Creating the Right Governance Structure in an M&A Deal

‍Text version of the Interview

One-man M&A Team

I start with the strategy and the deal sourcing. I start with making sure that the strategy is solid enough to actually enable the acquisition in question. And then, I also make sure that the acquisition that I'm considering is actually the right thing to do from a high level.

After that, I then go out and source the deal. I go out to the market and I make sure that this deal aligns with the strategic goals that I uncovered. And then I pick the people internally who would actually work on this diligence and integration planning. 

During the deal, I work really hard to make sure that there is alignment between the various teams that are involved in this process. Making sure that there are no silos in the process to the overall process more efficient and transparent. 

My main role is to orchestrate the whole process, just like a quarterback. And while I do this, I also work on governance. I essentially prepare a pitch based on my reading of the situation at hand. I collect various team members' feedback and I conduct a lot of alignment with both my own management and the target company and its requiring management. 

I also create a steering committee structure and a board of directors structure. Once I finish all of that, I lead and run the integration efforts up until 30 to 90 days depending on when the company gets to a steady state.  And at that point, I essentially hand off the reins to the long-term integration lead from the business.  

But it’s also important to note that I still stay involved in monitoring the situation of the deal even a year after because I have all the insights and experience that can help solve issues in real-time. 

Benefits of doing End-to-End?

It has to do with the collective experience that a person gets from being exposed to all facets of the deal. So by virtue of me being there, I can share and guide everyone on how to tackle issues that come up based on all this experience that I had during the deal. 

Although It's hard to scale. That's why we work on M&A playbooks in almost every company that I worked in. And the beauty of this is that we segment certain chunks of things that a person needs to do. 

And after I hand off the reigns to the long-term integration lead, then the involvement in the deal is not that significant anymore.  It's only a need-to-need basis and I only act as an advisor.

How do you make sure the strategy is solid enough to do the acquisition? 

I started with anticipating the trends of the market, the has to do with the acquisition that we are assessing. I go in and try to gain a very deep understanding of:

• Where this market is? 
• Where is it going? 
• Where is it growing? 
• What is this market about? 
• Who's active in this market? 
• What's happening in there? 

Then, to go a step further, I talk to the market. I go out and actually talk with companies in the space. I have phone calls, I have emails. I'm positioning this as we're trying to landscape this market and we're trying to learn more on this market. 

As I do this, I try to understand how these companies that participate in the market actually work, where they're going, what they're doing. 

And to complement this view, I also go out and speak with users of the technology or product in question. So it could either be myself or I work with team members. We have a competitive intelligence team that could do these like market studies. 

So then, I focus on making sure that there is a very clear problem that this deal is actually trying to solve. Therefore bringing value to our customers. Then, I figure out how to actually monetize this value. If we cannot monetize it, it's not worth it.

This is typically dollars, it could be more revenues or fewer costs. But it’s not always about money. In my company, we serve surgeons, we serve patients, we work with hospitals. So it could be better outcomes for our patients or a better user experience for surgeons. 

I use all these elements to continue to evaluate the strategy at large and  I do quarterly updates. Even if it’s a small and incremental change, I found that this really helps keep the M&A, and the total strategy really fresh. 

And it allows for better alignment to the corporation, to the market, and provides a competitive edge for the company that I'm working for.

How do you approach the Market?

I am very upfront. If we’re trying to learn about the market, that is exactly what I'm going to say. I'm going to tell them that we are considering doing something in this market and we want to learn. 

Everything gets done non-confidentially so we try to keep it very high level. Companies are very receptive to that. There's obviously a benefit for companies to talk to a major player in a given market. And that is how the conversation goes. 

And then, one of these companies that I ended up talking with might end up becoming the target company. So there is a lot of logic and this kind of approach from where I'm standing. 

When I reach out to these companies, we already have a certain strategy in mind. But sometimes after talking to them, changes are needed in the strategic mandate that I have.

I don't want this strategy to sort of be developed in a vacuum. There's obviously the market, the users, and the companies. And if we're hearing different things from external stakeholders, then I want to make sure that this is reflected in our approach. 

I want our approach to be effective and current, so it's an evolving process that changes according to the market. 

