Evolving Your Corporate Development Function

Intro

Today, I'm here with Mike Palumbo, director of corporate development at Halo Branded Solutions. 

Mike is a corporate development and M&A professional with more than nine years of exposure to finance operations, and executive leadership departments of middle-market companies. 

Today, our discussion is about evolving your corporate development function. 

To kick things off, can you tell me about Halo and your role there? 

Halo Branded Solutions are based out of Illinois, a couple of hours outside of Chicago. We have offices all over the United States, promotional products, and distributors. 

We're the second-largest player in the market.  About a $24 billion industry. There are a lot of small players and mom-and-pop shops that distribute these types of products. 

So being number two in market share is a perfect situation for a roll-up strategy or growing through acquisitions.

I work in corporate development, which is basically focused on mergers, acquisitions, strategic partnerships, and things like joint ventures. Although we don't do a lot of the latter. 

We do a lot of M&A work that all falls within my purview. It's a new role for us. The company was founded in the mid-20th century and grew pretty well up until 2000 when they restructured and over the last 20 years have just really grown by leaps and bounds. 

It's been a great role and a great company.

What was the evolution like since starting at Halo? 

We have a really interesting culture in the sense that you're really accountable for your own success or failure. Our management style is very entrepreneurial. 

And I don't think any of my colleagues at the C-level, director level, or CEO level whom I report to, really had many experiences dealing with a corporate development person. 

I remember coming in and there was no directive. 

It was just, "Hey, get comfortable, learn the business, and then I'll be interested in what you, Mr. Palumbo, have to recommend for our process and ways to make us better." 

So when we talked about a blank canvas, it really was a blank canvas.

What about the folks that were currently engaged in M&A activity? What were your interactions with them like?

Department heads or C-suite, all had some sort of exposure. I didn't know what was going on but every time I talked to people, they had questions about integration.

When I talked to these people, I thought they were going to ask me about diligence, modeling, and data rooms.

The part they're dealing with is the onboarding, integration, and conversion.  

These are the business leaders that have to implement all of the things that we've promised during diligence and business and strategic planning. 

The executives have set it up and then it comes time to execute.

I remember really being able to read a person or understand what kind of conversation I was going to have in that meeting with the department heads based on their body language. 

Some people were very excited to meet me when I mentioned corporate development, and others looked like they wanted to jump out a window.

You can tell this immediately based on their reaction, their body language, and the experience they've had with M&A.

What questions are you asking them when it comes to what they're doing and what challenges they're experiencing? 

I was trying to ask all the same questions. First of all, what does your department do? How does billing work? 

It goes back to understanding that the business part of it was a learning experience for me.

What's your involvement in an M&A? It was always some sort of integration or onboarding capacity, which in and of itself is indicative of, maybe they should expand the role in diligence.

Could they help out a little bit earlier to alleviate that pain a little bit later on? Or does this person seem really insightful on billing, order entry, a back-office task, or sales?

I wonder if we're leveraging that expertise during the diligence process.

How do you plan your M&A processes? 

Being armed with a really good knowledge of the business is the number one foundation.

What is being done right? You have to be very careful not to jettison things that they're doing right and try to replace them. Make an effort to understand why certain processes are working.

Sit down and understand what they do and how they do it.

You get the itch to jump in. You want to get in there and say, "Well, wait a second. Why are you modeling like that? You should be modeling it like this." 

Really sit there and walk through one, two, three processes, whatever it takes, and watch how they're doing things. Know what they're doing right and how to preserve that. 

And figure out how you can add to that, not replace it. Create enhancements to what they're already doing. 

What tangible things have been done to help evolve that function outside of learning the process?  

Where do you start adding value? You can't add any value until you've really understood the basics. 

Then you can start offering insight and value. For me, I had to really slow myself down, and not try to act too quickly.

They're making poor decisions, losing friends, and then losing credibility. Instead, you should be trying to understand as much as you can, so the value that you're bringing is useful, and you're gaining credibility. This allows you to gain allies, specifically political allies within the business, and that's a virtuous cycle that move its way up. 

My closest colleague and I created playbooks. 

I focus on the corporate development playbook, and he focuses on the integration playbook.

He's in an integration role, outlining the steps that they currently go through, understanding the pains and the things they're doing right, the things that they're doing wrong, then retooling that. 

