Alumni Webinar: “Grow or Die”: Strategic Mergers & Acquisitions


Good afternoon everyone,
my name is Eliza Parish. I’m the Director of Alumni Engagement for the Mason
School of Business. I’d like to welcome you to the alumni webinar: Grow or
Die. Presented by fellow alumnus David Braun. These webinars are offered as part
of our pledge to provide you with opportunities for lifelong learning and
professional development. Before I introduce our presenter,
Capstone CEO David Braun. A note on the CPE credit offered for this webinar,
Capstone is registered with the National Association of State Boards of
accountancy and is a sponsor of continuing professional education of the
national registry of CPE sponsors. Throughout the webinar some
multiple-choice questions will be asked, there is no right or wrong answer but we
ask that you respond so we can appropriately frame the discussion today.
Because this is an NASBA requirement, to receive the CPE credit you must answer
all three poll questions. David Braun is the founder and CEO of Capstone, a
consulting firm specializing in privately held not for sale acquisitions
and the author of Successful Acquisitions:a proven plan for strategic
growth. The booklets lays out a detailed road map to acquisition based on over 20
years of firsthand experience in steering dozens of transactions to
completion. Since 1993, David is educated over 20,000 senior executives and
financial professionals on the subject of MA. His expert insights can
be found on Fox Business News, CBS MoneyWatch, the Financial Times, and CNN Money. David earned his BBA from William and Mary in 1987. I’d also like to point
out that David is offering all alumni a free subscription to Capstone Webinars
for one full year and that’s 12 CPE credits for those seeking them. More
information regarding that will be included in the follow-up email and one
more note before I turn this over to David at 12:15 there will be a
test of our alarm system and security system here at William and Mary.
Hopefully you won’t hear anything but if you do Williamsburg is not
under siege, it’s simply a test. David can I turn it over to you? (Braun) Thanks very much
Eliza, I appreciate that warm welcome. Hopefully nothing that I say will be
alarming either and cause any undue stress on anyone. Hey, it’s a delight to
be here and thank you for the invitation to speak. I’m humbled by the number of
people that have signed up today and excited to talk with you today about
mergers and acquisitions. And you know, I want to make a couple opening comments.
First of all, obviously if anyone has questions as we’re going through this
you know please chime in on the chatline there. But, one of the things
about this topic that I’m very passionate about is that, you know, I
think often people see acquisitions is something that only the big guys do. You
know, it’s the big fortune 500 companies or you have to have you know huge
amounts of war chests of cash in order to do this and the reality is is that
the vast majority of transactions are small to middle-market acquisitions. We
just hear about the the very large ones. And acquisitions are a tool for helping
us to think about growth for our companies but I want to put that also
into context for our conversation today and what I’m going to talk with you
about are your five options for growth. Acquisitions is one of the external
growth options but it’s only one of about ten, even within external growth. So,
I’m going to talk with you about your five options and I think you know part
of it is to share with you, especially those of you that are in senior
leadership positions or perhaps owners of companies that maybe feel frustrated
about your own growth prospects in the marketplace, that you have lots of
options out there and in many cases there may be ideas that you hadn’t
thought of before. So, that’s the first thing that we’ll talk about. The second
thing I want to share with you is about really how emanate might be a tool that
could be useful for you and I’m going to share with you how we look at mergers
and acquisitions perhaps a little bit differently than the traditional model.
I’m going to share with you kind of our approach which is very demand driven and
then the third thing I want to share with you is in light of trying to keep
this very practical and not having to just be a webinar
listen to and you forget about tomorrow but I really want this to be something
you can take back and start using inside of your organization’s. So, I’ve put
together a number of tools as part of this process and these are tools that we
use with our clients and I’m very happy to share with you and hopefully they can
be things that you can take back. You know, we want this to be a learning
process as a Eliza said in the introduction and so we hope that
you’ll be able to take things away from this conversation and actually implement
in your real life. So, I would like to start with a little bit of a snapshot of
what’s going on in today’s marketplace because I think it can kind of help
frame the conversation and the discussion. So, here’s a snapshot of the
activity that’s been going on for the past you know 20 years or thereabouts–
and I want to mention a couple things to you about this. First of all you’ll
notice that what I call the two Twin Towers there. And there were two kind of
specific points in time where M&A activity you know really was at a
watershed. The first one was in 1988-89, excuse me, 1998 1999 and 2000. We had two big things that were going on at that time. You may recall one is y2k. Which was
a lot of fear obviously that was surrounded that and a lot of anxiety
because it was unknown and then the second thing was the dot-com era or
error as some people like to call it. Where there were companies that were
being bought that not only didn’t have any profits, they didn’t even have any
revenues. They were just ideas so there was a lot of transactions that were
going on that a period of time that was very much in my words but had become kind
of a feeding frenzy. Then we went into the trough on the downside because of
the kind of the repercussions of that but also because of course 9/11
and 2001. But then we went right back up and we saw that there
was a lot of capital available in the marketplace. It was relatively
inexpensive and we saw again another wave of M&A activity. Again kind of keep
in mind to personalize this for all of us, what was going on the residential
mortgage. Industry well a lot of the same kinds of things were going
in the corporate M&A world also but since then what we’ve seen is a pretty
kind of malaise that’s been going on and we know that that’s kind of our first
marker that not normal and that’s not going to last. We know historically
we can take this information back to 1925 and we know
historically that M&A activity has a very strong correlation to the equities
markets. Now it’s not terribly surprising. As stocks of companies increase then
they get more collateral to get more confidence they go out and they make
acquisitions as things go down then they start to retreat. What’s been going on in
the equities markets here in the US since 2009 but pretty strong. And what’s
been happening in the M&A market since 2009, not really a whole lot and we’ve
just recently just really in last year in 2014 really started to see more of a
move in M&A activity so that’s kind of our first marker in terms of knowing
that there’s going to continue to be by all signs a continuation of M&A activity.
Number two is that we have record amounts of cash still on the balance
sheet of companies. Both public and private companies record amounts of cash
on the balance sheets. That’s not sustainable, that’s just not going to
continue to happen. That you know and we know that that cash is going to start
making its way into the marketplace and part of it is going to be through
mergers and acquisitions. The third marker is that banks are eager to lend
and we’re starting to see more what we call covenant-lite types of transactions.
Where banks are are being more aggressive about lending for corporate
transaction. So, those three things going on among other items as well really
strongly indicate that the M&A activity is going to continue to increase and
we’ve certainly been seeing that. Now, why is it important to you? How does that
relate to you? Well we know that the number of deals has been fairly flat but
it’s still again up significantly in 2014 versus the previous five years.
But the dollar values are going up so we’re seeing much larger transactions,
the ones that you’ve been reading about in the newspaper. But what it also means
for most of you and I don’t care whether you’re a small company or a large
company a public company or a private company manufacturer or service provider.
