Insights on Portfolio Rebalancing in M&A

25:01They're practicing 99 % of the time and they're performing one. Why don't we do that more with M &A? So we work with our clients to help build out that M &A muscle before an actual transaction is even contemplated. To be able to build out playbooks, which can be very relevant and useful, but really capabilities and practice sessions to be able to run through a variety of different situations in advance of a transaction. As the saying goes, when did Noah build the ark? Before the rain. So we prepare companies for giant transactions before they're actually implemented and executed. And there's a whole host of different ways to go about doing that, lessons learned, that we can talk about and our clients benefit from a great deal.

25:47What are the examples of that? Because I always feel like there's a couple of sides of it. Everybody gets eager to do a deal. Yeah. And it's sort of like, hey, what do I make sure I don't miss in diligence type of stuff like that on the front end. But then there's the stuff that always gets you, especially first time, which is after you close the deal. Yeah. And it's, huh, I never thought about like, how do we integrate this company? And the fact that that's a whole capability to develop in the corporation, which we always, people listen to this podcast, know that it's a big fail point. Right.

26:16And so how do you sort of look at that part of it as well in terms of you have a practice, you got a lot of reps in supporting these companies to overcome some learnings? If you think about the three stages of a transaction, you have pre-sign, post-sign, post-close. And those all feel and look very differently to the individuals that are involved, to the companies that are involved. You think about pre-deal, first of all, you have a very small group of people that are likely in the know, that are read into the transaction, that are involved and that can talk about, that are going through the diligence process, the valuation process.

26:49And we leverage, for example, bringing back the concept of Gen AI, is that Accenture, for example, we've announced publicly that we're investing$2 billion in research in order to better support our clients across the Gen AI agenda. One of the main agenda topics in Gen AI actually is M &A. And we're investing heavily and we have a very interesting and unique capability around doing diligence, leveraging Gen.AI. You think about the data room and you think about all of the data that's been in that data room and all of the data rooms that came before it and leveraging large language models to do the analysis, to find not the needle in the haystack, but find the red flag amongst a whole bunch of green flowers.

27:34Gen.AI enables you to get to know faster versus you were saying, everybody wants to do a deal. We all think ourselves to be logical. None of us have pointy ears. We're not Vulcans. We are humans. We make decisions based on emotion, even in the board. But then ultimately, somebody is going to be holding once the deal is announced and everybody, again, back to the boardroom, deal is announced. It hits the street. Now you're in planning phase. You can't actually execute anything or implement anything because you're planning for the transaction to close. And by the way, we've seen closed windows expand dramatically over the last four to five years due to a variety of different reasons.

28:12Regulatory, anti-competitive, government regulations, even go shop provisions have changed if you think about purchase sale agreements. There's a variety of different reasons. But how do you leverage that time during the planning phase to close window, sign to close so that execution is a lot, you're a lot more confident in your ability to execute post-close. All of the charters are aligned. Everybody knows what the jazz ensemble looks like so that you're actually playing the instruments and not just looking at the sheet music, which you can only do during the close window. So from a transaction perspective, that's really where I think the rubber meets the road is execution.

28:52We have those phrases you mentioned, pre-sign the fun part of the deal, which you can easily screw up by doing the wrong deal as well. And then you have this real diligence, but I like how you frame it as like planning, not doing stuff, but actually planning of how you can combine the companies and that actual combining the companies itself. Anything on the receiving side for the company, I feel like this is kind of the exercise of really making sure you take the right steps and doing the deal cycle well. But then as a company, being able to take on all these incoming new people, systems coming in, and the whole process of combining data.

29:28Have you seen that pan out? Because I feel like that's always the biggest shocker. And companies will come in and say, we're doing 10 deals this year. And all of a sudden, two deals in, they have integration bottlenecks galore. Yeah, bottlenecks or indigestion. And that's really where, I mean, these are like back to the board is that you have to have a resilient organization that have some confidence and experience in doing transactions before you actually do the transactions. Using the planning window to your best benefit is critical. Planning down to the details with contingencies, what's going to happen on day one, for example.

30:02What does day one look like? For just a very simple question is what changes on day one? Technically, you're a publicly traded company, you're buying another publicly traded company, you're buying the whole thing. Besides whatever is legally required, nothing needs to change. So that everything that you decide to change, for example, you can choose to accelerate certain synergies. Let's call it, let's say, G &A synergies are a little bit of order to cash, procure to pay, record to report, HR, finance, IT. This is really where value can be created with as little risk as possible. One of the reasons why I work at Accenture is that we're able to go from the strategy all the way through the execution implementation phase and not only hit synergy targets, but increase them in a faster period of time and a higher degree of confidence.

30:52But then also not only the G &A side, but the top line. I think like vertical integration, horizontal integration, we're seeing a lot more deal theses focused on cross-selling to existing customers than it is just G &A cost out stuff. And that's a lot more planning that's required. And that's a lot more lead time in order to measure twice, cut once. Because you're talking about your most fundamental, the reason why you're in business, you're talking about customers. And that could be a very scary, exciting, exhilarating, but also a very scary engagement to be able to talk to a customer and at the same time prepare them for a merger.

