episode 

Managing Internal Dynamics

Randy Tinsley

Randy Tinsley, Vice President of Strategy and Corporate Development at Synopsys, talks about how to manage the internal dynamics of your organization. Learn how to assemble your team, steps to take to ensure internal alignment, and how Randy tracks deals 3 years out post-close.

Jeff Desroches
VP of Corporate Development at Atlas Copco
Ivan Golubic
Former VP Corporate Development at Goodyear
Erik Levy
Group Head Corp Dev and M&A at DMGT PLC
Kison Patel
CEO at DealRoom

Managing Internal Dynamics

12 Jul
with 
Randy Tinsley
Or Listen On:

Managing Internal Dynamics

Managing Internal Dynamics

“The biggest challenge is aligning everybody to make smooth, efficient decisions. At the end of the day if you can’t make decisions, nothing gets done.” - Randy Tinsley

Getting internal alignment

Internal alignment is all about process and transparency. Let your team members speak their minds and make sure they know that their opinions matter. Each of your employees will have great experiences and value that they can add to the table.

When it comes to strategic alignment, as soon as someone looks at a company and the idea of transaction floats, decision-makers gather together in a strategy meeting and study the deal thoroughly. They want to ensure that this is a legitimate deal that they can realistically pursue before giving the green light to the corporate development to approach the target company.

Assembling your team

Randy has a lot of success working with finance and HR practitioners. In his experience, finance employees typically understand the business which makes them great at diligence. At the same time, HR is perfect for integration because they know how the company is run and where the skeletons are all buried.

Training for success

After pulling people from all sorts of backgrounds and skills, Randy creates an environment where everybody learns how to do all facets of the transaction. After that, clearly defining what their role is going to be is crucial. You need to put them in positions where they can be successful and inspire confidence and motivation.

special guests

Randy Tinsley
Vice President of Strategy & Corporate Development at Synopsys (NASDAQ: SNPS)

special guests

Randy Tinsley
Vice President of Strategy & Corporate Development at Synopsys (NASDAQ: SNPS)

Hosted by

Kison Patel
episode 

Episode Transcript

Intro

I'm your host Kison Patel, CEO, and Founder of M&A Science and Dealroom. Joining me today is Randy Tinsley, Vice President of Strategy and Corporate Development at Synopsys. 

Randy leads vision, strategy, and execution of all facets of corporate business development at Synopsys. Synopsys is an electronic design automation software company.

And today we're going to talk about managing the internal dynamics of your organization. 

Can we kick things off with a brief introduction on your M&A experience? 

Sure. I've been at this craft for about 34 years. Started life as a lawyer, saw the light and transitioned out early on. I've done it at Intel, Amazon, and here at Synopsys for 17 years. 

I had the good fortune of traveling the world, meeting folks, and buying companies of all sizes and types. It's a lot of fun. I really enjoy it. 

I always find it interesting when you come from a legal background and get into corporate development because there are some benefits of it. Do you see the same thing? 

It's been invaluable, understanding the process and flow and invariably, some of the biggest issues of indemnification and investors trying to lift it out and cover their rear ends a little bit.

It helped a lot. I've had situations where these startup CEOs think they're all that. And say, Hey, let's leave the lawyers out of this. Let’s just be the two of us. And I just laugh and say, thank you very much. 

You can foresee it and then the sort of informal discussions that happen leading up to a deal. 

You prepare the target company and the decision-makers about what's to come and start to orient the conversation in a much more constructive way, as opposed to surprising them at the end that they're going to be on the hook for everything for the rest of their life.

What's the biggest challenge in your role? 

The biggest challenge ultimately is aligning everybody to make smooth, efficient decisions. So they can be a fun negotiator, you can meet out, do all these different things. But at the end of the day, if you can't make a decision, nothing gets done.

I focus on how we make good, efficient decisions. And so that we don't waste time and we get the best deal possible. 

Walk me through that a little bit, because it is tough to get people thinking in the same direction. I'm just curious how you approach it? 

It's in a very highly collaborative open environment with a sense of urgency. These event-driven activities are fascinating to watch people because everybody wants to get involved in having an opinion. 

How do you get everybody's opinion without really necessarily having to do anything about it? It’s like, let people speak, but not necessarily listen to exactly what they're saying. At the end of the day, you have to move forward.

But if people don't get to participate, then there are all sorts of challenges that happen. 

Let’s face it, we're dealing with some usually high-powered individuals who think highly of their abilities. And they usually are justified in doing that.

