220 Deals. One Playbook. How to Scale M&A Without Losing Control

23:28Shawn Rodricks:I feel like you're right. It tends to like gets over-processed. So the quantitative piece is you look at the financials, you look for normalizations, you restate the financials and so on and so forth. But in our world, for example, in the pharmacy and the vet space, the qualitative piece becomes equally important. And by qualitative, I mean the location of the pharmacy or the clinic, the asset quality, like the physical box, the people, the roster of the team, and then trying to understand the culture and then your recruiting ability. In terms of the location, you probably would have already done, and I'm hoping that an organization's already done the work in terms of where they want to pursue transactions based on, let's say, population growth or income potential and so on and so forth.

24:16With respect to asset quality, you get that through your pictures, your videos that you can request from the clinical pharmacy, or what I try and institute is an on-site due diligence business where you actually do a walkthrough. You meet with the sellers and have conversations with them on the asset and also the team. When I talk about people, you look at the roster, the quality of the people on the team. You have conversations with the seller in terms of the quality of the individuals. You try and gauge the culture. In the vet space and pharmacy space, you have a lot of support staff. You need to understand, hey, what are the benefits that they get apart from the actual benefits?

25:00So do they have weekly lunches? Do they have Christmas parties? What kind of days they get off? Did they get a holiday on the birthday? Because these are things that if a clinic was successful in the past, these are small things that are really helpful to ensuring the success continuity post-close. You can't have an organization just come in and say, you know what? I knew you used to get weekly lunches. We're taking it away. That's not going to apply it. You got to be mindful about all these things while doing these serial acquisitions. And in terms of the recruiting ability, while location plays a key role, understanding the team, understanding the seniority, understanding whether the senior team members are open to mentorship, understanding support functions play a really important role.

25:49while assessing a clinic, for example, I'll try to gauge the age of, let's say, a doctor of veterinary medicine or a key pharmacist. Is that individual going to be there for five years? Is that individual going to be there for a year because he or she is up in age? And then be able to affect the forecasting model. If somebody is close to 70 or over 70, you cannot assume that they're going to continue, especially if they're a high producer. So you need to be able to adjust your forecast. It's not a cookie cutter approach. You need to take each transaction and based on not only the quantitative fees, but also the qualitative fees, be able to forecast correctly, which then informs your return and your purchase price.

26:35Shawn Rodricks:So a lot of this is really about taking those qualitative information and using it to shape your approach and how you're going to approach the deal. It's not so much of, I'm looking for red flags and not to do the deal. That's not your primary goal. It's more of how do we actually lock in, approach this deal in a more of a tailored way so we can make sure it's successful. And some of those nuanced things. Whoa, we got to now sense that there's a key person that's not going to be around after we close. We need to plan accordingly. Correct. Exactly. You need to do your due diligence at every stage.

27:04And there are things that you can do without visiting these assets. And there are things that you need to do after visiting these assets. But the most important thing is bringing all this feedback together and seeing how it's going to shape your deal overall.

27:20Shawn Rodricks:You had an example on this part of like a deal you worked on. You had a high billing clinician who like looked great, but could potentially leave after close. And part of it is like building a recruiting strategy into the diligence even before you sign. Can you talk me through this stuff like that? Because that's always a curious thing that comes up when you really got to look at the people strategy of doing a deal. Yeah, look, you come across, there are a few deals that we've come across where, and I'll take the Vetspace, for example, where you come across these DVMs who are very high producers.

27:53And that to me is a little bit of flag because then I know that I need to look further into it. So age becomes a really important matter, especially if it's the seller or the associate DVM who's a high producer. I need to understand what their plans are for sale, especially for the seller DVM who's the face of the business. If they're associated DVMs, I need to understand whether they have employment agreements in place, whether they have non-competes and non-solicit, and then will they be assignable. And then I need to figure out, okay, based on all of this information that I have now, how can I institute something to incentivize these key players from continuing to practice at the particular clinic?

28:38So what do I institute? Can I offer them some equity? Are there retention bonuses? Would probably callbacks to incentivize these key stakeholders for you to stay on? And once I figure these out, I'll probably include them as a condition of closing. And it becomes really, really important to ensure continuity. So you need to identify first if there are key players that you need for the continued success of the clinic, for example. And then you need to figure out how to incentivize them to stay on. But at the same time, you need to check, which goes to my previous answer about your recruiting ability.

29:16Because if these individuals leave, how does it look for you to be able to replace them? And sometimes you might have, I'll give you an example, a two exam room clinic where one of the DVMs produces over$2.5 million in revenue. And there are two DVMs at the clinic currently. And you know that if this DVM produces$2.5 million leaves, an average DVM produces anywhere between$500 ,000 to$700 ,000. So if you take$500 ,000 and that guy's producing$2.5 million, that's five average DBMs. We don't have place for five average DBMs. So what is your recruiting ability to be able to replace that high-producing DBM with, again, a single DBM in that particular area?

