How to Run a Successful Cultural Integration

22:27There's cultural fit with strategy and there's cultural fit between two companies. We're not assessing if someone has a good culture or a bad culture. We're trying to understand how do they treat team members? How are decisions made? How important are customers? And if you can figure those things out, then we can then match up. How will that be in the Trichobron culture? So we're not using a cultural assessment tool. We're not in asking 20 culture questions. We're assessing it as part of everything that we do. There's nothing wrong with doing that. It was interesting in this study. again, the 12 companies did an average of 22 acquisitions over five years.

23:02For 10 or 11 of those companies, culture was at least a medium importance. And for many, it was a very high importance because they were acquiring for growth reasons. None of them used a cultural assessment tool. And you might say, that doesn't work, except that culture was the thing they were assessing across every question and every interaction they had with every person in the business all the time. And that's, to me, a better way to assess it as opposed to a handful of questions. So it's not quantified on a complicated matrix. We do not put it in a complicated matrix, but everyone would weigh in on an opinion as we're talking about the deal.

23:35And at any time, we're working on multiple deals around the world with sometimes different teams, sometimes the same teams depending on geography. But we're always talking about how this fit. How would they work here? Would they enjoy it here? Would we enjoy working with them? Could we solve problems together? Can they make that transition from that owner, founder, operator to being part of the bigger company and really talking through all of that. And internally, we talk about that. And with that owner-founder, we're also talking about different scenarios of like, how will life be? How will life be similar to what you do today, which is you have a lot of autonomy in our system, but also how will life be different?

24:09Because now you do have a boss, you have to report out on financials, you have to do some things you probably don't do today. When do you run away from a deal? Because of cultural differences? Yeah. And so this can be tough because sometimes you look at a deal and you say, this is a great company. The financial model is really good. There's a lot of synergies. Can we all work together? Those are the toughest ones, right? Tell me about a time when you had to run away. We don't name anybody. Well, my experience is when you make that decision to try and fit, it will be okay. I know it's not perfect.

24:39We'll make it work. It generally doesn't work. Again, lots of M &A experience beyond Tricorbron as well. We got a hard lesson. Yeah. Well, and interesting in the dissertation study, and these are incredibly successful companies. Almost everybody sold again for three times plus cash on cash. The average company doubled revenue in EBITDA over five years. Amazingly successful companies. We interviewed 30 people across those 12 companies. That included the CEOs of every company. Every one of them had at least one fairly major mistake. What's interesting, and I think is really important about M &A, most of the deals that serial acquirers do are small deals.

25:16And so you get a lot of at at-bats at lower risk situations. When people talk about M &A doesn't work or 70 % failure rate of M &A, which was in the press a lot in 2010 to 2020, those were big public deals, massive swings, teams that didn't have a ton of M &A experience, super high risk. When you've got dedicated teams with multiple at-bats doing multiple deals every year, you get really good at assessing this and you still make mistakes and you got to learn from those mistakes, but those mistakes aren't catastrophic. And so yes, absolutely. Those are the tough ones. When those happen, the acquired team comes in, they're not happy.

25:52It's tough for the acquiring team to be happy. And it's hard to collaborate on solving problems because the deal is hard. Integration is even harder. It is very hard, even if you're exceptionally good at doing it. And so the ability to collaborate, the ability to get along, the ability to just trust each other and assume good intent on the other side and work through problems is absolutely critical to get through a really strong integration over 12 or 24 months where you're really working kind of simpatico at the other end of it. So those are the tough ones. But boy, we spent a lot of time thinking through that and we will walk away from those.

26:23Have you ever experienced a situation where it's between LOI and close and there's like acknowledgement, bad cultural differences and let's exit the deal? I have. Oftentimes though, So you can come to some mutual understanding of that. We've had them where we sort of both agree because you're trying to work through issues between LOI and closers always, every time there's issues. I haven't had a deal where there aren't issues. Both sides. And you find a way to collaborate and work through them. But both sides may come to find that, hey, this might not, like if we're struggling this much to find solutions, and I find like we're very good at finding solutions to get deals closed, both sides might say, if we're struggling this much now, how are we really going to work together?

