How to Balance Culture During an Integration

22:34Because otherwise, what happens is, again, you're a very large organization. You could just end up overwhelming what they bring with what you think you bring to it. I guess I had to put it in simple words. You should be extremely humble. You should be extremely humble. You think this is all simple common sense? Yeah. Communicate well, have control of the process, you don't overwhelm the company, make sure value is clear from both sides and keep that alignment there. Give me some real mistakes that you've made. What were his examples of some things that you learned the hard way? Make sure that, again, these more smaller acquisitions, but it goes for bigger acquisitions, that you have an owner in the business, in your business.

23:10So if it's a very large acquisition in the North American region, I view myself as the owner. Now there's obviously really talented integration managers, there's business managers involved, but I take it extremely personal that I'm here for the transition of the closing. I've had at least two smaller ones in my long career here where the driver of the acquisition left. either right at the acquisition or right after or right before. So the driver of it was gone. And then you really lose a lot because you can replace it. But the energy that drove you to make that acquisition was gone. So making sure you have an owner that stays within it.

23:42I'd say the ones that have been challenging have been smaller ones. So when they're smaller, what I've learned and the mistakes we've made is smaller acquisitions that weren't completely embedded in something we already did. So they're a bit of an adjacency and they weren't big enough to pull us to that adjacency. and therefore took time to build them up to the size we wanted to. Small acquisitions are as hard and complicated as large ones. And they require sometimes as much resources, but they're much smaller. So your reward is very small because even if you double the EBITDA, it's still a relatively small number versus a large one.

24:13They take a lot of resources. So we challenge the smaller ones more and more. Okay, interesting. Having a committed driver, it sounds like smaller companies can be more challenging, particularly so if they're further away from your core. Yeah, a small bolt on it, you do everything the same. and same raw materials, really, really adjacent. Those are great. But as you get a little bit further, harder. I'll go back to your keys to success, the communication control and clarified value. I want to find out like, what are the key things, activities you do to make sure that you have that strong level of communication?

24:43It's always easier said than done. Hey, we got to communicate. We can put a bunch of meetings on the calendar, but that doesn't mean people are actually communicating. How do you actually make sure that's done? We've learned a lot there as well. First off, we have a very, and none of these would work well without a really extremely talented integration team and central services team. An acquisition could be any one of our five or six businesses, but it's the same HR team. It's the same finance team. It's the same IT team. The consolidation team, all that flows through the same group of people.

25:17So what we've learned and works very well is we put an integration manager in charge. For a large acquisition, we have an integration manager for both businesses. So we have one from Continental and one from Sacabon that work together as co-integration managers, one for GCP, one for Sacabon, co-integration managers. So we make sure we have a very good project manager who's in charge of running the project, keeping it on schedule, tracking risk registers, understanding what's coming up and where the resources are there, flagging when there's a gap in resources. And that reports to a steering committee, which would be myself and some other senior leaders.

25:50That project manager is separate than the integration manager. The integration manager is a project manager. So he's an integration manager. Skill set is a project manager. And then there's a project manager, a stream for HR, a stream for IT, a stream for purchasing. And they each have their project stream. So it sounds a bit structured and they are teamed by both businesses. So you have to have this structure in place so that when something starts to get out of whack, out of timing, it can be raised up quickly. Resources can be deployed. And in that is a communication leg that is tied to making sure that what's happening in this integration team is being communicated to the employees.

26:26They're being communicated what's impacting them. And then there's just a cadence that goes on and it starts on a weekly basis, goes to a bi-weekly basis, moves to a monthly basis, and then disbands when it's done. I like that approach and the emphasis on having the integration leader there. What about the companies? And I've seen a number of companies that they're doing their first acquisition. They're infrequent acquirers. They do zero to one acquisitions a year. and the integration gets screwed up on all of those because there's no budget for integration. None of this, the idea of having integration leader, maybe they'll think about getting a consulting firm until they get a quote and they change their mind.

