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Bottoms Up Deal Origination Model

"We're not going to buy something cheap if it's not really what we want. We want to be focused on our priorities, and then we'll figure out what accelerates that." - Benjamin Orthlieb

Strategy is arguably the most important aspect of M&A, and strategy alignment across the board is vital. In this interview, Benjamin Orthlieb, Vice President and Head of Corporate Development at Linkedin, discusses Linkedin’s bottoms-up deal origination model.

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Benjamin Orthlieb

Episode Transcript

Bottoms-up deal origination model

It's a horizontal approach. If you think about most traditional corp dev teams, they come in later into the strategy conversation about a deal, start engaging the targets, negotiate the term sheet, run the diligence process, and oftentimes hand off to integration teams at that stage. 

LinkedIn and other tech companies around us have a bit of a different approach; we're much more end-to-end if you think about the deal life cycle.  

We are in charge of market intelligence. Every week we publish a newsletter internally regarding news about companies in the marketplaces where LinkedIn is playing. We also track 20 companies' earnings and write up quarterly earnings reports. We have to know what's going on in the landscape.

The second step is to work closely with our product and R&D leaders to be input into the strategy. We are also very aligned about their priorities so we can actually go out and source ideas and work alongside them as we engage with companies.

Then, of course, the traditional sort of negotiate term sheet, run due diligence, and coordinate more than anything else with all the cross-functional partners that it requires. 

And then, finally, while the deal ownership in terms of integration rests with the line of the business owner and the cross-functional owners, we're still very active in tracking and reporting on how integrations are doing. 

We also get involved when there are strategy conversations to reframe or reprioritize some of the acquisition goals. So it's a full life cycle view. 

Go-to-Market Intelligence

So first is scanning the environment, which we do on our own, more or less. Every morning, my team will share relevant news. It can be anything as long as it's appropriate and worth knowing. That feeds our weekly newsletter that is sent every Friday at noon.

That's usually a four to five-minute read and we start with an interesting or funny quote, LinkedIn post, or tweet just to make it a little more light because it's Friday.

We also follow some companies and keep track of their headcounts or other related metrics that can give us a good signal as to what companies can have traction. In addition, we talk to many VCs and bankers, and we're trying to be as aware as possible of what's going on in our markets across LinkedIn. 

And then we also track public companies' earnings. So that also gives us a good health signal as to the different marketplaces we play.

Sometimes when we do live updates. For example, when we see an interesting company, instead of waiting for Friday, we send it to a limited group on the spot and engage on a side thread as to whether it's interesting, whether we should reach out, and those types of things.

It links to awareness, so you are better armed for strategy conversation. It also helps us identify what companies we should keep an eye on for future sort of explorations.

Working with R&D Leaders

We have a monthly meeting with each line of business where the topics of discussion, depending on the month, gravitate around making sure we align priorities. What corp dev is looking into versus any changes in the business priorities or in the business strategy.

We will often have conversations about landscapes we've been focusing on. And then the team comes and presents a market map. From shared learning, we decide whether or not we want to engage with some of those companies. 

What's interesting is the engagement with the companies is actually not focused on M&A first. We go in with the mindset up striking up relationships, evaluating partnerships, and potential investments. Some of those conversations eventually lead to M&A. 

The goal is to make sure LinkedIn has the right conversations with the right players, whether that leads to information partnership or M&A. 

Approaching M&A

When it turns to an M&A, there's the classic valuation element with different values. But in this horizontal approach, we just have to ensure we have strategy alignment across LinkedIn. 

Specifically corp dev and the R&D teams are working with the executive team to make sure we're all clear on the strategy even before talking about valuation and the view when the strategy is right, the valuation often follows.

And so, let's first spend a lot of cycles on the strategy, making sure the companies are a good fit and then the rest is sometimes tight but will work out. 

You wouldn't buy something just because it's cheap. We want to be focused on our priorities, and then we'll figure out what accelerates that. 

Sourcing Deals

We have plenty of relationships, and then when it's time for them to sell, they call us.But when you've got a good alignment, those conversations will come up naturally. 

We also get a ton of inbounds and bankers and VCs.So we process all of them with the strategy in mind. My team is highly specialized in this business line so they know how to look at companies

We will share the opportunities with our R&D counterparts, but with a stated point of view - if we think it's interesting or not. So we can decide to agree or disagree. We shield the R&D leaders not to have to process 10 inbounds a day.

