Strategic Alignment Between M&A and Corporate Strategy

25:33They cannot move everything. But when an auditor comes, there's always a little bit of a wiggle room. I used to work, when I was doing controllership work, I used to work with auditors and I would put forth my case that why it makes sense to have certain value and they have to eventually sign off on it before it gets released. It is to make sure that it's very clear that the things that they control, even when they split between OPEX and CAPEX, they control it and as a result, they are held responsible for it. That makes sense. Hold them accountable where you prevent any acts that may make them look better than how they actually are.

26:13That's the whole thing. And that's why you've got to go back to cash being your North Star for most of the things, because it really clears all the clutter you can see through it. And that's why even in the public sector, a lot of companies who pay dividends are considered highly because no matter what you do in your SEC filings, when you pay dividend, you have to let the cash leave the company. There is no other way around it. You could do whatever you want to do accounting wise. That's a truth that you have to face. So that's why those companies get a lot of respect. And that's why you just saw this in the last 10 days or so, Facebook decided that they're going to start issuing dividends, which is very unheard of for tech companies.

26:52But that's another way to highlight to the broader industry that they can look at you a lot more confidently as opposed to being a tech company that is not as solid. Delivering your shareholders IRR. Yeah, no, that's exactly right. Just take private deal. We're not going to name any names. That's fine. But tell me about it. Tell me about the whole thing of this take private, why they happen. Because we see it more and more. Big PEs are coming in and just take a whole public company private. And it's fascinating. I'll start in genetic terms first, and then I'll come to the specifics. When you think about why do a company go private, I can boil it down to two reasons.

27:31One is, which is very simple, that the public markets are not valuing you correctly. They don't see your intrinsic value. And there could be a whole lot of factors why that is the case. It could be that you have not as stable earnings every quarter. So it's difficult to predict you. And every time it's difficult to predict you, the public investors, they get nervous. The other is you might have missed one or two earning cycles. It means you came under what the consensus was. And the third could be that you actually play in a sector where the whole sector is under pressure, which has a dampening effect on your stock as well.

28:13So that's one thing. But in my view, the second, which is more important is being a public company means under the quarterly spotlight of earnings and questions from analysts. Now, if you are trying to do something transformative that requires not just one quarter, multiple quarters, maybe many years, where you make the investments upfront and then you reap the benefits later, going private is a good way to come out of that spotlight, make your investment, be focused, put your head down, and then provide something on the other end, and then go public. So those are the two main reasons, I think, why the companies go private.

28:52Now, let's come back to the sector we're talking about. Media and advertising sector has been undergoing transformation for some time. The biggest surprise is the rate at which that has been happening. You had the traditional TV before, but everyone is now moving to linear OTT digital. This week, I think it was Tuesday, announcement came that Disney, Fox, and Warner, they decided to launch a super app that will carry their sports content that they have with the leagues. It was actually such a big announcement that the leagues almost got off guard. This is very monumental because today, if you look at your traditional TV, one of the biggest factors, the erosion is slightly less than what it could be, is because of the sports programming on your traditional TV.

29:39To take that away, that thing is going to deteriorate even faster. For example, today, if you want to watch NFL football on Thursday, you can't watch it until unless you have Prime subscription. Similarly, there are certain slots over the weekend where you need to have Paramount and other things. The point there is the shift is taking place. Now let's look at what does that do to the players who does the measurement in this space. Talking about measurement is simplistically saying who watches what and when. When it was a traditional TV program, Seinfeld used to come on Thursday previously at 8 o 'clock, easier to measure.

30:13When it's digital, you do not know who's going to download what on what platform. It'd be a phone, video, through Xbox, or any other outputs. Measurement companies do is very valuable because that is the metric on which the ad buyers and the ad sellers, they transact. That's the currency. So when you hear about a Super Bowl ad this weekend, it's going to go for five, six, seven million. It's all based on who the viewership is on that basis. It's a lot easier for the traditional, for digital, it's a lot more difficult. But what makes it even more difficult is when you have to bring both those things together and add a layer at the top on which both the buyers and sellers can transact.

