Integration-Led Diligence: Cisco's M&A Approach with Johanna Jaakola & Tesia Hostetle

0:00If you've ever finished a deal and thought, wow, that was way harder than it needed to be. You're exactly who I'm inviting to the buyer-led M &A Summit. October 30th. It's free, it's virtual, and it's just a few hours. But you'll walk away with more than most paid events give you. We've got dealmakers from State Street, SPS Commerce, Quadients, and iSolve. People who actually run acquisitions at scale. They'll be sharing the exact playbooks they use to avoid delays, pull integration in early, and hit their deal targets. If you're tired of chasing 10 different trackers and dealing with deja vu mistakes after close, this is the place to learn how to stop that cycle.

0:51Register free at dealroom.net slash summit or by clicking the link in the description. This episode is brought to you by Dealroom, the M &A platform actually built for buyers. Most data rooms, clunky, seller first, zero real workflows. Dealroom flips that script. It's the number one platform for buyer-led M &A, designed so corporate development and private equity teams can run the deal end to end with speed and control. You get built-in project management, smart templates for diligence and integration, real-time collaboration across teams, and AI features that actually reduce the work, not just repackage it.

1:39No tool hopping, no chaos, no surprises. If you're ready to run a tighter process and close better deals, go to dealroom.net or hit the link in the description. Leave the deal, own the outcome, dealroom.net. Now back to the episode.

2:01I'm Kisan Patel and you're listening to M &A Science, where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies, and what actually happened during M &A deals.

2:25Hello and welcome to the M &A Science Podcast. This podcast is part of a mission to rethink how M &A is done. The old school seller-led approach, it's dead. Buyer-led M &A is all about strategy, alignment, and efficiency, putting value creation at the center of every deal. And let's be real, it's not just about closing the deal. It's about making it successful. We uncover what truly works in M &A by learning directly from the best. Deals die slow, painful death when diligence drags and integration shows up too late. The buyer-led M &A Summit is where you'll learn how to fix that. On October 30th, I'm hosting a group of seasoned operators, people like Stephanie Young at iSolve and Keith Crawford at State Street, who've built deal processes that actually reduce risk and accelerate timelines.

3:14We're talking about strategies that keep you out of fire drills and help you realize value sooner. It's a free, half-day virtual event designed for people actively leading deals, and you'll walk away with proven frameworks you could put into practice. Register now at dealroom.net slash summit or using the link in the description. I'm your host, Kisan Patel, founder and CEO of Dealroom and chief scientist at M &A Science. Joining me today, Johanna Jakula, integration lead on Cisco's corporate development integration team. Johanna partners with the deal lead from the earliest phases to shape integration strategy, coordinate diligence across a large functional community, and drive execution to full integration.

3:59Tisha Hostetler, leader of Cisco's acquisition integration practice. Tisha owns Cisco's end-to-end methodology, playbooks, and tooling, including compliance and full integration criteria, and helped design the approach for Cisco's recent transformational acquisitions. In this podcast episode, we're going to talk through how Cisco operationalizes integration-led diligence, getting integration involved at the deal thesis, using a preliminary integration strategy to target diligence, and adopting integration models. integrate, don't integrate, or reverse integrate to accelerate value illustrated with lessons from the Splunk acquisition.

4:40Johanna, Tisha, how are you both doing today? Doing great, thank you. Yeah, really excited to be here. Thank you for hosting here live. Cisco, one of the headquarter offices here in San Jose. San Jose, Santana Roo. I'm blown away. This office is nice. Nice. Yeah. I was just bragging to people. I'm texting. I'm like, I'm in Cisco's office. It's so cool. This came with the Splunk acquisition. Did it? It did. Oh, that's why we did that deal. Yeah. So last time we went to Cisco's old headquarter building. I can say old now, right? Like we've unofficially transitioned to Santana Road being Cisco's headquarters.

