Standing up a Diligence and Integration Management Office

The majority of Corporate Development involves their integration team a couple of weeks before closing the deal. And while this is good practice, it’s not the best. According to Kerry Perez, Head of M&A at AMN Healthcare, there is a real benefit in involving your integration team earlier than that.

Standing up a Diligence and Integration Management Office

21 Feb
with 
Kerry Perez
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Standing up a Diligence and Integration Management Office

Standing up a Diligence and Integration Management Office

“The key is to have a small group of people who can move from integration to integration, who are committed to the sacred nature of integrations and can iterate as you get those lessons learned.” - Kelly Perez.

In this episode, Kerry Perez, Head of Diligence and Integration Management Office (M&A) at AMN Healthcare talks about the benefits of having a centralized function and how to stand up a Diligence and Integration Management Office. 

Kerry explained the benefits of having a DIMO, how to manage your team before they get too big and what does the integration hand-off looks like. 

special guests

Kerry Perez
Head of Diligence and Integration Management Office (M&A)

Hosted by

Kison Patel

Episode Transcript

Text Version of the Interview

Why stand up a DIMO?

The IMO traditionally starts a couple of weeks before close, and it's really focused on integrating. What we saw at AMN and even in your podcasts is the importance of getting upfront early through diligence. 

Diligence is where you assess the company that you are planning to acquire and make sure you want to acquire it, and we really felt like combining and having that continuity of someone being able to oversee both the diligence and the integration made just a lot of sense.

At AMN, we do a lot of deals, and what we realized is that every integration approaches things differently. Nothing was better than the other, but it really did show that in order to be scalable and repeatable, it makes sense for this function to have some continuity.

You need to have somebody who is dedicated, who can pick up the learnings from integration to integration, from diligence to diligence, and be able to just refine that process. 

From the diligence standpoint, I like to say, "The better the diligence outputs is the better the integration inputs."

There are a lot of things that happen there that you pull forward, there are some of these nuances that happen in the conversation that doesn't make it to a diligence memo, but are really important for both the new company that you're acquiring and your internal team members. 

Let's say you're talking with a more entrepreneurial tech company and they built their CRM from scratch. They're very excited and protective of it. It’s very easy for a larger company to come in and scratch that right off because they want to use their own technology. And that small and sensitive information can help during change management to bring people on board. 

Or maybe there's a discussion that we are not touching their branding for 6 months. Those little things don't necessarily make it to the diligence memo and there are a little bit less concrete.

What does your Corporate Structure look like?

Technically we don't have a title of corporate development. I am in our strategy department, and we've got our chief strategy officer who feels a lot of M&A along with myself. 

We will be working from the onset when we've got inbound opportunities from a banker, we're partnering to take a look at the CIM, work with our finance team for evaluation and bring in kind of a whole cadre of people to help with that diligence.

It's a small team who's dedicated, but we've got a lot of other team members that come in, that are dual hatting with their day jobs to help with the diligence and then move on to the integration.

Where does DIMO get Involved?

Right from the very beginning. It wasn't like that before, but when we were still trying to find the right balance of when to bring this function in, it just became clearer and clearer that those little things that you pick up in a hallway conversation, or during lunch when you're talking with the other management team, just help with continuity. 

In addition, it helps to eliminate redundancy too and just become more efficient when you get to the integration. Especially when you're working with a small company where a lot of their people are wearing multiple hats. 

You have to realize that it’s not an easy process and you need to have some empathy with the fatigue that comes with diligence. Asking questions repeatedly can be taxing for the acquired company. 

Remember, you're the first experience that they have and it can make them feel welcomed or it can make them feel just like another kind of asset and that's I think the difference. 

How many deals are you doing?

It depends, but I'd say on average, we can do between one to five, depending on the size. And it speaks a lot as to why you need to be scalable because a lot of the same team members are working on the same deals. 

So when you are prioritizing, it really helps to streamline who is involved. So starting in diligence, you have a little bit of the luxury to have a lot more people involved.

You've got a quick timeline in which you really need those specific SMEs to analyze their portions of the diligence, contracting out for legal to review contracts, and things like that. So you could have upwards of 30 to 40 people in there. 

One of the things that I wanted to do is streamline the people down to about nine functional leads and they are going to be the ones representing their departments. This will be the core group of people who are going to be involved in every deal. 

I'm sure many companies can relate to having way too many things to do and having to fight for prioritization. It just helps to have a small group that is committed to the sacred nature of integrations. 

You are able to move so much more nimbly when you have a smaller group versus kicking the can down to the next week because the decision-maker, one of 30 people wasn't in the meeting that day to make an integration decision. 

So that was key, having a small group of people who understand how the pieces connect and come together each time versus somebody coming in and needing to reinvent the wheel each time because they happen to be free. 

Selecting Integration Leaders

You need to have the basics. Someone who is a critical thinker, strategic, organized, and are able to connect the dots. But what I think is the most important are really the soft skills for an integration lead. 

It's that interpersonal relationship. Somebody who can be an assertive, self-starter, but also an independent thinker. But most importantly, someone who can work well in a team dynamic. 

