Integration-Led M&A: Cisco's Approach to Deal Success Part 2 with Johanna Jaakola and Tesia Hostetler

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1:09This episode is sponsored by Dealroom. And if you're on the buy side, you know the pain. Most M &A tools, especially those clunky data rooms, aren't built for you. They're made for sellers and it shows. Dealroom is the number one platform built specifically for buyer-led M &A. It's designed to help you lead the deal from pipeline to diligence to integration with the structure and visibility you actually need. You get features like built-in project management, templated deal rooms, real-time collaboration, and AI contract review, all built to support how buy-side teams really work. No jumping between tools, no messy workarounds, and no hidden fees.

1:57Check it out at dealroom.net or click the link in the description to see how it makes buy-side M &A a whole lot easier. Lead the deal, own the outcome. Here's to the deal. I'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.

2:35Hello 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. 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.

3:16Johanna 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 Tisha 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.

3:59Integrate, don't integrate, or reverse integrate to accelerate value illustrated with lessons from the Splunk acquisition. This episode is part two of our conversation from last episode. If you missed part one, I recommend giving that a listen first. Otherwise, let's pick it up right where we left off. I'd love to hear a little bit more, especially, I don't know if you've worked with the traditional model where it's like a whole separate team. And a lot of times integration gets pulled in like a couple of weeks before close. And then they're essentially rediligencing the deal all over again. You're shaking your head.

4:34I can't imagine. I cannot imagine. I'm telling you, there's people listening to this probably like shaking their head because that's what their company does. The IL, the integration lead comes in and really, what's so great is as Johanna's like leading the charge, really bringing in the, why are we doing this deal? What are the things we're trying to test from a deal thesis execution and integration thesis execution? What data do we need to gather? And so really pulling in, and again, in some cases, it's the M &A community that will be working on that integration, bringing in their questions and their viewpoints.

5:12And then we still have third parties, legal, finance, detailed, like finance diligence, open source diligence. There's still third parties involved. But having that coordination point with that, like, why are we doing this deal? What things do we need to test in diligence is so critical. Because otherwise, I don't know how you start running on the right foot as soon as you get to close in those first month, two months after close when you really have all the attention, all the momentum. And that's where you can get a lot of the work done and a lot of those big decisions done and start executing against them because otherwise it feels like you start flat-footed.

5:56We agree. The biggest factor in M &A's success is how well you can execute integration. And a lot of it we've learned from the years of doing so many deals is start thinking of these tough things early on of the how and then having that thesis in early and being able to validate it. when you go through diligence, how does that actually shape your integration planning? You have this thesis, you start going through diligence and there's, I don't think there's ever a deal in history that has zero findings. So findings bubble up and then obviously you go through, you talk through it, think of a mitigation plan for those findings.

6:31But then in turn, you're leading integration. How does that sort of impact the actual integration work stream? It does impact it a lot. So part of this tentative integration strategy that we set out very early on, we are testing that in diligence, certainly to be able to detail it out as we do find diligence findings. And attached to the integration strategy, in order to measure, is this acquisition going to be successful? We call out something called value drivers, essentially the metrics on which we do acquisition performance management. So it's important in that process to test out, will this target be able to achieve success given the value drivers that we've formed based on the deal thesis.

7:13Everything is surrounded around deal thesis and the value drivers, the metrics that we're measuring and going back to throughout the deal lifecycle to ensure that we're achieving those targets. Because that's when we say this is success. Those metrics, you're really looking for like certainty against achieving those value drivers. They are quantifiable or they're at least time bound. So there's certain quantitative metrics that we achieve based on which dimension of the deal it is. For example, it could be retention from a people perspective. It could be go-to-market synergies for the larger deals where that's applicable.

7:50Or it could be technology. We're acquiring a company to achieve faster time in market. So it's roadmap bound. It's time bound in terms of that value driver. So it depends on the acquisition, but usually has those three aspects or dimensions. Do you have an example of like when you come across something and you're like, all right, we had to change our plan here or modify it? This could be when, for example, a tech in talent, like a tech token, technology isn't what we expected it to be or there's IP issues, for example, and you have to reevaluate. And that's really the purpose of diligence. We thought we were going to do X with this acquisition, but you can't because of those findings and diligence.

