How Aligning Strategy with Modeling Transforms Corporate Deals with Sean Corcoran

If you look at corporate development, you're managing a team, hr, legal. So it's really important that from your perspective, you have.

If you buy a company that has a totally different culture than yours, integration is going to be a lot harder.

One of the key criteria for most companies is culture. Corporate development's job is to really quarterback that process and make sure there's kind of accountability across the full life cycle of an acquisition.

Someone else on the team is building the model and you're working with them. How do you ensure you're on the same page with the person building the model?

You want to make sure there's clear accountability right across the different functions.

Any advice when it comes to kind of building the actual financial model?

As you're building a model, I've told my associates and analysts in the past, you need to spend almost as much time thinking through.

Welcome to Financial Modeler's Corner, where we discuss the art and science of financial modeling with your host, Paul Barnhurst. Financial Modelers Corner is sponsored by Financial Modeling Institute. Welcome to Financial Modelers Corner. I am your host, Paul Barnhurst, AKA the FPA Guy. This is a podcast where we talk all about the art and science of financial modeling with distinguished guests from around the globe. The Financial Modelers Corner podcast is brought to you by Financial Modeling Institute. FMI offers the most respected accreditations in financial modeling. I am thrilled to welcome to the show Sean Cochran. Sean, welcome to the show.

Thank you, Paul.

Just to give the audience a little bit of background, Sean and I worked together for about a year, worked on a couple M and A deals. He runs Corp dev at Digicer. I'll give him an opportunity to share a little bit more about himself. But we're going to talk today about kind of corp dev, how M and A modeling, how all that fits together in the corporate world. But first, I want to start with. Tell me about that worst financial model you've ever seen. I'm sure you have a horror story.

So I wouldn't say there's maybe one worse financial model. I'd say generally speaking, as I see models in corporate development, in a lot of cases, you're not looking backwards, you're looking forwards.

Yep.

And so from that perspective, you see a lot of financial models, especially in the software industry, which are sort of predicated and based on hiring employees. So by virtue of hiring more employees, whether it be salespeople, developers that will directly tie to revenue. And so generally speaking, I'll discount those models pretty significantly as I see companies trying to tie just the basis of hiring employees to generating incrementally more revenue. Now, that might vary a little bit. Maybe if you're in the pure services industry, that might make some sense. But in the industries generally I played in, which is more of a pure play software, that generally is a bit of a red flag for me.

You're saying it's not linear.

Correct.

So that's one of the biggest things you see with the, the worst models. And what have you learned from that experience? You know, looking at those models and seeing them do that? What's kind of the takeaway for you?

Well, generally, I think as you look at it, one way to look at it is, you know, costs, the underlying costs of a business and the revenue associated with the business are generally independent variables, right? Yes, there is some relation between the two, but you have to look at them independently.

Sure. It's. Yeah, they're definitely not a linear function. Obviously they're related. And sometimes you can make some assumptions, hey, we should be roughly around this margin. But as you're growing, step increases, all kinds of things. You can't just assume every hedge you add will add X dollars of revenue.

Definitely.

Which I'm sure you see a lot. I think we worked on some models where we saw some of that and you're like, numbers don't make sense.

Yes, you see that quite a bit. Especially as I mentioned, as part of corporate development, you're looking at acquisition opportunities. These companies have typically packaged themselves up and as part of that process, they will build their model which they intend to share with outside parties. And in many cases they will build these models. In some cases, in terms of the revenue you'll look at, what's the market opportunity and how can we penetrate that opportunity? Or here's a customer set, how can we penetrate that customer set? But then in other cases, you will see in many cases models which are predicated, we're going to hire more salespeople. So by virtue of that, we're going to sell more and that's going to generate more revenue.

Yeah. And I don't know if you remember this. I remember working on one deal with a company we're looking at acquiring in, in the Middle East, I won't say which country, but we were looking at it and they weren't even hitting their targets then. And they had these huge growth rates. We're finally in one meeting and somebody said, why are we even still considering this? And we all went, we really shouldn't. And that was pretty much the end of it. Like we'd gone Quite a bit down the road and just kept seeing them miss their numbers and it's like, all right, they're supposed to have huge growth and be this hypergrowth company and they're missing their numbers. Now what does that tell us later? Do you really expect all of a sudden have huge growth?

