The Intricacies of M&A from Start to Finish

For first-time acquirers, M&A can be challenging, as it comes with strenuous processes with many complexities that can turn the dream into a nightmare. However, with proper guidance, acquirers can have a smooth transaction and an amicable negotiation. To help us navigate our first deal, Rajive Dhar, VP and Head of Corporate Development at NetApp, discusses the intricacies of M&A from start to finish.

The Intricacies of M&A from Start to Finish

4 Dec
Rajive Dhar
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The Intricacies of M&A from Start to Finish

The Intricacies of M&A from Start to Finish

“The cornerstone of all successful acquisitions is having a clear strategy and a plan for executing it. You must ensure that as you're building your organic plans, and blend them with M&A.” - Rajive Dhar

For first-time acquirers, M&A can be challenging, as it comes with strenuous processes with many complexities that can turn the dream into a nightmare. However, with proper guidance, acquirers can have a smooth transaction and an amicable negotiation. To help us navigate our first deal, Rajive Dhar, VP and Head of Corporate Development at NetApp, discusses the intricacies of M&A from start to finish.

special guests

Rajive Dhar
VP, Head of Corporate Development at NetApp

Hosted by

Kison Patel

Episode Transcript

Different types of M&A

It really depends on what you are looking for from an acquisition. The acquihires or smaller technology tuck-ins can be extremely beneficial to a company. If they are solving a certain pain point or accelerating a roadmap for a company, they can be very exciting. 

I've done several of these in my career, where we acquired a small company and, by integrating the technology and talent, it grew into several hundreds of millions of dollars in revenue. I think there is nothing more exciting than seeing something like that come to fruition. 

The bigger transactions are usually very complex and challenging. The smaller ones have their complexity, but the bigger ones add another layer of complexity that you have to manage carefully.

In all these acquisitions, it's critical to have a clear game plan regarding your strategy and execution. It's also important for companies to understand who their competitors are and whether an acquisition might bring a new set of competitors previously unconsidered.

The key things that excite me in a transaction are the technology and the potential for success. The people aspect of M&A is very important to me. It has helped me build great relationships with founders I've acquired over the years, many of whom have become my best friends.

I can easily say that most of the companies I have acquired, even those from 15-20 years ago, have people who are still my good friends.

One of the things we try to be very careful about is being absolutely clear about what excites us about a deal and the risks associated with it. In some cases, you may have to shut down an acquired entity. How do you have that conversation? How do you go about ensuring that you're doing right by your customers, shareholders, and employees?

Corporate Strategy for M&A

I think it's fundamentally important to define your strategy. The cornerstone of all successful acquisitions is having a clear strategy and a plan for executing it. You must ensure that as you're building your organic plans, you blend them with M&A. 

You can't neglect your internal activities and focus only on M&A; the two must go together. It's also vital to consider whether reaching your end goal requires a single transaction or multiple transactions. In most cases, a single transaction may not be sufficient. Therefore, you need a clear vision and path to your desired end state.

It's crucial to have this clarity. Your board will push you to figure this out. They want to know whether you're planning a one-time deal or if you'll make multiple acquisitions in the same or adjacent spaces to build on the platform you've created.

Understanding your competitors is also very important. You might be competing with a set of companies today, but after an acquisition, consider the additional competitors you will face. This requires careful consideration.

Companies that you may not have previously seen as competitors suddenly become your competitors. It's very important to have a clear idea of who you're going to be up against. It's also important to know how you're going to integrate the company you've just acquired into your organization. 

A lot of M&A fails at this point if there isn't a clear path for integration. This includes decisions like who will lead the acquired entity, whether to retain the CEO or the founders, which employees to retain, and whether to leave the entity alone for a period of time to incubate it or merge it from day one. 

There are pros and cons to each approach. As I said earlier, there is no one-size-fits-all approach. If you go with a one-size-fits-all approach, you're likely to fail.

Dealing with new customers

Well, fundamentally, you've got to understand the objectives of the transaction. Are you acquiring the company for technology and talent, for revenue, or for scale? If you're acquiring it to generate more revenue, understanding the competitive landscape becomes important because your go-to-market team will need to know how to approach it. 

If you don't have a clear idea of how to take it to the market, you'll face challenges and fail to reap the benefits of the transaction.

