Building Your M&A Reputation: Why Relationships Beat Transactions Every Time with Andrew Cohen

23:23It's not like I'm just making that shit up. No, not at all. It's exactly the reason that any good discussion is about listening and understanding and seeing if you can build a relationship where what both of you are looking for can come together. And if it can't, and by the way, 98%, 99 % of the time, nothing happens. Hopefully you provide some value to them. They provide some value to you. And I always end every discussion with, even if it's a short-term discussion, anything I can do to help. That's what usually happens. This is more of an intro call. Maybe you just try to get this, get to know each other, know what general goals and intention are.

24:01And then there's always people need this type of stuff if you want time to think about it. Nice to know you. Boom. Part ways cordially, like a typical introduction meeting. What happens after that? What's your philosophy? Do you convince people to sell or do you wait for them to be ready to sell? You can't convince somebody to sell that doesn't want to. You have to understand what they're trying to accomplish. Isn't that convincing them instead? Part of it's convincing, part of it's understanding what makes sense for both of them. So yeah, it's certainly convincing. Any sales job is convincing somebody there's a need and you can fill it.

24:35And in this case, it's a, hey, you're doing this for whether it's money, whether it's broadening technology, whether it's solving really hard problems for customers, and we can help you do that at better scale. There is different parts of convincing. Totally. I can help you get the deal actionable. The other side is there's lots of times where it's, this is really interesting and we should continue the discussion. And it's not a no, it's just a not now. We're not ready. You're not ready. You go on, continue to grow, continue to get things. We'll learn more about the space. And if things continue to align, let's continue the discussion.

25:14Okay. So you have this intro meeting, you'll have some interpretation of where they're at. Like, oh, this could potentially be actionable near-term or more of a long-term. That's how you frame your next steps. Where it's like, if it's actionable, it's like, oh, we should probably connect in a few weeks. Or we should probably loop in and continue the discussion. And then if not, it's nice to know you, but we still got all these things we're trying to achieve. Absolutely. And best of luck. Again, you want to be respectful of people's time. If there's not a good fit, hey, this was great. Thanks a lot.

25:42If I can help with something else, let me know. And in the interim, that space is one that's not of immediate near-term interest to us. What if it's something of interest, but you can tell that, hey, we're not going to do it because we've got a timeline for the next couple of years on these milestones. Let's just make a point to stay in touch once a quarter or something like that. I'll see you at RSA and Black Hat. Look forward to having a drink. Best of luck. There are lots of companies that, you know, it's IPO or bust. You know, we don't want to sell. There are plenty of CEOs that frankly don't need to sell.

26:13And they don't want to. And you have to respect it and say, okay, best of luck. So I remember losing a deal where in my head, I was like, oh, I should like follow up this founder in six months. And I didn't. And then he got a deal done like 11 months later. I was like kicking myself in the butt. What do you do to keep in touch? You have a CRM system. You have something that says... Apparently, I don't know how to use that very well. You know, my complicated CRM system is I put in Outlook, call this person in three months and have it show up as a reminder in three months. You're supposed to call Kisan and see what's going on.

26:47It doesn't have to be wildly complicated. And the other side is, if there's something that happens in the industry, I have Google alerts on every company that I'm looking at. And make sure that I'm following them on LinkedIn and on Instagram and see if there's something new that happens. And if there's something that is of interest, I'll send them an email. Hey, have you seen this? I saw this from you. Congratulations. Look forward to talking about it. Ah, so you throw them on Google Alerts. So that way you can do all your prospective targets on Google Alerts. I have the main ones. The main ones.

27:18Yeah. I like that. And that, if you see something, it's like you can always use that as a way to get in. So trust is like the big thing. I feel like, how do you think of trust as, maybe don't think of it as a strategy, but say you were, how would you think of it as a strategic approach? I have a reputation for being trustworthy for the last 20 years and say you can meet a bunch of people that will know you and be introduced. Okay, so that's your point of reference. Yeah, I trusted you because Jeremy said, hey, he's a really good guy. You should talk to him. That's good. Yeah, I mean, it's the transitory powers of friendship.

27:56Yeah. If somebody you trust says, I trust him, you should meet him, you do it. so you got these references when do you use that though if you're like hey just so you know if you i've done a lot of these deals if you want to talk to other folks i've done deals with like where do you interject with that in terms of having your because there's people don't know you but jeremy knows you so it's obviously through association okay there there is trust there through that association but you're approaching a target they don't necessarily have that was it more of can you imply that, hey, there's references?