Yeah, definitely. Awards a word of caution. But look, that's part of the process, that's part of corporate development's job is, is the diligence. You know, what makes sense, what doesn't make sense and try to validate it the best. You can.

Totally agree. So tell us a little bit about your background, how'd you end up in Corp Dev and just a little bit of your career journey.

Sure. So I've got a 20 plus year background in corporate development and finance. I started my finance career at Lockheed Martin in a rotational program and that's how I ended up in corporate development. Ultimately I left then Lockheed Martin, Obviously, big Fortune 50 company at the time, and joined a company which was a private equity backed company called New Star. Was there for almost 20 years. We spent the time growing the business from roughly $30 million to well over a billion dollars. Took the company public along the way and did a number of acquisitions. We did close to 50 acquisitions over that period, which I was involved with in varying levels of capacity. And then we ultimately sold the company to private equity. So I stuck around and was there for roughly three years leading corporate development for New Star and then ultimately left to do a couple things, but became the CFO of a venture backed company which was subsequently sold. And then I joined DigiCert in 2001, 2021 to run corporate development, as I say 2001.

And you had 25 years before that. You're looking good for 70 there, Sean.

So it's been a good run in my career. I've got plenty of experience in corporate development, I'd say kind of broadly strategic planning as well. And it's been a great experience. So I've had a number of people who've worked for me, you know, analysts, associates who've worked for me, who've gone on to run corporate development at other companies as well as even become CFOs and even CEOs at various companies. So. And I would say my background's also a bit interesting because it spans Fortune 50 to private equity backed companies to public companies. So. And we've also, at least over my career, I've looked at the whole variety, varying spectrum of acquisitions, everything from aqua hires to asset deals to stock deals to Public companies, private companies, carve outs. So I have pretty varying experience across different acquisition types and also partnerships and strategic investments as well.

Well, you mentioned the 50 just at Nustar. I know you've done several at Digi Search. You've probably been what, 60, roughly over your career?

Yeah, well over 60 acquisitions and sold companies that I've worked for as well. I'll count those too, you know, well, north of $10 billion.

Yeah, you're definitely going to see a little bit of everything if you've done been a part of that many different deals. That's a lot of deals. And you've been at multiple different companies with that.

Definitely. I think one and one thing as it relates to doing deals. I think what most people don't. What most people realize or don't realize is, you know, the life cycle of an acquisition is very long. It's typically years right. From the point where you develop the strategy, build the relationship with the acquiring target, qualify the opportunities, obviously execute the opportunities, which is what most people think of in terms of M and A. But then you also have the aspect of integrating the opportunity as well. And we all know there's plenty of data out there. You know, most companies, most acquisitions are successful because. Or not successful based on the strategy. Right. The very front end. Does this make sense from a strategic. Strategic perspective or the integration ultimately, were we successful integrating the business and if things weren't going as planned, did we take and course correct or things that were unplanned and unforeseen?

Yeah, makes a lot of sense. We've all heard the numbers, how most deals don't work and I would agree. Strategy up front, integration on the back end. But kind of funny, as you were talking to all that, it made me think a little bit like dating life. Right. You got to qualify it. Yeah. You know, all the steps you go through, it could take years. And as you were saying, all this made me think sometimes of that, you know, that kind of process. People think, oh, you just buy a company and you move on and it's like, no, especially if it's a big company, it can be several years. Small companies can easily be over a year from start to finish.

Definitely. And those are, you know, those are usually the best acquisitions as well. It's pretty rare. Something comes out of the blue. You know, investment banker will present an opportunity and next thing you know, three months later, you close the deal. Right. These are typically a lot of acquisitions. One of the key criteria for most companies is, is culture. And the only way to get you know, understand the culture is to spend time with the prospective target. And the way to do that is to build a relationship.

