Corporate Development Strategy in High-Volume M&A

23:09Are they simply just trying to sell to the highest bidder and wash their hands of it and ride off into the sunset? Those are the scenarios where it's usually not a fit for us. We don't have that often. We've had a great mix of former owners or leaders and organizations we've acquired that have stayed with us, are still with us, are thriving and growing in the organization. We've also had others that have said, look, I want to work for a 6 to 12-month transition period, and then I'd like to exit, which is fine. We understand that. We can accommodate that as long as we know going in. But we also like to see, and what we usually do see, is they say, I want to stick around for 6 to 12 months.

23:43I want to help with the transition for my people. I want to help to leverage my existing customer relationships and transfer those so that those remain more institutional as opposed to leaving when I leave. It's those types of people and those types of leaders that we gravitate towards and where we're most successful in acquisitions. Again, versus the ones that are saying, look, I don't really care what you do with my people. I'm going to cash a check, go sit on the beach, and good luck running the business. We don't generally encounter something quite as stark as that, but you can get a sense whether or not people truly care about their legacy, about their people, and it's really manifest in how they treat them.

24:17And a toxic culture is not going to fit within CornMain if it's filtered down into the rest of the organization. Now, the one caveat to that could be if you have sort of one level of toxic leadership and you know that's going away and the rest of the people are really hungry and craving an organization like CornMain where they're going to be valued, they're going to have entrepreneurial opportunity to grow, they're going to have opportunity to participate in our training programs that we have. We're probably bringing a thousand people in a year participating in our training programs, whether it's product knowledge or leadership development or communication skills, presentation skills, all of these different things, peer-led training that is, I would say, arguably the best in the industry.

24:58They're not going to get that at a smaller organization. You don't always have access to that level though when you're going through an acquisition. I was going to say, so you can get this list down to a certain point when you really got to build relationships is the next phase, which is, hey, we got the list 100, but we can't just assume a bunch of things, assume culture and what their plans are. So that's where we're going to focus on building those relationships so that way we can learn more about their culture, learn more about what their long-term plans are with the business. Teach me how to do that.

25:28You're doing something right. I'm going to figure it out by the end of this interview. Yeah, there you go. Or not going home. Okay, perfect. We can camp out here somewhere. So it really does start with developing meaningful relationships over time. Sort of a trusted relationship where, look, they know what the end game is. They know our goal is to identify attractive companies that we think will be a great fit for Corn Main, a great mutual fit. So private company data in general is very hard to find. We have estimates for financials for every company in our target universe. They're just that. They're estimates.

26:00There's not a really high-quality data source out there that has private market data like that as granular as we would like to see. But given our position in the industry, our relationships with our customers, our suppliers, and our knowledge from our field folks, we're able to develop pretty solid estimates for most of those things. So we can also prioritize by size. We've acquired businesses across the size range continuum, but generally we want to focus on some of the larger, more meaningful players in their geography or in their product category, whatever it'll be. That's another way to prioritize.

26:31And then again, it's really about getting in front of them, staying in front of them, and learning as much as we can about what drives them. if they've got family in the business. If they've got the third generation that is truly active and wants to run the business going forward, those are probably ones that aren't going to be as actionable for us in the near term as the ones where it's, yeah, we've got some family in the business, but they don't really want to run it. They want to do something different, which is fine. We're okay with that. So we really don't have a great succession plan or exit strategy.

27:03And those are the scenarios that kind of bubble up for us. And then it's just doing what we can to assess, is that cultural fit? We generally will know going in what the reputation of the industry is. How do they work with their supplier partners? How do they treat their customers? Are we competing with them? Are they a good, fair competitor? These are all things that we have access and insight into. As I said, you're never going to get that real close look at the culture until you start digging deeper into due diligence. And again, unfortunately, there's been opportunities we've had to walk away from because the cultural fit just wasn't there.

27:32How do you open up that conversation? It sounds like you're pretty forward. that premises this conversation to see if there's an opportunity to do a deal. Everybody knows that we've been the most acquisitive player in our space. We don't like to beat around the bush. We make it very clear why we're interested in developing relationships with a lot of these players. It's not a surprise. And again, we have people reaching out to us. For the most part, owners are receptive. I've been continually amazed at how many owners have just been so receptive where our close rate on reaching out to private companies, developing a relationship, getting an NDA in place, getting the table, closing the transaction, is remarkably high versus any metric I've seen, particularly private equity.

28:10What percentage of those kind of deals versus the typical banked type of... 75 % or more of our closed deals have been proprietary, just a direct one-on-one. What does it look like on the outreach? Is it a cold email from you? What does that look like? The great thing is at this point, there's really not anything that's cold because of what we've done over the last seven years or so. Now, certainly initially, as we were building, I mean, the core in Maine name didn't even exist until after CD &R carved us out of HD Supply. We were HD Supply Waterworks at that point. Obviously, people knew we became core in Maine.

