Managing Infrequent Acquisitions

In this episode, Peter Linas, CPO & EVP Corporate Development at Bullhorn, talks about how his corporate development team looks like in an infrequent acquisition environment, and how they hire external consultants to make their deals successful.

Managing Infrequent Acquisitions

20 Sep
Peter Linas
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Managing Infrequent Acquisitions

Managing Infrequent Acquisitions

"Never under-resource any project because if they're under-resourced, you have a huge capacity for things to go wrong, and it's hard to win your way back." - Peter Linas

If you’re an infrequent buyer, you might be thinking about how to maximize your existing resources. Kison spoke to Peter Linas, CPO & EVP Corporate Development at Bullhorn. Peter talks about managing a corporate development team in an infrequent acquisition environment.

special guests

Peter Linas
CPO and EVP of Corporate Development at Bullhorn

Hosted by

Kison Patel

Episode Transcript

Text Version of the Interview

Managing Corp Dev team in an Infrequent Acquisition Environment

Small is beautiful. I head the Corp Dev, and we scaled the team back in the pandemic to myself and Ben, who works with Corporate Development with me. Corp Dev is not my exclusive role. It's a major part of what I do, but I have other activities within the business. 

There are just two of us who keep the lights on, in terms of market activity,  market research, and potential opportunity outreach. And then we scale up if a deal comes into sight. When we're getting serious about a deal, pre-LOI, we'll start to pick the team that will take that deal forward. 

And then, to lead the integration, we can take people out of business to assist in making deals happen. You know as well as I do, there are two sides of the deal. 

You've got the LOI and then sign and close. And that's where the work starts because that's where your ROI comes in. You have to have a firm plan on how you are integrating the business, which will ultimately determine the success of the deals.

So You're Pulling People in From Various Departments?

Yes. Finance knows what they're responsible for and will leave that side. Legal knows what they're responsible for. And the key person in any deal is who is doing the planning. Obviously, I'm into that together with Ben that works alongside me.

But it is important to bring in a true integration lead that thoroughly understands the business. And this is a hybrid role. This is not somebody who has got huge amounts of integration planning experience. 

This is someone who knows your business intimately and can deal cross-functionally to make the efficiencies that need to be made and ensure success. 

That's a key person not just in the lead up to signing and closing but also in the first 90 to 180 days, critical to making that successful. 

Sourcing Deals

In terms of sourcing, we know what we want to buy. No deals have been brought to us by third parties.

We have laid our market and targets out, and there are about 200, 250 companies that we have relationships with that we track over time, which is relatively simple to do with one and a half people. 

So just keeping in touch with those businesses, keeping in touch with scale is always important, and they've got to be in their cycle, and they've got to be ready to sell. There's no point in trying to buy a company that actively doesn't want to sell.

The only way you're going to do that is to overpay considerable amounts to get their attention, and that's never guaranteed. 

M&A is a lot more human than people think, and a lot of it is about relationships. Relationships with founders and people in private equity houses you might be buying from are key because sales get sticky.

There are always moments in a deal that can blow up, and sometimes it's that core relationship. You have to build trust in it using micro amounts of time because there is so much mistrust in Corp Dev. 

And if you have a target list, you're able to keep busy through the quiet times. We're only making two to three acquisitions on an annual basis. That's not because we can't make more. 

We just don't have one thousand targets. We're looking at a relatively small number of targets that we track and keep in touch with. And obviously, everything that we do has to be accretive. We're not looking over the ten-year term, but we're looking at a three to five-year period as to be accretive.

And in that tracker list, we've got primary, secondary, and tertiary targets. We know the level of attractiveness of those businesses. And sometimes, it's waiting for those businesses to reach a scale. It's their financial dynamics, or we're willing to pay slightly ahead of the curve.  

Moving to Diligence Process

It will depend on how busy we are. In the new world, the post COVID world, we've trimmed down the team. Historically, we've always used an advisor. But through COVID, we have done a couple of smaller deals on our own without their input. 

As we've learned over the last few years, we know enough to be dangerous on how to get a deal done, but we've always got them to bring in to run the process for us.

We don't involve third parties in day one planning or those 90 days or the initial launch period, but they can be very helpful managing through diligence. And having a third party involved can often be a great way of negotiating, particularly when people are getting caught up on certain aspects of the deal—somebody who has been through that many times and helps the other side. 

So we've got two ways to go forward, we can build our team, we would take out aboard, we'd bring in the assets we need, and we would make the deal happen. 

If it's a larger deal or if we have multiple deals in flights simultaneously, we'd always bring in DCP or somebody like DCP as our advisors who can help us through that and keep the trains running on time. 

Making a deal successful is about keeping those trains running on time, because deal fatigue is real. And if you don't pull the right level of resources on that, you're in big trouble if you let certain conversations drift on certain micro negotiations. 