I’m pretty confident that pretty much every one of your industries is going to
be impacted by M&A if it hasn’t already. And so whether you are a participant of
it or not I think you ought to be an informed observer because it’s going to
be impacting your business in my opinion. So, kind of the the other indicator of
what’s going on in the MMA world is private equity. There are the
professional investors of the finance, years of acquisitions for their own
portfolio and again what we’ve seen is is that they have not been as
significant as they have in the past. They’re starting to come back pretty
strongly. We know that this M&A market has really been much more about
strategic acquisitions as opposed to financial acquisitions and so you know
again we’re starting to see some of that private equity money coming back into
the marketplace. So, we were pretty confident that this M&A activity is
going to continue here at least for the foreseeable future. Couple deals I want
to mention to you, just to kind of help set the table and have you be thinking
about M&A activity and I wanted to pick ones that you know you’d be familiar,
with names that you’d be familiar with, so you could you know read about and
follow these as time goes on. The first one is CVS and Target and there’s
really some interesting things or there’s really kind of three things
going on there that I think are worth talking about. Number one, is it’s an
opportunity for CVS to acquire this business. It’s a little bit of an
inversion if you will. I mean they’re they’re becoming the outsourced arm for
Target. But what that allows CVS to do now is to go out and to expand in areas
where they haven’t been so it gives them a pretty strong leg in markets
geographically that they haven’t been. But it also gives them a pretty quick
foothold into a lot of real estate that they weren’t in before
or they’re going to brand that under that MinuteClinic brand name so it’s
going to give them a pretty big boost. From that perspective again, I’m talking
strategy here not really about valuation whether they paid the right amount for
it or not. The second thing though is that remember I mentioned to you at the
beginning I’m going to talk with you about your five options for growth. Well,
one of the things that Target is doing here is their domestic that’s actually
an option for growth. One of the five options for growth and so part of how
Target is growing is actually by divesting and that may seem a little
counterintuitive but the reality is is that they’ve recognized that this is not
the right business for them to be and this isn’t really where their core is
and whether their best strength is and so they’ve decided that having CVS as
their partner if you will is going to be a much better strategy for them. So, again
keep that in mind I’m going to talk a little bit more about that here in a
second but the third thing I want to mention to you about this transaction
that I find interesting is is that in addition it to it being an acquisition
and a divestiture, it’s also a co-branding. And that’s a very unique
concept so you’re going to now be able to go into a store and go to
MinuteClinic and then you may you know buy some groceries or some other
merchandise or just the opposite you may go into Target to buy some merchandisers
from clothing and decide that you know MinuteClinic was something that makes
sense for you. So, they’re not competing with each others they’re really
co-branding each other from a growth strategy standpoint so that’s an
interesting concept that we always try to look at in terms of other ways that
we can see value in putting transactions together. The second one I want to
mention to you is the Charter announced acquisition for Time Warner Cable. Now,
you may recall that Comcast was the hopeful bidder for Time Warner and that
deal – you know- really ran into quite a few regulatory hurdles which Charter may
have as well. But why is this important is because you know whether we like to
to see it this way or not the reality is is at this cable TV business is
recognized as being a commodity business. They’ve got a lot of threats to them,
they’ve got disruptive technology, they’ve got consumers that are more
demanding, they want things unbundled, they’re going to go through broadband,
they’ve got Netflix and Apple, and other alternatives for their
viewing options. And so what Charter is recognizing here and what Comcast also
recognizes that, hey the real focus here is going to be on market share we’ve got
to be a major player to survive in this marketplace so this will now
put Charter in the number two position behind Comcast. But they see this as a
way to make sure that they stay viable in the Marketplace. It is again under a
lot of threats so a very different kind of reason, a very different kind of
strategy in terms of how they’re going about, and why they’re going about this
acquisition. The third last one I want to mention to, let me just mention one other
thing that’s not on this sheet about Charter so because it’s been in the news
a lot here recently watch the same thing that’s going on now in healthcare. In
particular, with health insurance. So, put your markers on health insurance and see
what’s going to be happening with the consolidation way that’s starting to to
play out right now on the health insurance side. So, another one kind of
similar concept there to keep in mind from a strategic standpoint those as
we’re thinking about M&A. The last one I’m going to mention to you is about Verizon
AOL. So, the idea here is is that Verizon sees AOL a much smaller company but a
company that brings some unique attributes to Verizon and in particular
it’s about mobile technology. In particular, it’s about advertising and so
again very different kind of strategy. They’re trying to leverage this
technology, this capability that AOL has put together that Verizon wants to be
able to adopt into its platform for better growth potential because they’re
just not seeing the same kind of growth in their core business. So, again
trying to set the table for you to see that there’s lots of different reasons
why we make acquisitions and part of it is is about being thoughtful about what
are some of the reasons why you may think about an acquisition and how you
may go about doing that. So, let me move us along then to start. Oh, I’m going to
move us right along to a poll question. As Eliza mentioned, we have to do these
poll questions for you to be able to get CPE credit, there are three of them.
Here’s the first one so hopefully it’s up on everybody screen and I have an
alert on here for our emergency notification system.
I just cleared it out. All right, we’ll give everybody just another minute here
to fill out their poll. Okay, so I’m going to read a question: strategic buyers are
adding to their existing business examples to this financial buyers buying financial return.
Yes, oh okay so explain the difference. Yes, so Christine I think
it is asked that question the difference between a strategic versus a financial
acquisition. So, the real concept there is that a financial buyer doesn’t bring a
lot of necessarily real inherent value they bring maybe capital and capital
allocation knowledge but they don’t necessarily bring specific knowledge
about the technology, the competitors, the customers. Whereas a strategic brings
that to bear and there’s two things in particular when we think about a
strategic adding value. First of all a strategic should always add more value
than a financial. I mean that’s just, I mean that’s just sort of academic. But
when we talk about a strategic one of the key things that we talked about in
acquisitions is this word synergy. Which you often hear used and frankly overused
but one of the benefits of a strategic acquirer should be that they really add
value synergistically not just on cost reduction Because there’s two kinds of
synergy. you can either reduce costs or increase revenues but the real value in
a strategic acquisition is that they should bring value on the revenue growth
side. So, it isn’t just about cutting costs because you don’t do that once.
It’s really about the ability to grow the business and that’s really where a
strategic done right really adds a lot more value to a transaction. So, hopefully
it answers a question if not ask again and do I need to end this poll? I’m just
asking here in the studio. Ah, there we go. Okay, and did we post the results? I
think everybody’s seen those. Okay, all right so thank you for the poll and you
can see we’ve got a wide mix of people on the on the
Webinar today. So, consequently I got a unlevel playing field here so I want to
make sure that everybody comes along and especially for those of you that are new
to the topic. You know, so I’m going to try not to use too many acronyms and I
want to make sure everybody gets the benefit of the conversation so here’s the headline for the conversation for the day and it’s
something that you know I feel pretty pretty strongly about you know grow or
die. I sometimes that people push back though and they say I don’t know if I
agree with that because I don’t know that getting bigger is necessarily
better and I agree with you on that. You could change one word on this instead of
grow or die you could say change or die and I think part of it is is it isn’t
always about revenue growth. This matter of fact we took one of our clients from
about 550 million dollars and we grew them to 285 million dollars and you may
be saying, hey that’s not the kind of growth that I’m looking for, thanks very
much. But the reality is a we quadrupled their cash flow and we put
them in a much stronger position for re-directing the future growth of their
business. So, much like Target they’re redirecting their growth by partnering
and selling divesting that business to to CVS. So, I still believe that you got
to grow or die and part of it is really thinking about your business and what
it’s going to look like 10 years from now because I bet it’s going to be quite
a bit different than it looks today. So, on that concept of growth what I want to
share with you or what I believe are the five options for growth and what I found
over the years is that if I started to really think about and organized how
companies think about growth. Most commonly people think about it sort of
twofold. Number one, organically you know I can I can look at my internal focus
and on to talk a little bit more about that or two I can focus on
external and most people readily say organic is hiring salespeople ans
external is about buying companies. Well, I think it’s actually that the potential
for quite a bit more in each of those areas and I also think that there are
three other areas that are often overlooked. So, let me talk a little bit
about each of these areas. Number one is organic. Now organic certainly can
be about hiring more sales people, going to more trade show. But you know it can
also be about looking at ways to educate your consumer more so for example we’re
right here you know in the halls of William & Mary and one of the things that
we do for some of our clients and their industries is we get right into the
college’s. You know whether it’s an engineering school or an architectural
school or health sciences school or even a business school and we want to talk to
the students and the professors about maybe things that are going on the
industry and changes that are going on in terms of how technology is evolving
or how purchasing is done differently or what might be evolving in terms of how
the industry may be changing but we want to educate the consumers. I just got back
from a conference in Germany last week and one of the things that we’re working
on developing is more education about you know biofuels and biodiesel and
we’re getting we’re getting right into the not only the academics but also the
regulatory side, the government side to educate people more about how this can
work and how we can foster learning and better participation that space. So, there
are things beyond just kind of the immediate let’s go do more advertising
or hire more sales people that we can involve ourselves from organic growth
standpoint. May take a little bit longer but I also may have significant
long-term impacts. There are more subtle things that we can do so
sometimes we look at things like accreditation or other ways of you
know branding the products that we have to have people in the in the marketplace,
whether they be consumers or business folks you know, understand the
differences between the products or services in the marketplace. So, there’s
some way you know think of UL listings as a way to you know kind of help
differentiate and we work a lot with trade associations to help come up with
some of those.You know, so a lot of you on this on this webinar today are CPA’s.