30:04If the answer is low, that's a huge red flag to me, especially if the DBMs is up there in each. So you really need to take all of this qualitative stuff along with quantitative stuff to inform your decision whether or not you're going to proceed the deal and then have these incentives into play.

30:24Shawn Rodricks:Real quick, what Sean just described is a buy-side function most organizations are still trying to build. Integration wired in before a close, a playbook that gets updated after every deal, a team built for volume rather than the next deal. Most are still getting there one deal at a time, but the gap is an effort. It's that nobody handed them a framework for how to actually build it. The buyer-led M &A certification is that framework. Diligence and integration running in parallel from day one, 100-day planning that starts before signing, structured across six courses taught by practitioners who've actually run it.

31:01Go to mascience.com and look for the buyer-led M &A certification.

31:06Shawn Rodricks:We'll put a link in the show notes. Let's get back to the episode. I got more questions like dig into like, how do you sort of make sure you get the right incentive? But we're going to save that for an HR deep dive because we do that as well. I wanted to get more thinking about scalability is tracking performance on these deals after close. What does that look like in terms of KPIs and the metrics on how a deal is performing? I feel like a lot of this always comes after close when you have full ownership and visibility and everything. and then are there signs that the deal's going sideways and what do you do about it?

31:40You always want to try and meet with the team, at least the key stakeholders prior to the deal closing. The more you can have key stakeholders sign employment agreements, it gives you a chance to negotiate a touchpoint to converse directly with them prior to the deal closing. So you get a chance to see if there are any red flags prior to the deal closing. So I would always try and put in conditions of closing that we need to meet with key stakeholders or get into employment agreements with key stakeholders. Because people are the most important thing. You don't have the correct people in place.

32:21You've kind of lost the transactions. Having said that, after closing, you can give surveys. You kind of see whether what you're doing is good, whether they're taking it positively or they have a negative reaction to that. And you can course correct customer surveys to see whether the levels of service meet their standards, if there's something that you can improve on and kind of work together. From a vendor standpoint, ensure that there are no lagging APs, whether the vendors are unhappy with you or not. A weekly P &L review becomes very important. Again, educating. So if you think that the individuals don't know how to read a P &L, you go and you educate them.

33:05But you're constantly reviewing it with them. On-site visits, you got to treat these acquisitions like your own baby for at least the first 90 to 180 days, in my opinion, which means that you're constantly in the clinic or in the pharmacy trying to assess if everything's working out, what's not working, let's try and fix it. you got to build and foster a culture of, hey, you know what? Mistakes happen, but let's work collaboratively to fix them. And it's not a, you did a mistake, I'm going to penalize you. It can never be that. It's making sure that they know that we are working as a team to ensure the success of the transaction post-close.

33:46And that becomes, that fostering that culture becomes very important to be able to extract all the synergies that you built into your forecast. because I tell everybody, I say, I can be the best core dev individual in the world. Okay, I get my integrations wrong. I've lost the transaction. So you need to really pay a lot of attention. You need to handle, you need to treat these assets and these acquisitions like your baby and move along, at least till they're on their two feet.

34:16Shawn Rodricks:It's like being a good parent. You got to really... Oh, for sure. Yeah, the state that we do is we take the transaction to close and then we move on from that transaction. And sometimes you lose the transaction because you're not giving it your attention. There's definitely like some soft metrics on that, some indicators of the people. Are there like hard metrics? Obviously, there's finances looking at real numbers and bottom line, EBITDA and all those margins and so forth. And then it sounds like the churn of people. I don't know, is that sort of a trackable metric? Are there any other like trackable metrics in defining success of a deal?

34:48Remember, I told you that we always try to meet with the staff prior to close. What we also try and do is understand if there was a lot of turnover, because you need to be able to correct that. You need to enforce a culture of building something together. So you need to really figure that piece out, which is what I was talking about, the qualitative piece in terms of understanding the culture and the team. It's really important.

35:15Shawn Rodricks:You're absolutely right. to build these like pre and post-close success factor lists with named accountabilities when you're working with these team members. Can you like talk through that in terms of what does that look like, the execution and just making sure there's no gaps? This is kind of the art and it comes from experience. Turn it into science, man, so other people can do it. This is what a mentor actually told me. He said, when I first started, that John, you probably know the science behind modeling and valuations and all. is like M &A is not only that. Most of the M &A is art. It's finesse and ensuring that everything comes together so well that you're going to get all the synergies that you bake with your forecast.

