Building Trust in Acquisitions

Building Trust in Acquisitions

Building M&A Strategies at Sam Companies

Kison: Can we kick things off about your background?

Dan Pollock: I started my career in public accounting. I worked for a regional firm in upstate New York, and then found an opportunity with Deloitte down here in New York City. So I started on their audit practice and the first touch in the M&A was really the main audit client that I had, which was an investment bank.

Dan Pollock: So they're obviously doing M&A advisory work and doing some deals themselves. So got to be involved. Auditing, looking at that information and, those seemed pretty exciting. So I [00:03:00] had an opportunity to pivot from Deloitte's audit team to their advisory team and transaction services groups. So doing quality earnings analysis and other accounting and financial diligence started to get my hands dirty when it came to like real deal work.

Dan Pollock: Then wanted to get more on the buy side, saw some exciting things happening. decided to go back to business school, get my MBA at the University of Texas I did the networking, got connected with Sam, which at the time was owned by another private equity group in Austin they were looking to build the M&A muscle at the company and really supplement their [00:03:30] organic growth strategy.

Dan Pollock: I've been there since 2018 and I think I've done over about 25, 30 deals then.

Kison: So you got in and it was. Brought right in to start building out M&A.

Dan Pollock: They had one deal. The company headquartered and founded in Austin, Texas. A lot of the operation was Texas and a handful of offices across the country, but the first deal they did got them on the east coast, got 'em offices from Philly down to Atlanta, then we were able to really grow that organically and do some add-on acquisitions to fill in some holes.

Dan Pollock: At the time it was probably like [00:04:00] 500 employees. Now it's 15, 1600 employees with 45 plus offices across the country, and very diverse across Texas and east of the Mississippi. Built M&A function from scratch. Started from the bottom. Now you're here.

Dan Pollock: Now I'm here. It was very much a learning experience for myself. I work directly and still do work directly for our CEO and got to partner with him. He's still heavily involved with the M&A. He lets me. Run with it, but he sees it as a key piece of our value creation. The private equity team wanted to have someone at their portfolio company to [00:04:30] really focus on this and build the muscle within the organization

Dan Pollock: I'm in a core competency as part of the growth strategy. So that was the task. And the first couple years I got there, we did two, three deals a year, building out the playbook and the process and the way we did this and who was gonna be involved and pulling folks from different functional teams in and just continued to massage and evolve the playbook to now where, we've got defined execution, playbooks, integration, playbooks.

Dan Pollock: Find teams. We're using deal room to streamline all of that. it's been a lot [00:05:00] of fun. You see how it's evolved, you learn things along the way and we're still not perfect, but we've gotten much better at this.

Kison: I gotta put a disclaimer now, but we can't help it nowadays. Yeah. All the best acquirers are using deal room, so I can't help it.

Executing Successful Acquisitions

Kison: Last year you guys did seven deals? Yeah. How big is your corp dev team?

Dan Pollock: Yeah, it's myself and, shout out to my senior associate Tyler, who does a lot of the work makes me look good and makes our team look good. He's working hard. It's definitely not just the two of us. We very much appreciate that.

Dan Pollock: We've got a great group of people and a great company [00:05:30] of. Talented folks that want to be successful. as I mentioned before, M&A's become part of the strategy and the growth story at Sam. our regional business unit area leaders, know we can grow the business through acquisition as well.

Dan Pollock: So partner with Dan, partner with Tyler. what's your business strategy here at this regional local level. How can we be helpful for you guys? we're a national business, but it's a pretty small industry. Everyone knows everyone and they know who's doing good work

Dan Pollock: It's a people business. People [00:06:00] wanna work with good people. I used to work with this guy at Company X, now he's at Company Y, or he started his own thing five, six years ago. Let's see if he's interested in selling the business and bringing them in. So definitely a team effort. We are very fortunate to have the resources to grow our pipeline and get deals done.

Dan Pollock: I like the relationship with.

Kison: What do you call it? Business unit leaders, general managers, business unit leaders. For simplicity. You build a relationship with them, you understand their strategy, and then they might even have ideas about companies. [00:06:30] And then you start shaping your own pipeline.

Kison: Based off of this,

Dan Pollock: taking a step further, the corporate business strategy refreshed every year with kind of a, an annual plan and budget and, these are the things that we wanna focus on to help drive us to our financial metrics that we want to hit. M&A is part of that. It's a tool to get there.

Dan Pollock: It's not its own strategy out on an island. It's where you focus. Your M&A efforts needs to be tied to your strategy. So we're a tool in the toolbox to drive growth. We're organic first, if we can be, and then M&A is there to [00:07:00] supplement it and trying to have a really good balance between the organic and organic growth.

Dan Pollock: That's what I'll put by the way. Yeah. It's

Kison: a tool

Dan Pollock: to

Kison: execute strategy.

Dan Pollock: Those are the broader corporate strategy, but the way we like to think about our business, a slogan that we use national reach, but local relationships still very much service-based. Boots on the ground, local relationships matter.

Dan Pollock: The business strategy at the corporate level may not look exactly the same at every office or business unit Let's go have a focus strategy session with these leaders, and say, here's the broader corporate [00:07:30] strategy. We want you to be diversified. working with good clients, generating high margins, and able to grow.

Dan Pollock: So it's let's go execute that and can M&A be a part of it? Should M&A be a part of it?

Kison: Did you ever have a challenge getting the M&A culture of folks that. Wanna do or motivated to do M&A versus it becomes like a very much of a push effort. Did you feel that?

Dan Pollock: Starting out it was probably like that because listen, it's a lot of work, right? They're gonna be involved in diligence. They're definitely gonna [00:08:00] be involved in integration Whether they like it or not, they're probably gonna be held accountable for the success or failure of the deal. are we meeting our goals?

