How Experienced Buyers Actually Make M&A Work with Carlos Cesta

24:28And we're going to price that on the deal, but we're going to be working together on these deals. And that test, I'm like, oh, are you retrading me? that causes some interesting discussions about willingness to join the team or... That's a shift in how they're going to operate. Saying, hey, our go-to-market is built around Salesforce or whatever. I feel like that is one aspect that causes the interesting conversations. Then reporting lines as well. When you start talking about org charts, it's a good one to start a good discussion. Take away people's C-suite title? Or take their cars away. Take their cars away.

25:00It's more common here in Europe. To have a car lease, this is just one example, but just getting into more of a what will be life after the deal. Yeah, like pretty impactful changes and having more of those tough conversations earlier is a key part. Also, most importantly, how you go to market together. We got to tackle a client with these sort of shared resources and you start talking about how we're going to dedicate the staff to certain types of clients. And then you start hearing things like, as the target said, but I won't take deals that are smaller than this amount per year or a contract value that is this amount.

25:37And you say, why? Are you part of the team now? How transparent are you with the target company and the deal structure model? You have your model. These are the areas you're assuming synergies and everything and revenue forecasts. Yeah. Like how transparent are you? With the synergies? Yeah. There's one point that is the negotiation. So let's talk about revenue synergies and cost synergies. Let's break that down. So revenue synergies, we sort of develop together. I obviously have my reservation view of what that number should be. And if they're more aggressive than you expect them, if it's part of an earn out, let them have it.

26:14I'm curious because I'm under the impression that, and I feel like I came up with industry as not being too transparent. Because if you're too transparent, you share your model over, all of a sudden you got a seller that's like tweaking your model and trying to optimize their own valuation, you're better off just keeping them... Here's a rule of thumb of how we came up to this valuation, but I'm not getting into the real specifics there. Okay, so here's a better answer. There is a point at the deal where you open Kimono on, here are the clients that we're going to tackle together. There's probably a million from this client, and it's just really probability weighed them, and you share between them.

26:53It stores the end. Okay. It stores the end. But there's that point. But getting to LOI, you're coming up with a figure and getting to that agreement. At LOI point, I'm still not disclosing that because I haven't done diligence. It's this ingenious, I think, just to talk about that. And then cost synergies. When I was at Verizon, for example, a big deal is very much predicated on cost savings. And you don't give that to the seller. When you're building a portfolio, building capabilities, cost synergies are not the thing. They're not driving deals. So you can be pretty transparent about those. You can say, we're going to integrate this.

27:25We're going to integrate that. And by the way, there's a cost associated with this. And we want to fix that. To your previous point, a lot of transparency, full transparency on that. I usually go to sellers and say, CRM costs your cost today. This is under us, but there are synergies that are going to come with it. It's really a table that ends up on the SBA. They're saying, your standalone costs, your costs under us. We agreed on this. Full transparency on the plan. Basically, how you're going to integrate the company. Yeah. Yeah. And that's very welcomed by sellers, though. They don't want to be retraded.

27:55They don't want to be retraded. And if you show that there is additional costs that we didn't know, not even how to price them according to the deal. Here is not a retrade is what we're thinking about. When you go execute, this ties back. Because I mentioned you having this parallel integration planning that happens. Yeah. But then you're still keeping your deal model live and active because you'll go back and revisit it as you go through diligence and make these adjustments. Can you give me more examples? Because I found that pretty helpful. of things that you would alter. And I feel like it could come from any direction.

28:29You could find something with integration planning that maybe gets you to start looking deeper into areas of diligence or back to the deal model. Examples of what we found in diligence that it's serious enough to go back and redo the model? Yeah, just the interaction between them. Because I feel like you get triggered from any part of it, whether it's through the integration planning, through diligence, or just how you're forecasting your synergies. Yeah. The way you forecast your synergy is probably going to guide you on where you're going to spend time doing diligence. Most of the items that would trigger a significant change in how we're looking at a deal or how we would address deal structure or integration strategy is our ability to verify the forecast.