31:32And then on the flip side, the little dirty secret is that your competitors may be taking advantage of this period of potential anxiety from your customers by trying to poach them during the closed window. So how do you stay close to your customers to make sure that you don't have any attrition or loss of revenue through the closed window in advance of day one? Go back, get around, because this is really good in terms of doing a deal well and integrating. The other side, the divestiture part, I feel is probably the scarier part when you think about rebalancing a portfolio. And I almost feel companies know that's so difficult because it's really integrated in.

32:10It's going to be a painful exercise to really bring that out. And we even talked about that because little feelings attached to it. Part of the family, they've got colleagues there in that business. What do you see there in terms of companies changing their mood on that and just getting more practice? They know they got to do it. Or is there still a hesitancy? How do you see that? Like I said, the strategy kind of points to it. We probably do it to actually executing it, getting it done. I wish it was a snap to fingers and go from decision to execution and get it done. But obviously that's not the case.

32:41Number one, there's a learning curve. If you're an organization that has never been through a car vet or divestiture, it is not an acquisition in reverse. I've had many conversations with clients who we were working with them or doing a study on what businesses to keep and to sell. And we land on a decision to divest a business. And the C-suite, the CEO, the CFO, the head of corp devs like, nope, we've done tons of acquisitions. We're totally cool. We're all set. All this is an acquisition in reverse. False statement. There's no way to learn this by doing it again and again. Just like acquisitions, building up that muscle memory, building up that capability.

33:17And when we work with our clients, all we'll say to them is that you may do a divestiture once every 10 years. We do 10 to 15 divestitures with our clients every year. So we're coming with a been there, done that mindset, playbooks, of course. But then also no two deals are created equal. No businesses are created equal. You can have a business with 100 different countries. We help a consumer products company divest a business in 118 different countries. Ouch. Yeah. Very different activity than if you're divesting a business that has one office in one building and has 50 employees. You're talking apples and donuts.

33:58So how do you be able to right size your overall from strategy, your governance process, like how you're actually organizing yourself from a separation management office perspective, from a decision-making perspective. And then you were mentioning the selling process. On one hand, at the right price, most things are for sale. Where does the deal perimeter end? And where does it really end? What's negotiable in terms of the selling process for a divestiture? Maybe intellectual property is up for grabs. Maybe there's opportunities there. Maybe geography or geographic footprint, maybe a right to use.

34:32There's a whole host of different considerations that'll be very relevant and germane to a particular transaction. The belly buttons matter because ultimately this does hit real individuals, human beings. It can be a very scary event. If you've just learned that your business unit is being divested, that hits home. You think about the communications and the change management, the empathy that needs to go into that these are very scary activities for people getting ahead of some of that by preparing back to the no example preparing for it before is very critical to success good examples just companies you've worked with through this whole exercise of portfolio rebalancing if you don't want to give names names but just at least getting the gist of like how did it transform their business what was it before state after state i'll give you an example of a high-tech client in the semiconductor space where we worked with on a number of different transactions, buy side, sell side, joint ventures, strategic alliances.

35:32And over the last eight to nine years, their entire business portfolio of where they play, who they serve, and how they serve them has completely evolved. For example, nine years ago, it's a publicly traded company. Nine years ago, they focused in two different end markets, really auto and aerospace defense. Those really were the spaces that it played in. Today, they still are very deep in auto, but as we mentioned earlier about the electric vehicle, auto has completely changed. And if you think about all of the different technologies that go into an electric vehicle, we talked a little bit about the minerals, but also battery technology and the material science behind that.

36:12That's a whole industry in and of itself that is experiencing not only systematic change and hypergrowth, but just fundamental science problems that material science and chemistry just haven't caught up yet. But then also the ones and zeros that go into an electric vehicle, the zonal architecture that connects all the sensors into a smart vehicle because the internal combustion engine, the engine and the carburetor, all of that stuff is not necessary anymore. And fundamentally, this company has transitioned from working in two markets to servicing 5G, the evolution of the overall communications industry focused not only in aerospace and defense, but even now space and how that has even changed from an end user perspective as technology continues to evolve and you get the SpaceX's and all of their competitors around the world, as well as government work, which they've always stayed behind for strategic reasons, but they've entered into a lot more government work.

37:08So we've seen that and they've completely transitioned their, in fact, 50 % of their revenue today is the same as it was seven years ago. That's the pace of change of this particular organization. Do they sell anything? They did three different divestitures during this period of time of various scale. One of them was pretty big, was about 25 countries, about 4 ,000 employees. The other two were smaller. One was, I think, four or five countries. The other one was two. It was mostly intellectual property play. But yeah, there was a lot of divestitures, acquisitions, plus joint ventures and strategic alliances.