27:03What's your right way to do that? If you were to advise, say even myself, of doing first acquisition and thinking about integration? A few things. I use the analogy, it's like doing a plumbing project at home. First one that always leaks, but you could do it again, but you don't have to. So it's repetition that makes you better at it. So I think what I advise is that acquisitions can be really exciting. They are if you do a lot of them, if you don't do a lot. There's an energy behind an acquisition. If you're doing a public company acquisition or even a private company acquisition, you could be on calls two, three times a day, on three time zones, seven days a week.

27:36You could be diving into some really meaty subjects. There's a lot of adrenaline and excitement in the acquisition process, I would say. A lot of details, teams are coming together. That's easy. So there can be a risk that when that's all over, there's like this breather of we've accomplished our task and all you've really done is committed yourself to some metrics you said you'd hit based on doing this acquisition. So one is to make sure that as you're going through that, you're learning in that process and you're building the integration plan behind it as you go forward. Two is to get people who are really good at project management and really good at this kind of thing on your team.

28:10You've got to find someone, even a small company, you've got to find your best project manager. That's not me. They will not give me a software that does Gantt charge. They just won't let me have it. You have to find someone who lives and dies in project manager's skill set who can run it. And you need to make sure that they drive the project going forward. Because often the strategic person, the idea person, the business person is not that person who's also a great project manager. Did you use any external resources for integration? Pretty rarely. We use some HR resources for benchmarking. But if I'm just thinking through, no, not really.

28:43We use our internal teams almost fully. Very like bottoms up, essentially organic development of your integration muscle. We've got a great team here. They move mountains. Everything I've told you, they will agree with, but then they'll say, he has no idea how much work we're doing to get this done. I do. But my point is, when you talk about bringing in 800 employees in Canada and 1 ,000 employees in the U.S., bringing them onto healthcare programs and medical programs and pension programs and 401ks, turning over all the computers in a global business like GCP on a day in a big bang. Everyone gets a new computer, all the cybersecurity is on it across the world.

29:18You think of all those things that take place. It's because we have the structure in place and then just incredibly talented people that make it work. They make it work, I believe, because they know the goal. They know how important these are to our businesses' success, and they believe in the culture that it's about people and their experience, and they do the best for them. How many deals do you think it took to get to that point where like they got it, they're doing integration right, and you're really happy with the results? It's been an evolution, I would say. I can only speak personally because I think they've always been great.

29:48So from my own perspective, the last five years, we've really hit our stride, if I'm being honest, where it's really worked well. Some of the earlier deals have been very successful, but much more painful, a lot more challenging going through. And we have gone back. Pat Malarkey, who's really our M &A guy, business development gentleman, has been doing this role and is fantastic at it, loves it for so long in our business. We go back and do lessons learned. Why didn't that work? What would we do differently? And we have this playbook and it's pretty entertaining because he will come to me and say, this thing you're looking at, Mark, you know, it's got on our book, it's got three X's on it here and only two checks.

30:22I've got to walk him to why those X's should be checks or else we say, you're right, it's not a good deal to go to. So we have a culture in here where people will come back and say, you're trying to push the envelope on this deal. It's against some learnings we've had, so we should probably not do it. And we've listened to that. That's a really fair point. It sounds like generally speaking, the first couple of deals are going to be pretty turbulent. Always. A lot of lessons the hard way, but then it gets much better and better every time. In terms of the learnings, you have discussions around it.

30:50Are there any other approaches you do to retain those learnings deal from deal? Because I feel like you can document a lot of things, but then the actual going back and digging that information and referencing again is a whole thing that I don't think anybody's figured out. No, I agree. We've been a little blessed. We've documented it, so we use it. We've had some real good seniority in the deal teams, so they're there. So that allows them to bring the knowledge personally, which has been fantastic. You're using the same people over and over on these deals. Yeah. So Pat's been with us for decades and been doing this.

