separated use smartsheets before you told me a lot of stuff was an email and was it OneDrive?

Email OneDrive. And we were using a platform called Pipeliner as our CRM at the time and none of it worked together.

Part of me is curious because I always get the question, even our sales team probably gets this question of like how do you quantify that? A lot of this stuff we work on building a business case, it gets rolled up to the CFO and it's very. How do you quantify the ROI here? You've seen it firsthand. I'm curious in your words, going from the disparate to centralized, like what's the real value unlock for us it's just.

The consistency in the data if it's all sitting there. Honestly, the CRM piece has been huge for me because we went through and scrubbed through 4,000 contacts that we had and we've scrubbed it down to 270 or something that have real data, actual data that we worked on the transactions. And so if I can find everything related to a transaction there, and most importantly it's the ability to then pass off the history, I may not be here tomorrow. I've got a really good guy working for me. He didn't have all of my historical knowledge, all the conversations that I'd had with these different sellers. To me, having the one stop shop of content allows no person to hold the keys to the castle and prevent the business from continuing to run effectively. My goal is always to work myself out of a job and by using the single source I'm not as important in a good way and hopefully I can then free myself up with my time to go be focused on something else. Because all of my historical knowledge and the IP that I'm carrying sits on top of the platform.

Programmatic M and A. You got a real system in place. Let's talk about AI. We dabbled in AI last year, built some first gen stuff that was around contract extraction. Now we look into this next year. About a month from now you're going to start seeing this next generation roadmap and it's a whole series of AI features. We've talked about this and now we're speaking pretty broadly. It's not just what we're working on. Obviously a lot of folks are exploring AI with all different kinds of tools and different use cases. I want to hear from you.

So I've gotten excited here lately because I've been enlightened a little bit. I'm the generation that bridges the digital divide such that I know what the analog and digital world look like separated from one another. And I'm anti social media, so I didn't want to jump on the AI train for a while and I was just heading the sand trying to say, oh, we'll see what happens. Lately I've had my team engaging in leveraging AI and we've literally tackled entire projects putting together playbooks of information that I had scoped out. Three to four weeks of work to be done and we did a screen share and we knocked it out in two hours better than we would have ever performed it. And that was scary to me. It's happening so much faster than people realize. I know that when your team was rolling out the AI function last year, I was looking at it. We did a scrub of contracts and key deal terms and that was helpful. But so much of what we do is very nuanced, unique. Like we don't have a million contracts to go through, we have a lot of vendor information. It's good to have it summarized. Our lawyers do it. I can see a lot of our lawyer work getting displaced very quickly with some of those functions. But I was like, it's not where I can see it being overly useful to me today. Where I have started to become enlightened is you start talking about these custom GPTs. So we have an issue around the privacy of our data phi HIPAA. I can't go sending stuff to ChatGPT in the cloud because I've gotta be hyper conscientious of that. But working with our cio, we're start talking about using Microsoft Copilot and building in the studio custom GPTs. The ability for me to look and create an AI agent that says, I want you to think like Harrison Thomas. Here are the KPIs that matter to M and A at Beacon. Here are labor ratios to revenue. Here are what census targets are today. Here's what they look like. Here's the thousand things I look for in diligence. Here's the reports I need coming out of my diligence. And then for that AI agent to start being a replication of me to do all the diligence work and actually create the reports based on the things that I'm always looking for in a deal, that's the evolution that's happening very quickly. When that happens, that's the piece that will open up people's eyes to say, oh wow, I can actually make a lot of what my intellectual property is irrelevant or replicated by the agent. And thus that output of data becomes very powerful to me. That becomes a. What does all that timing. Because now if I freed up myself and I freed up our time, where can we repurpose that? So it's an exciting, scary time. You better really think about what you're doing and what your skill set is and the value of the organization that you bring. Because much of that can be disintermediated with AI in a positive way for the organizations. And I want to make sure that we're kind of on the front edge of that.

Great example and so true. I'm excited to show you what's coming up next. So a lot of similar things we described building agents, but it's already built in the data room environment and we've been really focused on accuracy. That's the tricky thing, balancing taking in a lot of information, more information your AI model takes in, it just hallucinates and becomes inaccurate. It's really architecting for small batch analysis to be able to put things together in that unique way, to Keep the consistency of accuracy.

I'll be excited to see that. If you're not engaged in that, it's going to make so much irrelevant so quickly. But I guess as a human, I still have a little bit of relevance for a period of time because it's checking the accuracy, it's not allowing those assuming the assumptions are accurate. It's actually going back and double checking where the data came from. Whether or not that information is accurate or needs to be scrubbed. And particularly for us, so much of the data we get is inaccurate and needs to be questioned anyways. Those outputs will be helpful. I like it just because then it's stuff I don't enjoy doing. I don't want to have to go pull this data from a thousand different places and put together a little report. I'd rather it pull the report, let me go validate it, and then let me be thoughtful and strategic about what does that mean and how do we get the deal done.