37:43We're talking about portfolio rebalancing. I think that networks are being critical and strategic alliances and partnerships are going to be more and more critical over the next decade than there was in the prior decade. As industries continue to converge and blur, if you will, and if you see back to regulatory, you think, look, what will the Magnificent Seven, if you will, look like in 10 years? My guess, and it's just a guess, if I knew the answer, I wouldn't be with you here today, by the way. I'd be buying and selling stocks. Is that they will look and feel very different than they do today for a variety of different reasons.

38:18The stock market being a catalyst, activist investors, geopolitical, regulatory, et cetera. But they'll look and feel very different than they do today. The semiconductor business, what was it like working with the board and CEO? In this particular case, it was a very diverse board of directors, which we can talk about, again, activism and portfolio rebalancing. The board constitution is critical. If you have just a bunch of people with the same backgrounds, the same experience base, you're not going to have the best diversity of opinions and ideas and backgrounds and really insights to make decisions.

38:55This board was extraordinarily diverse. So it was very interesting going to speak to the board at this particular company because they had everything from academics, investment bankers, and obviously it was the secretary and lawyers, but then also ex-military. They had somebody from consumer packaged goods background. They had a rocket scientist of all things on their board, a very diverse board. So the conversations that you never knew what to expect. It was interesting because the dialogue got more and more. On one hand, you would see it's almost like the accordion. Everybody started to divergent of opinion.

39:32But then as we walked and talked through the case over multiple board sessions, everybody started to converge into the same example and answer to these questions. I want to learn how the power of influence works in the board. You sort of get with the CEO and get him aligned and have him be the influence. Or is there a look for the key influencer in the board? You're making individual relationships to figure that out. Teach me the real magic. It's all about the force. It's just using the force to your advantage in a book. No. The consulting thing. You build a strong business case, you show up with like a 50-side deck.

40:05Is that the way to do it? No, it's more than that. For three reasons. Number one is yes. I mean, there must be grounded in data. Income statement, balance sheet, cash flow with a solid business case, running different scenario planning or different... We even talked about the concept of war gaming, different war gaming or scenario planning around what can happen with a transaction and stress testing the business case. That's kind of table stakes, if you will. It's the pitch. I guess I'm trying to get into like... It's the story. I don't see you magically walking in delivering this pitch. And I just feel like there's a little gamification that happens that you kind of got to figure out how the influence works, which could be unique company to company.

40:44That's what I'm wondering. Cultures are very different. I mean, like even cultures within companies and cultures within boards are very different. For example, you're working with a hardcore engineering company where everybody has a degree in engineering. just within the organization is very different than working with a company that is full of creatives. I'll give you an example. Talk about Class of Civilizations. I was working with just a marquee brand in the media space. I'm not going to use their name. And they're very creative, world-famous creative. Everybody would know who they are. Very creative.

41:15Lots of tattoos, ear piercings, prototypical creative organizations. They ended up buying a very manufacturing-heavy company to be more vertically integrated, who are very block and tackle operations, process focused. So even bringing these cultures and way of working together, it was like, I can't even think like puzzle pieces are not even the right analogy. It took years and it's taking years for them to actually be able to speak the same vocabulary and nomenclature. But the concept of cash flow and profit at one of the organizations, even at the CFO level, means something very different than it does when you're working in a very low margin, high cash turn, churn organization or business like manufacturing.

42:03It's just a fascinating case study of really where the rubber meets the road. Yeah, that's a good point. All these companies are really unique in that regard with their cultures. And it sounds like the board could have its own culture. I was digging into this influence stuff because I want to learn how to become an activist. Can you teach me how to become an activist? I don't know if I could teach you how to be an activist, but I can certainly teach you how to prepare to be attacked by an activist. And maybe that'll help you be an activist on its own right. Let's run through that exercise. Right.

42:30So again, how do you think like an activist has been a, it's a very powerful mode of a mindset change to an organization. And I don't mean just a sense of fear. That's not what I mean. If you're running the organization from a clean sheet perspective. What would an outside-in company view you as? I'm not just talking about the general market, but I mean a true activist who was incented to instigate change. They're financially incented to do so. I have some sympathy for them. They work in a capitalist society. They're not breaking any laws, any rules. They're doing what they're doing. Unlike Gordon Gekko, who went to jail.

43:05They're playing by the rules. But the activists talking about influence, bringing together multiple stakeholders and shareholders to get behind a new idea or concept for an organization that they may have been an investor in for many years and may have longstanding personal relationships for many years. Instigating that change, bringing everybody together, building consensus is not a snap your fingers together type of exercise. It's a consistent rolling activity set that happens over a period of time. So if you're looking for a playbook of how to be an activist, unfortunately, you're talking to the wrong guy.

43:40But if you're looking for how to make sure that your company is battle-tested, either A, doesn't fit the criteria for an activist that would be maybe in the market for somebody like you, I can help. If you're looking for an organization that is ready and nimble enough to be able to shield off activist interest, we can talk about that. But what the Nobel Prize were, the ideas of how to be the perfect activist investor, that I can't help you with. Let me know who's Carl Icahn. I've reached out to him, I think, a few times, give them on the podcast. Do make the introduction. We'll pick up the how to be an activist.