Dan Pollock: Are we extracting the value? It does put some additional pressure, on these business unit leaders, but also if you're not growing, you're dying. if you want to expand your career at a company like Sam, who's gonna replace you? You need someone to take your spot now.

Dan Pollock: So the only way to do that is you gotta grow, right? It creates development opportunities for our staff. We've done a good job of articulating why growth is important [00:08:30] and now these guys are incentivized to grow their business. another way we dangle, like referral bonus.

Dan Pollock: If you bring a deal to the table, we get it done, we'll pay you a spot bonus for that. It's nothing massive. It gets people thinking

Kison: That's a good way to start. Legion.

Relationship Building and Deal Sourcing

Kison: Was there anything in terms of readiness for the company to do an acquisition you had to do, especially in these early deals that you were doing?

Kison: Definitely

Dan Pollock: required more resources, more skillset than we had at the time. I honestly think, not to plug deal room again, but it helps getting [00:09:00] everyone involved in this. Getting more of a cadence where you've got a deal that's, very close to LOI or post LOI, or now we're talking about real diligence and.

Dan Pollock: Integration planning. You start getting a couple of those and you get the ball rolling. It just becomes second nature in a way. It's okay, here's the team. Lois's out. Okay, this is the next thing. Get everyone together. Get 'em into the deal room, see the information, start asking questions, start building out the integration plan and the task list, and I think it's just reps.

Dan Pollock: At the end of the day, you're not gonna have all the answers upfront. We did leverage our [00:09:30] private equity partners at the time when we were doing our first couple deals to provide guidance. My background is more in like financial diligence, so le leverage that skill set and have been through deals before and knew the process, which obviously was very helpful.

Dan Pollock:

Kison: and how your process evolved after 25, 30 deals, how would that compare from those early deals to how you do deals? Now?

Dan Pollock: We've gotten just so much stronger at. Every aspect of the deal lifecycle from sourcing through closing and integration. For the [00:10:00] longest time, it was just me as a one man show from a corp dev perspective.

Dan Pollock: So bringing someone else on to help drive additional efficiencies and best practices was really helpful. we've had a lot of the same team members too, across finance, accounting, hr, marketing. Legal safety regulatory, all that stuff.

Dan Pollock: So these folks just get better every time we do a deal, they know what to be looking for, they know what's important. Probably where we've seen the greatest improvement in the process is the sourcing relationship, building with the [00:10:30] target firms that we're going after. You do that long enough, you really start to hone the way you do that, and not necessarily calling it a sales pitch, but you really learn how to tell the story the right way.

Kison: Before that, just to get more context about your company and the deals you do, can you share one example of an acquisition just to get a sense of how it tied to strategy?

Dan Pollock: we are, as you mentioned in the intro, a 15, 1600 person professional geospatial services firm.

Dan Pollock: We do some inspection services, but [00:11:00] where we've been very strong in our core competency is. Collecting spatial data that is used for design purposes or construction purposes on these major infrastructure.

Kison: Are you talking about the drones that fly around?

Dan Pollock: We do some drone work, but we also have fixed wing aircraft with million dollar LIDAR sensors collecting very dense 3D data and using that in a design perspective or construction phase.

Dan Pollock: we're also doing a lot of inspection work along the, transmission line, right? We're seeing all these wildfires out in California. A lot of 'em are being driven [00:11:30] by the power lines So we're inspecting these lines, trying to identify if something's failing or going to fail using these images.

Dan Pollock: And then predictive analytics and ai. It's a really fun company to be a part of 'cause we're doing some interesting things. I think what we're doing is keeping people safer, specifically when it comes to inspecting underground utilities We're identifying where gas pipelines are before you dig and things like that.

Dan Pollock: It's a really fun organization to be a part of and be a part of some of these major complex infrastructure projects. one of the key markets, we work in is the electric [00:12:00] utility, electric power generation area. We want to continue to grow in that we see continued growth and that's part of the industry for many years to come.

Dan Pollock: And one of the acquisitions we did about four or five years ago, had made a great reputation in the industry for being the go-to when it comes to anything geospatial services around renewable projects. So big wind farms, solar, and then transmission lines to connect green, energy generation to the grid.

Dan Pollock: They were a smaller firm based outta Texas, but had national [00:12:30] clients. But didn't have the national reach. So they joined forces with Sam, who also was doing a good amount of this work. And immediately because of our national reach, we were able to go service four or five massive projects up in Illinois or in the Midwest that this other firm never would've been able to get

Dan Pollock: 'cause they didn't have the resources of the national reach. So again, going back to that national scale, local relationship. That strategy came through and we doubled that business in two years.

Kison: Yeah. But it's [00:13:00] just cross-selling their service in this different market

Dan Pollock: that was cross-selling and then it was just pure national resources scale that we had.

Dan Pollock: It was more about just adding additional resources and capability to what he did to his national client base.

Kison: How'd you think about synergies on that deal? When you look at it, it's okay, let's say X dollars are paying, but how do we look at synergies on cost synergies from buying a business like that?

Kison: Versus revenue synergies, because you said you doubled it. How do you think that through and looking two years after? [00:13:30] How accurate were you?

Dan Pollock: How of the deals that we do a little bit smaller and they're hard to really quantify some of these synergies. Cost stuff you can tease up pretty easily

Dan Pollock: It's a lot of hope for stuff you think it's gonna happen and ultimately we typically see some pretty strong execution on that. But for this one. Because we, were going after a lot of these same projects that this company was winning. We knew immediately bringing these in, what it was going like.

