Partnering Before Purchasing: How Booz Allen Wins Proprietary Deals Early

21:46Chrissy Cox:I'll say with Liberty, their talent is across the Booz Allen business now, not just in the VA. That's been great to see that really come to fruition. I get that. There's a sort of... Here's this vision. There's a point that you can accelerate it, partnering with the right strategic partner. I'm wondering from the founder's point where you want to optimize valuation, there's almost this view of, okay, I know I can do this alone to get to this far, or I have confidence I'm going to keep this high growth trajectory. And then there's got to be this point. Because if you hold on too long and your growth starts slowing down, now all of a sudden valuation and everything works against you.

22:22So you have to have some high level of confidence. How do you think through that? Because I've seen that before where some of these companies are like, whoa, you think you sold way too early because the company went 100x after they sold. I don't know. That's where I'm always curious.

22:34Chrissy Cox:I think about it from a buyer side, maybe a little bit more. I've never been a founder. But from a buyer side, when we're seeing companies, we really want to see that we believe in the trajectory and that they have a history. So a lot of times you'll get these books with hockey sticks. They're about to hit an inflection. And it's like, well, you probably need to wait until you've hit some of that inflection and have seen some of that to optimize value and also optimize strategic interest. So it's like a balance between, hey, we have a strong history of trajectory, and then we still have this future potential.

23:10They feel like that thing of if you hold it too long, where it's like, okay, the future looks a little grim now. We have a majority market share already. Things are obviously going to slow down. Then you probably see the same thing. and then it's counter. So I feel like there's got to be an between point to optimize for value.

23:26Chrissy Cox:Yeah, absolutely. At least for the companies that we look at, a lot of times they are hitting a threshold of scale where to get to the next level, they're really going to need to invest in more infrastructure and more business development, etc. That's where it might make more sense to have a strategic partner. They have the momentum they need from the client, but that they need more channels to market, etc. Going back to the culture. You've walked away from deals where... This is the thing I truly struggle with. You walk away from deals where the finances, the strategy, the business case really looks good.

24:00But then you're like, the culture doesn't fit. Can you walk me through what does that valuation look like? What are you really testing for before you make that decision that culture is the breaking point?

24:09Chrissy Cox:I think that cultural fit starts from the beginning of us cultivating relationships. Every single interaction that we have with a company, we're testing, is this the right cultural fit? Are they really motivated by mission? Like we're motivated by mission? Do they have a set of core values? Do they align with our core values? And we're constantly testing that in processes. Most of the time, we're working with these companies before we get to an M &A process. So even testing it there. When I think about deals we've walked away from, they're not cultural fit. I have one story that pops in my mind.

24:45Chrissy Cox:cash. It was probably almost a decade ago. And we were in a management meeting. Super interesting company, super interesting capability. But towards the end of the management meeting, we asked a question around, Hey, can you talk to us about your core values and culture? And the CEO made a comment and was like, Oh, core values, we have them somewhere on a wall in a cafeteria. And that did not align with us. We live our values every day. We walked out of that meeting and that was the end of us moving forward in the process. And so what I think he thought was a joke, it just did not align to a good cultural fit for us.

25:24I like that. You were pretty direct. Talked through core values. Because you should have... If you truly embodied it, you'd be able to clarify it. Actually, I'm going to try that. I had a deal where this CEO... It took me a while. It took me a few meetings to realize. The only thing he cared about was himself and the outcome for himself. you kind of realize that's not going to be a good transition when things are said and done. Then I did a reference and found out that was exactly the case for the last deal he did.

25:49Chrissy Cox:Yeah, we're pretty direct about it and then constantly testing every diligence call. We don't necessarily talk about core values each way, but every interaction, you can assess cultural fit. I like that direct question. Talk to me about core values. Is there any other questions that help surface a sense of it or just things you observe and look? And that's where it goes back to the remote thing. Because for me, it was always going on site. It was going on site and you just walk around the office and you could absorb what that culture is like. Is it buzzy? Are people moving around? Are there water cooler conversations?