Target Alignment with Strategy

This is more art than science. It involves doing a lot of diligence and understanding of: 

• What are the individual goals of the key talent in the target company that we're acquiring? 
• What is the target company’s existing strategy? 
• What is their vision? 
• Where their roadmap is actually at taking them? 
• I also look at the execution ability of the key talent that I mentioned. 

And I like to look at their past experience and then make an assessment from my own conversations and observations, as well as key colleagues and key functions that are involved in diligence and integration.  

I also take into consideration what other people in the market in question actually have to say about this company.

What does the Sign-Off look like?

The process entails pitching to the executive management in the company that I work for. And they need to approve both, the definitive and the total amount that we're paying and all these associated documents. 

So after I get their approval, depending on the scope of the deal, whether the company's public, how large the acquisition is, it might need to go to the board of directors of the company.

So we also work in the deal lead. We work with the deal sponsor. We work with the exec management of Intuitive to get this deal presented at the board level. And after that, there’s a full sign-off and we can proceed with closing.

How to build your deal team?

It starts with essentially sketching out the timelines and the overall tasks that I think are needed during diligence and during integration. And then I map out the functions that are needed to accomplish the tasks that are a part of this transaction. 

This will give me a picture of who exactly I need, then I put forward priorities for team members based on that. And I then pitch the whole situation to each and every team member individually in order to get them on board. 

In picking specific people, I weigh their availability to accomplish the tasks at hand in the given timeline. I will be transparent with them regarding the amount of time that I need from them over the next couple of months.

I’m going to ask for their commitment, and then I'm gonna have them appoint a backup in case of any availability issues.

When it comes to expertise, if we are assessing something really complex, I might involve more people internally if collectively, we have a better picture to solve the problem. In some cases, we might even want to involve external resources that might have a very specific skill set and experience of this particular question. 

Team Alignment

I start with having each function lead create a team charter. It’s a cohesive document that is formal and it's shared across the entire deal team.

• Who’s on the team?
• What are they going to do?
• What are their timelines?
• What are their challenges?
• What are some of the things that they have identified in diligence and integration?

The goal here is to have transparency across different teams. And I found that having people align on both diligence and integration structure before we even start doing the diligence actually really helps the process. 

It helps people come up with ideas and thoughts and challenges, and they're even able to offer up improvements as we go. 

I also like doing an issue tracker. It’s about thinking off issues before we start integration. This is a live document that we share with the entire deal team and everybody is able to assign tasks and action items to specific people. 

They need to agree to work with these action items and they need to agree to a timeline. This creates a sense of ownership for all the people that have the action items. And then each and every week, we have a joint call where I ask for updates in real-time. 

And another tool that I found to be very useful is a mapping of roles and responsibilities. I'm doing this before the term sheet, in parallel with building the governance structure and the integration planning. 

It’s like a RACI matrix, where I map each and every role in sensibility across the board and the team. This doesn't just involve the people that are doing the work on the diligence or the integration. This involves also the deal sponsor, the executive committee, the board if they have a role. 

So my goal is to make it clean and simple for everybody who is doing what. It helps to keep the deal going forward. 

Aligning Diligence and Integration Planning

The most effective thing I found to work in the deals that I worked on, is that's the person that does the diligence in a given function is also the person that does the integration.

The people that discover the diligence findings and prioritize them are able to translate the things in real time to integration activities instead of handing them off to another person. 

So that is where we are effective. We're doing both diligence and integration planning at the same time. And I even provide templates to people that they can utilize if they want to in diligence and in integration.

We first focus on the 3-day plan, then 60, then the 90-day plan. We separate it into chunks so we start with the more critical things. 

What if it's a Competitive Process?

Templates and playbooks help identify repetitive items that have to do with diligence and integration planning. So that saves us time and we can focus on the most critical things. 

We can still go quickly if you plan out the right way. The last thing you want is to do excessive planning. If you plan too much, you'll never get to do execution on time. So I have to balance the amount of planning that I'm doing and the amount of execution through the deal timelines.

Advice to Companies with Traditional Approach

Go through an active process of learning. Go through an M&A playbook and M&A integration and look for things that you can improve. Typically, this project is best done with consultants, but I see some companies that are doing it by themselves. 