Dan Pollock: We knew the amount of the contract award, like what the revenue generation was gonna be, so we could get a good, clear picture of What revenue could [00:14:00] be in the next 1, 2, 3 years based on, and these were multi-year projects. I don't remember the dollar amounts exactly, but we had some specific things that we could put in there from a revenue synergy perspective to feel pretty good about, which is typically pretty hard to do.

Dan Pollock:

Kison: companies, they don't put ad revenue syns at all. No. 'cause it's just. Not something you can count on. So it sounds like you're a little conservative on it as well. For sure. You gotta have some level certainty But then cost energies tend to be more predictable.

Kison:

Dan Pollock: One of the things too, and I don't know how much of a rabbit hole we want to go down into like earnouts at this point, That can play into that, right? It's [00:14:30] as a seller, I feel really good about we can go get all this additional work. It's okay, put your money where your mouth is and let's put some type of earnout incentive, so we're both sharing in that risk a little bit.

Dan Pollock: If you have that much conviction in it, we'll both share in the win and the loss.

Kison: I wanna learn this stuff. I wanna learn how. You port your targets? First of all, how do you get 'em on the phone? Is it easy for you guys? Do you have the business unit leader just already knows 'em through conferences and stuff, or are you reaching out cold?

Kison: How does it start?

Dan Pollock: much higher [00:15:00] probability of a conversation or that intro call if there is some type of personal relationship with someone at the firm. If you knew somebody, right? Like you felt good about 'em, and you'd probably be willing to have a conversation with someone at their company.

Dan Pollock: So that's definitely by far and away like our number one resource and where we like to go to first. After that, a lot of proprietary cold outreach. being in the business now for eight years or so, you learn who's doing the good work and who it is that would fit the strategy.

Dan Pollock: So you know who they are across different geographies [00:15:30] and just making sure that whether they never responded, you following up and trying to get a response out of 'em, or if they have responded to you telling you, Hey, appreciate the outreach, just not the right time. Then you hit 'em up in six months or a year and continue to see when timing.

Dan Pollock: 'cause it is all about timing at the end of the day.

Kison: Are you that direct? You send 'em an email and it's yo, just wanna see if you're thinking about selling your business.

Dan Pollock: It's more about, Hey, I'm sure you're familiar with Sam. We see you're doing some very interesting things here and here.

Dan Pollock: We're also doing stuff here. I think would make sense, complimentary to [00:16:00] each other. We'd love to have a conversation and see where it goes. It's no secret that I'm the M&A guy, but then you also lead to Hey, if M&A is not an option, maybe a way that we can team together and make this a win-win relationship either way.

Dan Pollock: Not coming at it super hard outta the gates, but also not trying to be secretive about it either. 'cause you don't want to get like alternative motives and like, why are we having this conversation when you get there and you're like. I thought this was something different and then you're just wasting each other's time.

Dan Pollock: Yeah.

Kison: You meant, here's a strategy, there's some commonalities between what we're doing. We should probably go on a date and talk. exactly. Didn't you [00:16:30] grab a phone call from there? Yeah. Typically a phone call teams meeting. What are you trying to do in that first call?

Kison: Start developing that rapport a little bit. You always do that. Especially doing a lot of these cross-border interviews America, we like small

Dan Pollock: Yeah, definitely. Typically talk about the weather. Kids or grandkids, I've got young kids, so it's always fun to get going with that.

Dan Pollock: But then very high level, like where are you guys focusing? Your business markets, you're in high level view on size, employee count revenue, what's important to you? Culture's, the thing that's most important here when it comes to [00:17:00] these M&A deals, right? So if the first words that are out of this person's mouth is like, what are you gonna pay?

Dan Pollock: Like What do you think for purchase price? You're like, it wasn't about their employees, it wasn't about their clients, it wasn't about, taking care of people. You tease that stuff up pretty quick.

Kison: Yeah. I agree. That's a little bit of a turnoff, but, transactional things

Dan Pollock: sometimes it's nice to get there quickly, but it doesn't need to be that quickly.

Kison: Like the first call, it's a lot of niceties. then you get some key information, right? Hey, this is where we're at. Then you probably get a sense of okay, this is interesting or not interesting from that call. What do you do from [00:17:30] there? Do you have another call? Do you say, Hey, I gotta go meet this person?

Dan Pollock: every deal's a little bit different, but if I were to put a standard process in place, it would be intro call. Maybe another call, learn a little bit more. If it makes sense, bring someone else into that call with me. if it's very specialized capability or specialized work that they do, bring some type of subject matter expert into the conversation because I don't know all the answers.

Dan Pollock: I don't know the business. a lot of the guys are executives and leaders across our organization. getting them to hear the story and hear [00:18:00] what they're doing is really important early on, ideally it's trying to get. In person or trying to get a little bit of information to confirm and make sure that the revenue's there, make sure that the margins are there and we're not wasting too much time

Kison: valuation.

Kison: how much you gonna pay is important.

Dan Pollock: Yeah.

Kison: You mentioned culture. Anything else important besides money and culture?

Dan Pollock: how long would you be willing to stay at the organization with us? are you interested in the value that Sam can bring to the table to help, supercharge [00:18:30] growth for you,

Dan Pollock: and your team? How do you look at that? Does that impact value? Absolutely. If I know this person

Kison: wants to leave, we're gonna value it less than,

Dan Pollock: absolutely. A lot of things are you need to consider and all that, but a lot of our deals are $10 million less in revenue businesses. So you've got some key analysts with 1, 2, 3 people.

Dan Pollock: if those are the owners They walk away. Their employees are loyal to them, their clients are loyal to them. There's a transition period that you need at least probably of two years to transition those relationships to somebody else, and sometimes they never transition. [00:19:00] That's unfortunate, but don't like writing a check and seeing someone just sail off if they're truly important for driving revenue.