27:05And again, the key thing for us on culture, it's not good or bad. It's not that the other company is good or bad, the other people are good or bad. It's just fit. Are these things going to fit together? Where that assessment also comes in is, as you said earlier, what level of integration are we talking about? So if these are situations where that business is going to be fully integrated into what we do, maybe with another business already in that market, we will think about that with an even higher bar on the cultural fit, then let's say it's a new country, a new geography, a new end market, and they're really not being closely integrated with something else, you may have the bar, it still can't be low, but you may lessen it a little bit based on some other reasons to do the deal.

27:46I would say in those situations, it's still buyer beware though. Yes. Yeah. That's interesting. I was always curious. I always felt like if you got an LOI signed that even though you got little indicators, you'd still push through to get the deal done because you're invested in so much. That's sort of the sunk cost, right? Of where you are. You never want to do a deal that's not going to work for both parties, right? For both parties, where those people are going to be happy for us coming in as well. And we absolutely have seen that, not just here, but in other places that I've been. And that's been the right decision.

28:15Tough one, but yeah, the right one. How do you ensure successful cultural integration? I don't know that you can ensure anything in M &A. I think you have best practices, you have great people, you have very detailed plans that you follow every single time. You do a great postmortem. You learn from every deal that you do. These are some of the things that we found in the study. But even if you do all that, you're not going to get it right every time because it is just so complicated. It might be the most complicated thing that there is in business. But again, we go back to mostly proprietary deals.

28:46We're probably 95 plus percent proprietary. We have a large list of people that we maintain relationships with. Get to know those people. Make sure they get to know you just as well as you're getting to know them. Get to know their teams. think way in advance about what the integration strategy will be and be incredibly open with them about it. You're not trying to sell them. You're not trying to spin them. Be very open about what will happen, good and bad after. Make sure they have a chance to talk to other companies that have been acquired. And this is something we pride ourselves with. We will give that whole list of 44 people that we've acquired, companies that we've acquired to potential sellers.

29:22Most companies have their list of three or four references that we'll give people. We'll say, look, you can talk to anybody that we've ever acquired. We keep our word in terms of what we're going to do. Something that we've learned over time is that the cardinal sin, I think, in integration is saying that nothing will change because absolutely something will change. From our perspective, it's easy to say nothing will change because there's still a lot of local autonomy, local decision-making, local P &L, locally driven bonus structure. So there's lots of stuff that still looks like, and you are truly still running your own local business.

29:54But at the end of the day, hey, you now have a boss, you now have financial report outs, you now need approvals for capital investment. And so those are changes. Being very sympathetic to the owner, founder, seller's view of how those things will change. And so we now spend a lot of time going through those things in incredible detail. We probably still don't get it 100%. But making sure people understand this is what things will look like after. And you might say that might be to the detriment of getting a deal done. But again, if the success metric is people get here and are glad they came, the only way you can do that is if you're very clear up front about what will and won't change.

30:31And there's a ton of good stuff here and a ton of benefits that we bring to the companies that we acquire. But as a founder, you now have a boss and you're part of a bigger company. And that is just simply different. And so earlier days, earlier in my M &A career, sincerely, authentically would say, there's not very much that will change. I now spend more time saying, here's all of the stuff that will change and maybe exhaustively so. But that's been a big lesson that I've had in doing this for a long time. You didn't give me the magic bullet answer. I did not. Yes, I don't have that. This is what I picked up.

31:00The postmortems that are important to reflect back on your deal. Having a detailed plan. Leadership is going to be a big part of driving success in cultural integration. Transparency. And along transparency, I got a sense of reverse diligence. like helping that company really learn about your organization when you introduce them to the team members you acquired in the past, and then being sympathetic with the changes and how they're going to impact that company. Yeah. When I also think having a structure and whether that's org, IT, compensation, P &L structure, that is very hospitable and welcoming to incoming acquired business.

31:35I mean, this company is organized to acquire companies and make it a hospitable, welcoming place for people to come bring their life's work and build on that life's work here. And so we are structured to do this in a way that allows for good cultural integration. Again, you can only have good cultural integration if you're acquiring a company that's a good cultural fit because you cannot change culture. It's like DNA. It is a company's DNA. And so you have to get the assessment provided you get that right. And all of the things you listed, plus being a hospitable place to bring a company can make it work.

