Summit Recap: Bridging the Gap Between Corporate Development and Integration

This interview is a rewind from our virtual summit. Joining me today, Devorah Bertucci, Director of Corporate Development at Microsoft. Devorah is an experienced M&A professional with a background in finance, law, and a passion for technology and media. Kim Jones is a Senior HR M&A Manager at Microsoft.

She conducts due diligence research and all HR-related integration activities as part of Microsoft’s M&A programs. Today we are talking about making acquisitions successful and how creating value for both sides isn’t easy.

There needs to be a partnership with corporate development and integration that drives negotiations that structure a deal for success. For this panel, I have recruited two industry professionals to share how they collaborate, and explain why negotiation sets a tone for integration.

Can you each give some background on your involvement in M&A at Microsoft?

Devorah Bertucci: I am a Director of our Corporate Development Group and I’ve been in this since 2011. As a corporate development professional, I lead transactions, in terms of both the valuation and execution.

On the execution side, I lead negotiations from term sheets, all the way through definitive agreements and I work closely with a lot of different teams across Microsoft to partner on both the valuation and the execution.

One of those important teams I work with is the integration team and one of the most important functions that I work closely with in that team is HR.

Kim Jones: I have been focused on M&A and people work-stream for this team for the last 5 years in Microsoft. We work closely with corp dev and they are great about getting HR involved early in the process so that we can help identify and confirm talent as a deal value driver.

This helps us understand how talent and culture play a role, so we can start to build a relationship with the target leaders in collaboration with corp dev. All of this accrues to ensuring that our talent decisions are reflected in our cost analysis and final legal agreements.

One of the things we partner on is a discussion with the CEO and the target leaders, depending on who we are working with and identifying styles and communication methods that we leverage in the negotiation so that everyone is aligned with what we want to accomplish.

What are some of the things that early-stage companies should think about when considering M&A?

Devorah Bertucci: If they are approached by a company, it is important to have an aligned vision and a shared understanding of goals between the target and the acquirer. In most situations, this means a shared view of how the product will be integrated, what is the vision like and how will the people work together to achieve those goals. This is crucial for setting expectations.

sk a lot of questions about what you are going to be doing once you are acquired. Don’t be afraid to ask what your role is going to be, who you are going to be working with, or what will be happening with your team. 

Kim Jones: What I would add to that is thinking through are they aware of the time commitment that it takes to go through an acquisition, as well as is there enough money to get through the process.

On the people side, it's important to have strategies to make sure you are bringing your talent and team along in the process, ask what’s the culture like, and is it aligned.

Devorah, why is the negotiation stage your favorite?

Devorah Bertucci: I love both the strategy aspect of negotiations along the lines of debate and having a strategic discussion. For me, to have a successful negotiation, you have to keep in mind that it’s not just about winning the negotiations at all costs. It is important to understand that the company and the people of the company are going to become part of Microsoft.

Therefore, building a relationship ensures a happy, productive, and successful team of people that come into Microsoft. 

How does negotiation style affect yield terms?

Devorah Bertucci: It can vary significantly. If you are acquiring a company that is about to go bankrupt, where the management team is not coming along, it can be a very high-pressure situation that requires a very different attitude compared to acquiring a company where the CEO is super excited to become a part of the team.

In those situations, I often try to align myself with the CEO and think of ourselves as a team trying to get the deal done, which can have a positive impact on deal terms. Because then they become an ally, even if they are not a part of Microsoft.

In a sense, you are giving them the ammunition to fight for what they want in a deal which is often aligned with what we want. 

How would that negotiation approach change based on the business leader and his personality?

Devorah Bertucci: The standard playbook with our business team is that I tell them that they are the good cop who is selling, and I am the bad cop. If there is a hard conversation to be had or conflict that has to go through the CEO I like to take that on.

The CEO is not working for me post-close, but they are working for the business leader at Microsoft. 

Kim, when do you weigh in on this?

Kim Jones: We weigh in from the beginning. We can be the escalation point in having a hard conversation with the target leaders. If we are there from the beginning things work better because we have different insights and we can bring those viewpoints together and ensure that what they are saying to us is the same what they are saying to corp dev.

It's never easy, but I do think this helps build trust with target leaders so we can get down to what's important regarding deal terms and make things move forward smoothly.

How do you ensure a smaller company is a good fit for Microsoft?

Devorah Bertucci: The product fit is the first thing - will the product fit into our product and our roadmap. The second thing is the people. I tend to bring Kim and our HR people very early in the process as I want them to coach our business leaders on how they think about whether or not the target is a good fit for Microsoft. 

Kim Jones: Everything does start with making sure that those clear expectations are set and that things are communicated often. Alignment on this allows us to coach each side on what's happening, how they are showing up and the impact through that.