26:21Or is everybody just super structured and you can tell there's walls everywhere?

26:25Chrissy Cox:The site visits are so important. Getting in a room with the other side is so important and really understanding. We do a lot of dinners. Really, you need to know the team better to also assess the management team and whether it's a good cultural fit. But also for them to have an opportunity to get to know us and our culture as well. We get a lot of questions around that. Every interaction you have with the other side, you have to be thinking about and assessing culture. And cultures are going to be different. But how do you work through the change management to have a successful integration and drive value?

26:58I like the food and alcohol approach. I feel like that sometimes surfaces some interesting information.

27:04Chrissy Cox:Having dinners with management is always worth the time and better able to really understand that leadership team and what motivates them. Culture is driven from the top. Our belief is that if the culture and values and mission is at the top, that's probably part of the entire company. Do you ever sense like there's definitely a strong cultural difference, but still compatibility? Sometimes I look at a company page, you can tell like every employee is like hardcore, aggressive sport. Like they're into some extreme sport. And that's like a core thing in their culture. And I look at our company and say, no, we do like pickleball.

27:40That's it. Have you ever come across that where it's, whoa, there's definitely extreme, but I can still see this working out.

27:46Chrissy Cox:Yes, there's definitely different nuances to the culture and what fits and what doesn't fit. For us, that gets back to, do you share the same core values? and do you share the same passion for mission? There are going to be different cultural nuances, even thinking about different geographies around businesses and different business units. There's different subcultures in a culture. For us, really thinking about the same passion for mission and the same core values tend to be a good cultural fit, even if it's different subculture. When you think of an organization, there is like subcultures within the culture, like different departments could have different cultures.

28:24Have you had it where you get to LOI, you sign the LOI, and then you start identifying your issues?

28:31Chrissy Cox:What we really focus on as we think about integration planning and change management is really identifying, we call it the secret sauce of the company. And part of that is things around culture as well that really drives the value of the organization. And as we think about that in integration planning, we really want to think about what are the aspects that we want to make sure we're keeping and learning from another company. Because even as a large company, we absolutely want to learn from who we're acquiring and make sure we're pulling the best of the best through our company. The other area that we are really focused on is being transparent.

29:15Chrissy Cox:We're not going to be able to keep everything the same as we integrate a company into Booz Allen. But what's really important is transparency around the process and making sure that we are thoughtful around things that make the culture special and drive value. Taylor, the integration plan around the organization's culture and make sure you preserve and don't break stuff that's important. Yeah. Can we talk about this par government deal that you worked on? Because I got the gist that it's a carve-out of a carve-out. And it's a complex deal, basically. Can you walk me through that deal and what were some lessons learned?

29:53Chrissy Cox:Interesting. Our government had been on our list for a while, but at the time, it was a subsidiary of a publicly traded company, Par Technology. And we were interested and then it became actionable through a process. And we worked with the sell-side banker at the time, it was Baird. And we were really interested in most of the perimeter. However, part of the perimeter just didn't align with our strategy. We conveyed that. We've been working with Baird for years. They were the sell side on a number of our deals that we've closed and really worked closely with them of how do we structure something where we can still buy our government portion that we really were interested in.

30:37Chrissy Cox:What was unique about it was they were willing to have the conversation and the seller was willing to have the conversation that they were still able... they were actually able to maximize value through the structure. What also helped was the structure itself. They were already... The part of the business we didn't buy was really operating separately already. So there wasn't much overlap between the two businesses, which made it a lot easier to carve out that portion of the business. You're making it sound too easy. What's the hard part of doing a carve out? Oh, it was getting to the quality of earnings and making sure you agree with the adjustments and really understanding the cost of that business is always a challenge and making sure you're getting all the assets that you need to run the business.