A good integration leader needs to be able to influence through credibility, and they need to be likable. You have to earn the trust of a new company coming in very quickly.

Where do you get Integration Leads?

Right now, we are borrowing from our project management office. The next evolution is we want to hire a full-time role that can move from integration to integration and for the same reasons I mentioned earlier. 

But sourcing externally and internally has pros and cons. Internal folks have the ability to navigate internally, which is super important, especially at a company that has so many business lines.

But then it is nice to have that external experience for somebody who has been around the block a few times from M&A. 

Your Role in this Process? 

Going back to where I started to get involved, I really do oversee all of the portions of it. 

  • I've been leading the management meetings
  • Going onsite 
  • Giving toasts at dinner when we're breaking bread and getting to know each other
  • Partnering with our finance team, to gut check our evaluation and then the multiples that we're considering. 

And then ultimately giving guidance of how a company that we're acquiring will fit into our enterprise strategy, unlocking where that value should be by joining AMN, and then going through the diligence and integration with that lens in mind of ultimately the value creation.

Deal Sourcing

We have the great benefit of being the largest in our industry, so we have a lot of deals coming to us. But we also have several business lines that myself and our chief strategy officer work with. They're the closest to the industry. And so we'll work with them to hear what's coming to market? What's of interest? But ultimately it starts with our enterprise strategy and understanding where do we want to be in three years? 

Our mission is total talent solutions. So we look at things going back to customer-centricity of like, what's going to help our clients and our candidates. And we come up with our shortlist and then we look at it as a team sport and work with our internal experts and our external experts to whittle down the shortlist of our targets.

Integration hand-off?

The diligence memo itself is quite hefty as people probably know. We’re talking 30 to 50 pages. You can’t expect everybody coming in to do integration is reading that thoroughly. So there are a couple of key things that I like to pull out.

  1. Integration type - Is this a deal in which the company needs to be fully absorbed? Is it going to be something that's a little bit more symbiotic where there needs to be some autonomy from the new company coming in, but some from the mothership. So understanding that and getting the agreement upfront with our leaders of the type of integration we're going to do, really does help to outline the rest of the scope. 
  2. Synergies -  Why are we doing this deal in the first place. You need to get clarity around what value are we hoping to create. Not only is that important because it really keeps her eye on the prize of what your scope is. It also helps you understand what the scope is not.
  3. Constraints and Assumptions -  For instance, we are assuming that they are going to be sunsetting their brand or that we are not integrating them for a month because they have diligence fatigue.
  4. KPIs - We talked about value creation, whether it's revenue or cost synergies, retention is obviously a huge one for the new company coming in. 
  5. Disruption Metrics - How disruptive are you?  Let's be real. You're always going to have some disruption, but if you're able to work with the business and see declining metrics because of disruption, then you have a problem. 

And then, of course, just the normal stuff you've got going on, scope, budget, any key decisions made and it's literally a four-page kind of document that gets handed off to the integration team. 

Organizational Leadership Structure

When it comes to org design, especially when we talk with senior leaders, that is really understood even during the diligence discussion in collaboration with the new company.

So understanding who wants to stay, where they're going to be reporting to, what their titles are going to be, that all happens with trust and transparency during that diligence process prior to close. 

There are also discussions of functions on where they end up absorbing or not absorbing into the organization. And that one is key. We certainly partner with our HR professionals at AMN to lead that part of the process. 

The sooner that people understand where they're going to sit, the better. It can be uncomfortable and you can definitely freak people out unless you give them that clarity sort of early on.

So going back to identifying what type of deal it is, helps dictate or inform what the org design looks like. So let's say we are purchasing another staffing company that looks very similar to staffing companies that we have, and we're really just adding on additional clients or additional candidates.

It's pretty clear that that's going to be a full absorption model and those teams members will be coming into the fold and joining our enterprise and joining our sales teams. 

If it's a technology company that has a unique selling point, it's someone that's going to lead us through the market with their brand name. Then we can let them continue with their sales team and product team. 

We will just find those points of synergy, where it makes sense to help them become most effective coming into the organization, and then what's going to make the most sense for our long-term strategy to serve the most for our clients. 

Key Performance Indicators

We have standard monthly steering committee meetings. But the structure in which we engage, we typically have a weekly meeting with our 9 functional leads in which we are pulling from the initial integration tracker of the expectations for the milestones that they're supposed to be hitting.

And we just simply review that periodically. We do then partner very closely with the business owner at AMN and the business leader coming in from the new target to analyze monthly, if not more frequently where we are to target. 

And then, they get quickly also folded into our normal business unit review process so we're keeping a close eye on their financial targets and things like that. So it's really governance through setting up the expectations and just the accountability of meeting by meeting, what progress we're hitting and where we have risks.

Steering committee

So steering committee includes are functional leads because they get to speak to the nuances of what's going on. They're more participating in speaking to the steering committee, but we generally have our chief information officer, our head of HR, strategy, the business unit leader.

And then on occasion, we will also be reporting out in a separate meeting to our CEO and our finance, all of our C-suite, but that might be more of an executive readout versus the steering committee that happens monthly to guide it. 