We are looking at confirming through our due diligence process what the risks are and whether or not we are aligned on goals. This is the value of this process because it tells you the reality - is there enough for you to continue to go, or does that show you that there is too much risk or a mismatch? 

I know you are involved early and you are helping them make the assessments. What is it that you are specifically doing?

Kim Jones: We initiate conversations with our business side to understand what they are wanting to accomplish.

In the meantime, we are working with the target on due diligence from going through all the data room, looking at employee data, having conversations about the organization, learning about their culture and what their drivers are so that we can work through the rest of our process to get to integration.

This includes offers, employee communications, onboarding, and similar. 

What would you do in terms of activity to understand that company’s culture? What are some of the questions you are asking those companies?

Kim Jones: We do a lot of research on the company to see what their leaders are saying they are about and actions they take to support that.

We have conversations specifically about the culture in what we call an organizational deep-dive, where we bring the target and our business together to ask them what they do, how they communicate, how they get things done, and what are some of the team norms.

From there we go into how their teams work together. In the meantime, they are learning from our business and Microsoft values. 

What about when the hammer comes down and you need to tell them that there needs to be a change in the way they are doing things because things are a little different in Microsoft?

Do you start addressing that earlier or later?

Kim Jones: Those are the conversations the business leaders need to have. The target company comes with work and their ways of how they get things done. Sometimes that can enhance what we do, but sometimes some changes need to be made and conversations need to be had. That is all part of the integration.  

Devorah, how does your role at corporate development influence how you address culture?

Devorah Bertucci: I bring in HR very early on so they can help assess the culture because they can take ownership internally and ask the questions externally. I bring them in even for preliminary diligence if possible, so they can start asking the initial questions which help us structure the deal and understand the culture.

There are some situations where a company has a super unique culture and team, for example, a game studio, so it might make sense to keep that studio intact versus fully integrating them into Microsoft. The most important thing for corp dev is to raise this early and bring in the right people to have the conversations and help advise. 

Kim, how does your perspective of company culture differ from corp devs perspective when approaching potential targets?

Kim Jones: Typically, we are aligned. When they bring us in, we show up as a team. The only difference is, sometimes when the business is thinking differently or they haven't thought about culture, that's where we get to explore where the differences are and plan how we are going to work through that. 

What are the early signs of risks or a bad fit and what is your general advice for dealing with it?

Kim Jones: Early signs are the values mismatch and documentation in the data room not matching the conversations. If they are talking about a product being something different than how it's going to be at Microsoft then that's not what we are looking for. If we evaluate that the talent doesn't quite match with what we are looking for that can be a flag.

Microsoft is really on a learning journey about how we are looking at our culture. We try to dig in for similarities and differences and we use that for framing for employee engagement. 

Devorah Bertucci: I have not walked away from a deal that was already in the motion because of cultural fit but I will say that, when you look at a range of possibilities and you evaluate them on several factors, culture is one of the things you look at in terms of overall fit and the ability to achieve the objective.

If we are looking to acquire something we are looking for a quicker time to market. So, if it's going to be a long and difficult road with this is when we say no because it will not help us achieve what we want to do.

One of the big risks that I have seen, sometimes in the preliminary diligence, is getting a sense that the CEO of the target company and the rest of the team are not aligned. When you see this you start to question if that CEO has a future long-term role in Microsoft.

Who is leading the team? How are you going to keep that team motivated at the beginning? It is our job to make sure that these are fully identified and to help them fully think through these risks. 

Is there any key person you ask to go about identifying that? 

Devorah Bertucci: It's a dynamic that you can often see in preliminary diligence sessions. In a room where there are a lot of questions being asked, especially in technical sessions, you can observe who's answering the questions and if the CEO is jumping in to answer all questions or say contradictory things, that's when you can see the tension arise.

Sometimes this tension arises in those technical deep-dives. It's not a question you can ask, it's more just a sense you can get. 

When you start seeing signs of a bad fit, how do you manage that?

If it's strictly on leadership, do you have a plan around it or that becomes a dealbreaker?

Devorah Bertucci: If we think a leader is not a good fit it's better to be transparent about it upfront. If everyone is aligned that there is a person at the target who is not a fit, but the acquisition makes sense and there are other strong leaders, that is the type of person we would usually have for the transitional period but they aren't going to stay in Microsoft long-term. 

Kim Jones: We do rely on having those conversations where we talk about whether it is a transitional or a time-bound role. We do ensure that our business leaders are ready to have such conversations and address the gaps in expectations so that they are aligned and everybody knows what lies ahead for them.

If they are looking for other things within Microsoft we can look for ways to help support that.

What are the biggest concerns for the company you are acquiring during negotiations and as you progress through integration?

