Winding a Business Down

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Pretty good, thanks. Thanks for having me. Kishan. Pleasure to be here.

Pleasure to have you. Can we kick off with just a brief overview of your experience with wind downs?

Yeah, absolutely. So as you, as you. You know, thanks for the intro as well. As you said, I've been doing M and A for a while now. Just like a lot of M and A professionals. You know, been doing the divestitures as part of IT as well. But wind down is something that just came, you know an opportunity came to me, actually a couple of them came to me recently. And it's something that I try to figure out, how is it different? You know, then let's send a divestiture or something else and wind down is little different. It's not a divestiture. It's something like for example, the business unit or maybe it's a product line that's there in a company. It has its own P and L. And for multiple of reasons there is a need maybe from the long term strategy for the company to wind down the business. So we are not divesting it, we are not selling it, no carve out. But it has a bunch of customers. Maybe it has some products, some cases depending on the vertical. There are some manufacturing implications. So yeah, it's pretty interesting. You know, it has a whole gamut of things that you got to take into account, customers being one. Got to be very careful when you're calling a customer and telling them that hey, thanks for buying stuff from us. But you know, we are probably going to shut down specific product and the services that go along with it. And you know, so it's kind of an analogy. It's a dissembling, do it yourself furniture. You're dissembling it, but has to be done in the right order. So yeah, it's been quite an experience.

So it's not as simple as just turning the off switch and cutting it out. It seems like there's more things to navigate and just sensitivity around it.

Absolutely. Yeah. I mean, I wish it was that simple. Right. But I think the day and age we live in, a lot of things impacted in sensitivity. As you talked about around the employees. That's number one. You have to really figure out what it means for employees who are specifically working on that business unit or the product line. Then there are things around the customers. How do you make sure the customers are in the right place? You transition them off to another vendor or another product or better yet, if you have something else for them to take a look at. And then there are things around the contractual obligations, manufacturing implications, you know, the sites, the legal entity, I mean, you name it. It's basically like running an M and A but in a reverse order. So there are a lot of things to look at.

What are some reasons a company would do a wind down?

Yeah, it's a good question. Depends on a lot of things, I guess. Important thing is what, what is that business unit or the product line or what are we trying to wind down and is it specifically to do with the, you know, let's say you did an acquisition and acquisition didn't work out, right. And you tried everything, you had tried to pivot the solution or the product or the service, or you tried to bundle it with existing product that you have. Maybe there is a change in market environment, you know, there is a decline in revenue. You try to figure out any course correction that you can do, right. And maybe that doesn't go through. Maybe there is a completely complete switch in the company priorities. Right. Company probably or the corporation which is doing that specific wind down, they were doing some, they want to go and do completely different off tangent and whatever they have, it makes sense for them to focus the resources in the right place. So that could be another reason. So there are several reasons, right. I think at the end of the day, as a CEO of a company, CFO of a company, you got to really bite the bullet at some point and figure out what their goals are for three to five years. And how do you then make sure all the resources that you need are used in the right way, especially if the specific business unit is bleeding cash? We tried several ways to try and course correct and didn't go through. So I mean that's the reason. And in many cases you would see a divestiture, but you try and see if that's possible. If not, then you're left with really little options to wind down.

So ultimately you got a business line that's not profitable and that you may explore divestitures prior to looking at winding the business down. And even with that, there's factors that sort of drive that business line to be unprofitable, be it changes in markets, regulations, et cetera. And that sort of seems to be the main drivers for ultimately coming down and saying, hey, let's just wind this business down. There's really nothing else we could do.

Right? Exactly. And I mean all I'll just add to it is I think from my experience so far, it's a tough decision. Right. And the implications all around and you know, you don't want to go out to the market and also say that you're going to stop something. So all, all of the, about that you just said all. Once you figure out nothing of the bar is going to work out, then you basically have to do the wind down.

Yeah, got it. How should you approach a wind down in terms of planning?

