Why Integrations Break with Donara Jaghinyan

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0:51I'm Kisan Patel, and you're listening to M &A Science, where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies, and what actually happened during M &A deals.

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2:02It's the home of Bayer Lead M &A. While you're there, make sure to sign up for our free newsletter. Lead the deal. Own the outcome. Let's jump in. I'm your host, Kisan Patel, Chief Scientist at M &A Science. Today, I'm joined by Danara Jaginyan of Transformation and Integration Leader with deep experience in public and PE-backed environments. She's led diligence, post-close integration, TSA execution, and enterprise system implementations across healthcare, SaaS, professional services, and financial services. She's one of the rare operators who's actually done the work, not just governance on a slide, but real integration, real TSAs, and real change management in the trenches.

2:45Today we're going to talk about all things it takes to make a deal truly successful, from integration planning, through execution, TSAs, change management, and more. Zadara, how are you doing today? Good, Kison. Thank you for having me here. I appreciate you taking time from doing deals to have a conversation with me. Can we kick things off a little bit about your background? A little bit of accident and the strategy, I would say. So I started international relations back in Armenia. Study of countries, politics, and negotiations and deals, but yet transitioned that into two companies, deals on the company side, cross-border negotiations.

3:25When I moved to Boston, I took over temporary project with the PMI Central Massachusetts Project Management Institute. They were transitioning their email system and they were fully going into Google Suite. And I helped them do their email migration. And that was the early seeds of, that's something interesting and I'm interested in learning more. So when I started looking at the jobs in the U.S. market, I was primarily focused into the deal side, mergers. And I happened to be right place, right time, Boston, where early 2021, Harvard, Pilgrim and HuffSell Plan merged. And I joined their IMO. And since then, I've been just living and breathing with M &A.

4:14That's a pretty interesting background because you started with international relationships, got into international business aspect, got exposed to one component of integration. Now you're basically doing it full time. And you did it since you came to Boston. So how long have you been here for? Six years now. You lived in Armenia previously before then? Yes, indeed. Wow, this is awesome. What kind of industries have you worked across? It sounds like you had a few different roles related to integration. Doing M &A is one of the fields that you don't really have to be a subject matter expert. You don't have to have a niche financial background or technology.

4:52I started in the healthcare insurance, one of the largest New England healthcare insurance firms. Transitioned to technology software where part of it was also providing professional services. Transitioned to financial services right now. You moved around. What's something you wish you understood before running your first major integration? Dependencies are very important. Just something that seems like, oh, it's just a ERP integration or it's just like integrating systems or people. There's so many levels underneath. And also the people dynamics. Sometimes functional leads are handling only their aspects.

5:32But as an IMO, you are tasked to help them understand the dependencies upstream and downstream. Knowing how to navigate leadership conversations, give them the look ahead. There is a reason why we are integrating. There is a reason why we are integrating at this timeline, at this pace. How would you describe the role of an IMO? Trusted partner with the key experience or a background in multiple deals. It is hard to say that one deal is similar to another, but you have to have seen multiple scenarios, multiple things going wrong, and you have to advise them. It's not just like integrate systems.

6:18It's not just bringing payroll. There are so many components and you being in the center, you have to help them understand multiple killers down to one activity that is happening. So advisory role, I guess, advise and help them understand that it's not just integration. It's the entire holistic system of the company that you are building. Why can't I just hire a PM for my company and tell them you're now an IMO and I want you to run this next integration? You can definitely do that. But usually PMs are project specific, work stream specific. And I work directly with HR PM in the finance or IT side, but they truly oversee just their scope of integration.

7:07But I almost think it's a buff where we see holistically how it's going to impact. It's not just bringing Workday or HRI system. It's how do you set up the GL code in your piece? How do you set up the IT integration? How do you run all the emails and so forth? But not all PMs or functional leads know that. It's cross-functional aspect in it. Like real program level management. I take it some of us has seen this movie before. know what's going to happen, which is important. Can we talk about carve-outs? What gets underestimated when you do a carve-out? Timelines can drive that dependency, but sometimes you just have to do it to close the deal.

7:51But there's always so much dependency with the parent company because it was part of the big enterprise or big structure that no one really documented the separation. No one really separated the systems or the people or the payroll. And then you have to carve it out. You document it enough for the carve-out. But most of the cases, when you start the carve-out or the actual deal happens, you see the interrelation with the central org or the parent organization. My experience, you did a$100 million carve-out. I'm doing a tail end of a carve-out three people. The M &A Science Podcast, we're carving out of deal room.

