Building a Corporate Development Team with Contingencies

Intro

Today I'm here with Jeremy Segal, Senior Vice President of Corporate Development at Progress. Jeremy is a corporate development executive with 20+ years of experience in the technology industry, focused on M&A strategic planning, joint ventures, divestitures, international expansion, and strategic partnerships.

He's led all aspects of 35+ acquisitions, divestitures and strategic investments with an aggregate value exceeding $8 billion. In this episode, we are going to discuss how to build and align a corporate development team with multiple mandates, such as corporate ventures, joint ventures and strategic partnerships. 

Can you share a view of your responsibilities and in your specific role?

At Progress, we are executing on more of a total growth M&A strategy. Progress is a great company that has been around for over 35 years and is very focused on looking for assets that have a sufficient scale that we can bring into our platform and leverage the strengths that we've built over those 35 years.

This includes operational efficiency, strength, and being able to sell to a broader base of customers.In the past, I was more focused on technology tuck-ins and looking for technology that I could bolt on to different product suites of products that we had.

Nice. So what do you do? 

I spend a lot of time working with the leaders in the company. The company today is broken out into three core business units, and I work with each of them to understand the strategy of those businesses, but also to understand the more macro company M&A strategy as well.

We want to have an understanding of the entire infrastructure software ecosystem, who are the players in the different spaces, what are the key trends in those different spaces and how could it fit within Progress in those respective spaces.

Then we can go out there and source these opportunities. We work a lot on building relationships, and not just with the companies that are the target companies, but with the venture capital, investment banking, and private equity communities that are going to provide a source of those opportunities as well.

We try to make sure that they understand what our priorities are. It’s important to be constantly building that pipeline for the next year and the upcoming years so that you can have a constant deal flow. Then it boils down to making sure that you can execute on these transactions, from the diligence process to the integration process.

How do you ensure that you have an authentic and genuine relationship through the process of initial prospecting and throughout the initial course of a transaction? 

For me, it's not about reaching out and saying, hey, we're interested in buying you, but about building trust and building that interest in wanting to be more engaged with each other. And that takes time.

I have a great example of a deal where I met this company when they were in their early stages. We just kept the dialogue open and once they had gotten to some level of scale, we had that relationship already in place, so we were in a position to be able to do that acquisition proactively as opposed to reactively. Building trust and educating folks on Progress is key.

I try to get them introduced to more folks within the Progress family, having them talk to the GM as a business unit or to folks on the product side. Over the course of the time, those conversations evolve, and you can then start to segue into what other things you should be doing together. 

I'm curious if you can give me an example of a deal, or somebody you worked with, where you saw a CEO go through that light up moment and saw it as a great opportunity, as opposed to just a paycheck?

There are plenty of CEOs who’s automatic reaction is that they are not interested in selling the company. Then I try to just get them a little bit more comfortable and offer to look at some ways that we can partner together and take those baby steps to a bigger relationship to get them more and more excited about the opportunity.

I was working on an acquisition for LogMeIn, and the company had just taken some initial funding. The CEO of the company was receptive to working with us but the investor was very skeptical.

The investor had big visions of what this company could do, but the CEO stated its case, built its case, and convinced the investor that LogMeIn makes a lot of sense.

Is it more so “I have this broad view that my business can merge with your organization and have the potential for greater growth scale”, or is it more “as a CEO, I'm going to get paid out, then have some potential other additional revenues for retention”?

I think it's the former and I hope that it's the former, because I want them thinking about seeing this company succeed, knowing the company has a bigger and faster opportunity for success if it becomes a part of this bigger platform.

Certainly, in most of those cases, it works out well for the CEO and hopefully a good chunk of the rest of their team as well.

For me, it's more of making sure that they're committed to wanting to be engaged in the business, building it, and having that partnership on a go-forward basis. When you're buying things with more scale, having that leadership team to help you drive changes is key, and so having them committed is key. 

What's your ideal method of getting a prospect on board?

It all boils back to building trust in having a regular dialogue, exposing the CEO and the target company to a broader set of folks within my company, and getting them more excited about our company.

How do you reach out to them?

I do have a pretty good network, so it's usually pretty easy for me to get access to these different executives. I prefer to have more of that warm connection than just doing a cold call.

One of the benefits of having done this for as long as I have is that I usually don't need to do that out of the blue cold call, which can be tougher and you are more likely to get an adverse reaction.

While my mandate is on the MNA side, I work very closely with the company in helping to identify strategic partnership opportunities, and that can be a great way to start a relationship.

How does that differ 20+ years ago when you didn't have this expansive network to lean on? 

Back in the days, it was a lot more of reaching out and figuring out how I could get to those people and it was building those relationships.

