How to Set Clear M&A Objectives: M&A Advice from a Former Marine

Here is more on Ken’s background. 

I spent the first ten years of my business career at Dun and Bradstreet Corporation. Prior to that, I spent 10 years on active duty in the Marine Corps, which shaped a lot how I think about problem-solving. When I was finished at Dun and Bradstreet, I spent a few years leading a technology company owned by a bunch of Swiss banks.

I wound up buying from the Swiss company a company called Telesphere, that I ran, built and eventually sold to Bridge Information Systems. Later, I went to the merchant banking private equity world with a Company called Veronis Suhler.

At the end of 2001, together with some of the people I worked with I opened an investment banking advisory firm, and we have been growing ever since. 

You ended up writing a book called The Marine Corps Way to Win Wall Street. The things I really enjoyed about the book were the lessons that you took from the battlefield to the boardroom. What’s it like living on a warship?

I spent two years at sea on an aircraft carrier designed to carry Marines and Marine Corps helicopters, which I enjoyed. I was in my early twenties, we spent huge amounts of time cruising the East China Sea, mostly in the support of the South Vietnamese, and this period turned out to be the tail end of the Vietnam War. 

In your book, in one of the first chapters, you speak about clearly articulating long term strategic objectives. Can you expand on that?

With time, I started writing thoughts formed around the idea that Marines have, and that is that all tactics ought to be designed to advance the organization towards some clear long-term strategic objective. We see people engage all the time in tactics that are not particularly aligned with any particular strategic objective.

They open offices in cities because they can, they add product lines or make acquisitions because they are opportunistic and too often they waste money. They are a diversion of management, time, energy, and attention and in some cases, they cause businesses to fail.

The first chapter is precisely about long-term objectives and making sure all of the tactics are aligned with helping you achieve those objectives.

Why is that? Is it in human nature that we just get distracted by chasing shiny objects? What do you think the reason is?

In a lot of cases, I think it all comes down to what I call bad leadership. I know a lot of people who talk a good game about focus, but the focus is not about what you do, it’s about what you don’t do and the ability to say no, even when you need the money if that’s not in alignment with your long-term objectives. 

You also mentioned asking the hard questions up-front. Can you give me some examples of that and how it correlates?

We see all the time in the banker world and the consulting world a desire by the advisers to be nice to the client and tell them what they want to hear. We try to call them as we see them. Let’s say we have a potential client.

He has a company that has some interesting products and interesting potential, but he has more than 60 million dollars worth of revenues, little growth, and no profit.

We are not going to tell him it’s beautiful. We are going to tell him that, if he really wants to get the price he is looking for, he needs to make some changes and we will have some tough conversations with him about it.

How should a leader go about making sure new ideas and new initiatives align with that long term view?

The idea of being focused is not the same thing as the idea of being rigid, particularly when you are talking about small companies. We see small companies that start with a strategy and have that strategy evolve over time. There is nothing wrong with evolving that strategy.

You need to be aware of the innovations, not only so that you can keep your own product relevant, but also so that you can stay ahead of the competition. We are certainly a big believer in people taking advantage of opportunities to leverage innovation, but they do need to keep their eye on the prize - where are they trying to get to and what are they trying to accomplish. 

Taking a stand means being confrontational. Assess the situation, make decisions, and take action. Why does this approach fail today?

I find myself surrounded by a bunch of confrontation avoiders. When I talk about taking a stand, I am not talking about being rude or purposely angering somebody. What I am saying is that people are hiring us as experts, as trusted advisors, and not as their secretary. 

It seems like, a lot of the times hesitation comes just from somebody not wanting to hurt the other person’s feelings. What do you think?

I think there are a lot of reasons for people wanting to avoid confrontation. This idea of somebody not hurting someone’s feelings is something I certainly understand and appreciate. In a professional world, particularly when we are hired to be an adviser, our job is to advise and give clients our honest, unvarnished truth, whether they agree with it or not.

The biggest hesitation I see with CEO’s is firing people. How would you take somebody like that and show them why they need to go beyond that and take a stand?

I always say it’s easy to fire and hard to hire. I do think that one of the self-imposed limitations in corporate America is the idea that when somebody is messing up your only recourse is to fire them. I have brought people in my office on more than one occasion to tell them exactly where the problem is and given them a period of time in which they can convince me not to fire them.

I don’t take firing people lightly and it is very personal to the person getting fired. I really try hard to give them more than fair warning and let them know that their job is on the line in an unambiguous way. This is part of confrontation avoidance, this unwillingness to have those conversations.

From your book, many people, including Wall Street bankers, don’t spend enough time thinking through the strengths, weaknesses, capabilities, constraints, and motivations of the people on the other side of the negotiating table. Why is this important?

What makes me crazy is when, particularly buyers, think that the only thing that matters to a seller is money and they refuse to contemplate other things that affect the motivation of the sellers.

You need to understand the people on the other side of the table, their weaknesses, strengths, and what motivates them if you want to get a transaction done. Without that, there is no discussion and no collaboration.

What would have been your way of approaching that situation?

You need to spend some time listening to what their plans are, what they’d like to do, having a conversation, and maybe making some suggestions. If you think it’s appropriate to bring in somebody from the leadership from the outside, how about raising that as a suggestion? Hear their objections.

If you think something should be done before making a final investment decision you need to understand what the plan is for the next couple of years and what the investment requirements are. Work together with them to develop that plan and make them part of the team.

In the chapter called Know yourself, you mention that you should know what you do that is better than anyone else on the planet. Can you explain the importance of that?

Periodically we run into those who either can’t answer this question or they simply say that they are almost as good as somebody else but less expensive. That is a losing strategy. The best ones have a clear market definition, the definition of the market they serve, and the customer base they serve.