You know that’s a branding, that’s an accreditation. So, we can take that
concept back into our industries and actually have ways to think about how we
can better give the consumer or the businesses confidence that the products
or services that they are buying meet a certain standard. So, there’s lots of what we
do on the organic side that you know can be a little bit longer term, a little bit
different than just trade shows or hiring salespeople. The second one that I
want to mention to you is about external growth and I’m actually going to go
forward then I’ll come back. So, external growth, you know, again I think a lot of
times owners can be intimidated because they think man I don’t want to go buy a
company. I don’t have the money to do that. I don’t have the resources and all
have the staff to think about that. I don’t know how it even begin to think
about that process. Well first of all let me back you up a little bit and slow
you down a little bit in terms of even thinking about external growth because
they’re an awful lot more options available to you beyond just going out
and acquiring a company. And so when I put together for you on this slide here
was really you know looking left to right you know kind of the the evolution of the things that you can be thinking of. Our tools that you can be using
as you think about external growth. So, all the way on the left is you know,the
the least amount of commitment if you will. Could be a handshake, it could be
you know a channel partner, or a contract that you agree to you know resell a
product or carry a line or that you’re going to bundle products and that’s you
know generally low level of commitment but you know some level of commitment in
terms of working together. We can move a little bit further there right then and
we can say you know we’re going to be maybe exclusive; we’re going to be the
only one that carries this product or we’re going to be the only one that has
at least this branded product or we’re going to create a special product for
this marketplace and we’re going to be the ones that are going to be able to
distribute that. I can move further and say we may do a licensing and we
certainly do this a lot with technology and software in today’s environment or
we can maybe move next there to minority investments. And this happens to be one
that I think is a very unique and can be a very powerful tool especially in
today’s environment and let me just give you, we get spend a whole hour or
actually a whole day just talking about minority investments, but let me just
seed you with a couple or sprinkle a couple of ideas with you about why I
think minority investments can be an interesting tool. First of all it can
help reduce risk and a lot of people say yeah
but I want to own the company and I don’t like the idea of being you know a
minority owner of a company. Well, first of all I would never want you to be a
minority owner of a company that’s just going to be passive because I don’t
think that’s generally you know it can be a good investment but that’s not
really what we’re talking about here. Second of all, I always wanted to be
someone you’d want to do business with anyway so it’s a company that you
would find reason to do business anyway this is just a stronger level of
commitment and then the third piece is is we generally don’t want that in
minority investment just to stick or sit I should say. So, we generally want to put
calls options around that so that we can become the majority and ultimately the
100 percent owner. But think about this in terms of the power that
this might have. First of all, you might be a very different buyer, investor then
everybody else that comes in talks with this owner. So, one of the things that we
have found is is that Grade A, you know the top quality companies, see this as an
opportunity well, I don’t have to sell everything because I still see a lot of
growth potential in my business but man I might be able to take some chips off
the table. I might be able to get a great partner that’s going to help increase my
likelihood for success and I’m going to get a second bite at the apple over the
next you know one – three years maybe five years. But that can that can be a
very compelling conversation for both sides. But also from a buyer’s
perspective now I might reduce my risk because just investing all on one
company, I may be investing now in two or three or four maybe five companies and I
now keep the proverbial monkey on the back of that owner because they’ve got
skin in the game. So, I keep them engaged in this business to want to continue to
help with integration, to help with growth and if I’ve got challenges on
valuation where I’ve got a real disagreement on valuation and oftentimes
in the investment banking world we use what’s called an earn-out. Well, how about
if I use a true up instead of an earn-out? So, I’ve got a formula in place
so that over the next call it three years we’re going to pay you on a
certain multiple, we’re going to do it on an audited financial basis of EBITDA. And
now if you continue to grow that business guess what? You’re going to get
paid for it and it’s going to be fair on both sides and the rules are going to be established ahead of time and so
you know we know that there’s going to be a lot of incentive to help grow this
business over. Again as a buyer helps reduce my risk. So, I’m not suggesting
that it’s for minority investments that for everybody but I can tell you it can
be a very powerful tool that I think is often than too often overlooked. So, let
me keep moving down we can move to joint ventures which is the idea of setting up
a new company; that’s what really makes us unique. It’s about equity and a new
company where you have two or more it doesn’t have to just be two companies 50/
50. In fact we like ones that have more than two companies. We don’t like 50/50 we
find that to be problematic but now here’s my opportunity to create a
company that’s maybe specifically designed to address a specific
technological need or specific customer or specific geographic location and I’m
assigning resources whether it be people or technology or locations or
manufacturing facilities. But I’m going to assign those and direct those to this
business and again it doesn’t have to be 50/50. You know, sometimes we do them in their 70/10/10/10 and the distributions don’t have to all be equal based upon
equity. So, there’s lots of creative ways that we can have joint ventures that are
that are a tool for us again in some cases to address a specific market that
really needs a lot of focus. I can also move to a majority share so this is less
than a hundred percent and a very common one is 80 percent. So, that you know
from accounting standpoint it can be helpful for intercompany debt and
consolidation and financials but you know 80/20. So, now I keep the owners again still I keep them engaged I may keep the management team involved in an equity
position and I’ve got them now hopefully motivated to want to continue to grow
this business because they’re going to benefit from it as well and then of
course I can move over one step further and I can buy a hundred percent of the
company. So, none of these are always going to be the right answer and none of
these are always going to be the wrong answer and I think the point is, is that
you’ve got lots of options available to you from an external growth standpoint.
Doesn’t have to just be binary all or nothing and so I think external growth
can be very powerful if we kind of free ourselves up to be creative and thinking
about how we might put some of these transactions together.
So, let me go back I’m only on the second of your five options, the third one is
to exit the market. Now, you know, again sometimes that sounds contrary to you
know thinking about that. That’s a growth potential but you know sometimes we need
to get out of businesses that we’re in you know maybe the time has come
for us to part ways with that business that we’ve been holding on to just
because we’ve always done it that way or we’ve always been in that business. You
know, look at the Target. You know I guarantee you there were a lot of heated
conversations among board members and senior management that’s saw that
as a weakness or a retreat and I frankly see it just as the opposite. I see it as
a strength and a recognition that hopefully they’ve got a stronger partner
coming in that’s going to actually help grow that business and be better for
Target overall. But I think we have to be honest with ourselves about thinking
that maybe some of our businesses if not all of our business, maybe is better in a
different home other than the one that it’s in and it’s a hard
conversation to have. But I think it’s one that we have to consider as we look
at our business honestly. The third one, excuse me the fourth one, then is
minimize costs. I call this the jellyfish strategy and the idea here is is that by
being a low-cost provider and don’t confuse that necessarily with being the
low-cost seller but by being a low-cost provider I can survive. I can survive. So,
if you know much like a jellyfish if the tides go down or out you know I go out
and down with it. If the tides come in and go up and I rise with the tides. I
don’t have a lot of natural predators I just sort of go along with the market
but what it allows us to do is to be able to weather the downturns like the
ones that the one that we had here most recently in 2008-2009. You know the
companies that survived really well on that with the companies that had very
lean structures and really were able to if they hadn’t already they were able to
minimize their costs. So, I think it can be an effective part of a way for us to
make sure that we’re positioned well for long-term growth and then the last one I
want to mention to you is to do nothing and in some cases you just need to you
know just sort of business as usual, keep doing what you do. Do it well. But the do
nothing is the one that scares me the most if you do it unintentionally.