31:19I started in CertainTeed in 2011 the first time, and he was working with us on deals then. I've been able to interact with him for 13 years. So he has respect to everybody, but also has not only this document, but he has the personal knowledge to walk us through it. And there's others in the team across the integration spectrum that are the same. And I go back to the fact that none of this is of any value unless your senior leadership is willing to listen to it. You can't get acquisition fever. You can't get so excited about the hunt and the chase that you lose the logic that in the end, you are creating value for your shareholders and your employees, and you're building a more sustainable business that ties to the strategy of your company.

32:01If those things don't fit, no matter how exciting it is, it will end up being a bad deal. So my role at North America is to support the growth of North America, support being the leader in light sustainable construction, and support companies, Sankaban, to be the best business they can be for the next 300 years. If the deals don't do that, no matter how exciting they are for me, I don't do them. Well, when you approach making that value clear for both sides of the organization, because they have neat capabilities of value they bring to the table and being respectful of that, how do you make that stick?

32:33Because a lot of times I hear as you progress through a deal, those things can get forgotten. And next thing you know, people are scrambling to check boxes on the list instead of thinking of the big picture and what is the goal here. We have a very, again, robust, I would say synergies and strategic tracker that we track on a monthly basis for an acquisition. We know what we, again, part of this in business is financial. So we know what financial commitments and returns we thought we would get from a sales perspective, from a profitability perspective, from a market perspective. And so we tracked them on a monthly basis all the way through the first three to five years of the deal, depending on if we hit the metrics and blow them out of the water in the first two years.

33:13Maybe we'll only track the first four years. So we're always having them in front of us and the other businesses taking a look at it going forward. And it's very objective. So we're being objective with it. They're not subjective activities. So that's one way that we do it. The merging of the cultures, the fact that we can get that successful one team built out of it, goes to the fact of whether you're really living the values that you say you're living. I feel like in the vast majority of times, we learn from each other. And I believe we've got a people-centric culture. I'm sure every CEO says this.

33:42We have a people-centric culture and a respectful culture that when people come into it, they say, you know what, this is a good place to be. And I can stay in my same role and do just what I was doing with a company that was acquired, have all the same respect and autonomy that I had or more, or now I can grow in a global company and go anywhere. I think you have to live your values. That's how the culture side sticks. The return side sticks by tracking. It is objective. It is manic that we were on those numbers every single month. And what are we doing? And what's working? And if we're not getting there, what do we have to change so that we can go back to Sankaban and say, when you give us money, we deliver value.

34:18And therefore, when we have good opportunities, we hope we can get money again. Can we talk about the mothership? What is that relationship like? Because for them, you essentially operate as a business unit of, I take it as a business unit of North America. We're one of six regions, yep. In terms of the governance and your M &A activity, what does that look like? All acquisitions go through Zankaban for approval and are part of our long range plans and strategic plans. What does that look like? What does that look like? This is a French company. I can only imagine a lot of scrutiny on every deal that you're doing from a lot of different perspectives.

34:51Well, there can be. You know, Sakabon went to transform and grow in 2019. And Benoit Bazin took over as CEO and really delayered the organization. So I report directly to the CEO as to the other regions, as to the head of the high-performance materials business. And it's become much less matrix. Approval is, A, depending on the size of the acquisition, we put together papers on the value, what the acquisition's strategy is, why we think it's important. where it fits into the strategy. It has to fit things we've talked about already. It can't be out of the blue, like we've suddenly decided this is available, that we're going to go someplace we've never talked about.

35:24So there's always tied to the strategy. B, it's then talked to through the strategy department and with my boss, Benoit. So we go back and forth, debate it, it's the right activity. If it's a big public company, if it's a big acquisition, they're involved from day one. I'm not out acquiring US public companies without Benoit driving it, being involved in it, being unique to the whole process. There's a board approval that takes place when you go into any sort of binding activity. But so I guess my point is, for me, it's very seamless. We continually update our strategy. We continually communicate it to Benoit and the strategy department with Sankaban.

