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Deal Makers Interview Series: Jack Hendler

Deal Makers Interview Series: Jack Hendler

In the Deal Makers Series, we interview leaders, experts, and innovators in the Merger & Acquisition and the Private Equity space about how they get successful deals done. The series highlights perspectives of investors and buy and sell-side advisors working across industries and geographies.

For our most recent installment, we interviewed Jack Hendler, CEO of Avalon Net Worth, an independent investment banking firm. Jack holds a degree from NYU Stern School of Business and founded Net Worth Solutions in 1999.

CS: What is your current role, and can you tell us a little about how you got there?

I am the CEO of Avalon Net Worth, an independent investment banking firm. I have the pleasure and honor of heading up the Merger and Acquisition division of the firm. I started the Net Worth Solutions part of the company back in 1999 and then merged with Avalon Securities probably eight or nine years ago. I met the owner and CEO of Avalon 25 years ago on a transaction where we were representing clients on opposite sides. Over the years, we developed a great relationship and decided to merge our companies, becoming Avalon Net Worth. At the time of the merger, Net Worth was an M&A company; joining forces with Avalon allowed us to expand our impact as Broker-Dealers. Our clients represent a mix of private and public companies.

CS: Tell us about your experience in M&A, as an investment banker and having done it yourself.

Prior to merging with Avalon, I had started and sold two companies and I was looking for the third leg of the stool—my third opportunity in life. We operate in the M&A business with “middle-market” companies who have enterprise values of $25 million to $500 million. I wanted to change the client experience. I believed I could make an impact by helping someone recognize their company had value, understand what that value is, and choose the best financial venue for selling their company.

So I started Net Worth Solutions and now, it is 24 years later, and I am still having a good time. I have a passion for working with financially troubled companies, helping them find solutions, and easing the stress in their lives.

CS: Help us understand what you do for the companies you work for.

It starts with a personal meeting—obviously in the last two years with COVID, it has been more difficult. But whether it is on Zoom or an in-person meeting, I believe it is critical to connect with the client, to discover what motivates them to seek our support. We get a clear picture of the client’s needs both emotionally and practically.

Whether clients want to sell their business, acquire another business, or need growth capital for their existing business, we are one of the few investment banks who help companies who are financially stressed.

Not all companies need the same solutions. One company may need to sell, another should be making acquisitions to round out their businesses. And yet another may not be large enough in volume or profitability to bring to market. If the company has stress, we look at what created the stress and what the value of the company would be in somebody else’s infrastructure.

By taking the time and interest in the beginning, we can be flexible and creative with options.

CS: How do support your clients in preparing themselves and their company to sell? Specifically, do you address operations, financials, or culture?

For this portion of the transaction, we look to professionals like yourselves to address culture, organizational strategy, and prepare the company for the transition in leadership.

As far as the financials, perhaps we would have a CFO get their books ready for an examination. Since we are experts in marketing the company to the right buyer for maximum purchase price, we put our focus there.

CS: You’ve worked on a variety of deals and acquisitions from both sides of the table. What are some of the factors that you think contribute to a successful merger or acquisition?

Getting the seller clear about their choices and prepared for what they can anticipate is the first step.

Additionally, we have implemented presenting a Quality of Earning Report. When a potential buyer is looking at the company specs, they will notice an independent auditor has completed a financial assessment and has identified any relevant issues. When it comes to evaluating an ROI and completing the actual purchase and sale agreement, the buyer can feel confident they have the information necessary to support their decisions.

Along the lines of supporting the seller and buyer in their transaction, we have become known for including a Working Capital Assessment. We discuss the working capital that is necessary for the company and evaluate what is available. We help determine how excess working capital should be handled. Completing the Working Capital Assessment has saved us from the retrenching or renegotiation that occurs in many sales.

Our experiences have taught us that the attention we give to the Quality of Earning Report and the Working Capital Assessment supports our successful closing rate, which is over 90%.