Yeah. Because if you, if you buy a company that has a totally different culture than yours, the integration is going to be a lot harder, a lot higher chance of failure. So I agree. You got to make sure you can align the culture. So there's a similar thought and philosophy as well as the strategic side.

Definitely. So from a. From a. Roles and responsibilities. Corporate development can also mean sort of different things, but at least based on my experience, you know, I've worked across the full spectrum of the corporate development life cycle. And corporate development, typically, if you look at an organization, it's generally pretty small. You'll have a small number of dedicated corporate development people. Even within fairly large companies, Fortune 100 companies, you know, these teams may vary from one to two to three. Maybe in much larger companies you might have 10 to 20 people at the most. So generally these corporate development teams are kind of as much virtual teams. Right. You'll have dedicated or semi dedicated resources within the finance organization, within FP&A, within the accounting organization, within HR, within legal, within the product organization to make sure that the strategic targets are correct and align with the strategy. So you'll pull in these teams. And so for the folks that have been on in your audience who've aware of and done acquisitions, these teams can balloon up pretty quickly. Right? Pretty quickly. You can have a team of 20, 30, 40, even 100 people, depending on the size of the deal, working on these deals. And so corporate development's job is to really quarterback that process and make sure there's kind of accountability across the full life cycle of an acquisition. So yeah, that's our underlying responsibility. So sometimes, you know, definitely involves a lot of. And you'll see most corporate development professionals do have a finance background. You will find other corporate development professionals have other types of background, but definitely heavily revolves involves some knowledge and financial discipline as it relates to corporate development.

Yeah, so. So question for you. You've talked about kind of corp dev. We've talked a lot in the M and A. What are some of the other responsibilities that you sometimes see in corporate development beyond, you know, kind of that whole M and A activity? I think that's what most people think about when they think corp dev. What are some of the other things that are involved?

So you definitely get involved. Many corporate development departments will get involved in strategic partnerships because as you look at any opportunity, there should always be kind of a buy build, partner evaluation that occurs and A lot of those partnerships will evolve into, into acquisitions, right? The partnership's going well, the teams are getting along. There's a one you can validate. A one plus one equals something greater than two. So that'll evolve into an acquisition. So you see corporate development departments involved with that. You see that corporate development. If you're working for a company and you're potentially evaluating an exit or investment, corporate development departments will typically support that as well. So fundraising typically get involved in working with the cfo, working with the CEO. And then the other area which many corporate development departments will get involved in as well is the integration helping standing up and the program management associated with the integration. Standing up. Typically I call it depending on the consulting firm, it's called different things, but an integration management office, you know, and then making sure there's accountability across the team so that if you've set certain KPIs and integration, strategic integration milestones, then you assure that people are accountable for those, for those milestones. Also with many deals, especially in this day, there's typically post closing requirements associated with those deals. So escrows, earnouts, and so typically corporate development will take the lead in terms of managing those, those responsibilities.

Yeah, I had a report on some earn outs. One of the companies I worked at, we did a deal where 90% of the value was in the earn out period. That was a nightmare. Constant fighting, misaligned incentives, without a doubt, because the rest of the business might be focusing on this year. And all they focused on is just their company, not how they integrate with anyone else and how they hit their targets because all their potential is on those targets not playing best with the overall company.

Definitely there's, you know, typically the earn out's a way of bridging a gap, right, that exists between the sellers and the buyers. So there's really only two ways to do that. It's through the structure of the deal and earn out or finding synergy. Right, Synergy that we're willing to sort of trade off from a value perspective, whether that be cost savings or potentially top line cross sell upsell type synergy.

Yep. Yeah, I get it. It's how you, you bridge the gap. It's kind of like, you know, me doing budgeting and forecasting. There's a lot of discussion that goes on and compromise to bridge that gap between what somebody wants for the budget and what you realistically think you can do.