28:29You can certainly imply that there's references. Again, that's the point where it's always great if you can say, hey, I was speaking to our mutual friend, Neil, who was the guy I was talking to this week. And I've known Neil for 15 years. And he said, I really should talk to you and what you're doing is really cool. And then if the guy has a question, he'll immediately call Neil or ideally Neil's already called him and vouched for you. That makes sense. If you can get that, the common contacts, using them as proof points, You're reminding me of a deal I need to follow up on based off of that, actually.

29:00Because there is somebody that's like, oh, we actually know that same investor I'm working on a deal on. Perfect. I should go back to him to help me kick him to get the deal going. What else do we do to build trust? Run a good process. Do what you say you're going to do. Follow up and don't waste people's time. It's about basic general respect and being a good person. What about getting people drunk? I'm a big fan. I mean that it is great to break bread with folks. I can't think of any deal that went well that didn't involve getting together and having a meal. You don't really learn what people think until you've had a second glass of wine.

29:40And it doesn't have to be a second glass of wine. It can be a long walk. It can be seeing a ball game. It can be talking about what music you did or what you do over your Thanksgiving weekend and why was that cool and what was fun for you about it. and you learn about what makes that person tick. And at the end of the day, people are people and they want to know that you care about them. That's true. There's time and having more of the, like a personal setting to get to know the person personally. It's huge. Especially when you're in due diligence and you're trying to figure out what's going on for integration.

30:14You've got to really know what drives each of these people. And we're like, we're picking up on integration here. I like that. One, I still like alcohol because I feel like it's a true serum. I agree. So, okay, with or without alcohol, is there things that you've uncovered that kind of really, oh, by the way, I'm going through this really bad divorce or something like that? Is there stuff like that you uncover that all of a sudden you relay back to what the deal process is going to get impacted? Absolutely. CEO that nobody in the company liked. But you find out from the CEO? No, no. You find out from the other people that you went to dinner with when the CEO's in the bathroom.

30:53My favorite example is seeing at dinner how the CEO or the other senior people treat the waitstaff. Yes, big on that. I worked at a company called Modernizing Medicine for a couple of years and their CEO, a great guy named Dan Kane. If you walked into the building with him, Dan knew the name of every person at the front desk who picked up the trash, who worked in the building, who was at the coffee store and you just knew that he was a good, caring, nice man. Those tiny little details that you don't think matter make a ton of difference. You're picking up on the culture cues too, which I feel like we do a lot of these podcasts and it comes up so much when you think about integration.

31:38And speaking of integration, I'm almost convinced there's three schools of thought. Maybe there's a fourth, I forgot it. One is the old school, hey, we're just going to put these companies together and they're going to figure it out and create a new, unique culture, old school. There's more of this progressive of, we really want to understand this culture, not necessarily, oh, we shouldn't do the deal because it's different, but this will help us shape our integration strategy, knowing that certain functions would probably, we could fully integrate. Some are going to be uniquely different the way they operate.

32:10Maybe we should have them independent. It really helps you shape your integration approach. And then I've seen companies like Barry Waymiller, LCI Industries. Was it Lippard? Yeah. Jason Lippard runs that company where they're using their culture as almost like the driver of, hey, just so you know, this is our culture and this is how we're going to change your company to fit our culture. And they bring in like coaches and things to just get their leadership on board. And this is actually pretty interesting if you haven't read it. I think he just updated his book, Bob Chapman, like why everybody matters, but that's the other school is almost using as a strategy of culture.

32:46Where do you sit on that spectrum? It's important to understand both companies' cultures and then figure out how to get the best of both. At the end of the day, and again, the vast majority of the transactions I've done have been small to medium-sized transactions where it's unlikely that a small company is going to come in and totally change the big company's culture, whether that's for better or worse. It's very different if you're doing a merger of equals where you do have to pick one culture or really adapt to the two of them. For us, it's been mostly making sure that people understand what the culture of F5 is and if they're comfortable joining that.

33:28So I'd say for small to medium-sized deals, you got to figure out if they're a cultural fit. For a larger deal, it's a very different discussion. That's It's really an integration, not a bringing it in and figuring out what you're going to do. You're almost prepping them in a way to be amenable to some cultural changes as they become part of a five. Yes. Versus, oh, I promise you all the autonomy and you're going to preserve your culture and do everything just like you are. And there have been times where you do want to keep things autonomous because it's a small company going at a super high velocity and you don't want to slow that down with the traditional big company accoutrement of process, etc.