30:53That's a huge order. Very complex. It takes a while to build that. And not only build that, get it tested, get it adopted by the customers. That's an effort that is not easily appreciated in the public markets. And I think that is one of the bigger reasons for that TakePrivate. recap. Big driver of TakePrivates is essentially the thesis is this asset is undervalued. Some of the factors are they may have varying earnings, which created some skepticism. Yeah, because there is not a lot of patience the public shareholders have. We got varying earnings and then we have missed some targets, earning targets.

31:31As long as it doesn't shake its inherent value, it should still be valued there. But stock market reacts. It has a very short-term memory. It creates some skepticism. And then maybe the overall sectors down. Yeah. Another factor. Then the why is when you're public, there's pretty intense quarterly accountability. Yeah, it is. You got to hop on the earnings call and deal with the investor analysts there. Reason why too, is if you're playing on a long-term strategic initiative, that it may make more sense to take the company private, execute on that strategy and take it back public again. I guess that's a good example.

32:06The one you mentioned too, is a lot of that nature of that business didn't fall well in the public eye as opposed to it could be private. Yeah. And also anytime the sponsors take company private, there are certain standard costs that you take out just to improve profitability, but just improving profitability by itself is, in my view, not a sufficient condition to take it. There has to be a promise that you could do a lot more from a top line perspective, grow it. And in some cases, there are businesses that are too spread out. So bring back the focus. That's why anytime a company gets taken private, there has to be a component that talks about the top line growth about it.

32:42That's the whole reason when you think about a company that is a private company when it's starting to go public. I don't know what the metric is these days. I remember there was a time when you have to have six consecutive quarters of growth, top line growth. No matter how high your profitability is, if your top line is flat, you are not a great candidate to go public. That's why there are companies that can go public who have no profits. In fact, they might be burning through cash, but there is a promise of the growth of the top line. And that's very key. I agree. You read Michael Dell's biography, Play Nice Footwin?

33:17No, I have not. Gotta read it. He's got such a good firsthand play-by-play of the take private of Dell. So it's a good story. And by the way, if anybody listening to this has an in with Michael Dell, can get him on the podcast, Reach out to me. We'll work something out. I would love to get him on and hear his side of the story. But I wanted to talk more about the mechanics of actually taking a company private like that. Just because it's such a unique thing. You go through this huge event, ring the stock bell to go public. Here you are saying goodbye. We're divorcing the public market. We're going to go private.

33:48Hey, tell me a little bit about what that deal process actually involves. I know a little bit about that one because there was a sponsor that was involved in that. I was also involved in a company that I was at. And in fact, it almost could be said that Michael pushed for that because for the same reasons, which is not go in front of the analyst every quarter, build something great and then go out. Yes, you're absolutely right that when you go public, there's a lot of fanfare associated with it. But then when you go private, it doesn't mean that it is the inverse of that. What it tells us, actually, it could be positive because think about this.

34:25at the point when the company is taken private, there is someone who is seeing more value in that company than what it is trading at currently. So there is optimism in that. The way you actually squeeze and enhance that value is, you know, by taking private. Yes, there's not physical ringing of the bell and those kind of things, but there's a lot more discipline. And now you have these sponsors who bring their own skills, network, and a whole lot of other benefits to the company to help them grow in their face when they are in the private sphere. I would not look at it as an inverse of, like, you did something good when you went public and it got reversed when you went private.

35:07Because think about this, when you went public, there was a lot of hope for that company. Let's say it grew, and eventually at some point, it stagnated or started coming down, which is where the sponsors will find value in it. So you have to look at, Not at the point where the company went public. It's where that company was just before it gets taken private and compared with that. And I think if you look at it from that lens, it would look as the right move in a lot of cases. The reality is there's usually a premium paid on the trading price to take a company private. Yeah, but if a company is trading at a 60 % discount to where it was trading last year, and you give 15-20 % premium, you're still buying it at a discount to last year.