When I started a corporate venture fund at Akamai, that was a great vehicle for me to get access to a great number of companies, because I built this phenomenal network of venture capitalist folks. 

Your approach to nurturing relationships sounds very similar to my own approach for passive recruiting. Is it similar or are there some differences?

There probably are real similarities there because it is all about getting to know each other. I just had an experience where we had to do the entire process virtually and that makes you appreciate figuring out how to build those relationships.

The whole transaction was done virtually. But I have to say it was still uncomfortable for me because, being as old school as I am, I put a lot of emphasis on getting to know folks face to face.

However, we certainly had a lot of opportunities to look across the virtual table and look at each other directly in the eye because we were always on video. 

So how many calls is that from the beginning to end? 

There were plenty of calls every week. And then once you get into the diligence process, the activity picks up even more and you've got all the different functions, talking to folks on their team every single day. I am holding out on having a closing dinner face to face at some point, hopefully in the not too distant future. 

Tell me about how you manage the wide breadth and depth of responsibilities you have. You manage acquisitions from sourcing through integration, so how do you manage those responsibilities? 

One of the pieces is being able to delegate and build up a very good team, because for me, having good people to work with has always been key. I have a couple of folks who work closely with me who are integration specialists, one of whom has led over 80 integrations. That brings a wealth of knowledge.

I worked with a firm called Ridge Street Advisors, which is a great firm that works closely to get to know the business and helps us in a lot of working closely with some great experts. That helps us bring the best of class abilities throughout the entire process. 

So you're focused on bringing in the best quality people that you can find. I'm sure you spend a lot of time identifying and recruiting those people.

I'm looking for folks who have experience going through the entire process from sourcing deals to executing deals, to leading a diligence process, to negotiating a deal. On the integration side, I can find people that are more specialized in a specific area.

These folks should be able to work well within Progress because such a critical part of our role is working cross-functionally and working with me and my team.

The ideal person has comfort and ability to not only work cross-functionally at their level or levels below them but also up an executive-level and board of director level because we have regular dialogue with them.

Where do you find these M&A unicorns? 

The one that I just hired, I actually met at a conference, stayed in touch over the years, and when I had an opportunity, I reached out and he jumped on it. Part of it is about building a reputation for executing good deals and for being highly acquisitive.

Progress is exciting because we have a mandate that we've talked about publicly, we ended up doubling the size of the business in five years, primarily through M&A 

And I think that's the way the industry works because that helps define your expertise.

For every deal that we do, we'll do a retrospective. When I joined Progress, I was willing to learn.

One of the things that was exciting when I came into Progress is the level of experience and expertise across all the different functional areas and the teams’ ability to do M&A.

I had a lot more confidence in the whole process because I knew that I had great people around me who knew what to look for, how to uncover the bad things and how to ask the right questions. 

Can you give me an example of a retrospective you did, and what the good takeaway was from it? 

In a couple of the first deals that we did, we did not have that integration function attached at the hip with me from the minute that we signed a letter of intent through the entire diligence process. That created challenges in having a more smooth integration process.

From my perspective, once I've signed an LOI and I go into exclusivity with a company, the key person that I'm working side by side with is that integration lead, and I'm having that integration lead in every single diligence meeting.

Every single diligence readout session has a slide that's dedicated to what are the key things that you've learned that could have integration implications, and how do you suggest that we address them? That was something I  learned early on from doing a retrospective. 

Can you walk me through, when do you bring that integration lead in, and how do you think of them as you work through the transaction?

I usually bring them in as soon as I've signed an LOI and I get to that exclusivity point when I know that I'm going to be doing real in-depth diligence, and there's a much greater likelihood of us doing a deal.

If we're serious to get a deal done, I want to make sure that right from that starting point, I have that integration person working with me, telling me what I should be thinking about, asking questions to the functional leaders that can help him or her devise plans.

I would refer to it as a separate workstream because they have both having separate meetings with the functional folks throughout the diligence process. We spend a lot of time with the HR team, understanding what the cultural environment is like, how similar the cultural environment is, and what that means as we think about day one.

We want to know what are some of the things that the employee base is or is not excited about with their current company, and how to leverage that. It's super important to just give them as much visibility as possible and minimize the surprises. 

How are you incentivized to stay with that deal after it closed? 

And I am incentivized because when I am reporting to my board, as part of our business case, I'm talking about what some of the key acquisition metrics are for the deal.

Those are usually revenue-related, headcount-related, and product deliverable-related, and if we drop the ball on those, then, technically I've dropped the ball. So I am just as an incentive to make sure that the execution is a success as the integration lead and I am making sure I am staying close enough. 

You have some key metrics to define the success of the deal that ties back to your investment thesis, which is built around some synergies’ assumptions. Where does this integration lead come into play? Do they have any say or any input in determining those synergies?

