Realizing Revenue Synergies in M&A

24:44When it comes to revenue synergies, let's focus on the customer. What we focus on is what are the so-called moments of truth. It's a well-established, I think that's like human design elements, customer success metrics. And what are the moments of truth where your customer decides to buy your services, your customer decides to renew your services? Where are those moments and how well is the organization positioned to deliver against that? So are those moments of truth really the key differentiating factors? So for example, for buying slalom services, what are the moments of truth for our clients?

25:19I bet I know that. so I know how to create these moments and make them stronger. First, the second one is how do we measure those? What are the metrics that tell me how I'm doing with my customers? We're going deep into customer success now, but it really matters for M &A because you need very short feedback loops. And if you are issuing a customer, a net promoter score survey once a year, or even every quarter, that's insufficient for M &A because you're moving too fast. So you have to figure out what are the, we call them listening posts that you can establish in order to understand whether the value proposition and the hypothesis you have in your deal thesis are actually real or there are areas of more value or other areas where it actually doesn't materialize.

26:03Anything else we need to keep in mind for pre-LOI? Because it sounds like we're clicking at a lot of things. And I don't think a lot of people do this, Chris. Last deal I looked at, I never got to this level of detail. A lot of companies, they look at net promoter scores And they also look at the employee satisfaction. What is their turnover? That's an indicator for the company climate. Is it better or worse than industry standard? What do people write on things like Glassdoor about the organization, about their leaders? That's an indicator on how they're serving their customers because there have been endless studies around a poor corporate climate creates poor customer experiences.

26:40You don't have to be in a service industry in order to arrive at that conclusion. That is something that we do all the time. we look at employee feedback and we look at how those two things, the employee side and the customer side and the partner side, not to forget the partner side, how they come together. Because a lot of companies that we work with, they sell through a partner channel and activating the partner channel with acquired company products is in some cases even more complex than it is with your internal sales organization. Okay. Oh, I get signed. Game time. I'm pulling everybody in.

27:11Now it's, we got a deal we're going to do. We got to get, figure this out. We got to make sure we go through, do thorough diligence. We need to figure out how we're going to integrate this thing. And we know from the last deal that the integration didn't go too good. So let's talk to Chris and see what advice he's got for us so he can guide us and make sure we don't screw it up this time. Hey, I got you in early enough. I didn't close the deal and then bring it in, Chris. I got LOI just signed. Guide us through so we can maximize revenue synergies as best we can on this deal. So the first thing that we usually do is we ask you for your deal thesis that you got somewhere Yeah, early on, we talked a little bit about that.

27:45And then we have a generic synergy model that I wrote a blog post about. Having done so many deals now for us, we developed a framework that helps us think through the value drivers for the deal. And we basically break it out into five buckets. So the first bucket is just, is there a spinoff that you want to do out of the deal? The second bucket is standalone business growth. What can we do in order to accelerate the revenue velocity of the acquired entity? Another bucket is cost synergies. Everything that can be done to do cost synergies, consolidation of functions or vendors or supply chain optimization, etc.

28:28And then revenue synergies. And revenue synergies basically break down into what you sell, how you sell it and who you sell it to. Again, it's a simplification. But the purpose of this model, and that is something that we basically develop for every single deal, is to show this to everybody involved and say, okay, for this deal, where are the synergies? What are the key drivers for the synergy? So we basically translate the deal thesis into a synergy model that we then use in order to further drive it down into what are the activities and the milestones that we have to hit in order to unlock those synergies.

29:05So for example, we have to create an integrated roadmap and replatforming that tool. What are the key things we have to do? We have to hire 16 engineers in order to take them from Python to C++. Okay. And then once I'm simplifying things here, but once we have established this causality, we can associate the integration activities and the milestones with these drivers. All of a sudden, the path to synergies becomes very clear. It's not like you have a list of 800 integration activities. and then let's say you have a thousand for math purpose and then 800 are done and you're 80 % done with integration.