They have great experiences and they want to add value, and having too many people wanting to add value can be a bit of a challenge at times. 

And that's the art of it all. Okay, where in the process can I get your opinions and your perspectives, but yet still be efficient about moving along. And that's the art of managing the process. 

Let's spec up a little bit to when you start assembling your team, can you walk me through that?

My team, that I've had great fortune in when they've been most successful, have been folks that I've pulled usually from within the organization in various capacities, very stereotypically finance, F&A type folks who understand the business. 

Who probably have an MBA, who probably have some sort of aspirations to do more. Those are very fertile ground. I've also had great success in pulling folks out of the HR organization when I've been more focused on the integration activities. 

Because the folks at HR tend to understand how a company is run in a very practical way. And frankly, where all the skeletons are buried, it's just where the hot buttons are. And that blends. 

It’s usually been very effective in helping build an effective M&A team. And then when I'm talking about a team, I'm talking all the way from sourcing deals all the way through integration and that whole flow. 

So those folks have been really good at it. These have to be great project managers.

There are some unique individuals because of their backgrounds. Maybe they've been exposed to some different things. 

You'd be surprised when you start to dig deep into the background of some of these HR folks. And so it's getting that program management skills and blending it all together. 

And then I create an environment where I try to get everybody to learn how to do all facets of the transaction so that they are comfortable walking through all these processes and know what to expect when it's their time to step up.

Let's talk about that, the whole training, onboarding, really setting them up for success. What does that look like? 

For me, it's defining very quickly what the role is going to be. You have to design it for success. So you know what they want to do and how they're going to do it. So that's what I want you to focus on.

But my expectation is that you're going to be involved in the whole deal flow, and you're going to attend the meetings. You're going to attend all of the discussions. You're going to have input. 

And I'm going to look to you to give me your advice or what you think might need to happen. It takes time. It's not six months, it's years worth of doing that and it may not ever get there but it's the journey that is what I'm trying to drive. 

And frankly, the job is a lot more interesting for themselves to just be pigeonholed into one narrow facet of the M&A flow. 

Is there any point where you sort of really try to understand what the person's goals are and maybe try to align that with their role or activity? 

That’s s one of the very first things. Most of the folks who do want to get involved in Corp Dev are very career-oriented driven people. 

They're not afraid to ask for more. And if you're not feeding them the meat constantly, they're upset and angry, and they're frustrated. They want to do more and more and more and more. 

My goal as a manager is to keep them as busy as I possibly can so that they feel like they're adding value and fully engaged. And that's the kind of person I want. 

And I want someone who's completely fully engaged in driving me to give them more. And it's a magic challenge, there's no doubt, but it's a challenge that I want.

And it's all about setting them up for success and understanding what they want. 

Walk me through how you run your team?

I'm very fortunate the team's been together for a while now. It's nice and it's casual, but there's an underlying tension of we have deadlines, we need to get things done. And I'm all about getting things done and not wasting time. 

And then on the team, so I assign each one of them their deals as they come along and manage the workflow so that no one person is doing too many at the same time. And I turn them loose and say, go. 

We meet every week and talk constantly about what they're working on, but I want them to be front and center and they know that as well. 

And so my job is to again, make them successful and get the deals done, make our group look great. And I'll be a happy person. If I don't have to do the deal myself. I'm okay. 

Synopsys hasn’t been in one place for such a long period of time. The company has developed a really good capability of being able to execute transactions.

You gotta be careful because that's when suddenly something breaks and you have a big problem. But fundamentally, everybody knows exactly what they need to do and how to get it done. 

So my job is to give them everything they need and to get out of the way. 

Let’s step out of the pretty picture for a minute. I want to hear about a little bit more of the chaos about the team that isn't as smooth sailing. 

It also happens if you get overwhelmed with too many transactions at the same time, that you have that similar kind of pressure cause there's a lot of demands and we need to get things done quickly. 

That’s just where the benefit of 34 years, I get to step in and take the lead and make sure I bring the folks along so they can learn that through just observing. And I have no issue asking them to get things done. 

You have two hours, go get it, we'll meet again. And then we'll deliver whatever our deliverable is at that time, and stop writing plans or whatever. At the end of the day, it's all on my shoulders and that's okay. Yeah. I'll just drive it to the finish line if I have to. 

But I want to make sure that the folks learn why it is the way it is and they evolve so they can do it and I don't have to. 

