How To Successfully Execute Deals With A Small Team

Do you need a team of dedicated M&A professionals to successfully execute M&A deals? Jason Lippert, CEO of LCI Industries (NYSE : LCII) shares how they were able to conduct M&A deals with a tiny team.

How To Successfully Execute Deals With A Small Team

19 Jul
Jason Lippert
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How To Successfully Execute Deals With A Small Team

How To Successfully Execute Deals With A Small Team

"Culture and leadership development is the most significant piece of creating a competitive advantage. When your culture is great, more people stay over the long term, and you will end up getting more momentum in the business." - Jason Lippert

In this episode, Jason Lippert, CEO of LCI Industries, discusses how to execute M&A deals with a small team successfully.  

Jason talks about his team structure and how he sources deals with just one dedicated M&A person. He also talks about the importance of culture in their acquisitions and for their entire organization. 

special guests

Jason Lippert
CEO of LCI Industries (NYSE: LCII)

Hosted by

Kison Patel

Episode Transcript

Text Version of the Interview

What is the Difference between Private and Public Company Pursuing Deals?

The big difference is that the public company leadership has more refined and sophisticated metrics. Private companies do things more off the cuff. 

Public Company's Financial Model?

They were very interested in going down the inorganic growth path, and we were growing fine organically. Still, they wanted us to bolt on the wider competitive mode through some inorganic acquisitions. And they gave us some basic parameters. 

And I was in my twenties at the time. And like I said, I hadn't had any formal training and doing deals, and it was something where we just started with some real small deals and learned. And eventually, the deals got bigger and more meaningful both from a top line and a long-term strategic standpoint. And to the point where now we're doing $200 million to $300 million deals in some cases and certainly looking at a lot more than we ever had. 

What Does Change Management Look Like in Your Acquisitions?

We found that it's much easier to do deals when we acquire a great leadership team. One of our pre-requisites is that the leadership team must be solid when we make a deal these days. 

In some cases, the leadership wants to exit the business post-close. When we want to do those types of deals, we need to ensure that leadership is available on the parent company side that can slide into place and lead strongly out of the gate. 

So leadership, we either have it ready internally, or somebody can fully focus on that or acquire great leadership with the deal. 

What Does Your M&A Team Structure Looks Like? 

I didn't have any formal training, so building a team around M&A and acquisitions and integration never really occurred to us. 

We just saw a company that we liked, and we generally went out and approached them, figured out how we were going to integrate, got the deal done. We would borrow resources internally from different functions. 

How many dedicated M&A people do you have?

One.We've only got four key industries that we consider ourselves knee-deep into or waist-deep into. So we're only looking at deals in those spaces, and we know which ones we want to acquire. 

We know who we want, and we go after and get them to the table and get them interested. And then that's when our team again, we still borrow resources from all over the company. 

Key Lessons Learned in M&A?

  1. Whether it's a new industry or product line, getting into something new will be difficult. 
  2. We learn how to do better diligence over the years when it comes to the leadership team at the top level, diving deeper and ensuring leadership strength throughout the business. 
  3. We try to ensure that the business comes with a solid top-level leadership team because we can't get in.
  4. We learned how to do due diligence on the customer and product sides. 
  5. Not tucking in a lot of deals where we're taking a company out of their element. It's just so much easier to keep them standalone.
  6. Not going after something that looks attractive, that's at a really low price. If it's a garage sale, we almost tend to look the other way, even if it looks enticing because it's a garage sale for a reason. 

What are the Red Flags? 

A toxic leader. That takes a long time to fix. That usually means that there's a tough culture, and those are hard to penetrate sometimes unless you're going to make some wholesale changes.

Example of Leadership Issues? 

You have to do your homework, and you have to spend enough time there. I do a lot of listening. If I listened to somebody long enough, if the stories were good, then I'd poke around the team and see what the team thinks. How good is the team, and how long has the team been together?

If the team's been together for a very short period of time, likely, there's not a lot of chemistry there. But generally, if the leadership seems toxic, if the culture seems toxic, it makes it a tough go.

We also look for growth trends. We have to see a path of aggressive growth, not just maintaining what we've got. If you're not innovating, we're probably less interested. 

Lastly, what the customers think about them also makes a difference. 

Getting Customers Feedback

We just try to have conversations with some of the customers loosely without divulging confidentiality and things like that. It's just asking around and poking around. Sometimes it's supplier peers; sometimes it's customers; sometimes it's the consumers. 

Deal Sourcing

The last time it was just a phone call. I or somebody else on my team who will feed a deal had a conversation with the executive leadership. And we might have a long-standing relationship already. 

Even though we're a few billion dollars, the industry that we are in is relatively small. Everybody knows each other. It's not hard to get around. It's not hard to know who all the players are and it's really easy. So they know that we're a great partner to sell to if they're ever thinking about selling. 

We've done 70, and you're going to get a reputation, good or bad, one way or the other when you do that many deals. And I feel like we've got a great reputation and treat the sellers well. 

A lot of the sellers we've bought from over the years are still connected to the company in some way, shape, or form. 

First Conversation

It's informal, and we're not going to sit down at the first meeting, lay it on you, and make some big presentation.

It's more of, hey, have you ever thought about selling your business, or if not, have you ever thought about it, or do you plan on selling it at some point in time? Just so that we know where they're at.

And in other cases, we do get some calls from investment bankers because we're in Europe now, we're an aftermarket, we're in commercial vehicles and the marine business. 

And some people don't know us too well, so they will reach out through an investment banker, but they still know that we're a good acquirer of companies and a solid partner from a seller standpoint. 