Definitely that's part of the process. So. But like I said, generally speaking, based on my experience, obviously you don't want to leave money on the table. And it's still part of the calculation from an IRR perspective as you evaluate these acquisitions, one, two, three, even four or five years out. That said, really, the key sort of, you know, it's pretty rare when you do a postmortem on an acquisition, and price is like the one variable that we said, oh, if we just paid a little less, then ultimately this deal would have been successful. Usually it's something much different. Like I said earlier, it's usually a function of, you know, the strategy was just not right. We just didn't understand the market or, you know, we really failed from an integration perspective. We didn't transfer this knowledge. And so things slipped and ultimately, you know, we. There was a delay of a year, two years, because generally speaking, integration is what. That's where the rubber meets the road. That's really the hard work. And so a lot of companies have other priorities and they'll kick those cans down the road when it's best to usually integrate something sooner than later. Not always, but in most cases.

And so. Question for you. I want to jump into the modeling side of this for a few minutes, but before I do that, I want to ask a question. Do you have a favorite deal you've worked on or maybe one that really stands out to you in your career that you can talk a little bit about?

I think they're all sort of probably. They're all favorites. I would say probably the, you know, the most exciting opportunity that I've been involved with is when you're selling your own company. Right. That you work for, because it's something ultimately you were part of building. So I've had the opportunity to do that several times now, and those are typically the most exciting. You know, we were a public company. We sold the business to private equity. And that's an exciting opportunity for everybody because I think, number one, obviously, it creates some value for your current shareholders, sometimes the management team. But then you can also sort of use it as an opportunity to kind of restart the strategy of the business, depending on who the acquirer is, and say, look, from a strategic perspective, we're going to shift focus, and here's where we're going to invest our capital. So, yeah, I think of, like I said, the sale when I was at New Star to. To private equity in 2017. So that was probably the most exciting opportunity. And one of the. Definitely one of the larger deals I've worked on as well.

Yeah, I would imagine being public to going private. That's going to be A large deal and a lot, a lot of complexity that I can see where that could be an exciting deal. You know, I'm waiting for the day I get to sell my own business. Right. Then I get to see that excitement. Since the brand is me. I'm not sure how that's going to work.

But yeah, the harder deals I've worked on and I've worked on many of these are carve outs typically. Right. Where you are taking a business which is generally integrating and trying to figure out a way to pull that business out of an existing business, which. Those are typically the harder deals to do, both as a seller as well as as a buyer. They require typically significantly more due diligence and work and timing as well. So. But those can be also the best opportunities because typically as a buyer, if you're looking at a carve out, they're typically discounted at a higher rate because everybody knows generally they're more work and a lot harder than other than other opportunities.

Yeah, you have to stand up all the things that an individual company will need because many of those, those corporate functions are coming over, you know, maybe some headcount is. I remember I was at American Express when they carved out their business travel business. They sold 50% of it to private equity and spun it out as a separate business. And that was a massive project. I tried several times to sell it and finally found a deal that worked. Because, you know, if anyone who knows the credit card industry and the travel travel agency industry, they're very different margins. Right. One is much more attractive than the other and the other is very much a volume play and low margins. And it just didn't make sense because, you know, headquarters. Where are you going to invest outside of keeping the business healthy? You're going to put all the money in the credit card. It's like just like when we invest. If you could tell me I can earn $5 on my $10 investment or to take five every time, I totally get why. Sometimes it just makes sense to carve something out. You just can't give it the attention or the investment it needs.

Carve outs are, like I said, there's a risk and a reward opportunity associated with them. But look, there's value that's to be gained even as a seller, you know, typically you'll look at your portfolio and say, hey, the strategies changed. This made sense previously from a strategic perspective. But you know, focus is the key to success. So it makes sense to offload this business to somebody else who will focus on it and be able to grow the business. So ultimately that's where opportunity is created both for the buyer and the seller. But those tend to be some of the most complicated deals because you have to define a perimeter. And typically these businesses that are being sold have been operating within a broader organization for many, many years. So these are areas that need to be unwound. And ultimately you don't always know. You could do all the due diligence you want to do, but you don't always know where the breakage will occur until after the deal closes. Which is why, as I mentioned, the integration aspect of executing deals is probably one of the most important areas.

Yep, makes sense to me. All right, let's talk a little bit. I want to talk about the model and you know, the financial model. So is that something someone in Corp Dev typically builds? Is this something you're doing other people? How does that typically work?

