Connecting Diligence and Integration in M&A

Getting into M&A

So, in the last couple of years, we completed between 22 and 25 acquisition deals. Some of these we consider partnerships, which are larger standalone offices, but they still fall into the roll-up tuck-in category in the general space.

We also handle smaller projects, which we call fold-ins. These might involve a book of business or merging one employee into the same office, sharing leadership, and similar activities.

As soon as I moved over, I saw the need for processes, policies, and procedures to be established.

Interestingly, when I first transitioned into M&A, I searched for the best M&A books and found "Agile M&A," your book. It was the first M&A book I read, and it taught me a lot, exactly what I needed to kickstart things. I then helped manage the transactions and got things started.

As I mentioned, I managed the transactions. Once the LOI was signed, I oversaw due diligence, working with either internal teams or external firms. I also assisted in managing the funding with the bank, handling legal matters, and contracts. I served as the liaison for both the seller and our company.

After we completed funding and closing, we moved them into integrations. At that time, it was handled by a separate team. I started in the deal team.

Evolving into integration 

Well, I'd like to say I was gifted the department earlier this year, because they called me on my birthday to talk about it. So, it was my birthday present. It was one of the best presents, actually. 

It was one of those situations where we had some turnover in leadership on the integration side. It presented an opportunity as I was getting more involved post-close. One of our biggest challenges was ensuring a smooth transfer of knowledge when you have two separate departments. So, it made sense to bring them together and run them as one, as many larger companies do. 

Therefore, me taking over was a natural choice and progression. What we were able to do then was bridge the two departments, focusing on open communication, transparency, and trying to break down the silos that we had in place at the time. That's something we've really worked on this year and have been pushing through.

I saw a lot of opportunities to improve and took the challenge on. There always is in integrations, as you know. Whether you’re a big company or a small company.

It’s the scary part of the deal because you’re bringing two companies together into one, that has created their own environments, their own culture, leadership teams, and then you’re trying to bridge them together.  

So you have to have the right team in place. You have to trust your team. You have to communicate what the expectations are, because if you don't communicate that, then expectations are never going to be met. And so that communication and transparency is absolutely key.

Transitioning from deal team to integration team

For us, what it's like, as several of your other speakers have discussed, even at the fall summit last week, involves engaging from the beginning.

This means involving the integrations lead, the integrations manager. I have someone on the team who is our integration manager. She works closely with the seller post-close. We involve her earlier, as soon as the LOI is signed. We start having meetings and discussing, holding weekly integration meetings as a whole.

In these meetings, we can discuss various aspects. During diligence, we bring in our subject matter experts from different departments like finance, accounting, legal, our data team, IT, HR, to work on creating that integrations-led due diligence.

The current focus is getting them more involved in taking ownership of reviewing the data. Who better to review and analyze it than the subject matter experts who handle the integrations afterward? They know what they're looking for and what questions to ask.

They can identify if we need to pivot, finding risks, opportunities, threats, or red flags, as you might call them. Having them identify these factors helps us on the front end of the deal. If we need to renegotiate, pivot in a different direction, or look at a different structure, we can do that earlier rather than later.

Pre-LOI considerations in M&A

It is very tricky. We're very selective with who works with the prospect pre-LOI or even right at LOI. This is because it's an overwhelming thing for a seller, especially for many of our sellers who are small one or two-man agencies that have run their agencies for 20, 30 years. 

It's a very delicate situation. But what we do is gather some initial data, almost like preliminary diligence. Then we have our internal teams look at it, and we can still run it through our corp devs. Our sales guys on the corp dev side will be the main point of contact pre-LOI. 

We can discuss and have those discussions with them, but also work with our teams to assess if this is going to fit. We look at the time frame, what they need, what's expected, and figure out if that's going to fit in our playbook for the next 3 months, 6 months, 12 months.

So if there are some key things, we’ve probably built that into our playbook and know to ask for that pretty early. 

Merging Corp Dev and Integration Team

A lot of the challenge before was a mindset issue. The leaders we had in place operated in a very siloed manner, thinking in terms of one side of the fence and the other. Breaking down those barriers and changing that mindset within the team made a huge impact on how we operated. It enabled us to start open collaboration, working and supporting each other. 