8:33And now I feel the pain. I would say my big three are scope. You don't, you think you scoped everything, but you didn't. I'm very fortunate. We have a good relationship on the sides of deals here. But if you didn't, that's a lot of things that you didn't plan on that you have to negotiate and figure out to all the vendors. Like you have to set up all those vendors and some of them don't want to play nice and you got to negotiate hard with them or find new vendors. And then the people stuff, because you end up with some gaps. You got to scramble to go hire people. Sometimes you don't hire the right person.

9:11You got to let them go and go hire somebody else. That was my big three. The one I'm curious about, well, one, if you have anything on that, I feel like if that's fundamental. The other one I got lucky on was it didn't have a big lift on TSAs. Okay. Because everything was like a sort of arm's length distance of a business. Yeah. I mean, it was just more of an outline of how we're going to do it. But how does it really go down when you work on a bigger carve out? It's a combination. Again, like how much do you have time to scope it out? But to your point, all the people, the vendor aspect and the scope, it's carve out this devastation of setting up a new business.

9:47We get it. So you do have to have the IT, you have to have security, you have to have payroll, you have to have benefits. It's just like setting up a new company from scratch. And when you don't have the time to set that up, that's where the TSAs come into play. But TSAs don't look at the TSAs as like contracts. Look at it as a project because they have a start, they have scope, and they have a finish timeline. If you don't have enough time to set up the payroll, which is one of the important things that employees care, you have to ask the seller, okay, for another month or two, continue processing, then we'll do the invoicing to make sure the employees get paid until you set it up.

10:27But if you have enough time to set up a new payroll provider, get their onboarding and all the items, then you don't really have to go through a TSA on that. So TSAs are typical for the carve-outs, but not all carve-outs have TSAs. You can do a carve-out and not necessarily have to have TSAs, but it sounds like they're there pretty often. Yes. The example that we had there, two business units coming to technology firm. It was a combination of people, HR TSAs, it was finance TSAs, technology TSAs. An interesting component of it was you think you are looking at them just on the functional level, but some of the TSAs had their dependencies on the other TSAs.

11:14You had to set up the technology environment to be able to close the HR TSA, let's assume. Or you have to integrate some systems to make sure you onboard and hire new people and then you exit the TSA. And the interesting aspect what I've seen in the carve out is going back to your scoping. You feel like you are scoping, but not until you have the model outlined. That's where you start. Oh, the scoping has been done, but is it really, let's say, apples to our operating model? And then you identify that it's not. And then you start extending the TSAs to just build up your infrastructure to be able to support that.

11:59So it's like a tool to fill in the gaps. Yes. You can look at that. Can you walk me through this carve out that you're discussing? Because you worked on how many carve outs? Two. Two different carve outs? Two separate business units part of one deal, if you look at that. Do they go to the same? Company? Yeah. Yes. Same buyer. The same buyer bought two different business units that were carved out. I'd love to hear just what's the story? Like how did it go down? What was the timeline of events that happened? And then what was the good and bad? It was the driving force for my previous company where I worked.

12:34It was heavy in TSAs. The deal happened in 2022. I joined post-close of the transaction. So I joined to support with the TSA management. It was large. Some of the budget was heavy on the TSA side. So I joined to manage the TSAs. And several months after, the program director left the company. and then I stepped in to support with the TSA management. But that's where you understand that integration drives TSA and not the other way around, where we've been mostly focused on closing the TSAs. But not until, coming back to my point, you set up the right environments through the integration, you will be able to close the TSAs.

13:19It was a cross-border deal, multiple locations, multiple entities. interesting aspect in the TSAs that I noticed was the company structure that we had and what we acquired was very different. So let's assume you have a real estate TSA. It is very centrally mentioned on the buyer side, but on the seller side, it's very dispersed through different geographics. And then that's where the challenges come in. Who's the roster, you know, the receiver in the cellar. You're trying to exit it, but there are so many locations and people don't really know who you are talking about. That was an interesting component that I saw.

14:01But again, tying back to how do you handle the TSAs and integrations at the same time when you have two integrations happening was interesting and challenging to talk to the functional leads and try to explain why you have to do this right now. Why is it important to exit it? And sometimes you see that TSAs are part of the integration budget. And there is the feeling that, yes, the budget allocation is already there, but yet it's the functional P &L. And then not until you start talking numbers, that's when people start, oh, it's actually hitting my functional budget and we have to exit that. versus, oh, we didn't have time to do training.