Where are the resources are typically you're working, you know, in a larger organization, you're typically working with the FP and a team to build the model. You know, generally corporate development models don't necessarily look like a budget. Right. They're not to that level of detail typically, especially on the cost side, you know, you're trying to understand what's the trajectory of the business, you know, what's happened to the cost structure, why have certain things happen and then how do we forecast that going forward? So you're trying to simultaneously understand the business and, and then plan for the business going forward. That model will also has a different purpose as well. The purpose of the model is to value the business. So what is the valuation associated with this business? What can we pay for the business? Or is it accretive to our existing business? Right. Is it margin accretive? Is it EPS accretive? Is it accretive to our revenue growth? You'll use that model for all of those purposes. That is much different than an aop, a budget model. Right. Or even, even an internal strategic plan. That model will then typically, once the deal closes or between the period of sign and close, will typically then get translated into a budget. Right. So that ultimately will then get translated into a budget which can vary typically because typically a corporate developed model is a bit more, I would say generally not always, but bit more conservative because again, you're using it for valuation purposes.

Yep.

Versus trying to, you know, okay, this, this individual is accountable for this line item in the budget. So that's a much different, much different discussion. So that's the primary difference. That said, you know, it's the same skill set, right? In terms of, you know, you're building out a budget or you're building out a strategic plan for your business requires analytics. Understanding the business, what are the drivers of the business. You know, you have to dig into all aspects of the underlying business to model it out. So you're also typically with a corporate development in a corporate development capacity being handed a model, right. As I mentioned, the other parties preparing a model and or preparing information so they'll hand that over to you. And your job isn't always to start from scratch and build a whole new model. It's sometimes to leverage the work that's already been done. But figure out, okay, what are the assumptions that need to be adjusted and or how do we want to look at things potentially different or make a different set of modeling assumptions relative to revenue that wasn't, that wasn't planned. You're handed a model that was based on, as we talked about earlier, we're just going to hire more salespeople and that's going to generate more revenue that may not make sense. Right. So we're going to change the underlying algorithm and assumptions associated with the revenue. So that's the primary difference. There's definitely a lot of similarities and overlap and it requires a lot of the same underlying skill sets. And so that's why you see a lot of corporate development professionals move back and forth between typically it's at within a finance organization FP and a corporate.

Development FP and a guy here. And as you know, I am very passionate about financial modeling and the Financial Modeling Institute's mission. I have been a huge fan of the FMI for years and I was super excited when they decided to sponsor the Financial Modelers Corner. I recently completed the Advanced Financial Modeler certification and love the entire experience. It was top notch from start to finish. I am a better modeler today for having completed the certification. I strongly believe every modeler needs to demonstrate they are a qualified financial modeler. And one of the best ways to do that is through the FMI's program. Earning the accreditation will demonstrate to your current and future employers that you are serious about financial modeling. What are you waiting for? Visit www.fminstitute.com podcast and use code PODCAST to save 15% when you enroll in an accreditation today. Yeah, I've definitely seen a fair amount of that. If someone's in FP&A today, let's say they're working in FP&A, they want to get into Corp dev. Is there something particularly should be focusing on, is it usually the modeling that brings them in or what advice would you give to somebody that Maybe they're in FP&A today and they want to get into corp dev more?