8:29So that would be something that will form a no-go recommendation. It could be a no-go or you might adjust your integration plan or you might adjust your sort of deal thesis of what do we expect the outcomes to be because some of these things that we found out aren't exactly the way we thought it would be. Yeah, I would say we typically do smaller tweaks on the deal thesis, but in large, the deal thesis is typically pretty set at those early stages. And just because we find something in diligence, it's harder to adjust the deal thesis based on diligence findings. What we do do is adjust the integration strategy based on diligence findings.

9:07Okay. Yeah. Or price or deal conditions. Yeah. We got a lot of little things circulating back because you're validating this deal thesis, the integration thesis part of it. With this integration-led approach, you're really refining those metrics of what's going to drive success and you're building certainty around those metrics. And then the other thing is decisions. So it sounds like you get a little leg up on some of these key decisions you're going to have to make, which I have concluded is such a critical factor in how well you can integrate a company is really setting the stage to make fast-paced decisions.

9:41If you don't, then just integration gets delayed and it becomes excruciatingly painful. Is that kind of what you're actually doing? I want to make sure I'm putting words in your mouth, but you're sort of going through diligence and you're actually taking some of this information, but you're using that opportunity to start making decisions for how you're going to integrate. Yeah. So you want to have the critical decisions made early on, as you said, because ultimately what we want to do is as fast as possible, time is of the greatest value here. As soon as the deal closes, you want to get started in terms of execution of the integration strategy and plan.

10:14Because for larger companies where we have assumed go-to-market synergies, for example, you want to get the go-to-market vehicle started so you don't miss out because time is literally money here. if you get behind on those synergies, we know how hard it is to catch up. You have a momentum in the beginning. So making those decisions early on so that you can have strategies aligned, that you can have operational processes aligned to that strategy. And of course, when it comes to go to markets, having seller incentives lined up as well. So there's many aspects. Really coming out of diligence and in all of the final kind of commit or the buy decision, as part of that is this kind of agreed upon integration strategy, but things that are embedded in there are things around an end of sale, end of life decision, for example.

11:07If that's a critical part in unlocking some of that value because we need to exit customer obligations so we can refocus an engineering team, for example, even down to site strategy. So we've said, hey, you guys are in metros that Cisco already has a presence. You're going to co-locate so the teams can work together. And in getting ahead of a decision that if you come open-ended with the target and they have maybe an emotional connection to that building, you've almost pre-made the decision and aligned the Cisco executives. So then when you go in, you're not going in open, you're going in like, hey, you're going to be consolidating into the office and these three metros where you guys are located.

11:57It gets to that level. We have our operations team look at some of their critical systems and make a recommendation of like, hey, we're going to get to a unified CRM system, for example. And that's all in there and all written down as part of that commit materials. So we have that to reference back to. So yeah, as much of that as we can do early on, the better. With that, I can see how you can accelerate things ultimately. Is it the goal to objectively integrate as fast as possible? Without destroying value. Yes. Great answer. Thank you. I was going to say, because I can imagine there's like pieces where you're, one, you kind of mentioned like integrate, not integrate, reverse integrate.

12:43But then there's also a piece of like, all right, we might want to slow down that part. Like we might want to wait a little bit and not just because there's some things that are different. And that's why it's so important to be very surgical. Surgical is probably the right word. Surgical is really the best practice. If some parts of the business are not mature, like the go-to-market vehicles, there's something Cisco has to change before you start integration, it's better to wait because you can't, first of all, optimize or perform the integration as you expected. So there's a sequence of happenings and you have to respect that.

13:17And sometimes that's the right thing to do. You just have to be really clear on what's generating value and understand how that works. So you can then make decisions. Again, that's why you learn about this stuff as early as possible and make decisions around, okay, we need to protect X, Y, or Z because it's critical to how we're generating value as a combined company. Do you have like general rules of, hey, we want to integrate these functions in early versus other functions in later? Yeah, we certainly have guidelines. Guidelines, yes. Expectations, right? So things that move very quickly are anything on the employee side.

13:55We need one HR system as soon as possible, one payroll, one set of benefits, all of that stuff. None of that lingers. Sites, we're trying to be also move that as quickly as possible, rip the bandaid off. And honestly, anything corporate facing because you want to make sure that your finance team has oversight on their finance team and that those teams come together very quickly. So we're making sure we're doing everything for all of that finance close, consolidation, external reporting done really right away. Legal, same story. Any of the regulatory compliance, tech, all of those we integrate very quickly because of the legal and regulatory issues in those spaces.