80% of our deals have not been through the investment banking route or a formal type process. and of that 80%, I'd say 75% of those deals happen relatively quickly. And the other 25% occurred at a later date.  

Managing Time as a CEO

As a leader for any position, you have to be good at time management. I tend to move pretty quickly and not spend much time analyzing and pondering.

I know some people who can pencil whip deals to death, and it can take a long time to get a deal done.

That would take a lot of time away from the other things that I do or that other leaders in the company do. So time management is critical, and it takes a lot of practice and intentionality to get efficient. 

How to Create Value

We got substantial resources in all areas. The average business we're looking at is $30 million to $75 million, somewhere in there. It's a broad range, but the deal size keeps changing as we get bigger. 

So we're looking at bigger deals, and they keep growing. And whether it's a $30 million deal or a hundred million dollar deal, whatever the raw material they use, we immediately create synergies off of that to create a better ROI. And it makes a quicker payback and returns on buying a business.

Sourcing is the key to returns because if we can buy 10% better, it makes the deal pencil a lot easier and gives us more room for error as we operate the business. 

And then, we look at what innovation we can bring to the table. And whether it's using our broader distribution network of customers. Typically, when we approach a company, we've already got some plans for their products. And we've got these relationships that this seller doesn't have, and we can plug their products immediately into our revenue chain with our customers. 

And then, ultimately, we think about how we can grow the business.

Creating a Uniform Culture 

We're one of the few companies out there that spend a lot of time around culture and leadership development.

I don't have a huge M&A team. But on the culture and leadership side, we've got probably 24 individuals right now in the company dedicated to that. And a lot of that is focused around our newly acquired companies. 

So we're trying to work all the time on improving our culture and moving the leadership needle for every leader in the company through these teams. 

I see culture and leadership development as probably the most significant piece of developing a competitive advantage. Ultimately, when your culture is great, more and more people stay over the long term. And when more and more people stay over the long term, you get more momentum in the business. 

Transforming the Target Company

In the business world, 88% of cultures aren't that great. 88% of the people in the country feel like they work for a company that doesn't care about them. And we were one of those companies before 2013. We didn't have any values at all. 

We worked our people hard and when they couldn't keep up, we moved them out of the way, found somebody else, and left people in the dust. 

Just make sure people know that they mean something; we make a big effort to hold people accountable. 

If they're not, we're going to coach them up. If they are not coachable, we're going to either transition them to a role not in leadership, or we're going to transition them out of business.

Likewise, we have to pour back into leaders and teach them leadership. Most people got to a leadership position not because they follow the values. They're good performers, but they were just there every day, especially in the manufacturing world. 

Listening Sessions

One of our first steps was three years of listening sessions. I made an effort to go back to hear firsthand what people thought the problems were. And they were really simple problems to solve. 

Just easy stuff, but we weren't listening, and we were just too busy trying to get the next hundred million in revenues. So as we changed those things and they saw that we were listening, they came around, and they went from leaving all the time to saying, I'm going to stay here. 

We started hiring leadership coaches and personal development coaches that cater to our frontline team members. If we're not taking care of that first-level supervisor, 10,000 people aren't getting cared for. So we got these leadership coaches plugged into our frontline leaders to teach them what leadership was. 

Teach them our values and engage them on a higher level so that they're not just showing up, and we're giving them a production schedule, and they get it done and go home. How they lead during the day is their business.  

Deals You Regret?

The only deals that were tough for us with the ones we did. '07, '08. But even today, they're great businesses.

We bought a furniture company for the RV business in July of 2008. We had a financial crisis; obviously, it was a few months later. The business sank; it was a $40 million acquisition. It was the highest-cost acquisition we'd ever made. And we're sitting here. What did we just do? But that business today organically grew to 300 million.

We bought a couple of garage sales, really cheap, didn't work out too well for us. For some of those, you pitch a few million dollars, and it's not the end of the world. 

We tried to innovate in some spaces, buy some companies, and make some things work on some ideas. They didn't work too well, but we're not risking 10, 20, $40 million at a time. 

Do Deals Get Easier As a Public Company?

People get more excited inside our industries because they've heard good things about us. They know we're a good acquirer, and we know that we treat the sellers well. 

They generally know where they're coming to work for a company that's got many potentials and had a significant growth rate over the years.

Advice for First Time Acquirers

Start small and stick with what you know. Some people take risks and are willing to get into something they know not a lot about, and that's not me. 

I got to feel good about the business, products, and growth potential. And how does it plug into our business and get better?

Also, the target has to have solid leadership. You have to have no weird gut feel; your gut feel about the business leader or leaders has to be rock solid, and they have to be great people.

Everybody looks at things differently, but the people you acquire will make or break the business. 

You've got to do a lot of good due diligence there and spend a lot of time, not so much talking, but listening to the people selling the business to understand who's coming with the business at all levels. 

Have You Acquired Bad Leadership?

Oh yeah. Nobody intends on having a bad culture. They just run the business too much off the numbers and it drives a poor culture because it's not compelling and inspiring to anybody. 

If people are icing and it's about the numbers. And if they're not led well, they're going to leave. 

And real quick, people will turn and pivot because it feels better when you start inspiring people through culture and leadership development. 

When you can transform some people's lives because now you're not making their lives miserable and the leadership sees that. 

Everybody jumps in, and the culture needle, moves pretty quick. It doesn't take long to move culture if you do the right things. 

So you can take a bad culture and move it to a good culture in a pretty short period of time. 

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