14:48We didn't have time to do the documentation or hire a new rec. So can we extend? Usually what happens with TSAs is lots of extensions where companies lose time and money. It's funny because it sounds like you can know when you're going to need to do some TSA pretty early and you can get ahead of it. And then you might find out later, like when rubber hits the road or... you're about to hit a wall, that you need to get a TSA. Yes. And then you're negotiating that. And then you end up extending these TSAs because they're not ready on the other side to take over that service. Does that sound right?

15:26Yeah. At the carve-out, especially in the big ones, you bring in sometimes systems or people that you don't really have in-house. So, for example, what we had, one of the business units was professional services. The way they do their deal generation or revenue recognition is completely different. So we didn't have the headcount or the knowledge to do that. So yes, it comes with the people, but it's the system relationship with the seller organization and seller systems that you are trying to keep up. And then they're like, oh, it's already functioning. It's a TSA. We'll just do it. And there's like merging priorities and other M &As happening.

16:05So you feel like it's a TSA, but people look at it as contract that you can extend versus You have to look at it's temporary. It doesn't give you timelines. It actually creates deadlines for you that you have to manage accordingly. Because if you miss that, just like it becomes redundant and creates lots of integration debt. Do you have an example? Just like how do you negotiate the TSA and keep up with all the different documents and everything? My example didn't happen on the TSA integration pre-deal close, but I have an example where we had to work with the buyer side, our teams, and the seller side to extend the TSA.

16:52And that's where it comes. From seller side, sure, as long as it's the money involved, but my role came in to help the function leads understand that there is a cost impact and mostly TSAs are short-term. It's four to six months, maybe maximum a year. But extensions usually have cost impact. There's percentages being added up and there's like a hard stop sometimes what we've seen. Another aspect comes who's drafting the contract. Everyone is busy on their workloads and you go into your legal department, you go into the seller side legal department and then you start bouncing back and forth who's going to draft it.

17:32But in my experience, a couple of the TSAs that we had to extend, we just leveraged the master transaction agreement and we just referenced to the right clauses. It was just the same scope timeline extension and we had good relationship with the seller side. But at some point you just, okay, extensions cannot just go. And then one process that we had, it was established right after the deal goes, the extension request and the documentation process. Who's the requester? Who's the receiver? How do you document the requests on the extensions? And then how do you also notify the exits of the TSAs?

18:18Because let's say if your monthly books close in, companies run on different financial cycles. And sometimes you can do the financials at the month close or when the transaction was closed. In my example, we were counting the TSAs with the transaction close time. So that was the driver on a monthly basis. So if you do not notify on the right timeline, you accrue cost. So we were closely working with the function leads on a 30-day notification period. And then just doing the math of, actually, we notified you 15 days ago. So we are going to pay the half of the TSA. Interesting. That's a lot of tracking on these.

19:04A lot. It's really heavy on a cost for the companies and for the leadership. Any cost savings is important. And it also is helpful for the function leads as well to show that they actively worked on it. There are some cost savings on it. That's a lot. So we got that out of the way. You got the harder part is when you do these carve outs. Let's go to the buy side. Running a typical process. When do you get involved with deals? Mostly before or around LOI. Can you walk us through how you structure diligence? So in the companies that I work, usually there is a corp daft part where they bring in at the right time the IMO.

19:46But we had the understanding and the partnership with the corporate team that the sooner IMO comes in, the smoother the integration is going to flow. It's not just the deal closed. So even... Why? There are so many whys. I'll just lay it out now. The whole aspect of the deal is not closed yet until it's signed. Everyone knows about it. Liquor is very cautious. Curb development is very cautious. But as an integration team, you want to have the right people in the diligence conversations to be able to give you like a tangible integration plans to say, can we fully be integrated within three months or three years?

20:26So it starts top down, given the sensitivity of the deal, especially in the public companies, you don't want to announce it. You don't want any leakage to be happening. So we start with the heads, the executive sponsors, who know well enough the organization to say what needs to be happening. There are some teams where, for example, in HR, the structure that we had, it was separately for the benefit side, separately for the payroll side. And as a functional head, it is hard to commit to a timeline without really consulting the team. So sometimes there are scenarios where we would go to the legal and corp dev and justify the cases like we truly need this additional two, three people to come in to make informed decisions.

21:16So we just expend enough to have the right people ask the right questions for the integration. That's where it's come in. It happened on both sides where we would set up environments for the functional heads to speak to the seller side or sometimes route the questions through IMO or corporate development. At the previous company, we got to the level where we got to structure that we had playbooks, multiple types and sizes. And we'll just refine on what would be your top five questions. What would be high, too low, medium low? I was going to ask because, okay, so biggest goal is just do good planning at the end of the day.