I think as I mentioned there is. When I, when this couple of opportunities for me to lead came up and I, you know, I went around and looked at all the being in the industry, I know all the experts, right, from a perspective, or at least I think I do. But the delights of the world and all the management firms out there, there is no playbook that you will find for a wind down is what I quickly realized. So there isn't a playbook. You're basically trying to decouple the business unit or what have you that what the case might be. So it's like any planning exercise, right? It's really, really important to identify the critical path, right? So what's the critical path? If you want, if you. Once you know what the scope of the wind down is, what's the critical path for us to go there, right? It could be several things. It could be, you know, customer obligations. You might have sales contracts with customers which basically won't just allow you to just say, well, you know, this is the date and we're going to wind down. That could be one reason. There could be reasons around that end of sale, end of life restrictions on the contractual documents, right. That you have with the customers. And again, I emphasize on the customer here. I think it depends on the customer too. If you are talking about software company who's trying to do a wind down, I mean, I'm not trivializing software in any way, shape or form, but I think it's not as compared to, let's say you're trying to wind down a business in a life science or a pharmaceutical company as a customer. Because there are clinical trials that customers are running and they have, as you can imagine, millions and millions of dollars invested in the RD and there is a reason why what they're doing and you can't just pull off from there. And that's why you have this contractual contracts, right? Legal documents which will make sure that you have to really carefully look at. You know, there are also in some cases, depending on the scope and where the employees and the manufacturing sites and the legal entities are, you know, you've got to look at labor laws, right? The employment laws and labor laws, which are very country and state specific. You know, maybe if I might just say things are little different in Europe versus Asia as opposed to United States, right? So there are those things that we need to take a careful view on as to what makes sense. What, what is our, you know, the critical path on each of them. There are other things which probably fall in line. There are regulatory or data archival things that you need to take a look at. You know, how long do we need to keep the data? Is there any IP that is involved in Intellectual property that that's there that we need to harvest and keep it for some other reason. Right. So what does that mean? There are financial benefits? I mean, the CFOs of the company will definitely want to weigh in and say, well, you know, if you do it this way, there are some benefits to be had. So I think the finance team does have a big say. And last but not the least, I'm sure. I mean, those are not really critical, but the system changes, right? I mean, a simple example depends on how integrated this product line or the business unit is with your corporate systems and your corporate architecture. Right. So if it does mean that you have to do something specifically where, where you have to have a product release or a software release, so those things have to be accounted for. And there are quarterly releases and monthly releases. And I have an IT background, so I know that plays heavily in some of those timelines. So those are like the factors that you would really think about when you talk about in terms of planning. Right. When you sit at the table and think about, okay, so what does it mean? How soon, how fast can I do this? And what implications we have? So I think depends is really the broad answer if you consider all the factors.

Yeah, it's interesting because it sounds like a lot of it depends on ongoing obligations. You use the example of your customer agreements where you may have some specific clauses or terms in there that really obligate you to provide some extended, you know, prolonged service commitments. You mentioned employment, labor laws, because everybody's a big fan of the EU labor laws, different European countries and so forth that may hold you obligated if you, you know, in terms of some sort of incentives for the staff that you're letting go and things like that. And then I think archiving is another general one. So, yeah, it's interesting how a lot of the planning, it's actually not so much of a, you know, here's a task list or like you mentioned the playbook just to go down, but it's a little bit more, what are actually the ongoing obligations and planning around it? Is there a certain approach when it comes to prioritizing that? Like, is there certain things that, hey, let's really focus on the customer aspects first. Or how would you just prioritize some of those factors you mentioned?

Great question. I think depends on. Depends on those things I think we've talked about. Right. So you need to figure out, I think in my case, in my example, right. You need to figure out what's that long pole in the tent? This Is really the, if this happens, if I reach this milestone, then I think I'm good from there. I can really then execute on my plan. So I think the prioritization of it is really dependent on, let's say doing a contract review of all the customer contracts as an example. And you find there is a clause in there that customers would need 12 months notice before you can tell them that you're not going to sell them this product or the service. So that then becomes immediately your 12 months, you know, ticker. Right. So you then you know that if I do it now, I need to keep everything going for 12 months. I need to keep my R and D going, my production going, my support, everything needs to grow and keep clicking them. There might be another case where, let's say we talked about the labor unions. Right. In some countries and some states even in that case where you have to really think about, okay, so what are those timelines? What are the documents? What are the things I need to bring to the table to satisfy what they need from their perspective? So that's a big thing too. And you've got to do good with your customers, you got to do good with your employees at the end of the day because in this case it's not shutting down the entire business. And the wind down we're talking in this context is about a specific business unit, a specific product line which entails that your company is still there, you're still selling products, still selling services, but not in that space. So you still are going to have some of those customers come and buy your products, other products. Right. So there is that overlap. So those, those kind of decisions again, I mean, I wish I could just say that these are the priorities, but it depends on so many factors. Right. And which makes it much interesting I think as a project overall as well.