32:05And we've made it work. There's a lot of things I want to unpack, but you're hitting on an interesting one here about your organization being set up to acquire, be welcoming to bring these new acquired team members on board. I'm building a company right now. We are about like 50 people in the company and we're still working and getting the bearings in order for scaling organically, which I'm realizing it's a lot. It's a lot to build that infrastructure to do that. And then you start thinking about doing acquisition, which is like tough when you're still in the early stage, but you've already seen what that looks like.

32:35Can you tell me a little bit more about that? What does that organization look like in contrast to an organization that's already doing organic growth? Maybe they're just like really early in doing or saying, hey, they've got aspiration to acquisition. Right. But here you've seen more of the mature machine that is set up for doing it on scale. Walk me through what those differences are. Yeah. And I think the benefit is that you're also involved in M &A assessment for a living and around all of the deal transaction stuff. So you're a lot farther ahead than anybody else. I'm trying to be really good at this.

33:03This is what my goal is. The key thing across all the companies that are good at this is that this is a functional professional expertise, no different than accounting, IT, sales, marketing, running a manufacturing plant. And I think the biggest mistake, and people talked about this in the study, is where, oh, this is a cool thing we're going to try and do as a one-off and we'll do some M &A. Who wants to be involved in a special project? And that is doomed to fail. So the companies that are good at this treat it as something that requires expertise. If they don't have that expertise, they get it through either a consultant or through hiring people.

33:37And then how do you have dedicated teams that do multiple at-bats on small deals? And then you build your very detailed target profile of the types of things you're... And we're very disciplined in. These are the types of things that we buy and why one of the great quotes that came up in the study is the problem with M &A is if you squint hard enough, everything looks like a great deal. I thought that was a tremendous quote from one of the CEOs. I love that quote. So if you don't have that detailed target profile beforehand that you can throw it up against and say, does this match? Like, how well does this really match before you fall in love with it?

34:09That target profile is critical. And then a detailed process that you build, you can have a consultant help you build it for the first one that you build and follow for how you do diligence, how you do integration. Then, as you said, the postmortem of how that first deal goes, what do we get right? What's the long list of stuff we got wrong? Update our process. Next at bat. Rinse and repeat. Every one of them is different. I've been involved in more than 100. The 44 we've done here, so many of them, the vast majority have gone so incredibly well. It's why we've built such a great company. But even on the best ones, we have made a bunch of mistakes.

34:41You learn every single time. We post-mortem every single deal, regardless of size. We're constantly updating our diligence integration playbook just to try and get better every single time. And that builds a great loop in terms of how you get good at M &A. I think the one-off M &A is just incredibly dangerous. And maybe you have to. It's a merger. There's some competitive reason. There's some technology you need to acquire. Get help. Get outside help. It is no different than you were deciding to do your taxes without an accountant. When you think of this function muscle that you're building, you have a corp dev team.

35:12But they're really integrated in all these functions to make the deal work. So how do you think of that? Because it seems like a hub and spoke. And also just to build on that, think about where the handoff is because you've got this corp dev person who's maybe been building a relationship with a founder owner for literally, in some cases, 10 years, building those relationships. And our exec chairman's been in the business 42 years. He has relationships that span that amount of time. And sometimes with people's parents and grandparents and others that have been in the industry over multiple generations.

35:41The corp dev person's building that relationship. And in a lot of cases, and we always tell people, get outside legal advice, get outside banking advice. We'll help you, but get outside advice. that makes a deal go better. We're trying to get a very fair deal and a good deal for everybody that they're happy with. You're hand in glove with that person. They may talk to that corp dev person more than they talk to their spouse for the time you're going through the deal. And you work through the LOI and you work through the QOV and you work through diligence and you work through the SPA and then the deal closes.

36:10And where does the corp dev person go? On to the next deal. They're gone, right? And this is literally the person you just spent the most time with on the most important thing you will likely ever do in your life outside of your family, which is transacting your family business, and they're gone. And so that's where we're really thoughtful about integration leads are in right from the start. So you get to know all the integration folks, not just corp dev. The business owner of a geography or a line of business where this will become part of is involved very early. So your new family, the people that you'll be working with every day after the deal are very involved over time.