35:58And that is the art. The modeling is the science. You understand finance, but there is a big part to doing deals. Really understanding what are the absolute tasks that need to be done prior to close versus those that are done post-close. So an example is changing bank info, payroll benefits prior to close. Because if you've closed the transaction, you don't want the revenue and all going to the previous sellers. You want to be able to control that. So banking, it becomes very important prior to close. Payroll benefits, you want the staff to be happy, especially if you're offering better benefits.

36:35You want to give it to them right off the bat. You don't want it through the seller's payroll system and so on and so forth. So you want to kind of do those things prior to close. Let's say if you're doing a due diligence, you identify mold at the clinic. So you want to kind of fix that because that becomes really important. You want to fix it prior to close. Whereas, of course, there are certain vendors that the clinic or the pharmacy deal with. Is it really important to integrate before closing or change the vendors? No, not really. I can go assess them and take my time and then accordingly change them if I need to.

37:13So you really need to understand what needs to be or is a must to integrate prior to close versus those that can be done post-close. Not everything needs to be integrated right off the bat. And sometimes there are organizations that rush to do everything. thing, you're going to kill your flow of doing deals because you need so much more time to do everything to integrate it perfectly versus identifying, hey, these are the absolute musts and then I can do the rest.

37:41Shawn Rodricks:It's having a tailored approach in terms of how you're going to make sure you execute and prioritize what those key things are, which becomes part of the system here. So I got a handful more questions and we'll wrap up here. The most common way a roll-up thinks it's scaled, but actually isn't. Yeah. So a lot of rollups think acquisition is the strategy without a well-defined actual strategy. So think about why you have the funds to go and acquire or do transactions, but you haven't really figured out integrations, you haven't figured out your teams, and you haven't put in proper systems into place, becomes a pain point.

38:21If you try and centralize everything too quickly, it can become a pain point. You really need to have a game plan, especially for year one, to be able to start scaling. And I find organizations that just say, hey, I'm going to acquire because I have the funds and I'm going to build this platform. And then because I have a larger platform, I'm going to get a higher multiple and get my returns of arbitrage sometimes can fail. The environment that we're in right now is a perfect example where a lot of consolidators who've just gone and acquired without having discipline, you know, building the foundations of purchasing multiple disciplines are finding themselves in hot water right now.

39:10Shawn Rodricks:That's interesting. So other things in terms of, I guess, the integration part, I always think is like the big bottleneck I hear about. I don't know if you've experienced it, but one, in the last five years, I've definitely seen a bigger emphasis on it where buyers are getting smarter. And when they do diligence, they're really looking at how well a roll-up is integrated. And if it's not, there's like some penalization on their valuation to like make up for it. Kind of look at like this is going to be a bottleneck. What's your experience in terms of just thinking about that of integration being the bottleneck to really scale things up and how it impacts valuation?

39:44Yeah, look, like I said, integrations is very key. Integrations is that one piece that converts everything you book in your model, in your forecast into reality. And if you don't have proper and good integration, all those synergies that you thought you're going to get or the returns that you're going to get are going to evaporate away. So integrations is that one piece that becomes really key to translating everything on paper into reality. If you have all the funds to do acquisitions and you just go and do all these acquisitions without having a solid foundation or understanding of what needs to be integrated, when it needs to be integrated, and how it needs to be integrated.

40:29Shawn Rodricks:There's like a percentage of purchase price you should allocate towards integrating a business. I feel like that's what happens early on. People don't budget for it. And then later on, they start budgeting for integration. It's less of a budgeting. I mean, you've got to have a budget for integration. It's more about having the right person that knows what they're doing to go execute. There you go. There you go. Okay, let me ask you, again, like scalability is what I'm trying to get all my lessons around. What's your trade-off? When you start scaling and you really start doing volume of deals, what do you end up sacrificing that you wish you didn't have to?

40:58The luxury of time to do everything in sequential order. You don't get that. What I kind of do is I try and figure out what are the five to ten deals that kill five to ten things that could kill a deal. And then I go looking to see if the deal passes the test. It's identifying from an integration standpoint, what is a must to do prior to close versus what can be done post-close. Because in an ideal world, if you had the luxury of time, you'd do everything prior to close to get a perfect transaction. But it doesn't work like that because you have three, four transactions sometimes a week, especially in our world.

41:39It's really figuring out what are the five things you're looking for that could kill the deal from a due diligence standpoint and what are the must-do's from an integration standpoint prior to close versus post-close.