CS: From your perspective, what are the factors that really drive the success of the acquisition?

One of the main reasons we have success is we bring the appropriate buyer to the table. It is important for the buyer to really understand the philosophy of the business they are acquiring and hopefully, it mirrors the philosophy of their existing business. Sharing the philosophical perspective supports the transition, ultimately decreasing potential unintended roadblocks.

When we have recognized a cultural difference between the two companies, we acknowledge the different operating styles, different philosophies, or different structures, and suggest they receive support from professionals who will help them integrate and merge properly. We make it clear and ensure they understand the complexities and the need for professional support. We can see where there are potential issues, and we highlight the need to be proactive in addressing these issues for the sale and acquisition to be successful.

CS: How do you go about identifying those cultural differences?

Interestingly, they begin to show up in the conversations and due diligence efforts by both parties; either the questions they ask or the way they answer questions. Since we are actively involved in those conversations, we are attuned to potential risk factors and listen intently for expectations or conflicting perspectives.

In general, we want to explore whether the selling company will stay intact, which—if any—current managers will remain in place, will there be a transition of power, or the magnitude of the infrastructure transition. These answers help us determine if the companies are parallel in their thought processes and what kind of support they may need moving forward after the acquisition is complete.

CS: How do you evaluate the leaders who will be moving forward for their fit in the organization?

At the onset, we look to understand the principal’s role and history with the company; did they start the company, did they inherit the company, what generation of inheritance is there, what portion of the company are they involved in, do they meet with clients, do they take care of financial aspects? We want a clear picture of their strengths and potential areas of weakness.

Additionally, in our conversations we are evaluating the fit for leadership by observing their overall attitude, how they handle stress, the respect they show during meetings, how they make decisions, the depth of their company awareness, do their day-to-day activities match their title, and their presence. Presence—or lack thereof—is very telling.

CS: Have you ever seen a situation where the leadership or the culture negatively impacts the success after the transaction closes?

Yes, I have seen it happen. Adjusting to a new leadership dynamic is often more difficult than anticipated, and surprises do happen. We may have overestimated synergies, the buyer may have mis-aligned expectations, and/or unexpected cultural or leadership issues may arise.

CS: How about on the flip side? Where have you seen strong leadership or cultures drive growth?

Absolutely! When a buyer can enhance productivity or the management team could save costs or drive the company in a positive direction, subsequently it puts the seller at ease. If the acquiring company brings an asset the selling company is currently missing, it becomes something we can leverage. When we recognize how to best match the seller and the buyer, everyone is happy.

CS: Not only have you helped other companies, but you have merged companies yourself. When you merged, what was the most difficult part?

That first morning after closing the deal… I parked my car in the same Manhattan garage I had parked in for years. I walked to the corner, and I became very emotional. I felt lost and did not know where I belonged. I had lost my “place” and did not know what was next. It took some time to find my balance, re-group, and discover what was next; ultimately, Net Worth Solutions was born.

CS: When Net Worth and Avalon came together, were there difficulties after that transaction?

Yeah, a bit. Avalon’s owner and I were relatively successful running our own businesses, and when we worked on a transaction together it was a positive experience. I was attracted to their strengths and attitudes about business and running their firm. Over the years, I had developed a great deal of respect for them and saw the potential in joining forces. I knew our personalities were a bit different, as were our philosophies. It was those differences that I believed would benefit our merger.

However, adjusting to the differences was more difficult for me than I expected. It was the very differences I admired so much that were the most difficult aspects for me to integrate. What attracted me most to my business partner was exactly what I needed to adjust to. I discovered that as I became more flexible, I was able to step back and allow the differences to coexist. Our differences have made us stronger as leaders and our company more successful.

CS: As you think about the next few years, what are you most excited about?

We are one of the few investment banks that support people who are under financial stress. I have met past clients on the street, and I nearly did not recognize them. They no longer carry the weight of stress and anxiety. They give me a hug and say, “thank you for helping me save my company, thank you for helping me save my home and my mortgage.” I look forward to meeting and supporting new clients, helping them see what is possible, and ultimately resolving their struggle.