29:11Sometimes it's not even the company's fault that they don't have a sophisticated forecasting process. But then the nature of the business, let's say everything is project-based. any forecast will be based on wild assumptions. And that's like the nature of the business that you're buying. Other items related to revenue, let's say there's a big clients when there's client concentration, for example. It's very important that client stays so that your forecast is reasonable. Client renewals in the middle of the deal are sources of that sort of change. I've done deals where we knew going in that it was client concentration, But what we did in the deal structure, and that was a very creative one, I remember, there was incentive for the seller to diversify revenue.

29:57So if they diversify revenue away from that one client, they'll get a kicker in the first year or second year payment. I can't remember which one. But you start being a little creative with not only with the current state of the company, where do you want it to be? If you reduce my risk by diversifying your revenue a little bit more, there's a kicker for you because I'm buying it on a risk-adjusted basis. I'm still better off. That's a good example of here's the thing that you discovered. And then you went back to the structure around how you're proposing the earn out terms to incentivize them to sort of de-risk that area.

30:32And it wasn't a structure in terms of, am I using equity? Am I using cash? It was, here's a kicker. Here's an additional payment for you if you de-risk the company for me in year one. And there's another kicker if you de-risk in year two. What are the good ones? These are good. This is helpful. This is what I think is the most important part. Yeah. No, it's tactical stuff that you learn along the way that helps you dial for optimization. I don't want to get into a deal where I know that one of the spokes is faulty or, well, we're just going to hope that things go well here. So when I got the opportunity to design the whole thing at MPD from zero, that's what we're doing.

31:11Okay. We're optimizing all these dials. And to the best of my knowledge, the deals are doing pretty well. ones that we... And they were all a little different. You're engineering for outcome because that's ultimately... Exactly. Not for a transaction. So that's the difference. And then that's the link to the advisory thing. I don't want to optimize for a deal as an outcome, but performance, the deal working as an outcome. Can we talk about earnouts? Because I feel like it's just becoming such a common thing, but then everybody hates them or they could easily go sideways too afterwards. I want to learn about that because you had a good example of just how you structured that earn out to align with the deal.

31:50Yeah. Teach me how to properly set up earn outs when you should use them, when you shouldn't use them. At Verizon, I had an attorney that hated, my deal attorney hated earn outs. He was like, this is recipe for litigation. Let's never do it. The problem was then the target companies would get Verizon stock and Verizon stock was driven by the performance of the wireless business, not for an acquisition that I made in the data room space, for example. So the people were not incentivized. So I went from there to Dentsu, where it was almost every deal had an earn out. And that was a big influence of how the company was driven by finance.

32:30The finance organization had a lot of weight into how we do deals. And then I started doing deals. And then I noticed how integration was never easy with these earn outs and how getting into auctions, I'll be in disadvantage compared with people putting more cash up front just because that's what you do on competitive deals. How do you think through like structuring earn out versus like the stock example? Because to me, that would make more sense just to use stock. If you're small enough and the contribution that the target is bringing to you is one that if they mess up, they're going to fill in their stock.

33:06Great. Like the Verizon example, if it's not... Yeah, if the stock is so different about other things, that's great, but you're not measuring them on their... It's almost like symbolic of a partnership. Hey, the stock is like, we're in the same house together. There's definitely context for that. When you want to buy the company and say, hey, I know we're aligned, but I want you guys to have an upside. This is why my deal is better than the other deal, because the other deal is just an earn out. But I'm trusting you. I'm de-risking you by giving the stock of the mothership. In an auction, you're going to be pushed to do more cash up front, for sure.

33:38And the puts and takes is, how do I protect myself from the downside of this? So if you are forced in your hand to do more cash up front because on an auction, then your diligence needs to be more sharpened the pencils on the forecast. You got to put someone there and say, okay, we can put more cash up front because we have, now we're more comfortable that they are going to hit 2026 or 2027. What's like the big reason to do it now? It's, hey, they have such optimistic projections. Why are we holding to it with this earned out? And in that case, are you doing this earn out with expectation they're going to achieve those goals or it's more risk adjustment that the risk is on them?