34:07So you really have to figure out the best of both worlds. But a lot of that is really spending the time during due diligence trying to figure out what the appropriate integration strategy is. I'm a big fan and my team hates it because they're sick and tired of hearing me say this, but due diligence does two things. It's binary, up or down. Do we do it or do we not do it? And the rest of the entire due diligence process is about integration planning. How's your approach? Because we all have the whole buyer-led framework. It's all about creating synchronization between diligence integration. And essentially, it's just integration forward.

34:41What does the integration thinking look like through the process? Really understanding that all the information you're getting is to help you figure out how you're going to be able to create value. What are the main value drivers that you need to focus on? All your diligence is all about integration. It's confirmatory. By the time you get to due diligence, at least as a strategic, you understand their technology, you understand their strategy, and you believe you want to do it. I've never gone into a transaction wondering if I want to close it. I want to close it. I want to confirm that the assumptions that I have made are correct.

35:13And that's the go, no go. But everything else is what do they do? How do they do it? And how would it fit with what we're doing? What are going to be the value drivers going forward? That's interesting. And then you get aligned on that and then you're working. I mean, so the target company is aligned about how you're going to integrate foreclose. Absolutely. There should be no surprises when you go through this process. And part of that is explaining the day we sign an LOI, we walk through the entire due diligence and integration process with the company. So they understand timing. They understand who's going to be doing what.

35:48They know what our process looks like. And we're all aligned on expectations. It's a pretty detailed plan. Yes. I think that's what you miss out when you have a seller-led process. There's only focus on closing the deal. They compress all the timelines to close as fast as possible and with the highest certainty to close. but here's a strategic you want high certainty of value generation so for you the big focus is how things are actually going to come together and make sure there's true alignment between both sides all the folks going to eventually come together as one team at the end of the day they're very different processes i've lost lots of deals to pe companies that can move so much faster than i can because they're mostly numerically driven or they have a thesis they're willing to take very different types of risk and underwrite it differently than a public company can.

36:38They can get things done much faster. They can get a different certainty of close, but it's a different process for what the future is going to look like. Because it's just, boom, go figure it out. Because a PE firm will close and give it to the business and say, all right, go figure out anything. That's the difference between a transaction and a relationship. I've heard the stories of how that goes. Oh, yeah. What's really interesting is what we described to building trust. This is pre-LOI. You're building trust and you're already starting to think of how some of these things you're learning is going to impact integration.

37:08Fire led, baby. Absolutely. It's the reason why you spend so much time together. It's to get as many data points as you can and learn as much as you can. Not just because it's interesting and fun to put together the puzzle, but because it just helps you do a better job, make better decisions and build more value. My new book, Buyer-Led M &A, The Framework, is officially out. Over 400 episodes of M &A Science, I've talked to the best corporate development leaders in the world. And one thing is clear. Traditional M &A is broken. Buyers chase auctions. Sellers control the process. It's reactive and inefficient.

37:47This book takes those conversations and distills them into a practical framework for how to flip that. source deals directly, build relationships earlier, and stop being auction chasers. It's not theory. It's what leading teams are doing right now to increase deal volume and take control of their pipeline. If you want to build a proactive M &A program that founders actually want to engage with, grab your copy. It's available now on Amazon. Head to dealroom.net slash book to check it out. Again, that's dealroom.net slash book. Okay, so we go through this journey, build trust, and we get to that point.

38:24And it's like, hey, we want to see an offer from you. You get to the point of getting an offer out there. I want to know about negotiations because you made this point where you said the harder negotiations are actually internal negotiations versus the external or with the counterparty. Talk me through that. The negotiations internally about whether or not to do the deal, not about the actual price. Internally, nobody cares. Okay, yeah, negotiations and negotiations. So making a go-no-go decision. Give me examples. Walk me through that. How does that go down? The big internal go-no-go decision is about issuing the LOI.

38:59Up until the LOI point. This is why strategies are slower than PE. No doubt about it. PEs also don't run an operating business. That's their job. They're just doing these things. So it's very different. For us, I've got to convince people that have day jobs, that are reporting their order, that are building their product, that have an annual plan that they should mess with that, petter bait it, spend a bunch of time and do something external instead. And convincing them that what a lot of the process is spending time with them up front, understanding their roadmap, understanding what they're billed by is, understanding what they're, what they need.