This is good. I'm looking forward to getting into the part about how do you avoid the actual friction because sounds like there's an art form to that. But before we get into that, can we touch on what actual resources or functions do you need? I think a lot of us are familiar with the M and A process where you bring in a multitude of operational functions and doing the deal. What does that look like from your lens when you're winding a business down?

Yeah, I mean, I'm again going to use the lens of our M and A. Right. A normal IMO integration management office that we set up for any deal or any acquisition that we are working on. I mean, same set of functions broadly, I think are required. You'll have your sales and channel, you'll have your product marketing folks, you'll have HR for sure because there is going to be an impact on the employees one way or another. Then you also have your it, you have your finance, legal. So a whole gamut of all the functions that you usually have when you are thinking of planning on doing acquisition integration. So those are all there. Again, it depends on. Let's say in some cases there might be a wind down that you're doing which don't have customers yet. It's still an R and D, you're still doing product development. And then it becomes much easier. In that case you don't need a sale, you don't need, you don't need your customer support and product marketing and all those things that are really after you are out there in the marketplace selling the product. So those are defined by what the scope of it is. But you definitely need all those functions at the table. I think there is a little bit more difference between IMO and the functions that we bring in. And this one here is because I think in M and A, I would say, you know, it's more exciting, there is a little more excitement, right, that you're actually acquiring a company that is excitement on the target, there's excitement on the acquirer. In this case it's little more not so excitement. Right. And there are things that you got to be very careful about. So the thing that I'm trying to as I'm drawing the parallel between normal M and A and wind down in M and A I think you have a much larger group of people working on it as opposed to on a wind down. You want to really keep it at a, you know, as really at the minimum that you can keep at given the sensitivity behind the topic. And you have to have certain hurdles that you need to pass before you know that it's happening. So yeah, I mean all the functions as I said are definitely needed. And then there might be one example which is very critical in this case in my experience now has been communication. So comms is there but you usually tend to use your normal comms that you have for normal M and A project. But in this case you need different kind of comms. You need comms that go to the market to the industry. If it's a publicly traded company, there are comms that go to the employees that comms that go to the employees who are not affected. So you got to have that piece which I quickly found out that we didn't have in One CSM had to go back and get some help in that regard to build the comms.

So structure not as intense as integration. Similar in terms of people. You get involved from various functions. Not as exciting because you're not acquiring, you're winding things down. I do have an interesting question that aligns with this. What is the last function that is shut down? Who turns the lights off as a business is being shuttered?

Oh wow, that's a great question. So I think in one of the cases, I think the last function, if you might call that is wps, the workplace services function. Right. And they are really the ones who are looking at it as. And when they know that this is happening and we bring them into the project, they're looking at it. Okay, so what does it mean if you are not going to use the facility, the site is also going to be wind down, you know, or shut down, if you will. So what are we going to do? Right? What's the lease on it? What are the terms on the lease? When you buy that site, are there any things that you put in there which now we need to dissemble again? Right. There are things in there in case of, let's say Life Sciences or a company like Agilent for where I work right now, right. In those cases you have things like, you know, applications and different huge devices that you need to then think about. Okay, so where do I ship them? There are documentation. So usually it's the workplace services who are the last, you know, tail end of the. Come back at the tail end of it and do a lot of work. But again, you know, there is a legal entity discussion which we may get, we may get into later on, but that's a separate topic completely, right. That legal entity has so many different cross functional elements to it. So everybody's there but one function. If you ask me, it's workplace services who actually literally turn on the lights and the keys and we're done.

What are some of the other obstacles, challenges that you face?

There are actually a lot of challenges. Essentially, you know, if you, you know, you can plan as much as you can, right? But then there are things that you don't see ahead of time. And one classic example would be the pandemic situation we are in right now, right? I mean we like for everyone else there are things that nobody has seen anything like this and there are implications that come through it, right? There are HR implications, there are human implications, there are implications around. Let's say you're doing a manufacturing build based on how much Product you need to build, you know, it at the upfront. But then suddenly the pandemic happens and nobody's allowed to go to work, right? So then all those plans go up in the air. So that's one. There are other implications you have to be very careful of. I mean, you can plan the best you can, but again, there are things which can go sideways, especially around pr, right? If you. Bad pr, that is something that you've got to be really, really careful for, especially for publicly traded companies and for anybody, to be honest, but especially for companies, you know, which are publicly traded as well as they have to be careful about implications that are going to be happening to the employees. There are shareholder implications. So you, as I said, you can plan for everything, but almost every time there is going to be something that's going to pop up. So you got to be very careful about it. And then the last is the legal, I mean, the legal aspect of it. I keep on harping up on it, but I think it's something that you've got to have a strong legal team, advisors especially, because everything that goes out, every comm that goes out, everything that you're going to talk to the employees, the customers, has to be vetted out from legal perspective. And if not, that can have ramifications which we don't want to get into.

