CEO Growth Strategy: How Culligan Scaled 300+ Acquisitions with Scott Clawson

27:01If you do that, plus this, somehow reward the business unit leader. But you know what? When you reward the business unit leader, It's on by saying, oh, you know, if it goes well, you may get some extra bonus at the end of the year. That's like counted all towards. It can work or not. But if you have it part of your incentive program where it's been now going on for us six or seven years, it's okay. If we do, everybody wants to do programmatic because it helps them beat budget. And then if they beat budget, they make more money and they're doing. Now, if they do a big deal, we don't let that. If it's a really big deal, that's a different thing.

27:38A business that's doing 10 million, let's say they do a$8 million merger. We're not going to have them probably blow through that. But remember, we're an M &A machine on water service companies where they're pretty small and programmatic. And that's the best way to do it. But if they did the bigger one, is that just completely different? Is it just like a, here's like a whole business case and you just have a whole different... It's part of that grid for the M &A teams and so on. And then for the business, we would have to set up a special program for that year. Can you walk me through the overall structure of this M &A organization?

28:15Because I've worked with a number of teams and I feel like everybody's just structured differently. There's a lot of ways to do it. But what's interesting is you're doing this on essentially a global scale. There's this balance between the biz dev you scribe, having that localized. but then when you go through diligence and you go through integration, I'm also thinking through like those processes where, Hey, maybe there's some parts that you do want to localize, but maybe there's some parts that you want centralized. And just trying to put that in mind of how you actually do deals with like, how do you actually structure the team to make this efficient from all you learned over the hundreds of deals?

28:52This is a great question. And there are various ways to do it. we are set up where the corporate M &A team, Amit Shah, who leads that, is responsible for the setup of resources in the regions. One, to make sure the strategy and guardrails are what we talked about. Two, three is that then the playbooks are in good shape and kind of followed, which is we have two playbooks, due diligence playbook and integration playbook. That's it. But everything else is in the region or the business unit. And then there's just several of them that then have pipeline targets. They use these playbooks. Of course, any bigger deal goes up to Amit.

29:41He sees almost everyone, but he's not having to prove a small deal wherever because it's small and he sees it because he's always tracking it. And he has our multiple versus price and works that. So we really stay grounded in our strategy around water services and then the guardrails. And that is part of corporate jobs. But pipeline, execution, due diligence, all part of the business unit. Now, look, some of our business units or clusters are 50 to 100 million of EBITDA. But I don't want some, there's not somebody flying in from around once we get it going. That's their own programmatic machine.

30:21It's running in France. It's running in Iberia. You're almost like treating them like a port co of your own. Yeah. And we have common themes and for sure, because we at Colligan run quite decentralized. It's also with the common purpose of healthy, safe water and so on. But that's also been a reason why we get a lot of deals. People trust us. I can have people call up, just call up these people. They were at their own company. They're happy here. Talk to them about how it went and how much money they made later or not. Deals come to us that way. And it's because we treat sellers with respect and credibility.

30:57Reminds me of in Italy, how we got our machine going. If you want to hear a good story about that. Yeah. So there was a business we wanted to buy and Advent helped us look at it. And I kind of came in at the 11th hour when they were going to go another way. I met the two Italian owners in an airport hotel and the meeting kept going on. and we built a relationship. They'd met our team, but they were really headed the other way. And I committed to them that they would keep running their business, that we would keep it in their location. And this all made enough business sense that they would have the ownership of the R &D of these unique product lines.

31:41And we held true to that to this day. And it's a little bit maybe outside our structure of what would be you'd look on paper-wise, But the business has gone from 5 million to over 50 million. It is one of our super performing assets in terms of technology. This was an area where there was also a technology-oriented company. That spread. So now, what do you think happened to all these other owners in Italy that when we started doing more programmatic M &A? They know this firm. They'd call them up. And these guys are like, you can trust Colligan. They haven't changed what they said we would do. and they've invested.

32:19And of course, there's deals that what you're going to do is a little different. Maybe you're integrating and getting a lot of synergies. But if you do what you say you're going to do and you become known as a programmatic M &A and you can put points and dollars of return on the board for people that can have fund as part of it. But that generally only happens, in my view, when it's decentralized. If you're a big corporate behemoth, I don't think it works. Very decentralized. You're like highly decentralized. Well, I'm a firm believer. My leadership DNA, whether it's taught from my dad long ago to Dan or her to everything else I've learned is empowerment.