39:39And if it's something that they need and can't do internally, obviously it makes an awful lot easier to get a transaction approved. If it's a, when F5 bought NGINX, spectacular transaction, been very successful. There was an internal product that was doing the exact same thing. Oh, interesting. Convincing internally, both management and the team that it's better to buy an external product and no longer do what you're doing internally is really hard. Let's case study that for a second, because that is really interesting. And I've always been curious about that. You have an existing product and Nginx is, I mean, we've used it.

40:20Of course. Yeah. I don't know if it's still in our stack anymore, but yeah, a great product. So you get the opportunity. How do you do that? You recognize what the skills it takes to get from where you are to where you want to be. And do you have those skills and market internally? Another example, and really recent. We bought a company very recently called Calypso AI in the AI security space. We had an internal AI gateway product with a non-trivial number of people working on it. It became clear to us that while we had great engineers and great technology, we didn't have the AI and domain-specific expertise to really understand exactly what the market wanted.

41:03So we ended up buying the company and then taking a number, the vast majority of the internal team, and moving it over into the Eclipsa team and merged. Hopefully, we'll get the best of both worlds. Those are reverse integration. Talk to me in the negotiations. Are you talking to product leaders and are you convincing them? Absolutely. I know you got a little hope and dream here, but... Ideally, you never want a deal to be only pushed by CorpDev. You need to have a product and sales co-sponsor. And by the way, the CEO and CTO should not be those sponsors because they're way too busy to be able to do the rest of the work.

41:39So I want a senior product manager who owns that space or will own that space. And if it's a revenue-based company, not just purely technology, I want to have a sales co-sponsor. If we're going to sign up to a number, somebody in the sales force has to sign up to that number because a number that doesn't bring around incremental quota is not a number. You want real ownership of... Everybody's got a sign in blood. Maybe on the dotted line. Blood sounds a little bit harsh. Yeah, it is interesting. Here's all this negotiation on alignment. I'm curious if you had like a defined M &A strategy, like if you used either of the examples, HipsO Engine X, and it's like, hey, we already had this strategy that was defined and we're executing against it.

42:25That's why we had this opportunity. Or is it more we've identified it and now we need to justify this and maybe shape the strategy. If you found the opportunity and then you got to go back and convince internal stakeholders like these product leaders, is it more of like we have a loose strategy and then we're still rationalizing this particular one? If your M &A team is that far out ahead of your product, guys, there's not good strategic alignment within the company. So you need to understand what the company's strategy is and what the company's ability to execute is. So you probably had that alignment before you went out and really shopped around and talked to the target.

43:02Absolutely, of course. Okay, so this negotiation is even happening beforehand. And this is your negotiation to really shape your M &A strategy. In AI security, we knew it was an important market. We took a bunch of internal resources to begin working on it, to learn and understand. And then as we were learning and understanding, we realized we don't have enough of these resources internally to be able to do it. we're going to have to do this in a combination of organic and inorganic. These are the harder negotiations than the target. Because it turns out the team that's developed it internally also thinks their baby's really cute.

43:38Any specific things have you've learned to really drive that? I feel like you could have somebody stubborn. I'll tell you the deal room culture over there. Anytime I found something where it's like, hey, we can just buy this IP. They don't have a strong customer because we're small. It's a 10 million revenue company. So you're looking at these couple hundred grand and you can go buy the IP. But then the engineer's always like, well, we'll just build it. You can build it. How long does it take? I know. Are your engineers busy? Yes. Exactly. It's software. You could build anything. So that's right.

44:04How do you end up convincing them? Teach me. It's what's the highest and best use of your time. And if it exists, why recreate the wheel? It's time to market. Yeah. It's always easier to integrate an internal product than an external product because it's built with your tools. But you also bring in new skills. By the time we integrate it, we could have just built the whole thing from scratch. which is the question of one of the reasons why that internal negotiation is really hard, because you also have to understand, it turns out if the integration is harder than building it yourself, then build it yourself.

44:36That's part of that build versus buy that really is important because it's build and integrate versus build, which is usually by definition integrated versus buy and integrate. It's a full process. Do you have product leaders, but then do you have senior your engineering that have a voice at this too? Absolutely. They're the ones that want to go get drunk and figure out like how do I... And you also have to have a CEO and a management team that understands the pros and cons of that. One of the things with the AI gateway and some of the products, when we decided that we weren't going to continue to do that internally and do it externally, if you message that internally as, hey, we failed internally and we're going outside to buy it, then everybody's really pissed off and it's bad.