For instance, someone in accounting might notice something that affects data conversions or IT and legal issues. We shifted to a mindset of being one team, working together, taking ownership, and being held accountable. That was our starting place, getting everyone thinking on the same page. 

In meetings, especially when discussing new deals, I always start with the question, "Why are we doing this deal?" Fortunately, we paused M&A earlier this year, which helped us recalibrate and focus on the 'why' behind what we're doing. This empowers our people to take more accountability and ownership of their roles.

As we bring in a deal, I ask questions like, "What are the goals of the partnership? What are our goals and the seller's goals? What are they looking for in this, and what do they want out of it?" Communicating this to every department is crucial because it informs how they think and work with the seller.

This approach bridges the gap of just going through the motions or following a checklist. It allows for creativity in our processes and adjustments based on the particular seller, because no two sellers are the same, nor are their needs.

What we may need from them can be very similar, but we always have to stay on our toes. I'm inspired by Simon Sinek's book, "Start With Why," which I've brought into our approach. It's important to know why you're doing something. 

And so fostering that collaborative nature and working together and encouraging that, it makes a huge difference.

The impact of mindset during transition

The mindset shift definitely made a huge difference. When I took the role, I started by asking each individual team lead, "What do you need? What works for you, and what do you need to be successful from us?" Shifting the approach from us just telling them what to do was crucial. Often, your integration team is dictating tasks, but we changed it to, "How about you tell me what you need and how we can support you?"

That approach opened up many windows for us in terms of really understanding the different stages and needs of each team. This understanding allowed us to rebuild our integration timeline, plugging in teams pre-close at the times they need, conducting their analysis, and finding the items they're specifically looking for. Therefore, they're not blindsided or starting behind the timeline post-close.

It's funny how far just asking people “what do you need?” can go. It's amazing because sometimes they just want to be heard. 

And what one person needs, another person on another team might be able to give to them. So it really brings them together now, even without you being the middle person.

Connecting the two functions

Well, we went through a couple of different iterations of connecting the two. We started with the idea, under previous leaders, of pre-integrations and having them look. However, the issue with many companies and teams is that the people doing the integrations often have full-time or time-and-a-half jobs, making them part-time in M&A or integrations.

That was primarily what we were dealing with back then, though we have more dedicated staff now. With them being part-time resources, we tried this idea of pre-integrations, where we would just look at the data. But then we realized we needed to set clear expectations and guidelines for what they needed to look for.

We've gone through a few different iterations of this. Then I transitioned to more of a pre-close analysis and built out a section in our DealRoom for their assessments. That worked to some extent, but many teams still voiced the need to know things earlier.

So, instead of waiting until the last 30 days or so, two weeks to 30 days before the deal closes for them to review, we decided to move everything up front if that's what they needed. This way, they can do whatever is necessary on the internal side. Then, the deal lead, which is me during the transaction, can communicate that to the seller or have someone else do it.

This approach prevents inundating the seller with multiple people coming at them with different things. Especially when dealing with smaller sellers, they can get overwhelmed very easily, and we want to avoid that since this is likely the biggest decision they've ever made in their life.

We're always trying to make it easier for them. If we can go through, figure it out, bring it all together, and identify if we need to pivot on a few things, the deal lead can then communicate that and figure out exactly what is needed.

Keeping the customer experience or the incoming employees top of mind is crucial. Their employees are going to experience a significant shock, and even the seller or owner, if they're staying on, will face many transitions. Integrations are not easy; they don't happen at the flip of a switch but over days, weeks, months, and sometimes years, depending on the industry and the level of integration desired.

That's where a company has to define autonomy versus integration. We recently redefined that, making the vision clearer as we go through more integrations.

Keeping teams and workflows aligned 

Yes, and that's what DealRoom definitely helps with. We break our entire M&A function into different phases, and different teams are tagged in at various times. We also have parallel work streams, especially when integrations and diligence start to combine.

What we do is set the integration strategy based on diligence findings from these teams. We collaborate with them to establish that strategy and timeline for post-close. Our integration manager primarily sets this, and then we discuss it as a group in our weekly meetings. We're always communicating and working together. 

