How to Preserve Value in M&A

‍Text Version of the Interview

How to Preserve Value While Being Acquired? 

There's not always a playbook to share, but you really have to step back and think about your organization's ethos.

Especially for founder-led organizations or organizations that people have led for many years, as you've poised for so long and through a lot of arduous times to build that entity. And there's a lot of pride in that everything from end-to-end and you're proud of that whole thing. 

And so it's difficult to say which thing you want to die on the hill for and you do have to be prepared to probably relinquish some of those things, but really know what your high priority elements are. 

Parts of Your Ethos 

I learned how to separate what I'll call the brand, the office, a geographic outpost of people, and the community. 

For most organizations, that's one thing especially; if you're a single location organization, it's even tighter. If you're decentralized, meaning you have a franchise model, a lot of different outposts, they're all the same. 

But at that particular instance, all three of those things were one thing. And we had to step back and think about what is most important? 

And what probably goes away pretty quickly is your brand. There's some equity in it, but it feels like it's 12 months or less in most acquisitions. So you should be prepared for that. 

And then your location gets integrated in some way. You have new people showing up. Some of your people, if you want to call them your people, they are going to other locations. So you kind of lose control of those four boundaries. 

So what's most important is that community. I think it's a natural human condition. It's like a parent watching your kids move out of the house. You want to belong to the community. 

So you have to really think about, okay, if we're changing our community boundaries, cause they're not bound by that brand or this geographic location. How do we create that community that sticks? And that means something.

Communicating Your Manifesto

I'll try to complement both sides for the acquirer and the acquisition. If they've been through that or maybe they have some counsel helping them, they will talk about those things upfront. What I have found, however, in practice is they're not spoken about enough. 

There's a lot of focus on the natural things you run to

• What's the revenue? 
• What's the EBITDA? 
• What's the pipeline? 
• What's the new capability?
• What are the case studies?

 So those are just the four or five things that you run to right away. And the hard part is, what are those elements that are critical for the acquisition candidate?

And then, if I take the position of an acquirer, how do we feel about that? Is that going to cause ripples? Is that something we work with? Is that going to cause more work, less work? Is that going to be additive? 

So I think what happens is a lot of those things are actually talked about after the deal is consummated and not enough before. 

Value drivers are the classic management consulting points of synergy or some such thing that are part of the business case. And they're super important, you need those. What I'm talking about, maybe your strategic guideposts, they're more nuanced. 

It's something that especially when you're building a company and operating it, it's the company's aura. Sometimes part of it's written down, some of it's written down, some of it is kind of the feel. 

It might be how they approach their customers, it might be how they approach recruits. It might be how they deliver their service or product. And sometimes it's very tangible; sometimes it's intangible.

My very strong recommendation for any acquisition leading up to that process is to take a moment with your management team and write those things down. 

Spend the time kind of rallying and getting that alignment so you feel like you really know what you want to stand for, what you want to fight for in the discussions beforehand. 

Afterward is difficult because you have many things coming at you, including job opportunities for some of the people in your inner core, and they're moving out of the nest, if you will. So it's just things get a lot more dynamic I'd say after the acquisition happens. 

It's not just culture

How do you come together? It could be how you operate. It could be the way you deploy your laptops to your teams, and the kinds of laptops, the types of equipment you outfit your people with. All of those do play into the culture or what I would say is the ethos of an organization. 

How do you create value in integration?

When it comes to integration, you want value creation. You want to get through the integration phase as fast as possible because the value creation phase is the other side. 

Sometimes the acquisitions are made, and you'll recognize that you're going to invoke a lot of change on this acquisition and that's going to disrupt the mojo and momentum they have in the market and the way they deliver. 

If you do that, the business case will be rocked. So let's just let them off the side and let them do their thing, and we'll continue to do our thing. 

What ultimately happens is you confuse a lot of people in both organizations. And that permeates through thousands of decisions every day.

You're delaying the value creation. So it's much better to make some hard decisions and you might bump into some walls and break some things. But the sooner you break them; you can move on and fix them and get to the value creation phase. 

Fast Decisions During Integration

Two things stand out for me. First and foremost, it does sound a little classic, but I think it's important to understand when an acquisition is made.

What is the business case? 

That should inform us what we are trying to achieve, not just the qualitative words, but the financial goals, and how do we measure those goals? Knowing that you have the business case, you're driving towards helps drive some decisions.

Play Out Decision Cycles Before Going All In

It's crucial to play out some decision cycles and tests before you actually get into the wild. 

I've seen high-performance acquiring companies have those PMOs. And often, what happens is they get through that, and they run away to the next acquisition in the business operators. 