45:21But if you explain, hey, we spent six months learning what the market needs, understanding requirements, and then determining where the best way to meet those requirements are and celebrate it as a huge win, even if it means you're no longer doing the internal product, that's creating a culture of innovation. Interesting. Build versus buy. It's interesting because it's almost like a A little red team, blue team exercise there. Always, yeah. And different people have very different opinions on which one you should do. Turns out engineers like to write code. They do. So I guess technically you're the red team because you go buy something.

45:58Exactly. The flip side is, especially in today's environment, yes, a big company can build pretty much anything it wants. But it's not like we have engineers sitting on the sideline waiting to do something. Everybody's fully committed. There's something else they can do. Is it the biggest element of that business case? Time to market, speed? It's time to market, it's speed, it's skill sets, and it's opportunity cost. Okay. So you build all around all those pillars. All right. There we have it. That's our framework to assess build versus buy. When you have to make this go-no-go decision, what is that framework, triaging, all that look like?

46:38How many platforms do you guys have at five right now? Three main ones. Three main ones. I'm wondering if it's the authorized mandates between different platforms. And then within that, how do you quickly get to, I guess, more so like a no than a yes. When you're in due diligence or when you're actually triaging new ideas? Oh, it could be both. Actually, I didn't even think about the new ideas. That's the whole thing. I guess that's more the strategy exercise. So let's go run through both. Go from ideas and then deals. So ideas are, we are always the front line when things come in and try to do that triage as quickly as possible.

47:12If a new idea comes in, A, it's up to the corp dev folks to understand, does this fit with our strategy? Is it a market we're interested in? Does it fit the big criteria? And I will tell you, bankers and companies appreciate a fast no much more than a long maybe because you're not wasting people's time. and again, plays into the reputation of having a good user interface. The other side is knowing your tech stack, knowing your roadmap and being able to say, yeah, this makes sense. It might be a little orthogonal or a little bit out there, but it's worth the time and expense of getting product and engineering folks to spend an hour to learn more about it.

47:54That makes sense. This is actually fun. I keep using the deal room reference, but I got to work across like 200 corp dev teams, which again, like one extreme is just, you almost feel like they're just like gut decisions. And the other one, I've seen the most sophisticated scoring systems you can ever imagine where there's like 30 different little... 30 different variables, one to 10 on each of them. Exactly. Yep. What do you guys do? Is there sort of a metric driven system to get to that no-go decision? There's a metric driven system when comparing similar companies. If there are four different companies in a space, I would like now work with the product and sales folks to say, what are the decision criteria?

48:33What's important to us? How do we assign relative value to each of those rankings? You come up with a numerical way to look at these things based on those decision criteria. At the end of the day, it's a gut decision that's made with the entire team. But being able to actually put down the decision criteria makes it much more of an organized set of discussions. The 10-point list? Oh, yeah. We've got a 10-point rubric that comes up and says, these are the 10 decision criteria. What's the relative weight for each of them and how do we compare? And it's helpful. It usually isn't the final decision maker, but it definitely helps knock out things that don't actually make sense.

49:17Once you figure out what are the really important criteria. Who are the stakeholders to make the no-go decision? We go through in front of our ELT, after due diligence. Wait, what does ELT stand for? I'd like to say executive leadership team, but I also call them executives lettuce and tomatoes sometimes. So it's basically the CEO and the executive staff. When we are finished with the preliminary due diligence, we will have each of the, we have five different tracks. Each of the track leaders puts together their report with a go, no-go recommendation. and we go through the report, the highlights, any red flags that come up in each of those groups.

49:59Each executive comes with the... Each of the five track leads. With track leads from the CELT. HR, finance, product, sales, marketing. That's who makes up the ELT. That's who makes up the due diligence tracks. Okay, so you got your due diligence. So this is your functional leads. Functional leads and the go, no go meeting. Ah, so the functional leads come up with their summary. So they do their diligence. and then come up with this. Now, this is pre-LOI. No, this is after LOI, after we've done the deep due diligence. Okay, so this is the go, no-go for the transaction. There's go, no-go at LOI.

50:35Yep. And then there's go, no-go at sign. Yes. Okay, so let's break that down. At LOI, who are your stakeholders? Product leadership, CEO, CFO, myself, and the COO. Okay, pretty tight tent. Yep. About four or five folks there. Yep. And then now we get into actual sign where all these functional leads come in. Absolutely. They got diligence readouts. What does that summary look like from the functional leads to do a no-go? Are they kind of referencing, hey, based on this sort of diligence, maybe a summary of it? There's a specific due diligence report. We've got very formalic ideas of what it is with highlights and color codes.