What are the challenges when you don't have that smooth sailing team? What typically comes up that you have to overcome? 

More often than not, the biggest challenge is interfacing with executives within the organization and being able to handle the pressure of tense conversations, and having the confidence of being able to push back.

That's not easy for younger folks who are earlier in their careers, who may think that they differ a little bit too much from the title. 

And in reality is the advice I give you, the young group of associates or young people in their careers, these folks will want you to push back. 

They want your opinion. They want to know that you're thinking and engaged and involved and don't be afraid. You'll earn huge respect. Know what you're talking about. Don’t defer to the title, do the job. 

When you're trying to move quickly and have lots of things that need to get done, you can't just say yes to everybody all the time, and you'll never get over the finish line. 

If you have to let somebody go or do something, but then as an up-and-coming practitioner, like you give the example. You need to talk to executive leadership and have those tough conversations. 

When I'm looking to bring people on to the team, I'm looking for folks that may or may not have it at that time. I know they can get there. They have confidence and they want to be able to do it, they're not shy. That's really important. 

Is there a way to develop it? 

I do it by leadership and demonstration, and I try to put them into roles, into situations where they can be successful and I'm right next to them. But I expect them to do the speaking, not me. 

At the end of the day though, the CEO looks to me to get it done. And I'm the one who is held accountable. So I have to be there to make sure it gets done. I really try to make sure that my team is the ones that actually do it.

So the way I look at it where we've set things up is I really want the team to drive the deals, the execution machine is the team. And I have the oversight veto of the corporate conscience. 

We have a sort of two roles, we are in charge of getting it done, but we're also trying to look out for corporate interests at the same time. And I bifurcate that a little bit and I will look out for corporate interests and let the team execute and drive.

In that way, if there's something negative, it has to be taken care of. I can do that without necessarily sabotaging relationships that are very important to build. And I just have the luxury of being able to have done it for so long. I have trust relationships so I can do that. 

That's how I demonstrate to the folks on the team. What are the issues that they're going to need to be, have to focus on, and be prepared to deal with at some point in their careers. 

Other than having tough conversations. What are other areas you see skills that are important to develop? 

Looking beyond just the obvious it's easiest to reach out to whoever the decision-maker. The GM of a particular company of a business within Synopsys. 

But there are three or four or more other people who have insights that you need to make sure that you touch base within, understand what their inputs are.

So it's going beyond just that so first, yes, the answer is looking a little bit deeper and understanding a little bit further, how decisions are made? Who's doing what within the organization? Where is that nugget? 

It says, Oh, this is really important. We better make sure we look out for it and it doesn't always come from the top.

That’s actually a good way of describing. And that's what I was talking about earlier. Having folks who are driven, passionate about what they're doing, do they really enjoy it? They're learning along the way. 

This is complicated stuff. We are a big company, 15,000 employees. We have locations all over the globe. We're like the 15th largest software company in the world, but there's so much to learn. And the science that we're doing is not easy and we are a super tactical company. 

I want people who are curious, who want to understand everything that's going on around them. And this is why the skill is so important and they invariably will come up with a diligence question in an indemnification question, a customer contract question.

And if you don't understand how our business runs and what's important, you can't really be effective. So it's asking those extra questions to go deeper because you have that curiosity. 

Any other areas to develop outside of interfacing with executives and having that actual drive? 

The other one is developing professionalism, interacting with the outside world. There are two completely different worlds. You have the internal machinations of how decisions get made and who cares and what about the loom and all that kind of stuff.

And then you have interfaced with the outside world, the bankers, the lawyers, the accountants, the target companies, the founders, the investors, and being able to walk in both worlds is not an easy skill. 

Let's take those apart. What are the steps that you do to ensure you get internal alignment?

Internal alignment is all about process and transparency. The very first step in our process is once someone has a gleam in their eye that they might want to buy a company, that they need to grow inorganically and they have a few ideas. 

We gather as a team, all of the decision-makers and we review. Why do you want to do this? What's the strategic rationale? Do you wanna really go spend X number of millions of dollars to go buy your way? And why don't you build it? What's going on? 

And this is a strategy meeting more than anything else. And we've talked and laughed about it, but it's really about getting the hunting license. So that means you're qualified.

Someone has thought this thing through, you're not going to go out and jerk some people around and you’re not pissing off some bankers. You're not going to irritate a founder. 

You're coming in with some support that the management team is interested in trying to get something done. No false starts and is one of the worst things you can do as a corporate acquirer. 