Have you seen that happen where all of a sudden there's just some post lying down and then all of a sudden some legal issues come out of it?

Not to the effect of legal issues, but I have seen some things where, you know, as I said earlier, right, you got to look at all the contracts. There are contracts not just with the customers, but you tend to have contracts with the vendors as well. Right. And in a larger company, depends on the company. Again, it depends on the vertical you are in. But as much as you are dependent on the vendors, the vendors are dependent on you as well. So there are those implications that you got to be careful about. And if not you, you might be surprised. I mean, there was, to answer your question directly, there was a surprise that we did not account for because there was, you know, things that we did not know that popped up after we started talking to a vendor. And the vendor had a clause in there where we had to, you know, buy a certain amount of the product and services for 24 months. And that, that was quite a big of a number. Right. So that just blew up the cost a little bit. But again, everything has a cost, right? So. But it, it, it does, it does happen. Things that you wouldn't expect. So but again, you know, the surprises.

Are actually interesting because I feel like that's where you learn some intricate lessons that you're not going to learn otherwise from, from any book. What other surprises have you come across when mining a business down?

Other surprises, I would say. So you go down the list, right. For example, you're looking at let's say a set of employees who are really, really focused on that specific wind down or a specific product line. Obviously the first thing we try to do is see if there are ways that we can have this. You know, the skills of those employees can be used somewhere else. And you know, and that's, that's number one. We try and do that and we always, not always are we successful unfortunately. But then you go down the path and then suddenly does come come up that, oh, by the way, no, now we need this, right? We need this skill, we need those. And then that becomes another problem, right? Because once you announce about something the train has left the station, so to speak, and then that has implications especially in countries and states where you have very specific labor laws. Right. You can't pick and choose cherry pick as an example. Right. So I mean I can't go in more details around it, but I think that those are the things that I think have surprised me that you have as much as we think we have done the due diligence on it, there's always something that comes up and you have to be just ready to pull up your sleeves and figure out a way out of it. So yeah, there is never a downtime in this kind of very, very in in M. And a. Another example, if I may draw. Right. Or a parallel you do come across during a lot when you're doing a. When you're doing an integration of an acquisition, you do come across many times I would say that you set for a certain date for integration, complete integration. But you sometimes, you know, that date never happens and you postpone for whatever reason. In this case there is that that's not applicable, right. In a wind down there are dates that you have to meet. So it's quite exciting in that sense, right. There is no room for error or margin for error. But again, this kind of things that come up, you have to just be prepared. And as long as you have a very strong communication line with executive of the company, then you have good support from them.

When we wind the business down. We talked a little bit about some of the assets, but can we talk about the assets specifically that you're trying to protect and how you prioritize that.

