Creating Your M&A Team Structure

First hire in the M&A team

The first hire must be a senior vice president or head of corporate development. Maybe that sounds too obvious, but the CEO can't put this on someone else's plate who hasn't done it before.

I've seen it where a CFO headed the team, and then they brought in a mid-level person. But for me, the head of corporate development needs to be experienced in running deals and a team, as they will directly report to the CEO or CFO. 

The best way to find this person is to poach them from another company or look for a junior associate with experience and bring them over with the promise of promotion. 

You can also get someone from an investment bank. I would look at a senior associate or junior VP. The fear is that you won't be able to pay enough money to get them to come over. But ideally, they must have experience, especially on the integration side. 

Hiring internally is an excellent idea for the IMO, but not with a head of corporate development since they need to have prior M&A experience. 

Strategy

You first need to figure out who owns it and how the corporate development team fits in. I've seen it done in many ways. But typically, the CEO owns the strategy and often has a strategy person who works for them directly. 

I've also seen it where a corporate development lead wears the strategy hat as well, and that's successful too. M&A and buy-build partner decisions are all strategic decisions for a company. So certainly, it fits squarely in the corporate development realm in some ways. 

But I like the model where the strategy person, and if it's a big enough company, the strategy team works directly for the CEO. And then, you have the corporate development team report to the CFO. 

It all depends on how engaged and involved that CFO is. CEOs want to get the job done, while the CFO is typically conservative. Corp Dev can be aggressive, and it's better to partner them up with the CFO to have some balance. 

Capital allocation

It doesn't necessarily mean you get more leverage on capital by working with the CFO, but if you can get the backing of the CFO, it'll be easier to convince the CEO to do the deal. On the other hand, it will be a lot harder when the CFO is dragging you down when you're trying to get the deal approved.

Executing M&A

M&A has to fit into an overall strategy; that's why corp dev has to be in the room when you're discussing strategy and talking about whether to buy, build, or partner. 

Here at Premier, you have to have a deal champion who will own the business after we buy it. 

So it's not like an investment banker who will do the deal and walk away. 

So you should be actively pushing strategy with your strategy person and ensure your operators are on board.

Building the M&A team

I see many people hire a VP of Corp Dev as a second hire. Someone who could even move up into your role and lead sourcing as well as execution of deals. But that's a mistake. 

The next hire should be a junior analyst. If you are not an organization that's ramped up in doing deals, you'll want your first hire sourcing deals and spending time on strategy. 

Securing a junior analyst will help the head of corporate development with modeling so the function can start executing deals. After two to three deals under those two individuals, start expanding by hiring a vice president of corporate development.

But it's truly dependent on the workload. And often, I tell our candidates, when the deal is on, you will be as busy as you ever were. The difference is that we'll hire and staff appropriately to you so that you can get a break every once in a while. 

But when you're in a deal, you're in a deal because you're being pushed by and competing with folks working these crazy hours. So I try to make sure that's abundantly clear to the folks transitioning out of banking, for instance. 

Team size

Right now, we have seven. When I arrived, I was the first hire that the senior vice president brought in, and we then went from there to a junior person and then got another person in who was really more focused on strategy but had done some M&A. 

And then we grew it as I just discussed, and how many bodies we needed was based upon our deal flow. When I ascended to be the head of the team, I decided we needed a partnership function. So we hired more than just specific M&A people.

Functional hires

In the early days, you hope people on those teams have some experience in this realm. If not, you will outsource it with a senior person on those legal or accounting teams managing that relationship and you helping them pick the right people.

If you get to a place where the volume demands it, it's wonderful to have a dedicated or at least someone who's spending half their time or has a good background in M&A deals on both the legal side as well as the accounting side and even HR. 

Having a dedicated or half-dedicated HR person is wonderful both during the deal, but even better on setting yourself up for success and being part of the IMO on the back half of the deal.

If I have an inexperienced function lead, I'd love to bring someone in who can work with my people. But if I have the budget, I would find someone with experience.

Team maturity

Some of the mature pieces exist if you want to add different functions. For example, you can add a full office of the IMO as part of your team. You can continue to add to your team or not resources come to you, and it all depends on the strategy of how hard you're going to go at M&A. 

One of the most successful things I've seen is a director-level person transitioning as a COO of an acquired company. They can help the company, especially on the integration part, and learn new skills. 

They can also come back after a certain period of time if they want to or you can hire a new person to take their place. It's all driven by your strategy for inorganic growth. And you must have an appropriately sized team.

Integration management office

Initially, it's going to be project managers in your company who are interested in doing integration. You have to do some training because they haven't learned some of the pitfalls and the things that they would run into when bringing a company on board. 

It all depends on the volume of the deal that you have. You must have a bunch of deals to rationalize putting a headcount in there. But ideally, that person must have a project management background. You must have a dedicated integration resource if you're doing five deals a year.

Integration playbook

Because we don't have a dedicated integration function, we use playbooks that we developed ourselves. We felt it was lacking so we brought in a consultant to run that function on one of our deals. 