36:43So heavy, heavy corp dev upfront integration as soon as we start the diligence process. And a lot of that's taught building that integration plan together within the framework and the constructs that we have in our integration plan. And then during that time, the business leader that you'll be working with also getting engaged. When it comes time for that handoff, corp dev to integration to the business leader, it all overlaps. Everyone knows everybody and you don't feel as bad that corp dev person's onto the next thing. And I think that's a massive thing that people miss. And the people that were really good acquirers in the study, which was the vast majority of companies, heavily successful with their M &A programs, were very, very thoughtful about those handoffs.

37:22Plan integration early. Plan it early and plan the relationships, almost the life cycle of the deal, the integration, two years into the time, they'll be in the company who are going to own those key relationships. Because after a year or two, the integration leader's on to other deals. In some years, we've bought eight, nine, 10 companies. They're working on other things. And so at some point in time, it's going to be that business leader is the key person. And so how do you ensure smooth handoffs? And it's not even handoffs, it's significant overlapping chunks of time of these teams working with the founder owner to get them from what is really can be a stressful and a life altering in a positive way event, get them through that and transitioned in a way that they feel really good about.

38:03We've significantly developed that muscle over 44 deals. Do you do anything special to keep the executives at comfort during the going through this transition? So it depends on the deal size and where it is. Because again, we've done deals that are a million of EBITDA and deals that are way into eight figures of EBITDA. So my level of interaction with those will differ from deal to deal and based on geography. But the right people are spending a huge amount of time, not just with executives. We want all the team members to stay. It's about getting in and talking to everybody. Super, super detailed day one process, which absolutely everybody that does any amount of M &A does and make sure everyone understands day one.

38:42What is the integration plan? What's going to change? What's not going to change? And what everyone's interested in is, what's the change in my pay, title, reporting relationship, benefits program? What do I tell my significant other about our medical benefits, our pension benefits, etc., etc., etc.? We spend a massive amount of time talking about all that stuff and getting people comfortable very early. And so that could be me doing it, depending on the deal. But it could be the geographic presidents that we have. It could be the regional presidents that we have. We've got a phenomenal leadership team.

39:11and we get the right level of folks into the transaction. This ties back to the takeaways on having a detailed plan that you're able to answer those questions. And it seems like that really is integrated with that leadership. When I think anybody good at M &A, their day one plan is meticulous. We actually have a minute mapper for day one of what happens every single minute of the first day. And you have to have it and it takes multiple people. I mean, we may have five, six, seven, eight, nine people on the ground for that day one because you want to have a one-on-one conversation with every single person on those topics I talked about on day one.

39:42Can I get my hands on it? We'll like screw it. We're adapted, right? Yeah, yeah, yeah. That would be so cool just to be like, hey, this is how you execute day one. Yeah. We have an amazing integration leader and a great team. He's got a lot of experience. I like that one. So detail plan, the leadership team, you really sync up with them. You're briefing them out the company. And it's still hard. Even if you get all of that great cultural fit, great people coming in, very clear about what will be the same and what won't be the same. You share all of that as transparently as you possibly can. But until that person is now working for someone for the first time in their life, and maybe they grew up in that family business that their parents had started, they don't really understand how they're going to respond in that until they're in it.

40:21And when we said, hey, there's a financial review every month, that was something that they intellectually understood. And then when they're doing the first one, they say, boy, this is a lot more detail about the business than I'm used to going into. And so even when you get it all right with amazing partners on the other side of the table, It is still incredibly hard in the early days. So you just got to keep working with people and get people to the right spot. We're jumping ahead. I have it on my list of questions. The biggest challenge when dealing with culture. We're again buying mostly founder.

40:51Not 100%. We've had some public company take privates. We've done some carve-outs. We've done some other things. But most of what we do is a founder-led business. The culture is going to be set by the founder in a founder, owner, operator type of business. So having great fit there. But it also means that someone's going to go from being an entrepreneur to being part of a larger, multi-billion dollar global company. And that's a tough transition. And so smoothing that out as much as you possibly can is absolutely critical to success. And for us, again, we want those people to come and stay. And we want the people they're bringing with them to come and stay.