For example, if you primarily sell products through a channel and acquire a company that sells directly to a different set of customers, it's critical to understand that these two go-to-market motions are different. 

They might have different processes and face different competitors. Understanding how you get to the market and who you are competing against in the market is extremely important.

Acquiring competitors

You are essentially consolidating the market, which can be a great strategy. In that case, you'll still face the same competition, obviously less if you are acquiring one of your competitors. 

However, if you have a separate line of products not related to your primary set, your competition won't change. So, having a clear idea of what your competitive landscape will look like post-acquisition is very important. That's a factor to consider. 

There are benefits and drawbacks. For example, if you're acquiring a competitor that sells to some of your customers, a customer might want a dual source strategy. Even though they're getting two products from the same company, they might want to give some business to a third player, introducing another competitor in your go-to-market strategy.

Target screening

There are various ways in which we have a conversation. The first is having a clear view of the markets you want to target, who the players are in that market, and a good picture of the competitive landscape. 

You assess how much information is publicly available for each company and determine if you want to know more about a particular company and if they would be willing to engage in a discussion. In my experience, it's good to be clear and direct with companies you're considering for M&A or partnership about your objectives.

Smart CEOs understand that the head of CorpDev isn't reaching out just for casual reasons but has a specific agenda. It's important to be clear about what you're trying to achieve in a conversation.

Our job from a CorpDev perspective is to understand the overall ecosystem, where each company fits, and how much information we can collect through that process. I've never found a CEO who's not willing to talk to me so far.

Partners are sometimes very willing to make introductions. If there's a company you want to have a conversation with, partners and customers often help make those introductions. You also have advisors, like bankers or other consultants, who can make introductions. We use a wide variety of sources, and I'm not bashful about reaching out to someone I want to connect with.

A warm introduction is always very helpful. Even when I reach out directly, I'm careful in explaining why I'm contacting that particular person. It can't just be a cold approach like, 'I want to buy your company.' That never works. But fortunately, if I need to reach out to somebody, they're usually good at either returning my call or my email to see if they want to have a conversation.

If you're approaching like a direct competitor, you have to be very careful. The approach can be sensitive. For example, if you're approaching a competitor and they will only talk to the CEO of your company, then you need to ensure that you arm the CEO with all the talking points as to why they are trying to reach out and engage in a conversation. 

It can't be a casual conversation. We do a lot of preparation when it comes to those kinds of discussions.

Especially if you're a publicly traded company approaching a competitor, you have to be very careful. There are laws, regulations, and rules about what you can and cannot talk about and how you approach it. It's a very methodical process. 

When you're talking to another publicly traded company, it cannot be a casual conversation. You need to know the strategic rationale under which a possible transaction can occur, such as where you see the synergies. 

Some CEOs are very sensitive and may refuse to have the conversation if they believe their team will be impacted. You have to be forward, but not too forward.

It's a very interesting dance. A lot of the time, especially in publicly traded transactions, bankers are involved even at the preliminary stage. They mediate between the two companies and figure out if a deal is possible and how to transact as a publicly traded company.

Opening up conversations with the target company

There are various ways you can have that conversation. You can either figure out if you have common connections with the company's CEO, see if there's a board member on their side willing to make the right introduction, or involve a boutique bank to make the introduction if the deal is big enough. 

Sometimes, you might meet at conferences or trade shows, which are neutral venues where you can approach a CEO for a conversation.

However, before having that conversation, be clear about why you want it. The other side will always look for clarity. In a publicly traded company, your board will want to know the purpose of the conversation before you approach another publicly traded company's CEO.

Initial Due Diligence

Well, there are various things to watch out for. We look for consistency in the narrative. For example, if you're engaging with a company and discussing a particular topic, 

  • Does that narrative change from one conversation to another? 
  • Is there a gap in the conversation? 
  • What does the individual think about the leadership team? 
  • What does the leadership team look like, and can they work together? 
  • Have they been together for a while?

We also try to understand the unique value the company brings. Is a one plus one story better than the two individual companies? What's the 'better together' story? We try to figure out the culture. 

There's information available from public sources, or you might conduct reference calls to understand the company's culture and if it will fit within your overall company environment. It's important to understand the chemistry between the executives if you're going after a particular company.