Unintentionally and so I think if we’re deliberate about saying, hey we’re not
going to do anything right now. We’re just going to focus in on keeping doing
what we’re doing. I think that’s fine but what I struggle with and I have
seen this a fair amount over the last couple years is one that there’s a sense
of fear or paralysis. I don’t know what to do so consequently I do nothing and I
think in many cases the doing nothing means that its people are doing stuff to
you. Whether you know it or not stuff is happening in your marketplace and things
are happening to your business and so that’s the one I, you know, get if you do
it intentionally great but the unintentional ones are the ones that I
worry about the most. But I think you can see that you’ve got a whole toolbox of
options available to you when you’re thinking about growth and part of what
we like to do is take an inventory and what I would encourage you to do in your
company’s is get your senior leadership to take an inventory of what are you
doing and what have you done and what could you be doing? So, kind of past,
present, future in each of these areas and get everybody’s input on what what
has happened past, present, future in each of these areas and start mapping out. I
think you’ll be surprised first of all how many things that you’ve done, number
one. Number two, how many things you could be doing and number three about kind of
a fresh perspective of thinking about growth. I think it liberates people to
realize, man I got a lot of options. Now what I need to start doing is thinking
about how do I prioritize them? How do I you know, what I often say to our clients is that you know your challenge is not lack of opportunity. Your challenge
is lack of focus and how do we get more focus on the growth opportunities that
are going to have the most potential for us? So, let’s keep moving down further to
start talking about how you can do that. So, one of the first things you got to
think about is and we’re going to focus today on that second one, the external
growth. And I use this word acquisition but think of all those things that I
mentioned to you on that pendulum of options available to you. Think of it you
know simply the simplest way to think about is the amount of equity or
investment commitment that you have. You know, a little bit of commitment a lot of
commitment a whole bunch of commitment. But why acquired? What do we think we’re going to get out of an acquisition that we’re
not going to be able to do from an organic standpoint. So, I put together
here at a table for you just to kind of highlight for you what some of the main
reasons are. You know the primary reason that we look at historically and
certainly in today’s market is top-line growth. You know, organic growth
is pretty anemic. You know, the ability to capture especially in the US where we’re in the
maturing market for many of our industry’s, most of our industries. So, how
we going to get any more top-line growth? Just add more sales people? You know, I’ve
seen that I’ve heard that a lot and it doesn’t always pan out quite that way. So,
top-line growth is probably one of the primary reasons but there are a number
of other reasons that you see listed there. You know, technologies is a
critical one. Maybe it’s a geographic expansion that you need to be focusing
on. Maybe you’ve got seasonality you’re cyclical locality to your business model. So,
your capital investments are pretty inefficient. So, we need to you know
stabilize that from a financial standpoint more. Maybe it’s that you need
to add talent you know. We’ve been seeing that we call those group hires, you know.
If you look at Yahoo I think it’s a very interesting story. I’ve been interviewed
a number of times about it and what Marissa Mayer is done there from a
collection of really top talent on mobile technology and now the question
is how to get all that integrated and going in the right direction. But that
was really much more about buying people and collecting that thought leadership
together that it was really about buying you know financial revenues because it
really weren’t significant ones there when you look at businesses like Tumblr
for example. But you can see there’s a lot of reasons there on the bottom right
there I mentioned to you about to watch out for. One are egos. Ego sometimes
get in the way. I actually don’t mind egos and I’ll tell you why. First of all,
egos tell me that there’s at least a bias for action. There’s a bias for
action and so my job at that point then is really to focus in on how do I direct
that bias and get that action head in the right direction. So, but I’ve got
someone who’s willing to make decisions willing to take risk. You know my job is
just to make sure that we get the right transaction
in front of that front of those folks. The second one, it worries me more and
that’s lemmings. That’s the follow the leader you know everybody else is doing
it so we better do it. Well, let me tell you something if you’re now starting to
think about acquisitions because your competitors have been doing it for two
years you might want to think about a different strategy and I’m not saying
don’t do acquisitions. But what I am saying is that the acquisition
strategy that they’ve already started deploying you know you’re probably five
years behind the curve. And so lemmings are ones that worry me because they just
sort of follow the leader and that’s not a very pleasant view when you’re on the
trail because the view doesn’t change a whole lot. So, I encourage you if you find
yourself in that position I’ve got to think really strategically about how we
might be able to now leapfrog that and think even differently about how to
position yourself in the marketplace. But why are all these important? Well, I think
it’s important because you need to figure out what your one reason is. What
is your one reason for acquisition? My best analogy for you on this is think
about HR. When you’re going out and hiring people for your business you know
you hire a controller or you hire a head of sales or you hire receptionist or you
hire a new IT person like Dolores is sitting here in the studio with us. These
are all really talented people but I bet if I asked Dolores how much she gets
involved in operations outside of IT or does she get involved in accounts
receivable or accounts payable or does she get involved in marketing? You know
my guess is she’s shaking her head no my guess is she doesn’t do a whole lot of
that right. Because she’s pretty focused in her area but when you hire people you
have that one purpose in mind. You know we get very specific about what we’re
looking for them to do, it’s the same thing for acquisitions from my
experience and here’s what I see happen. In many cases is we create this long
list long list of reasons why we need to make acquisitions. Almost as though we
have to justify it and what I tell you is I have found from my experience the
ones that are most successful are the ones that have a very specific reason.