If IT, for example, says they can't hit a target due to specific reasons, we can shift the rest of the timeline accordingly. DealRoom helps us with this because we have everything laid out so clearly. We've worked hard on getting that template set, but we can adjust the due dates, start dates, and dependencies if something unusual comes up in a deal.

This keeps us on track, allowing each team to follow along. At any point, I or an executive can easily check in and see the progress, which aligns with their communicated timeline and strategy.

We also discuss details like how it's going with the acquired team. We're able to put all those notes in there and chat back and forth in the comments section if needed, or tag another team or make someone a reviewer.

It's helped us stay organized, having all the data in one place since we use it for due diligence as well, which has been phenomenal for us. Everything is right there at our fingertips. Someone in IT can see where someone in accounting is at any given point on any given deal and vice versa, and the same applies to other teams.

Regarding the parallel workstream, it's about bridging diligence and integration for us. We're working in parallel. I'm managing the transaction and we're still going through the deal, but they're starting their own work stream as well. We are working side by side together as we go through the deal and get closer to close.

We always have a target close date. If there's a finding that delays everything, we adjust our close date, which then adjusts all their dates as well. This way, we can keep it moving, even if things shift down the timeline a bit.

Knowledge is power. I use that more than I should probably, but knowledge is power. 

Biggest challenge in the transition

As I mentioned before, people with full-time jobs are part-time in M&A or integrations. We've built out our teams to be much more robust than they were a year ago, which has been hugely beneficial for us. However, sometimes, since they have full-time jobs, meeting those deadlines can be challenging.

Fortunately for us, the importance of M&A is clearly communicated from the top and is part of our company vision and strategy. That definitely helps, but when it comes to the teams, timelines, and deadlines, having open communication is key. 

Like I said, we have weekly meetings with our teams, involving around 15 leads, and maintaining open communication allows us to reemphasize what is needed and by when. We also have separate one-on-one meetings with some of the departments, depending on the deals we have or if there's an influx of work. These meetings are more helpful because we can focus on the specifics of what is needed and when.

It's all about communication, and I can't stress that enough. Communication, transparency, and being open with expectations are crucial. Sometimes, you may have to follow up multiple times. But if you emphasize the 'why' it's needed and by which date, it comes across much clearer than trying to force someone to do something.

The challenge of change management

It's hard, I'm just going to be honest. It's particularly challenging when people are stuck in the mindset of, "Well, that's not how we always did it," and now you want to introduce something new.

One thing that has really helped us is having a champion when there is a big change coming. This is a general change management strategy – having that person take ownership and be the champion or spearhead of the initiative. 

For us, one of the biggest changes was implementing the DealRoom software. I've spoken to several other people in the industry about the importance of having that champion, that resource, someone who knows it and is there for your people when they have questions. 

If you're just telling people to change without explaining how it will make an impact or what the benefits are, you're not going to get the result you want. People need to feel empowered and have some ownership in it. We need to listen more and explain the impact. 

Something I like to ask my team every week is, "What impact have you had on our partners today?" We call a lot of our deals our partners because some of them are partnerships. Or maybe not today, but this week, "What impact have you had on a partner this week? You or your team?" 

It's fascinating and encouraging to hear what they say and what they or their team have done. You have to capitalize on that excitement because that will take you much farther than anything else. When somebody feels that they are making an impact, it's powerful. I was the change champion, in case you can't tell.

You get new employees all the time, and people change positions, so it's just part of it. If they know they're coming into a solid team and they're going to have that impact because that's what's already lived and breathed, it's culture. And that's the culture that you foster and live by, then it makes things a lot easier.

Managing new hires in key roles

It can go either way, but I like to empower people to have the opportunity. They need every opportunity to instill change or try to create value. If they don't take it, if that's not what they like to do and they prefer to go through a checklist, then more power to them if they know that.

But I think we should give people that opportunity because, my gosh, I don't see everything. I don't know everything. I will be the first to admit that. There are people on these teams that know more about certain topics. So, let's bring it to the table.