We emphasize understanding how the company is run, its culture, what the people are like, and if they can work with our people. It's not a single meeting that provides all the information; it's a series of meetings and discussions with various individuals, especially if it's a private, smaller company. 

You have to understand if they can function in a larger company setup, as the processes are very different compared to a small startup.

Diligence list

I have a diligence list that runs into 25 pages. We are both a hardware and a software company, so certain things are very important to us from a regulation perspective and how we approach the market.

Our processes might seem complex and complicated to the other side. Having a clear idea of how their processes will change and getting their reaction about these things gives you a fair idea of their flexibility in approach.

For example, your HR structure and benefit structure could be very different from theirs. Smaller companies may have extremely flexible policies, like bringing pets to the office, having plants, or social activities every Thursday or Friday. It's important to compare your policies and benefits to theirs and consider if you can allow things unique to them.

Having these conversations with executives gives us a clear idea of the culture. We spend a lot of time with the founders and CEOs of the companies of interest to us. It's not about having a single conversation with a CEO and deciding to acquire their company. It usually involves months of dialogue to understand the people and what they bring to the table.

Understanding their culture is also crucial. For example, during COVID, I met the CEOs of companies we acquired personally. It was important to look them in the eye and understand their intentions, whether they were just cashing out or planning to stay. 

It's essential to know, for instance, who the next set of executives will be if the current leader leaves. Trust is fundamental, but you still have to verify.

In every deal I've done, I've informed the acquiring or acquired company about the changes they can expect and asked them to inform us so that we can have a game plan to address that.

We are clear about what the benefits will look like, what benefits they could lose, and what the appropriate benefits would be on our side. It's important to have this conversation because the employees being acquired sometimes don't want to be acquired. They were in a startup or a smaller company for specific reasons, so we need to appeal to all those aspects.

The CEO and leadership team we're trying to acquire become our eyes and ears into that organization. This allows us to understand how certain individuals might react and to have a game plan to address it. What we cannot afford is noise in the system.

We have a clear game plan for how we are going to address these issues, and so far, we've been reasonably successful.

Sunsetting competitors product 

It really depends on where you are from a negotiation perspective. What I always say to people in situations like this is that negotiating with a competitor is challenging because the other side will not want to expose a lot until they have clarity on the deal. In a deal, certainty is very important in the sense that they don't want to expose a lot to you until they know the deal is going to go through.

In my experience, I advise, especially first-timers, that if you are a seller, be careful about who you include on the deal team. If the deal does not go through, you will have a lot of people on your side who may have morale issues and start to question your strategy. This is very important.

As a buyer, if you're trying to buy into revenue and plan to sunset the product, you need to be clear about the deal terms and parameters. You can't proceed with unvalidated assumptions because if you wait to validate those assumptions until you close, it's too late. At some point in the negotiation process, you need to bring up your plan and see if both sides view it the same way.

There shouldn't be surprises, especially if there's an earn out associated with the transaction. I typically don't like earn outs unless they are structured to avoid litigation. You need to have a conversation to determine if the other side is willing to work with you to make the transition happen.

For example, if you do the deal and announce the acquisition without a clear plan, it's too late. In my recent acquisitions, I've always been clear with the acquired entity about our plans. We share the vision with the acquired entity's leadership team before sharing it with the rest of the employees because we want them to champion the deal. We want them to explain why the deal was made and why it is beneficial for customers, employees, and shareholders.

Assessing culture

There's no specific things we ask for to understand the company culture. We validate the narrative every time we have a conversation, and this validation can happen over a series of conversations. 

They don't necessarily have to be specific to revenue or customer interactions, but can be very casual. You would be amazed at how much you can find out about an individual, their beliefs, and their leadership style by having these conversations.

For example, if during your initial discussion they tell you about the set of customers they are bringing to the table, their revenue, and that they don't have any complex agreements with any customers, but during even preliminary diligence you find out that some of their agreements are completely bogus, it tells you that they're lying.

All kinds of sirens go up at that point and if that sort of trend happens repeatedly in the conversations you have to walk away. 

Putting an LOI together

You have to have a very clear idea of your objectives from the transaction and the assumptions you're making regarding your business plan. Then, figure out how to validate those assumptions. 

For example, if you assume the leadership team will stay intact and it takes a certain amount of equity to keep these leaders together, but then you find out that half of them are going to walk away as soon as the deal is done, you have a problem. You need to figure out how to bridge that gap or fill that scenario.