Start engagement in notebooks. Just kidding. You get a bad reputation. The bankers don't want to call you. The Founders, they talk amongst themselves in the industry. They know who the good acquirer is and who's not. 

And when you're backing out of deals anywhere, it's just not a good reputation and it harms your ability to be an effective acquirer.

And we call it a target company overview, silly name. But it really is a strategic alignment meeting where the key decision-makers are briefed on the strategy. 

And these invariably are some of the richest conversations in the company, if you don't frequently have an opportunity to come together and talk about strategy around a concrete step that you're planning to take. 

But without having to make this big decision where to spend billions of dollars today. 

It's a much more inviting, warm, engaging kind of environment, and you just get to talk and you have some data in front of you and you learn and you refine your thinking in a way that isn't normally done. 

These are great conversations to have, the CEOs love them. We have two CEOs. They're very rewarding and it's easy because, at the end of the day, it's Hey, this makes sense. Let's see if we can figure out something. 

So it's a low-pressure but highly important step in the process of training executive alignment so that you are now beginning the decision-making process with confidence. 

What's the process look like when you start to continue and really look at selecting targets? 

So we have a target in mind when we come to the table and discuss the strategy so that we have A-level of information. 

And sometimes we have a lot because the bankers are representing them and we're running a process. So they've done some of the hard work already and have pulled information. 

But I try to keep financial information as much as possible out of these strategy discussions. Because you can quickly go down a rat hole and focus on those numbers and not be able to have that rich strategic discussion. 

But invariably, some of it comes up, but that period after we have our license, we engage with the target with confidence. And now we can start to ask questions and get the NDAs in place. 

I'd like to have those after we've had this meeting so that I don't waste people's time. And we start to pull information that we can, the financial information, the market information, get to know the founders, the leaders a little better.

Our team is actively involved now and is driving the process. The technology evaluations begin. That's all because we know we have the support of the management team to start this process. 

If we like what we see, if the sponsor of the deal within the company wants to move forward, we will come back to that same team that you met with earlier.

And that same team with our CEO's, our CFO and our COO, which are the top four decision-makers in the company. 

We come back with a sort of a straw man operating financial plan, what we think we can do with it, with some of the information we've learned about the customers, the technology, all in affirming, a lot of the assumptions that we might've made earlier.

And we'll go back and say, based on all this, we think the price is within this range, this makes sense. We'd like to get the okay to negotiate a term sheet consistent with something in this price range. 

So that's the financial discussion that  probably every corporate acquirer has somewhere in their process. That's when we have it and then with the goal of getting the, okay, to issue a term sheet with the evaluation that has been established in that meeting. 

Those are tough and they're supposed to be tough and they should be tough. Because they're very concrete and we were getting ready to engage. 

And my philosophy is if I'm going to make an offer, I deal with the expectation I'm buying it on that day. I don't want to have to say, well, I just want to keep looking for a little while longer and just guess. 

I want to make that decision that day. And then I will do my diligence to see if I made the right decision. 

What kind of conflicts or disagreements come up? 

The evaluation is always a big one. Everybody has different views of what something is worth and how to go about it. 

And that we go round and round on that. We’ll pick apart the operating plan because we're very focused right now on driving a profitability profile for our company. 

And so we will spend a tremendous amount of time looking at those numbers and trying to understand how this is going to affect our corporate goals and objectives when it comes to financial metrics. I get a lot of that. 

And then there's a tremendous amount of discussion on what's the go-to-market strategies. How does this work with what we want to do and where we're headed? So rich discussions, and always run out of time.

Can you give me an idea of how, when that is still pre-LOI where we're starting to get more serious about it?

So it's pre-LOI, we're getting serious about it. And we're now asking for the detailed financial information from the target, their five-year historical, whatever. 

Their projections are usually, outrageously, optimistic and we are picking them apart and then doing our own analysis. What it looks like, what can our company do?

And so we built out a three-year plan, actually, it's five but three to five-year plan during this period between the strategy gathering meeting, hunting license issuance, and the term sheet approval meeting. 

We are building a full log PNL for the target company, as it would look like operating under Synopsys. That's a fair amount of work and that's all because the second step in our process is very financially driven by design.

There are some people who just love strategy. And there are people who just got to have the number. 

And it's very difficult to put those together in one single effective meeting because there are too many opportunities to rattle off, go off directions and you lose sight of what you're trying to accomplish.