35:52Absolutely right. And that's why there is negotiation there. And a lot of times the companies say that, no, we cannot support it. These kind of valuations in some cases, the deals don't go through. That's really interesting how those things get negotiated. because it's not a flat, hey, it typically falls between this range. It's like what you described as a big picture thinking and a real perceived value with the shareholders. And if there's a company that truly has lost its core growth driver, even if it is in that example, it is trading at a 60 % discount to last year's stock price. If it is a falling knife where it's going to go 80 % discount, 90 % discount, they will be happy even to take at that price.

36:35That's true. Think about this. If there is a lot of people who think that the price could go further down, someone is ready to come and offer you a little bit of premium, people will jump on it. I mean, no one puts a gun to your head to actually agree to that price. Company knows where it is heading in that context. They make that determination. Yes, there is no hard formula for that. Every company in their own specific situation in their life cycle, evaluate that. Take extreme cases. Bearstone, I used to have been banking at that time. They used to trade at around$100 or so. I was on my desk that day.

37:10It was, I think, Sunday evening. A lot of these transactions at that period happened on Saturday, Sunday over the weekend because they wanted to get it done before the markets opened on Monday. We saw this thing flash. It said, JP Morgan is buying it for$2 or something like that. I'm like, that must be a typo. But there was another article. It's actually spelled T-W-O. I'm like, wow. Think about this. A company that was just trading, how much value it lost. eventually got sold for, I think,$10. They said that$2 was too less. They increased. But in that case,$10 sounded at least something better than nothing.

37:43I know that's an extreme example during the last massive crisis. I think we had First Republic recently. It was pretty similar. Silicon Valley Bank, all those same things. There is no cookie cutter approach to it. It is what the management and the shareholders think where the value is, what the offer is made by the sponsors. Yeah, it's an interesting game. You've worked on other unique deals in your experience. Can you give me some examples of some of those things? First of all, I'll say that every deal, regardless of the size of the deal, it has its own idiosyncrasies. Everything, every deal is unique.

38:19It could be a half a million dollars to$25 billion. But I'll mention two deals. The first one is M &A deal. And the second one actually is an M &A deal. But the part that is interesting about it is the financing of that deal. The first one, when I was at Avaya, the company was going through restructuring Chapter 11. Very quickly, you're going through Chapter 11, the company files with the bankruptcy judge. You have the day one hearing. Bankruptcy judge says, these are the expenses I approve. Everything else you cannot collect against the company. In addition to that, there is a tip financing. It's called debtor-in-possession financing.

38:54Basically, it is cash that's enough for a company to run until it figures out its restructuring plan. So that's the standard chapter 11 restructuring. I'm skipping all the other things that are not important. But in midst of that, if a company sells part or most of its assets, it's dictated by what's called a section 363 sale. So we had networking assets which were not core to the company, fairly separable, which drew some interest from one of the buyers. So when a buyer comes in, that buyer becomes a stalking horse. And a stalking horse essentially sets the floor for the valuation and also establishes the basic terms and conditions of your purchase agreement.

39:40So you get that. You go to the bankruptcy judge. Bankruptcy judge approves it. Now, one way M &A transaction in bankruptcy differs from a traditional. In a traditional, if the buyer agrees and the seller agrees, contingent upon getting any regulatory approvals, the deal happens. In this case, you at least have one more actor, which is the bankruptcy judge, because the whole process runs through that approval process. The bankruptcy judge says, sure, this is good. Now you will open it for auction. We make sure that the company is getting the best price for the asset to your seller. Unfortunately, everything becomes public.

40:17So there's another buyer who can come and say that, oh, the previous stocking horse put in$10, I'll put$11. There are provisions that you have to have some level of incrementality. And if, for example, the stocking horse gets outbid, they get break-up fee and other things for their trouble to get the process through. The reason this was very interesting is not only learning about this process, but also the way people react. So think about this. The overall company is in a little bit of a fluid situation in Chapter 11. But an asset within that potentially has an option of separating. The people who work for that asset, they're excited for this transaction because they're leaving a troubled home to a more stable home.