We’re so grateful to Jack for sharing his expertise and insights on M&A. Check back here for more future installments of the Deal Makers Series!

Learn more about Leadership & Culture Due Diligence »

Conscient Strategies was founded with the idea that every organization is capable of thriving through change. With a focus on strategy development, program implementation, workplace dynamics, and leadership development, Conscient Strategies equips leaders with the tools necessary to continuously navigate the constancy of change in ways that not only benefit their team, but, equally as important, their business outcomes as well. From mergers to c-suite changes to sudden or explosive growth, organizations turn to Conscient Strategies when change is threatening their financial health and cultural wellbeing.

Based in Washington, D.C., Conscient Strategies is comprised of a talented group of consultants, executive coaches, strategists, and account executives. The team has worked with organizations of all sizes in the private, federal, and non-profit sectors across the United States and Internationally.

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Deal Makers Interview Series: Scott Taylor

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We interviewed Scott Taylor, attorney and principal at SmolenPlevy—a practice primarily focused on general corporate and business law, mergers and acquisitions, transactional planning and structuring, and business succession and exit planning.

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Deal Makers Interview: The Truth Behind Failed Acquisitions

Deal Makers Interview: The Truth Behind Failed Acquisitions

In the Deal Makers Series, we interview leaders, experts, and innovators in the Merger & Acquisition and the Private Equity space about how they get successful deals done. The series highlights perspectives of investors and buy and sell-side advisors working across industries and geographies.

For the latest installment, we interviewed a confidential source—who’s been on the front lines of both the U.S. military, AND a failed acquisition. 

What were some of the biggest building blocks that helped you achieve your leadership position?

It starts with having the opportunity to lead, discovering what kind of leader you are, leading, failing and/or succeeding and then applying what did and did not work. I think my first encounter was in junior varsity sports. I was captain of the football and wrestling team. It put me in a position where I had to deal with conflict. As a teenager how do you resolve differences among teammates who are the same age and have the same experience as you? This experience helped me discover that my leadership style is to lead by example and by motivating others. Next at the age of 18, I was a Shift Manager for Taco Bell. I made lots of mistakes! One mistake I remember came as a result of me being put in charge of employee schedules. There were these three women who were the backbone of the company—these women worked the day shift, and they were amazing. And because of that, I thought maybe it made more sense for them to be dispersed across the shifts, so I moved one to the night shift—They almost killed me because what I didn’t know was they all commuted together and had the same child care provider. Without asking them I upset their lives beyond the job. Once I was made aware I set things back as they were but that taught me the importance of being an informed leader. I was lucky to have these opportunities to make these mistakes early and not have them negatively impact my career. I was able to try and, in some cases, fail, but that failure wasn’t permanent.

The next and biggest building block was in the Marine Corps. Whatever natural or nurtured leadership ability you have, they make it exponentially better. The first thing you learn about leadership is that to be a good leader, you must first be a good follower. In being a good follower, you learn how to help your leaders be better leaders. When you become a leader, it enables you to see who is and isn’t being a good follower and where and who needs more of your leadership attention. From day one of bootcamp they ingrained in us their leadership traits. There are fourteen of them that we memorize with the ACRONYM JJDIDTIEBUCKLE. And now 28 years late I can still name twelve of them.

You’ve worked for a lot of organizations— how do you know good leadership?

When I look at a potential leader above, next to, or below me, there are three things I evaluate:

  1. Command presence
  2. Command voice
  3. Command grip (this is the hardest)

Most people know what command presence and voice are. Command grip is rare and the best way to explain command grip— let’s say someone is five levels above you, but you feel like they gave the direction to you directly. It’s having the feeling of knowing you need to follow their direction even when they aren’t in the room. It’s following the direction even when you know they will never find out you didn’t follow the direction. 