If you look at corporate development, you're managing a team, right? You're quarterbacking a team that spans hr, legal, finance, product. So it's really important that from your perspective you have enough knowledge around those areas where if something's falling on the floor relative to product, in a lot of cases corporate development will have to stand in and say, okay, I'm gonna, I'm gonna lead a product session, right? So ultimately you have to wear, be able to wear many hats. There's also a level of program management discipline that's required from a corporate development skill set perspective that you don't always see within finance professionals. Right. So sometimes it exists, but that's another key aspect of corporate development. So I think corporate development professionals need to obviously have the underlying financial capability and discipline, but they also need to be well rounded so that they can, okay, they can have a discussion relative to sales ops and what the KPIs are around a pipeline. They can also have a discussion relative to HR and one of the key KPIs relative to HR that they would, that they would look at and manage, but then also program manage it across the entire life cycle. So those are really the kind of the key aspects I would say, you know, if you want to get involved in corporate development, one of the great places to start, because it involves something very similar, is most companies will have a strategic planning process, whether they'll look at the business and ultimately build out a multi year plan. And there's a lot of similarities associated with that. So that's a good place to start if you're an FP and a, if that's occurring within your company, that's one of the places I would recommend. These planning processes are done on different timelines, but typically they front end the budget process. So you're building out the strategic plan. It's more of a top down approach, understanding what's the, what are the opportunities, where are the risks. That plan is then built out and then that sort of dovetails into, into a budget process. So, so that's one of the great places to start. You know, I always say look from a company perspective, there's a lot of companies who don't do that. And it's like when you move, right, ultimately you clean up the house, you do a lot of things that you wouldn't have been putting off. But, but then when you're ready to move you front end that you clean everything up, you're ultimately ready to move. And you're like, well I wish I did that five years ago, right before I moved. And so you find a lot of companies that go through a sale process where they're building out their plans, they're building a better understanding of their roadmap and their product and the strategic plan. And they said, well, we should have done that five years ago. This has been a great process. So, so again, I think that's where things start. You can also look at it as like you're building acquisitions are putting additions onto your house. And the first thing any architect is going to do when they're looking at building an addition on your house is they'll build a blueprint for the existing foundation, the existing structure, and then they'll say, okay, where, where can we put an addition on this house and that existing foundation and an existing structure. In the case of corporate development, is really the strategic plan tied to the company you work for today.

So I'm curious, let's say someone else on the team is building the model and you're working with them. How do you ensure you're on the same page, everybody's on the same page with the person building the model, that all those inputs get in. How do you manage that part of the process? Because I know that's really important, especially as the deal changes, team grows, right. Some deals, before you know it, you have a bunch of different people providing inputs. How do you kind of coordinate that all and ensure that you have everybody on the same page and that the assumptions make sense?

So, so you, you want to make sure there's clear accountability right across the different functions that, that have an input into the model. So everything from sales, potentially there's a business owner, right. If it's, if it's a business unit type structure. So obviously they need to be involved every step of the way and they're part of the process in terms of reviewing the model, reviewing the underlying assumptions. But the same goes for the functional organizations that all have input into the model. Ultimately there needs to be accountability. So it is hard to manage. That's one of corporate development's jobs, is to kind of make sure the right people have access to the information. But also the group doesn't become too large, so it's unmanageable and you lose accountability. We've all been in situations in corporate development as well as other situations where these team sizes can balloon to a Point where it's like, okay, ultimately who's responsible and who's accountable. And that's as companies grow, businesses grow. From a corporate development perspective, in the early days of company, when companies are smaller, typically corporate development is championing opportunities right along with the CEO and other principals in the company. They're championing, saying, look, there's an opportunity here, we can grow the business, but that's not scalable, right? Typically. So as companies grow, the responsibility shifts to okay, is there a champion for the opportunity? Is there someone who's accountable for this function, whether it be within the acquirer, coming from the acquiring company or within the company, within your own company. So that's how corporate development has shifted. And from my perspective, as I work for small companies and much larger companies, you have to be able to change the governance of what corporate development's mandate is. Because ultimately if you work for a large company and you're trying to champion every deal, that's it's not going to be successful. And then ultimately, when you have to hand off the deal in terms of the integration, there's not going to be a business owner on the other side to pick it up. And who will be accountable.

Makes sense. One other question for you. I'm just curious your perspective. Do you typically see the, when you finish a deal, you have the operating model, the FPA pretty much builds their own model. After that, they kind of have to start over. That's often what I see. Or do you think, you know, you could take those operational models and use them going forward for the plan? Because typically they're at a higher level.