41:00The people who are actually going to work on the transactions, like the M &A Lee, or those are the people who are in this troubled company, it's very difficult or challenging to keep them motivated to help with this transaction. First of all, for most of these folks, whether it's HR, IT, finance, M &A is not their day job. They just help the function. For M &A deal team, it's their day job, but not for them. On top of that, you add this other factor when their own jobs are not sure, and it becomes a little more challenging. So that was the other thing that I learned, how to manage and quarterback a very fluid situation like that.

41:38Let me go back to the part, which is the buyers. If there's a sophisticated buyer, they love situations like this to buy an asset out of bankruptcy. The reason is that these assets you get free and clear of any hair that you generally accept in other transactions. This is by virtue of how that bankruptcy sale works. The downside of it is just like any other sale in a traditional store is closing. They say you have 50 % down, but you cannot return it. is similar to that, that there is limitations on the reps, warranties, and escrow. And also, by the way, the consideration in almost all the cases is cash.

42:18You cannot use equity or anything else. Or an ounce. Yeah. There's an exception to that. If one of the creditors who is participating in the bankruptcy, they can use what's called as credit bidding because the company owes them the money. They said that, use my credits and I could be a bidder for these assets as well. But outside of that, it's usually a cash-based transaction. So that's why it was a very new learning experience for me, both from a technical perspective and as well as a human nature perspective. So that's one transaction. What happened at the end? You carved out the business? Oh, it was a great sale.

42:54It was, I can't give you the numbers, but it worked flawlessly. We separated those assets. And I was talking with someone else, one of my previous connections, and it's been many years since that happened. And that was like 2017. There are still a lot of those people who moved with the transaction. They're still at the buyer. So which is a metric that I use to say that not everyone dispersed after a period of time, they're still there. So there was a good reason for doing that. So no, that transaction was a good transaction, both for the buyer and seller. Don't have too many win-win situations, even though that's what everyone strives to do.

43:30But that was a very good case of that. I like it. I'm going to start watching bankruptcy news for deals. This is not something you want to build your resume on. It's good to know this, but the learnings that you get from a restructuring deal from the beginning to the end, it definitely adds to your skill set. So the second deal I was talking about when I was at Telecommunication Systems, amazing company, mid-market public company, no debt on balance sheet, had some cash, wanted to make a transformational acquisition. They did of a company called Networks in Motion, NIM. To finance that transaction, we used equity, companies' equity.

44:07We floated some more equity, went to two commercial banks, and then went to street to raise more funds. And the instrument that we used to raise funds from the street was a convert. And the reason we used convert was convert has a benefit that the interest rate is low. That's the benefit of it. But then why doesn't everyone use that as opposed to straight debt? because if your company starts doing well, stock price is doing well, the holders of that convert will convert into equity and that will potentially, not potentially, that will definitely dilute your equity. So you give up a little bit or you gain a little bit here on lower interest rate, but you have a potential of giving up on the equity dilution.

44:50There's an instrument we bought on top of that just to manage that part of it, which is called a call spread. In a very simplistic language, which call spread is two call options. You go long on a call option with a slower strike price and you go short on a call option with a long strike price. That's why it's called spread. The spread is between those two strike price. Without, again, going into details, the effect of that is that if your stock price crosses the first strike price, you effectively can eliminate the dilution that you get in that particular band. And that's important for companies like my company at that time is because there was a psychological barrier for that company to cross the$10 mark in stock price.

45:34I think it made a lot of sense there. The convert that we bought was for$90 million. It was oversubscribed. So we exercised the green shoe option, which allows another 15%. So it was 103 million or something like that. But there are two aspects of this that were interesting to me. One was the banks told that it was going to cost, let's say$10 million to buy this instrument. How do I as a corporate dev person and a treasurer know that's the right price. Based on previous knowledge, I actually went and put those numbers, the strike price, volatility, duration, all that kind of stuff in the Black-Scholes model, like a very, very simple of the back of the envelope calculation.