51:10And if there are reds, how are we going to address it? As we go through during the due diligence, we say, hey, if there's a red flag showstopper, you raise that day because we don't want to waste any more time and energy if somebody finds something that we think is going to stop the deal. It doesn't happen very often, but when it does, we want to stream and make sure we address that ASAP. And then when we get to the end of that due diligence for the go-no-go decision, each of the functional leaders presents their findings to CorpDev and the ELT. Is integration any part of it? Absolutely. They're one of the stakeholders.

51:48there's an integration report as part of that go-no-go. Do the functions mention anything on integration, or is that all strictly through the integration team? I mean, the integration is a function of the discussions that have happened with those leaders, and most of those leaders are going to own their individual integration processes. Would they have a concern around integration that they would raise as part of the go-no-go? They have an obligation to do that. Okay. And we let them know that. So part of diligence is, here's a flag. a diligence exercise to minimize your risk, but there's risk that corresponds with integration.

52:22They would bring that up there. It could be a great company, but we just can't integrate it. Okay. You get all these readouts that essentially are their summaries of a go, no-go decision. So they ultimately say, hey, we should do it. We shouldn't do it. Everybody has to vote. And by the way, it's not just the track leads. We make sure that at the end of each of the groups, we specifically say anybody, and it's a little bit like a wedding. If anybody here feels they need to say something or that their perspective hasn't been heard, please let us know because we don't want there to be anybody that says, oh, I meant to tell you that beforehand and I didn't.

52:56Don't want anybody to have that excuse. If one person says, I disagree with this vehemently, we want to make sure that we have the culture and the availability for them to speak up. Is it like a Democratic vote? You just got to get majority? No, at the end of the day, it's the ELT and CEO's decision. Okay. But it's based on that information. Do you have a deal where they've had several people object to it and they still move forward with it? Yes. How does that pan out? Obviously, it depends on why they're objecting. But oftentimes, they're objecting because they think they can do it better themselves or they're competing priorities.

53:32And at the end of the day, that's the type of decision that a CEO needs to make. Do I want to focus on this or do I want to focus on that? Because there are always limited resources. And the opportunity cost of people's time, even a small acquisition, takes a ton of time and energy internally. So you've got to make sure the juice is worth the squeeze. So they got votes, but the ELT's got the... Corporations are not democracies. Fair enough. We talked a lot about integration, and I like how you start cultivating this stuff. When you build your deal thesis, is having a thesis on integration part of that?

54:06Absolutely. What level of detail do you get? At the LOI, we want to have an idea of what we think the integration strategy is. Obviously, you haven't gone and understood it in great detail yet, but you've got to have a thesis for what it's going to be. And people have to agree that it makes sense. Can you give me like a rough, like, what is it just pretty broad? You know, or if you kind of identified that there may be some challenges. Yeah. The things where it would become interesting is, hey, this is a very different culture or this has a different business model. or we are an enterprise direct sales business.

54:44And this is an SM... I'm making it up. An SMB, PLG sales approach. You're seeing integration challenges. Yeah, you have to. Making that part of their... And we've also done a really good job of spending a lot of time doing after action reviews of every deal and putting together the criteria that are important for F5. The companies that we want to work with definitely have to be able to scale to enterprise because our biggest customers are enterprise. And our biggest asset, as my CRO tells me all the time, is our customer base and the faith that they have in us. We sell primarily to NetOps, SecOps, and a little bit to DevOps.

55:21So if it is a bottoms-up, open-source, PLG motion sales that is selling to cloud-native new companies, it doesn't make sense for us. It's not going to fit with our model. Okay. It helps flush that out so that way you get ahead of it and then make sure you got a solid case. Absolutely. Got to have your decision criteria and understand what knocks things out up front. Yeah, the sooner you get to it, the better. There's no sweeping things under the rug here. Even if it's the greatest technology in the world, if it doesn't fit our team, if it doesn't fit with what you have permission to do, it doesn't make sense for us.

55:55You mentioned before we talked that you'd rather walk away from a deal than compromise on your core principles. What does that mean? What are your core principles? Treating people ethically and fairly and doing the right thing. Okay, what happened? Give me some examples. Now I know. Yeah. We were in a potential transaction where, and again, everybody has their own perspective. We had signed an LOI. It had been approved by our board and the board of the other company. And then as we got to the end, the other side decided they wanted to renegotiate both price and terms. And one of the things that that included was changing the articles of incorporation and the cap table, basically to take more money for the preferred versus the common employees.