34:17What earn outs accomplish is one, seller's financing and two, risk protection for the buyer with an upside for the seller. You start with this sort of three characteristics of what earn out is made for. And depending on your diligence, one of those will be the biggest driver for them. So you get into diligence and you're like, I don't trust this forecast, but I need to be on the space. It's a strategically important asset because I'm adding this capability. It just so happened that right now, and you say, okay. And then you make it a little bit easier for the seller to achieve the earn out. So it's less of a put your money where your mouth is.

34:55It's more, hey, I'm going to make it easier for you to get it. And by the way, we're going to help you with synergies. We're going to cross sell into our clients. So we're going to get that together. But the way you make the achievability of the earn out, it evolves with the deal. Again, it's the spiral. Oh, we really like these guys. Oh, there's someone else bidding at them. Oh gosh, let's make it easier. A little bit easier for them to get the earn out. We're pretty comfortable. So the earn out is yet another dial that you push up and down. You make it easier or harder to get. But my starting point is always the seller's forecast.

35:32Because then I keep them honest. as to if you see it, you're going to hockey stick. Yeah, prove it to us. Does it happen when they come back and say, maybe we'll adjust this forecast? Very rarely. No. Very rarely, no. What's the percentage that you put on earn out typically? Percentage? Yeah, deal value. I usually like a 70-30, 70 up front. 70 up front, 30 on earn out. Yeah. Anything else? Would you ever mix beyond the 70-30 and put stock in there and really minimize? Yeah, we would. I don't know if it's just me. I just like keeping all my cash. 100%. It depends. We should talk about sell side too.

36:09I know we talk a lot about buy side. We are because it's all you're doing now is more sell side advisory. And by the way, I just remembered the spiral concept is in the book I just published too. Is it? There is a part in there. I'm pretty sure I credit you for it just for record. But that's a good point of reference in there as well. And I'm sure we're going to do more stuff around that as well as we are building out the new science membership. Let's do that. Let's put a whole frame. And because this is one part of something so big, our advisory today should be finding a strategy, M &A all the way to integration.

36:41Let's riff about the market and this advisory, how we see things shifting. I know we had a fun conversation about this. And for me, it's always been my neg on the industry was that it's always about closing the deal. It's always about getting the highest price with the highest certainty, which is basically optimizing for the banker's fees at that point. If you look at all this content we've done and all this focus on what makes deals really successful, it's different. Not purely about optimizing for certainty and price. There's a different view we talked about where it's like if you're optimizing for outcome, it's actually a very different way of thinking about deals.

37:17It's a very different way of looking at deals. And it gets even more revolutionary or you have to break things when you talk about sell side. Let's talk about stakeholders first because I feel like that's what drives some of this. you tend to get some bored folks that are like, hey, we want to make sure we get the best interest for the shareholders. We want to get the highest price. And you see this happen. They want the process to be competitive and push for the highest price, which I feel like I would agree with. I'm an investor. At the end of the day, I want to optimize my IRR. I want to have something I'm pretty proud about.

37:5030 plus percent of whatever people are seeking out. And that's why bankers excel at. They have the process down. If you're a public company, they can even do fairness opinion for you. You would want them to do a fairness opinion. It's a completely different game. And that's where bankers excel at. The team page, we have two people in Hong Kong, five people in Singapore. That's not what I'm doing. Our approach is more to the entrepreneur. Even on the sell side, what I understand is, I get you, it's an auction, but do you care what happens on day one? If you don't, it's an auction. It's the biggest prize.

38:24Let's go. But if you care about what's happening on day one, if you're looking for a strategic fit and ability to maximize if there's a structure on the deal, then you want to do a little bit more work on your own strategy, your own positioning, the signal you're sending to potential buyers and the quality of the people that are bringing the deal for you. So what I'm batting a bit is on, I bring these deals to folks that I know, and I have some credibility for being on the buy side for this long. And being an operator, and I understand information asymmetry and the use of it on sell side assignments.