Good leaders come prepared and have a system. They asses the talent against hitting the organizations goals within their system. They also recognize the talent they have may not be the best talent to achieve those goals. Initially they adapt their system to talent, and at every cycle they upgrade the talent to hit the optimal efficiency.

So, they bring the team along with them to meet the vision and goals. I have taken over companies that were a mess. And I knew quickly if the person was not part of the long-term solution, but I might need that person for a little while, with some tradeoffs.

You’ve worked on a variety of deals and acquisitions. What are some of the factors that you think contribute to a successful acquisition?

The successful ones do a lot of due diligence up front—and not just the on paper due diligence. If you are going through an acquisition—it is critical to balance your due diligence with not wanting to get the word out while the deal is fragile and hasn’t been finalized. The good ones figure out how far to go down and across the organization—talking to the right people. And too many of them stop at an executive level and don’t get the relevant information. The good ones understand that and dive in.

And the other key factor to an integration is backing up what you say. Actions speak louder than words. You can say all the words in the world. And typically, the owner is charismatic and a good speaker. And then there is a trust curve that just drops once the transaction occurs.

I recently was part of an organization that was acquired. They had all the strategic communications, change management and used all the buzz words. But when it was time to go and do it, nothing happened.

I distinctly remember that at one presentation they spoke to the top five reasons why acquisitions fail. Number one being that talent leaves. And they talked about how important talent was. But then their actions didn’t back that up. They started making decisions based on behaviors and personalities that everyone knew didn’t have the ability to follow through.

I had the opportunity to stay after the merger but chose not to because of how I watched them continuously make uninformed and what I thought were the wrong decisions. I challenged them on how and where they were getting their information from and why they weren’t verifying the accuracy or truthfulness. There was this unearned and unwarranted blind trust given to people that were misguiding the post-acquisition organization and I wanted no part of that.

I’ve taken over organizations in the past, brought in as CEO or President of a company on a few occasions. Some were on the precipice of bankruptcy. When I come in, the first thing I do is sit down with each and every employee and customer. Those meetings had simple agendas. For the employees its was: 1) What are you good at? 2) What do you like to do? 3) How does that match with the organization’s needs? There were some who were honest and understood the concept—they were the ones that would stay with me forever.

And it was always so intriguing to me when having these meetings, and hearing from people why they are so important, or only speak of themselves in positives because that is what they expect you to want to hear. And why are they talking about others in a negative way? Or why are they giving me unsolicited advice?
A method I would use—I would have a 1:1 with two different people, and if I got conflicting information, I would then bring the two together and then ask both of them the same questions I asked in the 1:1. It was clear based on who changed their story where the conflicting information came from.

You ended up leaving that company—what were the items that led to that decision, and what was the thing that was the final straw for you?

There was a lot of initial excitement in the strategic communications about the combined revenue and goals. They gave big raises immediately. And then a significant retention bonus to stay – but they offered those things before they had all the details. I was very open with leadership. I could see immediately that my decision was centered on whether I wanted to spend a year and a half convincing leadership on the value I would bring to the team.

I knew that their diligence was based on overly optimistic financials and unachievable goals. And that they weren’t going to come within 20% of their growth goal. I am not interested in signing up for something that is built on false premises. And they immediately chose who most of us knew were the wrong people to keep. And I knew I don’t want to stay working side by side with people who were all talk and no action. The phrases that came to mind was not my monkeys, not my zoo or not my clowns, not my circus. Pick your analogy.

What do you think makes mergers and acquisitions in the federal contracting sector unique?

In this sector, there are a lot of contractual and regulatory considerations when undergoing an acquisition. But it is key to understand these elements to ensure that you structure your acquisition to optimize those considerations instead of driving failure on day one. Typically, you buy the company and the next day their name is gone. In the acquisitions I’ve been through, we were very careful to maintain the name and branding to optimize the return on legacy contracts by the date of the last contract. There is some risk, but ensuring you can keep the legacy contracts – often the strategic driver of a transaction- can make or break a deal. I know too many stories of bigs buying a small business, and the contract ends the next day. And, this happens all too often. There are companies with small business classifications, and if they are acquired, that benefit disappears. So do the contracts that are based on those classifications.