Yeah. So when you talk about assets, there are several things. I think the biggest assets are really your employees, your customers, because, you know, I mean, really, I mean, that's, that's really the couple of big things. So I think those are the ones that you've got to be very careful about. You know, in the previous example, I said you're probably going to have the same customers buying other products and services from you that are going to be distributors who are going to be buying products and services from you, and then they have their own obligations to their end customers. So the customer relationship, I think, is probably biggest assets. One of the biggest assets. If, if I may. So no matter. You look at all the customer contracts and you do all you can do to make sure you're okay. From legal perspective, it all becomes a very critical path. When you talk to the customer, you got to be very, very open and honest. Have a good communication material available with your sales folks on walking them through all the different steps and why we are doing what we are doing and how we're going to try and minimize that. Right. So that's critical. So the customer relationship are very critical, I would say, no matter what industry you're talking about. There are also things like employees. You got to have a solid plan for the employees. Try and see if there are ways where you can have them work on other areas within the company. And that's a constant dialogue between HR and different facets of the company. Right. So that's one. There are other ones that I think are very critical, and those are ip, as an example, intellectual property. You know, when you're selling a product, the IP that goes along with it, that's very, very important. And what happens with the ip, how do we make sure that it's set with the larger goals of the company? Right. So you need to have your IP experts, you need to have your legal team and figure out, what does it look like? What does the IP look like after, you know, after we do this wind down, do we keep the ip? Is there a possibility that we can use the IP somewhere else? Obviously, is there a way to monetize any of that? So there are a lot of things that can come up with IP and even things where you need to keep the ip, you need to figure out what it means in terms of the cost of keeping the ip, because they have some cost embedded in them. So it's a decision of. It's a constant decision of looking at the pros and cons. And figuring out what's best in the long term. In some cases, you just basically say, well, the IP is not what we think that. I mean, some examples you see that, well, there is a complete technology shift, a science shift in the industry, and the IP and the product that you have is probably not as valuable as it was. And you'll see this constantly in pharmaceuticals. You'll see that in many of those companies which have big manufacturing sites and the IP suddenly is no longer as relevant. Right. So then what does it mean? And then tax comes in, right? From what does it mean from Write Down's perspective? What do we do from that point of view? So some of those are the kind of key assets that you got to be very mindful about. And then there are assets which you just have to write off. I mean, it's just something that you cannot do much about. There are assets, some big assets that you can try and see if we can disposition them and use it. For example, there are things like servers and all those things, again, wearing my. It had for a second. There are those things that definitely can be recycled. So it becomes literally going down the list of inventory and seeing what can be recycled, what cannot be recycled, and so on. But the main ones you got to be careful about is the customer, the employees, the IP in general.

Got it? Sounds like those are the top priorities. I'm curious, what does the communication look like when we're talking about the customers? Right, because you sort of added like, hey, you do want to communicate this well, because there could be ongoing relationship with other products and services they may be purchasing from your company, which makes a lot of sense, because you don't want to give them an impression, the wrong impression that, hey, there's some real trouble going on and things of that sort. So could you maybe give me an example, even just to. How would you frame that communication working with one of your customers?

Yeah, I think that's when you need to have. Going back to your earlier point about all the functions. Right. So that's where you really, really need to have your sales people, you know, depending on the business or the business unit that you are trying to wind down, you know, geography. And then there are specific sales folks who are knowledgeable around that. Right. And the customers. So when you're looking at the list of customers that you need to go and talk to, you obviously do some prioritization. I mean, which is normal in any situation, even in M and A. Right. You're trying to see you can't have the same plan unfortunately for all your customers, you got to have some kind of segmentation of how you handle your top accounts and what it means to your company. And then from there on you go down the list and see you can't have the same message for everyone, basically. Right. So the top customers, obviously you need to give them, I think, as much as white glove service as you can. You've got to go. And unfortunately, in today's world, we can't travel. Not a lot of people can travel. Even salespeople can't travel. I was just reading other day the impact it's having on the travel industry. But, you know, you got to talk to the customer one on one. And as soon as that announcement goes out, you got to, you know, bring the customer, I think, in confidence and give them the whole. The reason why we are and what's the roadmap. So the transparency, I think is key. I think as much as transparent you can be at that point and then going back, as I said, try and see what you can do. How can you level, how can you reduce the pain and the transition? If there is a way that you can give them extra product ahead of time so that they have enough time to transition off to another vendor, that may be. It might be something where you're giving them an incentive, a discount. So you have to work with your customers. But I think it's better that way as opposed to just doing one single email broadcast or put it on our website and say, hey, this is happening and deal with it. Right. So I mean, we don't live in that world anymore.

You're pretty transparent. You're basically telling them why you're winding down the business and just being really upfront, like, hey, this line hasn't worked for us and so forth. And we made this decision. But I'm communicating with you because I want to make sure you're well supported as we make this transition. That sound about right?

Yep, I think so. I think so. Transparency, and again, I think the keyword is as transparent as you can. Right. So you've got to be very, you know, you got to have that. And having the same sales account people having that discussion with them, I think helps as well. Right. So it's, as I said, a white glove, you know, you want to then communicate it to the right people within the sales organization and they will then go to and talk to their people. Right. So that helps as well, having the right. Having that relationship built in, this kind of communication, better to come from them. And then you have again, you have Your executive staff ready if it comes to an escalation. Right. Escalations do happen usually and there are some people or customers who would have a bigger pain than others. And in that case then that becomes a one off discussion exception. Right.