32:57You want to push that down as far as you can. Of course, we have systems around, again, integration, due diligence, and the transaction. That's controlled. But people can learn that and get it going. We have all these business units with a common theme around the world performing quite well. And it's fun. It takes hard work to build that reputation. and I like what I'm hearing about the approach. I wanted to ask you about buyer-led M &A because I've been publishing a lot of the content around buyer-led M &A and it's something I've observed from watching organizations like yours that may start off with a process they stumbled on and it's a seller-led process.

33:34But then once you start running M &A at scale, you have to be buyer-led. You told a lot of it already where you have to have such a clearly defined strategy that there's a clear criteria. Now you've got folks that are proactively finding businesses that fit that criteria versus just engaging bankers and being reactive towards it. But what I was curious about was like, as you move through the actual execution, decentralized sounds like a lot of it, you really keep localized. Are there other things that you do to just fit that theme of being buyer led to ensure the success of the deal post-close?

34:07I believe the main one is having core competency in terms of talent that are doing pipeline work. And that helps then you be buyer led because you are implementing that with relationships. To me, that's a key. I'm on several boards and I've talked a lot about M &A. And generally, I'll sit there and just say, well, are you going to get programmatic M &A when you got, take Ahmed, you got people like Ahmed and deal people that know how to do due diligence and transactions all in once in a while for dollars and all that. So building that competency and then having the credibility, I do think are the main key.

34:52I'll give you another great example about buy or let M &A. that happened in a region of our business that's also a business unit within a business unit here in the US. They had a pretty good pipeline person trying to be buyer led, calling people and so on, but that was it. And so I said, no, no, no, no. Who do we know in the industry? Retired. I mean, these are companies of one to two million of revenue. And it's like, oh, so-and-so, he bought his business two years ago. What's he doing? I knew the guy. Yeah, let's get that guy going part-time. And all he wanted to do is go back to his relationships.

35:25He's tired of just sitting around playing golf. He's buyer-led and he's walking in somebody's dealership. So you need to do those type of things are the key and then get your team. GMs want to be buyer-led because they get rewarded for it. It's like you have to start from the early in the process to have proactive culture, then allows you to build that as you progress through the deal. Like the same thing, like doing your diligence and controlling your timelines. How do you plan for integration to make sure that goes smooth? Exactly. There's a whole process on that front end and that then instills the culture.

36:01I like what you said, the culture of being buyer-led. How do you keep things to fit Culligan versus like straying out of your guardrails? A lot of the review process early on on deals as they get to LOI, a lot of that I give a ton of credit to Amit Shah, who leads our global M &A and his regional leads to catch if people get outside the guardrails. And believe me, if you're rewarded on M &A, you will want to do some deals at times that may not be as strategically fit. And for our case, water services that are growing in these very big markets, but narrow. And I'll give you an example of water.

36:46There's there's companies that do hydro panels that pull water vapor from the air and turn it, remineralize and turn it in water very early on. Sounds pretty cool, right? Sounds like college you should be in that. We had these devices that we can put out in the middle of nowhere, but that's not our core yet. It's early stage. It may or may not work. It's a different kind of segment. It sounds, I've had to say no to certain things. I don't really need too much anymore because the team does. So that's how we do it. And that you do need to have that discipline somewhere. And we do it by, these are the attractive markets.

37:22These are the guardrail, which are water services, these areas are a tech deal, but we're not doing VC too early stage. And we're not doing something in some geography we haven't targeted yet. This new emerging innovation, do you sit there and say, Hey, maybe we should have five, 10 % of resources. You've done that. Yeah. You sort of look at that. Two or three deals will take an early position to bet on it, but not have to overly run it. Some are working and some we're going to probably lose our investment on. So there's a discipline to stay focused, but then there's this view of let's not let things get away from us.

37:57We'll sort of resource allocate accordingly. We're a little blessed in this regard because any new technology ends up having to come our way if they want to get to the markets. Because we won the ground game. I don't want to pick on Amit here because obviously you've kept him around long enough that he must be worthy. But let's just broadly speaking, for a head of CorpDev, your CEO building out programmatic M &A, what's a head of CorpDev doing essentially to impress you? This is a person that's really nailed their role. This is why they've impressed me. Okay. That's a great question. And it's an easy answer.

38:33They're going to understand and do a lot of just what we've been talking about. So that's the easy answer. But in addition, they are just really astute and experienced in the parts of the M &A machine we've set up. So if you take Amit, he's really good at the due diligence, transactional, and the hiccup. So he can see that. He can feel it. If it's a real big deal, he's in the middle of it because you can't miss on that stuff. But he also is really great at setting up this M &A machine and being comfortable that they're, in our case, because we do so many deals, that they're in each region as pods and is a great leader about it.