There are some cases too. It's like, here's analysis that you just wouldn't be able to do with people. I had one deal I looked at using ChatGPT. You got to format it just right. But I did have it analyze 700 customer contracts, all the financial terms. And I'm like, look for the anomalies in these contracts. And it came back with a short list of 30 and said, these are decreasing revenue. They're probably the ones you want to figure out if they're return risk or what they did to keep them going. And I was just like, wow. Because even looking through it, it was not clear to see that pattern.

And that's where the prompting becomes so important. The ability as a human to understand how to prompt the agent effectively and actually interact with it and find those anomalies.

I'll tell you, the way we look at it is the way it's evolving, it's becoming less important. Yeah, the AI knows how to correct your prompts. I used to do that early days. It's like, hey, help me write a prompt to do X. Then you let the AI do that. I still do that. So we do that internally. We'll create a lot of prompt templates and it could be this podcast. Like, we will have a prompt template to extract things that relate to Biolet M&A. There's examples and they'll pull out one of the stories you've told and quotes and things like that. We'll use that for different types of content. We may assimilate different things together, but we have a template Pretty elaborate. It's like a couple page template to pull all that data out the way that we want it. So we'll start using AI for that to actually generate the templates so we have consistent extractions. We're seeing it the way it's evolving. It's like it's doing it for you. It'll change your prompt and kind of know and advance it and you don't even see it happening. I think that's what you want to get to. Things are just so you don't have to think about it.

There's things that I want to do and some things aren't working in the environment, at least in Copilot we do certain things in Copilot when we go do external research, we might use a ChatGPT, use a Claude, whatever and that can go find something publicly available. But when we're talking about the beacon data, we've got to keep it inside of our environment, which is a little bit constraining. But I think that the ability for us to then feed it historical diligence. What were the diligence items that I didn't. Let's feed all the legal. What did legal find on this deal? What is legal looking for in the deal? What did the Q of E look for? What were the things that were questioned in the Q of E? And for it to be able to ingest that information so that it's going this is the things you're going to look for already. And then to be able to scrub it and actually put out a summary of that, that's going to be scary when you can do that. I can't take it outside of our constrained environment. So maybe I'm jealous of the people on the listening in that can actually use the more broad based.

You know, if there's some cool tech company that figures out how to do this in the data room environment, they're probably going to come out ahead here. I got to ask you, one of the things that caught my attention from our previous conversation was you mentioned that you're acquiring non for profit organizations. Can you walk me through that? I'm really curious. I actually worked on a deal earlier in my career. Love to just compare notes about how you're approaching it. What are you learning from it?

I wouldn't tell you. It's my favorite way to do a transaction because there's a lot of complexity that comes with it. But there's a lot of good that's come out of our most recent deal that we did that way. Nonprofits Being converted to a for profit in healthcare requires a lot of scrutiny and overview. The first things first, you've gotta have alignment with management and the board because both of those parties are gonna have to effectively sign off on the deal. Management's not gonna take it to the board unless they're interested in actually doing it for us selling to that board. What is the unlock that Beacon can bring that the nonprofit doesn't? Just inherently nonprofits are going to move at a pace that's not the Beacon pace. We're moving very quickly at all times. But what I try to impart on them is that the mission that they're looking to serve, which is broadly to serve as many people as possible, because of our pace, we have the ability to do that much quicker than they can. We make the capital investments in getting new homes or new day programs or new sites. And we also are going to be an unlock for their staff. So if you have staff that are kind of stuck, the company serving maybe 150 employees or something like that, that rock star individual that works for you is not going to go look for a job somewhere else. They have upward mobility within our platform. So the scale that we bring is really helpful to the employees. Hopefully better pay and better benefits. A lot of times nonprofits have good pay and good benefits, but we give career trajectory opportunities to a lot of employees. And then the key other piece for us in the selling it to the board is just relevance. So I could go down a whole rabbit hole in health care of what does it mean to have scale and more importantly, have a seat at the table. So we're recording this right now. The House just approved a major Medicaid cut and our CEO has been in Washington meeting with various legislative agencies, helping them understand what is the downstream effect of a lot of the people that we support. And while they'll claim the Medicaid cuts are tied to work benefits, frankly, as the state budget gets squeezed, everyone that touches Medicaid is going to get hit in one way or another. And what we've tried to impart on these boards is that we as a skilled provider have an opportunity to not just manage things at the federal level, but really at the state level. When they're talking about managed care, they're talking about reimbursement changes or just advocacy for the people being served, or advocacy for direct support workers. Our voice actually matters, not that theirs doesn't, but we have a louder voice than they do. So all of those factors really play into, hey, there's maybe a, there There if there's alignment with the board, there's alignment with the management team, then it goes into a much more rigorous process. They have to have a formal third party valuation done. We're negotiating deal like we do normally, but they've got to prove that the offer that we're bringing in, it's actually worth something to someone. There's no private inurement, so no one at the board level or at the management level is actually profiting from the transaction. So a lot of times people go, transactions are hard enough as it is. Imagine layering in the fact that no one's really getting money from the transaction makes it a lot harder when they have to go through diligence and all the change management of integrating a company. And then even if you get through negotiating terms, the board, the management and everything gets to the point of actually submitting to the state, then you go to formal regulatory review. And the last deal that we did went before the attorney general at the state level. And if you've got the AG looking at it, they're scrutinizing everything. They're scrutinizing why the deal is happening, what does it mean to the marketplace, is it good or bad for the individual served. And if once you get through all of that, we actually, and this was my favorite part of the deal, the transaction proceeds actually went to a charitable trust. So the board created a separate board under a separate entity that manage those charitable funds or those funds into a charitable trust that was intended to then support people in the community that were already being supported by that company. So not only did we get to take over the company and the existing business support those people, we've now grown that business in a year and a half's time. It was a 30 year old organization and we've grown over 40% in a year and a half because we've unshackled the growth lock that was there. There's a lot of demand, but they were constrained by the nonprofit bureaucracy. Frankly, we unshackled the growth and then all those proceeds actually went back into the community supporting people with disabilities. I thought it was a very unique and fun way to do a deal. Two and a half, three year process. So was not quick. We laughed many times that the deal would never get done. So the fact that we actually got to the closing table, it was a lot of a celebration. But then some real work had to happen after that too. Because culturally that's one piece I didn't touch on. Is very different culture. Nonprofit. You've got to win people over. Because there's people that just say, hey, I want to work in a nonprofit. And trying to help them understand that their mission is still just as important, but they have more opportunity to do more of what they did under our umbrella. That's kind of the win that we have to work on.