28:44But yeah, in the early days, there was a lot of cold calling. There was a lot of, hey, I'm going to be in town. Mind if I stop in for a visit? Just say hello. We can get to know each other. I love doing that. There's nothing like an in-person meeting. That's a good one. That's what I used on you. Yeah. Hey, I'm going to be in town. Hey, I got suckered in. Jeez. But no, look, it works. There's no substitute for the in-person, face-to-face, really see who you're dealing with, look them in the eyes, and you can learn a lot by doing that. Would you do that completely cold on the early days? Nobody's ever heard of us, but hey, I'm going to be in town.

29:15We're in the same industry. Can we grab some coffee? You would do that? Absolutely. This is something that goes back even to my Bertram days. We would do the old, look, this is a really interesting company based in fill in the blank on where they're located. And I don't necessarily have a trip scheduled there, but reach out and say, hey, look, we're going to be in the area. would love to get together. Now we got a reason to be in the area. That works. They're not going to say yes every time. But again, because of who we are, our reputation in the industry, our track record of success, if people are even contemplating a potential transaction within, I don't know, zero to three years, we'll usually be willing to take a meeting.

29:49And if it's on the longer end of that range, and it's, you know, look, we're not really interested in doing something right now, but we'd love to meet you guys and learn more about your strategy, how that may look. And a lot of times what we get is, look, we're not ready now. But when we are, you'll be the first call. That's all we can ask for. Going back to still keeping early days, not a big name in the market. Is it that ambiguous that, hey, I'm going to be in town, just wanted to say hello? Or is it a little bit of, you know, just looking at opportunities in the space? Yeah, we're looking to grow in, again, fill in the blank on the geography or the product category.

30:20I really think it's been super interesting what you guys have been doing with XYZ. I would love to stop by, buy a lunch, learn more about what you're doing. I can share more about what we're up to and who knows where it goes from there. I heard a little flattering there. I like that. Make them feel good about themselves. You kind of had that good appeal where it's not too forward, but you're at least giving a bit of a nature of why to meet. We're in the same space. There's some interest here. We have some ideas. Compliment. Hey, we'd love to tell you a little bit about us as well and what we're up to.

30:50And then get the meeting going. What are you looking for? How would you outline that first meeting in terms of key things you really want to learn? I want to learn as much as I can about the culture of the business by really understanding who that owner, founder, leader, whoever it may be, what makes them tick? What's key for them? What's next for them? And again, I've certainly had meetings with business owners. And I'm not saying this is necessarily a bad thing inherently, but to say, look, I've been doing this for 30 years, 40 years, whatever. Dad, grandfather, uncle started the business. It's all I've known.

31:25It's all I've ever done. but now it's time for me to pull the ripcord and ride off into the sunset. And you can take our name off the building. I don't care. Do what you want with it. I want to take my check and I want to go. And again, that's usually not going to be the ideal scenario. I like to hear them say, look, I've done this my whole life. I'm incredibly invested in it. But the most important thing to me is I need to find the right home for my people because I care about what I've built. These are in many cases, literally family, but also figuratively people that feel like family because they've worked together for so long, they've developed such a close relationship.

31:59I want to hear them articulate that in the first five, 10 minutes of our discussion about just potential acquisition, whatever the timing might be. If it's, again, zero years to three years, if they say, look, when the time is right, I need to find the right home for my people. That's my primary focus. And then the next statement is usually, look, obviously the economics has to work out. No one wants to give their business away. I can definitively say without naming names that we have acquired companies where we were not the high bidder because there was a close cultural fit and alignment and they felt very comfortable that we would take care of their people and they would be the right home, provide growth opportunities for them.

32:34That's all you can ask for. You're trying to learn what may drive them to want to sell or what drivers are there for them to sell, timing of that, what that may look like, the culture, and then essentially some elements of the economics. Yeah, we usually don't get into economics early on. It's a tough one, right? They'll ask, what multiple range do you pay? And we've got some kind of general things that we can share. A lot of times, business owners that all they've known is running their business. If it's a Waterworks distribution business, they're not as familiar with what an M &A process will look like.

33:09So we've got a great sort of packet of information, if you will, that we can present to them or pass on to them that just from start to finish shows what our M &A process would look like. So like, hey, I know you're not ready now, but if and when, here's what you can expect. And we've got a very formulaic process that we put in place. It's standardized, it's repeatable, and it's worked 40 plus times for us. Do you think that really helps is like having this brochure, let's not call it brochure, but kind of a pitch deck around. Yeah, I wouldn't even call it a pitch deck. It's a process deck that shows a timeline and it shows what happens at each step of the M &A process.

33:44And what I decided very early on when I was building out our team and our structure and our process, I wanted it to be very formulaic, process-oriented, and repeatable. Regardless of whether or not there's an investment banker in the process, which I told you generally there's not, we will follow a process where if you're the business owner, we'll have a series of meetings. We determine there's mutual interest. We'll sign an NDA. We'll start by providing an initial request list, 12 to 14 questions, basic financials, a few other key things. And once we have that, we're able to develop a valuation range.

34:18And we will provide a formal written indication of interest that outlines what that valuation range is and a little bit on what the next steps will look like. They'll take that, they'll digest it. In many cases, they'll say, yeah, we're in the ballpark. There are obviously cases where they're like, wow, that's not quite what I was thinking because my buddy at the club told me that he sold his business for 10 times and I should sell my business for 10 times. Okay, well, tell me why you think that. Tell me about his business and tell me about your... Oh, he's at a software business. Okay, that's interesting.