Kison: What are the different scenarios? It's either, Hey, I wanna get out right away. I'll stick around for two years. Or maybe I'm in it for long run.

Dan Pollock: Yeah.

Kison: Is it,

Dan Pollock: those are the three when we've seen 'em all. A lot of times you speak with these small family owned businesses, like, why would I sell my business?

Dan Pollock: I'm not ready to retire. You try to explain to them if you wanna retire in five years, you should be selling your business right now. You wanna get the most value for it. In five years from now, [00:19:30] I'm not gonna be willing to pay you the same thing, even if you're larger or more, generating more revenue ebitda.

Dan Pollock: So it's really about making sure that they understand that when you have those conversations with them and then you get, opportunities where, you know you come across a good firm with maybe younger leader, younger owner and they fully appreciate that, hey, I'm tapped out with where I can do this by myself or organically.

Dan Pollock: Let's go join a company like Sam and we can take this thing to the moon

Kison: This is definitely, you don't know this in M&A until it's too late. And this one, take notes on this one. If you're [00:20:00] listening. We just talked, right? It's either, hey, I want, I need out, whatever some reason, and that happens.

Kison: I, I need to get out. Then you have okay, I'll transition for two years and I'm out, and then here five years, you're gonna have more confidence and you're gonna pay more for the five year scenario. Knowing there's much better continuity with the management and higher optimism of business stability.

Kison: That's the thing. You gotta plan that ahead. And people don't do that. They always think, oh, next year. I'm turning the keys over and I'm out. We wanna optimize valuation. Obviously the growth factor of the business contributes to [00:20:30] it, but then the confidence in

Dan Pollock: Yep.

Kison: The go forward is gonna be critical.

Dan Pollock: Absolutely. If that's where they're at and they wanna retire, there better be somebody else in the room It'd be the go-to person, if it's their number two and maybe he's not a shareholder in the business, but he's being incentivized somehow to prove the values there.

Dan Pollock: So there's management future. Anything else you look for? Clientele is extremely important. Who are they working for? Are they working for clients that we think we can. Expand with, bring more capability, cross sell to are the [00:21:00] clients that we really want to be working with. Like I mentioned before, the electric utility power space is very important for us

Dan Pollock: How do you know public work? I'm not gonna give you

Kison: my customer list,

Dan Pollock: I'll tell you the road for sure. honestly, you'd be surprised what someone will tell you, especially if they're trying to pump up their business a little bit, I'm working for this guy and these guys over here.

Dan Pollock: But also a lot of the time, especially in the public sector, that's public domain information. I can go on their website and see. Speaking of another sourcing tool scour the dot, see who's winning all the work, then you know who to go buy.

Dan Pollock: I like [00:21:30] that. Obviously anything in the public domain where you can figure out who's working for who. You're not gonna get a client list immediately, but you can at least get that high level, Hey, I'm working for investor owned utilities. Okay, great. Those are great clients. I'm working for DOT.

Dan Pollock: Great. That's great. I'm working for this other maybe larger engineering firm or a EC firm. Great. Those are all really good clients.

Kison: How do you get the deal to be actionable? Especially think about somebody that's never thought about selling their business or it's, I'm not gonna retire anytime soon.[00:22:00]

Kison: How do you turn an actionable? How's just my charm? Do, oh let's be real here. Do you convince people to sell

Dan Pollock: No

Kison: break?

Dan Pollock: We've convinced people to sell to us. but I don't think I've convinced anybody to sell their business. You can't just be convinced of that. you have to be thinking about that to an extent.

Kison: I'm curious about this. It sounds like the goals of these early interactions is one, establish relationship and trust. Two essentially to position yourself to be top of mind when the deal becomes actionable. For [00:22:30] sure. And then there's probably some things like you said, if it's all these options. I feel like anybody with common sense is going to want more than one option if they're gonna exit.

Kison: So they may recruit the banker. Have you had that where You engage with them, it becomes actionable a year later. But then they recruited a banker. Yeah. But you already know the person. Now, even though they have the banker and they're running a bank process, are you still communicating with that?

Kison: Company directly,

Dan Pollock: in that situation, because nothing would stop me. honestly, one of the business unit leaders in our organization is working with me on a deal like that, and [00:23:00] he's the one having the conversations behind the scenes.

Dan Pollock: no harm being done really at the end of the day. We've had situations where we've had conversations and we're probably on the verge of going down some type of process to get a deal done. They've hired like an advisor, not necessarily a banker to go put this through an auction process, but an advisor just help them through the process, which we're totally fine with, honestly makes our jobs a little bit easier.

Dan Pollock: That's a good situation. Typically, unless they want to come in and they just oh, you can get twice as much money, or you can get on multiple okay, we've already established where we are. [00:23:30] Like, don't get in the way of the deal help get the deal

Kison: It was the relationship building, positioning yourself so when the deal is actionable, you're ready to move on it.

Kison: Ideally, you have established that rapport, right? And know that 'cause you want the deal more than others, you're gonna get the deal.

Dan Pollock: Going back to the question, have you convinced anyone in this other business definitely nudged very hard. I don't think we've convinced anybody, but we've had a lot of situations where you have a conversation with someone.

Dan Pollock: Today and then in two years you continue to stay in front of 'em and then two [00:24:00] years you get the deal done. It's no process. It's, yep. Sam was always the natural buyer for me, and it was just a timing thing.

Kison: You read the sellers to know what their motivators are, what's driving them.

Kison: You take 'em out for beer because that's my, take them out for beer.

Dan Pollock: Yeah. Going back to, what's the cadence, phone call, teams meeting, whatever the in-person meeting is so helpful for that. We'll share a little story about a deal we got done last year, and this is one where nudged really hard for a long time.