39:17And the success has been excellent at processing playbooks and strategic thought and then him be able to go deep when needed. In general, a lot of corp dev or just M &A leads, they're really good in one area, but they don't have the breadth that's needed to run programmatic M &A. Or you want to do it all at corporate. In our business, that wouldn't work, right? In some businesses, it could, but I'm not a big believer in it. So leadership is a huge component, being able to build out a process and getting ahead of problems. Yeah, and being involved. He reports to the board every quarter. He knows where we are in our targets.

39:57He directly reports up to the board. He will report out at a board meeting with us. Oh, wow. So he does it. Okay. The value driver of this is huge. So it's not long, but he owns all of that. So when we say we're doing all these deals, he knows every one of them. And I walked in the other day, walking by his office, and this had come up to a BU, a question about what we needed to pay for a deal. And I was just asked about it. And I said, Amit, send me XYZ, the last eight deals in this area, in these regions, multiple boom, and just let us know the strategic thought on that. Two hours later, the data, but then he has the strategic thought about it.

40:34So when a big deal comes up, the differentiator for us with Amit is he's also very just smart and strategic. We've had him since 2000. He was my first hire for the programmatic M &A. If you asked him how long it took us to get him, I mean, we had to wait for, we got Advent on board and he was the first hire. And I always joke with him about it. Like, how many deals did you do at IR? Ingersoll ran, he was like, in the last six years, I don't remember. Like a couple. Now look, he's a star. I know. But we don't divert him either. We don't need him. We got other people working on IR. He could do a lot more, but this is great.

41:09I feel like he's got his neck exposed more than you do. Now I'm starting to feel bad for the guy. You should take him out on the weekend. For sure. There you go. I love him. Hey, do you run across regulatory challenges? Not generally. No, we're very careful about that. I just didn't know. Now it's like the talk of the town, especially with all the markets you plan. We're very aware of and make sure we're adhering to being very sound in those areas. Let's talk PE. I want to go back to this transition that you went from Advent to BDT as your capital partner. You mentioned that different approaches, like you mentioned, Advent wasn't as hands-on where BDT was more hands-off.

41:49Just curious if there's anything else that differed their approach when it comes to supporting the M &A vision you have. The last three partners here at Collegang, Centerbridge, Advent, BDT, MST, because they've merged with Michael Dell's office. I was able to really choose our partner in those cases because we had several PE firms around the deal. And that's been a blessing. It's not always happened. And I appreciate the confidence that was given to me to say, we're near the same area of price. Who do you think would be the best partner? Relative to BDT, MST, they have added tremendous value in all the general ways, good board members, all those things.

42:29But longer term capital, their fund's 13 years. They love our type of business, which is compound, grow, keep compound. We don't have as much time on plenty of capital, a little less leverage. So their capital timeline and structure has been very positive for us. That just aligns everyone. And then the type of investors they have are incredible because they are owners of businesses. Their investors tend to be big businesses that were privately held. And that's what they are. their investment fund for the private client versus institutional investors. These are people that did well, make money, so they help a business in a different way.

43:14That's been great. They're international. It's like any of the PE firms that have a network. If I needed any help, I'm one call away from having five people at BDT MSD working on it to get back to us. And of course, they challenge just in all those things. But their relationships around the world have been, I'm telling you, a game changer for us that generally you don't see as much. For example, we had a fairly sizable acquisition we wanted to do and BD in certain of these target markets that happened to be in Europe. And when we were getting near the end of putting our deal together, they asked me, is there any market you want us to have a co-investor in more than others?

43:55And I said, yes, these two. Within a month after close, we were going to Europe, meeting with a company through their relationships that I would have never gotten. And we were able to buy that company fairly sizable only because we had a network of people in that company that were invested in BDT that were really reputable private businesses. The seller is like, oh yeah, I know all of these people here in so-and-so country. I trust them and I'm going to meet with BDT and Scott. They might not have met with me. That's pretty great. You don't get that all the time. So if you had the opportunity to pick your private equity partner, what would the top things be that you would look for?

44:37One, of course, would be the relationship, trust, fit there with the people you're working with. That should go without saying. Two would be their alignment to the strategy of the business and the future. Three would be value add to that strategy, value add, all those things. And most all will say they do it. But for example, with us, just on this three, we wanted to go more international and needed a firm that would support that. BDT, MSD, Advent did before, they're going to do it. If I'd gone to some other firm, they may be like, oh, a little cautious here or there. They're like, let's go. So they were going to add a lot of value.