56:45And it actually didn't dramatically affect the economics for F5, but it would have not treated people the way that they were supposed to be treated. and we said, we can talk about renegotiating. Oh, it's like when it diluted all the employee shareholders. Exactly. But we can't agree to something up front and then you change it at the end and hurt other people. We're not willing to have F5 be associated with those types of business practices. And if we have to walk away and start again, we'd rather walk away and start again than compromise on those beliefs. By the way, that's one of the reasons that I really like working at F5 because in fairness, I had spent a bunch of time with lawyers that say, hey, if they do, this is how we can be indemnified.

57:33And this is how we don't have to worry about it. And this is how we, if something happens and one of the shareholders sues, this is how we get back. And our management team said, that's great. We won't touch that. It's not a money issue. It's a reputation issue. Yeah, on principle. That's cool. I like that. That was one of those really defining moments of, oh, this is why it's a company I want to work at. I like that. Can you tell me about a failed deal that you turned around? Sure. We bought a company many years ago. This was when I say we, I was back at Citrix, a company called Ardents. Gosh, this is 2008.

58:112007 was the deal. Really interesting deal. We got one piece of technology that we really wanted, provisioning server. But within that business, there was a small little real-time operating system business. Didn't fit with our strategy. And every time we were going to do something where headcount had to come out, let's just take it out of there. It's not strategic. And we realized that there were a bunch of big customers that were using it. There were 30 or 40 people in the business, and we weren't going to do the right thing for them. We were just going to drive it to zero. So we said, what can we do versus just writing this part of the business off?

58:45It was 2008. It was the financial crisis. Nobody was funding things. There were no buyouts. and we ended up creating a management spin out. It's actually my favorite deal of all the deals I've done. We got the head of marketing and sales from that business to give up his big company job, put in his life savings and buy out the business. He fundamentally believed in the technology. He pitched it. We were looking at selling the business. We couldn't find somebody to buy the business. And he said, he came to us and said, would you consider selling it to us? And we're like, you can't afford it. We came up with a really creative financial structure.

59:22He took a bunch of risk. We spun it out. It was a very tough time. They went from 40 people to 25 and then 22 and then built it back up. And 15 years later, it's a standalone, really viable, profitable company. That's cool. Yeah. I'm going to Boston next week to do a board meeting with them. That's a good spinoff. May I run into you? I go to Boston week after next week. Awesome. Yeah, that's actually worked out really well. Yeah, it was really win, win, win, which is very unusual. It was good for the employees. Especially the persons in the business. Because I know there's a lot of firms. I don't want to knock anybody.

59:58Carve-outs are great opportunities and strategies. But when you're just banging on doors looking like, what do you got to carve-out? Hey, actually, how many times a month do you get approached by? I don't know, who do you get approached by? Who's knocking at your door between consultants, bankers, and the PE firms looking for carve-outs? We probably get two to four divestiture carve-out calls a week. A week? Okay. And it's funny because sometimes, and again, I give business development folks lots of credit. They're sales folks and they're working hard. If I say no, everybody on my team will get the same email or LinkedIn saying, Hey, I'd love to talk to you about this.

1:00:37So I was like, Hey, here's the list. We're not doing carve-outs. If we do, we have you on the list and we will definitely let you know. So you get two to four on the carve-outs. How many from consultants and bankers? Oh, we probably have a group of 10 to 15 bankers that we work with regularly to help understand what our strategy is so that they can be proactive looking for the things that we're looking for. And we obviously have a couple of big relationship banks that we work with and have done a lot of work with us. And then you never know where a good idea is going to come from. So we'll talk to, I'll spend a half hour with most bankers or VCs that want to understand what we're looking for and what's important to us.

1:01:18What about consulting firm? Not as much. There are a bunch of smaller advisors that want to understand what we're doing, but not a lot of consulting firms have come. At least, I'm sure they're bothering the product folks and the engineering folks, but less the corp debt folks. You know, that's what this whole podcast is about. It's to get you in a funnel to find your next carve out. Whatever it takes. By the way, if it doesn't work with me, I'll give you the names of the rest of my team. You can talk to them too. This is the M &A Science Carve-Out Podcast. Exactly. And then I want 100 % financing these carve-outs, by the way.