Hey we need this geographic expansion we need this technology, we need this
brand name, we need more revenues but they’re very specific about what they’re
looking for. My test for you on that would be this: go look at a lot of the
M&A activity that’s been talked about here recently. Read the press release and
compare that for example to the AOL Time Warner press release of January 20, 200. it was about 11 pages long and tell me if you can figure
out what the one reason was. And again I’m not saying whether it was a good
strategy or bad strategy I’m just saying do you get it. Now go look at what Warren
Buffett announced in his acquisitions like when the automobile dealership
acquisition and read what he’s talking about and read what his one reason is
and just do a little bit of comparison about what’s going on in the current
marketplace and what’s currently in the media about M&A activity. And my usual
test is if it’s very simple and it’s one word and I can get it then I have a
higher degree of confidence that acquisition is going to be successful
because people in that company get it they know what the focus is. We don’t
need to dilute the effort let’s actually concentrate the effort. So, the real key
takeaway here for me and hopefully for you is is that we really need to have
that one reason and guess what if you’ve got more than one reason? You’ve got more
than one acquisition program that you’re talking about. Just like if you’re hiring
more people you got more than one job posting for those positions. So, I want to
keep getting us more specific about thinking about mergers and acquisitions
and what I like to compare and contrast a little bit of the what I call the old
way versus the new way. Now, the traditional approach or what I call the
old approach is very much focused on companies come into you, predominantly
for sale businesses. You know companies they frequently, you know, maybe their
competitors or customers or suppliers but the people in the marketplace that
approach you typically or you know and approach them and their for sale. And you
react to that. Our natural tendency is to react to that. As a matter of fact, what I most
commonly hear from clients is that you know, let me see the financials. And
so you know we start looking at the financials then I pause and just a
little bit I said now let me ask you a question do
you care at all about what they do? Oh yeah, yeah , yeah, yeah. Well maybe we shouldn’t start with
the financials. Maybe we should start with what they do and does this fit with
what we do and what we want to do moving forward? But for whatever reason when
companies come to us and they’re for sale, we get this you know offerendum
in them you know we kind of get a little salivation going on it’s kind of like
being a you know auction house and you know it’s just hard to keep your hand
down you want to bid on it and we get excited because we can get data and we
can start looking at analyzing and then we make a decision and we either decide
to move forward with it or not this is a very common approach but we call it the
reactive approach. I want to suggest to you a different way of thinking about
acquisitions and this follows much more about a demand driven approach and
rather than starting on the supply side rather than starting with you know the
customers or competitors or who their companies out there let’s focus instead
on the customers that we want to serve five years or ten years from now. And I
don’t care whether their customer a client of yours today or not what I want
you to think about is who’s the customer a client that we want five or 10 years
from now and how we going to serve them? And then what I want to do is I want to
make sure we spend a lot of time doing research but secondary research as well
as primary research talking to those people I want to understand what’s going
on that marketplace and this is part of what we have to do a little bit of
thinking for them you know Henry Ford said, if I’d ask my customers what they
wanted it would have said a faster horse. They didn’t know about a mechanized
towards well sometimes we got to think for our customers or our clients the
same way and so part of it is is thinking about those customers and
having conversations with them about what they’re doing through the lens of
what I do what I’m good at what my core capabilities are what I expect to be
doing five or 10 years from now. And then what I’m going to do is I’m going to
have that customer and that marketplace start directing me towards who are the
people that they look to to help solve these problems. You know who are the
people that they respect and there’s two key things that I’m getting by doing it
through this process. One is I’m starting to demand side and
I’m really getting a much greater appreciation for the due diligence of
what’s happening in that marketplace. I got to tell you, I find when I go to
meetings with owners of companies that they’re going through this process and
many cases I know as much if not more about that marketplace then maybe they
do. They know their business much better than I do but I may know more about the
marketplace than they do because I’ve got a much richer and broader a depth of
knowledge on that marketplace. So the first part is about due diligence but
the second part is I’m now having the customers direct me to my acquisition
candidates. So, I’ve had a certain level of screening that’s happening because of
the process changing as opposed to in the reverse, in the traditional approach
I find the companies now I got to go talk to the customers to do my due
diligence to really understand the marketplace in how their position. So I
totally change the way that we think about acquisitions in terms of how we’re
even finding the companies that we want to approach. I’ve really changed the
paradigm by following much more of a demand driven approach as opposed to a
supply driven approach. Now what makes a good acquisition? Well I think from my
experience it’s all about having a disciplined process. So, let me kind of
get you to think for a minute about your own business. How many of you have an HR manual? I’m going to guess most if not all of you probably do and if i asked you to
walk me through how you go about hiring people and how you hired the most recent
person in your company. You know you probably quickly rattle off you know we
put together a job description and you know we went through a lot of detail
about that, maybe we hired a recruiter, we did a posting, we brought people in. First of all maybe reviewed resumes, did some phone interviews,
brought people in, and then we you know did figure out who of the ones were
that we want to make an offer to. And then we made offers and we brought
them in. Well, there’s a lot about that that really resonates with acquisitions.
So, if we think about the process for acquisitions my shorthand for you – especially those of you that are not familiar with this
process , with M&A – is think about hiring. Because M&A is a lot like HR, it’s a lot
like hiring people and so what I’ve come up with is three major phases for
thinking about M&A. The first phase is about building the foundation, that’s
really all similar to the hiring process. What’s my job description? What’s my one
reason? What’s my vision for what it is that I’m trying to create for my company How much money do I have to spend? Much like you put a salary or benefits
package together in HR. How am I going to go find these people? How do I know a
good candidate from a bad candidate? What are the KPIs going to be? Who are they
going to report to? What’s the branding going to be, I.e. the title? So, much like HR
and hiring I can do the same kinds of things when I think about M&A. The second
phase in is about building the relationship. How do I go find good
people? Right? Now do you just rely on people that are coming to you or do you
actively go out and recruit people and candidates, especially for your really
senior positions or as technically specific positions? I’m going to guess it
most of you if not all of you go out and spend a lot of time trying to find good
candidates. Well, it’s the same thing in acquisitions and let me give you an even
closer example. The last person that you hired, did they have to quit a job where
they working somewhere and they had to quit a job and maybe move to go work for
your company? That’s a big relationship that you just built. You get
someone to move their family, sell a house , move? Well that’s no different than
buying a not for sale company. You’re now convincing this owner that they
should be interested in wanting to become part of your organization so I’ve
got to convince someone that has a presumably good job, to quit that job and
buy into your vision. Well, the same thing happens in acquisitions. So, you hiring a
person that is employed at another company is the same as a not for sale
acquisition. The third phase in is about building the transaction of building the
deal and this is what everybody likes to jump to. But this is, you know, the letter
of intent well the letter of intent is very similar to an offer letter.
Then you do some negotiation on maybe the terms. Then don’t you do background
checks perhaps or reference checks on people that you hire? That’s due
diligence. Then you get the final agreement you know that maybe you have
an employment agreement or at least a final offer letter that’s the deal
structure and then don’t you bring them on board and you may be a training
program,an onboarding program you know, that’s integration. So for all of that
when we think about HR you know you’re hiring people that you bring on board
typically for no money down, you pay them maybe 24 or 26 times a year most
often, and you can get rid of them if it doesn’t work out you expect pretty
immediate results and for all that we create a lot of processes. We’ve got big
thick manuals and lots of people working on this. Now I’m talking to you about
spending millions if not tens of millions ,maybe hundreds of millions of dollars. My
question to you is where is your process? And that’s really what I think is
empowering about M&A is it’s creating a process for thinking about how you’re
going to make the best of your investments much like you do when you’re
investing in people. So, this is the process and what we have for you is just
a template that we created at my company on that talks about all these steps and
I talk a lot about this in my book that you know I want people to be able to see
how to go about doing this. I want you know I didn’t want to hold anything back;
I want you to see how you go about doing this and now the key is to create the
process that works best for your company. Using your nomenclature, your vocabulary,
and your steps in your organization but it’s really about creating that kind of
a process and if you find yourself getting stuck my encouragement to you
again is think HR. What would I do if I were in HR? If I were
hiring someone and I was stuck at this point in the process and I think in many
cases going to help you get unstuck. Okay, so who then are the people that get
involved in all this and there’s two primary ways that we think about the
people that are involved in this. The first is your internal team and that’s
much more than just the CEO and the CFO on the second is
external team. So, the internal team I think most often works most successfully
if you include all the functional areas of your business. Now again, I don’t care
if your public, private, small, large manufacturer service provider we all
have about half a dozen areas in which we run the operations of our company.
