Managing M&A Sourcing, Diligence and Integration

Text Version of the Interview

‍What are your process must-haves?

AW: Getting that alignment pre-close. It's critical, especially when we think about things like the knowledge chasm or the alignment gap that can be created. 

I don't claim that it's an easy thing to do, but I would argue that it's easier to do than some make it appear.  But you need a great partner on the other side, like Sabeeh or another Corp Dev guy, to really help set you up for success there.

There is a lot of overlap with the corp dev because I'm there pre-diligence and LOI, but I only pick up heavy during the formal diligence. So that's where the shift starts from Sabeeh handling that relationship to me, and I need a good hand-off. Without a proper setup, I'm toast. But with a proper setup coming out of diligence, it frees me up to have those alignment conversations.

So setting up some of those meetings where it almost feels too scripted. Sitting down and really walking through

• What the next hundred days will look like
• Here's what we've done to date
• Here's are the milestones
• What's it going to feel like? 
• How are we going to handle the staff that are there already?
• What's the communication plan going to be? 

Making those awfully clear so that everybody starts on the same page is my number one for must-haves.

Big Emphasis on Knowledge Transfer

AW: Yeah. I think about knowledge transfer in two ways. If you are in a situation where, for some reason, your diligence team gets separated from your integration team, they have to have a really detailed plan on how to close that gap without re-inventing diligence?

The ideal is that you don't have to run through that process because you ensure that you have the right people engaged in diligence, to begin with. Knowledge chasm is something that we do to ourselves by separating those two teams for some reason.

So the best thing to do is have the right people engaged to begin with and use the people who will end up with the company to drive that line of questioning, so they can consume the information that comes out of the acquired company. 

SK:  For me, my process must-haves is just making sure that you've got regularly scheduled internal meetings and external meetings with the stakeholders. Make sure that you're very clear with your communication.

External meetings are about talking to the seller and the entity advisor regarding any roadblocks. I want to make sure that we are on target in terms of time and that we are able to hit, at a very high level, all the things that we need to take care of in order for us to be able to close on time.

In internal meetings, you have to have a weekly leader meeting with the owners of all of your various workstreams. Not necessarily going through the detail of every little thing, but just hit upon the major red flags. What are the things that we need to take care of before closing?

And so, for me, those two standing weekly calls are critical. The objective is to keep those fairly brief. I try to keep the external call within 30 minutes or less. The internal call, maybe an hour because you've got so many different folks involved.

Another thing is to have documentation that is focused on making your processes repeatable. I'd like to have a definition document where it's very explicit when to move from one stage to the next.  

And make sure that it's all codified and written down so that if there are already questions, later on, you are consistent in applying labels, you're consistent in your organization, and you're consistent in your communication.

It's almost like a manual for M&A. You obviously want to improve that as time goes on. But having that documentation in place, I think, is a huge help.

Is this something you do, Aaron?

AW: I have operated out of a playbook, like a full instruction manual. I lean more heavily on ownership. We use tools over heavy documentation to establish ownership because that's an area where you can see some disasters.

If you lean on documentation, there would be no clear ownership, and that's where knowledge chasms are formed. I try to take the approach that Sabeeh and myself are the two least important people in that process. We're just a tool for the company to collect the diligence and to codify. But really, just working for the smarter people in the company.

How About People New to M&A?

AW: There's so much that goes into it from an integration perspective that when you're standing that up or you have new functional leaders who will be engaged in this, it's hard to digest. 

What I tend to lean on more are the objectives. You can give them some of the operating principles of how we do it, here's how we think about it, the objectives, and here's what it should look like in the end. 

A professional should be able to think their way through some of the smaller details there.

When Should Integration Be Involved?

AW: My best answer is as soon as possible. I'm usually involved in the pipelining as well, so I know what's out there. If that's not possible in your company, integration really needs to be there as soon as an LOI goes out.

At LOI, corp dev and integration need to work very closely together, where Sabeeh might be out in front, but I'm supporting behind, and it shifts to like 70% - 30%, where Sabeeh will just be there for support and historical context.

SK: As a good rule of thumb it is at least a few weeks before closing. You don't want any surprises. But it depends if your deal timeline is 30 days or less, then you don't really have much of a window. 

One of the ways to get around that is to have a relationship with folks on the integration side constantly. 

And then obviously, once you're actually in the middle of diligence, ideally those integration folks are involved with diligence, so it is a clean hand off. You don't want to have a separate integration kickoff, but you want to do that sooner rather than later if you do. 

Processes You Haven't Gotten, Right?

SK: That varies depending on where you are in terms of the company and your experience with M&A. When you're building something from the ground up, there's a lot that you haven't gotten right, and when you have done a ton of deals, you have a very different set of things that you don't get right. 

One of the areas that we are probably struggling a bit is getting those processes in place for the integration and the hand-off between the diligence and integration. Finding the right time to make that transition can also be challenging. 

So when you're working on the front of the deal, there are so many moving parts in a deal, it could really fall apart realistically at any time.