46:12And I was able to get something very close to what they were charging for that. But the more interesting part is the accounting treatment of it. There is a provision which says that if what you buy, it would only be deemed derivative if it mimics the underlying security in which in case was a convert very closely. Otherwise, it would be deemed as a speculative. And the accounting treatment for that is very different. But the point is the whole accounting of that was very interesting. And you had to measure those on a quarterly basis. Again, a new muscle that I had not ever used before I developed as part of that.

46:47That was a good transaction. We had a lot of explaining to do because it was a public company, the sell side analyst, why we were going with this instrument, why not? And since I was also leading the corporate development part of it, it was all integral to what I was doing. Phenomenal experience. I had a great boss at the company. I thank him for giving me an opportunity to experience something like this. I would say those are like the two transactions, not because they were the biggest transactions. I've done much bigger transactions, but they were unique and you don't get to do those on a regular basis.

47:19Creative. Interesting. Complex. That one was very complex because it required you knowing about accounting for convert and then call spread. And then how do you value it? How do you make sure that period to period you are not missing something? So there was a bit of learning in that process. That's the part I liked about it. There was a lot of learning. Can you teach me, and I don't know, this is like a whole podcast interview of itself, but about negotiating and structure. And I'm curious about this as founder of a business that's dying to do deals. Not quite ready there. We got good organic growth.

47:56But I feel like it is early in that life stage of doing deals. You want to be savvy with capital. You want to reserve cash. You're more interested in structures that earn outs, owner financing, things like that. I want to learn from your experience. What are some of the approaches you've seen to really structure that in a way to preserve cash for a company that's more on the emerging side or really sensitive in how they invest cash? More than seller financing. Seller financing worked on few deals when I was in banking, but in corporate development, I've used a lot of earnouts. Earnout is essentially a contingent consideration.

48:35If things, you meet the metrics, then you get paid. Otherwise, you don't get paid. And I've also used delayed consideration, which means you will get paid, but not at the time of the close of the deal over a period of time, but that's not tied to any metric. So all those are the ways to preserve the cash on closing. The other thing is, the way I've done is, for example, you use escrow to backstop the basic reps and warranties. I push for that escrow not to leave the company to a third party where it'll sit. I just keep it with the company and pay that much less in consideration. And if there is nothing to charge against at the end of that escrow period, so let's say those basic reps and warranties, normally I shoot for two years.

49:23At the end of two years, there was no violation of any of those and I have to pay them. And I pay it from the company's balance sheet. So that way, I managed to keep and use that cash for two years as opposed to have it parked at a third party who would automatically release until unless I raise an objection to the breach of any of those reps and warranties. Are you releasing escrow or you keep it? No, no, no. It's not the escrow. At that point, it's what it has become is a hold back. I'm holding it back. If it's an escrow going to a third party, so there's a third neutral party, whether it's a bank or somewhere else, that money has already left your company.

49:59It doesn't do me any good. I can't use that money. It's just sitting there. And the best I can do is if there's a breach of warranty, I could claim against that. But that money has already left. And even there, that's a high bar. You just can't say that you want to do it. And more importantly, at that point, you're going against some of the people who are working for you now. You have to be mindful of those things. Unless there is something that really came off the rails. In which case, absolutely, you should assert your claim as strongly as possible. But outside of that, I think I like to hold the money, use it.

50:31It doesn't leave the company. And also, I don't have to prove to a third party, the escrow, why they should not release if I have a claim. I can work that directly with the seller, why I'm not releasing the full or not paying the whole thing. And then coming back to the, there are some cases for escrow. So escrow, the genesis of escrow was at a time when there was a stark difference in the expectations of the buyers and sellers. And it was a way to bridge that gap. As long as the size of the escrow is not significant massively, like it's not too big compared to the underlying consideration, then I think it makes a lot of sense.

