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The Art of Executing Programmatic M&A

Opportunistic M&A can lead to bad acquisitions that don’t align with the company’s overall strategic goals. This creates a disjointed portfolio and integration challenges that could cause massive value leaks. 

In this episode of the M&A Science Podcast, Wolfgang Schenk, VP of M&A at Belden, discusses the art of executing programmatic M&A to increase chances of M&A success.

Things you will learn in this episode:

  • Benefits of programmatic M&A
  • Required team for programmatic M&A
  • Collaborating with the M&A team
  • Transitioning to programmatic M&A
  • Achieving team alignment

Belden is a global, publicly traded company specializing in the design, manufacture, and distribution of end-to-end networking, security and connectivity products. The company serves the Industrial Automation Solutions, Smart Buildings and Broadband & 5G markets.

Industry
Electronics
Founded
1902

Wolfgang Schenk

Wolfgang Schenk, VP of Business Development Industrial Automation at Belden Inc., has a rich history as a telecommunications engineer and a pioneer in industrial automation. With over four decades of experience, Wolfgang was instrumental in transitioning Ethernet technology to fiber optics at Hirschman, now a part of Belden, and later introduced Ethernet to industrial applications. Today, as Managing Director of all Belden facilities in Germany and VP for global M&A activities, he leverages his deep technical background and comprehensive industry knowledge to drive innovation and strategic growth within the company.

Episode Transcript

Programmatic M&A

The traditional M&A approach is an opportunistic approach where companies come to the market, and you check if they fit your strategic goals and programs. It's opportunity-driven and somewhat random, but they need to align with your strategic scores, programs, and markets.

The programmatic approach is more systematic. Initially, we had three to five platforms within Belden, driven opportunistically. We merged these into one single common reference architecture for our complete data communications, data acquisition, transmission, and orchestration portfolio.

This allowed us to clearly identify our gaps and search along those gaps for full Belden in one unified search profile with the same toolset.

Gap analysis and strategic positioning are crucial. We have defined 13 vertical markets we focus on and have use cases within these markets. We conduct a clear search based on this, supported by tools and a robust workflow, driven by our internal customers' demands under the new programmatic approach.

And let me add one more piece to the strategy. Before, we were a components or products-oriented company, adding to the portfolio piece by piece without any critical issues. The strategy change was moving towards more solutions in the business, especially in the aforementioned use cases.

This shift brings a higher variation of different companies, talents, targets, and operational capabilities, resulting in a broader portfolio than just adding products and growing inorganically. As part of our programmatic approach, we now aim to do one acquisition per quarter, compared to the previous frequency of one per year.

These are driven by goals and strategy and it was very important to set up the necessary tools, have a good database, and define workflows to support this approach.

The initial idea was a strategy and solutions-oriented business. Belden aims to deliver unique data communication solutions from A to B without any breaks. This includes everything from a connector, a cable, a switch, wireless connectivity, to firewalls, ensuring a completely safe and highly reliable data infrastructure.

The strategy and reorientation to a solutions business is supported by services, trainings, bringing people together, proof of concepts, validation tests, and plug fests. This approach drives a higher frequency of activity and perfectly fits into our solutions portfolio.

Building an eco-partner system, joint venturing, and working together creates a pool that feeds into our M&A funnel. The goal is to make more money by offering solutions, not just products.

Benefits of programmatic M&A

The pros are a perfect fit to strategy, closing gaps, and having a solid solutions part. Your internal customers are motivated and with you, ensuring a regular inflow. This requires regular discussions with the internal business owners and a holistic approach.

It's not only about finding the right company, going through cultivation, due diligence, and successfully signing and closing. It's also about the integration process that follows. Throughout this period, you need to be perfectly prepared and ready. In the programmatic approach, our focus is to improve integration and ensure success.

Eighty percent of acquisitions worldwide fail due to poor integration, leading to negative outcomes. There isn't really a con, but it requires disciplined, daily work in the business activities. This is the only aspect that might be seen as a downside, if there is one at all.

Formulating the strategy

Challenge your strategy every day, but don't change it daily. We work with three-year threat plan periods, while other companies may have longer ones, like five years. Three years is a good timeframe.

It's important not to rewrite your strategy every year but to continue and track these three-year periods. Challenge it daily and drive the definition through, talking a lot to customers. The voice of customers should be the most important input into your strategy, focusing on their demands, pain points, and needs.

In the automation business, companies were successful with individual product solutions and sophisticated developments but lacked interoperability and end-to-end solutions. When issues arose in production, customers struggled to find the right person to integrate everything. 

Drive your strategy from customer demand and voice, make your position clear, and bring in your ideas. Customers are waiting and expecting new ideas and input, so stay close and aligned with them.

It is indeed crucial to consider the customer voice and feedback. You need to measure this more than just by asking; track the loyalty of your customers and their feedback. This helps identify gaps in your portfolio and strategy.

Interaction and bringing people together are key. Talking to end users and relying on channel partners who help you in the ecosystem is essential.

Challenging the strategy

The German way involves planning, documentation, collecting information, and bringing it into a database for analysis. However, this can sometimes be too slow.

While excessive planning can replace misleading things by accident, a structured approach with proper documentation is crucial. You need tools to collect data, run simulations, and understand potential impacts. It's important to go through these steps with a defined and standardized process where everyone in your workflow is completely aligned.

Required team for programmatic M&A

It's not good to have only bankers or lawyers; they are specialists in their areas. You need people who understand the market.