29:47Hooray. But what does that get you? And I see a lot of my clients, they don't establish that causality, that they don't know which integration activities actually drive the value. The approach that we do really associates the causality between integration activity and the synergy driver associated with the model that links back into the deal thesis. That's a lot of planning that you're front-loading No. Typical. I feel like a lot of companies, and trust me, Chris, I do a lot of these interviews, don't do it this way. A lot of this stuff, they almost have no go-to-market plan until after it close and they're trying to scramble and figure that out.

30:20What you described is quite a bit. And I want to take some of those areas from the standalone business growth, the cost energies, and the revenue synergies and break that down. I want to get a good sense of how you execute on this planning because I got my department leads. I got to bring in because they got to get in. And I just want to get a sense because you had a good point of we're not trying to create this extremely cumbersome, comprehensive plan and get completely distracted on that. I think there's enough of the thinking and questions to ask that sounds like it guides the leaders to be able to go out and execute.

30:53And if you've got good leaders, it's what they're going to do versus you're strong arming trying to tactically execute this plan that you're developing in. Am I right? I would argue it's actually simplification because we are focused. again, the job of the IMO is not functional silo optimization. My job is running an IMO is not to optimize the IT stack and system architecture. That is something that IT can figure out and they can do it associated with a deal. They can do it in three years. I don't care. My job is to get the deal thesis and get the synergies outlined in the deal thesis. So in that matter, if I set up the integration focused on the drivers of the deal.

31:33That's more or less the only thing that I start us against and that I'm driving. Walk me through how you execute on it. Okay. We have a deal where we are acquiring another company that comes with a product that we want to bundle and sell it to our existing customers. We want to sell it to their customer. And also we want to enter a new market. And let's say that there are some cost synergies by facility consolidation. They have a building, we have a building, they fit into our building, we have to get out of their contract or sell their building or whatever. So if we are looking at the Synergy model that we have, it lights up those few boxes in that model.

32:08So now the model starting out has some 50 boxes. So we just scale that down. We reduce the complexity. After that, once we understand where the key elements are, so for example, for the cross play, we drill into that and say, okay, okay, what has to happen? What can we do day one? What are the things that we have to do in the due diligence in order to really understand the cross-selling? How do we do the cross-selling? What's the price sensitivity of these customers? Where are they on their renewal cycle? Et cetera, et cetera. So we build a whole plan around that and we associate the milestones for day one exactly to that plan.

32:43And then we know what is our, and everybody says day one readiness. That was like a big thing that people want to know, day one readiness. For me, it's more like synergy readiness. How ready are we to execute on the revenue synergies of the deal that is coming in? Is the sales team trained? Do they have the enablement material? Do we have the territory mapping figured out that we don't have two in a box, etc., etc.? And all the solutioning focuses on that. And then what we do very often is once we have that established, we figure out how does this target operating model evolve from day one? What are the things that we have to do from a day one?

33:20What are the things that we do from interim state and then end state? I know that you're also of the opinion that M &A is agile. So you can't just day one, everything is integrated. So you have to figure out what are your iterations. And once you understand what the iterations are, you have a very clear narrative that you can communicate to your customers, for example. And say, you know, at the beginning, you're going to have two salespeople. You have Frank and Joe that are going to look after you. And they're going to work together. Ultimately, we're going to pair this down to one. We're going to bring you into the same, for example, MSA or term sheet or whatever.

33:54So you are at the same legal platform or we still have two entities. But the narrative becomes very clear on what's the experience that you want to drive for your customers as well as for your internal employees. Looking into executing on this and the idea of cross-functional work streams, right? Teach that to me. I don't quite get it. What's the big value of that? And just trying to get a sense of like, how are you pointing people to execute on this plan? Is it shaping? So pretty much everything that we do in that planning cycle is cross-functional. So there are also functional work streams and companies that are accustomed to do M &A, we don't even deal with the functional work streams.

