Why Decisive Communication is Vital for a Successful Integration

I'm Kisam Patel and you're listening to M and A Science where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and what actually happened during MA deals. In this episode, Jeremy Bacon and I discuss pre diligence and quick integration. Jeremy has 13 years experience building SaaS companies and is currently the co founder and CEO of Synapse Software Labs. With experience on both sides of M and A as an acquirer and acquiree, Jeremy brings a unique perspective to this podcast. He highlights the importance of pre diligence, how to mitigate uncertainty, and why it's advantageous to create value for the other side. Here's more on Jeremy's background.

My name is Jeremy Bacon. Currently I'm the co founder and CEO of a software company called Synapse Software Labs. We build post sales relationship management software. Our customers are customer success, account management professional services teams and individuals at B2B companies that are focused on driving recurring revenue reducing churn, building better overarching relationships and involving lots of different customer facing teams and stakeholders in the relationship throughout the whole lifecycle of the customer. That's what we do today. It's a lot of fun. Over the past I guess it has been 13 years I've been building SaaS companies so Synapp is one of many that I've started and run and love doing it. It's a big part of who I am. Before that I was in investment banking doing equities and equity sales and all kinds of fun stuff in that world and even some trading before that. Been in Chicago for 16 years and love it.

Great. Let's get a little bit into your M and A experience specifically. Can you run me through a little timeline about that?

Yeah, so I guess I've had the opportunity to be on both sides of the M and A world as an acquirer and as an acquiree for I guess the last just over 10 years now and through a couple of dozen different transactions in total. And a lot of those transactions have not succeeded in terms of a lot of those transactions have not actually closed. We've never consummated those deals and gone through with them and a bunch of them we have. So it's been a really interesting learning experience every time I've been involved in MA at any level on either side. In fact, I think when I was younger in school and in grad school did a lot of thinking about M and A and banking and that's why I started my career at Goldman Sachs. But you know, I think as with all things, your perspective on an opinion of an activity changes the more you get to know it and the more experience you have with it. And you know, I know in my own case, as it relates to M and A, my mindset has changed several times along the way. And I think I've gotten, you know, I've seen enough things and had enough bruises and bloody noses through the processes that we've run to come to a new and I think deeper understanding of what it means to actually run a process, sell a business, buy a business, and make a successful integration and transition. And I'm happy to sit here today and talk about that and share some experiences.

Well, let's touch a little bit about that. How has that changed from early beginnings to your perspective today?

Sure. When people talk about MA in general, we always tend to go back to this statistic that somewhere between 70 and 90% of all M and A ends in absolute desolate failure. Just things didn't work out. There's been a lot of work over the years done on the question why that is. Why is it exactly that transactions tend to fail? Some really good research that I came across a number of years ago out of Harvard and then it's again been resurfacing lately suggests that above all else, there's one major reason why MA transactions tend to fail. And that really it's a pretty simple reason. And when you think about it, it's kind of so obvious that we should all probably think about it from day one. But I can tell you from my own experience, I didn't. And yet I don't think you do, because it is too obvious. But the reality is that the reason that I believe most M and A fails in the first place is that because too many companies focus far too much on what they're going to get out of a deal versus what they're going to give to it. It sounds really simple, like I said, but it's true. I think it kind of follows along the principle of the go giver. It's a great book. If you've not read it, you totally should. But this notion that you get far more by giving than you get by taking. For me, I know as I've gone through a bunch of different processes over time, again on both sides of the fence is the buyer or the one to be bought. The transactions where we have focused from day one on, and I don't mean post sale day one or post close day one. I mean day one of even thinking about M and A as a strategy Those deals where we have been focused on what our organization could give as the buyer or the seller have always worked out far better and more advantageously and had better outcomes for the deals we've closed when we approached it from that perspective. And then importantly from a diligent standpoint, what's helped a lot of those transactions to be even more effective has been when we've been able to convince the other side that it's in their best interest to be focusing on what they're going to give to the deal versus what they're going to get from it. You find when both sides are giving to each other, you can build a much better relationship from day one.

It's interesting now it seems like from more recently I've been doing a lot of interviews with people involved in integration and it seems like you can definitely take that perspective into integration when you're really focusing more on what are you actually giving this company that you're integrating into your entity.

Yeah, I think you're totally right. I think there's a few really big examples that come up every single year where companies where it's obvious that companies are focused on the wrong thing when they did a deal. Oftentimes when you're entering a new market through acquisition, I think it's probably the times when it's easiest to see that the acquirer and the acquiree have gone into business together for the wrong reasons. Take a look at the last few years. Microsoft bought Nokia's mobile phone assets and Google bought Motorolas. Right. I mean Microsoft wrote off like 95 or 6 some odd percent of the value of the Nokia transaction within a year of closing the deal. It's $8 billion or something like that. And similarly the Google transaction around Motorola, they ended up selling that they bought the entity for 12.5 billion and sold it for just under 3. And for both of those organizations, their reason for buying those assets was to get into a business that they probably shouldn't have been in directly in the first place. You see this again and again and again across MA in general and like even like you know, back when News Corp. Tried to get into social media. Right. Grossly overpaid for assets. And what happens in the end you lose all that value and it destroys it and you lose your a bit of your reputation along the way as well as a business and as a group of operators and everything else.

Right. Well, let's talk a little bit about specifically your approach to diligence and what you learned.