I've talked about being cost-conscious, but I would never recommend anyone under-resourcing a project. It's not something you can under-resourced. If you under-resourced it, you've got a huge capacity for the wheels to fall off and things to go wrong. And when things go wrong in deals, it's hard to win your way back. 

Staffing Up Internally vs Externally

Historically, we've always used external resources. It's all about scale. How much work we've got going on, what our capacity levels look like, and the scale in terms of the business we're buying. 

If it's a large deal over a certain value, it's something we would bring in a third party to work our way through. And if you're buying a business from a founder, it has very different dynamics than buying a business from private equity or a VC house. 

The levels of competency tend to go a lot deeper when you're buying something from a professional institution that is selling an asset and tends to be slightly more complex.

If somebody is a founder of a business, they will hopefully have advisors. It gets very challenging because they think they're buying a house and applying the same techniques. The most challenging deals of all, are founders' first-time exits because certain stuff is counter-intuitive within the M&A process.

And also, we try to get certain things done within the LOI. A perfect example of this is the non-compete. The seller might be thinking he can just spin up the business again tomorrow after the deal is closed. And when you tell them that you want a reasonable length of time for that non-complete, that can sometimes pose real deal friction at the wrong time in the deal. 

So it's better if you get that into the LOI. 

Retaining External Advisors

We may have an overreaching advisor that will have great experience in our industry. We're a technology business, and we buy technology companies, and you must have people who know your market. 

It's also important that they understand recurring revenues and know the difference between recurring revenue and re-occurring revenue. Those have a big impact on valuations and what people are willing to pay. 

We will always bring their tax advisor. We'll always get legal diligence from a tech perspective. We'll always check the open-source technology to check if they're not using anything they shouldn't be. Those are the main areas.

If you're doing a one-off deal and you're never going to be buying again, you want to get the right team for one deal. But our strategy for the last five or six years has always been tapping on ongoing, Corp Dev.

So any partners we bring in, we try and continue to work with because by the time they get around to the second deal, the third deal, they know where our hotspots are. They know what is important to us, and it makes them far less friction in the deal cycle. 

We still do a lot in the house. We bring in advisors to help us through the process, but everything else we do ourselves. 

Scaling Corp Dev To Do Deals

The key to that is the investment bankers and the advisors, providing they can scale whether we do one deal or five deals. Do they have the capacity to run those deals for us? When I talk about running the deals, this is from LOI through to close and the sweep up after that. This is not about integration. 

We are a great believer in day one integrations. The business is integrated literally in real-time. The day we buy the business, we meet the people and we integrate them into the teams. 

It's not about the LOI or day one. It's really what happens after that that will determine success. And if you overheat that organization, the core business might be impacted. And certainly, your deal will be affected if you haven't got the internal resources who can make that happen. 

Identifying Internal People to Involve 

I've got a lot of institutional knowledge. I'm also the CPI of the company, so I know the business cross-functionally. I know the business well enough to determine where to look. There aren't many people in our business who can be a great VP corp dev.

So within the senior management group, various people have expressed their interest to me to be involved in M&A.  I can help them understand how Corp Dev works. The people around them can teach them the science of M&A. But what's essential is understanding what's best for the business.

  • What is the thesis of the deal? 
  • Why are we doing this deal? 
  • What is the go-to-market strategy? 
  • What is the people's strategy? 
  • How are we putting that together? 

There is no one better to answer these questions than business leaders. You could have the best Corp Dev person in the world leading the day one and the integration planning, but if they don't have institutional knowledge and that cross-functional voice, everything won't work in unity.

That person dealing with those people on a day one basis is probably the most critical person in the deal.

Now, some companies park integrations, and they'll leave it for 90 days or two years. Those sorts of deals scare me. My advice would be to integrate as fast as possible. The sooner, the better. 

Do Business Leaders Assemble the Diligence team?

Absolutely. Their job is then to engage with cross-functional leaders, who will, in turn, have people in those teams at a senior level that they delegate down to to work on those cross-functional sessions. 

Each function has to be dealt with entirely independently and then brought together at a high level. But each function will have its metrics, challenges, and opportunities. 

They just need to facilitate the business coming on board; they need to facilitate the day one process, moving people to the new contracts and sharing news with people if they are being orphaned. There's no future for them in the business. 

But the most important people are the functional leaders, because they are the ones dealing with the people on day one.

You have to remember that you've got people involved. There's a lot of uncertainty in their minds. The most important thing is people. You can get so obsessed with the numbers and the thesis and the analysis, numbers everywhere. 

But we must not forget the people because whatever you're buying, it involves the people. And I've seen it go badly where, after 90 days, all the key people were not retained, a lot of IP and client relationships have walked out the door. You won't recognize the acquired company anymore. 