44:10But why don't we click in on the defense side just to get a sense? Because we gave those use cases where shareholder activism come up with just, hey, we don't agree with the fundamental strategy. We see market share declining. These days, everybody wants to sue everybody for everything. Whatever reason goes. What's our defense or how would you approach it? I guess it very much depends on what the activism strategy is. It's a big question. Some famous general, I think it was Eisenhower said, plans are useless, but planning is invaluable. In other words, the actual process of thinking through your five to 10 years strategic planning and all of the different permutations that can happen to your end markets, your customers, your suppliers, all of your stakeholders, and thinking those through in advance of any possible activist attack, if you will, so that you have the plan in place to be able to react to that in a forthcoming way.

45:04And most of these discussions happen behind closed doors. A lot of them do hit the Wall Street Journal. We've seen that occur over the last couple of years with some Fortune 100 companies in terms of how the activist plays. But most of these discussions happen behind closed doors. One that I can talk a little bit about is a super major resources-based company was approached by an activist. They had tried to instigate material disposals of their business, saying, get out of this particular business. This is not your core competency. Focus on this. And then ultimately, the CEO came to, right before the shareholder proxy vote was about to happen, came to an agreement behind closed doors, shook hands, and ultimately, the activist stayed on the board, but took away the proxy that they put forward to the actual shareholders in the organization.

45:54Can you explain the proxy tool? Not a lawyer. And a lot of this gets into the articles of incorporation, let alone SEC regulations. But it's kind of bypassing the board of directors and the management team and going directly to the shareholders in order to instigate change at the board, at the business level, because of different opinions around corporate strategy. And this would ultimately result in changing CEOs, moving board seats, that type of stuff? Sometimes, yeah. Yeah, proxy battles can be about ESG. ESG considerations have been a material, I guess, thorn in a lot of companies' size. On the flip side, a lot of companies have been able to kung fu that thorn into a positive.

46:34If you think about focusing on ESG considerations, I think the headlines of ESG have gone down, the E, the S, and the G all being very, very different. But from a shareholder perspective, if you focus on the E, the S, and the G, the research is very clear that your returns will outpace those that don't. And we'll see. The SEC has been talking about requiring publicly traded companies, at least on the NYSE and the NASDAQ, to disclose certain ESG metrics going forward. Hey, I want to have a little fun because, Greg, you got your team here. I'm going to have one of your teammates, Taylor, come in and ask you a really hard question.

47:09We got to try to trip you up. Nice to be here. I have a great conversation so far. So as a way of introduction, Taylor Arndt, I'm an M &A strategy manager working closely with you on your team for several years now. I'm curious because you were talking a little bit earlier around how companies can build their M &A playbooks and capabilities, really that muscle. What are some of the characteristics of our clients that have a really strong M &A muscle? And then conversely, what are some of those clients that potentially don't have that strong muscle as they're starting to think about portfolio rebalancing as a way of growth?

47:40It's a really great question, Taylor. Thanks for asking. Number one, been there, done that is hard to replicate. So the experience of having done acquisitions before of many different shapes and sizes and have been through multiple different scenarios and different fact patterns to be able to make decision making really fast and easy. I think there's no substitute for that been there, done that. However, it's not, I would say, we talked a little bit earlier about practicing and the practice to performance ratio, but practice doesn't make perfect. Perfect practice makes perfect. Companies that spend and have an always on M &A capability, whether they're doing deals or not, whether they're involved in it or not, irrelevant.

48:24But if they're going to have an inorganic muscle, is being able to keep that always on capability going, to have a programmatic M &A. We overuse this term programmatic, but that just really... In fact, I think a lot of the research even characterizes that word very differently. Always on M &A capability by having a dedicated team that is always refreshing their skills, going through diligences, even if they may not be super excited about the diligence, going through the motions and going through the auction process on a target that even if they know there's going to be a no, still continuing through that process, you can't escape, again, not practice, but perfect practice is going to get you to exceptional.

49:08Those are some of the characteristics of companies that are exemplary at executing M &A across the life cycle. Makes total sense. You think about flipping it of the companies that potentially don't have that muscle or aren't putting it into practice over time and then being caught off guard when potentially that rebalancing opportunity comes, whether it's potential carve out, potential acquisition, and then you're having to dust off the playbooks and might not be very easy to do. Yeah. And no two deals are created equal to your point. We talked about differences between acquisitions and divestitures, joint ventures, or even a whole different kettle of fish.

49:39But even having those playbooks in place, which are useful for playbooks, the templates, if you will, we leverage a lot of digital accelerators at Accenture, which help companies think through the planning through execution phase, even the operating model pros and cons, and simulating different ways that a company could be operating post-close of what the integration journey looks like. Because it's not a once done, like in 100 days, it's over. Small deals can be like that. It can turn into BAU, business as usual. But like the integration journey can take a long time. And if you think about, again, the real people, we use a tool that's called OrgView.