What is important is establishing the governance cadence. 

Managing Fear, Uncertainty, and Doubt (FUD)

When you're in an acquisition, there are many times that FUD enters into your psyche because it's the unknown. 

If you're their acquirer, that's the last thing you want to happen. It's important to think through the lines of governance and the lines of authority and just pressure tests. 

You need two things:

• Develop trust at levels in the organization
• Attack it with a lot of communication

As the acquirer, you have to be wary of the unintended consequences or unintended scenarios.

For the acquiring company, you want to have your eyes wide open and think about what that experience will be like?

Stakeholder Alignment 

It's nice to have the business case and some of the things you're driving towards financially and qualitatively, but sometimes you'll have to step back.

Jeff Bezos in Amazon talks about the phrase "Where you disagree and commit." So important, even if we disagree, we have alignment. As opposed to festering and bouncing around and creating more anxiety. 

From a principle standpoint, when you're combining organizations, cultures are combining. You want to reduce anxiety as much as possible. So having that strategic set of guideposts might take a couple of executives above the teams with friction to drive that. But you have to be ready to do that. 

Strategic Guideposts 

A strategic guidepost is everybody going to have that creates a decision that we don't have to make. We know that's the outcome we're driving towards.

Creating the Purpose, Vision, and Mission as the Acquirer 

You need to do some soul searching when you're going through the definition of the purpose, the vision, and the mission. So it's compelling for customers and our employees when we talk about it.

• What are you all about? 
• Where are your points of differentiation? 
• How do we want to represent that? 

Why Should You Do Integration Faster?

I've always felt like there's a set of moments where we're talking about what might be or what should be for too long? As opposed to just getting on with it.

Your clients and your product and your service are probably more important in terms of the viability of your business.

Even if you pick the wrong one, two months later, you can say that you've had some information come to light or whatever the situation may be and say it's a good practice." 

You didn't debate it for six months. You made a decision and you changed course if you needed to, but move on.

Communication Tips as an Acquirer

I'm fortunate to be on both sides of the deal structures where you still enable the acquisition to have communications unique to it. Depending on your integration phase and what you're trying to do, you bring a community into a larger community. You have to be thoughtful about what you are doing to let a community solve it because it's attached to a bigger thing.

Having the authenticity of the acquisition to communicate to itself helps build trust and creates a stronger bond in many cases. 

You also have to be thoughtful about that because you want to make sure it doesn't evolve to us versus them sort of situation.

Also, enable the target company to talk amongst themselves. And not feel like they have informants dropping in and listening to how they say things and trying to redirect. 

Over time you have to change that, but it depends on the boundaries of the communities you're trying to foster 

You're going to develop trust. And I think trust is so important because you reduce that FUD factor when you have trust. 

Transparency in making decisions

Sometimes it's important to share with the broader team, so they feel like there's a consideration for them instead of the management scene seeming tone-deaf. So sometimes, it's important to definitely communicate it. 

There are other times when it's probably more of an LT, leadership team set of guideposts that could be the roadmap for how we interact that maybe isn't meant to be distributed because it could be misconstrued. So there are two flavors I've found. 

How to manage the governance and authority during the transition period 

What you typically want to have are:

• an executive sponsor and core project team
• an extended project team that's contributing to that integration process
• an executive sponsor oversees the integration and the acquired entity.

So they're usually in some ways the buck stops, the decision stops with that person, but it's very clear there from the acquiring entity. 

They're empowered to make decisions. And then the acquisition clearly knows who they roll up to and it's not amorphous. That's how I'd addressed that. 

It has to be somebody who is well respected at the acquiring entity and knows how to work well across different functions because any acquisition will touch some horizontal thing. 

They have to be a champion because there is so much pressure.

Advice to CEOs Getting Acquired?

Think about your people first

Worry about the team and worry about that for the first 12 months. Make sure that you've landed on a plane landing, which sounds like a quick event versus a 12-month event. 

Let's set the stage so that our teams can be successful. What they do in this wonderful investment because usually, it just provides a bevy of new opportunities almost to the point of overwhelming. 

Work your way out of a job

Quickly, what should be apparent on Day One is that you're really no longer needed as the president or CEO. 

You are no longer needed as a governance function over time. It's important for the individuals running an acquisition to understand that you're not the captain of the ship anymore.

Dismantle the business that you've built

It's very important to allow your team to run and be part of something that would be even bigger than the stage they were on today. But that can require pulling something apart. 

It takes some, you have to figure out your relaxation method and you keep your feet on the ground method of choice. 

There are not many people you can talk to about what this is like and what guidance you might have? So it is an interesting period that you go through. 

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