It's like when I first started, it was, "That's not how we've done it." And I'm like, well, we're not the company of yesterday anymore. When we're doing 20 deals a year, you have to have your ducks in a row and have those foundational building blocks in place. That's one thing I always stress to other people as well: take time to create that foundation. If you do not, your cracks are only going to get bigger as you start to do more deals over and over. You have to create that solid foundation first.

Key advice for managing the end-to-end M&A process

What I just mentioned about building that foundation is crucial. If you need to take a small pause to create that and start from the beginning, then do that.

Your policies and procedures must fit the company strategy and vision. This is especially important for smaller companies. You really need to keep communication open, build those foundational blocks, and instill transparency and communication. If you're not on the same page, you'll never get through to the end.

It can cause frustration both internally and with the acquired team, which you definitely don't want. You need to be as open as you can, but also be realistic. You are going to have to pivot and stay agile. It's not going to be the same for every deal.

Even though you have your template and your playbook, it will have to change, and that's okay. Every deal is different. So you adjust and keep moving forward.

Well, you can frame that under the ‘one team’ umbrella and then, because you're under one team, you can run those parallel work streams and support each other as you move through the process. 

Because let's be honest, there are integration teams and individuals, team members, who will come to me during the deal and ask, "Did you ever discuss this during the deal? Was this expected during the deal? What was learned?" Those kinds of items.

Optimizing the M&A function for a roll-up

For us, it's a little bit different because while you could consider us doing roll-ups, we're not rolling up a sector industry because insurance is so far and wide, and every large to middle-sized brokerage does this. So, we're not scooping them all up.

And we're privately owned. One thing that's been significant to see with our maturity is how we've changed our M&A strategy based on our company goals and vision. Those two pieces have to align. 

I'm not sure how to really answer your question. But in terms of diligence, the way we optimize diligence is by learning from the past. We try to focus on and grow as we do each deal. What worked? What didn't work? Did we maybe miss something, or did we do too much of something, or was this exactly what we needed? 

We go into the deal knowing why we want to do the deal. So, diligence is, in a sense, trying to find a reason why we shouldn't, and if we don't find a reason, that's beautiful. That's the goal. We don't want to find a reason. 

But since every seller is different and every deal is different, you have to learn from the past. Maybe 10 deals ago, which might have been two months ago for us, we had a similar situation. We can learn from that and grow on that and build that, but you also have to engage the right teams.

Even if it's an external team doing your financial due diligence, a bank, or somebody of the sort, you have to engage the right teams that understand your vision, your strategy, your company. So they can also mature their due diligence function and their requests and how they're going to handle things as well from the buyer side. 

We're not traditional in what we do and how we do it. And I think that's where the disconnect with some of your questions and my answers are. We're very unique.

Practical tips for learning from past due diligence

I'm going to go back to my theme of communication and hearing the teams when it comes to how we learn from the past. You have to bring that in as well because what may have felt broken to one team may not have been felt by other teams, but in reality, it does impact everybody, especially on the integration side.

Therefore, you have to learn from the past about what caused that breakage. You have to listen to your team so you can reformulate and mature your due diligence process or your corp dev team and how they're sourcing. You have to keep that communication open and really start to look at those lessons of why this didn't work or why this did work.

But I guarantee you, in a lot of these industries and companies who have challenges with integrations, there's a lot of what did not work. And you can't just fix it within integrations. It has to be brought to the deal team, to the corp dev team. And sometimes, if you're a smaller company, it has to be brought to the executive's attention as well, because that's sometimes who's sourcing the deal.

You may not have a corp dev function, so you have to be open and transparent with the entire process, not just one part. I really try to focus on teaching our corp dev team what integrations are and how they work. So then not only can they have knowledgeable conversations and answer questions, but they can also help set the seller up for more success by setting those expectations early.

Maintaining team rhythm in high-volume acquisitions

That can definitely be a challenge. When you're doing 20 plus deals a year with a relatively small team, sometimes you have to put that muscle memory in place. However, I always encourage the teams, especially post-close, to really get to know the seller and the owner of that agency. This brings a different side and perspective into things. 

So it's not just about going through a checklist of 10 items with Mr. Smith. It's about learning, analyzing, finding synergies, and digging deep. Each team is going to find different synergies and have different topics they want to talk about. Empowering your team to look beyond the checklist or template is what I think really helps keep them engaged.