38:58But there's also reputation that you try to keep as you have other deals that you bring into the market. That's all to say, we do a whole lot more diligence ourselves. Second, call diligence. We bring experts from the industry to understand the whole equity story of a company and then put it in the best light possible. Not pushing the boundaries of what's true or not, but you understand the story of the company and you bring the most appropriate buyers to the table. But again, if it's a full auction, it's... Yeah, I was going to say, is it fair to say, to use that contrast to a public company example, if it's an entrepreneur-owned business, they care about the people and the legacy of the business.

39:41Yeah, there's that component. That's a big factor for them because again, it's not purely an IRR return. It's like, hey, this is a business I've spent most of my life building. I care about the people. I care about the legacy of the business. There's also helping them understand what each buyer is optimizing for. I'll give you an example. People look at private equity as, oh, big checks. Let's go. Whereas what I tell them is, I want to understand what you, seller, is solving for in terms of like, after the deal closes, because the point of the optimization that these do is a portfolio. At the end of the day, they are an asset manager.

40:21They're allocating part of, let's say a bigger fund has investments in public markets and private equity. They are optimizing their portfolios. This company is not going well, but continue to invest on them and invest on the other. Their unit of optimization is the portfolio. whereas the seller might think, oh, they're optimizing, maximize value of my company. Not necessarily in the big context of things. And what I try to convince them or try to tell them is that when my team is working on the diligence and how we're going to position into the market, my unit optimization is your company. It's not a portfolio of others.

40:56So my story is going to be around your company. If you end up selling to P, that's fine too, but just be aware of that. And many times people don't take that into their, listen, I'm dealing with operators. They're good at standing up businesses, sales, marketing, getting them to the market. They didn't have time to think about positioning correctly to the market. How do you walk through the thinking between private equity and the strategic? Because I feel like the P firms always have the second bite of the apple that they sell on. They will come in because a lot of them are even buyout firms or growth equity.

41:32They're still second by the Apple. We're going to bring you all these resources. We're going to be the same team. We're going to get the next big success story. Maybe then we'll sell a bit of strategic versus selling directly to strategic. And I'm trying to fish for where your biases sit. You need talking to entrepreneurs. It's really a personal decision. Some of them are young and say, I want a second bite of the Apple. I want to work for a PE fund. I understand the risks. This is a question timeline. You could say, hey, you know what? I got 10 more years I'm willing to put in the industry. Yep.

42:05That's probably where I'm at. Then there's folks that are like, hey, I want to retire next year. And at that point, you're probably like a little behind on doing some of this exit planning. We absolutely show them the advantages of pursuing a PE route. For the entrepreneurs, a lot of their wealth is in the company. So you diversify it away. You start putting your bets elsewhere in terms of where your resources are and getting to You accumulate more wealth as you go into the next fund until you end up with a strategic. But many times strategic pays you more upfront because they need that capability right now.

42:41And they're able to realize more synergies right away. Do get more consideration right now. Have a little bit of runway with the strategic. And maybe it's interesting and they made the entrepreneur an executive on a bigger role. It depends. Some strategies are really enticing and making intellectually challenging and stimulating for entrepreneurs to stay with them. So it's money now versus are you going to execute in five years and 10 and keep going. There could be some good incentives post-close for either situation. For either situation, yeah. I'm not taking one side on this one. What I'm interested in is in providing full transparency of what one looks like in the other side.

43:21The best buyer, at the end of the day, it depends. And what you're bringing to the table is, hey, I've worked on the buy side on all these deals. Let me help you understand what these different buyers are optimizing for in terms of how they optimize looking at value of the business, but then operationally, what that's going to look like when the deal is said and done. That's that. And there's also tactically within the life cycle of a deal where buyers try to cheap value away. Sometimes the deals get shut down because the story isn't told right. but there's points where the balance of the leverage changed from one side to the other.