Here you get finance and accounting operations and IT and legal. Maybe
customer service but we all have those kind of half a dozen or so areas of our
business. I’d like for each of them to have a seat at the table. I want each of
them to have a seat at the table. To understand why we’re doing this, why this
makes sense, how they need to play a role and there’s really a couple reasons for
that but the most important reason is because they’re the ones they’re going
to be most critical from an integration standpoint. See, when the dust is settled
and you have to be successful with integrating this business it isn’t the
CEO or the CFO typically aren’t involved. The people get hit hardest on this or
the functional areas of the business. You know HR, accounting, those people get HIT
real hard. So, we found is if I can involve them earlier and I can do a lot
of the up the planning and front load it as opposed to wait until I get to the
third phase, it goes a lot more smoothly and I got people having buy-in for
making sure that this thing is successful because they’ve got some skin
in the game. It didn’t just parachute in just for the integration part of the
process. Now the second part this is your external team. Now these are a little bit
different. These are typically going to be some functional experts that can play
a very important role. You know lawyers, accountants, tax folks, and I think you
know we have to often look at due diligence. You know, if there’s specific
areas of due diligence that we think are going to be important and in the key
here is to identify those people early. Because it isn’t just your internal
people you know your CFO may know an awful lot about finance but then doesn’t
mean they know a lot about valuation. Your general counsel know an
awful lot about contracts and employee issues that doesn’t necessarily mean
they know a lot about asset purchase agreements. So, much like in the medical
world if you’ve got a heart problem you’re probably hopefully not going to a
podiatrist, your going to go to cardiologist. Much like
the M&A world we want to go to people who specialize in dealing with these
transactions. Let me identify those early so that I get better counsel and
hopefully avoid some of the land lines through the process. Now okay, we
ready for the next poll. Okay, so we’re going to, I’m told we need
to take our second poll. So, here’s our second pole. Hopefully, everybody can
see it we’ve got one more poll to do. So, give everybody a minute here. Okay, we
good, all right. We’re going to end the poll. Thank you everybody and do we
everybody see the results. Okay, so the next piece then is because I want to
give you a couple of tools to help you think through this process. Remember,
we talked about strategy. Well one of the tools and again, I know we got a wide mix
of folks on here, so the business school folks hopefully remember this in spades
but one of the things that I think is very helpful is to start using start by
using Michael Porter’s five forces. So, it isn’t just about competitive analysis. It
isn’t just about looking at our competitors. I think that’s too
short-sighted. What we also want to do is really take a snapshot of what’s going
on on the customer side, what’s happening to my customers? What are
they keeping themselves awake at night worrying about? What are a lot of the
challenges that they’re having? What are the opportunities that they’re having in
the marketplace? In addition that I need to understand what’s happening on the
supply side as well. Are there threats? You know, it for example you’re an
industry where oil is important. You know, you probably gonna want to have a pretty
good appreciation for what’s going on in the oil industry. Sometimes we get involved in the food industry where you know ingredients are an important part
of it. You know, whether it be a protein or other ingredient so having access to
that and what’s going on with that? From a pricing standpoint or availability
standpoint can be important. Threat of new entrants. Are there high barriers to
entry or other people easily able to come into my marketplace? What about
foreign competition? And the last one is really about substitutes. You know, is
your technology that’s going to displace the need for my product or service? Or
how is my product or service perhaps changing in terms of better technology
and where do I stand? So, we start is with this snapshot as a tool to help my team
understand how we’re currently positioned. This is today, a snapshot of
today. This isn’t about looking about tomorrow. It’s really more about a
snapshot of today, to try to do a little bit of a reality check beyond just
competitive intelligence about how we’re position via our competitors. I
really want to look a little bit more broadly about how we’re positioned in
our marketplace. So, is this our last poll question? Okay, so this is our last poll
question because we got to make sure we get all the poll questions in for CPE
credit. So, sorry to throw to it you there shortly but I want to make sure that we
get them all in. Hopefully not too complicated a question
for anybody. One more second that we almost done. Okay what you know, read it.
Okay, we have another question it’s come in and my colleague Lydia Fairfax, who is
also a William and Mary alumni and our marketing coordinator, is going to read another
question to me hopefully won’t be too challenging.Hi everyone, just another
question that we have for you David is how much do you consider company culture
versus financial benefit when pursuing MA? So. culture is a great question and I
think that’s so that’s kind of a long question let me try to give you a
relatively short answer and now my screen is doing something funny and i’m
not sure what to do um oh there comes back on automatically erase you the
screen okay there we go I’m not sure I’d might have pushed the wrong button I’m
not sure there we go how’s that all right probably my technology mistake
that I probably hit the wrong button so the question was about culture we think
a lot about culture and I think that culture can play a very significant role
but let me I’m going to get I’m going to affect all vans here in a second we
actually of a tool in here a cultural assessment tool we start by looking at
the culture of our company first and we got to take some real honest assessments
about that and we look at it kind of a different levels we look at it from the
ownership level maybe senior executive level management level employee level
because we really want to understand how different people in the organization
understand culture we also then start understanding the culture of the
companies that we’re looking at but one thing that I think is a mistake is when
we start by saying we will only accept cultures that are like ours because I
don’t necessarily think that that’s what you’re after sometimes actually you want
a different culture or sometimes your industry is demanding a different
culture you know from maybe there’s different types of
employees or different types of customer interaction that you know a different
culture is going to be valuable and so don’t let we can’t confuse culture with
values because I’m not suggesting that we would in any way short change our
values or our principles but let me give you a one in specific example we were
helping put together transaction between the Midwest company and a West Coast
company and in particularly northern california they had very different
cultures the Midwest company was very much coat and tie not certain time on
the west coast company as the owner said to me we struggled to make sure that
people wear shoes to work a very creative environment a very different
kind of culture from sunlight certainly from an entire standpoint but they’re
both in the same business on the west coast company worked on one of those 59
programs you know where you get every other friday off and they had a very
different kind of work environment just from this you know non-formal kind of
private office environment the midwest company was very concerned about this
you know our culture is going to work together and i’m just going to give you
a real short example of how this kind of played out after the transaction was put
together it didn’t get put together the midwest company said we’ll start with
casual Fridays just kind of you know let’s just start with a little bit here
so i started with casual Fridays and they found that people loved it so they
actually within about probably six months or so it was less than a year on
ended up having casual everyday business casual not flip flops but business
casual everyday and what they found is that the environment was you know really
was a positive impact on the environment the second one I want to mention to was
one that was even more kind of culturally challenging the idea of
employees being off every other friday was petrified to the midwest company
they said there’s no way we can do how do how we can have people are the office
when we got clients in so we just did a little bit of some test runs of that
culture and what they found is is that the positive reaction in the midwest
company was overwhelming they found that absenteeism went down people scheduled
there medical appointments and their car
appointments and their bank issues they did every other Friday as opposed to you
know trying to schedule during the middle of the week so just to kind of
maybe a to long of an answer to a short question but what we find is is that but
to be careful about how we use culture but we want to take some i’m going to
show you here in your second some cultural assessments but let’s not
ignore companies that maybe do things differently than we do or have a
different environment than we do because oftentimes that can rex you that can be
very beneficial and it may not be the either company has to change or maybe
both companies change or maybe one of the companies changed but let’s not be
so binary about you know it has to be a culture that’s like our david this is a
lots of Parrish signing back on it’s one o’clock now and I’d like to invite the
participants that are still on to stay with us for a while if you’d like
because I think that we can continue on happily assuming you all don’t have to
run off to a meeting so if you can hang on we’ll stay with you and I’ve been
watching some of the questions that are directly for David on how he started his
business and infirm so I’m gonna hope that we can follow up after the fact
with some of your questions but in the meantime finished the actual
presentation so there are many of you still logged on so let’s just keep going
if that’s alright alright that’s fine by me and I apologize it will run a little
bit long but let me I want to share with you a couple of tools because I promised
you some tools so here’s one of the first ones that we talked about is that