50:18What this does, it allows you to simulate multiple different organizational designs that'll best support the operating model that's consistent with the investment thesis. So it does de-risk the overall execution by practicing early, perfect practice early, and then executing later. Makes perfect sense. Appreciate your thoughts. Thank you, Taylor. Thanks for having me. Conrad Devin, strategy manager in the M &A practice based in New York. Worked with Greg on previous deal. Greg, you mentioned portfolio rebalancing. You talked about two aspects of it. One, you have to have cash. Two, you have to have a good investment thesis.

50:57Capital allocation is an important part of having a good thesis. How do you think about capital allocation at the top of the M &A process? And how does it change throughout the M &A process? Let's just start with the balance sheet. And let's just start with assets and liabilities fundamentally. Is that we ought to be able to have the right leverage if you're a publicly traded company. Particularly private equity looks at things a little bit different and we can talk about that. But if you think about capital allocation from an M &A perspective, The good thing about an acquisition is you don't actually have to write a check until the deal is done on the buy side.

51:30And on the sell side, you get real excited about an inflated bank account, but only when the deal is completed. So that's why the pre-planning process is so critical, because what you don't want to have is any delays to day one on any side of the transaction. Number one is it opens up a whole bunch of different considerations. It can in terms of the actual deal documents, the purchase sale agreement. Maybe there's been a MAC provision, a material adverse change provision that's been triggered over a period of time. But we want to be able to complete the transaction with as much confidence and speed as possible so that your capital allocations are well known.

52:07And you know how much money you need to have in the bank if you're paying cash in order to do that. But the other part of the equation, obviously, is stock. What may not hit your bank account is certainly going to be an impact in terms of your valuation and how many shares outstanding that you're as you're just printing shares to the market. That's maybe not capital, but in terms of value, you're diluting the ultimate value of the organization by a share perspective, unless you're pricing the asset correctly. And then back to execution, where it all lies, is actually driving value consistent with the investment thesis.

52:43And as you know, Conrad, a lot of the things like where our clients get really excited about is that we'll help them with the investment thesis, pressure test the overall value creation story behind the thesis, but then help them accelerate the value post-close and then even increase it at the same time. So from a DCF perspective, discounted cash flow, back to your question on capital, it's a giant value to our clients and really a giant lever for Accenture to be able to best support our clients. I've mentioned sources of cash, how you deploy it, or sources of funds, I should say. Also, deployment of the funds you mentioned, not just being able to execute the deal quickly, but also having the right procedures and tools in place to facilitate the close of the deal.

53:32That's something that we've been concerned about as consultants through our pre - and post-merger planning process. You mentioned some great points around that. The duration of the close window is critical. And Jane Neely, our global lead of Accenture's M &A strategy practice, transaction advisory practice, recently published a paper that talks very specifically about five things that should be used during an elongated close window. Time's a terrible thing to waste. For those listening, there's some very specific, if you want to call it playbook, or lessons learned from how to best use that planning period.

54:08All right. That was a great show. You're teaching yourself, Amino. crowdsourcing ideas. This is great. Thank God we don't have an open phone line here. You would be bringing in... I thank team for helping out. I really appreciate that. That was a lot of fun. So one thing I was thinking about was we talked about portfolio rebalancing and automatically I'm always thinking the context of large public company. But what about private equity owned businesses? Or is that non-existent? Because I feel like mostly private equity just stack revenue, slap a big multiplier on it, pass it on the next private equity firm?

54:40First of all, let's talk about private equity as an investor class. It's funny, over the last decade, investors in private equity, and this is the GP and the LPs both, have outperformed the S &P 500 and the Dow over the last decade. So we're seeing a lot of money go into these classes. And it's roughly a$7 to$8 trillion investment class right now, but it's expected to grow to about$20 trillion. What a very Austin Powers type way, $20 trillion over the next decade. Unbelievable growth in private equity. And why that is, is because of the success that private equity has had. They have advantages over publicly traded companies in terms of value creation.

55:18Number one is you don't need to worry about disclosures and Sarbanes-Oxley or any of the other kind of considerations that publicly traded companies would need to disclose and deal with. And those are also very expensive to do. And number two is that they are singularly focused and relentless. And I love working with private equity clients, but singularly focused and relentless on value creation. And it's not an academic term when I'm sitting with a client in private equity. Not that it is with my corporate clients, but with private equity, it is very serious and playbook. There's an operating manual, if you will, in terms of value creation.

55:58the roll-up considerations for today, like you're seeing a lot of private equity funds being formed around the thesis of their many fragmented industries that should not be fragmented. So there's a tremendous amount of opportunity for value creation through consolidation. So for example, working with one of the major private equity funds right now, and one of their portfolio companies, we helped them through a string of eight acquisitions over 15 months in this very niche software space. And we're watching their EBITDA value continues to grow over time, not only because of cost-out exercises. We talked already about G &A cost-out.