Dan Pollock: It's a good business down in the southeast doing a lot of electric utility work, [00:24:30] fit really well, plug and play into our organization and our business unit. the owner was a relatively absentee owner. The business was just running, it was just cash flow foreign and from, so it was like.

Negotiating the Sale: Building Trust and Closing Deals

Dan Pollock: Why should I sell the business?

Dan Pollock: And I was like, there's gotta be a headache somewhere for you, We'll pay a fair price. Do you really want to continue to deal with this? That took a visit. A couple visits. a meeting around his pool, in his backyard. At the end of the day, I think it came down to, okay, I think what Dan and who was there with me is telling me is true and I think they're being genuine and got the deal done.

Dan Pollock: And [00:25:00] six months later I had a conversation with him the other day and I hear things are going great. That was one situation where. He really didn't transfer him because he was not in the business. We did put some type of earn out scenario in to get the conviction that he really thought this level of revenue and everything could be maintained after he left.

Kison: Yeah. Then he's incentivized to make sure it works.

Dan Pollock: I

Kison: how you dig into the pain, you got some headaches, there's probably software sales. what are the pain points? &

Dan Pollock: honestly, that's where you go. being small business owners, it's I know you're dealing with hr. I know you're dealing with accounting. [00:25:30] I know you're dealing both with payroll, like we can take all of that off your plate. And go focus on generating revenue and building

Kison: the business and your people deals.

Proprietary Deals vs. Competitive Bids

Kison: First of all, let's break it down to how many are pure proprietary deals versus came inbound.

Kison: I would say it's probably 70 30. 70% are outbound. You hustling, but that's great. 30%

Dan Pollock: buyer, lead. I know you just coined it, but we've been pushing it for years, so

Kison: I'm not inventing anything. this is where the industry's [00:26:00] going in the next 10 years.

Kison: It's gonna be more about proactively sourcing and executing deals. It's gonna be more about tying it to strategy. So out of the 70% proprietary, how many of those end up getting advisor Out of the 70%, probably one out of five.

Kison: That one out of five. Do they just help close a deal or do they turn it into an auction? What we've seen is they help close a deal.

Dan Pollock: That's because honestly, there's a handful of industry focused M&A advisors, bankers in this space, and I know them very well 'cause I'm trying to get [00:26:30] deals from them.

Dan Pollock: I've built relationships with 'em. They tell me Hey if you ever get an opportunity where the seller really needs someone to help them through the process, we're happy to help. We're not gonna try to shop this around or get in the way of the deal. We're happy to help, for a fixed fee.

Dan Pollock: We'll help you get the deal done.

Kison: That's awesome.

Dan Pollock: Yeah, and you gotta be careful of conflicts of interest. It ultimately needs to be a seller's born with it, but it's all in the nature of trying to get to a win-win deal.

Kison: So they could be helpful in that situation. Where they're not gonna turn on you.

Kison: So 70%, that's great. Like [00:27:00] proprietary now those other 30% where it is competitive. This is what I'm curious because a lot of times I can imagine you're competing with PE firms, but we get it right now, right? I got inbound for our deal room company coming from tons of private equity, minority majority, and then also strategics.

Kison: But the peas always sell you in the second bite of the apple, which is ah, you know this, and yep. All the value creations stuff they have and all the consultants on their payroll. Going back to The other relationship, and you're [00:27:30] obviously positioning yourself, but the story, like what's your pitch and how do you compete with the P

Dan Pollock: I think this goes back to trying to solve a problem for these owners. What's the ideal situation for you if you sold your business and expected to stay on and continue to work for five years? It's probably doing what I love to do every day and focusing on that.

Dan Pollock: Okay. As strategic buyer, I can offer you that. As a private equity buyer, I can help you, but you're still gonna be the guy to go to when growth's not happening, when this isn't happening, we [00:28:00] can relieve a lot of that stress. we still want you to grow, but put more of that onus on us, as the acquirer to make sure that happens,

Dan Pollock: And execute. You're only gonna work 30 hours this week. But I think that allows them to feel like, Hey, I'm actually on a team here. Someone's bringing value to me to help drive growth.

Kison: It's like the better together story. it's almost like they have clarity on what that's gonna look like, but also they're excited about that.

Dan Pollock: Not just on Hey, the day-to-day, like what I have to do as a seller, but from the business perspective, it's. These are [00:28:30] smaller firms. They probably are from a service line or capability perspective. They're doing one thing that maybe we, Sam, do 10 things. They're doing one of them, okay, now they join Sam.

Dan Pollock: Now you do all 10. Do you want to grow? The easiest way to grow is to go to your current clients and tell, Hey, I can do all these other nine outta things for you now, unless the PEs gonna merge them into another firm. you gotta Build all that capability from scratch, right? That's the whole strategic buyer play, but I think it resonates.

Dan Pollock: I think it's real.

Kison: Yeah, it is. The better together. You're gonna be able to offer more, do more [00:29:00] things, focus, get the pain points off that you don't wanna deal with.

Structuring Deals: Earnouts, Retention, and Equity

Kison: Can we talk about how you structure these deals? Because again, competitive situation, you have cash, you mentioned.

Kison: Rollover equity. You guys do the rollover equity from time to time, and then seller's notes. Can you do that? Typically more of just an earn out

Dan Pollock: situation. Still similar. What does that look like for you guys? This is something that's evolved over, doing 25 deals.

Dan Pollock: Most were cash deals with some type of earnout tied to it. The earnout was really more a retention mechanism. Going back to the [00:29:30] conversation we had before there's a lot of key man risk here. We want this individual to make sure they stay on to help, continue to keep things rolling.