5:14So that was in North San Jose. And I'd say this is by far nicer location-wise and office-wise. Absolutely. We're happy to host you here. Big time. There's like restaurants and stuff around here. Can we kick things off with a little intro on yourselves? Yeah. I'm Tisha Hostetler. I started my career in internal audit and then came to Cisco doing internal audit. Got tired of identifying problems and wanted to build processes and solve problems. Moved into acquisition integration after a couple of different finance roles in Cisco. Cisco has a great reputation for rotating talent and I'm definitely a use case for that.

5:55came into acquisitions into the team I'm currently leading. We look at the end-to-end process and bring all of our practitioners along, not just our central acquisition integration team, but our broader functional team with all of their M &A experts. Homebrewed in Cisco, how many deals have you worked on? All of them. Well, for the last 10 years, yeah, we touch... Again, being on the process team, we kind of advise on all of them. So, 40, 50? 40, 50. Okay. Yeah. So we got some reps in. Yeah. Show on that by yourself. I'm another use case of staying with Cisco. They say one company, many careers.

6:37I came to Cisco 10 years ago. I have a background in management consulting and I decided to join the other side within Cisco. So I had a couple of different roles within the finance organization. So I used to be a senior finance leader before joining acquisition integration, I actually was the senior finance lead for AppDynamics. AppDynamics is another Cisco acquisition. And that made me realize I wanted to impact how Cisco does acquisition integration work. But that's how I ended up with the corporate integration team. And my role is integration lead. So as you mentioned in your intro, integration lead gets involved very early in the deal lifecycle, partnering with corporate development and really strategize with deal thesis, form an integration strategy.

7:24And then we execute it post-close all the way until it's fully integrated or until integration thesis is complete. Could you help me like differentiate your roles just a little bit, just for clarification? So, Joanne, I understand that integration lead, but you're getting involved really early, like at the deal thesis. And it's really like executing integration, but you're really involved with all the planning throughout diligence and making sure this deal gets successful. Yes. And then Tisha, how would you differentiate your role? We help the integration leads be successful instead of trying to figure out what do we do next?

8:00Who needs to do what? There's a standard practice with clear-cut roles and responsibilities, metrics that we expect to be used on every deal, and a full tool for this is what you need to go after. We enable integration leads to be successful and we enable them to execute and leverage all of the best practices that we've integrated and how we do our work on every deal. So you build the program for the integration leaders to set them up for success. Exactly. That is because Cisco is a serial acquirer. That's a machine. How many deals do you guys do a year typically? Depends on a year. 8 to 10, I would say.

8:41How many employees do you have now in Cisco? A total of almost 90 ,000 after acquiring Splunk. I can imagine just even a small company, how the complexities become with integration. And then obviously large organizations, you have just more moving parts, more work streams, and that adds to more complexity. Speaking of Splunk, Splunk was a pretty big notable acquisition, head turner, if you will, in the industry. What made Splunk special? First of all, it's Cisco's largest acquisition to date. So that makes it truly special in that sense. I am the integration lead for Splunk. I am excited to talk more about Splunk acquisition.

9:19One of the reasons that has made Splunk even more special to Cisco, not just being the largest acquisition, has actually enabled Cisco to be transformational. So Splunk being transformational to Cisco. Meaning usually when we acquire a smaller company, we are setting out an integration strategy based on adapting Cisco standards. However, Splunk, we wanted to make it strategically valid and important to Cisco. With that, we wanted Splunk to influence the way Cisco strategizes and also the way Cisco does business. So that's the big thing about Splunk. it actually has transformed the way Cisco does business and Cisco strategy and also impacting operational processes.

10:08Like literally, you moved in their office instead of having them move in their office. It's like an interesting philosophy, but it's harder to actually execute for organizations where you're going to acquire a target. And a lot of times diligence just gets expedited. You know so much, but as you learn more, when you integrate the company, that there are certain things that they're doing better. And how do you be so open-minded enough to say, hey, maybe we should pause here and actually reconsider what we're doing, take some of their best practices and bring it in? It sounds like that was a bit of a big change on this deal for you.