Sure. So I think one of the biggest Lessons that I've learned over time is that when you do due diligence, it's about a lot more than just the DDQ and the data that you get in a deal room or the qualitative assets, if you will, that you pick up as part of that process. It's hugely important to review every contract and everything about the business on paper. But it's really, really, I think, even more important to review the business itself from the outside and from multiple perspectives. So one of the things I've always tried to do is, you know, if I'm in a situation where we're thinking about or planning to even think about M and A activity, I start diligence months and potentially even years before you're ever going to even go think about acquiring a company. So in other words, it comes down to this constant research on your space, on your sector, on the players that are tangential to you, on the players that are directly competitive to you, on the players that are in spaces you'd like to be but don't have a product roadmap. To get there. You really have to do a lot of diligence and understand what's going on and around your market and then tactfully get to know those companies before the possibility of or the option of M and a conversation is even broached. And you do that both directly as you know, Jeremy Bacon shows up and like gets to meet everybody and does stuff and you know, digs around. But you also do it indirectly through customers and customer visits and you know, independent surveys. And you can, there's a million ways you can go get a lot of information about businesses and learn about them that don't just entail like reading their website and talking to their CEO. I think that great due diligence and great process really starts early, early in the process and it includes a lot of people. So that's another thing I guess I would say is a lot of times you see, organizations will do all the due diligence with a handful of people inside the company, right? You'll say the C Suite is the only group that's going to be even aware that the M and A is a possibility and they're going to do all the diligence. And there's a lot of reasons to do it that way and to make sure that the executive stakeholders and the business can and should be involved in those processes. But the reality is the executive viewpoint on a business is always different from the operational and I guess ground level employee and teammates viewpoint perspective and so you've got to find a way to bridge that and come to a deeper understanding of what is actually going on at the company. So a CEO sits down with the CEO and you're going to have one level of conversation that will be valuable and good, but it's not deep enough. You need to be talking with everybody at the company in one form or another. Now, obviously most due diligence requires that you don't, as the acquirer, get the ability to go speak with all the employees because of course you need secrecy and privacy and you don't want to spook the troops and whatnot. But it's one more reason why it's super critical and super important to do a lot of pre diligence. Diligence. At the end of the day, if you've done your homework on a business that you're interested in buying, or if you're interested in selling your business to someone who you know, you want to try to find a way to get them to come a call in. If you've done your diligence and you know that business and you know the people and you know their customers and you know what's going on inside that company and how it's perceived, that conversation at the CEO to CEO level, it can be a lot more credible and it can also be, it becomes a great tool for both sides to use to really understand whether or not the other side truly knows their business or knows what their business can give to your business. Again, going back to this idea of giving is more important than getting in.

Ma it's interesting, it sounds like you do a lot of this pre diligence activity yourself or it sounds like you're heavily involved in it. I'm curious to know, are you bringing other people in at that time?

Absolutely. I think there's only so much that any one person can do. And I do think that the more people you can have involved in your diligence process, the better. But that doesn't necessarily mean that everybody doing diligence or participating in that process knows that they're doing due diligence. So for example, one deal we did once we had identified the company we wanted to buy literally a year and a half before we ever even approached them. And we were just watching them grow and watching their development and their product. The products they were marketing, that they were developing and marketing were really complementary to ours. And for a whole lot of reasons it looked like a no brainer deal even from 18 months before we actually started the process. But I engaged a Bunch of people at my company at all levels, from technical support people and engineers to salespeople and account managers, even our cfo to go out and kind of like be where the employees of that company were going to be, participate in the same events, befriend them, get to know them on LinkedIn. Right. Spend time with them and really get to understand that business. Not from the perspective I'm trying to get competitive intelligence on you, but more from the perspective I'm curious about your company and how it works and what you do and how you do it and how you look at the world. It's easier to do that when you're not directly competing, obviously with that business, but in tangential markets or tangential product lines where you're looking to add something to your business that can help you to generate greater value for both sides. It's easy to do that and get lots of people involved and they don't even need to know the purpose. And in lots of cases it's good that they don't. So that's a method I use a lot. Just have as many of my people as I can, get to know their people while I'm doing the same thing, but again, probably at a different level in different ways.

This is pre diligence or this is the early stage before we're talking terms or doing a deal.

That's exactly right.

And just really gathering some intel ahead of time, have a better understanding of what we're getting into and why.

Yeah. And again, the reason that I think that's a valid and good approach to M and A is because again, you want to know what it is you're going to be able to give that company when you approach them. So as the buyer. Right. I've always found it's easier to build a trusting relationship quickly if I can show up to you and say, you know what, Billy Bob, I've been watching your company. I really like what you're doing here is my understanding of how together we can be. You know, one plus one can equal four. Right. And it's incredibly empowering, I should say, for both parties to have a relationship that starts like that. Right. I can tell you. So one of the deals that we'd actually. This is a perfect example of a deal that we actually didn't end up doing. So, you know, we'd gotten to know this company for 18 months, knew everything, everything about them, knew their product, had used their product, had seen their product, had talked to customers, understood what they were doing, had a great sense for the Roadmap and where it would fit into our overarching business. And so finally, once we felt like we had enough and we thought it made a lot of sense, we engaged and I went to the CEO and said, hey buddy, we're really interested in helping you to take this product and explode and go much further than you can go alone. Because we have resources we can bring to bear and we have both human and capital resources. We can be prepared to help you out. And we ended up going into a diligence process, lasted 90 days, where we were doing hardcore sort of quantitative diligence at that point, right? Dealing with the deal room, dealing with all the audits and looking at all the numbers and sort of planning how we would execute and transact and then integrate the business. And along the way it was pretty clear, pretty early to us and we made it pretty clear to them that they had a whole new product line that they had been working on that we just didn't care about at all. I mean, it made no sense for our business. We didn't think we had the resources to give to them that would help them to really accelerate the growth and development of that business line. And we didn't think it was very important for our long term strategy and therefore for theirs either. And so we kind of approached them with that and said, the reality is this, we don't think this is going to be the right asset for us. And so we're not interested in doing anything with this one. In fact, our strategy is if we're not going to use it and grow it and develop it, we're going to shoot it or sell it because I don't want an asset that I can't use and it just sits around and then it creates confusion and uncertainty and stuff. And as it happened, the CEO was so wedded to that new business line and it was really something that he was passionate about and thought it was going to be the future of that particular vertical. He ended up walking away from the transaction because he wanted to put more energy and effort into that particular product. And at the end of the day, we respected that and we actually offered to buy the other assets that that business had instead and just say, great, you can go do that and we'll just take the business line and the products that we really like and move those forward. And it didn't end up working out for either party, but we had. But the process itself was quite good actually. I think everyone ended up walking away from the table a little disappointed that a deal didn't happen but with a good understanding for why it didn't and how that was. Okay. A lot of times M and A breakups are like relationship breaks up, you know, people walk away unhappy and sad and crying and boo hoo hooing. And this one, we walked away smiling and went out and you know, we're still buddies and had some dinner. It's fine.

