Shaping the M&A strategy
We saw that health and wellbeing, or the supplement space, was very interesting and underwent significant changes. It was a good opportunity for a new entrant. When considering whether to approach this organically or through M&A, what really stood out was the business models. The companies gaining a disproportionate share of the growth in the supplement space, during these changes, had a business model very different from Unilever's.
We identified synergies in capabilities, supply chain, and route to market. Unilever would be a very good owner of these businesses. However, we also recognized that Unilever might not be the best developer of these businesses. The successful business model in this space essentially took Unilever's typical ways of working and inverted them, proving to be highly effective. We struggled to replicate this model internally.
We observed several companies in an ideal position. They were focused, had experienced significant growth, and were not in the early stages, presenting lower risk. Yet, they were at an inflection point where we could add substantial value as a new owner. That's when we developed a buy-and-build strategy.
Key elements of the strategy
We needed to figure out which companies would be good participants in a platform. A key decision was whether to buy an existing platform or build one from scratch. In our analysis, most existing platforms had interesting elements but also included legacy businesses that didn't align with our goals, often included for scale.
We decided to build our own platform, incorporating a number of players of roughly equal size, allowing them to enter on their own terms. It was crucial to find them at a stage where we could add value and they were still large enough to be independent. Our focus was not on acquiring brands, but on acquiring businesses, including their business models.
An important question was why we should own these businesses and why we would be better owners than others. This led us to consider synergies and how to capture them. Since we wanted the businesses to maintain their current models, a hard integration was not feasible. At the same time, being a purely financial owner and completely hands-off wasn't an option either.
We realized the need for a balance and developed a method we called “collaboration for the future.” This approach involved finding specific areas for collaboration and synergies, avoiding a one-size-fits-all strategy.
For example, if three businesses had similar customers, it made sense to collaborate on the route to market. If two companies had similar product formats, collaborating on the supply chain, particularly manufacturing, was beneficial. We also considered ingredient overlaps among businesses, leading to different synergy areas and constellations, rather than trying to force everyone into the same model.
So we developed the strategy and received approval to continue. As luck would have it, just a few months later, a business we were very interested in announced they were starting a process and inquired if we wanted to participate. This kickstarted the business by acquiring Ollie, the first business in our portfolio.
And now, a couple of years later, we have half a dozen businesses in the portfolio. The model worked, and the organic growth was rapid, quickly transforming it into a proper business.
Challenges on the first acquisition
We proceeded quite rapidly. Our database contained a long list of 1600 companies, and one of them, Olly, ticked all the boxes. It was what we called a 'wave two consumer goodsification' company within health.
We got along very well with the founder and continued working with him for a long time. There was a lot to learn. When the process started, only three of us in the company had worked on this strategy development. We had to be innovative in teaming up and making it happen.
We built what we called the 'coalition of the willing' within the company. Considering Unilever has around 150,000 employees worldwide, we found many colleagues interested in the health and wellbeing space.
We quickly assembled the due diligence team with virtually no prior notice. We brought in external support, which was very helpful and built a lot of confidence in the organization. The findings from our due diligence were solid, marking a new space for us. We had some minor experiences in Italy, but acquiring a business in a new space was a different matter.
During the due diligence, we essentially built the organizational model for this new business unit. We figured out how we were going to run M&A, integrate it with strategy, and what kind of governance model we would use.
The biggest surprise was discovering how many amazing colleagues we had globally with expertise in areas where Unilever wasn't previously present. Their willingness to contribute, based on interest or prior experiences, made this a very interesting journey.
Building an M&A team
When I wanted to build up my organization and team for M&A, we aimed to do more than just look at individual targets. Initially, it started that way, but part of the strategy evolved into running programmatic M&A. This approach treats M&A as a capability rather than a one-off event, necessitating a dedicated team. In assembling this team, we focused on three main areas.
- End-to-End M&A Leadership: Team members needed to be capable of leading the entire M&A process, from strategy development through to integration, covering more than just due diligence and the transaction.
- Deep Area of Expertise: Individuals were required to have significant expertise in a specific area. The philosophy was that leading a project credibly involves the ability to lead a workstream within it.
- Internal Networking: Team members were expected to effectively network within the organization, leveraging the knowledge and insights of Unilever's 150,000 colleagues on local markets, customers, supply chains, regulatory issues, and R&D.