So we've effectively divided it into two.  Do the strategy first, come back, do the five-minute review of the strategy, but everybody should already know it and why we're trying to do it. 

And then if our diligence during this period comes up with a different conclusion, then we'll bring those to the party. We'll talk about them right then and there. 

But the bulk of that discussion is financial. And it's going through the numbers, it's going through the assumptions and you use your strategy of why this makes sense. It really is a financial discussion at this period. 

We mentioned some of the conflicts that come up around valuation. What's your approach to conflict, disagreement, resolution? 

Underpromise and overdeliver. This is invariable, some folks fall in love with the technology and want to do the deal. Others are much more financially constrained. They don't fall in love. They are looking at the numbers. 

How do you strike this balance? Sometimes it's easy and sometimes you don't get there. And sometimes we only feel comfortable going to a certain level. That's just not going to get the deal done. And that's how it is. There's no magic bullet here. 

I tell the GMs in our company who are trying, we have a very strong sort of cultural thing that every deal needs a champion and they need to come from within the business units, with very few top-down driven transactions.

And I love this because it means I have people who are passionate about a deal. They own it, they're going to operate it and they really want it to the neck. 

Itit gives us the highest chance for success. If the GM is not pounding the table, saying, I have to have this, it can get very hard to get a deal through.

So when the tough moment comes and you need an extra 20 million in order to justify the deal and the GM is not pounding it, probably doesn't happen. 

The GM's pounding the table, they'll get 30 because he's so passionate or she is so passionate about it. And that is how at the end of the day, someone who's putting their neck on the line, who really believes, usually gets it over the finish line.

What about the size of the deal, does that make a difference where maybe you got some various views on doing the deal, not doing the deal, but then you have this other point of, Hey, it's a billion-dollar deal. We're really looking at the risk in this way, versus it's a $10 million deal. Does that sort of shift between deal size? 

We're really in flux a little bit on deal size and how that works within the company. We've done deals of all sizes and the smaller deals are hard to do. 

It almost doesn't matter how many zeros there are behind the first number in the purchase price. 

Because if they have the same issues and a software company that's only doing a couple million in revenue and you acquired it. You have the same risk and liability exposure issues. 

If you're going to incorporate their technology into our core products, and we're going to start selling it. You still have IP liability all over the place and it doesn't matter how much you paid for the company.

So you have to do a certain level of diligence no matter what. You have to protect yourself to a certain degree in the documents no matter what. 

So these smaller deals are just almost as hard to do like the big ones except, there's no materiality. So when an issue comes up, you can say, oh, it's only a couple million bucks out of a billion it's okay.

But when it's a couple of million bucks out of a $5 million deal, that's huge. So you can't just brush things under the carpet because of the materiality inspection. 

So you end up negotiating everything. That's the nth degree because everything matters and we are very analytical. We're very focused and we're very disciplined. So it's very hard to pull back and say, don't worry about all this stuff. 

And so we're trying to develop competency around focusing on only the most critical things that matter in these smaller transactions so we can be much more efficient and take a little more risk. 

We're a big company, we can survive. Nothing's gonna take us down. So it's okay. But it's not in our DNA. We are evolving. It's a very complex question.

Smaller little deals, they are hard to do, but they are also easy to do, and just tuck them in and get them done and move on. It's five people in a way you go. 

The billion-dollar deals get all the attention in the world because they’re material, but guess how many professionals are involved? 

We got all the bankers and multipliers or as are many more people involved to help drive this and to make you feel better about your decisions. 

Yeah, we did all the diligence in the world and at the end of the day, the strategy will carry it and you'll get it done.

It's the in-between ones that could be really tough. It's 200 million to a hundred million. Those are big, but they're not so big. And those are challenges. 

Do you think that's really evolved with this peer volume and maturity of the Corp Dev function itself? 

If a smaller company is evolving their M&A capability and just fooling around. They're just getting started. Starting those small deals are great because you can make all those mistakes. 

And you're not betting the company. On the purchase price, you could still trip up and give away all the IP by accident. 

You could step your toes and make some mistakes on the smaller ones, but once you start getting very efficient at it and you understand all these concerns it's hard to go back and unlearn some of the things that you did. 

So I have spent the last three or four years really trying to drive our team to only focus on the things that really matter on the smaller transactions.

And we're getting better but the legal bills are still too high.

What were some of the big lessons learned as you went through the experience of doing these deals? 