Have you had to deal with that? Have you had to deal with some pissed off customers?

Luckily, no, I haven't. Or at least it hasn't reached to me yet. But no, luckily no. Yeah, I like to keep it that way.

When it comes to employees is a similar approach that you take with customers in terms of providing that as much level of transparency as you can and really keeping that communication and dialogue open to make the transition smooth.

Yeah, the employees, I think a lot of it is to do it. I mean, obviously there is an impact on employees. As I said, when you're winding down or shutting down a specific division or a business unit or what have you within a company, there are going to be employees who have specific skill which is only applicable to that particular product or a service. So there are going to be implications on the employees for sure. I think what you do in those cases is you got to really, really understand the employees and who are going to be getting impacted. And in some cases I think we notice that in M and A as well. You know, sometimes, you know, it's. A lot of these guys have built this product from ground up. They have this special affinity towards that product to the customers. Sometimes it's not even about them. It's not about, okay, what's going to happen to me. It's also beyond that. So you've got to have empathy, I think is the right word there. You plan for the right communication, you go through all the specific steps that are outlined within the legal framework. But then I think empathy is important and you try and see if you can really alleviate any pain as much as possible in this. Try and see if there are any opportunities inside the company. And I think a lot of companies have really good HR and good culture values. Right. So that, that helps, I think, but that is. It's not an easy thing. Right. It's unfortunate, but that's what happens sometimes, right?

Journalists like to make a story into a provoking story. And I'm curious because given the circumstance of winding a business down when it sort of gets into the media scope, how do you contain that from it being something of more of a realistic nature versus getting blown out of proportion that hey, ship is sinking, people are getting laid off, you know what I mean? I'm kind of curious because sometimes we hear the News, but then it's difficult to know what actually happened. You may sort of get this impression that there's massive layoff and things are falling apart when the reality isn't as extreme.

It's a great question. So valid in today's day and age. Right. The media is almost sometimes controlled the narrative and I think it's about how do we control the narrative and take the control back ourselves. Right. So I think it goes along with having a solid.

That's what M and A Science is all about. M and A Science is all get the truth from the practitioner and learn how many deals happen. So.

Exactly. Exactly. Right. So yeah, I think the comms piece I talked earlier about and the pr, both those things like com. Having a good communication plan I think is paramount. And especially, you know, if you have your quarterly on the report. I mean our earning call, if you're a publicly traded company or what have you. Right. You usually have a solid comms team or a department. And I think it applies the same. We talked about what we talked to the customers. I. Whatever content or whatever discussion that we have with the customers. I think it's always probably better to have that ourselves with the media. Right. So there is, you know, the press release that we do, I think almost has the narrative in there and does exactly say why, what we thought where we are and why we are doing what we are doing. Right. So those, those things are clearly called out as opposed to. I think the one thing you don't want to do is not do a press release or keep it on the down low and hope that nobody calls you out. Right. So that's absolutely something that we had in mind that we have to really control this. And to be honest, I think if you have a valid case, which in our cases, the projects that I've worked on had them, I think then I think you're okay as long as you know, you can make that case about it. And what happens. I think it's about first two tiles, time to market or first to market. I forget what it's called. But if you are first to the market about what's going on, then obviously the media is second. And that really doesn't have that same impact. Otherwise it might have, I think good call out. I think the pr, it's very, very critical.

That's interesting. It sounds like clarity in the why is sort of the best way to ground reality.

Absolutely. I think the why is very, very important because that's what happens when somebody announces something like this. Why? What's happening as you said, the ship is sinking. Oh my God, what's going on? But if you have a very specific why, it's not the ship, it's just one simple element within it and we have to pivot, we have to course correct and then we'll be fine, you know, so those kind of things I think are very important to be very, very transparent. I think so far I've seen it helps because, you know, just the way it is.

You haven't seen a blowout yet?

No. I mean, no. I mean, I haven't. I haven't. Yeah. I mean now that you're asking me all these questions, I'm worried. But no, I haven't seen any blowout is yet, any of those accounts. But if I get it happen, yeah, it'll happen.

So I got a good question here. How is the wind down measured? What is considered a successful shutdown of a business?