34:34So they can take care of that. They know what they have to do. The synergy realization, there are very few things in there that are not cross-functional in nature. Even, for example, facility consolidation. You need facility, you need finance, you need HR, you need IT. Of course, all the telephony and systems and everything, extremely cross-functional. How do you create these teams and how do you give them the ability to govern themselves? The first thing that I usually talk to companies is how do you bring a new product to market? Walk me through that. Your NPI process, new product introduction.

35:09Because it's always cross-functional. So it goes from marketing, everything, everybody. Yeah, I have it. So it's a pretty big checklist that ties together different. Some companies have checklists, they have like org charts around that, who's doing what. And they have a very organized way that they go about this. And other companies, it's like all over the map. But that would teach me as I'm a consultant, I don't have a cookie cutter that I can just press into every single company. Then I have a better understanding of how they go about things and how do they collaborate? Are they collaborating like what's called swarming the problem?

35:44So just throwing people at it. And I worked a lot in tech and there's a lot of these companies who are hugely overstaffed for a long period of time. I think that has fixed itself lately. You walk into a meeting that I believe could be easily done with eight people and you find like 40. At that point, you have to figure out how the cake is baked in that organization. I like this with this MPI model. I mean, that understanding does that... I'm trying to get a sense of here's how we introduce a new product versus we've acquired this product and now we want to introduce in our ecosystem. How much of a different plan model is that to what's existing?

36:23Are you essentially modifying an NBI plan or is it enough to do diligence and then you're creating something really different? So the NBI process teaches me two important things. One is how do they collaborate across functions? So what is the level of structure that they put in order to bring a new product to market. And then there may also be a lot of elements of that NPI process that I can leverage in order to bring the acquired company product to market. So for example, I may learn looking at the NPI process that they give their partners, resellers, a 30-day notice, right? So 30-day enablement period where they provide the enablement material and then the partner has 30 days in order to absorb it, to reorganize internally, to sell the new product or whatnot until they will start selling it, for example.

37:14And then we have to figure out, okay, for the acquired company product, how would that translate, for example, or for sales? You know, how do you enable sales with a new product? What is your structure to get them out of the field and to learn something new? Or do you just throw it at them and there's like an email and click here, there's the description of the product and here's the pricing and then good luck. So different companies go about this very different ways. Then ultimately, in terms of assigning the accountability to the bodies, is it, here's what that flow looks like. We need to build a team with these key folks.

37:45And then this is what you guys got to do. Good luck. How does that play out? Putting these cross-functional teams together, companies are actually getting better at this. In my mind, the most important thing is you have to have clear goals of what you're trying to accomplish. The milestone plan that we create out of the synergy model provides these clear goals. What are we trying to do here? And it is not descriptive because it describes what we're trying to accomplish, not how. For example, cross-selling motions day one. There are 10 customers that we want to start activate. You figure out which 10.

38:20You figure out which sales teams. You figure out how do you collaborate with these sales teams. Let's get IT in here and figure out what type of iPaaS solutions, integration platform as a service do you have? Can we do like opportunity mirroring? Or do we have to have somebody in sales enablement that has a swivel chair with both systems that directs traffic, the MacGyver. You call MacGyver and people love that. They love that type of problem solving. What they don't like is when I load them up with, here's your playbook for sales integration, 300 line items. That's not the way you should do it.

38:55But this is what most companies do. I agree. I agree. I've learned that. And I understand where they want to scale and they want to make everything a process. But this is like the real leadership. Here's a goal we got to go after and enable people to do that. And people know what to do. Of course, we go in there and we say, okay, here are the areas that you should look into. And we look into diligence reports to understand where the operational risks that we have to address, compliance or whatnot. But it really comes down to keeping that North Star. Let's talk about Agile M &A because I think this is one of the big things that we have in common.

39:30I've done a lot of research doing the case studies with Google and Lassian and published a book in 2020 called Agile M &A. Yeah, I love that book. Very basic framework, trying to lay it down as much as possible for anybody in finance to understand Agile and how it fits into doing M &A deals. And I wanted to get your thinking around this because we've talked about this in the past. I think this is where we just discussed a lot of this is enabled through a real agile approach where you're creating transparency, you're empowering people to work more autonomously and get things done in these iteration cycles and respond to the changes as they're happening as opposed to keep your head down to execute a plan and put your head up and realize things are really going awry.