41:23And so you got to make sure that goes well. We've done very well at doing that, but it is incredibly hard. What's the biggest challenge? The biggest challenge is just getting people through that first three to six months of life is different. Decision making is different. Now, there's a ton of good stuff. Normally what happens, my benefits program is a lot better. My supply chain opportunities are way better. I'm able to buy from a much different host of suppliers at a different price. My freight program is better. I've got access to this building we're sitting in today's world-class design and engineering center that has hundreds and hundreds of patents to its name.

41:56I never had access to anything like that before. So I get all this stuff that's going to allow me to be more successful. But decision-making changes a little bit. Maybe I have to do a more detailed expense report than I used to have to do. Just normal company stuff. And we try and keep it as light as we can. But you're still becoming part of a big global company. Now, big global in the sense of I've run much larger companies than this as well. And so it's all relative. But if you're coming from a small family business, this seems like a very large company. We're still at the size where we're 2 ,100 team members around the world.

42:29I personally know the vast majority of those team members. You can actually get to meet a company at that size when it's 10 ,000, 15 ,000, 20 ,000. It's much harder to do. But when you're used to working in an office with five or 10 people, even 2 ,100 seems like a lot. And so just getting people comfortable, understanding, meeting their new team members, understanding how to use all the resources at their disposal, just getting them through that period is really important and focusing on all the benefits of the things that they're getting with that and more than the changes that come with it as well.

43:00All right. Now teach me the hacks. I don't know that there are hacks. I'm picking them out from the conversation we're having. I don't know if they are hacks. One, you remind people the benefits of why the companies are coming together and bigger, better together. You're charismatic. You're just really natural having a conversation with you. So I can see you creating a lot of value just having that face time and giving the new incoming team members assurance that, hey, we're going in something better. Yeah. What else? Those are good hacks. Those are hacks. I don't know if I would call it a hack because I go back to our track record is you can look at the 44 acquisitions.

43:32Those people are here. Their kids are here. You can talk to them. We buy good companies. We add people. It's not about cost cutting. We actually generally add to the companies that we buy. We invest in them and we bring all these tools. We spend a lot of time talking about all those things. To me, that's not a hack. That's just explaining this is what the plan is and this is what we're doing. Common sense isn't so common as you think. Well, it's hard to do though. We spend a lot of time talking about this and thinking about it. these things are not complex things. Get to know the companies that you want to partner with.

44:02Be clear with them of how things will stay the same and or change. Build great relationships with them. Have multiple layers of relationships. So as HerpDev rolls off, there's still other people that they're super comfortable with. Build the integration plan together. Focus on all the true, real benefits that everyone's getting. There's no brain surgery. There's no rocket science in anything I just said. But the disciplined execution and application of those things every single time is absolutely essential. If that's a hack, then maybe that's a hack, but it's the disciplined execution of those things.

44:33It gets forgotten. The transparency, being sympathetic to the changes from the target company or how they're getting impacted. Those things all get forgotten. The early planning, thinking of the life cycle of the deal and how it should really come together. Yeah. Those all get forgotten. And the second challenge that happens, because that's challenge one, the second challenge is when you do the systems integration, which we've got state-of-the-art systems for everything that we do, all cloud-based, just absolute state-of-the-art, best of breed for everything that we do. You're generally going from a situation where someone's coming from QuickBooks or some fairly simple package type system.

45:08So you're going to get a lot more capability, but it can also be more complicated, more work, all of those things. Being very transparent with people to get them through that hump of the systems piece, which is hard and challenging and a ton of work. We're good at doing it. But that's the next challenge. When you get on the other side of that, if you can get those two pieces right, that first three months, that systems piece, 6, 12, 15 months down the road, you hopefully have a team member for life after that. We forgot. That's like the real painful part. It's hard. Even a perfect systems integration is incredibly painful.

45:39Have you seen these new vendors popping up that are like integration platforms as a service? We've looked at some things. There's nothing specific that we're using right now. Yeah, I think it's like still early and emerging. Yeah. Some of it is scale as well. we do so much M &A that we're able to build a lot of that capability and platform in-house. So some of the data transition tools and other things we've actually created in-house to do that. And trial and error. We've gotten a lot of stuff. Every ERP integration, it's just like M &A. We get something wrong. And how do you improve it? How do you make it better?