Considering these requirements, we recognized that finding someone with all three qualities was challenging. We prioritized the traits based on the time needed to develop them. Expertise, often requiring around ten years to cultivate, was the longest to develop.
Building a productive network was the second longest; based on my experience as a mid-career recruit at Unilever, it took about three years to effectively engage with the organization. Learning to run M&A end-to-end typically takes six to 12 months.
When we couldn't find candidates with all three attributes, we focused on recruiting from within Unilever. Individuals with an existing network and deep expertise in a specific area were chosen, and a program was developed to teach them the M&A aspect.
Scaling the M&A Team
The three key people in our team were myself, my boss, who was part of the Unilever global leadership team and was working on this project part-time, and a lady who was an analyst and an expert on route to market.
When we conducted our first due diligence for Ollie, I was the project leader and led several work streams. The route to market expert led another work stream, and we also involved colleagues from other departments to handle the rest of the work streams. Additionally, we partnered with an external firm to support us, with their team members joining various work streams where we needed more help.
I then began hiring project leaders. These project leaders were the same people who came in to support a work stream and decided to join the team full-time because they enjoyed the work.
In their next project or diligence phase, they were ready to lead a work stream. After that, they progressed to supporting the overall project end-to-end and eventually to leading more independently. As they gained experience, they began coaching others too.
We added these new project leaders gradually. They would first join a work stream, then lead a work stream, and grow from there. In the end, I had about half a dozen project leaders at different stages of development.
Recruiting competent people
We had a couple of different sources for recruitment. One was posting job openings, but we also brought people into projects to give them a taste of what it was like to work on M&A. Some were very eager to continue, and we were keen to develop them as project leaders.
During my time at McKinsey, I conducted a lot of interviews and was looking for similar profiles here. To be frank, I sought individuals with leadership, problem-solving skills, and drive. Additionally, I looked for a specific profile: those who were humbly disrespectful.
By this, I mean they were going to work with target companies they weren't very familiar with. They needed to be curious and humble, striving to understand what made these companies successful and identify their 'secret sauce.'
At the same time, they needed to be comfortable with challenging assumptions, digging deeper into areas they didn't understand, or questioning outdated beliefs. This humbly disrespectful approach often turned out to be very effective, enabling these individuals to work productively within a network and extract the most value from a broad range of people.
M&A Aptitude test
I conducted normal interviews, but I also used a specific case with everyone. This case was incredibly insightful, not just for assessing problem-solving abilities, but also for evaluating collaboration styles and how candidates handle situations where they don't have an immediate answer. It was very revealing about their personalities and proved to be really useful in my hiring process.
The case, which wasn't directly related to M&A, posed a simple question: Are there two dogs in the world that have the same number of hairs in their fur? Yes or no, and why?
The range of answers was quite diverse. Interestingly, only one or two out of everyone I interviewed could answer right away. However, those weren't the most intriguing interviews. The most fascinating ones were with candidates who initially had no idea how to approach the problem.
We would embark on a journey together, discussing the number of dogs in the world, the types of dogs, and the potential number of hairs in their fur. I would offer little hints along the way.
The best interviews were when someone started with absolutely no clue but was willing to explore the problem, listen to the advice or tips I provided, and then finally understand it. Often, they would end up really enjoying the case.
Working with consulting firms during M&A
It's important to remember that this is a people business. The firm's name might assure quality, but it's the people on the project who actually deliver. The lead person and their team have a huge influence on what you can get out of the firm you're hiring. Someone influential in their organization will be able to bring the best experts onto your team, which plays a significant role.
Looking at big management consultancies, you're unlikely to receive poor output. However, if you want the best of the best, it's crucial to ensure that the person in charge of your project values your product and is significant within their firm. That's how you'll get the most out of it.
Tenure actually matters. A more hungry person might have a lower tenure, but to leverage inside their organization, you want someone with higher tenure. It's crucial to find someone with high tenure who thinks your account is important.
However, their informal standing is just as vital because there are people with high tenure who may not be as effective in maximizing their organization's resources. Ideally, you should know some people inside the firms so you can check the reputation of the person in question and understand their ability to deliver results. This involves doing your own diligence of that person.
Another aspect is setting up expert calls before a project. You can gauge a lot by the number of experts they bring in, how flexible they are with your schedule, and how well prepared they are during these calls. This reflects the importance of your top person and how hard they've worked to bring the best experts to your call.