40:11Walk me through your thinking and how you actually put that in play. So let me give you an example how it looks like when it's done wrong. We are brought in roughly three months post-close, very large acquisition. And they were already doing the requirements gathering for the consolidation of the CRM systems. So I just put myself into one of those requirements gathering sessions to just listen. How did that go? And they had the sales enablement or the salespeople from the acquired company in that meeting. IT was in that meeting. And somebody from the sales enablement team of the acquiring company.

40:46And they walked through the CPQ, configured price quote piece of the configuration. And they explained to them how the product that the acquiring company was selling drove complexity in the CPQ process. And it just didn't fit in there. They had to make a lot of changes with very expensive, probably multimillion dollar changes to the CPQ system. really push out the cross-sell motion and combining the sales integration. The interesting thing was that the product that they were talking about was deleted from the roadmap. They wanted to end-of-life that. But they were just following their process.

41:28They were just getting people in the room. It's like, how do we recreate what you currently have in our systems now so you can run your business? We don't want any business disruption. And they had some 80, 90 requirements that came out of that meeting alone. And at the end of the meeting, I just talked to the IT guy and asked, you know the product that you are trying to configure here? And I was in the back texting to the IMO guy, confirming that product, yeah, we're going to end of life that in a quarter or two. It's expensive and a waste of time. This is the old school waterfall approach. That is the old school waterfall approach.

42:03But that is what happens when you have disconnected teams that just run in their functional silos and they're trying to recreate what they had before. without having clear objectives. Imagine that would have been the other way. The meeting would have not been, how do I recreate whatever I had in the acquired company sales organization? The meeting would have been, how do we bundle this set of products and how do we drive this through the current system configuration? That is the going in assumption. It would have been a different meeting, would have been less people. It was also a very large meeting.

42:34Coming back to Agile, how does Agile look like? Agile incrementalizes the change. And that is something that you need to do because there are so many things that you learn during the process while you're starting to work together with them, as well as your environments will change. Your competition is going to react to what you have been doing. Your customers have different opinions on what they need tomorrow than what they need today. So to go through this process in a waterfall way is really a setup for failure in many ways. And I've seen it fail in many ways. And a lot of these old school playbooks, they give you an illusion of safety because they just have these long lists of activities that you status against.

43:12And once these activities are done, you're done. That is just a false security that you have. And you should really keep the acquisition focused on the deal thesis and the synergy model. Keep iterating as you go. And you keep iterating as you go, day one. When does it end? When do you sort of say, hey, time to disband this team and work streams that we created, move on? That's a question I get all the time from my clients. Here's my answer to that. The first answer is when you no longer fund integration activities through the deal, but it gets into the normal functional budgets. That's the first one.

43:46Is there a protocol to hand that back off to the business and say, peace out, good luck? Usually the IMO disbands, that governance forum disbands after a period of time. They are the steward of the investment. So the functional integration team leads like IT. They go to the IMO and say, hey, we didn't plan for this acquisition. We didn't know that it happened when we put our IT budget together. And when we put our IT portfolio of projects together, now I need money from you in order to drive the integration. You know, it's like Salesforce integration, for example. That is one element. It's like, okay, then the integration management governance process goes away.

44:23It doesn't mean the integration is done. There are still long tails. And sometimes like the IT organization may decide we're not going to integrate. They're like we did at Cisco with OpenDNS. We're not going to integrate them at all until we go to the next iteration of Oracle because it has the functionality already built in that we would need in order to process the SaaS model, business model. So in that sense, you may decide to keep the facility open for three years until you consolidate it. So you're not fully integrated. It doesn't matter. It really doesn't matter. What matters is how much are you actually paying out of the integration budget?