Dan Pollock: What we learned was oftentimes that earnout would get in the way of broader company growth. this individual's tunnel vision focused on achieving their earnout. We typically use an EBITDA based earnout. All they cared about is hitting that EBITDA number, right? They didn't care about trying to collaborate with the offices next door, or bringing other people in to help strategize and build.

Dan Pollock: The way we structure it, you would think on paper, it's like they're [00:30:00] incentivized to do all that and interests are aligned, but at the end of the day, the psychology wasn't there. you just get folks tunnel vision on this earnout, I think we've potentially missed some growth because of that.

Dan Pollock: What we did and every deal's unique, right? there's a right structure for every deal, but we started implementing retention bonuses, right? Retention payments. And it's hey man. We agree like value purchase price is 10 million. We'll give you eight today then a million in a year.

Dan Pollock: We'll give you the other million in two years. Just gotta be here. it puts the onus on us to make sure the value from the [00:30:30] deal is created.

Kison: How do you communicate that? Because it's not technically part of the deal. it's not saying, Hey, here's it's not the purchase price.

Kison: Yeah, you're right. It's not purchase consideration, so it's, Hey, here's your purchase, but this is what your employment plan gonna look like. How do you explain that to somebody? You just put like they're right next to the purchase price.

Dan Pollock: Yeah. We typically say, Hey, this is the number, the headline number you should really be thinking about.

Dan Pollock: this is how we're gonna structure it. this is what you wanted. We're giving you what you wanted, but this is how we're gonna structure it.

Kison: It's still technically a number you give to them. But then you break [00:31:00] down, okay, this is the purchase price, and then this is the, your comp just

Dan Pollock: in the LOI, it's Hey, we're gonna pay you 10, purchase price 10, but we're gonna pay you eight at close, and then we're gonna pay the other two over two year retention.

Kison: That's better. that's 'cause I was gonna say, you've gotta have seen Earnouts turn into litigation. No, but then you don't have to deal with the drama with how you integrate the company. Because I was wondering about that. So you technically can't fully integrate if you gotta track all this separately.

Dan Pollock: That makes things easier. And honestly, the administrative burden of tracking earn-outs and the end of the year you've got an earnout payment coming due Did we hit the targets? [00:31:30] The ideal situation, it's like it's a no-brainer. Like easy, yep. Nailed it, paying 'em their money.

Dan Pollock: If you're close, then you gotta jump through all the hoops and it just creates an administrative burden for everybody.

Kison: what's the percentage between, here's like cash you're paying versus deferred? payments

Dan Pollock: 80 20 mean. Some deals could be 70 30, depending on. Risks associated with it, things like that.

Dan Pollock: I just wanna emphasize that every structure has value in the right scenario. Earnout may make [00:32:00] the most sense. We need to make sure that this doesn't go backwards 'cause there's risk associated with it. So we are gonna use this earnout mechanism to mitigate that risk. That's the right tool to mitigate the risk versus retention payments.

Kison: Here I am still trying to do deals at a hundred percent owner financing. I'm still looking for them. Anybody listening knows anybody wants to sell M&A software? A hundred percent owner finance. We're getting there. We're getting there. Good. I've heard some that more aggressive where they do a third, cash third are now and third [00:32:30] rollover equity.

Dan Pollock: The reason why we don't typically. Again, you look at every scenario differently, but the rollover equities, it's honestly not something that seller typically wants because we're in, a lot of the scenarios we're in is Hey, five years I wanna be able to control my own destiny.

Kison: yeah, they're closer so they're not in for that long of a term.

Kison: Yeah, that makes sense.

Integration and Diligence: Ensuring Smooth Transitions

Kison: How do you strike a balance between the seller's legacy, which they cared about and integrating them into Sam's culture and processes?

Dan Pollock: It's a challenge. What I would say is that, we're a larger organization. We [00:33:00] wanna be able to scale and we have scaled that requires, standardization of processes, procedures, the tools we use, the systems we use, ERP systems, We rebrand relatively quickly, the name on the door changes. But at the end of the day, going back to that local nature of our business, that entrepreneurialism that was there, we really try to maintain that and give that local operation opportunity to control its strategy to an extent.

Dan Pollock: And they're not out there autonomously, like their own little franchise or something like that. But it's gotta be [00:33:30] tied to the broader corporate strategy. But what's right for your local geography may not be right for the one three states over. Giving them that flexibility, letting 'em maintain those local relationships,

Kison: still give 'em that autonomy of running their local market.

Kison: Like they did before.

Dan Pollock: Yeah.

Kison: And here we're working with them to enhance it.

Dan Pollock: Exactly.

Kison: So it's Hey, we've got a new logo, but we got more things we can offer you. The biggest thing we always hear about these deals, it's always post-close integration work is make it, break it.

Kison: What I've learned? It's not just, executing against the strategy, being [00:34:00] proactive about sourcing your deals. Really leading your deal process with integration upfront so that it's thought of throughout the whole process and not an afterthought how you plan anything.

Kison: it's gonna go better. How do you really connect The integration and diligence so that you're optimizing for the best integration? Execution

Dan Pollock: definitely improves every deal we do, but getting the integration.

Dan Pollock: Planning and process going as early as diligence. at the end of the day, we get to an LOI or just past an LOI, we typically start [00:34:30] gearing up our integration planning and getting all the folks involved it's a lot of the same folks that are helping during diligence.

Dan Pollock: Using deal room, the data is shared across integration and diligence work streams. everyone's seeing the same information using that diligence information to help plan integration just makes sense. It's more efficient and that's what we like to try to do.

Kison: Yes. the software part allows you to start doing the integration planning alongside doing diligence.

Kison: Yeah. To me after working with over 200 corp dev teams, that's the game changer. [00:35:00] But I'm just curious from your side, you've seen it before without using products and doing the old way, what's the difference?