As you think about going forward, being part of an organization that has been very acquisitive, how will you try to shape their approach to acquisitions?

I have been lucky in my career and have seen so many experiences from different vantage points and almost every perspective—as the head of the company, as the newcomer doing the turnaround, and as a middle manager of a larger organization among other positions.

Where I am now, the major acquisitions are probably behind us. They were successful in one area, and then acquired a few others. They were then able to use set aside advantages to maximize growth. They are now at that perfect inflection point for rapid growth. So, they have a huge opportunity to leverage the set aside advantages with the capabilities and past performance.

It is very cliché, but—it is all about people. Numbers are important, but what makes numbers better? People.

There are two things to consider once the acquisition is complete. One, make sure to have an integration team. A group of people devoted to ensuring a good transition. Leadership needs to remember that they already have full time jobs and the teams of people they are acquiring also have full-time jobs before the merger. Asking and expecting any of them to also lead the transition is unrealistic. You should make sure to have the resources to handle that. If I am going to acquire, let me beef up HR and increase capabilities of other back-office departments so that the executives can focus on the people side.

And two, if I were buying a company, I would tell my integration team that the most important metric is meeting in person with everyone. And I’ll meet with them too. I’ll ask things like, tell me three to five people and things you are most concerned about. Or the three to five people with the most potential. Then document and triangulate the information. If everyone you spoke with has glowing recommendations about a person then they are most likely true. If 50% of them are positive and 50% are negative, then you need to dive deeper into why. Is there an organizational divide? Are all the positive comments from employees that are concerned about job security? Dive deep into the personnel, organizational and processes and the relationships and other factors that cross all of them.

Teach them through how you ask your questions. That is one of the many elements of command grip—holding you accountable through your words and actions. One can delegate authority, but not responsibility.

One of my operating principles has always been, I know I am doing my job right when I’m not doing anyone else’s job. If I have the right talent, deployed across the right system we will achieve our organizational goals.

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10 TED Talks to Inspire You in 2022

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Playbook Download: The Future of Work

Thank you! Download your playbook below.

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The Future of Your Work Part 2: From Survival to Strategy

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The Future of Work

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Deal Makers Interview Series: Jack Hendler

Deal Makers Interview Series: Jack Hendler

“One of the main reasons we have success is we bring the appropriate buyer to the table…Sharing the philosophical perspective supports the transition, ultimately decreasing potential unintended roadblocks.” For the most recent installment of our Deal Makers series, we interviewed Jack Hendler, CEO of Avalon Net Worth, an independent investment banking firm.

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Conscient Leaders: Interview with Jim “Big Red” Wetrich

Conscient Leaders: Interview with Jim “Big Red” Wetrich

For our leadership segment, we interviewed Jim Wetrich, author of Stifled: Where Good Leaders Go Wrong and CEO of The Wetrich Group, a healthcare management consulting firm providing advisory support and guidance—substantive, thorough, strategic, and tactical—to partner clients.

Tell us a little about your current role and how you got to where you are today as a leader and author.

I founded Wetrich Group in 2001. For the last 8 years, I have been coaching, consulting, and mentoring innovative leaders. I am a certified coach and recently joined the Professional Coach’s board of directors for the International Coaching Federation (ICF). Though my career had been mostly focused in healthcare, I am very much a student of business and love working with leaders with businesses from across various industries.

You recently published your first book. What led you to put pen to paper at this stage?