Another issue is during diligence, you might expect 20 customers to come with the transaction. But if you find that half of the agreements allow the customer to cancel the contract on change of control, you need to figure out how to ensure the customers come intact with the deal. 

The customers, especially when dealing with smaller companies, often have very customer-friendly agreements. You need to be very clear about your game plan in that situation.

Your business plan won't be worth the paper it's written on if certain scenarios occur. It's crucial to have that conversation. What we've found effective is understanding that often you can't get into the actual contracts for various reasons, such as regulatory issues or the entity you're trying to acquire not wanting to share all the details.

However, you should ask about critical customers. For instance, if out of 100 customers, five are critical and constitute 60 percent of your revenue, you need to have some idea of their terms. Understand what happens in a change of control, the history with those customers, and how dependent they are operationally on this particular product. This will give you an idea of the stickiness of the revenue, as losing one of those big customers can be detrimental.

In larger transactions, we always conduct a thorough quality earnings analysis to have a clear idea of the revenue, expenses, any concerning trends, or terms that could disrupt the business plan. As you go through formal due diligence, it's important to validate all this information, because once you're in exclusivity or formal due diligence, you typically get access to more information than you had during preliminary due diligence.

Usually, if you're going after a competitor, and your thesis is to move the customers to another platform, it is difficult to validate because the rules of engagement are very different, especially in a publicly traded setting, compared to what you would do if you were less than 5 million or 10 million in revenue.

You've got to worry about ensuring the deal goes through, considering all the regulatory issues and such. In scenarios, especially with publicly traded companies, the rules of engagement are complex and strict. You just have to follow those.

Negotiating deal structure

In public markets, you can't tell shareholders you'll give them money six months or a year later. When going after a private company, you have more flexibility in setting terms. But the private company will want deal certainty, such as assurances that due diligence (DD) will be completed in 45 or 60 days, whatever you're comfortable with. They will be looking for that.

You will want exclusivity, while they might prefer that you negotiate under non-exclusive conditions. You have to be clear since you're spending money, effort, and time. You need to explain why you're pushing for exclusivity. 

Sometimes, you have to include terms about the treatment of benefits. Many CEOs insist that the benefits for themselves and their employees are not inferior to what you're offering. During due diligence, understand how to map their benefits into your benefits without incurring additional costs.

CEOs will insist on clarity about whether there is a deal on the table or not. They will seek certainty and push for whatever terms they can at the Letter of Intent (LOI) stage.

When it comes to the price, whatever offer you put on the table, you have to be very clear about how you arrived at that number. Remember, the other side can do an equal amount of research on why they want more.

You must be able to defend your offer and understand what your walk-away positions will be if you are trying to negotiate, whether the terms or the purchase.

You have to be fair to the other side. The way we approach it is that we are not acquiring a company just to exploit the founders and employees. We acquire to grow, and we want them to be equal partners in our overall plan and strategy. 

From a partnership perspective, figure out the minimum they would be willing to accept and then offer them an upside, whether it's in earnouts or performance-related compensation they are comfortable with. Usually, this leads to an agreement where both sides come out as winners.

It's good to negotiate, but at the end of the day, if you want the people to run that particular business, you have to be fair to them. You don't have to put incentives in a way that breaks your bank, but you need to think through the level of involvement needed from the acquired entity to be successful. 

You want the acquisition to be successful and hit the ball out of the park. Structure it so the other side is equally incentivized to participate in that success. Some CEOs might feel they were treated unfairly, regardless of what you do. Ensure that you are comfortable with the terms you put forward, as buyer's remorse 60 days into the deal can kill morale and disrupt your execution plan.

Focus on having a clear understanding of what it takes to execute successfully, including the 30, 60, 90, 100-day plan, scaling strategies, and necessary chess moves. In many situations, and this is not true for NetApp today but in my previous companies, I have been the general manager of the acquired entity for a period to be closer to the acquisition and ensure the deal parameters were fulfilled before letting someone else scale the business.


When structuring an earn-out, you must be clear about the conditions under which it will be paid. If you set the earn-out based on profit or revenue, you face the complexity of ensuring your team is not burdened with additional costs. 