31:21Chrissy Cox:That's really where we spend a lot of time and energy at Carve Out. Built by dealmakers for dealmakers, the M &A Science Intelligence Hub takes real-world practices from over 400 M &A professionals and makes them instantly accessible. No panels to sit through, no generic advice, just AI-powered intelligence that understands your role, your deal stage, and your specific situation. Where M &A mastery needs machine learning. Learn more at mascience.com. Again, that's mascience.com. That's the big thing I've seen. I did a three-person carve-out and was like, wow, Now I know everybody hates these things so much.

32:11But you can't fully scope those things out. It's impossible to fully scope out a carve-out. So that's what I'm curious. You get maybe an LOI or some general term signed. But then after that, can you tell me a little bit about what you have to negotiate? Because it sounds like there was still... You mentioned the quality of earnings comes back. You got to make some adjustments.

32:33Chrissy Cox:We negotiated a transition services agreement. And it was a multiple transition services agreement. anytime you're dealing with a carve-out. It was getting our arms around the assets that were coming with the business and making sure we had the assets to deliver the business is always the most complicated part of the carve-out. Did things land smoothly? Yeah, it's been a great deal for our defense technology business. The technology that our government brings to the mission has been incredible. We've achieved more synergies than we probably realized we were going to achieve. coming into it. It's been a really good cultural fit as well.

33:13Chrissy Cox:We, from an integration standpoint, kept that business into our defense technology business. And they've been a core part of our technology stack. It was worth the pain. It was. You worked through a bank process on that. I know a previous conversation, you mentioned that you actually encourage targets to hire bankers, even on proprietary deals. Is that true? Yes. Why would you do that? We live M &A every day and speak M &A language, know the process, are comfortable with the process. But founders and business operators, this might be the only deal they ever do. It's a new process for them. They still have to run a business and they still need to grow the business for a successful deal to happen.

33:55Chrissy Cox:We rely on our advisors and we find that typically when a banker is brought on the other side, the process is much smoother. They're the ones that know the playbook. are the ones that can help guide the founders around what do they need to do for diligence, what is market, help them with their data room, help with the negotiation. And I think as you get to critical points in the deal, deals can become emotional, especially if this is the founder's baby, but it really helped them navigate the emotion and getting to a signed deal. Wouldn't you be worried that it turns into a competitive process by doing that?

34:37Chrissy Cox:It hasn't. Yes, there's always a risk. Are you putting guardrails in place to prevent that? Look, when we're putting in our LOIs and negotiating that, typically we're in exclusivity. Oh, so you could get to LOI and then say, hey, you might want to bring a banker in to help with the process. We usually recommend they bring a banker in a little bit earlier than that. But if you've built a relationship with these founders, they understand the vision and you can get to alignment on value. We've had success from a proprietary deal perspective. I need more convincing to do that. The problem is I did advisory and I've done a lot of sell side and the banking sell side.

35:21Your golden rule is you keep unsophisticated buyers unsophisticated and you entertain the sophisticated buyers. You don't try to sophisticate unsophisticated buyers. And I feel like that same applies on the buy side. But I get your point. You're going to spend and rack up a lot more brain damage and time if you literally got to go through so much more back and forth, all the information requests and all that stuff. I get it.

35:44Chrissy Cox:It streamlines the process for us. We can move much faster when folks have the right advisors on board. Somebody should have like a flat fee service to do that. Where they actually package up a deal and just offer it like as a flat rate or something based on headcount or something. And anybody else want to partner in a new startup, let me know. Snap attack. Oh, you know what? Actually, partner first. I want to talk about that. That's like our main topic. Can you tell me a little bit about that? Curious, like percentage of deals that you've partnered first on with the philosophy on it versus like the other example you had, you know about it.

36:18It was an area. You've had the friendly relationship versus a true partner relationship. That I'm curious about, too, because I feel like what I've learned is just partnerships are really difficult. You spend a lot of effort. probably as much as the M &A effort to enable them and make them successful?

36:32Chrissy Cox:I want to say that 80 % of our deals, we've probably had some sort of relationship, partnership in the past. In aerospace defense and government services, there's a lot of partnering that's part of our business model. We work with a lot of different companies across the board that helps develop our pipeline. And we've had success. And coming in when you're just going to need to know the company and the diligence process, we get a lot more excited about companies that we know and we've seen on the ground and that we know what capability they bring and what gaps they fill and why we've been more successful partnering first.