That's a good question. I think earlier on, when you're sitting down and planning, I think we kind of touched upon earlier when you're planning and figuring out what are the priorities. What's my long pole in the tent? Right. Critical path. That kind of tells you, right. So if you are basically seeing that the business, let's say, or the business unit is not hitting its revenue target or the market has shifted and it's only going down from there, so you know why you're doing it and then you know, how soon do we need to do this based on that critical path item? So as soon as you figure that out, that the minimum, you know, the bare minimum, I need 12 months to shut this down. And if you can match that up with actual shut or wind down. So if you know it's going to take you at least 12 months and if you're able to wind that down in 12 months, I think you did a good job. So anytime extra that you take on top of it is basically you're bleeding money. If that's the case or whatever the reason you're winding down, that continues to happen. So I think there is, unfortunately. At least I can't think of any shortcuts because if you try and take shortcuts, there's always going to be something out there that gonna catch you. But I think that's probably a good metrics of success. I haven't thought about it that way right now, but I'm thinking about it as we speak. But might be, that might be a good way of measuring the success.

So timeframe. But then also budget would factor in as well. In Terms of, hey, we plan to budget for this wind down and what does that end up being?

Absolutely, yeah. I mean, and that, that's a good point. Budget is for sure. And you know, in one of the examples, as I said, right. I, we found out something later on which we did not have planned for. So it went over. Right. But again, it's, it's, it has to be put in perspective. You know, had we known earlier, we would have put that in budget anyway. Right. It's not that we have really exceeded the budget. But you're right, the budget is critical. A lot of that. I think you, you can't be as, as accurate about it. When you get into it, as you start peeling the onion slowly, you get to know the labor laws, you get to know the customer obligation, so on, so forth. You kind of know what it looks like, right. And then you build on it. But that's a good point. Yeah, I mean cost and time for sure.

Can you walk me through legal entity planning as part of a wind down, what that looks like?

Yeah. So legal entity depends on the situation, right. So the legal entity we are talking about right now is, let's say, you know, as an example, you acquire a company, you, you did not merge the legal entity. Right. As we know, as part of a mergers and acquisitions legal entity is the, one of the biggest parts last. One of the last things we do is we say, well, what's my legal entity plan? And you merge the legal entity with the, with the acquired acquiring company or you keep it because you don't have a legal entity in that specific region or what have you. So in this case it's exactly the opposite. Now you have to figure out if we have integrated the legal entity or if you have not. If you have not, then I think comes the question about okay, so what do we need to do? Do we need to keep it? What all the dependencies on the legal entity, right. Usually you have your customers on that customer contract on the legal entity. You have your payroll on the legal entity. You have things like your it on the legal entity of manufacturing, all those things on the same legal entity. So as you're planning throughout this, you start figuring out, okay, so what are my dependencies? And slowly but surely when you hit all those milestones, then I think comes a point where you say, okay, so now can I what do I need to do with it now? I don't have any customer contracts that are gone, I don't have any payroll on it. I don't have any manufacturing and what do we do with ip? Do we keep it there? Does it make sense to keep it there? Do we want to move it to somewhere else? So those are the steps. I think if you have a good tax team in most cases, usually always do, they will also help you walk through the implications one way or another. But I think it doesn't stop until you really. I mean I talked about WPS as the last function to switch off the lights. But legal entity I think is a very cross functional initiative that everybody's involved, Finance, tax, everybody, hr. So collectively then you decide what makes best sense for the company and then you either dissolve it or you keep it. But that's the important thing down that you got to plan for.

Yeah, it's interesting. It sounds like there's a lot of considerations that go into that and even some crossover with how you would plan a divestiture.

Yeah, absolutely. Yeah, very similar to divestiture in that case. Yeah.

What, what are some best practices you have for somebody that's going to have to go through a wind down?

Well, I can tell you from my experience, I think it's to really getting having a solid. I think it all starts with the executives really having a good support from the executives, a good clarity on what we're trying to do. Right. It could be the CEO, it could be the president of that business unit, it could be whatever it might be, but whoever is in charge of it, I think it's very important to have that clarity and support because all we have talked about so far has implications and that those implications can become a big ball of fire, right. And it can have a big implication on the company itself. So as long as that clarity is there from the top, that's number one. So I think having that, you can't walk into something like this without having a very good understanding of we really need to do this. So that needs to happen I think because at any point if you change that then it could be a problem. Secondly, once you have that having a good team assembled, right, because sales really know about their customers, manufacturing folks really know about what can they really manufacture. Because in some cases that becomes one of the important criteria for planning this wind down. I have to manufacture so and so products. After that I can shut down. So that becomes critical. So again, I mean you have to have the right people. I mean this is nothing new that probably applicable everywhere. But more so in the case of wind down because I think as I said, it's very specific project with a specific milestone and timeline. I think those are the Two things I would say have a very good communication. Have good communication lines with the executive. Give them updates on a weekly monthly basis so that they are not caught in the dark. If you need any help, go to them right then and then. And if you think we need to pull a plug before we do any announce, then that's probably the better thing than to just go ahead and see what happens. Right. So I think having a clear line of communication, having a solid team, I would say the other two things, other thing, other than that, you know, you probably are just gonna dive and catch.