34:45You think that's equivalent. I get it. So generally, for the most part, we find we're in the same range. So we then will ask a series of additional follow-up questions and other kind of 10 to 12 items. Two-week timeframe is the target for that. We then take that back, digest it, and come back to the seller with a formal letter of intent with a specific point of value that, again, we've already triangulated around that in the discussions. We will then sign that LOI, grant us exclusivity, and we start our due diligence process in earnest with a goal of completing that in eight to 10 weeks. Sometimes we get close to that.

35:19Most cases, it stretches a little beyond that. We are not the bottleneck. We're usually dealing directly with the business owner who's running his or her business, doesn't have necessarily experience with selling a business or the entire M &A process. So it can be time consuming. It can be tough. And they're not going to loop in a lot of their other leadership team members generally. They're usually working with an M &A attorney. Sometimes they're outside CPA. Usually someone internal on the finance team, generally someone like a controller type individual. But it's a lot of work for them to try and run their business and then be responsive to our diligence request in parallel without slowing things down a bit.

35:54So what we say is, look, we can work through these responses as quickly and efficiently as you provide them to us. We get some really gung-ho sellers that'll start and say, look, let's do this in four to six weeks. Great. Let's do that. We'd love to. And then they start realizing, holy cow, This is a lot to digest. And we have gone through and streamlined our entire sort of diligence checklist and request list across all of our functional areas multiple times. So we're only focused on the absolute key must-have items in order to get to a signing and a closing of a transaction. We have this great meeting and kind of get alignment on these drivers of sale, the timing, the culture, and things like that.

36:31They look good. And then probably an NDA gets signed. In some cases, the NDA is signed before that sort of first in-person meeting. Some people just, I'm not going to meet without an NDA. Others we meet and they say, huh, I wasn't like really thinking about it, but this is interesting. I'm willing to sign an NDA and take that next step. And occasionally that's more of an exploratory process for them. But in the most part, once you get them to that point and they're willing to engage and willing to exchange information, you usually have someone that it's going to move forward, assuming you can align on valuation.

37:00And again, that's why we try to get to that part of it very quickly with that indication of interest, just to make sure that we're not wasting their time or our time. If we come out of business with a, I don't know, let's call it a$40 to$45 million valuation range, and they come back and say, yeah, I was expecting$70 to$80. Okay, I'd love to hear them articulate why and if there's some valid reasons for that. Generally, it's just a misunderstanding of what businesses like that are trading for currently. But again, we found common ground with 40 plus business owners over the last seven years or so.

37:30So we're pretty good at really honing in on what the valuation should be and then coming to terms. There are certainly business owners that have expectations beyond what someone may pay. We've had businesses where we've sort of parted ways for valuation differences, and then they've come back to us and we've successfully acquired them and everybody's happy. Is there any industry reports or things like that you could reference and saying, hey, here's a lot of our investment banks that publish it? Yes, there's some decent market data out there. We were talking about at lunch, a company called GF Data that was acquired by ACG.

37:58We subscribe there. They've got some pretty good private market data across different industries, different size ranges. I have in some cases had to share sort of snippets of that with business owners who've come back and say, look, my business is growing at X. My EBITDA margin is Y. Therefore, I deserve a 10X multiple. Okay. Here's some private market data over the last 15, 20 years. And let's focus on the most recent couple of years. And let's look and see where businesses like this have been trading. And if you've got a premium business with some secret sauce or your margin is significantly higher than the industry standard and it's sustainable, then we can talk about it.

38:37But if it's more of a typical business in the industry, there's just going to be that discrepancy in valuation. But again, we've been able to find common ground a lot of times. Let me come back to that one. On this first meeting, do you have any go-to lead questions just to facilitate that conversation to get to some of those points about understanding their motives to sell or with timelines and things like that? Yeah, absolutely. I'm not afraid to ask any question, but one of the keys is just what do you want to do? What's the ideal scenario for you? I like that one. I like the open-ended questions to get them talking.

39:07And for me, that's the goal in those sit-downs is to have people doing as much talking as possible and me doing as much listening as possible. It's the open-ended questions that's about their business. It's about their family. It's about their goals and desires. And that gives you a sense sort of holistically of who you're dealing with. But yeah, understanding what makes them tick, that goes a long way in helping us to understand whether or not that's going to be a good fit for us from a culture strategic standpoint. I think you just asked a lot of questions out of curiosity, like you were doing with me earlier.

39:33That's exactly right. You ever convince somebody to sell their business? This came up in a discussion recently. I don't like to convince people of anything. I like to understand what their motivations and desires are. I like to articulate what our goals and our vision are and find common ground and alignment there. I'm not trying to give someone a hard sell. Like, you know, you should really sell your business to CornMain because of X, Y, and Z. what I do say is here are the great things about corn main that we've been able to develop. We can trace our roots back to a company that started distributing pipes in the late 1800s.