43:56You sign the LOI, the leverage turns to the buyer. Now you're tied into that. There's some good of having, you know, it's just like where you're wearing two different hats. On the buy side, I love proprietary deals. I don't want to touch an auction deal. But then on the sell side, of course, like the auction is, it's better because when you're doing some of these proprietary deals, some of the growth equity funds I talked to, they drive you nuts. like they will give you this bright shiny valuation range and they start going through diligence and they pull back in at least two turns because they'll be like oh this didn't look good oh your retention was a little low yeah reputation of the firm that is buying you is also very important I always advise I feel like everybody does this though this is what pisses me off they just so then I get to the other point well I'll go run a process and then I'll flip it around and then now you can't play games what I do with my sell side clients is to prepare them for that they just come like completely armored.

44:50I do diligence on them and say, look at this number, why it's in here and what happened here. And then try to put that in the best light possible. I wouldn't let things go misunderstood by the buyer in points where the buyer can chip value away. Example, client concentration. I see if you have client concentration, what is the plan for next year? Show that as well. If you have working capital as well, a working capital adjustment is one that all of the sellers never thought of. And we're there to avoid the value chip are now parts of the process. The way the deal is structured, I've been on the buy side times enough to understand when certain things will, in fact, get value off the table by making earn outs more difficult to achieve and all that.

45:32Let's put a forecast on the table that actually we can accomplish, live a little bit for over performance. Is that one of your buy side approaches to make that earn out? Just turn that dial up so it's hard to get. I was curious about that. I feel like there's some of these deals where I've looked at and I'm like, We can structure this turnout knowing that they're probably not going to hit it. It has happened when the forecast was so aggressive that they never got there. But then the problem is what you're left with. And if you really, there's a strategy behind you, have the company in your portfolio, is the smart folks would renegotiate the ARN.

46:05Because I don't want people that just sell a body of company for 30 % and now you get nothing. Ha ha. It's not a great strategy to begin with. And I worked for folks that in the past, and I learned with them, CEOs that, you know, it's getting three months to the end of the first year now. They're not going to hit it. We already started talking about re-negotiating it because like the people, we want them in the business. I think the smart people that have been doing deals enough will probably do that. That reminds me, there was a point where you told me that you were doing these, you know, everybody does the post-mortems after a deal.

46:38Yeah. You would talk to the entrepreneurs like six months after the deal. What did you learn from doing that? It was mostly at Densouk. We had a good team. We have resources around to do post-mortem, and we have to present the post-mortem to the M &A board. Integration was one thing when I started, and in the course of four years, it changed radically. A lot of that came from these post-mortem intations. What were the takeaway do's and don'ts? Transparency about, there's transparency around integration. Everything that we talked about, having that integration work stream, it didn't exist before.

47:11It was, yeah, we have a plan. We're going to integrate this and that way, but involvement of the seller in it never happened. So all of those were byproducts of the post-mortem. Another one was accountability. It started to be much more serious about accountability leading up to the business. Like if I have a deal sponsor inside the business that wants that deal to happen, what is that person saying about the ability to achieve these objectives? And if it didn't, it would have not necessarily consequences on the payout. Take away your pay. But it would be in the record that we need to improve our ability to forecast here.

47:51Those are good takeaways. Talk to people and learn. And you want to do that as soon as possible. This is going to tie that back to just having a reputation as a buyer. Some of this stuff comes down to, I don't know if there's any investment makers listening to this, but I had some questions that has nothing to do with you specifically. we talked about just the industry and how like the banker fees and incentives just aren't truly aligned. Like you mentioned that earlier. What does that look like as we see this like market evolved and what the future could look like? Because I feel like some of that, like your incentives always around the steel value, which makes sense because we want to optimize for price.

48:28That goes back to the thing. Like, are we pushing for the right buyer in that case or timing wise? Yeah. Nobody wants to make their money today. I was going to say, nobody ever got paid by saying, oh, we should wait six months until we come to the market. And those are insight-driven things that are based on experience that are super valuable. Six months can make a big change on the value. You're the buy-side guy down the sell side, basically. And for me, I'm still all buy-sided. This is where I hate auctions because I don't like these compressed timelines. And as soon as I had one deal where it was a proprietary deal, and then all of a sudden, oh, we're going to run this auction.