45:22Four, are they willing to have a strong, independent members of the board? I don't want to own a bunch of financial investors on my board. My board has real CEO people on it. And some of these investors in them are actually family businesses investors. So they actually made their money by running. So that's another area. how much you want them to be hands-on or not is another criteria that you want to make sure fits with management. This is great. Those are the things that quickly come to mind that are really important to me, but they need to add value and those things are where it's at. Relationship, trust, alignment to strategy.

46:06Challenging and value creation to that strategy. If Advent had not push me. I saw the need with that plastic, but they then pushed and said, no, let's do work. Let's change this company from a water treatment with some drinking water to a global water service company that takes care of drinking, softening, anywhere you are. And that was because of Advent. And by the way, a couple of board members, a couple of board members that were independents. See, people talk so bad about private equity and then some good examples that they're creative. What about the other part? I guess let's think like capital allocation and you got money that you can invest towards organic versus inorganic growth.

46:48How do you think through that? Then we talked a little bit about the P partner helping with some of the structure in the backend, but on the front end, how are you thinking about capital allocation? Evolved over the last 15 years to move more emphasis in capital allocation. I wouldn't say, I would say emphasis, not exactly dollars, to organic growth. As you know, the times have changed some around earlier in my career doing inorganic growth, growing EBITDA, being efficient, do great, make a lot of money. Now, the best companies are growing organically, as well as programmatic. I believe you need to be balanced.

47:30And if not in today's market, 2025, we have a higher emphasis on organic growth than inorganic. Now, we got inorganic growth nailed and we call it our M &A machine. But that does come at the expense, if you're not careful, especially if you're doing it fast, of focusing on organic. So our capital allocation looks at both. We grow really well organically. We have for years. We, of course, spend more capital on that unless we were in a mega deal year than the programmatic M &A. But programmatic M &A alone or M &A alone is not the best recipe for value creation if you don't have organic growth. And that just gets into all of the things I've learned and we do well here at Colligan around the business system and focusing on breakthroughs of organic growth and so on.

48:24Have you seen the risk from over-relying on M &A or synergies to hit performance targets? We've experienced it. And when we do as much as we have, it's logical that when you do a lot of M &A, that it could take your eye off the ball within these businesses, whether it's one big business or like us, where a lot of different BU's with the same purpose. So we have seen that that can happen. And that's where our business system and emphasizing organic growth is much or more than integranic really is important. What about like the integration efforts? Because I've heard of roll-ups where they're off to a great start, but then integration ends up being the bottleneck.

49:04They factor in all these synergies in their models, but they don't integrate them fast enough. Or some of them, they don't integrate it. They're just a roll-up. And then they tell you that they're integrated and you get burnt there because you find out you just bought a roll-up of 15 different companies. Yeah, a backlog of integration work to do. Yeah, that's one of our playbooks. You have to... Is that part of like investing in organic? Or is that just being good at M &A is making sure you budget to integrate the company? Being good at M &A, make sure you integrate the company. And that separately, about separately, you're investing in organic.

49:41Because you know what happens if you do this deal, you have some synergy number. You got to hit that. Everybody, what's the synergy? All right, it's 10 million. You better hit it. Okay, that makes the model work, all that. Everything you've done and talked about in your work. But what really happens is if you're not careful, and I've seen this happen, okay, hit your synergy number, make sure you do. Your top line suffers some or like you're doing whatever to do and the capability build underneath isn't happening. But two or three years down the road, you find out like that worked, but we're not growing as much as we should.

50:16So that's a more difficult business initiative to do. but that is the holy grail is make sure that you're growing organically, doing programmatic, but your numbers are like whatever you're growing organically plus two or three are inorganic. But if you don't, then you hit synergy numbers and lose capabilities. And you've seen that all over the place, big deals and others. Two or three years later, people are like, deal's not working out. Part of that is you got to build capability as you do it. And we build that into our model. So one thing we do is, and we get the model, and then we say, oh no, what capabilities do we need to do to make sure we integrate well that could be finance capability?

50:59We're buying sometimes family businesses. And we put it in the model, and the model kind of sometimes goes a little bit down and then up. So this is an area that you want some level of consistency in executing. You're doing like 60 to 80 acquisitions a year. How the hell do you do that across all these geographic regions, different cultures? I can't imagine even having these different leaders on one call understanding each other. That's the core competency we built. It's a general answer, but it's a really good playbook. So if I brought in Amit Shah and said, just pull it up, give us your integration playbook.