Every deal is different, so a checklist isn't necessarily going to work. It may work for some items like ordering computers or other tasks, but you have to dig deep sometimes. For me, it spurs excitement. The deeper I dig and the more we can learn about efficiencies, the better. 

Our integrations manager has an incredible background in agency operations, and she can spot inefficiencies like no other. She can call them out before anybody else. This enables her to set up the teams, saying, "We're going to need to focus on this, this, and this," just based on a 10-minute conversation. She can identify all these things.

So, really utilizing those team members you have in a different capacity than what they're used to helps keep things interesting as well.

Key strategies to avoid failing in your integrations

How to not screw up integrations? You're going to, and that's fine. It's about teaching your team to stop and recalibrate if they need to. Because if something starts going off the rails, that's going to happen, and it's okay in the sense of knowing when to stop and say, "Okay, let's get together collectively. This is what happened. This is how we need to pivot. This is how we need to change things." 

Keeping that agility in what you do is going to be huge as you start to do your own acquisitions and integrations. Knowing what the end goal is, and oh my gosh, defining 'done' is one of the biggest things I can stress. 

The teams want to understand, and the seller or the target wants to understand as well, you know, what does 'done' mean? What does being integrated look like? So, you have to define 'done', but then define that again in terms of autonomy versus integration and how much you want on each side of things as well.

Key questions to ask before the LOI

What I was about to discuss is understanding their team dynamics, who they have and what positions, not just looking at the employee roster, but really trying to have those conversations if possible. I know you can't dig too deep pre-LOI, but you can probe with the right questions. Try to understand their culture as much as you can. 

It's hard to do pre-LOI because you're trying to keep it concise, efficient, and quick to get to the LOI. I would say those things are going to set you up later on, especially for the integration phase. It's about trying to understand as much of that as you can beforehand. 

When a deal is being done and someone is about to be handed a multimillion-dollar check, they're going to tell you what you want to hear to an extent. But knowing how to add some additional questions or pick apart some of their statements will give you that insight. 

For example, with roll-ups, if they're going to be out of the picture, who do they have on their staff that is going to step up? Who's going to manage? Who's going to lead? What is the culture in the office currently like if they're going to keep the office open? Will it fit our culture?

You'll know those things really quickly once you start to dig into those questions. The employee roster is the starting point, and that's always something you want to get pre-LOI.

Evaluating cultural fit and red flags 

We look at other resources like LinkedIn, Glassdoor, and sometimes just a basic Google search will tell you so much about somebody you're looking at.

We've seen red flags, like bad culture fit before. Sometimes it takes multiple teams to see that, and that's okay. If you're running with a very slim team, it might be just one person making that call. That's why you need communication and to bring people in internally to really start to understand, because then you can have multiple perspectives on it. 

I may see something in their culture that an executive might not, or someone in operations may see something that others may not. I'm not saying bring all of these people in pre-LOI, but based on their answers, you'll start to feel some of those things much earlier in the process. Even post-LOI, you never want to back out of an LOI if you don't have to, but once you start talking to the seller, you'll start to see and learn more of those things.

Most of the time, we identify a bad culture fit after LOI, because that's the reality. If I could have it my way, I would do more pre-LOI, but again, that's not reality. It's just the nature of the game. But there are certain times and cases where we do find that pre-LOI, especially when more executives get involved because of the size of the deal. That's great because then they can see those different perspectives pre-LOI.

You should walk away from a deal from bad culture fit. You absolutely should consider the company's size and fit. Larger companies are going to be different than what we see and deal with. Negativity and toxicity spread like wildfire, and you don't want that. 

We have a really great culture where we are, and we want people who will support that culture by living and breathing it themselves. So, when it's completely different, for example, if a company only pays minimum wage, makes everybody work 50 hours a week, and only gives three days of vacation, those kinds of things are going to tell you more. 

You'll also see on the employee roster things like short tenure, and those kinds of things you'll be able to pick out. Absolutely, because you don't want a bad apple in your orchard. Even if it's just one, you don't want it because it will affect every team.