1:01:50Of course. From the family. Exactly. We've got a good payment plan, run the business, and then I'll write it. What would it take to get you in this carve-out today? I'm just thinking 30 years, all the deals you've worked on. Anything you want to teach me? Negotiation stuff. off? What's my big takeaway before we wrap up? The biggest thing I'd say is transactions and meetings are short and careers and reputations are long. Do the right thing, give first, provide value, and over time, it'll work out. That's true. The best I've seen career-wise is that provide value, give first. Even the best attorneys I've ever met in this industry, they've always had that.

1:02:31They literally told me. I remember one specifically, I was just blown away by their office. This is a big time lawyer. And I asked him, which was your driver? Because I was pretty young. I was in my career. He's like, I don't know. He just believed in keeping value up front for free. And I just would offer clients to do half a dozen hours. Remember me when you're big and successful, because you do. Right around the corner, there's a firm, Ackerman Centerfit. They're not the F5 lawyer. They were a lawyer I worked with previously. Guy provided a ton of value when I needed it. And I will never forget that.

1:02:59Yeah, it does. Absolutely. The only other thing, and it's less for corp dev folks than for entrepreneurs, expensive banking, accounting, and lawyers are worth it. Accountants, bankers, lawyers. If you don't have your financials in good shape, if you don't have your documents in good shape, if your articles of incorporation aren't in good shape, make sure they are before you have these discussions. 100%. 100%. Oh, God, it's such a nightmare. And yeah, M &A lawyers are expensive, but bad lawyers are much more expensive in the long run. I agree. I was finding the right ones. I think too, like dialed in with you, like you talked about, the culture, the industry.

1:03:39Yeah, they got to understand the problems. They're unique. No matter how smart an entrepreneur is or a CEO is, they might sell a company once, twice, three, maybe four times in a career. I do four deals a year. a good M &A banker or M &A lawyer is going to do 10 to 12 deals a year. Really good experience is worth it. What's the craziest thing you've seen at M &A? Prima Donna founders who tell you, oh, this other company was just bought for a billion dollars. I'm worth a billion dollars. And I'm like, somebody pay you that billion? No. And I guess you're not worth it. There can be some really crazy expectations, especially during bull markets, like we are now in AI.

1:04:22And the other side is the pendulum between fear and greed. Man, it moves quickly. That's so true. You go from one extreme to the other. That's why I'm always conscious about that. You know the market goes in cycles. Well, you know the market goes in cycles because you've seen it. If you haven't lived through it yet, you don't have that learned experience. I talked to a founder that did a 2021 raise, and he's working on his next round. And it's almost impossible. It's so tough. I call it the when bad cap tables happen to good people. Yeah. It's really hard. He's done well from that time period, but it's just like, it's your sandbag so much.

1:05:00Oh, yeah. And then I've looked at a bunch of companies that had$20 million of ARR in a hot market and were growing fast and raised it a billion dollars. And we're all excited because they were unicorns. And then three years later, the markets changed. Maybe they even grow to 50 or 100, but now their company's worth a market multiple. and it's worth, I don't know, three, 400 million. And they've got a cap table that says they're worth a billion and a half. How do you do a deal like that? It still gets me. It's crazy. A lot of these like first rounds that are 5 million to 50 million. And it's just, in my head, I'm like, oh my God, like it's a skill of capital allocation is what it comes down to.

1:05:35And it's just a first round with that much during an early stage. It's just, it's so hard to do. I get it when, okay, we got a 10 million revenue business and I understand where that capital is going. And I understand like there's a bit of a formula here. If it scales, like we're in great shape. There's a little more predictability, but we don't have five customers. We just raise 8 million bucks. It's hard to grow into that. Yeah. Yeah. But they, and again, it's that Madonna, you got this, we're worth a couple hundred million now and. No doubt about it. Give me that Porsche and access to the private clubs.

1:06:08Exactly. Yeah. Stay humble, stay hungry. I think was the famous words from. Andy, thank you so much for taking the time. Thanks a lot. Enjoyed it. Taking a break from deals to helping me become a better M &A scientist. My pleasure. And thank you for teaching me. Thanks, man. Hey, those of you still listening, I am amazed my fellow M &A scientists, brothers and sisters, reach out to me. I love to hear feedback. What did you think of this podcast? If you have any feedback for me, criticism, I'll take it so I get better at this. Or other topic ideas I'm trying to expand. Now that I'm on full M &A science, carved out, operating as an independent company, I want to make this the best out there in the world when it comes to BuySite M &A.

1:06:48So give me some ideas. Until next time, here's to the deal.

1:07:13We'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. Again, that's mascience.com. Here's to the deal.

1:08:02views 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