49:05And I was like, I'm out. Absolutely. I'll do that too. The light bulb went on for me because when I was like between getting out of the buy side and started advisory, started working with other banks on a sort of freelance base. Can you help us with this? Because you have industry knowledge and contacts. I was like, yeah, sure. And we're advising this buy side and we're already three months in this journey. We were talking to this company and I scratched my head. I was like, why are we buying it? Why are we looking at this? What is the strategy? And I just commented to someone that was my peer in the bank.

49:34He said, I hope we're not just buying this for the sake of getting big. Ha ha. He came back to me and said, no, actually, we want to get big. And I was like, oh, okay. So that's for me, that point was like, I'm thinking as a buy side person, where there's a strategy where this guy has amended to buy a company, buy a company. But for me, that was the point. I was like, hey, if I want to do a buy side, I want to do a little different. And now that I'm on the sell side, I have the ability to just turn that around and educate folks around it. But for me, I don't have an answer yet. How pay should be changed.

50:09And the banks are doing a great job because they optimize the process. They have resources to throw at it and contacts, and they play golf with the PE guys, and that's great. It's changing, though, because I remember, like, Deal Room started back in 2012. I spent three full years beating my head on the wall and selling to bankers. Maybe that's why I'm a little jaded. I was going to get to that. So the model that we're proposing on, it's embed ourselves with the management team. My thing is you don't need the full deal team on, I don't think you do. If you look at the way all the AI technology, everything's emerging.

50:44Like you don't need analysts, associates, VP, director, MD, all on one deal. Big part of the value that the banks bring to the table is their CRM. And I think that now with AI, it's easier to find companies. Origination became less of a mode. Oh yeah. You can get access to any of this. You can't find like a two man operation that fix a feature criteria, two people in Finland doing exactly what you'll find them. It's so, if you thought your value was a list of companies in the past, that's had, that has deteriorated. So where's the value today? The value is on running a process, running a process efficiently.

51:23I'd agree with that. I've had banker friends have helped me like think through structures. I'd never would have thought of that comes from experience. I would come hit you up if I needed help. I've done this in the past on just deals I've worked on. Like, Hey, I want your take on it. Cause you've seen it from that corporate perspective for so many years. Yeah. So that's what we're trying to build is, yeah, we can run a process as a small company can run a process in multiple countries. It's bouncing around, but we will embed ourselves in our team. There's one engagement that we have now that it was the model for what we're going to do in the future, which is we are from a two guys.

52:02But there's certain aspects of this company that we know experts in the industry that have worked on equity stories, like equity narrative and technical diligence. So we bring them in the team and we say, a proposition is to prepare ourselves for other buyers are going to try to chip value away. We're going to do our own diligence. We understand the story. We understand weaknesses and strengths. and we're going to position us, ourselves, to defend against those value cheapings. So it's a great network of senior executives that you bring them into a certain deal. We do our own diligence. We have our plan on how to protect value and implement from there.

52:43But that's what I think for the size of deal that we're doing right now, the banks will never pay too much attention. Listen, it's a ball in play for them. They need to pay the associates, to pay the analysts. We're a little different. We embed ourselves in... I like the concept of simulating the sort of buy side of a deal before taking it to market. The market is changing. As I said, origination value is just out of doing that. So what's the value other than just like red taping contacts? Where is it going? You see AI changing everything and just being the tech side of it. This past year, I've seen probably close to 100 AI for X and M &A products, which I was like, this is a huge hype cycle of these tools.

53:24I don't think they're all going to make it. But there's some reality too, because now you can go build your own. I'm sure you build stuff in-house and all this stuff. So that's changing quickly. It's changing quickly. Ability to be in different presence and different continents helps too. I will tell you, I love the idea of tapping into a corp dev experience into a deal. Because those are the people that I've honestly found the most value. If I worked on a deal, I obviously got a pretty large network from harassing people through this podcast. Yes. It's always them that, hey, I'm working on this deal.