14:45Where we get more measured is things around engineering, sales, stuff like that, where we're really trying to be like, okay, what model works best for what we're trying to do, both for the business unit that acquisition is going into and how the acquisition is structured and drives value. Surgical. What's day one like? How's it a big party? You know, this is the win-win in buyer-led M &A. How do you get the best people experience for the incoming employees and the best people experience for the existing employees? So they're really excited and just like motivated. You hear the horror stories where you don't communicate things right and you got FUD happening and people are just like, you mentioned the attrition metric.

15:31Yep, that's right. All of a sudden that's in the red line. And that is acknowledged as a critical process. So shout out to our employee experience team, whose critical responsibility it is essentially to ensure that they have a really smooth process for after close. There is standard methodology for clear communications and how do we perform onboarding of acquired employees to Cisco so that they know the basics of how Cisco works as a company. What does the standard set of tools look like? And of course, get a face. So we try to do as many of these onboarding for new employees in person. So I had a fortune of traveling to the UK for the Splunk acquisition to do that while coming in person for the UK employees.

16:16It really is a good way of showing the human side of transactions. We did have a party. Yeah. That's good. That's a good way to start things. Like, hey, let's celebrate. How about swag? Yeah. These are the fundamentals to make day one successful. You got to have a party, got to have swag. Anything else or like big day one staples? I'll call out announce versus day one. Announce, we try and have one of the Cisco business leaders be there hand in hand with an acquired leader so they can articulate that joint vision. That is as soon as the employees are knowing, we typically do a private announce first.

16:55So they hear it from their leadership and the new Cisco leadership to really hopefully get them bought into. You were operating towards goal X as an independent company. Now we're operating together to goal Y. But really getting them to understand that as early as possible and see the Cisco leader and see their leader together is really important. And that's at announce. And then all the good stuff Johanna talked about is that's in that next phase of the employee journey of, okay, what does it mean to be a Cisco employee? And how do we help you give that white glove service as you move over? So this goes back to like the big picture, overall strategy.

17:37So at announced, you want to get alignment on strategy, folks excited about, this actually makes a lot of sense. And then day one, party and swag. Yeah, there's different day ones, right? So day one is when we announce, it's before the acquisition has even closed. So you'll actually consider that day one announced. Announce is when everybody finds out. That's day one of awareness. And you want that to go well. Yeah, hopefully you're in control of that. It's not just leaked out, but yeah. So that is really one of those, we call those moments that matter. It's announced. It's the first time the employees of the target are hearing about the acquisition.

18:10So having our chief product officer there is typically important. Like the highest level of executive leadership team at Cisco is acknowledging this. is a huge acknowledgement of the importance of them as employees. And then also showing their leader, their CEO, they're together. So back again to the why. That's critical for that first meeting and hearing about the acquisition for the employees. So that's the leading cause of the private announce and what we try to convey as clear as possible. Any things that happen after day one? I feel like there's a lot of people who got a clear plan in place.

18:48You got people fired up at this point, hopefully. And then is there anything that just Cisco does to give assurance that things are ultimately going to be successful through the execution? So we do a couple of things. We look to each function that's receiving employees. Okay, you've become a Cisco employee, but okay, what does it mean to be an engineer at Cisco? And how do we help you understand? So there's typically that receiving function. We're like, okay, how are you going to engage those employees? How are you going to help them function in a broader context? So things that have happened is we've done teams or at least executives visit each other.

19:30If they're in different sites, we have people set up with buddies. We have those acquired teams getting pulled into their broader all hands, Just making sure that they're connected with the rest of the employees in that function and those kind of cultural rituals and the things that they do. And then the other lens that we've taken is we recognize that it's sometimes hard to be a manager at Cisco because there's all the performance rituals and the compensation rituals. All of that is surely different at Cisco than it was at some tiny startup. So we do like an acquired leader enablement that is very specific to, hey, this is what it means to be a leader slash manager at Cisco.

20:22If we enable those leaders, then they can help disseminate that to their teams so they don't feel like lost in the broader Cisco. We're trying to equip them with tools. So there's a couple of things that, you know, a lot of our people teams have developed. These are our M &A teams that sit in our people, our HR function that have really developed some really fantastic programs like what I just outlined to help make that an employee journey and not just to like plunk, here you are. And to add that, it's perfectly described in terms of the execution, just zooming out back to timing on when we do things.