46:08You got bought out in 2021. That's right. Yep. And you stuck around. I'm just curious. Private equity model. Yep. They transition. New firm takes over. How do they incentivize you to really stick around? And then I'm curious just about the relationship and working with a PE firm. Yeah. So we've sold six times, really sort of over 30 years. So every five-ish years, it of course doesn't work like that. One was a couple of years, one was 10 years, but they average sort of five years. We look at those different types of situations as being having a great financial and business partner for that leg of the journey.

46:42But this company is 122 years old. We think a lot about how's it here for the next 122 years. I'm a steward for some period of time that will have multiple owners during that time. We've been very blessed to have phenomenal owners. In this case, we have some co-ownership of Aries Investors in California, the Ontario Teachers Pension Plan in Toronto, Canada, and then AEA Investors from New York who rolled from the last investment and have actually owned this company a couple of times. All super knowledgeable about packaging, great partners working with each other because sometimes a club-type deal can be difficult.

47:17but those three parties have actually worked on multiple deals together and feel really blessed about the partners that we have. But again, those partners will too change at some point. Again, that's the private equity model. And we'll have another set of financial partners down the road. And I think it's a great company. It's made fantastic returns for everyone who's ever invested in it. And so we'll have great interest the next time that we go to find the next partner. And I'm sure we'll have a phenomenal partner for the next round. My view as a board member, And we are also heavily invested as management across a large number of people in the company.

47:48We have multiple seats on the board. Each of the owners has multiple seats on the board. And we're all sitting around the boardroom table like it's a kitchen table. How do we make this company better for the long term? And when we're selecting that partner, it's about who has the vision, who shares the vision with us of how we want to grow a global packaging leader. That was mission critical in who we selected last time. It's the shared vision of what this company can be, not for next year, not for five years from now, but for 100 years from now. And that's what everybody's focused on. And I'll be here for some period of time.

48:18And then we'll have a great steward whenever that is, both the financial sponsor and the next leadership team, 20, 30, 40 years down the road. Just want to make sure I understand the mechanics on this court. Here you had the exit with another P firm bought it, which means option is good exercise. So that's a good win. And then basically everything gets reset. And here's our new growth path and goals and what we're targeting for. and realignment with more incentives, more options. Okay, that sounds pretty straightforward. What's your experience with bad PE firms? Well, no names. I don't want to get any of us in trouble.

48:51But what does a bad PE firm look like? Yeah, and as I said, I was retired for a number of years, worked both large public company boards, smaller public companies, every size of private equity backed, family-owned companies, a lot of board and director and advisory work. And so I've worked with a lot of different private equity firms. And the advice I give people is that when you're talking to folks, Everyone always says we're collegial, we're team oriented, we're all those things, which everyone is when the numbers are good. But there's always a bump in the road in every hold period. What are they like in that situation?

49:20And the only way to find that out is talk to people that had bumps in the road. And so it's my advice to people is you do the homework, you use your network, you talk to the references they don't give you, other holdings that aren't on the reference list. And how did those relationships go? And what were the problems? And give me the straight goods. And there are very different types of private equity firms out there. I think given all the things that we've talked about, how important people are here, how important customers are here, how important team members are here, our vision being over a very long period of time, we tend to attract the types of sponsors that are interested in that type of company because it is so obvious when you spend time with all of our team, anyone in our company, that those things are really important.

50:02that this isn't a do it quick and cut costs and financially engineer and flip it to the next person. That's not what this is about. By definition, we tend to attract very high quality sponsors. That shows up in everything that we do in terms of how we run the business. Doesn't sound like you'd put up with otherwise. Well, I just don't think this is the right investment. Again, it's not good or bad. Some of those firms make a ton of money and I'm not saying it's good or bad. It's not the right fit for what we're doing. Is it fair to say my best source of reference on a PE firm would be the CEOs of their portcos.

50:34Yeah, the management teams from those portcos. And how was it when it got challenging? That's the only question that matters because everybody's great when business is good. That's where I'm going to spend time on my backdoor references. For sure. PE firms that reach out every month. When I go back to, that's what we tell people is you can talk 44 acquisitions, talk to any of them. We'll give you the whole list if you want. I mean, no one wants to talk to 44, but pick some at random. Not all of them went well. Not everybody's still here. Nothing is perfect. We didn't get everything right in everyone, but always honest, high integrity of our word.