If it's, if you're starting from scratch, then something has probably been done wrong along the way from a process perspective. So there should be some tie in to the two models. Although they, like I said, they don't need to tie exactly and they probably don't tie exactly together. You know, you also, once you close the deal and, or sign the deal, between sign and close, typically you have access to more information, right? So then you can build out a bit of a more robust sort of view of what does the P and L look like? What are the individual costs? Who are the individual vendors? Are there specific customers which you may not have had full visibility into before you close the deal? Because sometimes, you know, these are competitive situations and so the amount of visibility you have can be, can be somewhat limited. The short answer is it should be very similar and the handoff should be pretty seamless. That's why it makes sense to involve FPA Typically in the process, from pre closing, pre signing, as you're building out the model, as you're reviewing the model with your executive team, cfo, the CEO, the business unit leaders, as well as even your board of directors.

As you look back over your career, you know, you mentioned 60 plus deals. What is maybe the one lesson you've learned that's helped you the most in your career?

Oh, I think it's to be open minded, right. I think from my perspective, you know, the tools have changed a lot, right? Over my career. In the early days it was a lot of brute force. There's still some of that obviously involved, but it's to be open minded. So relative to what additional tools, what additional learnings can occur, the deal world moves much faster now than it did 25 years ago. Especially from an execution standpoint, that's when it moves much faster. Typically you have a relatively short interval to make decisions. Typically in many cases you'll sign an LOI and you'll lock company up with a exclusivity. You know, it used to be you'd have 60 or 90 days to work through a deal. Now in some cases it's, it's days or even, you know, weeks or even days in many cases. So, so you have to be prepared to move much quickly, much more quickly. And so there's. The tools have evolved a lot, right? The access to data, virtual, like virtual data rooms didn't exist 20 years ago. You actually had to go to a, a company's or lawyer's office and roll up your sleeves and read through customer contracts and, and that doesn't occur, right. Things can happen much faster. AI tools are now being developed as well from a corporate development perspective that can read through and analyze legal documents and customer contracts to point out any potential red flags. Because typically from a corporate development and due diligence perspective, you're inundated with data. And part of the, the role of corporate development as well as the due diligence team is to sift through that data. And okay, what's important, right? What can we sort of, what can we identify as sort of secondary information? And what is really important for us to understand and validate the acquisition as well as the strategic thesis associated with the deal, in many cases the strategic. So you'll develop a sort of a set of strategic rationale and a thought strategic thesis behind a deal. And then as I mentioned, these, these processes can evolve over many, many years. So you know, by the end of, by the integration, the team doesn't, the team can Change out. And the team doesn't understand. Okay, what was the original strategic intent behind this acquisition? So that strategic intent should really guide you from a how do we qualify the opportunity? How do we diligence the opportunity? Because ultimately that's what we're trying to achieve. And then also where do we focus from an integration perspective? You know, it could be the intent for this deal was to get more, expand our tam. Right. The total addressable market. So like that should be the focus from an integration perspective and the team should all recognize and know that. And again, it's because there's so many handoffs along the way, you know, sometimes that can get lost. And that's where one of the bigger challenges relative to, to corporate development and why ultimately many deals don't. Don't work.

Got it. All right, so I'm going to ask you a couple questions here. This is what called the rapid fire section. We're going to skip some of the more technical ones that I asked a lot of people that are full time modelers, so about five or six and just want your quick answer, not an. It depends. You just kind of have to pick an answer where, where you would sit on that if you had to pick one side or the other at the end you can elaborate on one or two. So I'm going to start with this is always a fun one. What financial statement do you think is most important? P and L balance sheet or cash flow?

Cash flow.

All right. Will Excel ever die?

Not for me.

Do you have a favorite Excel shortcut?

I would say no, but I would say in the case of corporate development, you're going back and forth between Excel and PowerPoint in many cases. So you know, control C, control D.

Yeah, those are definitely some common ones. Do you believe AI will build the models for us at some point in the future?

You know, not in my tenure, I don't think.

All right, fair enough. Do you believe financial models are the number one corporate decision making tool?

I would say no.

What is?

I would say the strategic intent behind what you're trying to achieve. So, you know, I think there's financial financials involved in that, but it's not a financial model per se.

Got it. And what's your favorite lookup function? You have a lookup function you like to use? Choose Vlookup Index Match xlookup. Something else.

A Vlookup. We'll go with Vlookup.

