Most people think that M&A involves a lot of people in order to get a deal done. But Jason Lippert, CEO of LCI Industries, proves otherwise. He has only one dedicated M&A person and executes deals with a tiny team. In this article, he shares how they manage deals and what made them successful in every acquisition.
"Culture and leadership development is the most significant piece of creating a competitive advantage. When your culture is great, more people stay over the long term and you will end up getting more momentum in the business." - Jason Lippert
Jason never had any formal training regarding acquisitions, so building a team never really occurred to him. When he started doing deals, it was very informal as he would just borrow internal resources when needed. He would just ask them for help on integration planning and other processes-related requirements from accounting, HR, manufacturing, and others.
Even to this day, they only have one dedicated M&A person focused on evaluating deals. They never felt like they needed a bigger team because they only look at four industries. Most of their deals are strategic, so their part time M&A practitioners will have an idea on how to execute the deal.
More importantly, their industry is quite small. They know who they want, they know who the players are, and by now, they have a very good reputation as an acquirer, which makes sourcing a lot easier.
The real secret to their deal success is acquiring good leadership. One of the things they have discovered through experience, is that deals are a lot easier to do when they acquire a great leadership team. They even made it a prerequisite that the acquired company should have a solid leadership team before they even consider doing a deal.
However, if the leadership wants to exit the business, they make sure that they have people in their company who can slide in and take the leadership role in the acquired company.
Because leadership and culture are extremely important to Jason and their M&A strategy, they spend a lot of time ensuring that they are consistent across their organization. They have 24 individuals dedicated to culture and leadership development focused on newly acquired companies.
This is one of the ways they create value on their acquisitions. Aside from economies of scale, expanding distribution networks and pushing innovation on their acquired companies, they focus on employee experience.
According to Jason, great culture and leadership can impact the lives of their employees positively. If employees are happy, they will bring more energy to the business, which will give them a competitive advantage over their competitors.
Since their organization is very much focused on leadership, one of the things they look for is leadership strength. When they see a toxic leadership or culture, they tend to walk away from the deal. Since they have a small M&A team, they won't have the resources and time to enforce massive changes in a company.
There are three indicators that Jason uses to detect leadership issues in a target company. The first one is internal feedback from the team itself. If the team likes the leadership and has been working together for a long time, then that is a good sign. No one will last long working for a toxic leader.
Another indicator is innovation. Good culture and leadership will foster innovation. If you don't have innovation in your company, LCI will not be very interested in acquiring you. Lastly, external reputation is also important. What do the customers, suppliers, and peers think about their product and customer service? It all gives you a picture of how good the culture and leadership of a company are.