37:09So that's just general. You find a company, it's interesting, and it's like, maybe we should try to figure out how to partner with them first. What does that look like?

37:16Chrissy Cox:Our market leaders are bringing companies to us. A lot of times, they're already partnering with these businesses. And then they're coming to us and saying, hey, this is a great partner to us. We think they would make a great acquisition candidate and really can articulate the why they fill certain gaps and why we're partnering with them already. But why we really, as you think about the buy build partner framework, why it might make sense to actually acquire the company. So what does that look like when you build a business case for that acquisition? Is it like, here's we have these points to validation because of that partnership?

37:51Is that, what does that specifically look like?

37:52Chrissy Cox:Yeah, that's part of it. From a business-based perspective, it's really thinking about what capability gaps a company is going to fill. And we already know in the market today where they're filling some of those gaps as a partner. But that being able to bring the technology in-house where we have more of the IP ownership and are able to build on top with our own IP can really scale that business in a more meaningful way. Got it. So there's some real synergies of going beyond partnering that you're going to accelerate some growth and value. Let's talk about Snap Attack. This is a company that you spun out with venture backing and then eventually sold it to Cisco.

38:32What was the thinking behind that? How do you decide to spin out each traditional acquisition or building internally?

38:38Chrissy Cox:Yeah, the Snap Attack. It was super interesting. It was a great team, a great technology. and we thought it had a lot of potential. When we spun it out, the technology was still nascent. It was opportunistic. We felt like it made sense to spin it out at the time because we felt that it really needed venture backing for it to be able to scale and grow in a much faster way than we were going to be able to do it internally. And the really successful spin out and through the spin out, We've maintained a strong partnership with them and a channel. So we were a customer of SnapAttack while they had spun out as well.

39:19Chrissy Cox:We partnered with them in the marketplace, but they were able to scale much more rapidly through the venture investment and spin out than we would have been able to do internally. How do you think through that? Is a firm traditionally known for consulting? You've seen this happen. We're a consulting firm by a software company. And then a year or two that basically dies on the vine. How do you think through that in terms of your businesses between software and services? I think in this case, it was about the technology and scaling the technology. So SnapAttack was really this crowdsourced platform.

39:54Chrissy Cox:But wasn't it because it was a software business? Because we have software businesses and products at Booz Allen. However, in this case, because it was more of this crowdsourced platform, we felt like it needed a different investment profile to really scale. Got it. So it's unique. It doesn't fit into the playbook of your other product lines. Yes. What do the terms look like of actually doing that? Actually spinning it out and roughly, you don't have to give me a term sheet, but... We were able to find the right venture partner and they were able to help us also and vet and build a leadership team with founders of the business, the great team that went over with the business and really scale it.

40:35Chrissy Cox:That was what was really important to us. It was a startup within a 30 ,000-person company. And the team was extremely passionate about the technology and what they were building and the potential. But the venture was really able to help guide the company in a way that was able to scale that business and had a successful outcome. One thing we haven't talked about is Booz Allen Ventures. You actually have a formal venture group that I know has expanded to$300 million. On top of it, you recently announced that you've taken an LP position in A16Z's growth fund. Can we talk a little bit about that?

41:16How do you look at the venture that feeds into M &A pipeline? Or are they just completely separate strategies?

41:22Chrissy Cox:We really see our venture investments in a different stage of the life cycle. and how do we partner and scale and bring that technology to the mission and the warfighter. Some of our venture investments could potentially be M &A targets one day, but I think that would be the exception, not the rule. Most of our venture investments are seed to series B. And really, as we think about bringing technology to the warfighter, we're partnering with these venture companies to really help them scale and bring cutting-edge technology to the mission. So it's more about getting access to the technology versus getting an option to buy the business later.