That's good. So during the diligence process, you came to realize strategically it didn't align well and then moved out from there. What are some other things that you do in terms of here? We're getting into the deal terms and really approaching diligence because when we talked about pre diligence and it's hey, get as many people involved in doing that. But when it comes to actually diligence, I've heard the horror stories with large corporation throwing 50 people doing diligence on a 15 person company.

Right. Which is crazy. You shouldn't do it. Absolutely. So when it comes to actually doing the deal, working the deal, getting through the transaction, there's not a lot of people that are needed, certainly not. And where they are, they're not all needed for every part of the deal. Your legal teams, they need to do their thing and your accounting team needs to do its thing with them. Where you end up, I think needing and wanting more people in the room is when you're talking about how you're going to use your labor pool, where are you going to have redundancies and how are you going to deal with that? Are there ways that you can take those human capital assets and apply them in a more meaningful, more powerful way to again give both sides more out of the deal? And obviously during those processes, you need for better and worse, more people involved in that managerial chain to sort of help you make the right decisions about what you should do, how you can deal with that, and how you're going to deal with any fallout that could potentially come by disrupting a business that way on both sides, because M and A is disruptive. It's also why when you do go to close a deal and once you figure everything out, integration has to be quick. I mean really quick, otherwise you run the risk of destroying a lot of value that you could otherwise create.

Okay, so that brings up another point. I've heard different views in terms of approaching integration from this quick, fast, spread it over time or just do it later. And I've heard different reasons for each scenario. So I'm curious for your getting a little deeper in terms of why do it so fast.

I think that you want to walk into the deal knowing what you're going to do with the asset before you do the deal. Again, that's part of the pre diligence. If you walk into a deal knowing exactly how you want to use the assets, really the rest of the diligence process is just you figuring out whether or not your assumptions and hypothesis are correct. And if they're correct, then you've already made the plan. So executing that plan should be relatively straightforward. I think that you close the deal, you rip off any band aids that need to be ripped off and you just run. And people often think that because people are resistant to change that you should move more slowly and you should take your time and you should be thoughtful about how you do it. And you certainly do need to be thoughtful. You need to be cautious, you need to be aware of what you're doing. But it's not true that people are fearful of change. I think really what people fear is punishment and retribution. So the single most punishing aspect of change as it relates to M and A is uncertainty. When you don't know what's going to happen to you or your job or your post or your team or your product or your the company you've been working so hard for and you have this uncertainty that is punishing and that kills people and that kills motivation, it kills drive. And it results in everyone spending half their time thinking about whether they should be looking for another job or do they believe in the strategy or do they want to follow the new CEO or a million other questions. You don't want that. You want to be able to go in day one and say, look, this is what we're doing. This is how it's going to work. This is who it's affecting, this is why it's affecting you or your teams or your products. And the reality is, we've already made the decision it's going to happen. And the question that then everyone has to ask themselves is, okay, am I cool with that? But where there's no uncertainty, there's no fear. And I think for me, in my experiences it's always been less painful to be very open, very transparent, very abrupt and just get it done. Because prolonged uncertainty is just unbearable.

So be quick and be very open. Just put everything out there.

100% transparency is what you've got to do. And it sucks because inevitably some people are going to be hurt by the deal. Right? There's always redundancies, especially when you're buying a business that is A lot like yours. I think a lot of times the deals that are most effective and most value adding or added are those where you're buying a competitor or you're buying a business that is again, tangential to your own, that has a different group of products and potentially a different customer segment, but where there's great synergies in what you're doing, how you're doing it, and you want that market and you can give them what they need to blow that up. But inevitably, I mean, you're going to have redundancies across the board because you don't need everybody from both sides of both businesses to execute and to grow the business. That's one of the benefits of M and A. So as painful as it is though, you need to be able to walk into a deal, close the deal, announce the deal, sit your teams down that minute and say, here is who is no longer going to be part of the new business going forward, but here is what we're doing to help you and your team or your colleagues to transition into something else. I think the last thing you want to do is, you know, walk out of a deal where you just, you know, you let a bunch of people go due to overlap or for synergistic reasons or whatever, and then do nothing about it. Again, that's part of the plan, it's part of the M and A, it's part of the transaction, it's part of what's going to help the team that's left to gain confidence and build trust and really be excited about moving forward.

You've had any hard lessons doing an integration?

Inevitably there's always some things that go less well than you have planned for. Right? That's inevitable. One painful lesson I've learned a couple different times actually is it still relates back to the give versus get thing. But I've been involved in a handful of deals where despite the best efforts of me or my team or our bankers or advisors to get both parties to the point where they're more interested in giving than getting, we've not been able to do that. And as a result, a handful of deals have blown up that should not have blown up. Transactions that could have benefited not just the owners of the business and the employees of those businesses, but the customers and the industries that they're serving have fallen apart for reasons that are, in my opinion, unacceptable. Once you've sort of gone far enough down a path to growing your business via acquisition, it's really frustrating to see deals die over ridiculous things. People's Pride, people's desire for absolute control, people's own ego and selfishness. Those are the most painful deals to watch fall apart for everybody because inevitably ends up happening is over time, those businesses and the people who are like that and who sort of operate that way end up in a situation where they're either unable to extract any value whatsoever for their shareholders and their teams as a result, or they end up losing value over time and selling for a heck of a lot less than what they could have when the time was right.