51:12But if you're paying well at$1 million in cash consideration and your escrow is$4 million, that's a speculative deal. In which case, it's almost like you're telling the other person, I don't believe in anything that you do. You have to prove your whole business case to me. Escrow makes sense. For example, we were paying all cash, but I made a condition that before we actually signed the deal, I wanted to speak with three retailers. They were able to make us speak with two of them. The third one, they could not make us. That couldn't happen in the time. And that was important because that retailer constituted a pretty decent amount of the revenue.

51:50So we refused to sign the deal, but we said, listen, we could do it. And it was actually in our interest to sign the deal quickly. but we will hold an escrow. And that was a significant, close to 25 to 30 % of the escrow. We'll hold that as an earn out. And only when that retailer signs next year's contract, will that get released to you. It just so happens in that case, the retailer went with someone else and we ended up not paying. Wow, I like that. All that came up because we insisted that we needed to speak with each of them. Pre-signing, we spoke with two. those two retailers said great things about this business.

52:28Insisted on three. They said, oh, you spoke with two. You got a good idea that we do a good job and this and that. I said, yes, I'm not doubting your capability. What I am trying to figure out is this third retailer, does he still want to go with you or is looking at someone else? Because in the business case, I'm assuming that revenue stream. And if that doesn't come, I as a corporate development person, But more importantly, the business sponsor who is backing this deal will be in a very hot seat and very quickly. So given that we had negotiated that, I mean, it helped us avoid that embarrassing situation.

53:05That has played well, especially you see the customer concentration. Yeah, everyone takes hits after you've done a bunch of deals. And I think I've done over 70, 80 deals by now. You learn certain things. M &A by nature has become very, actually the process itself has become very structured. It's the same thing you follow. The variability comes with what actors that come into it. And I say actors means what are the assets, who are the buyers, who are the sellers, all those kinds of things. How do I do like 100 % financing or get the seller to take the whole deal on or not? If there is a seller who's ready to do that, obviously that's a sign that it's a very desperate seller.

53:42Yes. And if there's a desperate seller, and if it's 100 % financing, the question is, is that 100 % financing contingent or not? If it is not contingent and they're financing you for a period of time, you would still, actually you should think that you will be on the hook for that. It's just that you're not paying for that now. Why is the seller agreeing to it? It's possible that there is no other buyers. They are desperate, which happens. And this is a better home for them. And they see promise by combining the capabilities of the two companies. It could be a whole lot of reasons. That's why specifics matter.

54:16But if someone is ready to sell your company all on deferred or contingent consideration, there has to be another reasoning, a very solid and diligent reasoning why they are agreeing to that. Do you ever convince sellers to sell? I feel like there's influence on that, making the decision to sell, then there's an influence on how much you can get them to carry. I want to learn the real art of dealmaking here. Yeah. So now we're talking about there's a seller I'm going to call as a reluctant seller. and you are trying to convince the seller to sell. In this particular case, you're not talking at all about contingent consideration.

54:51I'm going to dissociate that so that we focus on just this one aspect. If you're doing that, what of the valuation you're going to get will be higher because you've already exposed your cards, which is you're desperate to do that. Until then, you can convince the other side that they can realize higher value in the combination. In which case, you have to share with them the promise of the combination. I think that is the way to go about it. Because outside of that, the only way you're going to convince any seller to sell, any reluctant seller, I can ask if you tell me that, hey, Balji, this person doesn't want to sell, can make him sell.

55:29The easiest thing is throw a lot of money. Everyone is going to sell at some price point. The point is, at what point it stops making sense. So the way you provide the value to the seller, instead of just cash up front is a promise for a greater future tomorrow. In which case, you'll have to share a lot of your cards too. So you have to share what you're doing. You have to convince the other side that what Kisana is doing actually has merit and I see a potential and I want to be on that bandwagon. I think that's a good way to do it. Better together? Yes. So we get that ability to commence and then maybe there's that portion of protect equity.