And so you also don't want to get the integration folks to fall too early and waste their time because they've got a day job as well. And ideally, you have some overlap between the diligence team and the integration team. 

AW: Yeah, almost the same. So I have an internal battle that I fight with myself all the time around the integration kickoff. 

Ideally, I don't want to have to run an integration kickoff because all of the individuals who will be running that integration, in deals of the size that I typically work with, should have already been engaged earlier on.

If I have to run a second team integration kickoff, it means that we just created that chasm, and now we're transferring knowledge over. I have an integration kickoff play that I run,  but I feel a little dirty about it because it means I didn't get the guys in early enough. And now we've created that gap. 

So solving for that is something that I haven't fully gotten comfortable with.

Alignment With the Target Company Post-Close

SK: A lot of those conversations, you have to have them early on during the diligence phase.

And when you're negotiating the purchase agreement, that's when you start to align certain incentives to make sure that the acquired company is going to be focusing on the right things on a go-forward basis. 

Having those strategy sessions is more post-close, but you want to lay the groundwork for those discussions earlier. 

A lot of back and forth happens when you're talking about the deal thesis. Sometimes, you can't necessarily reveal all of that information on the front end and prior to closing depending on the type of acquisition, depending on circumstances.

On the front end, you can clarify what the go-to-market strategy is going to be going forward and what the personnel plan is going to be.

You have to have those conversations super early on in the diligence phase, so that as you approach the end and as you approach that hand-off to integration and you're crafting the communication documents, you're consistent and you're not having those difficult conversations while you're going to look at drafting the FAQ documents for employees.

I also want to say that being the buyer in that situation kind of gives you a little bit more leverage because, at the end of the day, if you're planning on keeping the leadership team in place, they need to be involved. 

The key here is understanding the motivations of the seller. Why are they selling this business? Are their employees important to them? And then make sure that whatever plans you have for the business are aligned with that. 

If there are difficult conversations that need to be had, It needs to start early on. At least set the stage for them and then begin to have the ones that could potentially blow up a deal. 

Team Alignment during diligence? 

SK:  Obviously, you start with a kickoff meeting. I like to have a diligence kickoff meeting very early on. As soon as we get the LOI signed and we're getting ready to start within the next 24 to 48 hours, we have to get all hands on deck and call everybody who will be involved from all the various workstreams. Give them the information on the deal:

• Why we're looking at it
• Why it makes sense
• What are some of the critical things that we're going to have to focus on?

And then, can you put together your diligence request list and prioritize the most important ones to ensure that each of the workstreams is focused on the most critical things for their workstream. 

Also, help focus and drive the conversation in identifying key issues, questions, risks that they need to watch for as they dig into the data as they go through the material.

And then, you need weekly check-in calls. So I like to have one high level with the workstream owners, every week to ensure that any cross-functional workstream items are being addressed. You don't want your operations team operating the silo from your finance team.

Depending on the size of your diligence team, you may also want to have separate calls for each one of your workstreams. 

That is a great way to make sure that everything is being communicated regularly with folks internally. And as you go through diligence every week, I'm pushing my team to update the tracker, make sure that folks are marking things off as complete. 

That is a signal to the seller that you're engaged and that the team is working through everything, and at the same time, I think it does a really good job of making sure that nothing slips through the cracks. 

AW: It's very much the same for me as well.

Do's and don'ts of managing communication

AW: So a big "do" for me is clarity. Don't assume that people know what the plan is or that somebody else has already shared with them. There's power in repetition; there's power in the cascade. 

It should be the same message every single time as you cascade down through that organization. That message should tie out to what you share with the customers. It should tie out to what you share with the partners internally with the employees, the acquiring company, and the employees and the company coming into the family.

You need to be super crisp with all of that messaging so that there are no little threads to pull at and you don't create confusion.  

SK: I agree with all of that. You have to make sure that your communication plan is consistent again with your deal thesis, that the seller is clear on what will be communicated to the customers and the employees that are being acquired.

And you also want to make sure that you are communicating appropriately again to your own employees as well. 

And I think that the big "do" for me in terms of the team's day-to-day management is that I try to start off every week or every conversation that I have with the assumption that everyone forgot about last week.

So I just bring them up to speed on every little thing that happened in the last week and kind of where we are today. And then I hand it off to the work stream owners to fill us in on where we are with diligence and the risks they discovered.

So folks are aware of more than just their siloed functional area, in terms of where we are with the deal overall and within the timeline, so that they can better manage and fill out their calendars over the coming weeks well. 

So for me, that's huge, starting off every meeting as if nobody's in the loop and just filling them for the first time in a week. 

When to Start Go-to-Market Planning?

SK: Super early on. I think that is the best part of diligence. If you don't have a go-to-market strategy, you have no business closing, in my opinion.

I know that some people fall into that trap of figuring it out after the fact. But I think you've got to, at least, have an idea in your head before you close, how you are going to price this new product that you're acquiring, or are you going to pursue a direct sales model or indirect sales model? What are the cost structures associated with that? 