Do you have any interesting examples?

Yeah, I mean most deals obviously are operating under non disclosure and confidentiality, but there are at least a half dozen cases of the deals that I've been working on, I'd say probably four where we were the buyer and two where we were the seller. There was one deal that I was involved in where we were going to be bought and the acquiring company ended up breaking up at the 11th hour. It was one of these sort of left at the altar stories. And what was sort of frustrating about it is that in that particular scenario, the acquirer had done all the diligence. They knew our business, we knew their business. We had a negotiated price, we had a term sheet, we had spent all the time, all the effort, all the energy, all the money getting ready to, to do the deal. And at the time we were working on sales and post close go to market strategy. How are we going to take these assets that we're bringing into the, into the mix and assets you've got and combine them to go do bigger, better, cooler things with our shared customer base and all this stuff. And as we got closer and closer to the end of the deal, it started to become more and more clear that some of the stakeholders on their side were far more interested in what they personally were going to get out of the deal and out of working together with our business than what they were going to be able to contribute to the deal and how they were going to help to leverage us, if you will, as an asset. And this wasn't like CEO to CEO problems or even C suite to C suite problems. We started finding all these points of tension and friction in other layers of the org and throughout the diligence process. In those last several weeks, things got increasingly complex and heated again, not because of anything that we were doing or saying, or not because any sort of invalid thesis had surfaced that meant the deal didn't make any sense. It was literally just a bunch of egos who started fighting with themselves internally about who was going to get to do what and whose name was going to be what and whose title was going to change to what and who was going to have the most money. And it literally became like a bunch of school children fighting in the yard over silliness. And in the end, there was so much ugliness there that the CEO on the other side finds, you know what? We're not going to do this deal because it's going to destroy us internally. Like, if we can't get our team together to get this deal done and to do what's right for the business, we're screwed. If we buy, it's going to fail because it's going to blow up internally. And so the deal collapsed on itself because the CEO and probably rightfully realized, you know what? My team's not ready to do this deal because we're not focused on the right things. That was an extremely painful one to go through and to sort of have to experience because it was wonderful. It would have been a wonderful deal for everybody and a great thing for customers and the broader industry. Industry.

I've never heard that the nuances of doing a transaction created so much internal friction that it blew up the deal.

Yeah, it was. I mean, it was really too bad. And it's not like, you know, it's not like this was not like the friction was coming from all the way down the chain or from people worrying about losing their jobs. It was literally like petty, silly, stupid things that ultimately killed the deal. And I actually take my hat off to the CEO on their side who was like, well, all right, clearly I've got some internal problems I need to work through and figure out before we can execute any deal, because odds are right, if we can't make this perfect deal happen, I would go try to do something else. Like, it's going to be the same thing over again. And subsequently, they end up making a bunch of changes internally over the next several months to their staff and their team.

I was curious what could have been.

Done to avoid that in this situation. We were the one being bought, right? So I didn't have access. We didn't have access to all the people internally at the acquirer that we would have liked to have known and met and understood and been able to build a relationship with. So that was one of these things, too, where someone's coming to buy your business, you are subject to their process, and you can certainly help and say, hey, what about this? Or maybe you should think about that, or, can we do this? But you're still subject to their process. And their process didn't allow for us to get in deeply with those teams until, as it turned out, too late in the process.

What if you're the other CEO?

The CEO who broke the deal? I think he did the right thing in breaking up. He still wanted to do the deal and he was as upset about it as we were because it would have been a great thing for his business.

You know, we didn't talk much about dealing with advisors. And we'll get back to some more stories. I'm sure you have some more. But I'm curious, I guess, what's your take in terms of working with different advisors through transactions and what you've learned?

Yeah. So I guess the short answer there is, I think it's important to have other people at the table that have seen and done more than you have. It's so important to draw on other experience and other perspectives and vantage points. So every time I've been the buyer, we've always had counsel, but it's tended to be more focused on the legal and accounting and finance and audit side than it has been on the strategy and diligence, sort of core diligence side. And that's mostly because investment bankers are awesome, but they're not operators. And so they understand the business as well as a car salesman understands the car they're selling. Right. Meaning they know the parts, they know the components, they know how to drive, they know what it looks like and smells like, but they don't actually sit in the dealership all day long. They don't know what customer flow is like and traffic is like. They don't know the problems of the business. And that's where only really an operating team can get in there and figure that stuff out. So as the buyer, I've never engaged a banker to actually help me run a process. On the flip side, as the seller, I also think you do yourself a huge disservice to try to self represent. It's like going to court without a lawyer. You shouldn't do it. Even if you have a law degree, you shouldn't do it. And that's not necessarily because the banker can extract more value from the deal. That's one of the major arguments that people use to argue for hiring a, a banker, oh, we'll get you more value or they'll get you more value, it'll happen that way. That's generally not the case. The price is the price and everyone always knows the price. There are obvious public and private comps that are readily and easily available. And price is much more a function I think of, particularly with the right attitude. It's much more a function of again, what can the two of us giving to each other generate over time than it is anything else. That being said, though, I do think it's important to engage a banker if you're going to sell a business. You just need to, if for no other reason than to help deal with all of the minutiae that's associated with finding the market, getting to the right people, getting meetings set up, coordinating all that stuff, helping you with your diligence deck. I mean, all those things like they, they provide invaluable service on, and you'd be crazy not to use their help.

I think, I think that's the challenge is having that sort of auction process and being able to present your opportunity to a mix of strategic financial buyers and just getting as broad view as possible. That's tough to manage.