Is there tax liability or things that come in play when you convert?

Yeah, there are certain things that they don't carry from a liability perspective that we do. So we had to go through all those different elements, little nuanced stuff, little state taxes. One of the things that kind of caught us up is they had contracts with no tax and that we then all of a sudden we have to pay the taxes that they didn't previously pay.

I was curious because the deal I worked on, it was already converted from a nonprofit to a for profit. But the part of me is like, well, they want to get some equity so realized from what they worked on. So I think they operated for so long as a not for profit, but then they converted it. That's what I was curious about, the whole process of doing it. Is this the M and A opportunity, converting not for profits to for profit?

We have discussed it. You would be a masculine to want to get into that space full time because that would be a very difficult way to make things happen. It is the nature of the hospital world, though. The majority of your hospitals are nonprofit entities and you have some for profits. And that's a whole nother rabbit hole of what that means. And there's a lot of scrutiny around some of that at a higher level. But from our side, I have a moral obligation not to do a deal if I don't believe the individual served will be better off on the back end. And that's part of what's really cool about what we do. We serve people. And our founder, he really imparted on me that we're a servant organization and that's how we should lead. And if we're not able to do that, I don't want to do a transaction. When we look at the nonprofit side, I go, can we make the company better? Are the employees going to be better off? And will the people being served being better off? And if that checks the box, I'm willing to tackle three years of work.

We'll have to save this for a whole other conversation. Maybe we'll invite our friends at Bayada who've done the other. They operate as a non for profit, but have acquired for profits.

That'd be an interesting discussion.

Yeah, we have to do a little roundtable around that. Hey, I got to ask. What's the craziest thing you've seen in M and A?

The craziest thing, and I've seen it multiple times, are when we've put dollars on a table to help retire someone and they want to sell their company and then they just don't answer their phone. And you'd be shocked how many times in our space people will go down the path. They'll even get engaged in diligence and then they just go completely silent. I've had seven companies and I mean that. Not from a genuinely not stuff that we had done that tripped up the deal. It'd be mid deal and they just decide they're not going to do a transaction. That one always confuses me because I feel like to engage in the process is quite painful and eventually just walk away from it without any communication at all. I think that that's one of the weird things about our space. It'd be a lot easier just to say, hey, look, I don't want to do a deal because of X. I want to keep working. And we have people that do that. But I've had six different transactions in the last year and a half where people just went completely silent. And that is the piece that seems a little crazy to me.

Get engaged and then ghost you before the marriage.

Yeah, they completely ghost us.

That's pretty wild. It's been a great conversation. I appreciate you taking the time helping me become a better M and A scientist.

I enjoyed it. Thanks for having me.

Those of you still tuned in and listening, you fellow M and A scientist, thank you and appreciate you always welcome the opportunity to hear from you. Reach out to me on LinkedIn. Like hearing ideas, feedback on this interview, ideas for other topics. I should be covering criticism. I get that sometimes. That's fine. I welcome it so I get better.

There's a podcast I follow and they do a thing where they ask them to roast them five star roasts. So maybe you should ask for the five star roast. They give them five stars and they roast them in the comments. People have gotten into doing that and they've shot up to the top of the podcast ranks.

I will take that. Give me a five star roast. That'd be nice. Give me five stars and a good roast. I would take that and welcome it and I would appreciate it. Till next time. Here's to the deal.

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