For instance, you might realize six months after the deal that achieving a certain revenue target requires adding more people. However, if the earn-out is based on profitability, the other side may resist this, arguing against the added expenses.

Your initial acquisition thesis and earn-out based on certain parameters may need adjusting to meet your top-line objectives. This can lead to heated discussions, as the other side will likely resist changes and insist on getting paid under all scenarios. They would need to have considered different scenarios and outcomes. This can quickly lead to a problematic situation, which you'll want to avoid.

It's ideal to have a pretty straightforward earnout structure and have a very clear plan. For instance, you have 50 customers that you need to migrate and you propose to pay based on the number of migrated customers: a certain amount if 10 customers migrate, more if 20 migrate, and so on. 

The challenge arises when you expect these customers to migrate at a certain revenue level, but they do not migrate as anticipated. They might migrate, but at a much lower revenue level than expected. In such circumstances, are you still willing to pay the amount you initially agreed to on a per-customer basis? 

People experienced in these kinds of deals know what to look for and the potential pitfalls. I've done enough to know there can be problems. As I said, I structure very clean earn-outs. By clean, I mean measurable and with no issues for either side in monitoring it, creating a win-win situation.

Structuring an earn-out based on earnings is extremely complex. You have to consider how to allocate operational expenses (opex) and what you can impose, as you control the profit and loss (PNL). If it's based on earnings, they might want the entity to be completely separate for full control.

You then have to consider if your objectives will be satisfied if they keep the entity separate, potentially not realizing employee or product synergies. For me the ideal earnout structure is top line. It is easy to maintain, easy to remember, and easy to process. 

The expense part is going to be tricky and that's where a lot of people have problems because the acquired company is expecting a certain level of expenses to be maintained. If you go below that, they're going to have problems keeping the top line revenue. This is where litigation starts especially if you start moving the chairs, all bets are off. 

You are trying to maximize your potential return. For example, if you are a privately held company with a certain amount of cash flow going into your pocket every year, you want to ensure that any deal you make generates more than that amount, and some more. Otherwise, why would you sell?

You need to determine if the founder or group of founders would be better off holding onto the company for the next five years. Will they generate the same amount of cash they do today? You have to run all the necessary analysis based on that.

Keeping relationships

I have two individuals on my team who are constantly talking to companies, keeping track of who's doing what. We have an extensive database of all the conversations we've had over the last 15 years. You can ask my team about any specific day for a particular company, and they'll be able to give you the entire history.

There was a company I acquired where I received its financials every quarter. This went on for three years without us pulling the trigger. Then, when our stock prices aligned, we decided it was the right time to do the deal.

It really depends on what you are trying to get out of that particular relationship or deal. You can stay connected as much as you want without being obnoxious, or as little as you feel comfortable. If there is new information, you typically want to know. 

I've spoken to companies over the years, and they always find something to discuss or ask if I'm interested in meeting for breakfast or coffee to stay connected. For companies I am interested in, I always find a way to know what they're doing.

Another source of information is interaction with investment banks. We view our banking partners as true partners in this process. We may not engage them from a transaction perspective, but they do provide a lot of guidance, feedback, and typically have a fair amount of information.

In the tech world, it's a small group of people who generally know each other. We understand a person's style and what that individual would like to see. Over time, bankers know that if I get into diligence, even prior to the Letter of Intent (LOI), I will need a ton of information to get comfortable with the company.

Best advice for practitioners

It's important to understand where the other side is coming from in an acquisition. You need to know the people and have empathy, recognizing their life will change post-acquisition and understanding their fears. When large companies acquire smaller ones, the due diligence (DD) teams on the large company side are often much larger, involving more functions, while the other side may have just a few people involved. It's crucial not to overwhelm them with requests, considering their limited resources.

We run a boot camp prior to engaging in any serious diligence with our employees who will be part of the process. This is helpful, especially for those new to M&A, so they understand the boundaries, what they can and cannot ask. We maintain extensive notes from all our conversations with the target, and we ask our team to review these first. If the information they need isn't there, only then should they ask for it.

Other than the due diligence (DD) kickoff, which is standard, we run people through a bootcamp and make them aware of certain things. We maintain a fairly extensive list of DD questions that has been built and contributed to over the years. It's systematic and organized, so they don't have to search through papers, PowerPoint presentations, or Word documents. Everything is standardized in one place.

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