10:41It comes with scale. Splunk has the critical mass, if you will, in terms of employees and size of business to be able to impact Cisco. The kicker really is that scale word. You can acquire a 20-person company that might do one of their operational things particularly well, but it's almost irrelevant in the Cisco context. Right, because it's going to be too much of a change management to make a material impact. Exactly. But the fact that this organization already had scale... It really helped. Exactly. Exactly. In doing the kind of business that we were looking to expand. So this as a service business, Cisco set out years ago to really transform from hardware centric to a SaaS kind of company.

11:29And Splunk was already there, but ahead of us. So they're really recognizing that, hey, they're in the transformation cycle ahead of us. So then and operating at scale, another publicly traded company, that kind of allowed us to then look at some of those operational processes on how they do customer success, for example, and really collect some of those good practices and try and implement for us. because, again, already operating at scale, relevant to Cisco in business lines that we're already in, security and observability. And change is hard. And a company the size of Cisco, it's complex. So we needed Splunk to kick us in the direction of making the change necessary.

12:14It helps with the executive attention. Yeah. I'm curious about the planning. Like, how do you think through synergies if things are sort of going in the reverse direction? The good example of the reverse direction is the observability business. When we did diligence, we recognized that there was a slight overlap in the observability portfolios. But we also recognized that Splunk, from a market leadership perspective, had some market leading observability offers. Very early on in the acquisition, the decision was made to have Splunk lead the observability business for Cisco. And then all of our observability business rolled up under there, including AppDynamics, which was a big acquisition from six, seven years ago.

13:05Then that all got managed centrally by Splunk. They were very quick to make decisions around cutting some of the products, end-of-lifing any products where there was overlap. So we picked the better one. And then for the ones that were complementary, integrating it into a unified offer, getting a joint roadmap, and starting to integrate those pieces of business that were operating under Cisco to operate under Splunk. So it could be a unified customer experience, for example. and that the products would interoperate. So that decisiveness early and recognizing where the expertise was in the joint company, empowering that expertise to make those hard decisions, honestly.

13:55Yeah. That was something that I'd never seen on an acquisition that we had done previously. That was something that we really did right with Splunk. And zooming out that decision to integrate, not integrate, reverse integrate, it ultimately comes down to deal thesis and where do we want to go in the market? How it is aligned with Cisco's strategy or our aspired strategy? So in the sense of Splunk and the observability business, they're a market leader in that tech and Cisco wanted to double down and retain and improve the market leadership in that specific market. It comes down to decision on market leadership and how we want to grow our TAM.

14:36Early planning, making tough decisions early too. Absolutely. What went really well in this integration? What didn't go well? Early on, we were set on being decision-driven. That comes down to all acquisitions, but especially for Splunk, given the size and the scale of the deal, it's really critical to get down on what are the critical decisions and what are the outcomes you want to get from decisions that you're driving. One of the things that made us want to really accelerate how we thought about execution was actually the timeframe we were under. Regulatory approvals took six months less. So we thought that we would have six more months of integration planning between announced and deal closed.

15:22And we've seen in the market, regulatory approvals take longer time than expected. And we faced the opposite. We had to accelerate our integration planning and large complex acquisition. We'll need that time to perform that integration planning. So that kind of set everything up to speed a little bit. That's so interesting. I can imagine the deal leads being like excited that regulatory approval comes in faster. Maybe some lawyers are disappointed in some of the billable hours gets reduced. You're on the other hand of, oh my God, we got to hurry up and plan this integration. Yeah, exactly. And what it comes down to is if you don't plan properly and get started like out the gate when the deal closes, you're going to be behind on those synergies.

16:03Like you plan a model for a certain amount of synergies, but you want to start executing right away. So that kind of also led up to like the criticality of making integration planning and speeding that process up. Really important. What didn't go well? Was it mainly that? Yeah. You had to sort of compress timeline integration, had to scramble a bit. Was there anything else? Yeah, there were some culture differences, for sure. We always talk about that in integrations. Splunk came in very decisive, very quick moving, and where executives really got into the details down to like managing to the penny on budgets and things like that.