35:57We're continually looking at what that may mean as far as internal and external investments. When one becomes available or actionable, it's never a surprise. There's a question whether the timing's right, whether the price is right, whether the strategy is still right. Those discussions take place. Sometimes we say yes. Sometimes we say no. I've found it for this larger company, two different cultures of rule, American and French. I find it very seamless. Really? Yeah. No points of friction. There's got to be some points of friction. Honestly, no. There's been points of, you say friction, I've said there's been points of disagreement.

36:29Maybe this is the value. This is the strategy going back and forth. But I've never had a situation where the dialogue back and forth didn't make sense in both places. And in the end, we got to an agreement. It could be an agreement against what I thought I was wanting to do. When I say, yeah, you've got a good point. We'll go forward. I'm one of six regions plus the high-performance materials. They've got to deploy capital across all those. I may sound a little Pollyannish. My role is to deliver opportunities for the company to look at, to see whether it fits where they want to go next. I try to deliver the best opportunities to win that discussion.

36:59If they come back and say they want to grow in South America at this point because they have something more interesting, my job is to get back to my desk and do my job on the rest of the business and move on. And I have no issue with that. That's the role of a regional CEO. I make my best pitch. I've won a lot lately. Sometimes I don't. What are the success metrics they're measuring you on? Well, it's value creation, ensuring that we create value with the acquisition. So it's return on investment, ROCE. It's hitting the EBITDA synergies numbers that we communicate to the market. So they're very clear.

37:27They're very well laid out. And we're very harsh on how we track them to make sure that if we're saying we're having synergies, if we're saying we're having benefits, that they actually show up in the P &L when the company reports the results. Is it a lot for you to think about the whole investor relation component of this being a public company and that you're getting additional scrutiny on the 7A activity from external stakeholders? You do. What does that mean? Is that we look at the story and the perspective from another angle? What does that mean? There's a great investor relationship team in Paris.

37:57And so they manage the front end of that. We share the story. They share what they need in order to make it the best, I'd say, going forward. And then for me, again, it could be very simple. When we go ahead with an acquisition, I know the commitments I've made to the company for the acquisition are the commitments they've made to the investors. Truly, the message to my team is these are my personal commitments to our investors. We will hit these commitments. If we can't hit these commitments, we won't do the acquisition because it will impact the other 170 ,000 employees in the world by missing these commitments.

38:28So I take it very seriously. I think to tell the team it's all about our credibility and we need to continue to maintain that. The only way we maintain it, in my opinion, is hit your commitment. So I don't have to come up with the investor relations side, come up with the strategy side for the region. But I know that whatever we commit to, we have to hit because that's what they're committing to our investors. Where does that get tough? Is it doing an acquisition? We talked a little bit about it. But when you get further away from your core, is that where you start having to put more thinking about what that message looks like?

38:55The more complex the message for investors, the less investors like it. I'm not on that side of the world, never have been. So I don't want to upset them. But when it's complex, even wildly strategic and makes perfect sense, will they always dig in deep enough to see that value versus where it's crystal clear you're expanding your gypsum business in North America. Gypsum is your number one business worldwide. North America is the second largest gypsum business in the world. You're becoming larger in North America. Pretty good message. So it's quarter Sankaban. Technology is known globally. North America is a big region.

39:27You're expanding into a very clear message. So those, I think, are always easier for the investors. I think GCP was easy, but slightly more complicated because it had a global construction chemicals business, easily understood, and a building materials business, which is more North American, which we took to certainty. So they had to think about splitting the two businesses. Still very well understood by investors because it's like we were probably the only business that could have done it that had a big North American construction business and a global construction chemical business. But I think that's what we have to think about strategically.

39:57Does it make sense to the investors without being overly complicated? I think that's your greatest skill is keeping things simple, Mark. I tell people simple is hard. Got a good at it over the years. When we do these acquisitions that get away from our core, going back to the integration of cultures, is there differences in how you approach that? We try not to do many that are away from our core because they're very hard. So we generally focus on core acquisitions. One of the statements I made at one point was, if you're in the hamburger business and you want to get into the chicken business, for lack of a better word, my personal experience is buying a small chicken company to learn from, it's probably not the right way to go.