Oh yeah, it's crazy. It's really hard. And the reality, as the buyer or the seller, you've got important things to be doing that are related to the deal, but you've also got a business to run or a unit to run, or again, depending on what type of acquisition you're working on, what type of deal structure you're working on. You have a day job, and that day job is only partially allocated to diligence and the process itself. So the more of that you can get out of your own hands, the better. So it's a good thing to do. So I definitely think that it makes a lot of sense and it pays to have an advisor and sometimes your banker will get you a better price. But again, I think price is the wrong thing to focus on as a buyer or a seller. You got to focus on value. And that's what it's all about. Identifying those value drivers that are really going to make a difference to your business and then identifying those points within a business that may or may not have value to you. Because business might have 10 points of value that someone could try to sell you on, but the reality is that maybe you only care about four or five of those points of value and the rest you just don't care about because they don't make sense for your business. Or again, you don't have the strength, expertise, balance sheet, network, infrastructure, whatever, to support those other business lines or assets or things, right? So value is always driven by what you're going to get out of a transaction by giving your own resources back to it.

So focus on value, not the dollar in the pitchfork.

I think so. I mean the thing too is obviously you focus on the number to a certain extent, but. But here's actually a funny story that I've unfortunately experienced a thousand times is every banker is going to come in and their goal is to sell you their service. And so they're going to tell you what they think you want to hear along with what they think you should hear. But obviously and self interestedly it's going to be focused on what they think you want to hear and what's going to make you choose them over everybody else. There are certainly subtle differences in the way that investment bankers work from firm to firm. And, and obviously some banks and some bankers have better networks than others and have more experience with people than others and are able to offer a differentiated level of service and whatnot. But at the end of the day a transaction is a transaction and a lot of the nitty gritty detail stuff is not handled by the banker anyway. It's handled by your audit team and your legal team and everybody else. So what always sort of frustrates me is whenever I've gone to do a bake off and decide which banker we're going to hire, it's super crazy frustrating to me to have the five or six or seven or eight different banks show up and all present me with a pitchbook that says, oh, we're going to get you, you know, I'm going to get you eight times sales, even though the industry standards three and a half or four times sales. Right. And of course they're telling you eight because they're like, it will end this crazy great scenario where some idiot buyer comes along and just gobbles up your company like we're going to get you a ton of value. And that happens, but it doesn't happen very often. And when it, and I actually would argue a lot of times, you know, when it does happen, it ends up being a bad deal. Right? People make money, so I guess that's a good thing. But it's generally bad for the business. And usually when people overpay for assets, when they're thinking about what they're going to get versus what they're going to give, if that makes sense.

How would you go about picking a banker? Because everybody comes in with their pitchbook, they pull off the data from Cap iq, Here's a potential buyer list, here's a forecast of what we can get for revenue. What is your real deciding factor in picking a banker to work with?

I think it should vary by dealing with, to Be honest. For me, I think the most important thing is the relationships that those banks have with the acquiring companies. So if I know that Microsoft's a good acquirer for my business, I want to work with a banker who has done a bunch of transactions with Microsoft, someone who truly knows how they work there. I mean, tons of banks have done deals with Microsoft, but there's a few banks that have done a lot of business with Microsoft. And even beyond that, I want to know, I want to do business with the banker who has done a lot of deals with Microsoft in the SaaS XYZ space. That's what I want to focus on. Again, just as if I'm looking for an acquisition target, I'm looking to do my diligence on my potential representative. And I want that person to know my business. They should know it cold. The last thing you want to do is spend your entire diligence process teaching your banker about your business and your industry and what you're doing and how you're different. Because the majority of bankers just don't know. And that's okay. You can't possibly know everything. So I think that picking someone who's got a very deep bench and deep specialized practice area focused on what you do is hugely important. And then they should have not just an understanding that Microsoft acquires companies, but they should know Microsoft acquires companies that are doing this and this is where they are going next. And this is why you should be going to using us to get there. Because I understand their side and understand your side and I can actually go help you make something happen.

So knowing your business and actually knowing the potential buyers, because that is a good point where you've seen that a lot of people are so focused on drumming up business, getting to know the potential companies coming on the market, they don't spend the time with these relationships for actual acquirers.

Yeah, exactly. I mean, in big companies, in some senses, the word the Microsoft example might be a bad one for a lot of people only because Microsoft has got teams of people focused on M and A and it's a whole department, a whole function, a whole thing. In a larger company, bankers who have relationships with those teams, that's one thing and that's good. But you're also looking for people that have relationships beyond those doors. Because it could be, if I run XYZ business practice at Microsoft, there's a team of M and A experts inside the company who are responsible for helping me to get the right assets for the business. The banker should not just know the people that are helping me in the M and A department, the banker should know the man or woman who's running the business that should acquire my business. So I think you're more likely to have a successful transaction when you've got that level of depth of relationship that you can rely on.

So just as a service provider to investment banks, a perspective I would throw in is one size fit. And I've seen this just, hey, we have some analytics on usage in the back. But if it's big bank and they're running a small transaction, you could tell they just don't give a shit they're thrown in there. So I'm curious about if you've ever come across that.