Dan Pollock: It's just such a more efficient project management process rather than working through antiquated spreadsheets

Dan Pollock: you're on weekly meetings, checking status meetings, and sharing screens of the deal room platform, looking at work streams, tasks, and. See where we're at and sharing information and talking about key findings because it's a lot of the same team, you unearth things quickly and get things solved much quicker.

Dan Pollock: It's the same people [00:35:30] on both sides of it.

Kison: So you got the same people doing diligence that are able to plan integration, same environment.

Dan Pollock: We have external diligence providers when it comes to, some legal things, finance, accounting. Do you have 'em in

Kison: Lemme just cut it straight to it. If you gotta quantify this to your CFO and like quantify, ROI, how do you explain that to 'em?

Dan Pollock: I would say just from a time savings, they're probably saving five to eight hours a week. We're having a deal process, so just think about from a time perspective

Dan Pollock: These are all, everyone's second job, right? Everyone else is [00:36:00] on the integration and diligence team. So they're in the accounting team.

Kison: these function leads. Little Tyler back, their quarterback and everything. Yeah, exactly.

Dan Pollock: This is all their second job.

Dan Pollock: From my perspective, anything I can do to make their lives easier, they appreciate that. Honestly. It's like sometimes we announce, Hey, we're an LOI here, we're closing this deal. I feel like I gotta lock my door sometimes, 'cause I don't know who's gonna come down like another deal.

Dan Pollock: We just did one. It's kinda more of your blocking and tackling back office functionality, diligence, integration. But you think about it more from an [00:36:30] operational and strategic integration and diligence. That business unit leader is square in the middle of it all too, and they're pulling in folks from their team, from an operational perspective that should be involved and need to be involved.

Dan Pollock: We're not announcing to the entire organization that, we're doing this deal, but the people that need to be in are in, they're under the tent.

Kison: So that's a lot of just efficiency you got, yeah. Aligning people, priorities, what needs to get done. What have you learned from doing the deals to really optimize the [00:37:00] execution?

Kison: is there certain ways you've found structuring meetings or things that enable people to stay aligned on priorities?

Dan Pollock: I think it just goes back to more reps. The more you do, the more efficient, if they're just going through the motions, then you're gonna miss something.

Dan Pollock: This is what I need to be doing. This is what I need to be looking for Myself and Tyler on my team. know what's important to flag for our teams as we do more deals, Hey, hr, we saw this early on, this could be an issue. Let's jump on this quickly, Or we know they've got these contracts that we may not [00:37:30] like.

Dan Pollock: We gotta make sure we review those heavily, things of that nature. It's just getting everyone more reps at the end of the day and building that muscle. That's what it comes down

Kison: What I was wondering was on the seller side, is there a view about how do we keep the process smooth? Because one thing internal, keeping folks coordinated and make sure things are getting acted on, but then the seller side, making sure that they're getting a smooth experience so that they come in motivated and not like fud.

Dan Pollock: That's a great question and something that I think is critical and it's very hard to [00:38:00] do because it takes a lot of time and effort. I try to be upfront and transparent with these owners and founders of these businesses. Like this is gonna be a heavy lift. Just want you to understand that we're here to help and we wanna make this as smooth and as easy as possible, but it's gonna be hard.

Dan Pollock: You've never done this before. It's nice to have a system where they can see like we share like the diligence list in deal room with them. They see what they have. They can upload it right to the task so that they know what they're looking for and where it's going and who's gonna see it.

Dan Pollock: That's helpful. We [00:38:30] emphasize really good counsel that's got a lot of M&A experience. Some folks don't listen to us, and it's detrimental to them because one, they're not potentially not getting good representation. Or two, it's like draft purchase agreement goes over and then we get this just redlined mess back because they don't know what's standard and what's not. it creates so much more headache and problems than it needs to be.

Kison: So you'll actually push back and say, Hey guys, you probably need to get a better lawyer.

Dan Pollock: Yeah. Once you get going it's too late at that point, but it, early on the process, we're on the verge of [00:39:00] submitting an LOI or getting them something.

Dan Pollock: make sure you get someone who really knows what they're doing because they could get in the way of getting a good deal done for you.

Kison: I almost feel like this is the golden rule of M&A is have a good lawyer to work with.

Dan Pollock: lawyer.

Kison: Yeah. With or without an advisor, but I feel like having a good lawyer will make up for a lot of gifts.

Kison:

Dan Pollock: And one that's capable of getting a deal done and being reasonable and knowing where to push and what not to push. And we've got some that we've worked with for a number of deals. They know what's important to us and where they can give and a pleasure to work with. So makes life a lot easier.[00:39:30]

Kison: Anything else you found to be like, Hey, this has been a really cool thing to make sure that gets off to good start.

Dan Pollock: Maybe going back as a way to help build a rapport and get a target owner. Thinking more Hey, this might be the right thing for me to do, is getting them in touch with previous founders and sellers

Dan Pollock: Interesting. I think that does a really good job of, it's cool. You're not afraid to do that. No. Again, if you are afraid to do that, what does that say? As you're trying to express that you're a fair and reasonable person, when you've got a track record of closing 25 [00:40:00] deals, you're obviously not screwing everybody over.

Dan Pollock: You're not gonna get another deal done. Reputation is important, and being someone, Hey, we want to buy your business and offer you a fair price, reasonable price, and to show that we go talk to everyone else. We bought businesses from. I'll tell you the good, the bad and the ugly. As our CEO likes to say.

Kison: We got a lot of conversations with PE firms, so I'm going to their Port cos and just talking to the other CEOs and you get a whole different side of the story. And some are just like, look man, they completely, Whole different [00:40:30] story.