56:05How about the other factors? And I'm wondering, from just deals where you have multiple tools that you're using, where you're using equity, earn out, debt financing. Have you run into that a lot where you're using a lot of combinations or pretty straightforward cash and earn out? I'm of the opinion that if you don't have to complicate the things, don't complicate the things for the sake of doing it. Yeah, if you have all these four options that you set and you decide to avail that for a certain transaction, the overhead associated with managing that post-transaction is going to be a lot. Cash is the easiest part.

56:36it gets settled at the closing. But everything else, you have to worry about how do you account for that in your books. So I'll give you an example. Earnout. This is where actually I learned a lot about controllership because I was playing that role as an associate controller at telecommunication systems. Earnout, you show it as a liability and a balance sheet because at some point you have to give out that cash. Now, every quarter, you have to market that if your earn out is for$10 million, and let's say the earn out could be paid anywhere from$0 to$10, the day you sign the deal, you're going to mark it as a liability of$10 on a balance sheet.

57:16Okay? If the business that you're tracking, you acquired, if it actually starts doing worse, you actually can next quarter or whenever the next marking period is, quarter end is, you can write it down from$10 to$8. That$2 runs as a profit through your P &L, so it actually benefits you. But the point is, you have to quarterly keep a track on those earnouts. It is extra work. You have to account for all those things when you're trying to bring in other metrics other than just cash. Equity in the whole spectrum, between cash, everything else, equity, generally, pound for pound, is the most expensive way of financing.

58:00It is like if you do the EPS calculations, generally for standard companies, that's the most expensive. You should try not to use that. But if you're using it, use it wisely so that the other party actually feels that they have stake in the game. Because once you become an equity ownership, you want the company to succeed. We made a minority investment in the company for a significant amount, somewhere in the vicinity of$20 million. That company got sold to a third company. that company to its soul paid 80 % in cash, 20 % in equity. But because we were minority shareholders, we now hold the equity of that buyer with whom we had no direct dealings purely because of the way this transaction happened.

58:45And we had for a period of time till you could actually, there's a stamp that goes on the shares that come, whether you can openly trade it or not on the stock exchange. There's a six month period to take that sign off or the badge off those shares. For that six months, we had to keep the shares of the third party with whom we had no other relationship of that kind. The point is, there is work associated with it. Before you just want to think about this as different toys and you want to have one of this, one of this, one of this, you better have a good reasoning if I want to pick which one you want to pick.

59:18This is good. I feel like I'm teeing this up for a whole other conversation. Yeah, I mean, each one of these things I'm mentioning to you, we could go into a lot of detail to look at the merits and the rationale for doing any of those things. What's the craziest thing you've seen in M &A? Anytime, by the way, this happens in so many deals. As you're trending towards the deal signing and closing, the pressure builds up. You have to tie up all the loose ends. That's where you realize sometimes, oh, I forgot this. I should have done this before. So there are many of those. In our case, there was a simultaneous sign and close.

59:51The deal was in Europe. Everything was tied up. The next day was day one for the company, which means the comms plan, letting the sellers, employees know, our employee know, all that stuff was going to happen. But before that, we had to transfer the funds from US to Europe. Then it wouldn't get dispersed. At the last minute of the three principals who were the beneficiaries, one of them, we didn't have the signature. It just so happens that the person was also a licensed pilot. So when we were trying to track him, he was actually flying a plane at that time. When you get desperate, all kinds of weird things start creeping up in your mind.

1:00:27We thought, is there a way to reach into his cockpit? Someone can send a message into his cockpit because everything is hinging on this thing getting done. Obviously, some sensible person said that, no, let's not make it out to be more than it is. Eventually, the person got down. We got the signature. We did actually get delayed by a day, but it was no harm, no foul. But that was one of those things. Another one was the deal got all tied up. As part of the process, just before you sign the deal, we have a practice of sending the whole deck once again back to the executive committee to get their final approval that, yes, nothing has moved what we told you before.

1:01:05It's still the same. And the one, the biggest part that's included is the deal rational, which in that particular case, we said that the value that we are getting from this deal is$100 million, but we are only paying$30 million. That was all part of it. When that approval email was sent, you know how if there's a name you're already sent to, it auto-populates, auto-completes the email? It actually, by mistake, auto-completed a name which was seller's banker. So we ended up sending an internal draft to a seller's banker, which basically said how good a deal we are getting on this one. Oh my God.