So, you're streamlining and you're trying to alleviate those pains. 

I'd like to hear about what's in your playbook and the alignment of the people.

Our playbook on the Corp Dev side was more of an educational tool for the executives. 

It's information that an investment banker might find basic, but it can be very impactful. 

Starting with what are the pain points? What are the things we're doing right? Then we carved out four key initiatives. Then, how do we do that? 

I knew there were ways to make the process better and to add to it while preserving what they're doing right. 

The first thing that I think of is my network. Who do I know from investment banking? 

Who do I know in my network that can be a resource? 

Then I found your book, actually, Agile M&A, which had some very key points in it. One was that integration has to participate in diligence.  Integration and diligence have been one cohesive process. 

Because that's where you get the break in communication, the people that are doing the diligence aren't communicating with the people that are doing the integration.

So bringing those two things together was huge. And then really working on your tactics when it comes to implementing diligence.

For us, it was establishing an internal cadence of meetings with our team and then externally with the seller’s team. 

So we're putting in a formal process to manage the diligence timeline collaboratively and making sure there are no barriers in communication.

We also had a little bit of a focus on, who was making decisions. How central versus de-central do you want your decision-making process during diligence to be?

What were your key challenges along the way in building out the Corp Dev function from scratch? 

One of the main ones was conviction. It's hard to explain, but it's having conviction in your process and why you should do things a certain way. 

Because you're going to get confronted whenever you try to change something, whenever you try to improve a process.

There's a little bit of that structural aspect, like who's the team, how are they organized, and how do they communicate? It's a little bit structured, but it's mostly the process and the steps that you go through. 

And when you're trying to implement something like that, change something, the question you're always going to get is, "well, why not just do it the way we always did it? It works." 

For me, it becomes a habit anytime I want to suggest a change, an improvement, or extra work. 

Even if you're trying to add value, you might be creating extra work for somebody. You'll get a lot of, "Why not just do it the old way?" In my first six months, I couldn't answer the question.

I didn't have the conviction because they didn't have real-life experience. I was coming in from an investment bank and in a corporate development role. I didn't have corporate experience. I couldn't say, "Hey, that's what they did over here at Google and it works great."

If you are going to make a recommendation or to try to push for change in an area, you have to really answer that question. "Why not just do it the old way?" 

I don't think the answer has to be complex, but you need to deliver it with confidence and conviction.

Saying that with conviction was probably one of the biggest struggles. 

What did you struggle with in building out the Corp Dev function as a single person?

That's one of them. The other thing is just not knowing what to do. I was never in corporate development.  I was in investment banking and you understand things like 

• how to model something out
• how to project financial statements
• how to run a data room
• how to manage the data room
• how to complete diligence in a timely manner 
• how to organize, and get people organized 
• how to ask questions, how to talk to people 
• how to pick up the phone and get stuff done 
• how to be efficient, how to work hard. 

That's all very helpful in corporate development. But, it doesn't all translate over. There are a lot of different elements in corporate development, working within a corporate structure and trying to get sign-offs and decision-making done. 

What was the difference between your deal process at Blair versus what you're doing to Halo? 

That's one of the main differences; selling versus buying. Huge change. I had a situation today where somebody sent me an LOI and they just said, "here's an LOI ready to go into due diligence." Well, what do you do next? And coming from investment banking, we knew what to do with an LOI  when we received one from a buyer. 

But when you're the buyer you have to get the team set up, orchestrate the team, know who should get involved in when and why, and who's going to be doing accounting due diligence. Are you going to reach out to the seller? What are you going to say? Who from the internal team is going to do what? 

It's all really under your purview and if you haven't done that before, it's very different. It's a whole new set of steps that if you're not coming from corporate development. How do you know what to do and what's best?

You can guess. We're all smart, you can make really good decisions and try to do what you think is appropriate. 

But, I always think somebody has figured this out, and there are a lot of ways to do this. But in the end, there's only one best way. You always want to achieve that.

That's all new and a big challenge when you're coming into a role like this without much experience.

If you're working on the sell side and you're helping companies divest, you're interacting with buyers. Don't you have some insights into some of the nuances?

What kind of buyer? That would be my first question. At William Blair, there are a lot of financial sponsors. They dig in a much different way than a strategic buyer would.

