M&A Science is a great resource to check out when it comes to understanding how M&A works in real life. It ranges from templates, podcasts/interviews, and courses focused specifically on M&A. Kison Patel's podcast features a number of great practitioners in this space and has personally helped me get a better understanding of how other groups think about M&A and how they make investments.
For this week's newsletter, I'm going to share a few episodes that I found to be quite useful to listen to (along with a few thoughts/reflections).
Deal Origination from a PE Investor's Perspective
In this episode, Jay Jester, Partner at Plexus Capital, LLC, explores the world of private equity and how they source deals.
Jay makes an interesting point here where he talks about investment bankers as a channel partner vs. a competitor. In an ideal world, most investors would like to source deals themselves and avoid a competitive process where they have all the control. However, especially in today's market, where the valuation is constantly changing and often going up - it is usually in the best interest of the seller to work with a reputable advisor to maximize valuation. As an investor, this is where it is critical to have a strong relationship with advisors as they can often be a great source of origination (as Jay points out).
I also agree with his point around brand building and listening to other pitches. Often times (especially during a time when many of us work from home), it's easy to get stuck in your own bubble and not pay attention to what is considered to be table stakes vs. true differentiating factors.
"If you don't go out and actively listen to how people tell the private equity story, you can start to believe your own BS that your story is unique. There's only so many ways to tell the private equity story.
So, I think one of the hardest things in private equity is to come up on how to tell your story.
The way that the deals are structured is not how you're going to differentiate yourself. At the end of the day, you gotta lead with trust. If you can build trust with the deal source or the management, you've got an excellent chance of winning."
The longer I stay in sourcing the more I realize the following excerpt is true even though it's very hard to apply in practice.
A really good sourcing person is fed by the new conversation, learning that person, figuring out what matters to them at scale with lots of people.
You gotta have a long-term fair mindset. The market has matured, and building a long-term brand is far more important than just getting the next deal done instead of hitting the quarterly quotas because that will be a short and ugly career in business development.
In a time where is an abundance of capital and therefore a lot of pressure to deploy capital, the idea of building long-term relationships is challenging for people looking to establish a track record and are in need of identifying quick wins.
Managing M&A Sourcing, Diligence and Integration
In this episode, Sabeeh Khan, Director, Corporate Strategy & Development at Syniti, and Aaron Whiting, M&A Strategic Programs at ContinuumCloud, talk about how to manage an entire M&A deal, from sourcing, diligence, and integration.
This was another interesting conversation around how strategics handle their M&A process from start to finish. The emphasis on go-to-market strategy and integration is a component that I didn't fully appreciate until listening to this episode.
I also particularly appreciated their advice at the end in terms of how M&A execution should be handled.
Go fast makes a lot of sense. Don't delay or postpone or procrastinate in any way.
And then the other thing is to make sure that everybody is consistently engaged. So if you are assuming that a particular workstream is handling their business, that's a great mistake.
Understanding that folks have a lot on their plate. They've got a day job as well, or they've got other responsibilities, but making sure that they are checking their emails, that they're up to date on the latest developments with the transaction is critical.
The last thing you want is to find out, three to four weeks into diligence, that one of your streams really hasn't made as much progress as you needed to. And now that's going to delay closing.
Ensuring that all stakeholders are engaged and working through timelines quickly is a big part of getting a deal done. This often comes by ensuring there is alignment on timelines and an understanding of key priorities. It's far too common to see deals die/get delayed due to a focus on the wrong areas.
Execute a Divestiture Without Using a Bank
In this episode, Russ Hartz, VP Corp Dev at Ansys, walks us through the process of executing a divestiture without using a bank.
This was an interesting episode as I haven't seen a lot of content around the internal process that happens behind the scenes when a company decides to divest an asset. Going into the episode, I didn't quite appreciate how disruptive a divestiture can be within the organization and the level of planning that's required internally. Here's a quick list that Russ shared during the episode:
What you are actually selling?
What products are you going to sell?
Is there intellectual property? You need to retain some license rights in that intellectual property after the deal.
Who are the people that you're going to sell as part of that business?
What contracts need to go? (customer contracts, partnership agreements, office lease agreements)
Do you need to retain a part of those certain rights under these contracts?
What part assets are you going to sell?
This doesn't even take into account the need to find the right buyer for the asset so that there's a smooth transition for the employees/customers. A poor divestiture could ultimately harm the company's reputation and impact its ability to sell/buy assets down the line.