However, it's also important to ensure this isn't just a sales pitch. It's common for people who pitch for a project to be less involved later on. You need to ensure that the ones who impress you the most, and are most crucial for the project, are committed to it. This is to avoid a situation where you get all the fantastic experts for pitching the project, but come delivery time, they are off doing other sales pitches.
To be honest, what you have to remember is that it's a people's business on both sides. This means if you're nice to work with, people will do a better job. As an ex-consultant, I've seen that ex-consultants come in different shapes and forms. One type is those who want to push as much as possible to get the most out of the consultants they hire.
They might do things like moving the final presentation from a Friday to a Monday and adding additional questions, knowing the team will work all weekend to finish it. That approach is short-sighted. You won't be a popular client, you won't get the best people on your project, and you won't get the best output.
Of course, you should be firm in your expectations. If you've been promised something, you should ensure you receive it. Being assertive is important, but you shouldn't be a pushover. At the same time, it's like having colleagues in a regular organization. If nobody likes to work with you, you won't get the best results. If you're great to work with, and your company is great to work with, you'll see better results, even from external consultants.
Setting the external team up for success
For us specifically, and this may not be the best approach for every project, we teamed up all projects with internal people. We wanted the project's work stream lead to always be from Unilever. We asked the consultancy to create a mirror organization of ours.
They would be involved in all the work streams, depending on our knowledge gaps and where we needed support, and team up person to person. This way, when their report was submitted at the end, it wasn't second-guessing our work but seamlessly integrating with it.
We had to discuss this approach since some external teams were accustomed to being brought in as a stress test, having their own independent opinion and often second-guessing the work done by the internal team. We never found this approach productive. We preferred working together rather than in silos.
This didn't mean we weren't interested in their perspectives. If they had a different view, like on the potential in supply chain synergies, we didn't want to hear it only during the final presentation. We preferred their supply chain lead to discuss it with our supply chain lead during the project. Our goal was to incorporate their input and expertise throughout the project.
M&A Team structure
We had a core team that was full-time, and then we had what we called an extended team supporting us in specific projects. Rarely did we have people spending, say, 20 percent of their time on an ongoing basis. It was more project-based. Honestly, many people would do their day jobs and support us on top of that. We had a mix of both models.
For the part-time resources, we called it the “coalition of the willing”. We only brought in people who were genuinely passionate about the area and the work. They were driven not by tactical career considerations but by their passion, making things happen because they loved it.
Burnout is a real issue in M&A due to its high-paced, intense nature. You often have little control over the timing and workload of ongoing processes. This was especially important for our full-time resources, and we implemented several strategies to address it.
Structurally, we ensured that team members didn’t run consecutive due diligences. Ideally, someone would work on a strategy project, create a long list of targets, engage with one, conduct pre-diligence, due diligence, the transaction, and then lead the integration. This end-to-end process was our aim.
We made sure that if someone had just completed a major due diligence, they wouldn’t immediately jump into leading another. This structural principle was key. Operationally, we held standup meetings on a daily and weekly basis—15 minutes each morning and half an hour each week. These meetings were led by the most junior team member and focused solely on process, not content. Everyone discussed their priorities and ongoing tasks.
Often, team members found synergies between their work, shared knowledge, and identified others who had tackled similar challenges. This also led to reprioritization and reshuffling of work. We would ask who had too much or too little on their plate, and the team independently adjusted workloads. My role was more about listening and stepping in only when everyone was overloaded, helping to reprioritize our overall workload.
Overall and on average, M&A unfortunately does not create value. Most research supports this. The approach within M&A that creates value is programmatic M&A. I find three key principles crucial here. First, M&A is more than a transaction; it's an end-to-end process that starts with strategy and leads to integration.
Second, M&A is a capability, not a one-off event. This capability must be built within the organization, both personally and organizationally. Third, there is no such thing as a must-win deal. Falling in love with a deal can lead to poor business decisions.
Loving a brand doesn't mean you should own the company, and a fantastic company shouldn't be bought if the price isn't right. It's essential to have a large funnel of great companies, so you don't feel too dependent on closing every deal you work on.
Regarding integration and the end-to-end approach to M&A, one challenge is when people involved in the transaction are too eager to complete it, possibly because it's their job. However, if you're only responsible for the transaction, you might not be as concerned if it doesn't land perfectly. If you're also responsible for integration, you're unlikely to take on a company you don't want to integrate or derive synergies from.