53:55Of course, all my deals are really hairy, the size we're operating. But they just help me understand, like, here's all these things you should really think about. And the corp dev hat is always integration risk. Exactly. Because the corp dev has that connection with strategy. So you're always thinking about how you're executing that and solving for a bigger picture. But you also, you're thinking beyond the closing. I just have to keep people here. I have to make this thing work. It's almost like you're democratizing a little bit more of that continuum strategy, deal integration to smaller companies.

54:29There's companies that don't have access to or bigger teams to work on that. Or an entrepreneur that, and I think this is most of the cases where they were so heads down, which is a lot of work. Standing up a business, growing it, marketing, sales. They never thought, stop to think, what is my strategy? What is my equity narrative? And it's fine. We're there to fill that gap. I think what you find out though is that, I'm going to talk about some models that are out there that are trying to address this thing, like fractional M &A folks now. They're out there. They want to do work. There's a need for it.

54:59But what someone does with that, because everybody wants to be selling their companies, let's put a software platform that matches professionals and people that need it and get it from there. So I actually subscribed to one of them when I was in this transition period. I said, let's see what's out there. I wasn't getting any hits. and then I was communicated with a person that works for the company. What's up with that? I was like, algorithm tends to favor people that already aren't the system and work. So, I think there's a problem with that. Here's another algorithm in our life that we have to cater to.

55:31So, I removed myself from that. So, human touch is still relevant, right? I want to embed myself into my clients and not be matched with them. And, by the way, there's a right way for me to market myself in this algorithm if I want to be here. I haven't subject I looked at a lot of those products. I haven't seen one that's really, unless it's like, again, like you're doing more transactional type of assets. Like you're doing these kind of like little domain. I don't know how you can do it. Like some of these assignments are, you need a corporate dev person for six months. Okay. You need a banker.

56:03You don't need a corporate dev person. You need someone just to do, you already know the deals that, because it takes this long to figure out strategy and bring it to the market. And you want the corporate dev person to be the catalyst of different opinions that you have in the business and coming up with a deal that satisfies all of them. I don't understand. So there's that model, sort of a partial M &A person. There's a do-it-yourself listing services. I'm seeing more of those. So that's an interesting one. And I run into this by, when I was doing the buy side for the other bank that I told you about, it's like, oh, they're listing 27 deals.

56:36And I was like, this is interesting. How are they doing it? It's all smallish deal. So I was, we're talking less than 20 million enterprise value, maybe 30 at the top. You list there, it's only a retainer. There's no success fee. And they will put together, I guess, an information memorandum that is very basic. But it's attractive to sellers because they say, I'm not going to pay a banker fee. It's just like a retainer, I don't know,$5 ,000 a month for the period that I'm listed there. And I got the chance to do diligence on the buy side. And so let's see what it looks like. Because if you're not incentivized to maximize the value of the exit, what are you doing?

57:13And I found out that what's interesting is that they have a process where there's so many EBITDA adjustments. You're talking about like negotiation strategy, the concept of anchoring the discussion. They anchor so far off. And that you look at that, there's so much work to just bring it down here that it's not even worth to have a discussion. It basically makes so opaque, you don't know what's real EBITDA, that you have to put like man hours to dig into that, to get to the point. And if you're a seller and it's the first time that you're doing it, I think you would want some help on pushing back on some stuff and not listing.

57:50It is. You're on your own now. So that's addressing, I guess, a need that is a lot of the folks that are probably dissatisfied with banker fees. I understand that. I think the unexpected effect of that is that I don't touch that platform anymore on the buy side. It's just too much work. It's just like it's a cloud of things that we have to clean up after that. So some things yet to see and how the advisory side evolves in the coming years. All of this point to the fact that it has to change somehow. I'll revisit. We're going to do a follow-up interview here in about a year and see what's... It'll be interesting because I think in a year we'll see what's happening.