56:38That is good. But then also, again, top-line growth, cross-selling, entering into new markets, and then leveraging other portfolio companies that they may own that may be suppliers to another fund. It's a very unique opportunity for value creation that a private equity fund would have, particularly some of the bulge bracket funds. But even the mid-market funds, let's call them 10 to 15 billion of assets under management, are getting much more mature around not only the extended hold times that we're seeing in private equity because the IPO markets, they really have never recovered since COVID.

57:16and we'll see everybody's predicting the rise of the IPO to come back in either New York or London or around the world. But we haven't seen them come back. And with a rising interest rate environment, it makes things even a little bit harder for private equity funds based on their economic model. The hold times have been elongated and they've been taking advantage of that. And we've been working with them, taking advantage of that by doing more and more value creation initiatives, more and more consolidation from their portfolio companies. And then, as you mentioned before, we're seeing a lot of portfolio companies do that consolidation.

57:50And then even if they don't go IPO, private equity cares about cash flow. So other private equity funds, you're seeing a lot of PE to PE transactions. When you look at the private equity portfolio, like private equity likes buying carve outs, but you see them actually carving out businesses of their portfolio. So you mean like they own a business and they're carving out... So portfolio rebalancing, the whole concept of that exists for both the publicly traded companies and for private equity funds. For example, I have a private equity client right now where the investment thesis going into a particular transaction is to eventually carve out part of the business that they're buying and spinning it off into its own entity.

58:34That's much more difficult to do if you're publicly traded because you have shareholders every quarter to answer to, whereas private equity have a longer lead time in order for them to be able to monetize the investments that they're making into it. There can also be a lot more risk-seeking versus risk-avoidance within the private equity world. Is it fair to say it's not as frequent? I feel like you look at large public companies, the sheer size and pure nature of them having all these business lines and being very diversified versus the private equity tends to invest as a platform with more of a tighter strategy to begin with.

59:09And then size-wise, this many handfuls of firms are actually buying billion plus dollar deals, but doesn't happen as much. The trend actually is an increase. And why that is, is because of the hold times and because the LPs, the limited partners want their money. One way to monetize and pay back the money without selling the whole thing is by carving out a part of the business, monetizing that and giving it to your limited partners. as a part, as a dividend or as a one-time payment from a return on investment perspective. And particularly in a who knows what Powell will happen in the Fed interest rates in the future.

59:43Again, if I knew that, I wouldn't be here with you today. We hope we're in a descending interest rate environment, in which case we may see more and more activity the way that you're describing it. Because interest rates, if they have peaked and knock on wood that they have, then we'll see more and more of those types of transactions. We were talking about wargaming earlier. Let's bring in wargaming into this and let's wargame the interest rates. Can we give you an example? Teach me how wargaming works. And is that a fair example? Say, hey, let's talk through change of interest rates and how that's going to affect our approach to doing deals.

1:00:15So wargaming as a concept, as the name alludes to, or you can call it scenario planning. You can just call it strategic planning if you really just want to be vanilla about it. Wargaming does have a little bit more of an interesting title to it. And companies have been doing this. I think Shell really was the trendsetter in wargaming starting in the 1960s and 1970s. Shell, the energy company. But now companies, back to the board, is that you have a whole host of exogenous factors that you need to grapple with of where to play, how to win. And how do you think about that in a structured, methodical, kind of programmatic way is through this concept of what we call wargaming or scenario planning.

1:00:55And Gen.AI enables us to be able to do this a lot better and faster, not because of compute, but because we can all start with the same set of facts. With the wargaming, it's all based on probabilistic mathematics. You want to call it Monte Carlo simulations, we can do that too. We can get really nerdy in math if you'd like to around how different companies do this. But it really starts with a simple stated agreement of fact. We need to be able to, as a board, agree on the facts that are out there. And how do we be able to establish that fact base? And then be able to run various scenarios. You're talking about interest rates, geopolitical tensions, macroeconomic, regulatory, changing landscapes we've already talked about.

1:01:39But the interest rates are, I just wanted to give a context, but interest rates are critical because we were talking about, when Conrad, I think, was asking his question, we were talking about discounted cash flow. And when you talk about this kind of cash flow, you imply a weighted average cost of capital that flows into interest rates. For example, you saw what happened a couple of weeks ago with the yen, what their central bank did and the chain, the wild swings between the dollar and the yen and what happened there because of the carry trade imbalance. If you're a global organization, you're dealing with FX or financial currency risk every day.

1:02:12The CFO is worried about this if you're a multinational company. If you're talking about interest rates, that plays into it because you're worried about what central bank in the UK, around the EU, obviously in Washington, the Federal Reserve of the US, let alone all of Asia is doing. All of these are taken into consideration to the capital question and where to allocate different capital and human resources in the organization. So we run these various scenario planning simulations with companies to help them be best prepared for high impact, low likelihood events and be able to have at least business continuity planning or plans on a page to be able to grapple with these unforeseen events or low likelihood events.

1:02:56Sounds like fun. It's really cool. And I can tell you like executives lean into these types of conversations. it can be a little nerve wracking because you start throwing crazy things out there. Like what happens if there's another pandemic and everybody's that'll never, and then they start remembering, wasn't that long ago, there was this thing called COVID. Or for those of you remember the great financial crisis, what if banks start failing stress tests? What would happen to the world economy? And are businesses fundamentally built resiliently enough to be able to adapt to a changing market that happens that fast?