Devorah Bertucci: Price seems to be everyone's biggest concern, as well as what are they getting from the deal. The speed of execution and certainty of closure are always very important things.

Those are the negotiation terms that I would say are often critical to founders and their investors. We like to do a good amount of diligence before we get to the term sheet to make sure we stand behind that. 

On the certainty point, I usually like to walk founders through the idea that we do some work up-front and that means we are pretty much certain to close a transaction. People are concerned about what their role is going to be.

I find that that comes out a little later, which is why I advise people to ask it earlier. The next hardest thing to negotiate after the deal terms is the employment offers. 

Kim Jones: I am aligned with Deborah on all of these things. How do I operate now? How do I get work done within this new system and still have expectations and customers to keep happy? How do we keep products on track and on board with Microsoft?

You have a team that comes in with work. Figuring out how to influence and how to scale at Microsoft can be challenging.

How do you balance accommodating company culture and uniformity across Microsoft?

Kim Jones: We do like to honor the acquired company culture. All teams function differently within Microsoft, but they are all aligned on values. It’s our team’s job to identify what is good, what's different so that we can plan time to be intentional about working through things.

Devorah Bertucci: In recent years we have done a better job even when dealing with a team that needs to be fully integrated into Microsoft. We still try to keep that team intact when they come in.

Things like that, for example, are a good way to make sure you are not putting a team into a culture shock and it's more productive to keep them working that way in the short term.

Then you transition people into a longer-term structure. It's important to be smart enough to know what are the drivers in a particular situation to formulate and define a strategy.

What advice would you have for other folks in corp dev/integration to develop the type of relationship that you have where you are actually aligned and working well together?

Devorah Bertucci: As a corporate development professional, there is a lot of friction in what we do. I am much happier if there is none of that friction with the integration team. After all, we are on the same team and we have the same goals and our main goal is to drive the best transaction for Microsoft.

Being territorial with somebody on your team is a waste of energy because that energy has to be saved for external negotiations. I am a big fan of empowering others who are experts to own their piece of a deal rather than corp dev trying to do everything. 

Kim Jones: I would say that that extends to our border team too because if we are involved in some of the early conversations on build-versus-buy we kind of understand where we are trying to go and can help guide our practices towards that.

There is a big importance of engagement with the go-to-market team and making sure that that's aligned. 

Can we talk more about bridging the gap between corp dev and integration?

As corp dev leaders, how do you challenge your integration teams to go beyond and get their hands dirty in sales, product, technology integration that drive the growth of acquired businesses?

Devorah Bertucci: I believe that if you ask people to do things and give them more responsibility they will step up and do it. I like to collaborate. We have tried to evolve our integration practice in this way.

Leaders ask our integration team to step up, and instead of following an integration playbook, think about making acquisitions successful. If something is deeply ingrained and siloed that doesn't mean it can't change

Kim Jones: And we do have a scorecard process that we have acquired companies and governance where we check in quarterly for two years and we just recently broadened that to include all teams so everyone can hear what's happening and engage on challenges.

How much of your strategy has changed due to the recent COVID situation and people being remote?

Devorah Bertucci: Some deals started wholly after COVID came up. We have a bunch of deals in our pipeline that were closed or announced that had started beforehand, so you got to meet people in person, do your diligence.

From my perspective, a lot of my in-person contact with targets is really in the preliminary phase, so for those deals, not much has changed. I found that sending out a diligence list, getting info via email, and then scheduling a series of calls works the best.

Also, turning the video on is a good way to adjust. Those are the tactical things that I have done to make sure that we are pivoting a little bit from our standard process. Doing one-on-one calls with the CEO is also helpful.

Kim Jones: I would say our practices have changed, but on the strategy side we are still doing deals. Our process ensures that they are vetted, and overall our strategy of acquiring companies is still in play and our teams are very busy.

We do tactical stuff like building trust over video. We are seeing new ways, we are trying different things, and it's challenging on the HR team onboarding but also our IT teams. 

What's the craziest thing you've seen in M&A?

Devorah Bertucci: In terms of fun crazy, what comes up, again and again, is that people get attached to very specific things, such as a car and the car lease which they feel they need to keep.

Or, on our side, in gaming, we have to have this one piece of memorabilia come with the deal because otherwise the employees won't be motivated. As a corp dev person, one of the craziest things I have seen is last-minute negotiations and last minute renegotiation of terms always.

Kim Jones: One of the coolest crazy things was when I and the target leaders were in our outside counsel to do a signing in person. They laid out paperwork on this huge table and walked around and signed it.

To see it come to that and to witness that was pretty cool because there were so many emotions of relief, celebration, a bit of sadness, and excitement. 

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