Oh, for sure. It's hugely important to understand where you fit in terms of not just fit as a business and product and market and customers, but like whether or not you're going to be important to that company. One of the earliest breakup stories that I ever had where, you know, we got dumped and it was obvious and after we got dumped, I was like, oh, I'm such a moron. Why didn't I think about this? Why didn't I think about this? So it was a big company, a billion dollar company revenue wise. So market cap, I don't care what they were, but it's a publicly traded company and they were billion in sales. So whatever the market multiple was on that in terms of market cap. But as a billion dollar company, we were much, much, much smaller. We were a $20 million business being looked at by a billion dollar in revenue business. And everyone was super excited and we got really deep into the process and we all loved each other and it looked really interesting and stuff. And we did everything except ask the question, what is it that we as in my business could actually give to the acquirer to help them out? We knew what they could give us. Distribution, resources, channels, partners, opportunity to just grow our business dramatically. But what we had failed to do on our side was ask, okay, what are we really giving back? How are we going to help make this thing successful? And how can we make it so that we become a significant part of the business? And the reality was that we couldn't have for a couple of different reasons, but mostly because our market, our niche, our vertical was just too damn small and it was never going to be able to move the needle enough. Even if we were growing at 100% a year, it just didn't matter because that wouldn't have been affecting their overarching growth trajectory enough to register and to really help them to get out of the deal what they needed, they needed to buy a business with a couple hundred million dollars in revenue, not one with $20 million in revenue. And so we failed to see it. I failed to see it because I was so excited about getting it done because I could see so much potential for how we could leverage their core assets. We should have seen it. We wasted a lot of time on that deal when we shouldn't have. It should have been obvious after the first meeting that this is not going to work for them. It's going to work for us, but not for them. And we should have broken up.

Right? So that's where size made a difference.

Size made a huge difference.

Other point I was going to mention that probably carries across the board in a lot of different areas, not just when picking a banker is culture. And that's something that we've seen where there's a big variance as you go bank through bank that they have a different culture. And even for us, it's certain cultures we can't work with, similar to certain companies can work with each other. And I'm curious if there's a way or perspective that you can actually look at that and say, hey, this is a consideration. And it might be so naturally that I feel like this guy's a friend and I want to work with him.

It's always a consideration. I mean, I think you can't weigh the diet of a deal without thinking about is there a cultural fit? And are we like minded as organizations and as operators? And I think getting to the point early where you understand whether you are a cultural fit or not is something you have to do before you ever start down the path of discussions about M and A. So in my mind that comes down to that pre diligence that you're supposed to that you should be doing all the time. Because if you spend enough time and have enough people at your organization spending enough time with people from other organizations with whom you think you might want to work, you'll figure that out. And if you've got good healthy culture internally, then your people are going to come back and tell you whether or not there's a problem over on the other side of the fence in wherever that other company might be.

So I remember Talking to a CEO a while back who's completed over 30 acquisitions for his company. And he told me one of the first and most important things early on, sort of that pre due diligence was to be able to walk through the company that he was Considering acquiring his office, just that walk through the office would give him enough of that instinct. If this was something that was going to fit and work, just seeing how that's laid, I'm curious what would be certain factors in terms of getting that culture or fit feel for you?

Totally agree with that. You should do it. And I think it's even more important if you're the one being bought to walk through the offices of the one who's going to buy you. And there's been a few situations, actually. I can think, I saw the head here three times where we were the prospective acquiree and I asked point blank, first thing I want to do is I want to go meet your people. I don't care how we do it, but I want to go meet. I want to see your space. They had offices in several cities. I'm like, oh, I want to go to each city, I want to go to every space. I want to meet people. I'm like, you can tell them I'm a prospect. I don't care. I want to go see your people and how they work and how they do what they do. And that's in situations where I've been denied that we've walked away because that in and of itself is a pretty clear sign that, okay, there's not going to be a fit culturally and. Or it's cultural because it's a way of looking at it, it's a mentality, it's a way of looking at the deal, and it's a mentality behind it. So I think your buddy who's done 30 deals, that's the exact right thing to do, go walk. But I think what you immediately find out and discover as you're walking through someone else's office is you do the people there, for better and worse, do they look and feel like the people at your office, inside your company, are they doing similar things? Are they behaving in a similar fashion? Do they have the same. Is it clear by hanging around the water cooler that these people and your people could be buddies? It's important. One of the coolest things about being able to walk through the offices of a business that you're looking at buying or that's looking at buying you, is you can immediately tell based on the people in the rooms, how they're situated, what they're doing, how they're talking, how they're interacting, what they're working on, how they look, everything, even all the way down to what's in their kitchen. It helps you understand, do these people Fit with our people? Are we like minded? Are there shared common points of interest that are blatant? As you're looking around the office and you get that when you're looking around.

You can tell, have you gone in a situation where you just instantly, this isn't going to work out. There's dirty dishes everywhere.

This is horrible. Yep. Three times or four times as a buyer where we've walked in and I've been like, this is not going to happen.

What was it?

So there were a couple different things. One was when we went on site to meet with the management team and this was actually before we'd even told them that we were interested in buying the company. The way that their executive staff treated and behaved around some of the support staff was just unacceptable. It wasn't like they were being jerks, but it was like there was this clear difference, at least in their mind about the value that they brought versus the value that the people that were helping out and shown up to greet us and work with us were added to the company. It was unacceptable. So that's happened a couple times where you're just like, this is definitely not who we are. And there's no way I could easily work with the person who's being belittled, but the person who's doing the belittling, like, I can't have it. And as it happened in those situations, we couldn't have done the deal or couldn't have made the integrations work without those people. So it was obvious it just wasn't going to be possible. Those are the scenarios that sort of got most of my mind is when you can just tell the way that people treat other people is just not in line with the way we want to treat our people and be treated. So that generally is a pretty good indicator. There's other problems that are going to surface with culture and personality and ego and stuff.

So it's probably the primary thing that you've seen that's been the biggest turn off.

Yeah. Really. It just adds personality, not just dirty dishes. Dirty dishes are frustrating, but I wouldn't kill a deal because of it. That's a behavioral thing. You can coach around that and get people to start taking responsibility for cleaning up their dishes. But the things that really get me are it's the human to human, the personal touch stuff. Yeah. Because that's unfortunately who you are. If you're that kind of a jerk.

On working these transactions, how would you view setting up a process to be able to manage all of these activities and things? That go on during diligence and through the integration phase.