They often answer the question in terms of a problem they solve for a clearly defined customer. The worst ones define themselves in terms of their product. 

What do you do better than anyone else?

I believe we are the best investment bank to help buyers, sellers, and investors into middle-market technology-enabled companies anywhere in the world. I think that we understand these companies at a strategic level, as well as on the financial level.

I think we combine an ability to give them clear strategic advice as to what to do and how to do it, as well as give them tactical advice in actually getting transactions accomplished. 

Another line from your book: Too many people overestimate themselves, their capabilities, and their capacity. Know your strengths and weaknesses. How do you identify and validate those strengths and weaknesses?

We have seen companies fail after making acquisitions because the acquiring company does not sufficiently understand their own limitations and that in order to make an acquisition work it requires you to divert your intellectual horsepower into making it work.

That means that your Head of Sales, Head of Technology, Head of Finance, and CEO are diverted from other core activities of the business. I’ve seen people overestimate costs in dollars, time, and energy because they haven’t sufficiently thought it through.

What would be the approach where you can try to really validate things and understand those weaknesses, so you can be more prepared?

We always advise people who are on the buy-side not to pursue a transaction unless they have really thought out what happens afterward. It takes a  tremendous amount of planning to assign goals, roles, responsibilities, to set milestones as to what should happen and then have ways to follow up and check if you are hitting the milestones to assign clear responsibilities. 

When it comes to your background in the Marines, was there a similar approach in terms of doing the same thing?

Sure. You plan for an amphibious landing on a beach in the Marine Corps, but things are not over when you land on a beach. The question is, where are you going to go from there?

How do you foresee the weaknesses and where those weak points are? 

I think that a part about identifying weaknesses is also about identifying contingencies.

• What happens if it doesn’t go right?
• What happens if my Head of Technology that I’m counting on from the acquired company goes and takes another job elsewhere?
• How do I anticipate some of the hurdles? How do I put things in place in case key people leave?

Going back to what I said previously, not everything is about money, and sometimes motivating people to stay means showing them love and respect. 

What are the examples of controlling timing in M&A?

In many cases, we see buyers by companies in a reactive way, as opposed to approaching buying from a more holistic standpoint and looking at the long-term strategy.

If acquisitions are part of that strategy, then you focus on figuring out what companies out there are best suited to help them achieve that strategy and then proactively going after them when the timing is right for the acquiring company.

If you are a seller, you can wait for somebody to come knocking on your door and be reactive, or you can be proactive and work on controlling the timing.

What do you think is commonly overlooked when you're thinking about controlling timing?

The best time to sell a business is when everything is going well, when the revenue is growing, when the profit and overall economy are strong. Everything is going great, so they don’t think about selling. Then comes the time when the market flattens, revenue has flattened and profits are down.

This is why you should have sold it when things were going great because now your price is probably down and there are fewer buyers that will be interested in the purchase. 

My favorite quote from the book that you took from Marine General James Mattis is ‘’be polite, be professional, but have a plan to kill everybody you meet’’. Can you explain what that means?

I think that what James Mattis was saying is that you always need to be fully prepared for the unexpected. You need to have a plan about what you are going to do if things don’t go right. While you can’t plan for everything, you can plan for a lot. 

How do you go about getting your mindset to start thinking about all these different things that can go wrong?

People in business don’t get too far extended. There are a lot of ways in which you can be reasonably aggressive in growing a company without being so aggressive that you are constantly putting everything at risk in case there is a downturn. For example, small companies frequently have technology risks.

You need to assess those risks and often there are only limited ways in which you can mitigate them. But, whatever those limited ways are, you want to do that. You can’t identify every possible risk, but you can do your best to protect yourself.

In terms of trends, we are seeing more of the preparation earlier when taking a company out to market. I’m curious to hear your thoughts on the importance of that? 

We believe in momentum, so once you start the process you want to keep it going. We are always trying to be three or four steps ahead and to be fully prepared. At some point, we will need to set up a virtual data room. We are preparing everything in advance because we know how hard it is and how long it will take.

If we think that disclosure schedules are going to be a problem, we’ll be pushing lawyers and others to get those prepared so that the momentum continues. 

From our earlier discussion, you mentioned people go into transactions to lose, there is not enough prep and they often take shortcuts. How do you get over that?

Discipline matters. It is not about giving orders and expecting others to obey, but rather about doing the right thing for the right reasons every time and it’s about training people as to what those right things and right steps are. It’s about not skipping these steps and it’s about doing it the right way.

That’s what Marine Corps discipline is exactly about. We try to impose that discipline on the M&A process, be it valuation analysis, structuring, due diligence, due diligence reviews, contract negotiation or employment agreement negotiation.

You emphasize developing a repeatable process. How do you strike a balance between the repeatable process and out-of-the-box thinking?

Repeatable processes have nothing to do with out-of-the-box thinking. Repeatable processes mean that we are going to go through certain steps each time, in order to make sure that we are not skipping steps and doing things right.

Within each step, you are going to ask certain questions and sometimes you will have to do some out-of-the-box thinking.

What’s the craziest thing you’ve seen in banking?

I will say that I do not understand bankers who talk people into things so that they can earn a fee when the thing they have talked them into has a great risk. In some cases, this led to even complete bankruptcy. 

There was also one situation, where a company owned by a husband and wife that developed some kind of voice recognition technology had hired bankers to help them sell the company. They ran an auction process and the lead bidder was a publicly-traded company that was going to pay with stock.

They took the stock at the recommendation of their banker and shortly thereafter, the public company that was the acquirer went belly up and the stock was worthless, which left the couple out of the company and with no money. 

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