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How to Formulate Your M&A Strategy

"M&A strategy is about finding the best fit for the corporate strategy and enabling and accelerating its timeline." - Matt Arsenault

M&A is not a strategy, it’s a tool to achieve your corporate strategy. But if you already know your true north, having an M&A strategy is just as important. In this interview, Matt Arsenault, VP of corporate development at Jamf, talks about how to formulate an M&A strategy.

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Matt Arsenault

A Senior Strategic Executive with extensive high tech and manufacturing experience; known for thinking beyond the numbers, focused on execution, improving processes & leading change particularly around new product introductions and early stage market adoption.

Episode Transcript

Text version of the interview 

Corporate strategy versus M&A strategy

One of the things that I learned very early on from one of my clients, who were serial acquirers, was that M&A is not a strategy in itself. M&A is a tool of a corporate strategy.

And so ultimately, the M&A strategy has to fit what the corporation is. 

  • What is its identity? 
  • What does its differentiation? 
  • What are the corporation's main goals for growth? 

M&A has to be seen as a tool to develop those things and has to have that internal element. So M&A strategy, in a lot of ways, is subjected or secondary to that idea of the true north of corporate strategy.

And so ultimately, the corporate strategy sets the idea of 

  • What are the markets you're going after?
  • What are the geographies where you're going to be present? 
  • How are you going to solve customer problems? 
  • Is it going to be through a product or through a service? 

Those core elements and balance have to be set before you can get to M&A because in a lot of ways you have to understand how much you're trying to change your company through M&A or fit something into that strategy.

M&A strategy is about finding the best fit to that corporate strategy and enabling and accelerating the timelines of corporate strategy. What I make sure I'm doing in M&A is thinking about where we want to be anywhere from 24 to 48 months from now, and finding ways to accelerate that and own something today.

Ultimately, it has to be complementary and fit into that overall vision and guidelines. A good way of thinking about M&A strategy is it is the means to a direction that the company would like to take.

Importance of an M&A

M&A strategy is very important because you have to have an understanding of what you need and a sequence to what you need in order to understand where you're willing to stretch into some of the valuations that you see in the current business cycle.

If you can afford to be patient, you shouldn't overpay for an asset. If you need something in-house, because of that timeline of delivery for a customer requirement, now you have to be willing to spend a few more turns on either EBITDA or revenue in order to understand it. 

So that M&A strategy of where we're going and how long can it take is really important to have, because you have to start to filter out what sectors or segments or markets are you going to pass on in order to prioritize the things that are really needed because there isn't unlimited capital and in a corporate development team. 

Mistakes when building M&A strategy

It's easy to get disconnected from your customers. As somebody who sits a lot with product or sales teams, I hear a lot of “I want this now, I need this now.” But you have to get back to what the customers need how would that solution solve customers' problems. 

A lot of the mistakes I've seen made are either that misunderstanding of what your customer wants or a misunderstanding of how hard it is to serve multiple customers at the same time. And I'm not talking about customers as in companies, but really those end-users and the people who benefit from your product or service. 

Trying to build a solution for a chief information security officer and a chief information officer at the same time is actually a lot harder than people give it credit for even though they may be in the same department.    

If you're trying to do that same thing for the head of supply chain and the head of IT, now it becomes an even more difficult problem of bringing people together within your customer organizations to show value across it. 

And so ultimately, that disconnect from the customer or that disconnect from the end-user workflow where your platform will benefit the end-user, those are the two biggest mistakes I see made that, that you actually believe that an adjacency or a market is closer to where it is. 

Shaping the Strategy

The key is to build out the process of strategy. And if the process of corporate strategy is in there, making sure M&A is tied into that process.

But it basically comes down to an understanding of your own company by doing diligence on yourself first or repeatedly, and that's an important part of this strategy. Make sure that you're talking to the product management teams, make sure you're talking to the customer success teams, talking to the sales teams, and talking to the partnership and alliances teams.

You want to have an understanding of how all of those different folks are moving. Because you’re trying to score out that entry into a new market or a new growth opportunity. So building that consensus at the individual contributor level is important and making sure that that communication is open. 

As I joined Jamf, one of the first things I said to anyone as I was introduced was, don't hesitate to reach out with an idea. And that was all the way down to individual sales team leaders. 

And to this day, I get some great ideas from people who you wouldn't expect to have ideas as to where to step in because they're close to that customer. They're listening to that problem and it helps me source deals. 