51:05That's all you can do. I always question if someone's only given you three references, like you don't want to talk to those three. You want to talk to the other ones. Yeah. Very cool. So I got a lot of corp dev people that listen to this podcast. Yeah. It's always interesting that relationship between being the corp dev team and the CEO of the company. Yeah. It's like everything rolls up to. What's like advice you'd give to corp dev practitioners in terms of getting on your good side, impressing you? And what really impresses you from the CorpDev team? We're blessed with a phenomenal team, CorpDev integration, the integration teams within each of the functional groups.

51:40It all comes back down to this is a professional function, no different than accounting, finance, HR, IT, sales, marketing operations, which is so a high degree of professionalism. How does every deal align to our target profile, to our strategy? what's the cultural fit, what's the business reason. I think the easiest thing to get bogged down with in Corp Dev is the financial modeling. You get the spreadsheet. All you know about the spreadsheet is it is wrong. All of the estimates are wrong. It's an estimate on an estimate on an estimate multiplied by an estimate to three decimals of precision.

52:14And then we talk about it like it's accurate. All you know is that it's incorrect. Do it as accurately as you possibly can with as many scenarios as you possibly can. But often we spend so much time on the model. What about the people? What about the fit? What about the strategy? Does it hit the target profile? I think those are the key things. People fit strategy and target profile. Again, that detailed target profile, because it's so many interesting things come up and you just think, we're good at this. We can make this fit. This isn't right down the fairway. Maybe this could be good and maybe we could make it fit.

52:45When you start talking like that, you're probably down the wrong path. So that detailed target profile, which is still pretty expansive for us in terms of the types of things that we're interested in buying, always be matching it back up against that. Beyond the financial model, this is what CorpDev team members should focus on when they're pitching the deal to the CEO. Yeah, and look, we work CorpDev reports directly to me. I talk to the CorpDev leader all the time. The CorpDev team, a big chunk of them are based in this office. We talk constantly. I'm involved in diligence. I'm out in deals.

53:14We're talking about deals all the time. Deals are an iterative process. We learn through iteration. We learn through dialogue. We learn through conversation. I certainly do. We challenge each other. we test each other, we question each other. So this isn't come give me some big pitch or the board some big pitch and we'll stamp it or not stamp it. This is all of us together. Best idea wins. Let's debate the heck out of this thing. One of the things I like to do sometimes with CorpDev, and we might do it with our executive team, is you take the biggest proponent of a deal and you say, hey, you got the con case.

53:44You're going to argue in five minutes why this is the worst deal. We should never do it. And the most pessimistic person on a deal, you've got the pro case. And you're going to take five minutes and argue why this is the best deal we've ever looked at. And that gets every issue out on the table, opens up thinking, again, best idea wins. We're blessed with a team that does that. We've got differing levels of experience on the team, which is great because we're bringing along some great younger folks, younger professionals on the team. But this is a profession and this profession is not based on how good you are at modeling.

54:14I love that. It's like a reverse debate. Totally. Argue the other view. Oh, and it makes people mad because they hate the deal. And I'm like, you got to tell me why this deal is phenomenal and show me why you're a good debater. And then that starts to expand people's mind because no deal is perfect. No deal is all good. No deal is all bad. That's great. I'm going to go home and try with my kids. It does not work with kids in my experience. I love my kids dearly, but that has not worked. All right. I got a good disclaimer on that. I have teenagers though. You have younger kids. It's still probably not going to work.

54:44What's your best advice to practitioners who don't believe in the importance of culture and M &A? First off, does it matter for what you're doing? Again, if it's cost out, if it's you're buying IP, if you're buying something and closing it down, maybe it doesn't matter. There's certain situations where it doesn't matter. In my case, and the case of most of the companies we studied, where it's for growth, where that growth is based on people, their knowledge, their relationships, their ability to come into your company and stay and thrive and grow, then there's probably nothing that matters more than that cultural piece.