Alrighty. And then one other. Gonna ask you one. A little more technical VBA and financial models, yes or no? No. What about circular references?

I'd say from a corporate development perspective, you don't see that very often. I. There have been a few instances, but it's pretty rare.

That that's probably good because they can cause some problems sometime. I had an interview the other day, I haven't released the episode yet where I talked to a guy that he had a file that had 27 different circular references. They tried to find them all, finally gave up and just rebuilt it.

Yeah.

Because they kept running into one error after another.

When corporate development, simplicity is king. So you definitely should not. So.

Yeah, well, simplicity should be king, I think, most of the time. But unfortunately it's often not, as I like to say, start simple because your users will complicate it for you before you're done. Yeah. And I'm sure you know what I'm talking about. Can we add this to the model? What about this? Have you looked at that? And just keeps growing those additions to the house.

Yeah. Typically the place you see circular models the most often in corporate development is the capitalization tables associated with companies.

Sure.

Because they're iterative. Right. So ultimately that's where you see.

Yeah. Yep. There. And sometimes on the interest, if you're dealing with a big LBO and you have to take that average balance versus being able to, you know, if you're doing it monthly, usually you can just take the beginning balance and it's not a big deal. But if you're looking at yearly and you have a lot of interest, it can be material if you don't do something there. And there's different ways you can manage that. But that those are the two areas I think, of where you have that potential for a circular reference. If you have others, you probably built something wrong in most cases, for sure. You know, if you could offer some advice to our audience as far as modeling anything you've seen that would help them to get better at modeling. Any advice when it comes to kind of building the actual financial model?

A lot of financial professionals, including myself, we get so enthralled and involved with the model itself, we forget about. Ultimately, the model typically doesn't stand on its own. And only a relatively few number of people will actually look at the model. So I think what's as important is to think through as you're building a model. How are you going to present the model to your executive team, to your board, so they can ultimately make a decision? And typically you don't have a lot of time. Right. To make these presentations and they need to make a decision based on the best information that they have. So I think as. As you're building a model, you know, I tell, I've told my associates and analysts in the past, you need to spend almost as much time, probably not as much time, but almost as much time thinking through how you're going to present the information. Because typically what will happen is you'll develop the model and then ultimately you're just copying and pasting the spreadsheet onto a PowerPoint presentation and it's hard to follow. So ultimately you have to make sure the information can be easily digested. So like I said, the board, the executive team can make very quick decisions. Right. Corporate development moves, as I mentioned, from a deal execution perspective, moves fairly quickly. And so you have to be able to move quickly as well. And you also don't want to waste cycles on looking at opportunities. Right. Corporate development can be a distraction as you look at opportunities. So you have to make kind of quick decisions. Okay, we're going to pass on this opportunity or we're going to pass. But if this changes in the future and you can give that feedback to the company, then we would then be interested. So you have to be able to make those decisions very quickly. So it's as important in your ability to present the information as anything.

Well, thank you for sharing that. I really enjoyed chatting with you. I think we're kind of at the end of our time. Just one last question here for you. If our audience wants to learn more about you or potentially get in touch with you, what's the best way for them to do that?

They can reach out to me on LinkedIn.

So I figured that's kind of, kind of the world's networking right now. You just, hey, find me on LinkedIn.

That's the best way to reach me. So perfect. And don't hesitate to reach out. I'm always. Corporate development's about building, you know, your network and building relationships as much as anything. So I'm all for networking with people so.

Well, great. Well, thank you so much for joining me today, Shaw. Pleasure chatting with you. I know my audience will enjoy this great talking. Someone has as much experience as you do in Corp Dev. I know you had the opportunity to work together for a brief time and I know you do a really good job in the work you do. So thanks for joining us.

Thank you, Paul. Good to see you doing so well too, having worked with you for a year.

Thank you. Financial Modelers Corner was brought to you by the Financial Modeling Institute. This year I completed the Advanced Financial modeler certification, and it made me a better financial modeler. What are you waiting for? Visit fmi@www.fminstitute.com podcast and use code podcast to save 15% when you enroll in one of the accreditations today.