They are very vocal. Similarly to me being attached to the hip with my integration lead, the executive champion of the deal is spending a lot of time with him as well, talking about the things that are most important for the success of his or her deal.

The integration lead knows that and is going to make sure that he's driving people to help achieve those goals.

Let’s define the executive champion.

For each deal that I do, I have someone on the executive team who owns that deal, who's advocating for that deal. Who's banging the table and saying, I want to do that deal. Our CEO is going to look at that person and say “do you want to do this deal and why”?

My job is to make sure everything across the process from sourcing the deal all the way through goes smoothly, but ultimately it's that executive champion who owns the success of that deal as well. 

Is there anybody else that may get involved? 

Absolutely. When we're setting assumptions around a deal, we're going to work closely with different functional teams, particularly as it relates to assumptions that affect their part of the business. We're not going to do that in a vacuum, so there has to be a lot of collaboration across all the different functions, through the whole modeling and financial deal modeling process.

How do you make that happen? 

We'll integrate it into the diligence readout. I've got a phenomenal finance team that puts the cycles into reaching out, working with each of the functional areas, and reviewing the key assumptions for their respective part of the model.

There's a lot of confidence in what they're building out and a lot of confidence in the assumptions that we're making because we're making them together with the people that the assumptions affect.

You mentioned used investment advisors earlier. How do you vet them out? 

I use a bunch of different advisors. We use transactional services advisors for a lot of the financial and accounting diligence, and depending on the size of the deal, we might work with an investment banker.

Part of it goes back to relationships and how well they know my business. A lot depends on how much time they have spent with me to understand what's important to me in my business. However, for us, building the skillset that we have allows us to do a lot of it on our own. 

How can somebody get your attention if they want to come to source your next deal?

You're going to show a good understanding of the Progress business by being able to come in and say, here's where you play, here's where you could play, and here are some of the players that play in those areas that could be interesting targets for you.

How do you interact with the board of directors? How do you work out the dynamics between yourself and the CEO? 

I think it's really important, particularly at a company like Progress, where M&A and the execution of M&A is such a critical part of the overall company strategy, to be able to have a close interaction with not only the CEO but with the entire executive team.

We have an M&A committee that we spend a bunch of time with and meet with throughout the deal process, just to have a regular dialogue with. They ask good questions that get us to focus on different pieces from a diligence standpoint, to make sure we're more prepared.

When we ultimately go in front of the broader board, the M&A committee already understands the deal at a much deeper level. From my perspective, having that M&A committee as a subset of the board is a great vehicle for us.

Who should be on the committee?

Someone that has a finance background to push you on the financial model and the valuation analysis work. Ideally, that should be someone who has experience doing deals and can share great insights and tidbits from that.

Potentially that should be someone who has more of that people side and can provide the people perspectives, because you have the customers, the shareholders, the employees and then you have the community, and you want to make sure that you're addressing them all.

Have you ever had a deal that you really believed in and it got shut down? 

I've had deals that certainly in my life that I was excited about, but ultimately either there was just too much pressure because the board was lukewarm on an opportunity, which gave my executive team pause and that made it harder for us to sell the case.

This is why having an M&A committee has been so valuable because it allows you to state the case and explain why you want to do the deal,  even if the board or board members are skeptical. The thing is, sometimes you do have to sell any that's part of what we're doing.

Is there a threshold or you can just sign off on deals without going through the approval process?

For Progress, given the fact that we're only doing deals that have scale, we're not doing small tuck-ins. If we were doing small tuck-ins maybe the board wouldn't be interested in deals that are sub 10 sub $15 million purchase price.

But given the size of the types of deals that we're doing, they need to be engaged and involved. In my prior life, there were situations where there was a governance threshold, so that the executive team had the authority to approve smaller deals, obviously notifying the board, but not needing board approval.

Tell me a little bit about the CEO relationship. What makes that work? What does a CEO want from a Corp dev leader?

I have a  healthy relationship with my CEO, and I think part of it is because he's so enthusiastic and excited about M&A and he's led M&A in his prior life.

For me, it's just having a good open cadence and understanding what's important to him and what’s not and a lot of that goes back to understanding what's important to us as a company, from an M&A standpoint and understanding what the characteristics are of a company that would be an ideal candidate for M&A and those that are not.

It's really about understanding what kind of deals we want to do and being able to have those conversations with my CEO.

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

We had a deal at the finish line, literally getting ready to sign, we'd negotiated an agreement, and the founder, the company had second thoughts about valuation. We had to walk away from that deal because he’s had plenty of time to talk about valuation when we were negotiating the LOI and he didn't.

A few months later, the person was reaching back out asking if we were still interested in doing that deal, and the answer was no. 

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