Dan Pollock: So it is a really good thing. Yeah, proactively. I think they've been very transparent when they've had those conversations. We tell 'em to as well. It's as part of that early relationship building process, if you know this isn't gonna work culturally and you know this isn't a deal to do, let's make that call early on.

Dan Pollock: Both agree and go on our way. There's no reason to set something up to fail. Why waste our time. You're busy. I'm busy. Let's get to know quickly.

Kison: It's almost like another layer of diligence too. other execs be like, yeah, that's gonna be a good fit. that's pretty cool. So we brought the relationship with the PE firm.[00:41:00]

Kison: What I'm trying to understand is as you identify deals to do, I, others PE firms have very different range of operating models and the way they support that. what does that look like? What does the governance look like for you to do deals? You have free range to just write checks.

Kison: Could do some, how's that?

Dan Pollock: As we've gotten better at it, we definitely hold a little bit longer of a leash. our equity partners are great. They are very supportive of the M&A playbook that we have. Going back to the conversation we had earlier about how we use M&A as a tool, right?

Dan Pollock: And it's included as part of our [00:41:30] strategic planning. you build that buy box if you will. where do we wanna focus our M&A efforts? If we need to prioritize something like we know it's gonna be hard to grow this organically 'cause X, Y, and Z, but from an M&A perspective it makes sense to focus here.

Dan Pollock: In the buy box, you have four or five things that make sense. If you tee something up that fits squarely down the fairway with that, it's a pretty easy go get it done kind of thing, right? With a good pitch deck of 10 slides or something like that.

Dan Pollock: here's the strategy here's why. And here's the value we won't recommend proposing to [00:42:00] pay and what we think it'll do from an accretion perspective. Get the oi signed up and go through diligence, weekly check-ins on diligence, and a, final, update when we're about to close a deal.

Dan Pollock: But if it's something a little bit outside the fairway or something new or maybe, hey, we think adding this type of capability or solution or a little bit outside of our core competency, then it's gonna require some more conversation. Rightfully it takes more to articulate the why. That's fun, right?

Dan Pollock: you get to really sit down and partner with the private equity sponsor and talk through it and help them [00:42:30] understand why you think this is good, and then maybe they have a different way of thinking about it.

Kison: Come back to that in another podcast.

Future of M&A: Innovation and AI

Kison: What's next? M&A growth future.

Kison: We haven't talked about tech, but not like AI specific.

Dan Pollock: I guess that's a good segue. What we just talked about. something that's not right down the fairway. We did a couple deals last year that were a little bit different.

Dan Pollock: What's interesting about Sam is we've collected all this data over our existence and I think we're pretty unique in the industry to have all this geo-referenced data on, where points are or where things are on the earth's [00:43:00] surface. And it's pretty valuable information if you know how to hone it and structure it and analyze it.

Dan Pollock: We've never really done that and no one has really done that. But we made a couple acquisitions last year that are starting to put the tools and capabilities in place to start doing that and providing real intelligence from that data to our clients. it goes back to asset management and understanding where things are.

Dan Pollock: So if something fails, they know what to fix Or if based on history, this part's gonna [00:43:30] break. So it's finding more things like that will. Ultimately lead more work for us from the data collection side, because you'll find gaps where you need to collect data, at the same time, you're bringing more value to our clients.

Dan Pollock: So continue to innovate and M&A is gonna be a part of that. there's a lot of smart people doing some interesting things out there and we're not gonna be able to do it all. So that's what I always say is next, there's a lot of opportunity, a lot of money being spent, a lot of talk about, our utility grid not being.

Dan Pollock: Up to scale and we do things differently there. Roads and bridges, I think we had D plus or [00:44:00] something from the Army Corps of Engineers report card there's a lot to do and you're gonna have to do some type of automation or AI to do it 'cause there's just not enough people to do it.

Kison: Yeah. I remember Bain had a report a number of years ago about scope versus scale. This is expanding on the scope case capabilities to do more things.

Dan Pollock: Yep.

Kison: What's the craziest thing you've seen in.

Dan Pollock: We've had some fun things over the years, but I had to say ultimately it's just, small business stuff that you see some of these owners were on a diligence call with attorneys, [00:44:30] accountants, and one of them was on the call, he is more like the C-F-O-C-C-O-O, so he was, giving us a lot of the diligence information.

Dan Pollock: He's on a Zoom call walking around his pool, smoking a cigarette, and you got all these attorneys and lawyers looking at me like, where's this guy? What are we doing here? You're buying this company. Ultimately, it didn't go through,

Dan Pollock: A guy was what a character. So there's crazier things out there, but that one stuck in my mind.

Kison: a funny one. You heard like a big surprise that popped up during diligence because I always think these small businesses like what they expense on the business [00:45:00] and. things that pop up?

Dan Pollock: We run into a lot is our industry and like the survey geospatial stuff, a lot of like small business setaside work, like a smaller like certified small, certified disadvantaged business, minority owned business, woman owned business.

Dan Pollock: if Sam were to acquire that company, a lot of that work goes away, right? this is something, lesson learned. We were talking with the firm, made no mention that he was a certified small business we basically get an LOI, start getting his contracts and it's like small SETASIDE contract, probably should have caught [00:45:30] that earlier, just to be honest.

Dan Pollock: But something you might wanna lead with a little bit if you're a seller, No one wants surprises. We just waste a bunch of time. We had to walk away from that deal.

Kison: yeah. It's funny and sometimes seller, if you're first time, you don't know. You don't know

Dan Pollock: Yeah, you don't know. That got some big red flag. Maybe just assume that I should know that again. It's probably my fault, my ignorance. So definitely put that one on the diligence list early on in the process.

Kison: This has been a great conversation. I appreciate you taking the time with me, sitting down, helping me become a better MA scientist.