40:02So we've got a long history. Now the recent history, here's what we've done. Here's the organization we've developed. Here's the culture we have. Here's the programs that we have on training, on culture, on everything across the board and the training that I mentioned. So here's what it could be like. Here's the product access we have. Here's where we're investing in systems and tools. How does that compare with what you guys are using and how your people are able to grow and develop? And do you have the opportunity to transfer people across different geographies or into different parts of the business?

40:29Tell me about how that works. And then they start thinking, wow, that can be pretty cool because we've got some really strong up and comers that could be great X, Y, and Z. And maybe we don't have enough opportunity for them or they're looking for something a little greater than that. And it can be a fantastic way for them to really plan ahead on how am I going to take care of my people by exposing them or joining a company that's got just so much more opportunity than I could ever provide for them on my own. You guide them to sell their business. It's better than convincing. It is. Well, then you have the process deck.

40:57We do. There's a wonderful technology that you use at Coromain highlighted in your process deck. This is not a hostage video. I'm speaking of my own free will. We do. We use a product called Deal Room that I believe you're familiar with. You should check it out. You may like it. Although don't try to get too involved there. I get a beer for Jeff every time someone inquires and mentions Coromain. There you go. There you go. Yeah. Say Coromain and then we'll get a discount on our next renewal. There you go. So no, look, I've used a number of different, what you want to call it a deal tracking tool, CRM, pipeline management, diligence process management, all of the above.

41:30I've used a number of different products over the years and Dealroom quite candidly has been a fantastic tool for us from a technology standpoint, a support standpoint, reporting, customizability. It's really met our needs very well. For me, what I need in a system like that is just what I said, It's something that's going to be efficient, useful, not cause headaches, not cause problems where it's not functioning properly. The software is outdated or something just doesn't work when I need it. And we haven't seen that at all with Dealroom. So it makes it very efficient. And it's been a great tool that we're pretty happy with.

42:01I mean, is that where you're tracking a lot of this activity? Absolutely. All of it goes in there. So you got all your pipeline in there and then as you move to... Every interaction with every business owner, management team tag to each project card in there. If we leave a voicemail message, we may not put every single voicemail in there, but every meaningful interaction is logged and recorded. It's institutional knowledge. It's not just knowledge of a meeting I had or Noel had or Trent or someone else on my team had. It becomes institutionalized. It's part of who we are and anyone can go access it that needs to see what's the status of XYZ company that we'd love to acquire.

42:34When's the last time we met with them? And what are they thinking? We can go in there and say, we met with them in March of 24 and we had a really great sit down. They said, we're not quite ready to sell yet, but we noticed you guys have been quite acquisitive. You just bought XYZ Company that we know. That was interesting. And you know what? We might be ready to sell in a year or two. And when that time comes, we're going to give you guys a call. Don't worry. How does that move into like execution? I think that's like the thing I heard. Dealroom's really good at it. Does it sort of like naturally flow into it?

43:03Or like, how do you guys use it for that? It's our own sort of data room. Occasionally we'll have a bank process where they come to us with their pre-populated data room. But even in those cases, we take it all and we put it right into Deal Room so that every member of our team, whether it's someone on my M &A Corp Dev team, if it's someone that's on a functional team that's participating in the diligence process, someone on our integration team that's working on integration planning, all of them have access to Deal Room. They have all the data that either we're getting directly from a business owner or that we'd be getting from a banker's data room.

43:31It's all populated neatly within that room, specifically within that project card or that deal. There's one place where everything is very conveniently logged, tracked, and we know where to go. We know how to get it. It's intuitive. It's user-friendly. When we're working directly with a business owner, you know this, but we're able to give them access to deal room, but only sort of on a seller side. They don't have access to any internal notes or anything that we have, but the data room side of it, they've got full access to that, to populate it. They can answer questions in there. So it keeps, again, everything in one spot.

44:01It's very easy to track. We have not had any complaints from sellers. In fact, really just the opposite. They say, not trying to toot our horn, but that we've got a very thorough process. We're incredibly responsive, incredibly organized. And a lot of that is the tools that we're using like Dealroom. That's nice to hear that. Yeah. You've tried a bunch of other things. We have. There's some other tools out there that have worked well for us for a while. And we had need to transition for a variety of reasons. And so far, Dealroom has not let us down. So you use that for your pipeline, diligence, integration.

44:31Are there any other products or tech that you use to manage your process? That's the primary. I mean, there's some other data sources that we would look at. I mentioned GF data for sort of valuation data. But in terms of just the overall process management, that's really the bulk of it. Okay. So got a good tech stack in the back end. We talked through this whole process of market map through identifying potential targets, building the relationship, getting to the point when you got some clear indicators, there could be a fit there and there's some interest to sell, get an NDA signed. And then we start going through this actual like valuation process.

45:04At what point do you build out and like an investment thesis for this specific deal? Yeah. So we generally have a pretty good idea, even just going in to a first meeting. If you're a business owner in a specific high priority geography, we've probably had that circled for a while. We have probably a pretty good estimate of what the size of your business is. We know where you have strengths from a product perspective or maybe some opportunities. So in that case, it'd be very easy to generate the thesis of, we would like to acquire XYZ company to grow our presence in this geography and give us greater access to these additional products.

45:41The thesis could be as simple as that. And then we obviously go in and we validate that throughout diligence. But our business is not rocket science. There are some pretty compelling strategic advantages we have with our size and scale and the moat we have around the local knowledge and expertise. You may not know this, but every municipality or virtually every municipality has their own specifications for a fire hydrant, as an example, which is great for us. If it was standardized and there was one type of fire hydrant used across the entire United States, there wouldn't be as strong of a need for us.

46:11But we've got product on the ground in those local markets. And that's just one example of a product. So by having the footprint that we have, the branch network that we have, and the people operating every day in those local markets with the sole focus of solving their customers' problems, that's a pretty strong and wide moat, I would say. It gives us great comfort in what we built and what we're continuing to build. So as you move to that process, then you build like a formal investment thesis that you have to get approved or pitched to? We do, yes. So that was one of the other things that I developed early on was to make sure we had sort of an investment committee, which is really comprised of our executive leadership team, of which I'm a member.

46:48So there are eight of us, including our CEO. And again, we have a formal process where before we submit an indication of interest, we'll either have a call, a meeting, teams meeting, and talk through what the investment thesis is, why we want to move forward. We've got a very straightforward template that we use to present the opportunity. Again, it's standardized so that every acquisition proposal looks the same. We talk and we agree to move forward or not move forward. And for the most part, most of the opportunities that I present or that my team presents, we get agreement early on. And we've always had at the end of the day in any acquisition we move forward with is complete unanimous support and approval for the acquisition.

47:28That's very important. But as we move forward throughout the process, before we submit an LOI, we go back and we have another checkpoint with our executive committee, again, to make sure, here's what we found since the indication of interest. We've now focused in on a very narrow price point as opposed to a range. Are we comfortable here? Here's the assumptions that we see in terms of how we can create value. Here's how it looks like against our return hurdles. Here's what we expect from a diligence standpoint. Here's the key five areas of diligence. in addition to the hundreds of questions that we're going to ask for every transaction.

47:56Here's sort of the five key risk areas or key value drivers that we need to know and understand in order to test that thesis and validate it. I want to dig into like, okay, you get this initial investment thesis, it's approved and it sets you up for this IOI stage, which naturally let's move right into this good old bid-ask spread. I want to pick that up because we talked about that earlier. Sometimes you do have this big gap when you're at like 40, 50 and they're at 70, 80. What has been your approach to bridge that gap? It's interesting. Every business owner is different. Every transaction is different.

48:28The nuances, I always tell people, part of M &A is just problem solving. Every transaction that we've worked on has had some issue or some challenge that arisen at some point in the process. And in some cases, that's on the front end on valuation. And it goes back to, again, that relationship we've developed, developing relationship built on trust, and then asking the questions. Hey, I hear you. You want max value for your business. If I was in your shoes, I would be wanting the exact same thing. This is not a private equity rollover deal. We're going to be buying 100 % of your business. This is your one bite at the apple.

48:58So you want to do as well as you can. Totally get it. I would be in the exact same position. But let's talk through what you built, what the go forward plan and cash flows look like. Ultimately, that's what it boils down to. Businesses, as you know, are generally valued based on trailing earnings, a multiple trailing earnings. But what we really care about is the sustainable level of earnings going forward. We also care about the synergies that we bring to the table, which we also don't think we should pay for. I firmly believe we should not pay someone for value that we are going to bring to the business after we own it.

49:27We should pay them for what they've built and what that looks like to us going forward. So there's generally just a lot of back and forth and explanation. I can tell you, we've absolutely come in with an initial range where the owners have said, yep, we're in the range. That's where I want to be. There's also absolutely, as I said, been situations where we've gone in and they say, man, that is just not what I was expecting. I was looking for X, Y, Z. and then I don't get offended. It's not emotional. I'm not upset by it. Okay, I understand that. Let's talk through why that is. And we try to have just a very adult conversation based on rational logic and facts.

50:01Why do you think your business is worth that? That's interesting because then you get a sense of how sophisticated they are when they really think about that. I talked to my buddy who's got the software company that got X value or I read this report or I saw this publicly announced deal that referenced this. There's that point. I like how your angle is digging into the why, but then are there other levers you use where, hey, we're going to roll over some equity in this deal and there's some potential and growth and value there or other tools, earn out? We have not done any acquisition where we've acquired less than 100%.

50:33That's our model. That's what we do. Is it always cash? Yes, it has been always cash. Although we've had a couple where we've had an earn out. So there's the initial purchase consideration that closing was cash and a small earn out component. We do try to avoid earnouts for the most part. I do think it's a good way to bridge a valuation gap. In some cases, we are very highly integrating these businesses into our existing platform, if you will. So it can be harder to track those. It can get a little messier. It can lead to disagreements down the road that will disrupt what has become a good partnership relationship with the former owner or their team.

51:05Not to say we couldn't do it. And I'm certain we will have future conversations with business owners where we will insert the idea of an earnout to help bridge valuation gap. But I try to find other paths forward. And honestly, it's worked out pretty well for us where, again, I don't take it personally. It's not an emotional decision for me at all. If I'm talking to a great business, we've got a clear value creation path. We've got a business owner that I really like and respect and think he's built a great team and a culture that I see will align with ours. And if the only difference is valuation, then what we say is, okay, if we're not going to get there now, no harm, no foul, let's stay in touch.

51:39Maybe you'll grow into those valuation expectations, or maybe something else will change in the market, or maybe we'll come back with a different viewpoint at some point. We're a public company. We have to be cognizant of where our stock is trading, what our multiple is. We have to be cognizant of economic environment. Are we buying at a peak? Are we buying at a trough? Are we buying what we think is a sort of a steady state? So all those things come into play. We've had discussions where we were full bore focused on an acquisition and had to fall apart for valuation reasons throughout the process.

52:07And they have then come back to us and we've acquired the business. You got to know your boundaries and not be afraid to walk away when you need to. That's exactly right. Again, you cannot be emotional about it. It's incredibly hard to do. We've had, fortunately, very few transactions that have fallen apart late in the process. Normally we can identify these challenges and issues early on. But like anyone in the M &A business, we've had some where, and this is why you perform due diligence, we've encountered issues that were insurmountable. that's the one piece where I don't like to admit something is insurmountable.

52:40Because for me, I usually think if there's a problem, we can find a solution. But in some cases, there's issues. An example would be if we're talking to a business owner and they're selling a significant amount of product through a DBE, a disadvantaged business enterprise of some sort. And that DBE is not performing a commercially useful function, which is the definition that's what's required by law. If it's more of a pass-through shuffling papers, that's a no-no. If we encounter that and the fact set shows us that they have not been doing this appropriately, we have to walk away. It's unfortunate.

53:15There's no way around that. After you sign an LOI. Yes. If there's one thing that we do, we do what we say we're going to do, but we also operate with the utmost integrity. And we have to operate within the bounds of the laws and the regulations in that we cannot compromise on that at all. Evaluation before LOI signed, what are the good indicators and the red flags? How you evaluate that company? Obviously, there's a culture fit. And then there's some financials that we want to see in a positive direction. That's pretty common, universal to a degree, depending on your expectations. But then is there certain things that you just, from experience of doing enough deals of, I see X, I definitely know early on that this is a deal we shouldn't do.

53:55The DBE piece is certainly one that I mentioned. Now you know to look for that early. We are sensitive to that. We make sure that we dig in early. And it's not uncommon in our industry, and we sell through DBEs, but they're established companies that are performing a commercially useful function. That's part of the industry. That's part of what's great about all of American industry, right? Giving opportunities to those that are less advantaged in some way, shape, or form to have a meaningful business and contribute to society. But it's those that are skirting the laws and the regulations where it doesn't fly.

54:25The financial piece is pretty simple. We've got return hurdles that we look at. We've got assumptions that we make on growth. We've got assumptions that we can make on what value we bring to the table through, whether it's operational efficiency. We've got great buying programs that there can be a great benefit to companies that we're bringing into the fold. So those are the key things. The financial piece is one of the most critical, but we have the same approach, I would say, as to just about anyone that's evaluating an investment opportunity from a financial perspective. We put together an investment model.

54:52We have our set of return hurdles, and we've got our set of different synergies that we can bring to the table. And we evaluate that and we try to stress test it. We work in partnership with our operational teams on, all right, this is the plan that we're going to sign up for. Does this make sense? Is this assumption on growth? Is this assumption on customer loss? Is this assumption on shifting or moving around to a different supplier base? Are we comfortable with all of these? That's an iterative process that again involves not just my team, but the rest of our executive leadership team as well as some of the operational leaders out in the field.

55:24A big part of buyer-led M &A is making sure integration goes well. We're not doing the deal just to close. We're doing the deal for it to be successful. How do you do that? You threw out the stat the other day on one of your, either the LinkedIn post or podcast, about 70 % of all acquisitions fail or whatever. It's a fable number, man. I'm like, who determines what this actually is? And I think if you continue the sentence, it's actually failed to meet the expectations that they set out in their investment thesis or investment model. It doesn't mean it failed and it went to zero or the business went bankrupt, But we certainly have not experienced that.

55:58Part of the reason is we get our integration team involved in the process very early and we start the integration planning. So as soon as we get assigned LOI, we have a separate integration team that rolls up under our finance organization, ultimately to our CFO. So he's obviously involved in every acquisition that we move forward with. But someone on the integration team is involved from day one. They're involved in the calls. They're involved in the meetings. as part of our sort of standard formalized process. We get a critical mass of responses to our diligence requests. We schedule an onsite meeting that generally consists of a day and a half in a conference room in a hotel or something.

56:34Going through each of the functional areas, we'll have people from our HR team dial in, our IT team, our tax team, our finance team. If we're working with a third-party provider on a quality of earnings analysis, we'll usually incorporate some sort of a site visit depending on what kind of business it is that we're talking about. If it's just a traditional sort of waterworks branch, we like to see it, but that's not necessarily going to be a key factor in our decision-making process, seeing what their yard and warehouse looks like. We can see that in Google Maps, but obviously we like to see what we're buying.

57:04So we do get there at some point, but that on-site diligence meeting is highly critical for a number of areas. Checking our boxes on our diligence request list, but also that interaction with the leadership team. and usually in some cases they're looping in a few more team members so we get some access there, get access to that next level of leadership. And our integration team is there and they will spend a couple hours walking through. Here's what the future is going to look like after the transaction closes. Here's the sort of laundry list of items that we're going to go through, which it can look like an eye chart in some cases, but it's not a, we do all of these things and all of these exact steps.

57:42It's, these are the types of things that we are going to be focused on and we're going to work with you on. and it's going to be over whatever the appropriate time frame is for each individual acquisition. And there's a lot to discuss, but again, not our first rodeo. So we know the various things that we need to look for. We know if we're going to be talking about an ERP migration, which we do in cases where it's necessary. We talk about that. We talk about the timing for that. And we're not perfect. Nobody is. And do we miss things every now and again? Or do we not prioritize something that we look back in hindsight and say, shoot, we should have prioritized that piece of the integration planning so that we hit that one kind of day one.

58:19But we get the vast majority of it. So then we do hit that closing day and we own the business. We know the people. We've had relationships with them. And the other piece I didn't really dig into is virtually every transaction that we complete, we will sign the purchase agreement. And then we have an interim period of generally two to four weeks where we're working on integration planning, but integration planning only, not trying to run the business. And then we will close the transaction with that plan in place, ready to go, hit the ground running. Again, we've got those relationships already established.

58:50We're starting to develop that level of trust. And then shortly after the closing the transaction, we will hold a leadership kickoff team led by someone on our integration team, operational leaders who are going to have responsibility for overseeing the business. And they'll get together in a room and spend half a day talking through a variety of topics on what it's going to be like working together, prioritizing different aspects of their business, further understanding their culture and customs and what makes them tick, making sure that there are things that they're doing every day that are very important to who they are, that we don't take that away or stop it or significantly change it unnecessarily.

59:25The one thing we never say is nothing's going to change because things will change, right? We absolutely try to minimize the level of change and disruption, but things will change. And we've had issues in the past where someone's made a comment similar to that. and then we get in there and something changes. They say, hey, look, that changed. I thought nothing was going to change. We try to be very purposeful about articulating. Look, things are going to change. It's just a matter of fact. That's how things go, but we want to minimize it and there's going to be a good reason why and we're going to articulate what that reason is and we're going to hope that you're on board.

59:56And the other big thing we try to do throughout this sort of interim period between sign and close, prepping for the integration, is just ensuring that leadership team, whether it's the owner or whoever's running the business, that the people that are going to look to them for guidance that they are fully aligned with us on, this is going to be great for the business. This is going to be great for the people. And here's why. Not just trust us, but here's why. And here's the benefits that everyone's going to see. We need to be fully aligned on that. Otherwise, it sets you up for failure if the head cheerleader isn't aligned with our go-forward plan.

1:00:27I have a feeling we're going to have to have a conversation either your CFO or someone on the integration team here and continue some of this. What surprises have you seen over the years in deals, be it diligence or integration. Those are always fun things to learn from. I don't know that I have anything that's super intriguing. I mentioned that every transaction is unique. It's a series of problems that need to be solved in order to get to signing and closing. But it's just dealing with different personalities. People prioritize things differently. We've had some business owners that wanted to really accelerate a process where it just wasn't possible because, in their view, I've answered all the questions that you've asked of me.

1:01:06Yes, you have. You've answered sort of an initial response to each of the questions. And now there's a series of follow-up questions for 40 of those. We need to talk through those. And then there's going to be follow-up on those. And again, this is nothing that's earth shattering, but it's important to understand. This is why we try to articulate exactly what the process is going to look like from start to finish. It will be iterative. We are going to send you a large list of questions, discussion topics. We're going to make it as manageable as possible, but there's going to be follow-up. And that's why they call it due diligence.

1:01:34We need to make sure we're comfortable with the investment we're making. We need to make sure. We don't really look at it as just checking boxes. Sure, that's part of it, but it's really understanding and testing out the investment thesis. Are we getting what we think we're getting? And are we going to be able to sustain that going forward? I know, you got a lot of rocks to look under at the end of the day. I will tell you too. I mean, look, we've been fortunate that we've acquired businesses from owners that were forthright. They were running the business that they said they were running. They were treating their people the way they said they were treating their people.

1:02:05and for the most part, we've gotten what we thought we were getting and we've been able to build off that base. I just got a couple of questions about what the future looks like. We mentioned technology. One, kudos to you. You're like ahead of the game. I've noticed this pattern trying to be as unbiased as possible, but the best in M &A tend to use good technology products like Dealroom. Yeah, no, it's incredibly important. Again, the key for us is we want to be on that cutting edge of what's available and what we need to run our process efficiently. But that's the key. It has to be efficient.

1:02:34It has to work within our process. And we just have to be able to rely on it without any second thought. And that's what we've seen, again, with Deal Room. And we're incredibly comfortable there. I just want you to close your eyes and imagine 10 years out, like what the future of this technology is going to do. My head of product is going to get this recording, by the way. Wow. And this, yeah, we got AI today, but like 10 years, like AI, you know, there's probably going to be like an actual physical robot AI-driven M &A bot thing that could do things. So like imagination, as far as it can go, Where do you see technology going when it comes to...

1:03:07Well, the good thing, which hopefully gives me some job security, is I don't think the AI-powered robot is going to be able to replace the in-person meeting and the establishment of rapport, the development of that real relationship, and the evaluation of culture and fit. Wow, you're going really high-tech sci-fi. That might be 20 years out. Let's keep it 10 years out. Yeah, I guess I maybe should start investing in the robots then. I need to be in control of my own destiny. No, look, I do think automation tasks, anything that's repetitive in the process, reviewing contracts, identifying various risks, that certainly can be streamlined.

1:03:40I look at even the identification of opportunities, prioritization of opportunities, just synthesizing data that we have already in a database or in research tools or in access we have to additional studies and reports, synthesizing all of that into sort of meaningful, actionable data that helps answer questions that we maybe would have to spend too much time today analyzing on our own. I don't know exactly what that's going to look like or how or when, but that's probably already happening to some extent. And certainly in the near term could be more so. Barring your super sci-fi oriented future, which I don't know, maybe we'll get there.

1:04:17I go back to the people aspect of it. I'm a firm believer no matter what we have in terms of technology, you can't replace the people aspect of this. And it's, again, particularly a business that we're acquiring. even if going forward more of the people that we're going to be employing are working in different types of jobs and they're working in today they're still people and we still need to find that cultural fit we still need to have those relationships we still need to see eye to eye on what that's going to look like we're going to continue to invest in technology we're going to continue to keep abreast of what the available tools are and how we can best utilize them within our process but people aren't going anywhere we think we got a pretty good team i got technology in M &A means less time on tactical crap, more time on strategic value add activity and the real people issues that create value.

1:05:00There you go. You should answer the question yourself. That was perfect. I'm just talking back to you. No, no, that was great. It was very sweet. I like it. I like that. I'm going to have to write that down. When you think about that in terms of the role of corporate development evolving plays into that, and I'm just wondering even like buyer-led, because I feel like I've seen just companies like yours that do a lot of M &A, where it is very much buyer-led and you sort of are driving that process. And just like how you gave an example, how your team really gets involved and how they're engaging with that target company, preparing them, what's going to happen after close, before you close, those are all things are clear indicators of buyer-led.

1:05:36Is there anything there that you see that even your organization would evolve more so in the future? That's an interesting question. I would think about sort of the target identification or prioritization piece to it as As we look to continue to expand into adjacent markets, that could be an opportunity as well to help maybe shortcut some of that research analysis. But buyer-led M &A is always going to be about relationships. And bankers aren't going anywhere, I don't think. They're going to utilize technology tools. They already are. And they're going to try and streamline their processes, make it more efficient.

1:06:06They're going to try to automate as much as they can. But a one-on-one relationship, person-to-person, is just incredibly meaningful. and we're going to make that a continued priority regardless of where technology takes us. So I just don't think you can take the human out of the equation. Give me my next startup idea. Banker robot. There you go. Maybe. Yeah, get me in on the seed stage. I got to ask every legal department's favorite question. What's the craziest thing you've seen in M &A? Oh, goodness. There was one. I don't think this will upset anybody. We bought a business and they had a pet alligator in the back of one of their facilities that they would feed and it would hang out and truly live there like a pet.

1:06:45And that wasn't on our diligence list to ask if they had any wild animals roaming around that they treated as pets and fed on a regular basis. And ultimately, when we took over the business, we had to make sure that someone came and took that alligator and took good care of it so that it wasn't going to be disrupting our business. You put it for adoption. Yeah, I don't know exactly what happened. We certainly, there was no harm to this alligator, but there was also no harm to our people, which is a good thing, but we no longer have a pet alligator. Is that part of the list of assets? alligator.

1:07:14Yeah, it wasn't or we would have asked about it. Jeff, this has been an awesome conversation. Thanks so much for taking the time helping me become a better M &A scientist. You got it. Thanks for making the trip to St. Louis and thanks again for lunch. Always happy to chat. My pleasure. Hey, if you like this podcast, blow up Jeff Giles on LinkedIn. Let me know if you want to hear him back again so next time I'm in St. Louis I can convince him to come back and pick up on some of the other topics we didn't have time for. Always happy to connect with someone who wants to learn more about M &A or Corn Main or our investment focus and would love introductions to any business owners you think would be a benefit for us or we could be a benefit for them.

1:07:49Blow them up on LinkedIn. Tell them you heard them on M &A Science. Fellow M &A scientists, you made it this far. I value, appreciate you. Love to hear from you. If you have some ideas, some feedback, criticism, I'll take it how I get better at doing this. Feel free to reach out to me. Usually LinkedIn's the best way. My inbox is a total mess. So reach out to me. Love to hear from you. So next time, here's to the deal.

1:08:41We'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.

1:09:23Views and opinions expressed on M &A 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...