I guess the first thing is it's a continuous learning curve. You would think after X number of deals yeah, I got it and the next one comes along and you've never seen that before. How do you handle that?

And particularly when you start crossing, I'll say bodies of water. I have this saying that every mile of water you cross the complexity of the deal it goes up by two. 

So by the time you get to the UK, these are really complex or if you go over the Pacific, it gets really complex. So when you go international, it just gets so much more challenging. 

You think you'll know it, but it's very different. It literally is everything. The investors in companies have completely different rules they operate by and in Europe than they do in the US. 

They're all after the same thing, they'll make it some money. But the rules that they have to operate under are very different and the laws are different. 

We had a battle of whose law is going to control, the US law or is it UK law or Romanian law or, and don't even get me started on the internal conflict within the company about something we could even think about doing. 

Because the legal groups could say no, it has to be US law. That's the only one we know. So we have that battle. There's no easy answer to your question. Every deal has its own dynamic. 

I didn't know it was even possible. We were doing the transaction in Portugal. I didn't know it was possible that when you buy a building, you have to ask to see if the land comes with it or not. 

The fixtures, the law of fixtures, if the buildings on the land, yeah, of course, you get it, the wrong answer. You can divide it there. So if you buy the building, it doesn't mean you get the land. 

And we learned the hard way because we got the building and then we had to go back and get the land. 

You have to be open and ready and expected. It's a challenge. 

And then I tell the CEOs of these companies when we get started, especially younger ones, I look at them and say, Hey, we know what we're doing. We've done this before. And I promise you we'll make a mistake along the way. 

We're going to piss you off, it's not intentional. Just call me and we'll talk about it and everything will be fine, but we will do it. I promise you that. 

And then invariably, it happens. And it's not because he wasn't trying, he was trying to do a great job. 

How do you align your integration? 

So the way we do it is early on in the process. We will identify, or it becomes an integration captain who has to come out of the business and they are part of the deal process and early on. 

This person needs to have strong project management skills. He needs to understand how their business unit operates. Who does what, who, why, what the priorities are, what it takes to succeed. And they're early in the process. 

When we have the last meeting of our three-step process which we call our deal approval meeting, very original. This is before I can sign the contract, I need to get the okay. 

And to do that, this is a forward-looking meeting. We finalized our operating plan. The numbers haven't deviated much. 

We review the results of our diligence and whatever mitigation steps are going to take to deal with some of the challenges we might have uncovered. And what's the integration plan? 

And how are we going to make this work? Who's going to do what? What are the organizational changes we're going to need to make? All sorts of forward-looking gatherings.

The integration captain is now pretty much taking right to the front of the discussion and we're getting ready to hand that person their roadmap for success. Then they run it, it's their job. And my team is in a support role there. 

We know we've done enough of these now, that we know how the back office stuff works and what HR needs and all that sort of stuff. So our job is to make sure that the integration captain has the support they need to drrive the integration forward. 

All the infrastructure groups look to us to help represent them in that process. And we can do that, but the value is created within the business. Where the R&D is going to happen and the product integration is going to happen. And that's where the focus needs to be. 

What happens from there? How are they involved during your actual confirmatory diligence through close?

We have weekly diligence meetings. Sometimes twice a week when a deal's in-flight and they're attending those meetings because that's where they are learning and hearing about what's going on. 

Again, who's doing the what, what are the challenges, how things are working at the target company, and the formation of that integration plan that's happening during this period.

So that when we sign and close, it's off to the races, but it's no big surprise. They've been effectively doing it, but we've been having integration, informal or formal discussions with the target company all along. 

And sometimes I actually have to say, guys, slow down on the integration. I got to get the deal done first because they're anxious to get engaged.

And absolutely this happened to them, on the one we are working on at the moment. So if they're anxious to get engaged, involved, and start running and create value. 

You mentioned  that you track your deals three years out, post-close. How do you do that?

So as part of our deal approval, part of that deck has what we call success metrics and that we identify for each and individual deal. And then on a quarterly basis, I tracked all deals that are still within the three years of closing. 

And I have a template that we've created that has all the financial information of how the revenue and the orders, numbers, are they meeting the three-year plan that we use to justify the deal and what the success metrics are. 

I score it with some input from the business unit. But it's intended to be an objective look. 

I don't necessarily have a stake necessarily in the outcome. I do not measure by how deals perform post-close, so I can give it an objective view of what I think is how it's doing. And then I give it to the board on a quarterly basis. 