First and foremost, for every deal, I think going into the process itself, it's good to sit down and build out a framework for how you're going to proceed with the deal, how you're going to proceed with the diligence, who you're going to get involved in, what parts of the diligence and why, where you think it makes sense. So you absolutely have to do that level of preparation. And there's a bunch of different frameworks that exist out there. You can find templates on the Internet all over the place for how to structure your deal and how to think about your due diligence and all that kind of stuff. So you absolutely have to do it. I think you also then have to communicate very early in the process to the people who you're going to want to be involved in that true diligence. Right now that we've announced that we want to go do the deal to help set and align expectations for what they're going to do and what they're not going to do. In many ways, when you're conducting due diligence, it's a lot like you're hiring a new employee, right? Except that you might be hiring hundreds of new employees or thousands of new employees at the same time. And although it would be wonderful to meet every single employee and interview them all before you do a deal, deciding whether or not each department in the business you're going to buy is ready and could be made ready to work together and where those synergies are is, quite frankly, not the job of the CEO. It's the job of the people who run that department on both sides of the house, right? So if you have a professional services team and the company you're going to acquire has a professional services team, the heads of those two teams are the ones who should be figuring out how those units are going to come together. And the two Chief Revenue Officers should be figuring out how they're going to be coming together to build a better us. And the heads of finance on both sides need to be working together on not just the diligence stuff and the numbers and the disclosures, but they need to be working together to figure out how do we integrate our operations, billing and finance teams to, like, again, have the absolute best possible business that we can. And so that's all part of a process that needs to be very carefully managed. And so you can have a framework that helps dictate what we're going to do, how we're going to do it when we're going to do it. But then the more difficult part of the process is actually keeping everybody on the same page, ensuring that the parties from both sides feel aligned and properly incented and that they understand exactly what is expected of them and what is hoped for via the transaction, if that makes sense. So I think some of those less tangible, sort of more squishy, more qualitative parts of the transaction process are in many ways more important and more valuable to getting a deal done right now.

Connecting these parties together, running these common divisions during diligence. Is there a challenge to that? Because what if you're going through some sort of stealth acquisition where not a lot of people know about it?

I guess my answer there is. Again, it depends on every situation. So there might be situations where everything is so stealth that nobody knows. And you certainly see those types of deals all the time. Companies get acquired where very few people know about the deal at all. I think most of those situations, though, where very few people are involved tend to be done with the intent to continue to run them separately. So it's like company A buys company B but leaves company B to do its own thing largely. And there's interaction, but it's mostly at the top, if that makes sense. Those types of deals you can do more easily with fewer people. But when you're buying a business that has overlapping assets and overlapping functions and overlapping product, and particularly if it's a competitive deal, you run a bigger risk of having a hard time ripping off the band aid and integrating the business successfully. If you don't have the right people involved in the process early and the reality, it's tough, right? Because if you're the vice president of sales for the company that's being bought and you're being told to sit down with the vice president of sales or the company who's doing the buying, odds are your role is going to change. One of those two people is going to have a role change. And it might be that the acquiree becomes the new CRO or something like that, but there's uncertainty there. But that's also why you have to have a team that's solid and a team that's mature enough to be able to handle that situation. And if you don't, then you shouldn't be doing MA in the first place. Because you need to be able to know that your team is going to be able to have those kinds of conversations and figure that stuff out and do it with the best interest of the company. In Mind. And it's hard for people to say, oh, you know what, this is great. I really think the guy that we're about to buy is better at this job than I am. But those are the kind of people you want on your team. And the reality is, as the CEO, you should be good enough and know your people well enough and be a good enough judge of character that you could also figure that out during that process too in your interactions with the other VP of sales, or just as an example, and then be able to go to your own guy and say, look, look, love you to death, you're awesome. Let's find some other way for you to contribute more because this guy's crushing it. And by the way, we need him more than we need you in this role right now. So what role can you play to help us be successful? I think that's a lot. Again, that's part of the diligence process and it's part of the transaction.

It seems like one of the most important things to facilitate successful diligence integration is this key component of communication. All these problems and issues come back to communication. How do you facilitate that in a way just to really ensure things get communicated clearly and, and people are aligned? To make a project go successful, I.

Think you have to be in touch all the time. It's one of those things where, I mean, for better and worse, the more face to face interaction the deal team can have throughout the process, I think the better it goes. And it takes a lot of time. It takes a lot of time to make sure that every single day or every couple of days, you get everybody in the same room and you talk about what's going on and who's doing what and how it's coming together and what the order weaknesses are and the questions are and the concerns are. That's what we always used to do in our deal room, right? We'd have a big whiteboard and we'd have the process out there and our concerns about divisions and departments and stuff and things that could go wrong, things that could go right, and our timeline also on the wall. And every day we talk about, okay, where are we at? Jill, you're responsible for this thing. How are we doing here? These were our three concerns. Have they been allayed? What's happening? How do we all get on the same page? Whose help do you need to go? Continue your assessment of this, this particular area? Like, you have to do it right. You just need to roll up your sleeves and get it done. It's a ton of work, but you got to do it.

So just pushing a lot more face to face meetings, I guess. Anything on the technological side, I know one thing for our company, we've adapted Slack. I don't know if you guys use that, but it's this huge where it's just constantly getting the stuff, especially with the team across multiple time zones where, okay, let's not rely so much on us being in the same room at the same time to be able to have some effective communication. You know, mentioning the thing, the stickies on the board. When you got a project that's complex enough where you have thousands of items, I guess how do you go into a layer of managing that without going overboard, Picking up a tool that's so complicated that people are just running like hell from it.