1:03:31Ascentia is a pretty big company. I'm just wondering, I work with a lot of companies and there's always like when and where to use which type of advisor resource. And I feel like there's like sweet spots to that. I was just curious, like, where do you fit in? Like, we're a little 50-person company and I couldn't see us saying, hey, we need to go work with Ascentia to start Wargaming, our first acquisition. But we work a lot of public companies and you can just tell there's little deals they'll do in-house, especially when they do something significant, like 500 million plus, They're bringing in some advisors and different firms of different reputation and different capabilities.

1:04:05I'd love to hear just your thoughts since you are on the other side or in the house, in terms of where do you see sort of the sweet spot and best fits to work with a firm like yours? Remember my background before I got into consulting, I was in with a blue chip Dow Jones company and corporate development. That's what I'm expecting to be as unbiased as possible on this. No big commercials here. One of the most valuable things that we can provide to our clients is that we can be upfront month, thinking about corporate strategy. We're talking about transactions. Transactions are a means to an end, not an end to do of itself.

1:04:35So it does start with corporate strategy. Portfolio rebalancing is a part of that. We help companies reimagine themselves and transform themselves and think about what that roadmap looks like over the next three to five years. And how do you do it at pace with confidence in a compressed, low-risk way, or what we call compressed transformation. What our clients tend to value most is that we can be upfront in the strategy, planning, vision, setting, operating model design part, and run side by side with you all the way through the implementation and execution of it from strategy through execution.

1:05:13For example, we're working now with a Fortune 50 consumer products goods company. We've helped them with a variety of different transactions over the last 10 years, and they're completely reinventing their overall footprint of where they play in the market and where they want to be over the next five years. They were seeking a single firm that can be able to be with them through the overall over end to end journey versus hiring one firm to do the upfront, another firm to do planning, another firm to do this, another firm. They were looking for like the single all hands on ship journey partner to be able to run with them through this journey.

1:05:53And also, we ultimately, as being publicly traded, we also put some skin in the game with our clients. So we put where our fees are at risk under certain scenarios and that we're completely committed in a very significant way. And you heard the example of the ham and egg sandwich where the chicken was involved, but the pig was committed. In this example, Accenture is fully committed to our client's success. And we'll do it on a revenue at risk basis. You got a good reputation. Randy Tinsley at Synapsys says hi, by the way. Yes. I heard he's got something big cooking, so you may want to reach out to him.

1:06:32Hi, Randy. How are you? I think that's an interesting point around just looking at what the relationship goal is. Is there like a size minimum, though, that you would say like, hey, a company should be at least this big? Most of our clients are G2000 clients and our private equity clients run the gambit. However, we are very committed to companies that are really seeking to change industries and be trendsetters. So, for example, Accenture has its own venture capital division that's called Accenture Ventures. And we invest in startup organizations in order for us to be boots on the ground, ear to the road, whatever metaphor you want to use in terms of what's coming over the next three to five years.

1:07:12And we leverage a lot of our investments in these companies to make relationships with other smaller organizations who we do partner with and advise on multiple different facets from strategy through execution. Awesome. I'm going to keep bugging you for free advice. I was really curious about future trends and M &A, even around portfolio rebalancing. Where are we going? Yeah. Since we're in New York, we got to quote Yogi Berra on this one. He said, predicting is very hard, especially about the future. So the future, again, it's hard to tell. But what we're seeing here, the pace of change in terms of customer end markets will never be slower than it is right now.

1:07:51Obviously, we talked about some of the other meta trends that there's no slowing down. Energy transition, ESG considerations. You have Asia, the world tilting in terms of a giant middle class popping up in Asia. What does that mean to companies? companies are thinking very hard about what does that mean to their inorganic growth agendas. And those will all play out, we think, manifest itself to not only giant industry, because there's always going to be mega deals that we're going to see happen in the world, particularly in a sinking interest rate environment, but companies completely reinventing themselves from where they are now to the next five to 10 years.

1:08:29And that includes not only portfolio rebalancing, but strategic partnerships. and you're seeing giant organizations within the technology space partner with the electric vehicle manufacturers, let's say. You're seeing giant energy companies partner with electrical grids. You're seeing consumer packaged goods companies partnering with mining organizations. These are trends that are not going to stop. These trends will only accelerate. How they ultimately will play out is the bajillion dollar question. I mean, it depends on every niche industry and every customer and every client that we deal with is a little bit different.

1:09:05But it's from a consulting perspective when ambiguity has never been higher and the known to unknown ratio has never been lower. It's a great time to partner with firms like Accenture who have their pulse on the next five to 10 years. The pace of change is just forever increasing. That is true. Getting back on this theme of portfolio management, any advice out there that just stands out to you for companies starting to think about this? The time horizon from origination of an idea to a transaction to transaction execution has been artificially inflated. As we work with our clients, we'll perform diligence on multiple deals.