40:33You need to buy someone big enough that they can drive that new leg of your business. Because if you go away from your core, you're really laying down another foundational pillar. You're not bolting on anymore. You're doing another foundational pillar. So my view, personal view is if you go away from the core, you have to buy something big enough to be a foundational pillar. You're sharing cultures, but they're driving you to that new business. Small things that are far away from what you're doing, they don't have enough inertia to build you up in that business. Really good points around that, that you want to be able to, you're investing enough that it's going to make it worth a while at the end of the day, not a small little experiment if you're going out of your core.

41:09Right. Is the cultural piece in terms of integrating it much different? Is it less involved since it's not? No, the basic culture is more involved in the sense that you end up with a situation where, you know, even if you're building a new foundational core, you're still going to have the same shared services, the same purchasing, finance, IT, cybersecurity. So they need to be able to work within the entity the same way. The area where it might be different is they may go to a different market. They may go to a different channel. They may sell in a different manner. They may use independent reps versus direct people.

41:40They may use some other component, go direct versus distribution or distribution versus direct. That side, you have to respect that difference and not say we only do it this way. So you have to respect their methods of going to market. When I say culture, it can be simplified to how you interact with your peers. Your behavior walking down the hallway, your behavior in the cafeteria, your behavior in a meeting is where you can really feel the culture of a business. You're a walk away from a deal because you didn't think the culture was going to fit? Yeah, a number. A number. Have you walked away like far after LOI?

42:11We've walked away probably after getting through the first base of being in the second group of people, being in the final group of people looking at it. Yeah. Either through management presentations or through other red flags that just made us feel like it was not a good fit. Yeah, it's interesting because it's not quantitative. I have this spreadsheet that says, don't do this deal. It's almost like off the wire, the gut feel. Yeah, and it goes the other way. Understand that they can walk away from you too. So when you're in a deal, again, public company deals slightly different than others, but when you're in an M &A deal, they can leave too.

42:45They can decide that my culture is not right, that my team doesn't fit. They never have to say that. They can just not accept your bid or downgrade your bid from some levels. So you're always also trying to make sure that you're selling while you would be a good partner. Mark, what's the craziest thing you've seen in M &A? Anything crazy that would be interesting to your viewers, I couldn't share with you. Some all my moments. What's like the craziest post-closed purchase you've seen? Actually, most of them are pretty tame on the process. And when you buy a public company, there's no real crazy things there.

43:13When you buy an entrepreneurial private company, it's their baby. It never really has been the ones we've been involved. It never has really been about the money. It's been about who's going to be the best parent for something. I grew up from the ground up. So amazingly, I look at it thinking I'd be out buying something. I don't know what I'd buy, maybe a nice car or something. But generally, it doesn't become a big financial issue. They've been obviously wildly successful because they've done a great job with everything. And it's more likely you're just going to take good care of my, I view it as their child.

43:41It's my child. I think the culture is changing. You don't see that in a lot of ways. You don't. Well, they're not telling me. paid off some mortgages and called it a day. Yeah, take away the stress of what you want to have every day from a stress perspective. Mortgages are paid off, retirement set. I'll do what's fun right now. Times are changing. People are cutting back on drinking. We do happy hours and the bill is relatively low. So I don't know. They don't exist anymore. I know. Yeah, I know they're learning to be living a bit more healthy than you and I did younger. Yeah, if we get that check, we go buy a Ferrari.

44:11Something. I mean, there's probably a few cars that would pique my interest. hey mark thanks so much for taking the time to have this conversation i enjoyed it i learned a lot about culture and integration you've helped me become a better m &a scientist here my pleasure it's been great chatting with you and i really appreciate it hope you have a great day hey those of you with us thank you for sticking through until next time here's to the deal

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