44:55That's number one. Number two is what is the capacity for the IMO? to actually execute because you may actually have multiple deals. When I worked at Symantec, we had three or four deals that we would work on at any given time. We couldn't stay with these deals for an extended period of time. And then the third one is the synergy realization. So I have worked with some organizations that want the IMO to focus on cost synergy realization, and the rest is then dealt with the business. And lastly, one more way to structure this is driving the integration in chapters. The first chapter is the operational stabilization, making sure the lights stay on, onboarding of employees, getting all the customers in the same legal paper, etc.

45:40The second phase is cost synergies. So where you're consolidating your GNA functions, for example. And the third one is revenue synergies and product integration. You have like four chapters. So you can figure out what are the chapters. And then you say, okay, chapter one up to go-to-market integration. That is something that the IMO leads. And very often that is also associated with the integration of the lead-to-cache process. So once lead-to-cache is integrated, the go-to-market functions are integrated, the IMO goes away and the product integration comes later because maybe re-platforming of the product, rewriting code, etc.

46:16So that can be something that comes at a later point. But that is another way that you can define your endpoint. and when the IMO talks to the business and says, okay, at that point, I'm going to hand that over, but there's still things that are left to do. A lot of moving parts before you can declare it's time to peace out. And a lot of companies, they report on the synergies of a deal two, three years post-close. That's quite normal. Since we're on the road, I got my guest co-host, Shaila Patel, with me. I'm going to have her help wrap up this interview. Hi, it's me, Shaila. I'm interviewing Chris.

46:51So the first question is, what are your top principles to success? One is simplification. Trying to simplify rather than create more complexity. The second one is focus. Focusing on deal value and deal value realization. And the third one is make it fun. Try to make it fun. M &A is a hard time for a lot of people and try to figure out how to make this a good experience for anybody involved. How do you make it a good experience? Small stuff and big stuff. Sometimes we start meetings with music, something small. Sometimes we do a little raffle. It's like a scavenger hunt where one company finds out things about the other companies.

47:34And is this true? Is that true? We encourage people to do personal integrations. We also encourage people from the acquiring company really sympathize with the stress that the acquired company is going through. Can you also explain more about focusing? Focusing in M &A is very hard because you have basically a project that engulfs every single function in the organization. It's the most complex things that you can do. The problem is that very often you get a lot of noise in the system, people complaining, I've got too much to do, customers complaining, partners complaining, employees complaining, everybody complaining.

48:16There's a lot of noise in the system. You have to figure out what is important, what you have to listen to and do something about it. And what's the stuff that you can deal with later or just ignore. So there's a lot of experience that kind of teaches you to differentiate noise from signal and the things that you really need to focus on and really need to action. At the end of the day, if you understand the experience that you want to create and you understand how to measure the experience and how you're doing against that will be your guide. What advice would you give to the next generation of young leaders in M &A?

48:47Get acquired. Go through the process yourself. Until I got acquired, I really didn't know what I was talking about in M &A. It's the first thing that I ask in an interview. It's like whether somebody's gotten acquired in their past. So from a people perspective, it's very difficult. If you are choosing the consulting route, which a lot of people do, it is very difficult to really understand what M &A is if you haven't gone through it yourself. I'll pass it back to my amazing father. I like that story. Hey, thanks for sharing, Chris. This has been a good conversation. We had so much. We were off script nearly the whole entire time.

49:25It was great talking to you. It's something that we are very passionate about. Always great to be on your program. And hopefully somebody can learn something out of this and have some takeaways. If anybody's got follow-up questions about revenue synergies, don't email me. I'm not the expert. Send that stuff over to Chris directly. Go ask him on LinkedIn. He's easy to find. If you end up engaging with Slalom, let him know there's a 10 % coupon for M &A Science. Just mention M &A Science. Thank you so much, Chris, again, for this time. I really appreciate it. Every conversation helps me become a better M &A scientist.

49:56Thank you, Kisan. Those of you still tuned in, thank you for getting this far. Until next time, here's to the deal.

50:13Thank 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.

50:58Again, that's mascience.com. Here's to the deal.

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