Sometimes that dollar amount is so small compared to what you're going to be paying to close the deal, and then knowing it's going to be a poor fit after the fact. So knowing that before is incredibly powerful, knowing when to say no and knowing when to walk away.

Other tips

My other tip would be to hire right. Take time and hire for the right roles and trust the people that you hire because that's going to make all the difference too.

So, if you're doing an international deal, hire the right legal firm, hire the right due diligence firm, hire the right whomever to then help with what you need for those specific needs.

Ideal candidate for an M&A role

It's really about their experience in general. I don't try to fit anybody into a specific box based on their education, but it's their experience that matters. If they're able to learn, grow, and transition, you can find all of those things out through the interview process. Not having a formal corp dev background or investment banking background is not a barrier. 

For example, I have a bachelor's in business administration and 13-14 years of insurance experience. That works perfectly for an insurance brokerage like ours. I not only have the business mindset but also the various facets of the insurance background. So I know who I'm talking to, understand their agency, and understand what we are purchasing and how we're going to partner together.

So it's that kind of experience. For instance, our SVP of operations might be hiring for her team and look at someone with operations experience at a different company, but without insurance experience. We can teach the insurance piece. 

On the client-facing insurance side, you want them to have an insurance background, but for the integration manager side, having someone who used to run an agency herself is invaluable to us. As we start to expand her team, that's what we're going to look for. People who can float both sides with their experience, or if it's needed, a small facet of one, we can teach a piece as long as they have the majority.

You can teach the M&A side of what their role is going to be. And you don't need to have an MBA to do what we do either. A lot of people do, and I'm not knocking that, but look at how much success so many companies have when they put the right people in place, not just based on their degrees or their education.

In terms of assessing soft skills, ask personal questions, get to know them as a person, not just for the role. What they do in their free time, what their hobbies are. Do they have hobbies? If they're like, "Oh, I don't have any hobbies at all," that's cool. Or do they get out in the community? Do they volunteer? Do they hang out with their grandma every weekend because she's in a nursing home?

You can really get a sense for who a person truly is when you listen to who they are. A good leader doesn't just give direction but also asks the right questions.

You have to know to ask the right questions. And that all flows through an interview process, but it's not just about what they did during a challenging time with a project. Everyone's going to have their scripted answers because everyone knows that's usually a question, but that's not going to tell you who a person truly is.

Even if you ask them how they handled a difficult time, it's not going to tell you who they truly are. Get to know them for who they are and ask those right questions. "What did you do last weekend?" "What did I do last weekend?”

I'll talk about one of my hobbies that I'm working on. Can I do that? Absolutely. All right. Well, what did I do last weekend? We were in Texas, and we smoked some ribs, chicken, and fish for the non-meat eaters like me. I do not eat meat right now, which is very un-Texan like, I understand.

But one of my personal hobbies that I work on every weekend is making shirts to give back to a dog rescue that I'm very passionate about and helping with. It's a shirt that says "This Shirt Saves Dogs" and it benefits the Texas GSP rescue.

So, on the weekends, I work on getting the sales out there, packaging them up, making them, and just promoting the heck out of it on Instagram if I can. Every dollar counts to an organization that is volunteer-based and donation-run.

Advice to first-time M&A practitioners

One piece of advice, especially for new people in the M&A field and new practitioners, is don't be afraid to call out the BS if there's BS there.

I will say, sometimes when you're dealing with advisors, like sell-side advisors, they will paint a picture that isn't necessarily a hundred percent accurate because they're trying to sell their clients, sell a deal. Don't be afraid to say no. There's power in saying no, but also, if you need to call it out and cut it, you have to do what's best for you.

In this industry, there are a lot of people who have a big voice and a big ego that goes with that voice. They can sound like they know what they're talking about and be completely clueless.

Remember, they're a salesperson too. They're trying to close their deals so they can get paid. Sometimes it's not what you need.

I've been saying for my whole two and a half years in M&A, M&A is very much like a relationship. It has to make you better and your company better, but you also have to make it better for the seller, especially if they're staying on and you're not just buying their assets. 

If they're actually going to stay on, keep an office, run, and be a part of your organization, it has to support both sides. If you're missing one of those, you're going to have some breakage there. Don't be afraid to call out the BS.

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