1:01:43The minute we realized it, two things happened. sent an email directly to the banker, not to open, and the banker didn't respond. In a very short period of time, our lawyer wrote a letter, which also meant to that, that this is not meant for you. Do not open it. Do any of the stuff. The banker eventually got back to us and he said, yeah, I saw. I didn't know where it was. He downplayed it. He said, no, don't worry about it. I deleted it. All good. Now, I don't know if he looked at it or not, but for his own self-interest, I think he decided, if he did, he decided not to share that. Because if, think about this, if you share that with a seller and seller said that, oh, they think this is worth three times what we are, we should be asking something more.

1:02:25And if they did ask something more and came back to us, we would have walked away from the deal. And the banker probably realized that and his fee was tied to the success of the deal. I think it was, in a weird way, incentive bill for the banker not to look at this thing or do something like that. You did the right thing. I was surprised. I was waiting for the story to even get a twist here. No, no. So here's the thing. You panic in those kind of moments, but the experience has taught me eventually things have a way of working out. They might get delayed a little bit. I'll give you one transaction where we cancel it, the deal.

1:02:58You go through this experience, you remember the days for some reason. Thursday was, everything was good. Monday, we were going to sign the deal. It wasn't a simultaneous sign and close. It was signing and then there was a gap and then closing. Everything was good. There were two relatives. I don't think they were brothers, but they were two folks, founder, owners, co-owners. They were the primary beneficiaries of their deal consideration. Everything was going on well, all settled. One of them, who was the CEO, and this was a company that was outside of US, he sent an email saying that, hey, listen, all is good.

1:03:28I wanted to send you this. I wanted to convey how much value I contribute to this company, how much I can contribute to your company when we are together. As a result, my comp should be multiple factors of what it is. We took it to our CEO. We looked at it. We realized that since we would never be able to physically bring this company into the fold of our company because it was in a third country, that person would always have influence over the rest of the company. So if he's unhappy, it's going to be a bad situation. And the fact that he decided to bring it up at that moment, we decided to walk away from the deal.

1:04:04Literally four days after that, and they didn't have any banker. They hired a banker. The banker calls me and he said, listen, this is the reason you should always hire a banker because he was trying to justify his thing. And also what's the amazing thing he said that, listen, let's get this deal done. You already have the document all signed up. And I told him like, once you lose that trust, it's difficult to build it. It's not a matter of documentation at this point. And we never did that deal. The banker sell for 10x more? Now, to the extent I know, We were the most natural buyer of that business because we were a bigger company.

1:04:37In fact, there are some smaller companies when they're building themselves up. They have one eye. They know who their buyer is going to be. And we were the natural buyer. And at least as long as I was tracking them, they were not sold. They might have been bought since then. Oh, he's got to have the right banker. Maybe, maybe. They add value in some cases. So I don't want to ever say that they don't. I do see the ones who actually do more brainstorming and strategic analysis with you. They do. Some are purely procedural. They're just... We'll knock it. There's some extremely good bankers. In fact, we got some really good ones down the street.

1:05:13I know some very good bankers with whom actually I have kept in touch over many years. And they definitely earned their keep. Yeah. This was a banker. Now I'm talking about this banker. It was like a two-person shop, and he called himself a banker. And he was like a financial advisor to those cousins or brothers. The more people you talk, the more stories are there. There's more scars that you get as you go through these experiences. But nonetheless, they're all very valuable. Well, gee, this has been a great conversation. I appreciate you sharing your wisdom, helping me become a better M &A scientist.

1:05:50Thank you. For those of you still with us, thanks for tuning in. Until next time, here's to the deal.

1:06:24have. 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. Again, That's mascience.com. Here's to the deal.

1:07:06Views and opinions expressed on M &A Science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual. This podcast is purely educational.