The important thing is there needs to be a catalyst. You really have to think through how it's working, find ways to improve, and really dedicate the resources and time to improve.

Otherwise, you could end up losing deals. You can end up not doing things fast enough and this actually affects your competitive position in the marketplace at the end of the day too. 

Building your governance structure

This is a multi-step process. I start by thinking about who are the people on the steering committee. In order to do this, I start with understanding and weighing the deal goals that they have along with the deal strategy and the overall desired timeline of tasks that I need to accomplish in this deal.

Now, what I do next is also weigh the complexity of the target company, along with the complexity of the business that is going to receive this acquired entity. 

What I do next is to weigh the culture of the target company and their own structure, along with a very deep assessment of the strengths and weaknesses of the key talents. 

I take all of these parameters coupled with all the issues that we identified during diligence and the complexity of all these integration tasks that the team and I came up with along with several talent management and technical talent growth areas that we think need to happen.

They all lead me to choose certain people for the steering committee. 

It's important for me to have membership from both the acquired company management and our own management. And for the first six months, we'll have a monthly meeting with the steering committee and then we’ll move to quarterly after things have become more steady.

Who governs the steering committee? 

There is typically a Head of the Steering Committee. It could be the deal sponsor or a C-suite. It depends on the situation.

Are you reporting to the Steering Committee?

Yes. During my time as integration lead, I report to them the status in real-time of what's happening with the integration. I’m the one that understands what’s happening out there, I seek their advice, and they make key decisions.

Once I get this integration into a steady-state, typically in the 90 day period, I then handed off to the long-term integration lead and they now become the person that works with the steering committee.

Common mistakes when setting up a Steering Committee 

Putting the wrong people in the steering committee. I see a lot of people put people that don’t have anything to do with product development when the acquisition is a product development company. 

That causes a gap. If that development person is not there, then that executive has to take all the information he gathered to a development person, which wastes time. And that information could change along the way which can cause misunderstandings. 

When do you set up Steering Committee?

I'm thinking about these things when I started doing the integration plan, before the term sheet stage. I found out unless you do all the integration planning at the diligence stage, meaning, before the term sheet, then things could become very chaotic later on.

And at a certain point, when I feel that the deal will be moving forward and prior to the term sheet stage, I actually start reaching out to people. I start reaching out to the potential steering committee members, diligence team members, and integration team members. 

Since this is all pre LOI, this is all unofficial. So I just plant a seed with them that this deal might be coming soon, and I keep in touch with them on when and how this deal would move forward. I also give them expectations on how much time will be required. 

When is Integration done?

My own integration responsibilities end at 90 days. This is where I hand off the reins to the long-term integration lead. But the long-term integration lead continues to do that work.

Another thing that I'm doing during the planning phase is to map out the integration steps beyond 90 days. We separate the strategy into different steps. 

Step one could be a very light integration. For example - integrating accounting, payroll, and HR. Step two could be having additional functions to integrate. Step three could be to integrate the whole thing. 

And the composition of the steering committee could actually end up changing in each of these steps. So the steering committee could actually grow from each step as you move forward. The integration really ends when the last step is reached.

It could be anywhere from a couple of months to maybe three years. But again, it's kind of really depends on how we map out the steps when it actually ends. 

The biggest challenge in End-to-End M&A

The biggest challenge is the timely execution of the deal because there's a lot of planning in there. Aside from the agreed-upon timeline in the term sheet, I also have to stick to the 30, 60, 90-day integration plan done in time.

I'm also working on multiple deals at the same time. And I handle this all through planning. My goal with all this planning is to help myself, help the team, help the steering committee, help the organization, anticipate all these issues, anticipate all these pitfalls, anticipate what happens if something changes. 

So this helps actually come up with solutions to all types of problems that come up during the deal.

Another thing that’s helpful is targeted communication both internally and externally. It provides a clear understanding to the team members of what will happen if you missed on a timeline. I try to get everybody on board on how the importance of sticking to the timeline. 

Biggest Lessons

Don’t underestimate the scope of planning. Always be on your guard. Even when things seem to work well, always think ahead, think outside the box, in every step of the process, what could actually go wrong and question if you are doing the right thing. 

Communication is also extremely important. If an M&A is to be successful, communication needs to be good. It needs to be clear.