A common issue is the separation between those who handle the transaction and those who manage the integration. The integration team often finds the business case overly optimistic and starts by renegotiating it, leading to value loss. If you're responsible for capturing the value you identify, you'll be more realistic about the potential value.
If you've developed the business case, you won't start by renegotiating it; you'll work to realize it. Hence, M&A should not only end with a transaction but also not start with one. If strategy and M&A are not connected, you risk targeting the wrong companies. You must own and develop the strategy to identify and evaluate the right companies properly.
Start up doing M&A
In a people-based business, like yours with 50 people, overcoming the hurdle at this size is a significant achievement. Up until reaching 50 employees, everyone can typically have a view of everything, be involved in everything, and feel a sense of ownership over the entire company. I bet all of your employees feel that way.
However, once you exceed 50 employees, this dynamic changes. It's no longer possible for everyone to be as involved, which can be extremely painful for many as they might feel less important or valued. They may feel like the business is moving away from them, even if it’s not true.
From a mindset perspective, breaking through the 50-employee barrier is one of the most difficult challenges in a people-based business. Once you're through it, and it sounds like you have fantastic growth, so you may be well on your way, you've overcome the hardest part.
My advice would be, while you're in the midst of this challenging phase, try not to overload with too many additional challenges. However, if you're finding it difficult to break through, sometimes it helps to push harder. Continue growing both organically and inorganically to get comfortably above 50. That way, continued growth becomes easier.
Organizationally, we started with a clear structure. If you're leading due diligence in my team and we acquire a company, you also become the project leader for onboarding or integration. We set a timeline of a hundred days for this phase. During these first hundred days after closing, you are in charge of realizing the value creation plan that was developed during the due diligence.
From a workstream perspective, if you lead a workstream before the transaction, you continue leading it after the transaction. This means you are responsible for implementing the contingency plan. For example, in the heavily regulated space we operated in, there was often a lot to address in terms of regulatory issues, especially with the younger businesses we acquired.
During due diligence, you would develop a regulatory plan, establish all necessary contingencies, and secure the required budget. After completing the transaction, you would work with the target company to implement these plans, onboard them with your approach, and ensure that the necessary actions were taken.
This approach applied to everyone involved in the pre-deal work for the first hundred days following the transaction.
Smart collaboration in the future
Our approach meant that we did not want to do a hard integration of the businesses we acquired. We acquired not just brands, but entire businesses and their business models, so we wanted them to continue operating independently. This means you can't integrate them fully into Unilever. At the same time, we weren't acting as a purely financial owner who only sets financial targets.
To create value, capturing some synergies was essential. We found that the best platform we built came from companies that shared fundamental characteristics but also had their unique strengths. The businesses we onboarded, like SmartyPants, Nutrafol, Onnit, Liquid IV, and Welly, were all very unique yet had intersecting points.
For instance, both SmartyPants and Nutrafol are gummy brands, so it made sense for them to collaborate on gummies. Similarly, Liquid IV and SmartyPants both sold a lot through Costco, which presented opportunities for collaboration on the customer side.
We identified areas that offered significant synergy potential, but these did not cover all the businesses. Instead of forcing a one-size-fits-all approach, we allowed companies to collaborate in areas that made sense for them. While we moderated these collaborations, we didn’t force any synergy capture where it wasn’t beneficial. We termed this approach as 'smart collaboration for the future,' and we had most of it all figured out pre-close.
Setting integration up for success
Including the end-to-end process, M&A is a complex capability. I took inspiration from my time at McKinsey on how to teach complex capabilities. M&A is not just a skill learned from a book; it involves behaviors, mindsets, and leadership as well as skills. We developed an on-the-job program with a train-the-trainer approach. Participants start by supporting in a work stream and eventually become gurus training new project leaders.
We focused on capability building and extensive knowledge sharing. After every project, regardless of whether it led to a deal, and it was always the team's decision to proceed or not, those who concluded projects were seen as heroes. They would present their learnings, the rationale for not proceeding, and insights not just skill-wise and knowledge-wise, but also in terms of methodology.
We implemented numerous feedback loops throughout the entire process to avoid reinventing the wheel. We also made sure to celebrate everything in line with our strategy. Whether it was deciding not to pursue a company, deciding to pursue one, or delivering on the value creation plan, all these were major celebrations. We aimed to consistently showcase and celebrate our people's achievements, creating a powerful feedback loop.