41:51Shawn Rodricks:Pretty cool. It goes back to the prioritization saying, okay, there are going to be trade-offs. We're not going to get every single thing done, but let's make sure we got the key things done. Exactly. If somebody's standing up a high-volume program from scratch, what's the one thing they got to get right in year one? Goes to alignment, to do deals, to have a proper strategy, well-defined strategy, game plan in terms of hiring, getting the right people into place, really hungry business development folk. That's kind of the starting point, especially in year one, because chances are you're not going to have all the systems in place.

42:28What you probably will start doing is you'll have a strategy, you'll have alignment, and you need to hire core, competent people who can and are willing to roll up their sleeves and do whatever is required to get the organization going.

42:46Shawn Rodricks:And what was your biggest year one screw-up? My biggest year one screw-up, it was a deal where we rushed integrations in the last month. You just rushed integration? Yeah, we rushed integration. and luckily for us, we were fortunate because it was kind of in year one. It was towards the end of the deals in year one and there was one deal that we rushed integration and it came to bite us later on. Without naming the deal, what we did was because we wanted to get closed, we left the banking, which is why I raised that example. We left the banking with the seller. It was very hard to trap the funds.

43:22Yeah, that was problematic. we didn't level set proper expectations post-close with respect to hiring raises all the key stuff that's important the revenue was coming in we were correcting the due diligence it's just that we

43:36Shawn Rodricks:didn't integrate it properly into the system so but this is like classic this is classic like doing early deals the biggest thing and this literally is the definition of why we have a buyer-led mna framework just to like get ahead of this stuff because essentially that's where you're doing is having an integration-led approach when you're taking a prior-led approach. Especially in your one, because you're trying to get out of the red zone. You're bleeding so much of cash. So you really want to do deals. And sometimes what happens in hindsight and as I progress after doing scaling more organizations, it's something that I won't do.

44:11Shawn Rodricks:What's the craziest thing you've seen in M &A? Oh, I've seen a lot of crazy things. But I'll give you two examples. We had progressed through a transaction. When it was time for some legal due diligence, when our counsel, they ran lead searches, they realized that the seller did not have the authority to sell the assets that he was selling to us. Oh, wow. That was one. The other was we went through the transaction. And at the last moment, a key employee said they had an employment offer with somebody else. They were going to go with the other company. Are you still close? You had to make some big changes.

44:51We did close. We actually convinced the employee to stay on.

44:55Shawn Rodricks:Okay. So that was a good... Yeah. These are real live things, right? That happened. This has been a fun conversation. I appreciate you taking the time. I hear you might be getting buyer-led certified because we have a new certification coming out. I'm looking forward to it. I believe it starts on May 29th. Yeah. I want to get the pros to endorse it, kind of go through the program, give some real feedback that, hey, this is no BS. We took a collection of all these best practices from our 400 podcast interviews and built a framework you can actually get through. Or you could go listen to all 400 podcast interviews, which I would be totally flattered.

45:28Shawn Rodricks:I would love to meet that person. If you are one of those people that listen to every M &A Science podcast, I will like make a gold trophy or something and honor you. Again, the luxury of time, man, which is something we don't have. I agree. It gets harder and harder, man. Those of you that stuck through at the end of this podcast, Thank you so much, my fellow M &A scientists out there. I'd love to hear from you. I got my privacy gate down on LinkedIn now, so folks can reach out. But mention the podcast. I get so much spam on there. I mention you actually listen to the podcast, and I'll accept it.

45:58Shawn Rodricks:I'd love to get your feedback. Any topics that we haven't covered you'd like to hear about or just criticism you want to rip on me because you're having a bad day. I get some of that once in a while or some praise. I get that too. But yeah, I'd love to hear from folks on LinkedIn. Until next time, here's to the deal. 15 years, two organizations, 220 deals, and year one mistakes Sean shared in detail because that's how this work actually gets better. That combination of scale and honesty is rare, and it's exactly the kind of practitioner experience the buyer-led M &A certification is built from.

46:33Shawn Rodricks:Frameworks from people who've made the expensive mistakes and rebuilt from them. Post-close integration planning, diligence integration running in parallel, a playbook that gets better after every deal. Across six courses taught by the people who ran it, go to mascience.com and look for the buyer-led M &A certification. Link is also in the show notes.

47:07Shawn Rodricks:Thank you for taking the time to explore the world of M &A with our podcast. We love hearing feedback. Tag us on a LinkedIn post, add a review on Apple Podcasts. We'd love to hear from you. If you need help standing up an M &A function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email, Kisan, K-I-S-O-N, at mascience.com. Or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter.

47:52Shawn Rodricks:Again, that's mascience.com. Here's to the deal.

48:05Shawn Rodricks:views and opinions expressed on mna science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual this podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions is very, very much anchoring in my question. But it is really important. Wow.