And they invariably will ask me questions about one little deal that happened two years ago. Why is it deviating from this or that? And so that's when I get my rear in the sling. 

So I actually feel like I own all of them because I'm the one that ultimately seems to have to answer for the years after they close.

Is there like a giant scoreboard in the boardroom that sort of maps all this and tracks it? 

There's a giant scoreboard that goes with every quarterly package I send out with the board. I have a score and of all the ones that are actually tracked. 

Going from the sort of measuring the success and how you get measured with those companies. When do we go back to the whole team aspect, how are you managing the internal dynamics in your organization? 

The way I like to do it is I like to give to every individual in my team. So I have a three-person, three professionals who work for me. I have managed the pipeline, all the things that we're looking at. 

And I'm very careful about signing each deal to each individual based on the pipeline and making sure they're not overworked or underwork to our earlier conversation.

I manage it that way on a deal-by-deal basis. I work with each individual to keep them fully engaged on what's going on. 

They ultimately develop their relationships with the various influential folks within the company, but I manage them through each deal and how they get assigned. 

And I try to give them a breadth, but they develop areas of competence within a particular business segment. I'm going to exploit that to the max. 

Yeah, it really is. All of them take great satisfaction in getting something over the finish line. There's this adrenaline rush associated with doing these transactions. M&A is sexy, it's fun, it's exciting, it's finite, start and a finish. And there's a lot of attention and focus. 

There's a lot of notoriety that is put on it. It's press and these are all these intangibles that drive these folks to keep working harder and harder. And I want to make sure they get the credit for that. So I give them the ownership of it. 

You mentioned hiring internally. A lot of times from finance, HR is that sort of people seeking it out. They reach out to you saying, Hey, Randy, I want to get an M&A team or? 

It's not hard to fill the role. It really isn't. We have that good fortune if we can be relatively selective because of that, it's unique. I tell anyone this, I have the greatest job in the world. I get to see what happens all over the company.

In order to be effective, if you really think about it, I'm buying a company, I got to map it onto my company. 

In order to do that effectively, I got to know what my company is doing, which means I get insight into everything that's going on, but none of the responsibility of running them. 

And it's so fast, there's so much to learn and the opportunity to see these things working with smaller companies. And I got to look at, okay, now I got to understand that company completely in order to map it to this company so that we can have success. 

This is why this role is so cool. So if I'm not talking internally, I will grab people who've been doing corporate development but inside another active strategic acquirer. 

They understand these issues and then we have our way of doing it and they'll figure it out soon enough. But the folks that have done it for a couple of years, somewhere they could easily slot in and be effective. 

Who the key people are to get to know and understand the company. I hire somebody who should already have the skills. I'm trying to make sure they're gonna fit the culture and learn the business to be successful. 

What's a good way of doing that? You give them a list of product people to go talk to? 

The good way to do it is I give them to hear the GMs. I'm going to introduce you to all of them. And here's a deal, I'll sit next to you. So let us go. 

Or I'll take one of the other team members and say, Hey, would you work with this new person and coach them up, mentor them? 

And that's all yet another fun thing that folks like to be, Hey, I'm a mentor. I enjoy that opportunity to teach and lead and demonstrate. And if they don't like that, then they're not on the team. Because that's really what we're all about. 

I remember what I wanted to ask you earlier about success metrics because I'm imagining that scoreboard and the quarterly reports with all these companies are tracking. Is that fable 70% fail rate a real thing? 

If other people experienced that, so that's unfortunate. We don't, not all of ours worked great, but we've been pretty successful at what we do. I think we're at a much higher rate than that. 

We've had failures and the failures are usually not a surprise cause it’s a little bit of a flyer. And maybe it's a new technology that hasn't necessarily hit the market and is not necessarily mature, but it could be really great and you bring it in. 

And two years later there wasn't and that's okay. We didn't beat our numbers. We didn't have a product at the market when we thought it was going to hit the market. 

But what happens is some really smart people come over, they take their DNA, it's infused into the company. Somehow it lives on and adds value five years down the line.

We're a bit unique in the kind of product and technology we have and the relationship we have with the customers, we offer a full flow of tools and the chip design activity. 

And so it's easy enough to integrate the technology to people in a way, and it's not necessarily visible. And that way it disseminates out through the rest of the company.

And in fact, so we didn't hit our numbers. So by definition, I score a red fail.

That's where it gets confusing. Where I feel like this definition of success and failures, pretty ambiguous. It's very depending on your definition. 