It's better to have 2,400 employees thinking about Corp dev than the small team of three or four or five that we have on a consistent basis. We crowdsource as much as we can, bringing us two tests to the strategy:

  • How many customers are talking about this? How many people are talking about this need? 
  • It helps identifies companies that will not show up on banks or brokers. 

The best deals that I’ve done are with startup companies. If you can find that technology early, you can find that innovation and that entrepreneur early and you're able to invest in them, those are the things that are beneficial because you're not competing on a more established business basis. But they're the hardest to find and they're the hardest to understand how they would fit. 

How do you share your strategy?

There's a lot of one-on-one time to build it, but then there are broader presentations that you do across the leadership team. But the best organizations that I've seen have actually had a consistent framework for how things fit or what are the white spaces around what we are trying to do. And the broader you can share those topics across the team, the better you will be. 

What you can do is make that a part of annual planning or tie it into that strategic planning that the business is doing in order to get more of that feedback.

Try to get as many people to look at the adjacency, look at the sequencing, and make sure that you're not making those mistakes about how hard will it be to enter a new space or how different is the technology? 

That is probably one of the benefits of my career. I came through finance and financial planning, which means I have no idea about technology or customer. So I rely on everyone around me to help me understand. 

I'm not weighted more by the go-to-market side or the product side. I'm able to balance those two things and really understand the voices that are coming from both sides and not be more judgmental because my background was the product or my background was the go-to-market.

The key is piece is, the M&A strategy has to be dynamic and you have to be willing to learn on a day-to-day basis. You have to be willing to say no more than you say yes or get told no more than you get a yes. 

That's the other element of the strategy is, you got to test it out as you go along to really feel how that changing or how that the market pressures are being forced upon you. T

Role of CEO

Deals will not move forward without the approval of the CEO.  So a CEO will always be part of the corporate strategy. They're setting the guardrails for what is possible, the strategic choices. 

For a company like Jamf, which made a very strategic choice early on to focus on Apple and Apple only, gave them the opportunity to Excel in a smaller market. That idea and vision came from the CEO.  

The CEO is also present in understanding what adjacencies you want to move into. They help narrow down the funnel and where should corporate development look. And then ultimately, the CEO is the one approving, in many cases, the letter of intent.

So the CEO is always there amplifying or accelerating things. 

They have a better sense of the talent in-house, the talent required and what would it take to hire that talent. They know what's going on on our recruiting teams. They know what's going on with HR. They know how our attrition is working, and what the cost to maintain someone on our hire someone is. 

In a lot of ways, they're able to make those trade-offs of what is the cost to ramp up this project internally versus finding that team and acquiring it. It’s a part of that build or buy framework and they have that ability to make those decisions quickly because they have so many inputs in there. 

Who else should be involved in formulating the M&A Strategy?

It is important to understand where your company is and what elements you are trying to accelerate. Hence, you have to bring in the experts and their perspectives. 

If you're trying to accelerate technology until you want to bring in the product management team or a product strategy. If it's more about market access or market expansion, you would want to bring in your sales leadership.

So you want to bring in your CRO and the CTO very early on. And then, the teams underneath them help set that strategy of why we would enter a space or how quickly we need to enter a space.

And then as soon as you start to formulate or narrow down your sources from the markets to the targets, that's really where you want to start bringing in the chief legal officer, the head of HR, or the head of finance. 

Creating the M&A strategy

You have to understand the market you're in and what you're trying to do to solve those customer problems. 

I was brought on in my previous role and one of the first exercises we got asked to do was a market map. How far away is the market from a customer perspective? From a technical perspective From a buyer's perspective? 

So what you should do is:

  1. Simplify your Goal - What is it that you want to do? What kinds of bridges are you trying to build?
  1. Understand the Target Market - How competitive is the market? Are your customers overlapped in that market? How far away is that from your core? Perform a SWOT analysis if necessary. 
  1. Plan to Get There Organically - Use your customer's voice to navigate your authority to step into this new space and your ability to solve those different problems.
  1. Sequencing Opportunities - With all the potential target markets, you need to narrow it down and identify where you should primarily focus on. Which one is your best chance to deliver and be successful?

Distance from the Core

The first element is, do I just want to own my own marketing. For instance, retail. Do I just want to own my own, think of your regional chains? Do I just want to be the best sub shop in Boston or do I want to be the best national sub shop? You've to understand that market and what that core.  

And then, how are you growing out of that core. Do you just acquire the restaurant next to you? Do you acquire a hundred restaurants around you? How do you want to beat the competition?