16:43And that was very different to how Cisco operated. When executives started getting into the room with each other, when we started tracking integration progress, what the Cisco executives were expecting and what the Splunk executives were expecting, the level of detail, the like, okay, great, we heard it. Decide and go. And Cisco's definitely a bit more, oh, we need to investigate all the avenues. We need to look at all the trade-offs and then we'll make a decision. That was definitely different. And again, to this theme of trying to get decisions made early, when it's one-sided and Cisco's making the decisions, we're getting the executives aligned.

17:28When it becomes two-sided and you get the spunk execs in the room, then it's like, whoa, okay, we feel a little bit of this friction, it slowed things down a little bit until we could get that operating muscle back that worked for both sets of leaders. Yeah, there's no two unique cultures that are going to be a perfect match for each other. Yeah. And then diligence are like, oh, we're culturally really similar. Isn't that so true? Because we talk a lot on this podcast about culture and there's so many different perspectives on it. But that's true. In diligence, you could see some good elements and commonalities in the positive because generally positive, unless there's a total toxic company and it's just, it'll stand out.

18:10But then rubber meets a road when you actually integrate, then you find out what those differences are. Yeah. And very early on, even like in the preliminary integration strategy, we do a cultural assessment. So it is core at the integration thesis and integration strategy is to assess what are the cultural differences. But none of these things like showed up. None of it showed up at all. Some of the executives already knew each other and were like, oh, yeah, we know each other. I've served on whatever his board before or whatever. That familiarity and working together in a different context made people assess cultures more similar at the full company level than maybe was there.

18:53Some of it, it's dating versus married, right? It's always best foot forward. Oh, I agree. And Splunk was definitely ready to be bought. Until you have to work together on the hard decisions, you can assess in diligence. but to your point, it's that rubber meeting the road on, oh, this is uncomfortable. That is stuff that you wouldn't have seen when everyone's trying to get a deal done. That's interesting. So you got the leadership level where this sort of, hey, culture looks good, which almost sounds like a little bit of a bias versus looking at the whole picture of the organization's culture.

19:26But also we saw early on that even though in a bigger picture, cultures were similar, There were also differences in the nuances, which we discovered pretty early on in an integration journey. And those nuances really is what we're setting as a part. Remember, Cisco, huge company, we make decisions at a slower pace. Splunk, fast pace, really appreciate making fast moves and bold decisions. You can see how that nuance in the cultures can cause a little bit of a clash from a leadership perspective. That's also one of the perspectives in terms of the reverse integration within the observability space is Cisco wanted to show Splunk that we are ready and willing to move faster than we usually do and make those bold decisions because that's what we aspire to be.

20:16So we wanted to show them by doing and living the Splunk culture. That's been really interesting. So you've been leaning in. Yeah. Great guys. That's the right attitude. We're still validating like culture is one of the biggest challenges when it comes to integration. Can we walk through just the life cycle of the very, very beginning? We don't even use this as an example, but like when do you get pulled in from the integration perspective into a deal? Very early on. So there are always discussions ongoing with targets and corp dev have those conversations on a daily basis. But when we're mature enough in those conversations, corp dev integration becomes involved in forming an integration strategy that's aligned with the deal thesis very early on.

21:02At the time you're developing the deal thesis. When we have a draft of a deal thesis, we're getting in contact with a deal lead from CorpDev to help formulate what the integration strategy that goes with that deal thesis. With the deal thesis. Okay, so before LOI. Before LOI. We're creating a deal thesis. We're just creating a deal thesis to get alignment. Like this might need board approval, especially a deal this size. Yeah. Creating a deal thesis. And part of that is what the integration thesis is going to look like. Yeah. So in our very first conversation before LOI, we go and have a conversation with our CFO for Splunk.

21:39It would be the board of directors level of conversation. But the first approval conversation with the CFO would have a version of integration strategy. And that's been a critical part of the approval conversation. So you get that initial draft going. When it comes to contributing what the integration thesis is going to look like, what goes into it? What level of detail are you getting to? So it's pretty detailed. So it actually incorporates the information we have at the time about the target, but it has details on what the product and technology integration will look like. It has details on what the commercial transition will look like.