strategic got it so then that question actually ended up being quite timely arm
so again part of what we try to do is think about the different constituencies
within the companies because sometimes the board of directors are the owners or
the shareholders may have very different perspective on the company than the
employees do what we find is the senior executives generally are the highest in
terms of you know kind of reality check in terms of what’s going on the
marketplace they tend to be the ones that are willing to take the most risk
but what I want to do is take a little bit of a finger on the pulse for what’s
going on within my own company and one of the ways that we look at this is we
actually have this cultural assessment tool again we’re happy to share this you
can see at the top it’s a take-home tool for you
um but what we do is we put this in a survey monkey kind of environment we try
to make it easy for people but tends to take a snapshot internally among the
different constituencies in the company and i’ll give you one of the most common
ones is the first one there do we have centralized decision-making or
decentralized or dis birth decision-making most of the boards of
directors and shareholders will say oh no we’re very decentralized you know we
push those decision makings at the lowest levels in the company and then
invariably what comes back from the lowest levels in the company is all now
it’s very centralized and we can’t you know we just find out about it through
memos and and so there’s a real disconnect again they may both be right
it’s really about kind of perception but part of it is is just get making sure
that we have you know an honest assessment about our own culture and
about our own ways of doing business and what’s particularly useful here is is
that where we disagree where there’s wide variances in that so that’s one
tool I want to share with you the second one is about what we call painting a
picture and this is kind of a tool to help bring a little bit of math to the
conversation you know a fair amount of M&A activities can be emotional and it
can be fairly subjective you know how do I know a good company from a bad company
or a good market from a bad market and if anybody tells me otherwise I’ll say
well what’s your crystal ball look like for the next five years or ten years for
this industry and nobody really knows I mean everybody’s got different bandages
on that crystal ball but one of the tools that we use is this tool this
growth cast which we’ve created an extra trademark to help people think about
well let’s first of all think about where your organic growth is going to
get you and let’s map it out for the next five years and then let’s talk
about where you want to be over the next five years and this then becomes
sometimes it’s a delusional map because it creates a way for people to recognize
it man I got a huge gap in here because I often have people sit down and they’ll
say oh yeah we want to get from 20 million 100 million by 2050 and I look
at people and I say does anybody have a problem with that because let’s just
sort of look at what does that mean I mean how are you going to get from 20
min you you’ve been growing at two percent for last 40 years how you can
also get to 100 million by 2050 well maybe we can get you there but
let’s talk about what it’s going to really take from a commitment standpoint
so this is a tool to kind of have people gather some kind of the honesty about
what is it what’s going to be involved especially when we start looking at the
organic potential for a marketplace and our company specifically but then how do
we start getting focused in on the right markets and how do we figure out what
are the best opportunities for us so one of the tools that we use to help us with
that is what we call the opportunity matrix so again for every one of your
companies you have two primary ways that you can leverage your business one is
the your products and services I call them your stuff right that your stop
that’s what you do the other are the markets or the people that buy your
stuff so if we just take those kind of two simple concepts that those are the
things that each of you has to leverage in your business let’s walk through a
fairly simple tool to help us kind of organize some of our thinking on this so
the first box would be well let’s look at buying companies again use that word
loosely acquire because it could be a minority investment or some other type
of relationship there well what I would be doing here is going through
consolidation that’s what we’re seeing going on healthcare space right now we
saw that in the hospital week we’re seeing that now with the Charter Time
Warner transaction so I’m buying market share i’m trying to make sure that you
know especially if i’m going to commodity business i’m making sure that
i’m a top player so i’m having some influence on the marketplace i can also
though move to the right and say you know what what i really want to do is
find some new people to buy my stuff okay and that would be focused in on
what we call distribution now there’s two ways that we think about
distribution one is that could be Geographic so it could be that you know
I’m sitting here in williamsburg virginia and i don’t have any offices in
the west coast so i need to open first of all in the midwest and then maybe
move to the west coast but I’m primarily East Coast centric and so part of my
focus maybe on distribution form a geographic standpoint the second could
be industry so I make widgets that go into the automotive industry and it
could be i want to make widgets now go into the truck industry or the
commercial vehicle industry so there’s two different ways wanted VI by industry
and the other would be by geography the third quadrant then says well you know
what my customers love me I got this great pipeline I got this great brand
name I just need more stuff to put through my pipeline so think about
pharmaceutical companies for example isn’t that a lot of what’s been going on
in that space they need more stuff they need more products they got stuff coming
off patent or they just need you know wider breadth of product offering and so
that’s really about adding breath and then the last one says well you know I
want some new stuff and I want some new customers this is the one that’s a
little bit problematic it’s the highest risk of all of these that’s really about
diversification so part of what I want to do is I want to use this tool to help
me with my team to organize my thinking about well which quadrant is the one
that we want to focus in on first see I want to prioritize these because I know
from experience that if I’m trying to do all these I’m not going to get very
successful with any of these so the more I can get focused on which quadrant is
going to and I know not everybody fits nice and neatly in a box but I think you
can probably say this is the area that we think has the most potential because
again I’m building on tools that I’ve already shared with you I’m building on
first of all that five forces michael Porter’s analysis i’m building on my
internal assessment at my own company and how long position and now i’m
starting to look at you know how I’m painting the picture for 2020 and what
is it that I need so what is it that I need to make sure i’m focused in on
first maybe I first of all need to get more market share before I do anything
else but let me figure that out with my team now what do I do with that then is
is then I start looking at markets and you and here’s part of the key is I want
to make sure I look at a number of markets not just one I’d like to look at
you know I’ve given you an example here about 10 markets that may be a little
high for some of you i can say i think the the largest one that we looked at
was 31 markets on one project but i would say typically we’re trying to look
at about ten you know and then do some initial research have your team be part
of that process use the screen to help evaluate which ones are the ones too
shoe and then I’m going to start looking at the candidates keep in mind that
demand driven approach I’m gonna use my my customers of tomorrow to help me
figure out who the companies are that I should be buying today or partnering
with today um we know from experience I don’t know if you can see my what do you
call those things this arrow on the screen or not but here I’ll put it on
here here’s something when you looked at right there hopefully it shows up a
hundred candidates and you’re going to probably get a little scared when I show
you that number it’s about 100 to 1 ratio think about when you’re hiring
someone how many how many resumes did you start with before you hired someone
I bet for positions where you’re starting from scratch and especially if
they’re maybe not super super specialized positions you started with a
bunch i bet it was probably close to 100 for many of you and the key here is is
that i’m not so nibud that i can tell you who the one company is to go acquire
but i can tell you through the process of looking at a lot of companies you’re
going to get the confidence and conviction that these are the right
companies to be moving forward with so now how do we start looking at targets
and and i’m about to wrap up here but i want to show you how to start putting
together a pipeline of candidates because again keep in mind i’m not just
focused on for sale deals I’m focused on which one strategically fit what it is
that almost interested in from my business model so the first one are
going to be what we call the usual suspects it’s kind of a goes right back
to those companies that come come to us or that we know they’re on our radar
screen we’ve heard about but let me flush those through and figure out
whether or not those are really ones that I should be looking at you know
most of us have you know in our top right-hand drawer we have you know
probably list of companies that we’ve been thinking about talking about for a
dozen years but let’s figure it out and figure out whether or not those should
be moved forward or not the second one though is up through market research
that’s at demand driven approach I want understand what the markets are saying
so I’m going to talk to a lot of people the marketplace I’m not talk to trade
associations regulators academia whoever’s involved in that marketplace I
want to understand what they see going on I’m going to 10 those trade shows
because oftentimes we find out about a company’s that maybe didn’t hear about
our weren’t on your screen off from being a player in that
marketplace here’s a here’s one that I think is most overlooked they use this
arrow thing again right here did that work that worked your own internal
people listen you don’t need to hire somebody with a pinstripe suit and you
know the braces and the hankie in the pocket to tell you who to acquire start
with your own internal people the group that I like to start with is your