51:37It's really good. Now, it's not too detailed. we massage it for size of BU. Because you can't roll out an integration playbook that has 100 line items for a$500 ,000 purchase revenue. So you're buying something for, okay, one times revenue, whatever. They don't need, you know what I mean? You got to have, so we have all that figured out. Then we've trained and have good people in the areas. And then the BU leader there locally, wherever they are, has to say, okay. and once in a while they're going up the flag post saying this integration is too much for this company or too little. It's governance, but it's governance within the pod that then goes up.

52:18You'd love to get just general advice for CEOs or corporate teams that are looking to shift from being opportunistic to really building this repeatable M &A model. What are the one or two key things that should make sure they don't screw up? For those really looking to do great programmatic M &A, there are several important things. First, you got to build the capability and the muscle of the organization. Of course, you need to make sure your core businesses are strong where you do it. We talked about how to build that capability with the core dev pipeline and so on. And then you need to ensure you've really mapped out the strategy, the target markets on so you have strong guide rails.

53:00And generally, I think companies do that pretty darn well. And then after that, do you have the playbook for due diligence and transactional close and people that know how to do that and then integration after and people dedicated to that. And then finally, is it married together with the actual business unit leaders, incentives and desire and comp plans. Because at the end of the day, M &A ends up in a business, especially programmatic. And programmatic M &A always ends up in a business. Any misalignment of that really hurts. And then if you have that set up and build this culture and DNA, you then have what I like to call the M &A machine.

53:45The reason we call it the M &A machine is It's a flywheel that keeps turning and works on its own with good corporate governance. Strategy, process, leadership, alignment. Scott, I know we're hitting on time, but I got to ask you, what's the craziest thing you've seen in M &A? The craziest one was years ago, 1995, 96, I was doing M &A, first biz dev job I had. I was the biz dev person in Central and Eastern Europe. we were looking for partners to make products for Coca-Cola, Pepsi, bottlers in the local market because they wanted to be local. And that was a time when you had a lot of accounting and consultants reaching out.

54:26We can show you these partners. And I ended up meeting people at a big show that said that a great partner in Belarusia that made a bunch of these products happened to be bottle caps. We organized a trip and off I went to Minsk, Belarusia. Two hours, we get to this state-owned factory in the middle of nowhere in a huge buildings, like football fields of buildings in the corner of some machines making these products. And it was freezing cold. I'm like, there's no way we're going to be here. But the worst thing about it was, this is in Belarus. I had to stay at the kind of hotel attached to the company.

55:04And it was so cold. I literally took all of my clothes out of my suitcase and was laying them on my covers to add more warmth. And then the next morning for breakfast, they were drinking vodka shots. I'm not kidding. The people trying to sell me on this deal. I always remember that. I'm like, that was one trip. It's probably three hours from Chernobyl or something that was pretty crazy. We go through it for the hunt of the deal. We go for the hunt of the deal. You don't know until you see it. That's why you got to go see it. You got to go see it. You got to be out there. There's another one when we were tracking a beachhead and we found out we were losing it.

55:43And this was a pretty significant size for us, over 10 million of EBITDA. It was an owner and his son. He owned a business for 40 years, started it. And I'm like, we were losing it. They were visiting who they were going to sell to in the US, this European company. I said to my team, where are they? One of them knew this seller fairly well and said, I'll meet you at the airport. This happened to be up in Minneapolis. And I stopped, whatever I did, flew up there. They gave me three or four hours before they were going to fly out and just told them why we were a better deal, that they could trust us.

56:21Like I told you before, that we weren't going to change the game on them, that we're culling in 90 years of history. and by the time they were getting on their plane, they said, okay, we really like me, frankly, like our process and committed not to sign with the other company, but to have us visit them the next week and we ended up buying them a month later. And today they're a fantastic company. But if somebody, that one, it needed me because it was a 65-year-old owner who's like, if I don't get on that plane, we don't own that business today. My team does this a lot more than me. It's not about me.

56:57But that was another great story. And especially because that business, this was several years ago. It's just done great. That's like the moral of all of M &A. It's about relationship and trust. It is so much about it. And we've been blessed that we have trust in the market. And when you have trust in the market, then sellers check. Now we tell them, call people. Sometimes, you know, you're doing a lot of integration. So that makes it a little different, but it works. So it's been fun. It's been very fun here. Scott, this has been an awesome conversation. Thank you so much for helping me take the time and helping me become a better M &A scientist.

57:32Well, thank you. Appreciate what you all are doing and the work you're doing. We love it. Fellow M &A scientists, always welcome hearing from you. Reach out to me on LinkedIn. Let me know what you think of this interview. If you've got other topic ideas, criticisms. Until next time, here's to the deal.

57:58Thank 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.

58:43Again, that's mascience.com. Here's to the deal. Thank you.