22:18Who's the customer profile? What are the contracts? And how would we transition that if that's the desire to a end state where we move everything over to the Cisco book of business, for example. It has a people location perspective, and it has also the operational perspective. So it's really encompassing every single aspect of the business. When you made the example earlier of the observation business, is that stuff like that early when you start thinking of what's that going to look like in terms of what the dominant products are going to lead? and that early. Yeah. Before LOI. Before LOI. Well, we always work out details in LOI and final merger agreements or purchase agreements.

23:00I would hope so, yeah. It helps you figure out what you want to test in diligence. Yes. But you should have a pretty good idea of what you're buying and why you're buying it. A lot of it is to be additive into the Cisco portfolio in alignment to Cisco's overall strategy and where we're going. understanding, okay, where's Cisco? It's typically some subset, right? It's this particular product family. What is the acquisition bringing us? How do we actually make sure we know how to take what they have and insert it into our product family in a way that advances us? You're going to pay a premium. So you have to justify why you're doing the deal and why you're paying that premium.

23:51So that is part of the thesis. You really do need to start. And honestly, as integration has gotten involved in these early stages, sometimes we're asking those tough questions around, this is a nice vision that you have. How does that actually happen? What are the things that need to happen? How do you integrate that? By when do you think you're going to integrate that? If we don't know the answers, then that's what you need to probe on in diligence to say, hey, we're really buying company X for this specific technology or this specific set of engineers. Okay, do we need to test that technology for scale, for tech debt?

24:36Or if it's the engineers, like what are those engineers doing now? What support obligations are they going to have? How quickly can we get them off of working on maybe an acquired product that we're less interested in and working on the Cisco roadmap that we are interested in? Thinking through that to make sure that this deal vision is an actual executable strategy is really where integration plays a big role. It's really important to start thinking about that early as part of the deal thesis. They have an integration thesis tied to it. But it sounds like diligence is actually more than just looking for risk.

25:13It's validating that thesis and those assumptions that you made. So now that you got this vision of what the integration is going to look like, you're going through diligence saying, all right, let me actually do this. Is this really like achievable timelines? Is this going to be the right strategy? Is this stuff going to actually come together? Yeah, because ultimately at the end of the day, the deal model has made assumptions to achieve that certain valuation. So we have to be able to validate, is that achievable from an assumptions perspective? I want to step back a little bit. So like the big thing I always champion is buyer-led M &A.

25:42I got a whole framework I published. I'm working on a book right now. And a lot of this is crystallizing a strategy so then you can be proactive about sourcing deals. Obviously, the tech stack, you guys have your own custom tech stack to centralize information, but then synchronizing diligence and integration together, which sounds like you do that even before LOI, which is great. And then we talk about scale and then actually keeping the people experience so that things actually come together with the culture side. I'm curious if you go step back and look at the big strategy, how aligned are you to the overall strategy of why doing this deal?

26:16What was the driver? Was there sort of like this big view that Cisco had on where the company wanted to go and that was the reason of doing this acquisition? How aligned are you to the sort of big picture why? Is this pertaining to Splunk or in general? I would say even the Splunk is the example. Yeah, I'd say Splunk and then overall, I talk to enough integration people and a lot of times what goes wrong is people lose sight of the why. And I just want to get a sense of, because you're, I'm talking to the driver meets the road person. Yeah. And I want to understand is like, how aligned are you to that big, you know, the CEO's office?

26:50Is it around here? Can we go? Yeah. You want to say hi to Chuck? Let's see if we're both aligned. You know, I want to hear your story of what that vision looks like and what drove the strategy. I just want to understand, like, how are you aligned or how does Cisco like think about keeping that alignment as well? Every acquisition is aligned to our business unit structure. So the strategy depends on what market, which part of the tech stack that we're targeting with that acquisition. For example, the deal thesis we had formulated around security and observability since Splunk is a market leading company within those tech sectors.