58:27I really like the model of being embedded. But as I mentioned, and I know I'm saying that word too many times, but providing the option of the VC view as a continuum to the M &A, that's really interesting because there's reticence in getting into the M &A market now giving all the disruption. If you have programmatic M &A, you'll continue doing this in a small enough that you're going to go through this technology. McKinsey already said that. But if there's so much uncertainty, you're looking at VCs and making some investments that can be informative for you in both ways, both in saying we should pursue that or do not touch any of that for now.

59:03Let's wait a little bit. Yeah, that's like forcing yourself from the long view of where you see the industry shaping. And in forms also, if you execute an M &A transaction, this is going to be disrupted in 18 months. What's the craziest thing you've seen in M &A? Craziest thing? We're talking crazy. We're talking like absurdity. This shouldn't be here, right? Sure. I was working for a public company and we were looking at a deal. It was brought by a banker. And the banker has done some diligence on it, presumably. My attorney searched the name of the CEO of the company. And found out that it's all public records that he used to run a math lab when he was in college.

59:45And it's not even a good operator because the math lab exploded. Oh my God. And there's, everything is on a, like a legal filing. It was quite bad for the banker that was bringing this to us. You think that we won't find about this or a public company? There's no way we can. But that was the craziest thing as in how does someone think that this could come to the market and a public company would be fine with it. That for me is pretty crazy. Have a record of that. And I understand that person is the owner and he had a good idea later in life and everybody deserve a second chance. Stay on the board.

1:00:22Stay. Don't be the CEO of the company. So that for me was the most absurd thing I've seen. Wow. They didn't have a good PR spin of life changing. No PR to polish that. I think he had a fair point. If they would have positioned himself on the board, then they probably wouldn't have been as... The banker let that pass, and the banker embraces that. They knew it. It's not going to make the deal. And that comes, again, to the point of credibility. Right. If the banker doesn't tell you that the next deal that they bring, maybe they don't care. It's a volume thing anyway, so... Loading Math Labs is part of the diligence checklist.

1:00:55That was not a diligence checklist. Carlos, this has been a great conversation. I appreciate you taking the time to kick off this new year with the fun. I know we went a little bit all over the place, but I'm happy to contribute to what you're trying to build here, which is great and necessary for the industry. What you're doing with putting an AI engine behind intelligence is great. I wish I had that. When I was taking the step from being an M &A soldier at Verizon and running an M &A department, that would have been critical for me to lead the charge there. I think you're doing, you're filling a void there is there in terms of intelligence.

1:01:30Yeah, different role. You know, I've kind of stepped out running a software company and I feel like my mindset is there's a lot of great tech out there. Why not figure out how to leverage it? To me, the IP is all this, we call intelligence, but getting all these little lessons learned and being able to use those platforms. So now it's very dynamic. You get access to it when you need it as opposed to when you don't. It definitely fills a void there. People should take this as an education that you don't get anywhere. I appreciate your contribution because it adds a lot of value to building this new model out that we're working on for this year, helping me through these conversations become a better M &A scientist.

1:02:06It's a pleasure, man. If you're still listening, fellow M &A scientists, brothers and sisters out there. Still listening. I give them credit, a lot of love. If they can listen to a whole podcast interview all the way through, I'm your friend to be here. Like reach out to me on LinkedIn. I want to know if there's some good things from this conversation that you found valuable. For me, this is one that was pretty impactful, learning like the spiral model. and how these deal stages really intersect with each other. It was a big eye-opener, and that really stuck with me. But I'd love to hear from you.

1:02:35See if you have some other feedback, topic ideas, criticism. I'll take it. Yep, I'll take it. And ideas on how this thing is evolving. Because I think it is. M &A model is evolving. But Carlos, find him on LinkedIn too. Yeah, hit me up. Until next time, here's to the deal.

1:03:03Thank 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.

1:03:48Again, that's mascience.com. Here's to the deal.

1:04:11Thank you.