And so you have to start to understand how an acquisition or market fits into that idea of how far away you want to go. And that natural step out from where you are today, to things that you know your customers are using or things that you know you can develop technically or can reapply your platform to technically really becomes a big step and it's usually a transformational type deal. 

Creating a scorecard 

Scorecards have to tie back to the process of the company. You don't want an M&A scorecard to be too far off of how your teams are being managed. Again, if you're a sales-first organization and the metrics that the company is measuring are percentages of quota, attainment, effectiveness per rep, time for rep productivity, customer churn and success cases, and time to close.

If your organization is really deep on that side of the house and your scorecard doesn't have any of those items on it, you're going to be in a little bit of trouble. 

You have to get back to the core of the company to make sure you understand what are the things that are important to measure internally before you start applying them externally. 

Scorecards also have to have the element of change management. Company metrics don't take into account the potential for disruption like culture.

Also, if you're scoring a specific M&A target, how many customer overlaps are there? How many times have your customers asked you to enable that technology or company? 

It all comes back to understanding that core, understanding who you are, and understanding the differences to that in ways that are not necessarily big bang but could be impactful on the integration side of it. 

Every company should have a scorecard for internal and all Corp dev teams should start from that scorecard. 

Right balance on Scorecards

It comes to the elements of nesting. If you have a scorecard that has 45 items on it, great. But then you have to have an idea of what are the 45 or under others. 

So if on your scorecard you have ARR annual contract value or new sales and churn, you have to understand that those are actually nested. ARR might be the first indicator, and then you have things underneath that you want to keep going. 

So I think you have to have a thoughtfulness of how all those metrics would interact, and that will help you to narrow it back down, because ultimately what you want to be able to do is a waterfall for executives.

What metrics are you tracking and why at what level, and understanding the interaction of those things are important. 

The secondary thing is you have to go back to the strategy of a deal. Ultimately, you want to start to set those strategic imperatives.

Those strategic imperatives will then have milestones. Those milestones then have deliverables, right? The metrics should sort of mirror that and build into those. So it should just be a measure of the success of a different element. 

You have to start understanding how the plan of stepping into a new space or into a company is tied to the strategy and that the scorecard becomes a measure of an input or an output, but that is something that is reflected in the overall plan. 

And so a scorecard in itself doesn't give you anything if it doesn't tie to the actions. And so what I would say is the right level of the scorecard is based on the operational effectiveness of an organization and how complex, or how many people are in the project so that you can assign somebody to own that metric. And that metric is almost never or never owned in Corp dev. So it also becomes part of this buy-in to the deal. 

So the elements of the scorecard that are important are the ability to understand how they interact with each other and the nesting of those scorecards so that you can get to different levels of the summary.

And then ultimately, the ability to tie those metrics to an action item and a person to deliver on those action items post-close. 

Lessons Learned

People underestimate how hard it is to monitor something that is not in a core competitive space. It takes focus, it takes a lot of effort.

Imagine if you're a shoe manufacturer, and you have to be an expert in software. It is really hard for someone at Nike or New Balance to really understand what is the dynamic happening between Splunk, CrowdStrike, and Netskope.

But if you're Splunk, it easy for you to understand what CloudStrike’s customer needs because you run into them all the time. When you get closer to your core, there is arrogance within every company. There has to be, otherwise, you don't grow, you don't try to take something else on. 

But it's understanding that difficulty in that step in as you're setting the strategy. So it's harder to maintain an understanding of outside of your core competitors, what is happening and what is the dynamic of that market and how has it changed.

The other thing that makes it really hard is the underlying trend of your customer, because it might be being driven by somebody outside of your main contact. 

Understanding how that workflow is changing at your customer's organizations is an important thing to do. It's just really hard. 

So making sure that you're able to have that one foot outside of the organization, not in a hunting manner, not in a sourcing manner, but in an understanding of what's going on around you, is really important. 

Should IMO be involved in formulating strategy?

Yes, they should, I just think that there's a conscious decision to be made of where IMO comes in. I really do believe that the integration management office is essential for scorecarding and the selection of a potential target.

I don't know how much they have to offer when you get to that very front end of what market should we enter next. But where IMO can help is identifying how different something feels from what we've done.

So probably a place at the table, but where the IMO is absolutely essential is in that sort of selection of a stage of sourcing because they understand the difficulty or ease of potentially bringing on something new to the organization and help to prioritize which target you're going to go after versus the understanding of where you might want to go.

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