1:09:43And we see this across industry and read the journal and watch CNBC. But that period from origination to execute, that pull the trigger on a deal has gone up. I think over the next 12 to 18 months, as some of the, again, an unknown to unknown, known to unknown ratio goes up. I think we're going to see a giant decrease in that time. In other words, when I work with strategic clients, they take a long time. There's a governance process to make decisions. But in order to compete for an acquisition target, you need to move at the pace of your competitors, which may be private equity who can move much faster.

1:10:17Your confidence level is going to go up a lot more, which means the risk will go down a lot more on transaction execution and value creation over the next 12 to 18 months. So I'm hoping that the time from origination to decision also will go down. And then just problem solving, good old fashioned corporate problem solving. The trend has definitely been more towards risk on, risk off is always going to be a consideration, but more towards quicker and faster decision making. I think we're going to see that within M &A. I'm a cockeyed optimist on transactional work in general and more and more transactions due to a lot of the things that we've talked about over the last hour or so.

1:10:56I think we're going to see continued industry convergence, tectonic shifts due to all of the macroeconomic trends. That's going to translate and manifest itself into companies reinventing themselves and transforming themselves into new organizations to better compete and win in ever-evolving and changing markets. And from a consulting perspective and an advisory perspective, there's never been a better time to be in consulting. Yes, I'm biased. A little bit. A little bit. But we're both fired up and optimistic about what's to come in our industry. And I do call it industry. Somebody tried to call me out and say M &A itself is not an industry.

1:11:31M &A plays in industries. I'm like, no. There's so many dedicated folks that work in M &A. I am stating right now M &A is an industry. We're all together. M &A science and M &A scientists out there. But before we wrap up, I got to ask you, Greg, 500 plus deals. What's the craziest thing you've seen in M &A. I guess I should have known this question was coming. I've talked to a bunch of lawyers and they said, listen, Kisan, as long as you don't name names or dates, totally fine to tell anything else. Cool. You're giving me legal advice? No, just as lawyers told me. So I've been advised by lawyers, anonymous lawyers.

1:12:03I mean, I've been deposed. I've been part of transactions. Craziest transaction I've ever seen. Well, look, so that was a mega deal that happened about eight or nine years ago, talking about the MAC provision. We got to explain MAC. material adverse change change and this is really funny we had a cameo on a netflix show called partner track and that was like the whole premise was around that thing and then that's where we got a little plug so if anybody wants to check out season one show one and learn more about it so when the main actress she's like listening to the podcast throughout the show and she's like picking up you know and she's listening part about mac claws but it's the scene when she falls asleep listening to the podcast and the camera pans to her phone it's our logo for like three and a half half seconds straight.

1:12:45It's awesome. So we have actually a big legal M &A audience. So that's why, you know, I was like, well, we might as well explain what it is. Yeah. Yeah. So material adverse change. If something, I'm not a lawyer, I'm not giving legal advice, but if something giant outside the control of most parties happens during the closed window, the buyer has the option to exit a deal. Again, there's a lot more that goes into it and I'm not a lawyer, so I'll just leave it at that. But I was involved in a transaction where the MAC clause was triggered. Ultimately, it went to court and it was extraordinarily contentious.

1:13:16But this is during the great financial crisis. But ultimately, the court system, luckily, we live in a we have three branches of government and the judicial branch is one of them. And why people want to be doing business in the United States, because the rule of law is what controls is that ultimately this went to this Third Circuit court in this case. And ultimately, the judge said, no, like the great financial crisis and in totality, was an exogenous event, but it is not a catalyst in terms of the MAC provision in this particular transaction. Why does that matter? First of all, it was a mega deal.

1:13:51It was if everybody can Google this now and probably imply to what deal that this is. But being in the middle of that was fascinating. And just because it was hidden in the Wall Street Journal and CNBC, and I was right in the middle of it. It was pretty cool. But why we were talking about concepts like of wargaming, how are these low likelihood, high impact events going to be coming around the corner? And how do you remain agile and resilient to be able to grapple with them as a company, let alone during an M &A transaction or event, is critical as you think about companies being able to drive shareholder value and reduce risk.

1:14:27So that's one of the craziest that we can tell on video deals that I've been a part of. Overdrinks is a different conversation, my friend. It's crazy. We're heading to the bar after this. All right, deal. Greg, this has been an awesome conversation. Greg's team, Accenture team here. Thanks for joining us. Appreciate the support. Appreciate the awesome office and that view. I can't get over it. I got to make a little video to send the friends at home. Those of you still listening, if you made it this far in the podcast, I appreciate you fellow M &A scientists. It means a lot. Reach out to me on LinkedIn.

1:14:59Love to hear from you. Love to hear feedback. Even if you hate the podcast, just tell me why so I can get better at doing this. Until next time, here's to the deal.

1:15:35We're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email, Kisan, K-I-S-O-N, at mascience.com. Or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter. Again, that's mascience.com. Here's to the deal.

1:16:17Views 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...