So now they left a checklist and some of our PMOs have learned how to use them, how they operate, and we’re now using that and tweaking that as we go. It was very helpful because we didn't have a good skill set internally from anybody who had a great checklist, and now we can do it ourselves. 

It won't apply to every deal, of course, but it largely depends. The big-picture categories of what needs to get done are the same in every deal. However, if you're in a roll-up situation, it's much easier to do a specific checklist.  

But instead, it's more of when did different things happen? How fast can we get those done? And who is monitoring each of those phases? It doesn't matter what kind of deal. And so, it's adaptable enough. 

But what we found is we stopped missing any big-picture items since we got these PMOs a better checklist. It's like a guide. It could become a step-by-step checklist for a roll-up. But if not a roll-up, you have to be flexible.

Building the M&A process 

For us, it was through the experience of the senior person that I have above me and me. We put that guide together because we all had enough experience in the first few hires as to how we'd seen this run elsewhere. And that's how you pull that together.

And we were also forced to put that on paper for our board because not everyone had M&A experience. And so, it was an excellent exercise for us to teach our new team members as well as keep our not-so-new team members on track. 

It was a visual workflow in a PowerPoint presentation. 

Deal origination

It starts with strategy. Otherwise, you will try to boil the ocean, which will be horrible. Then you reach out to investment bankers, letting them know who you are, that you're there, and what you're looking for so that they send you relevant deals. 

If they know what companies you are looking for, they can easily find the best ones that would perfectly fit the strategy.  

Customers are a great source of deals as they have first-hand experience with the competition. Our hospital systems would tell us all the time that they found this great new vendor and it would be complementary to what we do. So we go check them out and check out the competition and go from there. 

We're much more successful finding those deals versus having a banker bring them. But having inbound deals is also wonderful because they have wrapped it up in a nice little bow. They could provide you with quality earnings and a full data room. 

However, the downside of approaching bankers is the auction process. You don't know how many other people are there, and they're trying to push the price up. Whereas in a self-sourced deal, you can really dictate terms.

Sometimes you can start with a partnership and then roll it into a deal later and be a reseller of what they're doing, and they have what you're doing. So it's easier to get to know who you think you want to buy and run away if it's not working versus being in a very scripted, tight process around an investment banker-led process.

Finding targets

Hopefully, searching for a company is part of that process because you've already talked with your business unit leader, who will own it on the other end. I typically take first calls and meetings to see if they trust me enough to gauge targets. 

A banker-led process will give you a process letter. We just mirror that same thing. We issue an indication of interest followed by a letter of intent. And then, from a process perspective internally: 

• Who needs to sign off on an indication of interest?
• Who needs to sign off on a letter of intent? 
• Does it have to go through legal? 
• Does the CFO have to sign off? 

Whatever it may be, those two documents, those two stages of a deal, are typically non-binding. So hopefully, you can push that responsibility down and move quickly. 

Beyond there, you're digging in, doing a lot of diligence, and moving forward. 

So when we put out a letter like that, whether it's in a banker-led process or in our own lead process, we all stack hands around a table that we would sign this deal even though we're not bound to do so. But we're excited about doing so, and this is a deal we would do unless we find something crazy in diligence.

And so, there's that sort of step of the process and that those LOIs, even outside of a banker-led process, are good for getting your internal teams and executive team thinking about it and socializing it as well versus just showing up with a full big deal and nobody knows what you've been working on.

And then we start running through diligence. Diligence is the next phase, and there are more diligence lists out there than you can shake a stick at. Some are specific to an industry or type of business, some are general and you want to tweak it accordingly.

Breakup fees

LOIs and IOIs are typically non-binding, but there are sections in it that are binding, like breakup fees. We typically don't use binding fees. But practically, nobody ever pays a whole breakup fee that gets negotiated again later because each party says I'm not paying you a breakup fee.

If I find something ugly in diligence, that's a good reason for me to go away. I'm not just paying you because you didn't tell me about that before we signed up for the breakup fee. And the other party will say it wasn't that bad, and somebody else would've done the deal, so you would probably end up with a lower breakup fee. 

And that's just a hard one to even put in front of a judge or an arbitrator who determines what's bad for my company. What we found in diligence might not be bad for them, and they don't care, but we think it's bad. 

Due diligence muscle

Training people is hard. We make it sound like this is the coolest thing you could be working on, we sell it that way, we don't pay people more money for it. This is just an additional duty. And we have to train them as best we can.

• Here's the type of thing we're looking for 
• Here's how we want you to report it to us. 

But in the bigger picture, they know their business better than I ever could because they're an SME expert in whatever area they're doing diligence on. So they already know what to do. It's just not as hard as you might think. They will know what they like and don't like. 

But you must push someone who's not a professional diligence person to think about the integration. We have to tell them to think about how we are going to bring this in? And where are those synergies, and where are those pieces that we should keep?

Advice

The hiring process matters. More than anything else, your people are all you've got. If you find yourself too busy and need to hire people, don't just hire because you have no time to screen. Spend more time finding and retaining the right people through development and mentoring.