But the key people are the business leader on the AMN side, the business leader on the new company side, and depending on the type of integration, those other key executives that have the most involvement in the integration. 

Integration type

After 35 plus years in business and over 30 something acquisitions, we are really seeing the pros and cons of when we have fully integrated and when we haven't. 

And it goes back to the standardization of the DIMO, depending on who's involved prior, you might get a certain level of integration. And right now we're really on this kind of mission to make us be more one AMN. 

So our systems, at least fully talking to each other, our data mastered, our go-to-market strategy a little bit more unified. I think there have been times when we haven't fully integrated and we thought that we had. Right now, we integrate as much as possible where it makes sense for value creation. 

And we have this concept of what I like to call, base integration versus beyond base. Base integration is something that we always do. Anything that needs to happen to join a public company we're going to do. 

But then the beyond-the-base stuff, sometimes I've noticed doesn't get captured as an integration line item, but it really should if you want to get that value. Some examples I've mentioned are like mastering data.

If we want to be able to do good customer segmentation, the branding is just how initially our clients and our candidates are perceiving us. That hasn't always been something that we initially think about integrating. 

M&A Process

So as an example, a banker has come to us and they’re interested in coming to market. At that point, there's a small team that comes together. 

That inquiry problem goes to myself and our chief strategy officer, depending on the type of business line that it is in, we'll usually pull in the group president from the AMN team, a finance person, and a legal person to talk about if are we interested in this company at all. 

So we'll try and look at maybe some of the information that was sent over from the banker, some of the finances, EBITDA, the growth rate in the next three years, and we evaluate and try and take a look if is this something that we're interested in pursuing.

So let's say we are interested in pursuing, share that back with the bankers, work through with our legal department to get an NDA signed, and start pulling the small team together to create that short life of questions for preliminary due diligence. 

At that point, there is going to be some arrangement for getting the Confidential Information Memorandum. We're evaluating that, we pull in finance a bit more to kind of understand valuation expectations, understand the composition of the EBITDA contributions, the go-to-market fit, things like that. 

And then generally there's going to be some sort of management to management discussion. From there, the team expands a little bit more. Maybe between five to seven people, representing some of the key functional areas that are really germane to the business and we organize ourselves to understand and generate key questions. 

We go on-site, and hopefully, we get to see culture stuff. you get the opportunity to do something social, have dinner with each other, have lunch, really get to know and open up with the cultural fit. That's a lot of the thing that we're also trying to understand. 

We go back and do an assessment with our team. We want to move forward, but here are the key areas that we want to hone in on. Generally, at that point, there is an LOI. Ultimately we want to be in exclusive diligence with the organization. 

Then we bring in the larger team who's going to be responsible for analyzing the data room. You go through confirmatory diligence, at that point, you're bringing in your corporate comms team to start talking about a close schedule, developing all the communications.

You get to close, all those day one activities happen. Hopefully, there's a nice celebratory dinner involved. And then, typically, within 30 days we want to have an integration summit. And that's usually in person. 

And it's an opportunity for the new company to really get the lay of the land for AMN. We have the functional leads meet each other, kind of talk through what they learned with diligence, talk through the integration plan. 

And it's that first intro where you really just get to understand how to work with each other and build some shared goals and kick-off integration and run that through.

Diligence and Integration Team Working together

A lot of the folks who are in the diligence process do carry over into the integration process, but it's just streamlined. So I would say 90% of the folks who are in diligence are also in our integration. So you do get to have that continuity of people carrying over. They're just now more responsible for the rest of their department. 

As we do diligence, we’re starting to think about integration as well, we'll do that in our bi-weekly meetings. We know we have to be careful about it from a regulatory standpoint, never starting to integrate prior to close, of course. 

But we will highlight in that output of the diligence to integration handoff of, the major risks we saw in diligence, and we're going to need to figure out how to supplement that as soon as we get into integration.

Multiple Parallel Integrations

That is difficult, especially when outside of parallel integrations, you probably have 15 other strategic priorities that are going on.

From a very tactical standpoint, you need to analyze what are those key points of time where you need people to actually be out of meeting and don't try and have overlapping meetings. So it's really understanding the people involved in their time. 

Starting a little bit more macro, it really does get to the agreement with your senior leadership of what that prioritization is.  

And then as you are developing the plan for your integration, I like the concept of what's called kind of like a decision drum beat. You don't necessarily have certainty of every single output that's going to happen, but you do have clarity of what you need to do. 

And if you're able to kind of spend the time upfront understanding those key decisions that have to be made in order for the rest to unfold, you're able to then map out how you involve people's times and at what point.

The thing I hate the most is wasting people's time. So if I don't need to pull in finance until three weeks later to focus on this deal, like, go ahead and sit out the meeting for integration number two, I know that you're working on integration, number one. 

So that upfront planning and understanding the decisions that need to be made and how you're going to orchestrate them as well as the just understanding of holistically of people's time, it helps you at least be a little bit more organized to be able to deal with those parallel integrations. 


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