This ties back to my career and development. My core team consists of people from the market with experience in R&D, product management, and vertical market management. They know the market, the people, and connect to a network of advisors worldwide. We call them M&A managers, funnel managers, and inflow managers.

You need strong financial backup, tool managers, and process managers for continuous improvement. Often, after a good cultivation and due diligence period, everything stops at the final signing and closing. Dedicated integration resources are crucial.

The biggest gaps are often in IT infrastructure and HR cultural aspects, which need dedicated support. This is currently the most important part of our programmatic approach to improve.

Collaborating with the M&A team

First of all, having the knowledge and knowing the market is crucial. You need people who understand the market and can immediately identify gaps.

Then, it's a lot of research and connection to what's happening in the market. We have our funnel, potential targets, and open discussions with our internal customers who need to fill these gaps with us. This is our most important part, tracked weekly with a lot of discipline.

The workflow involves bringing all the information together in a tool and tracking it. We are also considering the addition of AI tools to enhance this process.

In addition to DealRoom as a tool for the full end-to-end M&A process, we aim to improve integration and support documentation. You also need tools for immediate access to information about available companies, databases, and related data.

For this, we use services like PitchBook. We have also tried some of the first AI tools in the market, but we are not yet completely satisfied with their outcomes. Much of our process still relies on our own research, though we have seen significant progress in recent months.

Then, we hopefully achieve success. It's a very intense workload period during due diligence, especially for an international company operating across different time zones. This requires excellent alignment on timings and coordination.

We could benefit from more support from tools. When we collect data, a tool that sorts, prioritizes, and supports our documentation would be helpful. We've discussed the potential of a white paper generator as an additional resource.

Transitioning to programmatic M&A

Let's say not yet completely, but in the pre stage funnel management approach is very clear that we have our last acquisition or last signing, which we did, uh, we could. managed to do within a six weeks due diligence period where this would have been without tool and support and structural approach never been possible before, before that.

What I need to develop further now and to improve is the integration part of the, the business. And there,  we are still challenged to have this perfectly under, under control. So the, the sequence, the frequency of the Influence of the deals we are doing right now is a significant improving part and then hopefully in future integration as well. 

But yeah, maybe this is a bit where we are going to. The plan involves dedicated resources for core processes, which I identified earlier.

One of the biggest challenges is IT, where it can take years to bring things together. You don't need to integrate everything immediately, but it's crucial for reporting structures, numbers, and workflows in ordering. We want to sell solutions, so one of the first targets is to have customers place one order to Belden instead of multiple orders to different parts of the company.

Dedicated resources for IT, HR processes, and transformational cultural change are essential. This is our focus with the integration process.

Achieving team alignment

Talking to each other regularly is essential. Our M&A core team meets three times a week for what we call a virtual coffee break. We also have a biweekly two-hour meeting to align activities.

With the extended teams in due diligence, we hold weekly report hours and regular sessions. The main goal is to bring people together and facilitate communication.

It has no fixed agenda, but every time it has a structure. Topics are brought in by everyone based on current demands, and it works quite well.

It's like standing in the kitchen, drinking coffee or tea with your peer, and exchanging information. It’s less structured than typical software standup meetings, where you discuss what you’ve done, what you plan to do, and any bottlenecks. Our biweekly meetings are more structured, with a standard agenda covering pipeline review, in-flight projects, and integration.

Our M&A group includes integration resources within the corporate development team to keep everything connected. Belden is evolving; we had three to five different platforms, but today we have just two businesses, making the dedication of individual people clearer.

Success metrics in programmatic M&A

Belden has made a commitment to the market as a strategic investor, aiming to achieve $8 earnings per share by 2025. The highest priority is to measure success and identify targets based on this earnings per share goal, which serves as our leading indicator. Additionally, when making investments, we aim to deliver a return on investment from day one, targeting 13% by year three.

We also measure our funnel inflow and acquisition targets, tracking them almost like a sales funnel with lead times and close rates. The business measures performance against criteria defined in white papers, including synergies, development criteria, and joint roadmap steps. Finally, for integration, there are 50 to 70 individual KPIs tracked by various groups and functions.

This may seem like a purely financial-driven topic, but it also clearly identifies the fit to our strategy and helps close gaps in our solutions portfolio. It's more challenging if the acquisition is just for talent or technology, but we always have a clear business case from the beginning that supports our future solutions portfolio.

Pitching deals to executive

I report directly to a senior leadership team member, the senior vice president for strategy and technology, who pitches to the board. As a technical person and an engineer, I am driven by completing the solution portfolio and fitting it to our customer needs. This is my main driver. Additionally, I work with the financial model according to the mentioned targets, and I usually come close to achieving these targets.

The hardest part of doing programmatic M&A

We touched on this already. For me, the key is discipline—working consistently and following through. For example, when an email comes in, link it to the project and ensure a smooth information flow.

It's important to keep this information as complete and secure as possible. We must balance being open and discussing our targets while ensuring that non-disclosed, critical information remains confidential.

AI in M&A

I give it an eight-plus. I'm quite excited and mentioned during this podcast interview some options I dream of supporting me. We do not use this yet, but I talked about a white paper generator where, from all the due diligence materials, I can generate my white paper and only need to add the financial part.

In documentation and due diligence, having groups give their reports, I see support capabilities for AI. The strongest use case is taking unstructured data and structuring it, which is perfect for due diligence. The team will appreciate it.

It cannot close a deal or sign an SPA for me; this will remain in individual negotiations and legal topics. We have identified a project to investigate how we can use AI and what additional documentation and rules we need.

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