42:03Chrissy Cox:Absolutely. That's where we're focused from a partnership perspective. Working with the founders, integrating technology, building on top of the technology as well with our own IP and bringing solutions to the warfighter. Interesting. Access to the technology. But couldn't you get that other way? Couldn't you just do a commercial license and still get access to technology? Is it different when you actually are on the cap? It's different when you have a seat at the table and that you're a true believer and an investor in the technology. Then you can actually help shape the roadmap and really have a say in the future.

42:36What is partnering with another very prominent VC firm like and why would you do that?

42:42Chrissy Cox:So we have a long relationship with A16. And it's been a great relationship working with their portfolio companies over time, co-investing. And what we really wanted to do was double down on that relationship. Our venture fund really focuses on seed to Series B. But we also know for our scaling technology, getting the technology of the warfighter much faster, we really needed to start focusing on more growth-oriented companies and where they were in their life cycle. This was a great opportunity for us to partner with A16, world-class VC, to be able to partner with them and really partner with their portfolio companies on bringing solutions to the mission.

43:29So it helps you get more access to technology.

43:31Chrissy Cox:Absolutely. And when we started the conversation, we were already working with a number of their portfolio companies. So this really just solidifies the relationship. Very cool. Look forward to hearing more about that. A couple of topics, I know before we run out of time here, but we haven't talked about integration, which I feel like is where rubber meets the road. What's your philosophy on integration? What are some of the big lessons learned? Do you just hand it off to an integration team and wave goodbye? How does it happen over there? Who's Ellen? Ultimately, the business team needs to own the successful integration of a deal, just like they need to own the business case.

44:09Chrissy Cox:And of course, every company has learnings on the integration side. And every deal brings its own learnings on the integration side. For us, the most important part of value creation is around culture and change management and making sure that we're really being thoughtful around what is the secret sauce of a company. How do we make sure that we're protecting that secret sauce, but also integrating and scaling it across our business? And we're learning. We really think about integration as a two-way integration? How do we learn from the new company too and take some of their best practices and what makes them special and bring them into Booz Allen?

44:47Yeah, it's like a reverse integration where you're really trying to figure out what's the key things. And what was the biggest lesson you learned? Was that part of it? Or what was the big thing that you've learned after doing a number of these deals to make them successful?

45:00Chrissy Cox:Early on, as we think about driving synergies, it might have been more fragmented across our business around where we were getting synergies. And where we've really evolved to is we have a market leader that is really accountable for driving the success and the synergies of that business. We are a really large company. When you think about having a lot of different market leaders touch an acquisition, that was challenging for us. Having it more accountable to one market leader. And we still work across the business to drive synergies, but that one market leader is truly accountable for the success of the integration and acquisition.

45:38Synergy accountability. Make sure you got that right. Looking at some of the acquisitions we talked about, but just recently, you've done deals across defense tech, health IT, commercial cyber. And it's a little bit of that theme of shifting from consulting firm to tech company. Can we talk a little bit about that? Like it's a big change. And kind of like I mentioned, sometimes tech deals die in the helm of consulting firms.

46:02Chrissy Cox:It has been a big change. Look at that for us. We've been delivering technology to our clients for at least two decades or longer. But we've really transitioned from consulting on the technology to building the technology for clients. Where we're focused on an M &A perspective is how do we fill those capability gaps that we may have or channel access and defense technology space and cybersecurity are our main focus areas. What does that look like when you look at your business organization structure? I'm always curious about that because a lot of the consulting, just when you sell services, it's so different than selling software.

46:44Are they really segmented? You look at it as like, here's completely two different go-to-markets or just having these business platform segments in a way where there's an ecosystem for software businesses versus services.

46:56Chrissy Cox:When we're looking at companies and how they are going to market, And a lot of times in our market space, you're going to market with software and services together because you're really implementing the technology into the ecosystem to make sure it's getting to the edge for the warfighter, making sure that we're mission focused. For us, the companies that we're looking at, their go-to-market is not really that different from our go-to-market. You still got to integrate that go-to-market into your... Which is a whole other topic. That's what I'm going to take a rain check to come back and visit.