If you're used to dealing with financial sponsors, they're going to put a list together and send it over to you for the investment. 

With the goal of creating a sort of deck for the investment committee. It's heavily based on economics. With strategic buyers, you're going to get just a broad variety of different interactions when you're in investment banking.

I remember back when I was at City Capital, we had a strategic buyer look at a deal and it was a mess. There were around 15 people and they wanted to come out and visit our client, the seller for two weeks. 

And they wanted us to just sit in a conference room and pour over files and the financials.

Other strategists, depending on how frequently they're doing deals and who's at the helm kind of a similar approach as the private equity group, they're buying it for a different reason. 

So their questions are going to be different. Coming into Halo from William Blair, I was very used to the questions that you get from financial sponsors.

When you go into your M&A role, what is the first thing that you're doing to establish credibility?

It is to not make mistakes. Don't let that action imperative win. Don't feel the need to jump in too early. 

There's a balance here because you've just been hired. Your goal is to get up that learning curve and start adding value to the business. 

Where the value that you add is greater than the cost to the enterprise.

Do you have decision-making frameworks or processes that you've used or recommended? 

I have a framework on how to prioritize work, and what I want to make decisions on next. When a decision needs to be made and when it needs to be escalated. 

A very delicate balance. Part of the value that you add is autonomy and making decisions, but you can't make the wrong decisions. 

You're not going to be able to make a lot of decisions in the beginning. You're going to have to sit back and listen and really defer to other people and ask later a lot of the time and that's okay. 

As long as you're learning and you're trending in the right direction.

I remember the first 12 months, I was calling a lot of people.

Because you don't want to do the alternative of making an uninformed decision or a bad decision. It turns into a vicious cycle. 

You want to get small wins early and avoid any sort of negativity. So first you have to learn about the business to the point where you can start making more and more decisions over time.

If you're afraid to make that decision because you don't know the answer, forego making a decision and escalate it.

I learned that I don't know the answers to everything. Some of it is also trying to know the answer to something that is maybe not your call. Trying to make a decision in a realm where there are experts that deal with that. 

Part of that learning process and the affirming process is to learn who the experts are in what areas. If you're confronted with a decision and you know there are two experts out there that work on that, you're a team. 

Leverage their knowledge and bring them in and add support. How can they help you make this decision? 

What can you do as a leader to help alleviate communication and organizational problems? 

That's tough because you're going to run into that because everyone has different communication styles. 

Understand their communication style, and try to meet them where they live. Especially with the boss or somebody that's superior. 

Accommodate them. What's really helpful is talking to people, making sure that you're communicating often enough, and having meetings. 

Loop somebody into a meeting, even if you don't know whether they should be there or not.

It's a little uncomfortable sometimes. Sometimes people don't want to be looped in and they don't communicate that way. Be more inclusive than exclusive.

Develop a rhythm or a cadence. With that, people come around eventually. There are a number of different ways to attack that, there are different tools you can use. There are different processes that you can set up. Maybe that person is the wrong person to be working on something. 

Give me an example. What have you done that really creates value?

Identify the right structure that you need and the right people that you need to get involved.

Get to know those people very well, you're going to be working with them closely. 

Getting the right process in place, and establishing some sort of framework and alignment on that process is simple but effective.

Set milestones and get everybody aligned on the same page, and that in itself does wonders for adding value.

What are some tools or tips for the trade that help you get there?

The first thing is to define what's important to you. What are the top two or three things?

Get a list going. You have to get a checklist going of things that people want to accomplish and make sure that everyone sees it. 

For us, it was absolutely vital, to start using DealRoom. 

Are there other products that you use outside of that?

Yeah, really any sort of project management tool. This kind of goes back to the difference between corporate development and banking. 

Banking, we're used to using a data room to load files in and request tracking on an Excel spreadsheet or something. It can become a mess when you have 12 different buyers and they're all asking similar questions. 

And how does it all line-up? We've used multiple data rooms over the years. 

But any sort of project management tool where you can create a list of to-dos and ask people to check that off is a highly valuable tool for us in diligence. 

And then as we started using it during diligence, the integration team saw us using it and said, "wow".

And now I'm pretty sure they've fully switched over to our current platform, which is DealRoom. 