You want simplicity, right? So we use Trello for deals all the time. It's white. You know, sticky notes on a digital board is a great way to do it. Slack and other chat tools I think are a great way to stay in touch on stuff. As a little bit of a sidebar, I think they're so noisy that in general, I think chat tools are too much noise, not enough substance, but it's certainly a great way to keep in touch on stuff. So you know our thing using the combination of a digital tool, right? Like a Trello or any other. I mean, heck, you can use any project management tool, quite frankly to like build a project and keep your notes and your cases on it and have people comment and do stuff. I think it's important because again, you want to hear everyone's voice and you need everyone's voice. So keeping everyone on the same page is a combination of email or chat apps. It's a plus. Digital tools to keep track of, you know, who's responsible for what and what your questions and concerns and items for diligence actually are. Obviously using a deal room is an important factor in the, in the overall consideration and the overall equation. The place to go access all of the diligence materials that have been provided for you by the buyer or the seller, as the case may be. All those things are important. I don't think anything sort of trumps. I think the best way to sort of ensure that everyone is processing all that information is you have to talk about it.

I think you're right on that. Because the biggest disconnect I've seen in just working with firms is between the diligence, especially large enough corporation where there are separate entities, a full team working on diligence, and then maybe you see a completely team working on integration or maybe they mix the two together. But then there's still other gaps that happen for the people actually executing on integration work. And it just seems like there's always this gap as soon as closing hit. Here's all the stuff that was popular in the data room that just, just didn't get transferred over to the rest of the team that's executing on the integration stuff. It just all tax attorneys, guys doing the filings and all these things. They're repopulating all this stuff from scratch. That's always been the interest is we don't have this kind of workflow that carries that stuff through. But yeah, it seems like part of it too is just keeping people aligned through that process.

Yeah, yeah. It's why you have to have that framework and the templates. It's a project so start to finish. Whether you're using Waterfalls and Gantt charts again is less important than having it laid out and structured and knowing it's also. It's a living breathing thing. Right. And every deal is different. So you might have a great template that works where the 80% or 90% is fungible into the next project. But you're always going to be creating new stuff to think about. You have new angles from which you need to approach a deal and look at diligence. But I do think there's to not have a hybrid and I think it's digital paper and sort of face to face communication process in places it's tough to get people on the same page. The larger the number of people involved in the transaction, the more difficult it is, but the more essential it is to be open, transparent and talk a lot.

What about prioritization of things during the transaction? I mean that's been one of the things that we focused on at a point that's helped us achieve a lot of optimization was just being able to continually look at things and prioritize.

Yeah, I think it's important that when you're looking at the overarching project plan that you allow yourself to be flexible to shift priorities because inevitably they will get shifted around and you might end up in a situation where you do something that you thought you were going to do three weeks from now, this week or today versus three weeks from now because of something that somebody else learned or saw or a piece of information you unearthed as part of your diligence or a conversation you had with a person at the firm. You need to be flexible with regards to timing, but you also need to be rigid in the overall process. Meaning that you should never just skip over something and say, oh well, of all the things that we're supposed to get through during this deal, these two items are the least important. Therefore we're just going to let them slip and not bother with them. It's always the stuff. Inevitably it's the stuff that you didn't look at close enough or at all that comes back to bites you in the rear end. So reprioritizing is important, moving stuff around is important, having flexibility is important. But making sure you actually do it all, get it all done during the process is critical.

Going back on the deals and just reflecting back on some of these transactions we talked about, what are maybe some of the things that you would have done differently on some of your deals?

If I could go back to my very first deal all over again, it sure would be great to have more experience than I had going into that first one. Like all things in life, I wish I knew that and what I know now. But of course you don't have the benefit of hindsight when you're facing something for the very first time. But I think for me, again, it kind of comes down to this notion of giving versus getting. And I think my earliest interactions and experiences with M and A, I think I was too focused on what value was going to be extracted from the deal versus created by the deal. And until I kind of learned that and started thinking about those transactions the same way that I would about selling something to a customer, where when I'm selling something to a customer, I'm always focused on the value they're going to get versus the value I'm going to get. Again, obviously it should be the same when you're buying or selling a business. You want to help the person in front of you get more out of the transaction than they either think they can or that not necessarily just financially, but you want the person aside sitting across from you to always get the most out of the deal or feel like they got the most out of the deal. In my earliest days of dealing with this stuff, I didn't think about it enough. I was too focused on it. What's the total value we can extract from the deal versus the total value we can add to the deal. And it would have been helpful in a few situations early on to have had a more mature vantage point there and a more mature viewpoint. Another thing that I would definitely do differently. So I would have made sure that I had the proper resources at my disposal. So the first couple times that we were either doing deals well that I was doing deals as a buyer or a seller. I was under resourced. And whenever you're under resourced, you inevitably take your eye off the ball and you can only do a great job at so many things at a time. And so it's important that when you're doing deals, you allocate the right number of resources, the right amount of time, the right number of people, the right amount of money to a process to get it right. Because it's not worth doing if you're not going to do it right. And so that's another lesson that I learned along the way, that if you're going to do it, you got to make sure you've got the right number of people in the room and the right number of people involved. And I did a couple deals where we got them done and they were okay. They worked out well in the end, but we didn't have nearly enough people involved in the process for the first couple deals that we did. It just made it harder. Harder to get done. Hard to get done right. Took longer than it should have because too few people were doing too much stuff.

Thanks for tuning in to MA Science. I'm Kisan Patel and you just listened to Jeremy Bacon with Synapse Software Labs. We hope this episode provided valuable insight into MA transactions regarding pre diligence, quick integration and value. If you have interesting MA stories or suggestions to share, reach out to me. You can find my email in the show Notes. For more resources, including links or tools mentioned during the show, visit dealroom.net podcast. Join us next week when we uncover more secrets to successful MA transactions. This podcast was brought to you by dealroom. Deal Room is a technology company that helps corporations on both the buy and sell side minimize risks and maximize value on MA transactions. We take the mess of data rooms, spreadsheets and emails and replace it with one easy to use process management tool. This results in big improvements in collaboration, security and risk tracking. Learn why Deal teams are switching a deal room@dealroom.net all views or opinions expressed by any individual in any form of communication on this podcast, written, oral or otherwise, are personal and do not represent the companies, firms, institutions, organizations or otherwise that they are associated with.