47:32But I feel like that would be interesting. With a business model that's mixed services and tech, how do you absorb and integrate go to market?

47:40Chrissy Cox:We're already doing technology and going to market in that way. We've transformed over the last decade, but hasn't from an integration perspective. There's obviously things we can learn and change and companies bring channels to market. It's not complete white space for us. It's a close adjacency as we're looking at companies. So going back to folks I've talked to, especially recently, that are standing up corp dev functions, because it's actually happening quite a bit. A lot of new platform plays, roll-ups, etc. What are mistakes that you see organizations make when standing up a corp dev function or see things to overcome?

48:21Chrissy Cox:I think there's probably three mistakes I see in M &A. And whether it's standing up a corp dev function or looking at different companies, the first thing when you stand up a corp dev function is really having a clear strategy and where you're focused on so that you can really build a pipeline, build buy-in at the board and the leadership team level of where we want to focus capital, energy, and create value. And if you're not centered in strategy, you're going to be spending a lot of time looking at companies that don't make sense. So that's number one. We've talked a lot about culture, really creating a framework where we can really think about cultural fit, mission fit for us was really important.

49:04Chrissy Cox:Obviously, the playbook is important too, making sure you know how to run through a diligence process, the right financials. I view those as table stakes. The third mistake I find is you don't want to fall too in love with a deal. Really want to be disciplined. It's very easy in a deal process to fall in love with a shiny object. And you have to be able to walk away from a deal to make sure you're getting the deal terms that you need, the protections you need, and also that you're not overpaying. I have a super clear strategy that'll make things a lot easier to find and identify qualified targets.

49:37And then the culture, mission, developing the playbooks, and also just being bottom line disciplined, don't catch deal fever, and fall in love with deals. One more question, Chrissy. What's the craziest thing you've seen in M &A?

49:52Chrissy Cox:I feel like every day is different in M &A, which is a little bit of the craziest thing. I feel like every deal is different. I learned something new on each deal. Each deal is unique. Each founder that you're working with is unique. How you think about integrating the business is unique. And you have a playbook that everything's a little bit of the same. But I still feel like what's so crazy about M &A and why I love M &A is that it never fails. Every deal, I'm doing something unique and different. What was the most unique and different founder or business owner you had to work with? Oh, I think all founders have their personalities.

50:32Chrissy Cox:They've built such successful businesses. The businesses we're looking at are successful businesses that are high growth, that are hugely strategic. You really need to get to know those founders and better understand what is it about their baby that's really special and make sure that we're resonating. But they all have very specific things that are important to them. And how do you figure that out early in the process to build that rapport and relationship? This is a fair closure. The deal itself is extremely unique, but just as well, the founder and their drivers are just as unique. Absolutely.

51:10Chrissy Cox:The team that you're working with on the other side is unique. You really need to figure out early in the process what matters to that team to get to the finish line of a deal. Next time we'll have dinner and share some more deal stories. Okay. I would love that. Chrissy, I appreciate you taking the time to have this conversation and helping me become a better M &A scientist. Well, thank you for having me. I really appreciate it. Those of you still tuned in, thank you. I'm impressed that most of the audience stuck through. Fellow M &A scientists, reach out to me, connect me on LinkedIn. I got my privacy guard down, but put a little note so I know you're not a bot or somebody trying to sell me something.

51:46I'd love to get feedback. Let me know what you think about this content, live stream, topics I haven't hit on yet. I love those recommendations and the criticism. I'll take it. I'm trying to get tips to get better at this. Until next time, here's to the deal.

52:10Thank you for taking the time to explore the world of M &A with our podcast. We love hearing feedback. Tag us on a LinkedIn post, add a review on Apple Podcasts. We'd love to hear from you. If you need help standing up an M &A function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email, Kisan, K-I-S-O-N, at mascience.com. Or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter.

52:55Again, that's mascience.com. Here's to the deal.

53:09views and opinions expressed on mna science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual this podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions Doc Opress