Salesforce create a process for them to be able to bring ideas and leads into
the into the fold why do I start with them I don’t if you can see it in the
camera right there figure on the polls right don’t my sales people don’t your
sales people have a finger on the pulse aren’t they finding out what’s going on
the marketplace they know where they’re getting beaten up they know where
they’re losing accounts where they’re gaining accounts they know what they’d
like to have what the customers are telling them why don’t I start with them
and make sure I create a process for having them help identify who may some
of the people may be on my list for sale companies are certainly ones that I want
to make sure I look at so I want to make sure I know who the investment banks and
brokers are that tend to handle for sale transactions in the industry so I can
proactively identify those not just the usual suspects or the for sale ones that
come to me and the other is just other you know I need to be open to other
ideas you know sometimes it’s what I call the brother-in-law companies that
you met someone at a party and they start talking to you about this company
well how do i create a process for making sure that i run those through the
funnel to understand whether or not they or a prospect that’s worthy of further
investigation so hopefully that I think we’ve already asked this last question
is that way yet so hopefully that gave you some ideas so I’m going to end there
because I know we’re out of time hopefully I gave you some ideas spark
some thoughts we’d love to continue the conversation I don’t know if we have
time for a question or two if there’s a question that we want to ask Lydia
alright so if you guys can stay with me I’m happy to stay and answer any
questions but thanks for everybody for for being on today well lady is looking
over i would just to like to thank people for staying with us for this in
room everyone we will be sending out an email
with the recorded webinar and the slides and david has generously offered to let
me include his contact information for those of you who might want to ask him a
question directly and I think somebody was asking about the credits we will
take care of that and communicate with you via email so watch your email for
emails that will come from either me or Kelly minor and with that if there
aren’t any questions there may be one or two and he’ll take them but let me just
jump in first and say thank you so much and let me just add to that the converse
a comment about CP creds because I just saw somebody was asking about the CP
credits and we do at capstone we will keep an inventory of everybody who gets
cpe credits so if anybody gets audited we will be able to show documentation
that you were on the on the call and got cpe credits so I just want to allow any
fears that people had about cpe credits all right on that note we have a
question for you David it is there are many team members involved in ma and
they all have different goals and different personalities how do you build
consensus around your ma team a great question so you know one of the beauties
of the fact that i’ve got an acquisition team that has very different
perspectives is that I got an acquisition team has very different
perspectives so I’ll tell you those there’s a couple different ways that we
do it first of all is I got a I got to get everybody some training to begin
with because keep in mind you know your your CFO or your IT manager or your
customer service manager or vp you know this may not be something that they’re
used to doing they may have zero experience at this so part of it is I
need to get some training to make sure everybody’s got at least close to a
level playing field understands the vocabulary and we can start having a
conversation the second thing then is as I start with a baseline of what the
vision is and this is really where the the head of the organization the CEO or
the owner of the company whatever the title is really has to be able to
articulate and one of the things that we do when we’re thinking about
acquisitions is we follow a simple tool we write it down
I know it sounds very simple but one of the things that we find is is that you
know what we’re talking about doing here is built in a house your company is
effectively a house and we’re talking about expanding this house and if i told
you that we’re going to build this house and it’s going to be four bedrooms and
two bathrooms and two car garage on half an acre and i asked everybody to write
or draw i should say what that would look like on a blank piece of paper how
many different profiles would do you think we’d have I bet we’d have more
than one for every one of you because every one of you probably came up with a
pretty clear picture very quickly about what that house looked like well that’s
oftentimes all that we say when we’re thinking about growth you know four
bedrooms two bathrooms two-car garage on half an acre right so I want to be a
hundred million by 2020 and 12% ebitda and I want to have you know 100 new
customers isn’t that the same thing and everybody has their own idea of what
that might look like but but that half an acre could be in Santa Barbara or it
could be in Williamsburg or it could be in Des Moines it could be four bedrooms
but 20,000 square feet it could be made of brick or a wood or cinderblock so
there’s lots of different ways so we got to get that richness of the content of
what is it we’re really trying to do what I find is is that people need to
get people will get passionate about what you’re going to do and for whom not
so much about the financial metrics so part of the way we get people on board
is first of all with the vision the second thing is that we use our tools to
help bring some objectivity because I think was probably embedded in that
question is that there may be disagreements with people and I don’t
mind disagreements what I want to do is channel it so it isn’t just kind of my
gut feel versus your gut feel I want to have it be some way of bringing some
objectivity to it so part of what we do is with our tools and we use weighted
metrics so we have a metric you know we have a criteria we have a metric and
then we put a weight next to that and then we use that tool as we build that
together as a team to be able to say you know what is your input on this or how
do you see that and then we bring that you know kind of group together now
there isn’t going to always be consensus but what I at least have a way to do is
to have have some objectivity to what can be a
very passionate emotional subjective process so short answer use the process
use tools to help bring people together and what I often say and I can say this
as a the third party advisor is when we leave that room I can’t have anybody
publicly questioning what we’re coming out of here with so everybody needs to
be on board even though it may not be exactly what you would have put together
everybody needs to be supportive of this as we go forward because we can’t have a
you know a weak link as we’re moving forward so hopefully that helps answer
answer the question and I’m just going to look to you guys see if we have time
for another question or are we at a time all right I think this is going to be
the last question is what I’m told so this question is more about capstone and
how you founded the business and you could tell us some more about that I’ll
be very brief about that because you can go to my website not I want to linger
too long because I know we were already at a time I’ll tell you very very
quickly I course founded it upon the great principles of that I learned here
at the way my business school right but the reality is is that there’s a lot of
truth to that but I started my company 20 years ago really with one concept in
mind and that’s to help companies to grow I’m very passionate about it and
part of the reason is because I didn’t like the model that most often worked
and that was you had industry experts consultants that designed ideas and then
you have implementers that were the investment bankers and lawyers and
accountants consultants I couldn’t get rid of the investment bankers I had a
hard time getting them to stay unless I was doing deals so I wanted to create a
new model and the new model was really around how how are we more client or
customer centric and so I really created a hybrid so we’re half consulting half
Investment Banking we’ve actually we actually characterize ourselves as
growth engineers we’ve actually trademarked that because we’re really
all about how do we design think of it in architectural terms or building terms
we actually design growth strategies we actually do all of our own original
research primary research we actually put together transactions with owners we
primarily specialized it not for sale transactions we actually do all the
contact in owners and meetings and interaction with
our clients all the way through to put together letters of intent deal
structuring due diligence integration so we do the whole thing so we’re connected
with our clients all the way through and you know the proverbial we got to eat
will we kill kind of concept so we got to live with what we end up with and so
consequently most of the clients that we work with you know we’ve been working
with for going on now decades we have our first client that we signed 20 years
ago still not to client of ours today so hopefully it gives you a little bit of a
snapshot of my philosophy on and I want to thank everyone again I want to thank
Eliza and we’re married for having me here today it’s been a real honor and a
privilege if you’ve got additional questions I’m happy to answer them so
don’t be bashful about emailing us or and we’ll be happy to follow up with you
if you want any of these tools or you’ve got specific questions what I want you
to be able to use this stuff I don’t want to just be a webinar you got a cpe
credit and it’s done I want you to be able to actually use this we’re giving
you a full year to attend our webinars we do one a month on each of these
topics I want you to be able to actually use this stuff and just give me feedback
tell us what else you’d like to see or what detail would be helpful to you but
thanks again everyone and have a great summer appreciation and thanks for me
too and I also want to thank all the people behind the scenes that you’re not
seeing who have been extremely helpful in making this successful and don’t
forget that david has offered to let you all sign up for his webinars for a full
year for free so keep your eye out for the email for that and again David thank
you so much this has been a wonderfully rewarding webinar with a tremendous
amount of valuable information so thank you for coming into William and Mary for
doing it we are very very appreciative thank you

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