And then, after alignment on a target, they are involved all the way. We have a deal lead, but it often leads to more people on the R&D side as long as we're progressing those conversations with the company.

Alignment with Business Leaders

That's why they're folks on my team who are much more focused by line of business, , they have a relationship with one line of business. So they stay close with their partners, and our key partners will be the R&D and sales and marketing.

But we are very focused on knowing where the strategy and priorities are. So we report on what we are working on in terms of priorities to ensure they're aligned with the lines of business and the executive team. And it's part of that monthly meeting, but also ongoing conversations is to make sure my team is aware.

Success Metrics

We report on the pipeline and how many active conversations we have. But there's no metric around this. So I send that weekly through the executive team, so people know how busy or not we are. 

At the very top of the funnel, it's just name and general awareness. And then, as we move into deals, we do provide more and more details on companies in the pipeline. So when I send my pipeline deck, there's at least a slide on every company that is somewhat active.

And then, we have gates with a more varying depth of information and questions and topics that are being added towards the end.

  • Integration 
  • Integration approach
  • Integration strategy 
  • Valuation
  • Strategy

Approaching Company Leaders

It's part of our job to keep relationships going and sometimes, it's part of the R&D leaders' job. It's always good to get a market pulse and see how various industries develop. It's part of our relationships, including VCs for deal sourcing and general sharing notes of what's going on in the specific sector. 

If I don't have relationships with them, I look them up on LinkedIn and reach out to them. It works. When I reach out to a company, I've already done enough outside-in work and shared that with my R&D counterpart to agree it'd be worth a conversation.

And so, at that point, we're ready to have a product general market conversation with the right folks from our side, not just corp dev. Sometimes there's a first meeting with corp dev, but generally, we try not to make it corp dev centric from the get-go. 

It usually starts with the founders, CEO, head of product, and head of engineering, and that's usually where the conversation stays for a while. And as there are more questions, maybe some experts from the company and from our side get brought in.

Red flags around culture

It's more in the dynamics of the conversations, but we don't explicitly look for them. There's no red flag or bucket list of things that we have to check. It's more organic how conversations unfold and we also have this idea of culture adding

We've been lucky at LinkedIn where many founders acquired across the years have actually stayed on, and taken leadership roles. And that's something that we recognize as a good thing. 

And so, it's not just about the fit. It's really about people who can grow into leaders who can bring new challenges or fresh views into LinkedIn.

Governance around deals

We run what we call pre-term sheet diligence, which is most focused on R&D. So, not all the legal and all the cross-functional things that can happen afterward. We want to make sure that we are buttoned up for the strategy. So there shouldn't be a surprise there when it comes to the diligence post-term sheet. 

So we have internal approvals and strategy approval to negotiate which is effective in the valuation exercise. We break down the value drivers for LinkedIn and, from there, come up with a range of evaluations, which is fairly classic at this point.

Corp dev works closely with legal counterparts to negotiate a term sheet we want. The approval levels vary depending on the size of the number with approvals within LinkedIn and at Microsoft.

We usually follow the same process as Microsoft, but we are not as integrated because we're not in their offices. We coordinate with their corporate development at least every other week but we operate independently. So we're cross-aware, but we don't report to each other. 

Then we go into diligence and effectively have diligence findings and a final go or no-go. You try to avoid deal fever. That's why they're so much alignment. If we do something a little bit random, it can go by the wayside. 

Treating Failures

We haven't had outrageous failures, but We understand that there is a lot of learning in each transaction in terms of our process and approach. 

Whether it's a success or not, we conduct at various points after a deal, post-mortem. We're trying to determine if the process works for all cross-functional teams. If we need to update our playbooks and questionnaires.

To capture lessons learned, I have a person dedicated to integration management purely for that. And then, those become available on an internal wiki so that people can go and review all of them.

Lessons Learned

Over at my team, we have different profiles of people and it's very fun and interesting. I'm an ex-banker, ex consultant, and my team is a bit of a split of ex-bankers, ex PE and ex-consultants slash ex-business operations, so it makes for a good mix. 

Now I'm looking for people with more of a finance background who has an appetite for learning strategy. This makes for a good mix of folks that can bring in multiple points of view when we review news and earnings. 

It helps to have more profound views on companies and more interesting complete conversations. So not just about the numbers or not just about the strategy. 

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