55:14Good point. Let's really assess it. There's no good or bad. I'm a firm believer. There is no good or bad culture. There is what is the fit for a company's culture and their strategy and what is the fit between the cultures of two different companies. Or learn it the hard way. Yeah. Which I think every M &A practitioner has done. Kurt, what's the craziest thing you've seen in M &A? Maybe two things. And it's funny because I was doing a town hall yesterday with our sales operations, inside sales folks, and we were talking about some of these things. I've seen so many M &A deals. The question everyone asks me and practitioners always get, you've got someone on a team who's maybe new at M &A, do you think this deal is going to close?

55:51My answer is always, I have absolutely no idea. I have two situations where deals fell apart in the middle of the night, the day before they were being announced. So you go to bed, that a deal is done, money is in position, the newly acquired leaders have been informed, everyone's in the physical locations to do the day one stuff. And I wake up at five o 'clock in the morning and the deal has fallen apart for, in the two cases, I can think of very bizarre reasons. And so, which I won't get into because confidentiality reasons, neither of those were here. They were in prior lives. And so you never know that the deal is going to happen until the money has changed hands.

56:27It's like past the 12th hour. This is the... Oh, this is middle of the night stuff. Yeah. And the reasons were unique. And so I won't go into them, but you just never know. Okay. We won't get the reasons, but how do you amend or sort of... Nothing you can do. You can't. I mean, I think the key thing on M &A is you are not really in control. If you're so focused on getting the deal done at all costs, you will do bad deals. So you do your best. You always try and find a way to solve a problem in an SPA or some closing situation. These weren't any of those things. These were changes of mind and other interesting things that happened.

56:58No one did anything wrong. Everyone parted friends. Nothing untoward happened. Wow. You can never be so committed to doing something. Yes, you've maybe spent six months on it. There is nothing worse than you buy it for that reason. and you spend the next three years trying to repair a deal you should have never done. The worst deal is the one that you do that you should not have done. We're disciplined all the way to the end. Now, I haven't walked away from something the last day or the middle of the night or anything like that. I was not in control of any of these situations. But I think the key thing in M &A, we are truly not in control.

57:28Someone is selling us, in many cases, their life's work. It is, again, outside of their immediate family, the most important and emotional decision they will ever make in their entire life. Things will change. Things will go wrong. It is what it is. You move on to the next one. So that can happen. The second thing, and this came up a lot in the study, and I've seen this, and I think it's a danger, is that we went back to should you do a deal when the financials look good, but the cultural fit is not good. There was a very specific danger in private equity-backed M &A, again, what I studied academically, that at the end of the hold period, there is an incentive for the selling private equity firm to acquire EBITDA at whatever multiple it is, sell it at the higher multiple that the whole platform is getting, whether or not it's a good deal, whether or not there's good cultural fit, it will not be their problem.

58:17It will be the next owner's problem. I have never seen that as a practitioner myself. I haven't had a firm that does that. Because again, we're trying to build over a very long period of time, largely proprietary, largely people we know. But it did come up interestingly in the study. And I've talked to a number of other CEO peers about this risk, which is at the end of the hold period, sometimes I do know people have been almost forced to buy something that the financials might have been good, great arbitrage spread opportunity, but maybe not a good cultural fit and it caused problems later. And so I also think there's some buyer beware when you're looking at those types of deals in a SIM.

58:52Oh, by the way, we have two other deals under LOI and they're fantastic. Are they really dig into those and really understand the cultural elements of those? I think that's really important. And I've definitely seen that go wrong. And again, that's not earth shattering. That's common sense as I say it. But a lot of times people don't really think about that and might not poke into that when they're buying the next platform, when they're buying the next company. Great advice. Interesting. Yeah. This has been awesome. It's been fun. Great conversation. Thanks so much for making the time. Appreciate it.

59:21Thank you for helping me become a better M &A scientist. Thanks so much. Those of you still with us, salute to you. You're also a fellow M &A scientist. love to get feedback on these conversations, topic ideas, speaker suggestions. Feel free to reach out to me on LinkedIn. If you need to pitch a deal to court, let me know. I'll figure out how to help with that. Also on LinkedIn. Yeah. Easily found. And then go straight to court on LinkedIn. There we go. Until next time, here's to the deal.

1:00:00Thank 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.

1:00:45Again, that's mascience.com. Here's to the deal.

1:00:59Views and opinions expressed on M &A Science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual. This podcast is purely educational.