21:04This engagement plan on how acquired leaders will need to engage with Cisco leaders and acquiring business units leadership needs to be engaged with the acquired employees to show how important it is. And all of that goes into an engagement plan at an early stage, which again, we're validating in due diligence. If there's a certain people risk, for example, there's a heightened risk for attrition after close, then that will need to be detailed how it's going to be mitigated as part of that engagement plan or change plan. And so it depends on what risks we see, what level of effort we need to do in terms of the engagement plan and the engagement activities.

21:46but then there's also a standardized set of those functional onboarding activities that we do every single day. I got it. So there's this broader engagement plan and then you have initiatives to connect to people. So they're really like fitting in at home. And then there's leadership enablement, which I think would be like a whole podcast topic of its own because it's one that I've noticed the companies that are really successful integration have a strong leadership enablement program in place. And the ones that aren't, don't. Yeah. So one thing we have not talked about through this whole interview is those corporate development folks out there.

22:21You took away diligence from them. So that's pretty much it. They just get the handshake on the LOI and then they're out. We do partner with them on a quarterly basis like Tisha outlined. I would like that job. I just I'll get to LOI and I'm out. That would be beautiful. And this Johanna and I were talking about this as we were doing the prep is they really manage beyond just doing deals. They manage an overall portfolio of investments in a full lifecycle of, hey, what spaces is Cisco interested in? Where do we need to be engaged to see how the technology is emerging? OK, how do we get investments in those companies?

23:01How do we follow that as it grows? how do we potentially take an ownership position? Because we'll typically have some sort of right of refusal if a company that we're invested in is looking like it's going to get bought. So they're managing all of that. Yeah, deal making's a part of it, but it's just like the end stage of a broader kind of strategic portfolio management. They're our friends. Keep them focused. They're our framework. Well, shout out to our CorpDev team because if we wouldn't get involved at an early stage, it wouldn't be setting integration up for success. So I'm forever grateful for Karen Ashley, our VP, for building that relationship on a leadership level and enabling us to do what we do at such an early stage.

23:50I think we got to rebrand. Like it's almost in your organization. It should be not corp dev and it should be rainmakers and value creators. You mentioned earlier, use the phrase M &A community. What does that actually mean at Cisco? For us, we really recognize that all of the functions that have standing integration professionals. So typically, we've got a handful of folks in our major functions because we are a serial acquirer. And those folks really serve as the bridge of someone who knows integration and knows their function really well. They really go in and take this integration and the integration strategy and then using that functional knowledge, say, what does that really mean for IT or for supply chain or for finance?

24:48What's the highest order work? What are the things that are going to be the most problematic? And then they're pulling in their broader stakeholder teams. Like maybe it's the accounting team that needs to understand how to do a deal review and approval for these new types of deals that are coming in because we acquired a company. They're the ones that have to build that bridge and make that linkage. And they help us in the central integration team really connect and understand how this integration is going to flow as you really go to this process that has to change, this system upgrade, this team that needs to go do something differently.

25:33They're what make that happen. We are very tied into that broader community. So we have those leaders. We meet with them every two weeks as an integration leadership community. So within our central integration team, plus all of those function integration leaders to talk about what's happening on pipeline, what's happening on Splunk, what's some top of mind issues that we need to be more on top of. really the leadership levels connected, but then those teams are connected because that Johanna's an integration lead is literally pulling together all of those functional team members to understand and drive that work down to this finance process, this IT process.

26:24And we have quarterly all hands where we all get together as a broader community. So we really recognize that we're all one team. And if we're not all working together and pulling in the same direction, like this work doesn't happen. That's wonderful described. And we all stay connected, not only through this meetings, we have a wonderful tool where we measure all the inputs, lessons learned, all value drivers, everything related to all of the deals that we do is all in one homegrown tool called M &A Hub. Central source of truth. The central source of truth. Which I think is really important. Like in an M &A program, you need one place to collaborate, priorities, central truth.

27:05Yes. That's how everyone really understands what's happening. Yeah. We have a full detailed plan. All of the aspects of full integration or compliance alignment that need to happen is all tracked there. So teams can understand what other teams are doing that they're dependent on for work. And also, centrally, Johanna, like an IL, can go in and understand what's happening across the full scope of the deal. We have all of our metrics in there so people can see how the deal is performing from a financial perspective, from a retention perspective, all of that. Wow. And so I lead all of that work with the M &A community for every deal.