21:59You want to get early, better planning, better understanding of how things are going to get executed, timelines, everything. How do you manage and orchestrate it? Because you're essentially trying to get more people involved earlier to do the planning. And I see this a lot with large companies where they're working in silos and you get a lot of redundancy in questions. And then it's the typical 50 people trying to buy a five-person startup type of thing. How do you coordinate that so you're not overwhelmed? And I feel like this process itself is already so taxing for the sell side. It's always underestimated and they get fatigued pretty quick.

22:31How do you sort of balance that as well for the sellers so that you're not destroying their mind? It's really hard. And I've seen that as a mature company where you have multiple people representing just one person for payroll, one person for benefits. Versus on most of the founder-based companies, it's one person wearing multiple hats. Imagine you have to close the deal within two weeks, three weeks, and you are getting all the flow of the questions. But I've seen the journey of people who've done M &A function leads on the first deal, second deal, and third, and how they already know what are the important questions to ask.

23:14It depends before close and after close. Before close, it's somewhat manageable because you are not really expanding the team yet. It's a handful of people who are driving it. And the questions that you ask at that time are not very process specific. It's revenue, customer contract, deal size. These are like things you're already asking in diligence. Exactly. But during the diligence, we work with the functional heads on what would be your top five to five questions if you were to ask. But some of the functional heads coming up to my earlier conversations are cross-functional or they have dependency, right?

23:58On the customer side or ERP side or the product in the IP deals, one answer from the seller side can actually feed two, three functions. Routing through the IMO is, sure, let's collect the questions, but we help orchestrate the structure. What questions do really get to the buyer? So you have a role in information management that you can try to disseminate this information so you don't have redundancy of requests to the company? Of course, it's very important. And I've seen that we just shared this. This is the same file. It's somewhere there. Are you doing it manually? I got some nice AI tools nowadays.

24:39I might be able to help with that. It started manually, lots of Excel, but we started using at the previous company Smartsheet. So trying to centralize for the planning, but for the deal side, some data room tools to be handful for the due diligence documents. Fair enough. So system of record and then VM tool, that gets you through tracking all those questions. And that way you can kind of manage and make sure you're running that coordinating it so you don't have as much redundancy and then this allows you to pivot through different stakeholders. The important thing is Kisun as well, it's the information that you get, but how you pass it or hand off to the actual people who are going to do the integration, which happens at the close when you know the certainty the deal is going to close all right at the close.

25:29That's where most of the information gets lost or you don't do proper hand off or you bring in teams midway after a week or two and then you forget that they are just newly being on board then. But if you make sure it's documented, you make sure it's stored in a system and you give correct access, that's how you eliminate the questions back and forth coming and going. And having a central system like IMO, who is in the center, who's driving, who is knowledgeable enough on the deal structure, on the integration planning activities, that's where you try to navigate and route the questions first through you.

26:09And truly, if you don't know something, you try to help your functional leads and go back to the founders. So you're trying to bridge the gap, make sure there's no knowledge chasm. Of course. For all this information you collect during diligence that can be passed on to the team members and execute integration because there's a number of people that come in later. Yes. In a larger company, I've seen all these different departments end up using so many different tools. Like, how do you manage that? Do you play nice with all these other tools or like, no, you're gonna have to use whatever it is, Smartsheet or whatever you're using?

26:40It's complicated. So depends on the relationship with the teams. Some people like finance and accounting. They are so heavy in excels with their formulas and book closing and the numbers. And I had the struggle of showing it's not just because we want to use, let's say, Smartsheet for the project management because it's centralized. It's easy for the leadership reporting. You can build reports out of it. You can share dashboards with it. Depending on the complexity of the transaction, we at least give a program level, like a PMI plans or on the individual functional level. There is a consensus built between the teams and IMO.

27:27What is the level that we are requiring to track on our visibility? it's the what needs to be done. The how depends on the functions. Sometimes we had functions who would come to IMO and we need day-to-day support on setting up, let's say, email migration for the day one readiness or ERP. It's very complex. It is cross-functional. But on some back office or heavy accounting or heavy technology works that functions, implement themselves to prepare for the integration. We would give them the flexibility to be agile, to organize themselves. At the end of the day, everyone's professional. We treat each other professional, but you come into the reporting for the executive presentations, this is the materials we need and the how is flexible.