And so much of that is about people. And you've got to remember people are human. People have feelings; they have families; they have commitments and being bought by another business is incredibly unstabilizing in what's going on in the employee's heads. 

So that's key to any deal; how you embrace those people gives them confidence that they have a great future. Hopefully, a better future moving forwards.

But equally, put your arm around the people who aren't going to be required, whether that's in the short term or the medium term and give them confidence, treat them as human beings and look after those people as well. 

It's amazing how many people that haven't been required by us going forward, they've been well looked after, they've been treated with respect, but they'll end up back in that same process with another company that we're buying maybe six months, 12 months down the line. 

Because when you fish in that small pond of 200, 250 targets, the chances are, people are walking around between those businesses to get jobs. So we have to act with good grace and respect, and that's all equal to the founders and the sellers because reputation is easy to destroy. 

Can You Explain More How Business Leaders Assemble Cross-Functional Teams? 

So when I said cross-functionally, it's HR, finance, IT, marketing, sales, and a whole host of technology. Each one of those functions rolls up to somebody on the senior leadership team.  So the senior leadership team is very close when we do deals. 

For example, marketing will be involved in the deal thesis. And we get that business under LOI. Then the person who is responsible for marketing, our CMO, reads in two of his key people. Those key people would meet with the integration lead to discuss marketing and how that fits into the overall deal. 

That would then be repeated with each of the delegates from each of the functions. And this is a virtual cross-functional team. We don't get together in meetings with 40 different people representing all the functions.

This is a divide and conquer, where your integration leads will work with each of the cross-functional representatives to come up with a plan at a functional level. Those functional level plans will be driven to the deal metrics, and then they'll be pulled together to create the Bullhorn integration plan.

How Do You Choose an Integration Lead? 

We're in a position now where we're bringing in these integration leads on a deal-by-deal basis. The integration lead is all about picking the right person from the business. It's about that knowledge, understanding of our business, understanding the target business, and who is the best person in our business to bring that together.

Leading an integration on an acquisition is a great learning opportunity. It's an excellent opportunity to get real exposure and insight into how the business runs and work with the SLT. 

That's usually a collaborative approach. We may end up with three or four names that come through that process. And then, as a team, we agree on who would be our preferred person to be heading up the integration. 

That person is then selected then we go and talk to that person to check that they are interested.

Integration Process 

The integration process is deeply planned. We start day one planning about as soon as we get under LOI. Our main plan goes all the way through 90 days. 

The first thing we plan is the people. There'll be a thesis. The deal team'll create a model. And then how do we apply this model? How do we get to this model?

And we involve the seller in that planning as well. So when you are coming to the end of the process, you're moving towards signing and closing; everyone is pretty confident that they know what's happening. 

We tend to have a branding ethos whereby we bring the company on board, and we have a process that takes them to a complete Bullhorn product offering. But initially, it's company X, Y, Z by Bullhorn that will be day one. 

  • The new employees must have a Bullhorn email address on day one. 
  • It's important to have access to our infrastructure on day one.
  • If they're a Microsoft shop or a Google shop? 
  • How are we going to do that? 
  • How are we going to train those people? 
  • How are we going to tell people what happens next? 

And the people who are responsible from the Bullhorn side, they've got to make sure their house is in order. Because they're probably not focusing on that core business while they're focusing on the acquisition. So there's a real trickle-down effect. 

And I mentioned earlier about deal fatigue within the business. You must understand that if you are going to integrate, this will impact your business.

Do You Integrate As Fast As You Can?

Absolutely. Whatever the ultimate goals are, the sooner you get to those, the better. And that's not just about efficiencies; that's about what was the strategic goal of why you were trying to buy that business.

When you're bringing in new products, you can put it in the hands of your sales team to sell. Why do you want to wait 12, 18 months for that to happen? Don't waste any time. Speed is critical here.

Particularly in the world of private equity, whereby it's all about the multiples, and the sooner you can get to those, the sooner they're in the rearview mirror rather than in the forward mirror.

Biggest Lessons Learned

We are valuing the people. Also, one of the things that we have now is a strong relationship between legal, HR, finance, and Corp Dev. 

Everything else picks up from a cross-functional perspective, but those are the four dynamics where the work is done to get a deal over the line.  

You should have a CFO that cares about this and wants to be involved and knows what's happening in the deal. They are key to our deals.

And if you have got those four groups working together, you're minimizing mistakes that can be made. 

And lastly, know why you're doing the deal. You can't just be doing a deal because your private equity company or your VC house says you need to start some acquisitions. You've got to know why you're doing it? And what's the impact going to be? And not just spreadsheets, not just numbers.

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