It's relative, it is. Some folks I know because the nature of their businesses can and should be hardcore, financially driven.

I needed this not, this kind of business for this kind of level over this period of time. It didn't happen. It's very easy to do that. We have an element of that of course. In technology, it's a little bit different because its stuff invariably lives on in a different way. 

When we talked about alignment, internal alignment, I'm curious to just stories, like what are some interesting things or scenarios you've encountered? 

So our biggest challenge, about earlier. You have always been around. We ultimately can get alignment because again, we have a lot of similarly minded folks, so it works out well.

I mean, there's disagreement necessarily on a particular company at some time and evaluation sometimes on the numbers, because we are very disciplined when it comes to the number we're going to pay. 

Those discussions are always challenging. We got lucky on one I could tell you that. There was one where we decided to reach for the moon. And we were unsuccessful in acquiring the company, even though our bid was the highest bid.

And there was a lot of consternation around the fact that we're making such a high bid for the business. 

And the seller decided not to take our bid even though it was the highest one and sold to another company only because the founder had been given a more prominent role in the acquiring company. 

And a year and a half later, I was able to buy back that business for about 80% less than what we were going to pay for it because the acquirer had messed it up so badly and it was all on the sales channel side of things. The technology was just fine. 

So we bought it back and then that same founder who sold out for less actually bid more for it cause he wanted to buy it back and the company was done dealing with him. 

So we got it for a pittance and to this day is like one of the best M&A transactions we have ever done. So sometimes it's okay to lose. If we take a longer-term view. It's okay. 

That's the one where I learned about land and property don't necessarily be the same thing. I learned that it's possible to acquire a dead employee and it's sad, someone had passed and no one knew it. 

And we kept trying to communicate with this person and they found out months later, they had passed and nobody knew about it and that's just not good.

And we picked up five cars that didn't work that were in the parking lot that was company-owned. It was just never maintained, and was all broken down. It's funny things that you uncover after you've closed. 

Do you have any other interesting, like in diligence surprises, you've encountered? 

We did one where we were engaged and was still flying along and suddenly it stopped the sellers to say, we can't sell anymore.

We go wait, what's going on? And I got some sort of something that had happened and we hadn't found any of this in diligence. And six months later, they came back and said, now it's okay for us to sell now. 

And something had happened and it might've been insider trading. It happened to be a public company at the time. They had caught it themselves and knew that they were going to be a big problem.

They stopped the deal, called and, waited six months and a day for the period to lapse, and then came back and sold us the company. 

The reason was never, ever officially said, this is all innuendo the bankers and I haven't run the full relationship. And so behind the scenes, it's the only explanation. 

The good banker can make all the difference in the world for this kind of stuff. And it was fortunate that I had a close, personal relationship with the individual, so we could be very open and honest and have that discussion of, Hey, what's really going on. 

Because feelings could have been ruffled in a really bad way that would have prevented the deal from ever coming back. And it turned out to be a very pivotal and important transaction for the company.

What's the craziest thing you've seen in M&A? 

I don't know if this is crazy. We tried to buy the other one where the market ran as we had already negotiated the deal and the price was set and we were ready to sign documents. 

And the company had a board meeting and said, sorry, we can't sell to you. Our price is running up because we're doing so well. I go, well, it's no surprise. We all knew this was the case. They said, too bad. 

We're persistent, we waited six months and we ended up biting the bullet and acquiring them for a little bit more but not as much as they wanted. The moral of the story for us is to be persistent and patient all at the same time. 

It's hard, it's not easy. A lot of M&A professionals have had to deal with that. And I really applaud our team for being so disciplined, but we also made the right decision by coming back to buy a little bit later. 

From my perspective, we saw all the numbers, we've already seen them. And then that's when people start looking at each other, are you doing this on purpose? 

What are you saying to the market? And why are you saying that to them? And then this, oh man, you go down that path. That's not good. 

Ending Credits

Thank you for taking the time to explore the world of M&A with our podcast, please subscribe for more content conversations with industry leaders. 

If you like our podcast, please support us by leaving a five-star review and sharing it. I enjoy hearing feedback and connecting with our listeners. 

You can reach me by email it's kison@dealroom.net. M&A Science is sponsored by Dealroom, a project management solution for mergers and acquisitions. 

Additional educational content is available on Dealroom's blog at dealroom.net/blog. Thank you again for listening to M&A Science. See you next time.

Views 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 and is not intended to serve as a basis for any investment or financial decisions.


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