Yeah. There's a lot of learning on the go. But it sounds like I heard a couple good themes there around a lot of planning, the legal entity side, the communication and then getting the right people involved to execute.

Well, yeah, absolutely.

You know, I gotta ask, but what's the craziest thing you've seen in M and A?

Yeah. So I think. Been doing this for a while. I think I want to. Maybe. If you may, I'm going to answer this little differently. Right. So I think I want. I have lots of anecdotes about crazy things, but I have a feeling probably a lot of them have seen them as well. But a question I have really is about, you know, the hit, hit, hit or miss ratio for M and A. Right. I mean, why is it. I mean, we all agree, we almost have agreed that, okay, it's about 90 to 70%. I think I saw Harvard Business Review study that they found it's about 70 to 90% of acquisitions fail. And you know, I am a, I'm a sports buff myself. And I'm thinking, well, if you are, you know, major league, battery league baseball batter, and you know, if you are batting 100 or you're batting 200, you probably, probably need to go and do something else. You're not going to be playing in a major league team for a long. Right. But yet, knowing this, I don't know why we still. I mean, it's a very rhetorical question. It's something that I always wonder, right, we know this and probably this is a fact. For many, many, many years people have been doing acquisitions. But what do we need to do? Is it, is it may be the goal that we set for success that needs to be recalibrated? Is it something we need to do differently? The times are changing quickly or that's the way it is? I don't know. There's some something just food for thought. I always have. And I don't know if you have any answers for this, Kisan, from MNA science perspective, we're still learning the science.

For this on how to improve the success rate of M and A. It's interesting. I have to post something about it, but it seems like a lot of it does fall apart on the integration side and everybody can plan as much. But when it comes to really getting that many people involved to execute a high level of change management, that is a big challenge. What have you seen? What do you think are the biggest challenges that hamper deal success?

Yeah, I think one of it is probably integration. You're right. I mean, there are so many moving parts, right. And it happens over 12 to 18 months on an average for a larger deal from integration perspective. So there are a lot of things that can go wrong. I'm not disagreeing with you. But also maybe on the deal side too, right? When we are doing a deal and you know, we are creating an roi, maybe there is something to set there as well. Right. So maybe that, that could be something that we probably need to go back and look at. Was it, was it achievable? Was that the right return on investment that we really thought we should have on this? Right. So there are several factors. I don't know, Kisan. I'm sure there are smart people looking at this all the time, but that's something that I always wonder about, especially, you know, when you talk about wind down, you know, you know things. When things go down, then unfortunately you have to wind it down because you know, you. Nobody wants to bleed crash on something that's not working. So same thing applies other way around too when you're acquiring companies. And let's be very careful about, you know, the return on investment on it and how it pans out for the employees, for the customers and everybody across the board. So I don't have. I don't know what else to say on that.

Yeah, sounds like a great topic for us to even take some of the findings from these interviews and consolidate.

I think so.

Yeah. Great thought. Jeet, I want to thank you so much for spending the time with me and covering a lot of great lessons about how to wind a business line down.

Yeah, thank you. It was a lot of fun. Thanks. Talking to you. Nice talking to Kitan. Thank you.

Thank you very much. Till next time. Thank you for taking the time to explore the world of MA with our podcast. Please subscribe for more content and conversations with industry leaders. If you like our podcast, please support us by leaving a five star review and sharing it. I enjoy hearing feedback and connecting with our listeners. You can reach me by my email. It's Kisan K I s o nealroom.net M&A Science is sponsored by Dealroom, a project management solution for mergers and acquisitions. Additional educational content is available on Deal Room's blog@dealroom.net blog. Thank you again for listening to M and A Science. See you next time. Views and opinions expressed on M and A Science reflection only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual. This podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions.