Four Questions That Defined a $1 Billion Deal with Robert Lovegrove

24:30Geography is one play because you could have just strengths based on different parts of the business. You have your channels. That could be another element depending on how you go to market in your channels. And then you have the different areas or verticals of the different products. And then you also have like broader sort of industry platforms that those products play in. So it's interesting how you do end up with the spider view.

24:56Robert Lovegrove:Yeah, you get this interesting spider map. What you see on here too, as you look at it and say, there's also a part of the spider map that said, and this folks for you guys, this is a medical business that we have. but you play in these types of wounds so you're great at these type of wounds what's the market translation to move into a different wound type or a different disease state and would you just scale the business by just going from disease states with the products you have or do you need to add more products to the bag but what's actually interesting when you get this base down i've done this i've gone into the boardroom with this spider map and you look at it and say this acquisition stretches our core and gives us these verticals to grow upon.

25:38Robert Lovegrove:And then you build the conviction of the growth, and then you build the financial forecast, and then you build the belief and the threshold for the growth and the soft synergies that you're going to get out of this on why you should do the deal. And does the math all work? Is the goal to go through this exercise and identify what's closest to your core as an adjacency? Or I guess like where those soft synergies would fit in the reason why this is actually justifying why this isn't too far left field from the core that's exactly it if you were just looking at well this is an organic growth play and i'm just going to go down one vertical then you just punch through it but when you think of no i'm going to use m &a dollars in here the closer to the core the greater the synergies the greater the confidence that you're going to be able to do this you look at that full 360 view not just here's the business itself but it's like where's the geography plays in where how are they distributed out of this you start really honing in what are the strategic options for how you grow from this core which you have the presence of saying you have to be able to see off those strategic options then becomes the playbook okay i'm gonna buy these strategic options if i want to do this then here's the natural people i'll go after and chase and then what we actually do to grow our M &A is we build from the adjacency map, we build the playbooks from the strategic options, we build out the targets, and then have this beautiful job of floating all over the world and basically asking people, have this thesis on why you should be part of this family.

27:06Robert Lovegrove:Would you like to join this family? Would you like to join this business? And I'm actually out there incubating the M &A because that's all part of the playbook. Or it's not just me. You get the chance of looking at it like anything. Business is all about networking. So who do you know that knows someone that can get you into the conversation. And I will tell you, we don't win by getting books sent to us from investment banks. Bigger players do. But when you can actually come off of the strategy of how I want to grow this business right into the targets to actually having those toll gates done on why the targets are attractive, then you have a lot of conviction to go out and convince people.

27:42Robert Lovegrove:And the conversations are very interesting. It's a different level of conversation. It gets you in the door usually too, because it's like, I'm intrigued by why you think we'd be better together. I want to understand the different types. You use the wound care where it's, hey, we're in one type of wound, build our basis of understanding that business. Can we move into another one, which makes it pretty close? There's probably a lot of elements around distribution and things that you'd find synergies from. What are other things? Last experience was in the tech space. We built software for running M &A.

28:12But that's where mapping the same idea of what our adjacencies and you start looking at FP &A software, private equity. For us, the expertise we started developing is like using AI to analyze documents. Is that sort of like, here's a capability? I'm trying to wonder, how do you weight this is basically what I'm trying to get at, Robert. It's okay, here's a capability thing. But at the end of it, the dollars is around more synergy distribution. The more we can stack up with the same customer base, I'd rather really focus on that when you do the spider map is there sort of like some weight between these different elements

28:43Robert Lovegrove:yeah there definitely is as much as you look at each vertical has what's nearest to the core strength of that vertical there's what verticals are nearest to grow from if you look and say hey i'm really great at nasty birds okay someone burns herself and they got to take the bride the wound down and they got to build it up we have a suite of technologies that come in after the wound is rebuild up to help the healing of it. You look at it, okay, that's a burn. Then the next adjacency, and what I showed you, it's kind of ghosted in one word, okay? But the next adjacency would be, okay, then I'm good at really diabetic foot ulcers because they're really hard to wound.

29:25Robert Lovegrove:And then I go into venous leg ulcers and it's having a solution set. So I'm taking the core technology and I'm doing that through, say, market development going, following wound to wound to wound. But what I'm actually looking at is saying, if my technology takes me into that space, how do I round out with other technologies? So what you might use to heal a burn versus what you need to heal a venous leg ulcer, venous insufficiency, has some extra natural products you tack onto your business. If you're taking your products out, you're tacking on other products, you're tacking on solutions. But then you actually look at it and say, how does this whole business work, you got to make sure that the rest of your core infrastructure is in place to be able to support how you actually sell and grow the business.

30:12Robert Lovegrove:And if I say it a more simpler way, is when you look at most businesses, there's a scalable, repeatable model to how you grow the business. So you're following that down and you're adding more things on through M &A to support that scalable, repeatable model. Once you go through this, you go time to go hunting and you go find opportunities. And it sounds like you really pre-developed thesis. When you approach these companies, there is a very clearly articulated, better together story. Is that what you lead in with? It's like, hey, we looked at this and this is where we think we can create a lot of value together, better serve customers?

30:46Robert Lovegrove:That's exactly it. People look at it and say, hey, we're in a corporate function. We do M &A. And you look at it and say, I work with investment banks, give me ideas. I do all that, okay, at the same time. But I direct the investment banks through this mechanism. These are the strategic place. This is where we want to grow. So they'll open doors for me when they start seeing it because they want to represent us and work with us. But then when the door is open, I'm going to come in and give... It's basically telling them a story. People resonate around the story. So there's a story of, am I even relevant in industry?

31:17Robert Lovegrove:And what are the values of this company? So I'm doing a generic here, so anyone could do it. Why am I relevant in business? What are the values I have of this company? but how do I see they connect to the values of who you are? And is there an ability to do things together? I'll tell you one of my favorite stories is I had this meeting and a person came in and they met us at our corporate campus, which is a beautiful campus. And we had the meeting talking about what we could do. And then I just went for a walk with him back to his car, walking around the campus. I said, what's your dream for your business?

31:50Robert Lovegrove:You've got a nice family business. What's your dream? He tells me the dream. He said, instead of saying what's holding you back, Those would be the natural sort of thing. I said, could your dream be accelerated under our ownership? Now that you've seen, feel the touch, and heard our story of why we think we should work together. I've used that three times. I didn't use it on the largest deal. I didn't have to. But on the deals, they look at it and say, this individual said he had a lengthy drive. He said, that's all I thought about on my drive home. And I get a call in two days. Deals on. Let's do it.

32:22I'm hosting a live hands-on workshop on March 6th with Gwen Pope, who ran M &A at Google, Microsoft, and eBay. We'll walk you through an ROI-killing phenomenon we've nicknamed the acquisition graveyard, where partially integrated deals get stuck with block synergies and integration debt. It's a practitioner lab, not a lecture. you'll work through a real audit on live deal scenarios and leave with four tools you can use the following week this is a totally free event the registration link is in the show notes or you can visit mascience.com slash events again that's mascience.com slash events see you there this is my value lesson of the day how to make deals actionable is always the big question.

33:14And there's this element where I'm picking up that you're validating this, right? Everybody talks about the Better Together story, but you're sort of following up with, like, is there a level of validation? Can you tell me more, like, how do you actually do that? Is it not in the same conversation? Do you follow up like a few days or a week later? It's part of this toll-gating approach.

33:33Robert Lovegrove:So the first part of the toll-gate is, does this make strategic rationale with the target? Yeah, these targets make strategic rationale and we have a preliminary thesis on it. And then it's get out and talk to them, meet them, provoke them. Most people you look at, you say, Hey, I was thinking about buying your company. I'm like, I could shut the door. I don't want to do anything different. I've been there before. So what your outreach, do you reach out with that? Is this, Hey, here's this idea and you're already pitching it or you get some kind of intrigue that I had some ideas like, uh, it'd be great to get together, compare notes.

34:04Robert Lovegrove:This is the part of, in the courting, be the ambassador. If you're the ambassador for the company, you live the company, you are the, you know, like the people look at me, you are that ambassador. And I want to be part of you because how well you represent the company. So you got to be really well about representing the company, but connecting the dots. Most people take meetings with you if they're somewhat interested, because you have a good story of who you are. And the next part is provoke them. Okay. So I tell you that, like I walk around the campus, I say, would the company be better? I'm provoking him.

34:34Robert Lovegrove:I'm asking it through questions. I'm not telling him. I'm asking him. And he's looking and going, hey, this is making a lot of sense. When we do management presentations, whenever we can, we'll say, come down and visit us too. We want you to feel like you're a part of us. You want to be part of this family. You want to be part of this company. So you're getting people to look at it and say, let me test and see. How do I see myself? How do I see this working? To continue on in this one story, one of our early deals, that owner that left and had an idea that this made a lot of sense. He then came to us and said, here's all your synergy.

35:06Robert Lovegrove:Here's all the people I'd keep for you. Here's all the people that I release. This is what you want to do. We got to build this together. You're going to put that because a lot of people that are more entrepreneurial, they care about making money, but deep down a little bit of them cares about where the company lands. So we play to that emotional component of where this company is going to land. And then that's got to work. And what's actually interesting in all processes, the front end of the process is all about the emotional side of, yes, you're the right person. I'm talking about, we try and work as much as possible.

35:40Robert Lovegrove:And two of our deals were done this way. They just decided they wanted to sell those. They didn't even go into a process. So if you can get that, or when you're in a process or a learning process, get the people endured to you that they want to be part of you, ask them questions. The emotional part comes. The key decision makers are like, yeah, this is the best thing to do, this is what I'm going to do. But then their mind flips when they start seeing the followers and it comes up with the dollars. At the end of the day, the dollars got to make sense. Yeah, it makes sense. It gives you leverage.

36:08Robert Lovegrove:I know I'll ramble a little bit here, but I'll talk about our two largest deals. First, I want to clarify, the key is not only just sharing this vision that finds a strategic rationale better together, it's actually the way you design your follow-on questions that provokes validation of that vision. So they're really thinking it and that's when you're starting to act in the motions along with the vision that you presented to them. Yeah. So if I give you the punchline, second largest deal, not the highest bidder, but when management was asked and had an input as to the final three going forward, everyone was unanimous.

36:43Robert Lovegrove:I want them. The largest deal, we invited management down. We were actually able to let them see and touch us as part of the process. And then when we closed it, we said, again, we weren't the largest bidder. We were management's choice. And when management's choice and owner's choice had to come in, it just made sense. You know, it's the difference of$20 million at such a large amount. They're like, I'd rather go with these guys because I know they're going to be the people that take care of my people. That mattered. But what was really interesting is we probably performed a heck of a lot better in the diligence process because as I learned when we own the company and I'm dealing with the people that we were dealing with on the other side of the diligence, they're like, Rob, we prioritized your questions.

37:21Robert Lovegrove:We gave more time to you guys because of the respect of how you treated us. So it's that whole emotional side you're playing to. It's the softer skills of doing M &A that really have to come out. But again, you can't have that unless you have very good strategic conviction and alignment to go do it. As my boss said to me just the other day, he's like, hey, you know, there's not too many people that I trust to fly across the world and throw a number of that size in front of a company. So that's the whole point. I was like, yeah, no, I wouldn't trust myself to do that too, unless there was a lot of alignment that we built to going and doing these types of things.

37:58Can we talk about your biggest deal? This is the deal where you presented to the board, you had four critical questions that you were willing to walk if you couldn't answer those questions. Can we talk through those questions?

38:09Robert Lovegrove:So this is doing the largest deal. Give you an order of magnitude. There's close to 100 individuals working on the diligence. And again, at our standard format, there's about 18 functions that have to do their functional diligence. A lot of people, a lot of checklists to do, you can just bog this down. And the reason for the number of people are really the things that we want to check on. So it came down to, and I can reference a page, we look at the strategic rationale of why we're going to do this. We've gone through the market toll gates. It's a great thing. We've gone through the company toll gates.

38:46Robert Lovegrove:It's the right thing. We're learning a lot about that. But now we're between IOI and LOI, and this is where the work really has to be done. And we have a strategic conviction on why we're doing it. That then cascaded into four big questions. So at the highest level, and not to say too much around the detail of the deal, but did we really believe in the uniqueness of the technology and its ability to sustain a competitive advantage in the marketplace? That's two questions, but it's really a technology question. Uniqueness and ability to maintain sustainable commitment advantage. So we need a lot of IP attorneys really looking at the IP landscape, all that sort of stuff here.

39:26The

39:26Robert Lovegrove:second question was the relationship, the market restrictions, and the risk associated with a large concentrated grouping of customers. Were we okay to get through that? The next was where we saw this business going long run. Did we really believe in the growth potential in these select number of markets. And then probably the fourth one that most people will always have in it, who are the key talent and how do we retain it? So at the end of the day, the key talent one, you work through. But if you feel like you're going to lose some of the brains and all that with the amount of money you're putting at risk, knowing this is more of a softer synergy deal than a hard synergy, we're willing to punt.

40:05Robert Lovegrove:But it really came down to two was the concentration of the business and growth outlook and the risk associated with that. And then the sustainable competitive advantage of the technology. In all the looks that we had with our technology people looking at it, the IP attorneys, if we started saying, well, yeah, the technology is good, but it's a little weak and some other thing could get into it. And we're looking at biodegradable chemistries here. So if you don't really believe that you truly have a unique biodegradable chemistry that you can maintain, then I'm not going to put this amount of money down.

40:37Robert Lovegrove:Those four questions, they had some sub-questions to it, really drove it that every time we were doing a diligence check and we're like, how committed are we to that question? Is this pretty universal in the deals you look at? Or is this very particular to this one because of the size and magnitude? This becomes the best practice going forward. And this is exactly what we look at because here's what we do with it. Is we look at it and say, okay, we know the strategic rationale. We know we've got these four really good questions. Then you've got these 18 functions with like a hundred line items of checking of diligence.

41:08Robert Lovegrove:So before we commission all that, where it's intersecting what's the most important things to focus your diligence on and how quickly can you find a fail mechanism and i will tell you in every deal we look at if there's an ethics violation of anything that would hurt our ability to be the world's most ethical company we hunt okay so there's the logical ones but you're really looking at it's this logic fail fast so if you got your function looking at the right sort of things fail fast and there's the other point is before we even do any diligence now, we look at this long punch list, like everyone do, high, medium, low impact, exactly.

41:43Robert Lovegrove:But we look at it from a different filter and say, what are the fail fast things, the highest things to look at, get through fast. And what are the things that we can just hunt to, we'll really deal with that when we hold the keys for the company, because we're going to get it when we do the strategy integration. So we can move fast and focus on the right thing. I like it. You shortlist this, and these are the critical areas to really go deep in so that way we can get to go no go pretty quickly in a general sense so we're not wasting time and resources i'm wondering take the first one i'm going to start whacking at that one is like the uniqueness in tech sustainable competitive advantage what if that isn't the driver if you look at a deal and it's you know what they actually don't it's more of a generic thing but this is such a good deal it's a fire sale or something like that do you start like Like, hey, as a company...

42:26Robert Lovegrove:Well, the four questions change per deal. Okay? That was... So my driver is... The driver is that positioning. You want to be number one. And that's why that unique tech has got to be an important staple. So it goes back to the adjacency map of we're stretching our technology. We were doing this. We had, as part of the core inner part of the adjacency map, where you say a strength is we had the customer connects. We had strong customer intimacy. We had strong market presence. It's now we're putting a new technology into that. I got it. So there was a tremendous amount of work in understanding the robustness, the uniqueness, and the sustainability of competitive advantage from that technology.

43:06Robert Lovegrove:If we did not believe it, that blew up the whole deal. So that was priority one question. Priority two was, okay, there's a concentration of customers. Can we really deal with it? Is there any risk associated with that? So the four questions cascaded, and we knew the most important one. And that's why we always put it as question number one. So my counter example, or not the tech, but then it would, something else is this is going to increase our distribution. Now all of a sudden the question would change. And then we'd have one around, hey, does this really give us an advantage of the distribution of the segment, which is likely so in the example I'm looking at now.

43:41Robert Lovegrove:Yeah. And if I round this back, if you really think about, okay, great strategy, what is great strategy? Great strategy is answering questions. It's choices, but it's answering questions. So starting a strategy project, what are the questions I'm trying to answer? So when we start an M &A deal, when we start an M &A diligence, what is the highest, most strategic questions we're trying to answer that lock into the thesis of why we're doing this? So if it was a simple bold on, it would be how strong are the hard synergies and how many manufacturing sites can we consolidate? How much fixed costs can we take out of the business?

44:11Absolutely.

44:12Robert Lovegrove:And then you may have another two or three questions. That's really going to get the deal done. Then why in the world are you worried about the market attractiveness of something? It'd be just more of that's a lower priority question is, are the markets that this business is in solid enough to carry us forward into this forecast? Because the thesis of the deal was so heavily around what? So this is why we kind of look at it. It's daunting when you think of a billion-ish dollars you're going to go allocate to something. And this is a lot of cash going out. How do you not make this a thing that just goes on analysis paralysis forever?

44:45Robert Lovegrove:It's like, how do you really just go, we're doing this for this reason? Okay. And here's the unique questions that we needed to answer. We built conviction. And honestly, we went into the boardroom with this. We brief them. So when we're doing things, we brief them and give them a little teaser of this is stuff that we're working on for M &A. So they're always in the loop stuff and said, okay, it's decision time. Obviously, there's the pre-reads that go out. There's the pre-conversations that go out. But you have a short amount of time in the boardroom to really cement it and say, this is the strategic rationale we're doing.

45:18Robert Lovegrove:Remember, here are the most critical questions and here's the answers. And here's our belief. And here's our belief that goes into this as the returns and financials returns that we think we're going to get out of this deal. How do you model these deals out? Like, especially when you described doing adjacencies and having soft synergies that you're betting on? In this specific one, it was enough diligence to say there's more of a concentrated customer base here. but there's this amount of room to grow in the customer base. And we believed it. And then this technology, we believe, will scale up like this in markets.

45:53Robert Lovegrove:And in this specific case, we're actually looking at it and saying, hey, we've done a model looking at this, but if we're half right on this growth within the customer base we have today, we'll get this amount of return on it. By doing that, actually, When you're doing deals like this, you always get the internal challenges. So, hey, we want to do the largest deal ever. Boss number one CFO is looking at me going, I don't know if that makes sense. That's a lot of money. We got to really get the numbers working right. Boss number one again, or boss number two, CEO, because I'm working for both, is the guy going, we've never done something like that.

46:32Robert Lovegrove:Is that really strategic? So they're both naysayers. When we actually got into the strategic rationale, the growth perspective, the parts of the thesis, And I really wanted the CFO when I said, we're half right at this forecasting growth of these customers. And here's the validation on why. And by the way, we've also done a line customer awareness study. So we'll have a third party do that for us. We'll have a third party do some other things for us because we can't talk to the customer base. And I said, here's all the reasons why I believe in that. And he's like, no. So if I'm just half right on this growth in the core customer base and core market we have today, we can get the right return.

47:07Robert Lovegrove:We can push this through. Now I got an ally. Now I got an ally. So I'm always creating solution co-ownership because my job is all about influencing without authority. I can't tell people what to do. I can't tell the CEO what to do. I can't tell the CFO what to do. You work that mechanism of the two of us, and then we're now going to the CEO. The CEO's looking at it and going, yeah, this would be absolutely wonderful for us. This would be good. So now he's a champion. So now the chairman becomes the naysayer in the deal. This is the point of working the process internally and the team. A lot of this, I'm citing things like it's just simple to do.

47:41Robert Lovegrove:They were done as part of the toll gates and the discipline to really build the conviction for the deal. Every deal has different dynamics to it. Everything has different risks to it. You got to allocate on the lease and really build it up. And I'm curious because what you describe in the roles in a sort of large scale, 20 plus businesses, 70 profit centers. I imagine like it's all one capital base. How do you have a system in place to allocate? And I know we talked a little bit about just mapping your businesses out where they play. But then where does M &A make sense between supporting your businesses and doing these platform acquisitions?

48:19And how do you keep everybody happy?

48:20Robert Lovegrove:So we run a strategy process across the company, consistent strategy process. We meet at the point of a year to really see everyone's visionary seven year out and wishlist. We take a lot of that. that we synthesize. And then that portfolio grid is the roadmap of what's the role of the business, each business is playing in the portfolio. And is there organic growth things that we should fund capital in? We're looking at that. Is there inorganic things that we should fund in? Can we move one of the bubbles to something more attractive? Or if we can't do that, then look, if you're a cash count on the business, you're a cash count on the business, I'm not going to give you any dollars.

49:01Robert Lovegrove:I've got to get a return on investment. Where's the best place? I've only got so much money. And it's really a big competition. So we take a week, we look at every single business in detail. We sit as a C office and really look at the growth story. We run dynamic models of each of the businesses of where's the growth coming from. And we build this over and refine it every year, but this is 10 years running of doing this. And you get a pretty good view of where's the M &A capital budget. Now, the other thing that's challenging is we are working towards always utilizing and having a great M &A muscle, but M &A capital competes against other capital too.

49:39Robert Lovegrove:So there's all the things that we need to do to shore up our competitive nature or shore up our operating system that's competing for the same bucket of capital. So we've got to look at it, be very strategic on where you go and having the plan. So before we just fire guns out there to try and buy things, we're trying to figure out what can we afford, where do we want to afford it? What's the rationale why to do it? What's the conviction? Now let's go knock on doors. Or let's magnify the voice a little bit, figuring out the investment banking community. There's a lot of them. And you got to figure out who do I want to work with that's best at helping me in this area and putting the message out with them.

50:20Robert Lovegrove:And then obviously we get books and all that coming at us. We'll turn them around quick because we don't want to miss them. But at the end of the day, we're proactively trying to drive the M &A muscle through the playbooks, the target lists, the interaction with who's the best person has the best relationship. How do we get entrees? And then how does the corporate development lead or corporate strategy lead get out being the ambassador and create things? A bigger on each business. Then you put it back in that bubble graph. And there's a good team behind it that's doing a lot of work. It's not a big team.

50:57Robert Lovegrove:You Every single parts of our business, we have the go-to person to go too fast. There's a checklist. I am going to do a customer awareness study for every deal because we were burned once. We were burned once because we were so excited about getting the deal done that we didn't get a good enough customer awareness study that we realized that a couple of key programs were coming down with some of the key customer base. And all of a sudden, volume goes away within two years of acquiring an asset. And you look at it and go, shame on you that you never did that. What goes into a customer awareness study?

51:27Robert Lovegrove:It's pretty simple. We just want to really understand the brand, their brand in the industry that play relative to competitors. And then we want to touch customers to get their perception. And we'll use third parties to actually go physically talk to them. This isn't a survey thing. This is physically talk to them, do the equivalent of expert network interviews, triangulate voices together, and kind of look at how strong is the brand in the marketplace and whether any red flags out there of just the way they behave. If we get some senses of things that are like, hey, these guys, they drive by price and they're known to cut deals that aren't necessarily kosher.

52:07Robert Lovegrove:We're like, whoa, red flag. So that's going against the fit. But again, we're just trying to figure out through a third party look, are these guys legit in the marketplace? Do customers like them? Why do they like them? The other part of the customer worth study is where are their strengths? Are their strengths more commercial or are they really technical or is it their tech service? because part of our whole gate is what's it take to win? So as we're doing adjacencies and we're moving into some new spaces, what's the scalable, reputable model for a business in that industry? How do people win?

52:39Robert Lovegrove:What are the most critical strengths? Why will we be a good parent? How can we be a great parent? We're going to be a great parent. And then how's the cultural fit? So we're looking at it and testing all that through the awareness. When you got burned, like what went wrong? We got burned because we got the keys, we're operating the company. And then they, oh, sales forecast is dropping off for these critical product lines with this critical customer. Why is it sales? Oh, didn't you know? That program's coming to an end. There are some real surprises. They had initiative-end programs that could have just unhealthy customers.

53:14Robert Lovegrove:But there's surprises at every deal. Okay. My message to everyone is do enough strategic work, do enough homework to minimize the surprises. You can never get this perfect. The grass is never greener. It's just a different shade of green. There's some different nuances. I want to pull thread on this one because this is the dilemma. You got large strategic and then you got the nimble private equity firm that'll just skip everything, outsource it all and just boom, drive hard to get the deal done. You mentioned you had 18 functional areas that have their own center of excellence that focus on their domain.

53:47How do you avoid from that process getting bloated and slowing things down when you're looking for this widespread of risk while still moving through quickly and minimizing the pain on the seller?

54:00Robert Lovegrove:Deal kickoff internally. So when I start a deal, I'm going to call a diligence meeting, a kickoff meeting to diligence. I'm going to go forward. First of all, I'm going to have the right people beside me from our legal team giving the reminders of the do's and nots. So we do the compliance stuff. Then we'll introduce the targets. for so a lot of people, say our credit people. Somebody's going to do diligence and credit. To them, it's just a company. So I'm going to back up, who is this company? Why are we interested in it? What's the strategic rationale? What are the key questions? And I've already looked, because I'll do this and the team will do this.

54:35Robert Lovegrove:We'll look at the punch list of all the hundred-ish plus items that you got to cross off. And we're going to go in and say, hey, we think you got to hone in on these first. So as much as we're going to ask you to finish it all off, do their systems work? Okay, I'm okay if their systems are going to work, you know, in tying it in. But if they do some funky things, let's say credit on, there's not a consistency of how they do it. There's some cutting, you know, it's just like, is there a failure moment in there? But what the diligence team is doing is they're finding failure modes on why it would affect the four questions or the key questions of the deal, or they're not logging key things that we got to look at that have got to be on the integration plan.

55:14Robert Lovegrove:So in diligence, we're confirming the strategic rationale of the deal and we're triggering the most important things to happen in the early stage of integration. In that period of time, we're also identifying the functional integration manager. So the functional integration manager has got to own all this because they're going to take it forward. And then a member of corporate strategy on the bigger deals, as myself, moves with the deal and does all the strategy integration. The integration manager does all the nuts and bolts, tying bank accounts together, making sure people can get paid. in diligence, things we're going to look at and say, is there things that we have to do because their cost of benefits and something like that?

55:52Robert Lovegrove:This is a live one here. As we looked at the benefits that one of the companies we bought were, and then when we move them to our benefits program, what are they not going to get? And what are the cost impacts the company? So we looked at it and said, you know what, we're actually going to have to provide more money and put it into the deal that we're going to give a stipend or whatever to all the new employees to basically cover that so that their health insurance is not costing them more. It's doing the right things. But that was found in the diligence. So that's the first thing. There's the critical things that you got to look at.

56:23Robert Lovegrove:I'll say it a different way. The punch list is the strategic things that I want to know answers to. The critical things that you got to look at that are going to affect the deal model, the list of things that have to be on the integration plan, and then the things that we think you can just cover once we own the company and we'll take care of it. It's constant prioritization. It's just like you distilled the business case around the four key questions. and you just keep doing that while you're going through this diligence exercise by function. Yeah. I want to get one question here from one of our audience here, Michael.

56:51When Milliken acquires or partners with a business, where do you find owners most want support post-close? Is it access to centralized capabilities like HR, R &D, or shared services or something else? How do you balance preserving an entrepreneur's existing ways of working with integrating them into Milliken's culture so value creation is accelerated rather than lost. That's a whole podcast interview.

57:14Robert Lovegrove:Let me hit the last one. Culture kills deals. Know what you're buying and know what the fit is. And then structure your management operating team that's going to go through this exercise of solution co-ownership and creating the strategy together with the back office of the company. But preserve them the best you can. Look at the largest deal. 65 % growth on the largest deal. One of the things we looked at and said, this is the way they operate. We're the big company. How do we not do that? They're located not where our headquarters are. So what are we not going to move to our headquarters? Because that's what's going to preserve their independent thought process of entrepreneurialism and stuff like that.

57:58Robert Lovegrove:What are we not going to just basically corporate headquarters optimize, millicanize, if you want to use that word. That's what we look at now. What's the front part of that question again. Oh, the front one is where the business owners see them wanting the most support post-close, the centralizing capabilities like HR, R &D, or shared services, or something else. That's interesting. It's deal by deal. And you think about this. I got to figure out, why are they even going to listen to me? For some, it's, you're going to make my company scale a lot faster because you just have global international reach.

58:32Robert Lovegrove:Or some of them, it's, yeah, so I want all your back office. The other is I want access to your balance sheet. I want you to invest in me because I can't do this without a good parent with a good balance sheet. There's a mix in each one of them and you got to think about it for each deal. I got one more. What's the craziest thing you've seen in M &A? What is the craziest thing I've seen? We're at the 11th hour. We're about to close the deal. Everything's going together and then you get the phone call. oh, we got a little issue here on this one piece of property. The owner may not have complete free title to sign off on this piece of property.

59:10Okay, what's the issue?

59:11Robert Lovegrove:He co-owns it with his ex-wife. So the craziest thing we ever saw was getting involved with an ex-wife and very messy divorce. She probably could have looked at it and said, I'm not going to do anything. And it would have just killed the ability to actually close the deal. So that's probably the craziest thing I've seen. and obviously some of us actually engaged with her. And again, not to give some away, we had, we walked away and said, that was very unique experience. You got it done. You got the deal done. Got the deal done. Very unique experience. You didn't amend the divorce or relationship there, but no further creating more fireworks.

59:48That was our biggest challenge. I like how it started with, we got a little issue. I feel like that's the last thing you want to hear on the 12th hour is we got a little issue.

59:55Robert Lovegrove:Yeah. There's been a lot of crazy things over the period of time. And another crazy one is we were in a select small group going for something. And someone's like, hey, you know, these guys aren't these big names. They aren't this. Are they ever going to be able to? So we were kind of forced out. And then we had to, this is where relationships matter. People in the right places. We actually had a third party that was working with us. So hang on. It's like, I know the chairman of the board. I'll have a conversation. This is the sort of thing of, we may not even have got one of these deals done.

1:00:24Robert Lovegrove:But we did because we know people. And again, sometimes you can look at it. Private equity sometimes gives it a bad connotation because you think that it's more about the numbers and the cut dry or something like that. My advice to everyone, bring relationships into it. People like doing business with people. And when you treat them with people and you treat them with respect, it's amazing the things that can happen just when people lean in and say, we want to work and do things together. Totally agree. Our approach and all that is we're not trying to get something at the lowest price. We're not trying to nickel and dime someone.

1:00:56Robert Lovegrove:And even when we price our business, it's all about fair price for fair value. And if you can keep that mindset and keep your brand around that, then people respect you. And it makes the friction times in M &A deals go a lot smoother. Wise philosophy to live by. Robert, this has been a great conversation. I appreciate taking the time from doing deals to help me become a better M &A scientist. Well, I hope it was helpful for the audience online as well. Like I said, I haven't done a live one of these for a while. And I see there's a group still to dial in. And so I want to thank you. I know we went over our time.

1:01:27And we should love to know this. This is done pretty live. You're sitting in Switzerland and I'm here in South Carolina. Yep. We did this first one, international remote. Whether you're listening to a live one or this recorded when we publish in our podcast feed, I'd love to get feedback. Reach out to me and connect to me on LinkedIn. I took my privacy filter off, so it's easy to connect with me on there. I'd love to get feedback. If this works, because I'm planning to do a lot more of these live sessions this year, I just find them exciting to do because you don't know what's going to go wrong.

1:01:54I can scale them out and actually increase our volume, which is another goal. And we're trying to do more unique topics. So you're going to see a lot more of these live formats so that we can pinpoint different topic areas, do more interviews internationally and so forth. Anything we do to improve. If you've got suggestions for topics we haven't covered. Until next time, here's to the deal.

1:02:24Thank 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.

1:03:09Again, that's mascience.com. Here's to the deal.

1:03:38Thank you.