Any sort of platform that you use, what it's bringing is visibility. 

Where is everybody, and what are they doing? Who's working on what? 

Because it's not just assigning a task. This was a new sort of concept for me. It's not just assigning a task to somebody saying, "do this." 

Every task is cross-functional. So it might involve HR, but finance also has a very big decision to make with that compensation plan. It could involve the supply chain. 

If they change it up, then how is it going to change our ops, and our customer service process? 

So when you're looking at a business, there are a lot of cross-functional issues if you don't have it organized in a way where everybody can see what everybody is working on. 

Whether it's an Excel spreadsheet or a project management platform or DealRoom, then you just get people working in silos. People are just talking past each other. 

They're not on the same page with things. They might have two different answers. If I ask, "Hey, what's the plan for the three employees?" 

One person might say something different than the other person. It's a horrible sort of trap to get caught in; not having that inner communication 

I'm hearing real-time views on progress, and then inner communication, or collaboration. I want to hear a little bit about that.

There needs to be a quarterback. There needs to be somebody to bring everything together. A conductor, so to speak.

The only way around this is communication. It's the only way that the siloed issue gets solved. It's making sure that you're communicating, communicating, communicating. 

And what I found is that calls and emails don't get answered all the time.

Meetings don't always work. You can't get everything done with phone calls, meetings, and emails. So you have to sort of consolidate where people can log in at their leisure and track stuff. 

They're getting reminders, it's just another form of communication to make sure that everybody is understanding what everybody else is doing. That's the only way to get around it. 

What would you say are the main differences that your company actually approaches now?

I think the difference today is the organization and the upfront preparation, the planning, and knowing what to expect. 

Even if somebody is doing the same amount of work today, as they were before I was around, just being prepared and organized. It takes the anxiety and stress level from a nine down to a two, because they know what to expect. 

They understand what's going to happen. They're not scrambling. Just the thought of not knowing who was handling what, and what the next step was. 

I could know my immediate task, but where is this going to go afterward? And then you start thinking about all those things that are going to be due down the line. 

It's in your head, you're thinking there's no plan to tackle any of this. It raises that anxiety and stress level to a whole other level.

It's the same amount of work it's just knowing that it's organized and taken care of and thought about and planned out. 

What's your approach to working with integration?

Utmost respect for our integration folks. Somebody did the work and thought this is a cool company to buy. 

Then we'll throw it over the fence and you guys got to come into work and actually deal with these employees. You send messages, communicate with them, and change their benefits and it's an awesome position. 

That's where a lot of the pain could come from. If you don't diligence a deal a certain way, or you overpay a little bit, it's usually not the end of the world. But with integration, if it's done poorly, it can be a nightmare for everybody. 

It can tank the deal, and people will quit.

For us, it was starting with integration and what can we do earlier on. 

Even before diligence, before the LOI is signed, and even when we're forming our pipeline. What can be done at those earlier stages to make it better for the integration people? Our number one solution was to get them involved early. 

They're going to have to deal with this on the backend anyways.

One call is all it takes during diligence, a couple of questions, whatever it may be, just get them involved. They'll know the timing, we'll see the updates. They don't have to be in every meeting or be deeply involved in the diligence process, but they can see it coming. 

How does Halo being headquartered in a pretty rural part of Illinois impact all of this?

Not having a face-to-face presence. I think we're all experiencing this now. It's probably the same shot that everyone here has had when they had to switch from going to in-person meetings and being remote. 

I think I would go maybe once or twice a month and visit folks try to knock out a bunch of meetings and then come back and work remotely. It didn't really get much in the way of the day-to-day. 

Not only in Sterling, but we also have offices all over. I think we have 40 or 50 offices all over the United States. Our chief of integration is in New York. We've got one of our main sales leaders in Ohio. 

So we're pretty much remote anyways, and actually, the pandemic has helped in that sense because now instead of calling,  we actually see each other's faces on zoom. 

What's the craziest thing you've seen in M&A?

When I was at City Capital, we sold Jayco, which is an RV business to Thor, a publicly traded RV consolidator. Jayco is a family business. 

And I remember we closed the deal and sold the company for I think it was 507, the public announcement is 576 million or somewhere around there. We drove to Indiana to meet the whole family in a conference room.