All of that is a key part of the valuation model that the corp dev is building. So I mean, that really can make or break a deal. And it's okay to be in a position where you're not entirely sure of this, but you at least need to be able to identify the key things that we're going to have to figure out a bit of the post-close.

If you have the plan's framework set in place, then those post-acquisition conversations get a lot easier because then, you can quickly make those calls within the first 30 days and start to execute against it. 

AW: That's also where the company that is new to the family starts getting hip because you don't have a plan, and your communication starts falling apart there.

It's a mistake thinking a thesis is a go-to-market strategy. The thesis is great as an initial conversation driver, but that go-to-market takes you to the next level. And I think that's also a place where super clear ownership comes into play. 

Usually, this is the product team. Sabeeh can lead with a thesis. But that product team needs to be smarter than the both of us and really put together that framework. That framework drives everything else that I do post-close and it should drive synergy planning.

So without that go-to-market we're toast. It takes forever to get through some of that stuff post-close, but it can be a relatively painless process if we do a pre-close. 

Executable go-to-market strategy 

AW: It's really demonstrating that framework. There are some key pieces there. 

• How does the product fit into the portfolio? 
• Are we growing it? 
• Are we holding it?
• Are we selling it? 

I can't do it, I'm not a product guy, but for the right professional in that product role, it should be a fairly simple exercise based on some of the findings of the corp dev. 

Beyond that, some of the modeling that Sabeeh does is going to drive most of that as well, but just that framework gets me to enablement or a clear kind of actionable go-to-market activities by day two. Ideally by Monday, after close.

When is the Corp Dev done?

SK: It can obviously vary depending on the transaction. My job is, at least, in the front end of Corp dev is to oversee diligence. But I still stay pretty involved, especially in the immediate aftermath of an acquisition to ensure a knowledge transfer.

Also, to facilitate any difficult conversations with the seller, who is now a member of the organization. To get those roadblocks out of the way so the integration team can go out and execute.

I think that my role shifts a little bit. So in the front end, I'm a project manager, but then on the back end, once it shifts into the integration phase, you're more of a program leader.

And so your job is to make sure that the high-level decisions are being made in a timely manner. My goal is to be completely done and out of there within a year post-acquisition, obviously that timeline can vary.

Why Do You Stay?

SK: Just being a member of the team and just the fact that I will be held accountable for it. It's not if the integration goes; chances are folks have to look at that acquisition as being executed poorly.

I look at it as even though I may not be directly responsible for it, it is still a reflection on me because I was responsible for ensuring that the integration team could do their job effectively.

And then obviously, the success of the company means that it's good for all of us. So it's just a personal statement.

Do's and don'ts on Day one

SK: You need to have a plan before Day One. Don't plan after day one. And I would say don't necessarily make large organization changing decisions on day one. So if there is a plan to reduce head count for instance, that's not something that I necessarily want to do during post-close.

One of the first things I like to do is make sure that the new employees are being welcomed, feel a part of the new organization, and know that we're all going to be there to support them. 

There's a lot of fear and uncertainty, not just from employees, but also from customers, because they don't know what the plan is going forward. 

So the key is to have a good communication plan in place for both internal and external stakeholders. And I would focus on the cultural kind of integration issues on day one. And then start your technical integration whenever I think that it makes sense for the deal.

AW: Just reduce uncertainty on day one in whatever form that takes. Also, the biggest hero on day one could be your internal IT guy just for setting up those email addresses.

Best Advice for Practitioners

AW: Go fast. You should get to a point where you're going so fast that it feels reckless. At that point, you're almost fast enough. That doesn't erase any of what we've talked about before, some of the best practices around not creating confusion. You still need that clarity, but you need to create that clarity fast.

The longer you leave it sitting on a shelf, the more confusion you get, and cultures don't gel. So go, whatever you're going to do, go fast. And that includes trying to be done with anything you possibly can be done with before day one even hits. 

SK: Go fast makes a lot of sense. Don't delay or postpone or procrastinate in any way. 

And then the other thing is to make sure that everybody is consistently engaged. So if you are assuming that a particular workstream is handling their business, that's a great mistake. 

Understanding that folks have a lot on their plate. They've got a day job as well, or they've got other responsibilities, but making sure that they are checking their emails, that they're up to date on the latest developments with the transaction is critical.

The last thing you want is to find out, three to four weeks into diligence, that one of your streams really hasn't made as much progress as you needed to. And now that's going to delay closing. 

Tips on Managing Sourcing 

SK: Make sure that you are using tools other than just Excel. I think Excel is a good resource if you're keeping a running tab of all of your potential acquisitions or prospects out there, but having a CRM tool, a pipeline management tool, is key. 

Even if it's not a deal that you necessarily want to pursue today, having the intelligence and having the data on that is extremely helpful.

And then invest in the tools that are going to help you find more deals. There's not a ton out there, but certainly, tools like pitchbook and cap IQ can help with the deal sourcing in trying to find out the companies in that space. 

Google is my biggest friend. I love to go down a rabbit hole if I look at one company and try to figure out who all their competitors are and what space they play in.