This book has been in the works for many years and something I have been wanting to do since I left my last full-time job at Mölnlycke Health. Stifled: Where Good Leaders Go Wrong is very much a reflection of my own career and experience with leadership. I have always had very strong feelings about certain things involving leadership. Following a 40-year career in the health care space, 10 of which were spent working in hospitals, including hospital administration, and hospital consulting, I also ran two large supply chain organizations. I also spent 22 years in the medical device and pharmaceutical business and worked with three companies – Abbott Laboratories, Reapplix, and Mölnlycke Health Care -part of the Wallenberg family Investor AB portfolio companies. More often than not, leaders don’t completely understand their impact on an organization and how their messages can be deemed inconsistent. Most of the leaders I have met and worked around have generally been well-meaning and well-intended people, but sometimes their actions have consequences, causing firestorms and controversies.

There are many books on different types of leadership like ‘authentic leadership’ and the rest. Still, I thought it would be interesting to point out some of the failures and troubles people get into when leading. I also think, imagine my first years in business in 1981, your boss told you what, how, why, and when to do your tasks; you worked for that boss, and they owned you, and this was the environment. Fast-forward 40yrs that doesn’t work anymore; it probably hasn’t worked for a long time, but a lot of people get away with the ‘command and control’ type leadership style. It is an entirely different world now, and with covid, everything has changed.

As you think of the qualities of a great leader or manager, what are some of those essential qualities?

It is a series of questions, who are you and what do you stand for; what is important to you, and what people need to know about what is important to you. Self-awareness is so critical, and that includes knowing what you do not know. I have been shocked by some of the messages from former GE leaders talking about ‘I wish I said I don’t know’ more often. Today with so much specialization and information, you can’t possibly get close to begin knowing everything about anything; it is not possible. So being cognizant of your limitations is very important.

Also important are humility, authenticity, transparency. There is a considerable gap with leaders not being open and honest with their employees either about the status of the business or their personal situation. I can’t tell you how many people I coach now who have been identified as high potential within their organization but can’t get any clarity on what that means–what is or if there is a success plan and how to continue to develop; this is a transparency issue. Integrity is also important; it surprises me there are still significant lapses with that. The last things on my list are putting other people first and yourself second, audaciousness, and grit.

How do you balance bringing the leadership strengths from the past and incorporate what works now?

Leadership involves a process of continuous development, growth, and improvement. I think some of the problems leaders get into is that they lean on what worked for them in the past and haven’t necessarily adjusted to what is working now or what will be working in the future. This was partly why I went back to grad school to get my MBA. I got my MBA when I was 52 because I felt, in the late 2000s, lots of things had changed. So, I wanted to refresh, retool, and reorient, and I am glad I did. It was a critical time in my life where I could sit and think of where I had been and think about what I would want to look like going forward.

How would you describe your leadership style and approach?

I generally like the servant leadership model and most of its tenets. I try to put people first, and the most important thing for me is that people grow and develop and to provide opportunities to make this happen. It may be that the growth may have to come from outside the organization. A downside for us being a small business is you can’t offer a lot of opportunities for many people. But it is about what is important to the individual. How can I help you grow to do the position you are doing now if you want to stay here or close gaps in your background to help you find opportunities externally if that is the direction you want to take.  Though I understand it, we focus too much on the hard stuff like hitting numbers and targets—profit, sales, market share—and not enough on the softer skills, which is critical.

What would you include if you were to build a leadership starter pack for people leading this ever-changing, multicultural business environment?

It will be having as many case studies as possible on good practices of model organizations, psychological safety, integrity, and diversity. I will also add helping people speak their minds and speak up as leaders often assume that if people don’t speak up, they don’t have anything important to say and tend to minimize those people. It may be very much so that, referenced from an appraisal of my book, “sometimes the biggest or loudest voice in the room isn’t the best voice in the room.” So how are we making sure that we get people to participate; I love the term ‘Lean-in’ as all people need to lean in, need a seat at the table, and voices need to be heard as much as possible.

As you think about your book, the future of your work as a coach and leader, what are you looking forward to?

For me, one of the most exciting things is being able to branch out of healthcare and working with people across industries, differing businesses, and the globe. This is super exciting because I can get a sense of what is happening in diverse companies; surprisingly, is how much they are still operating under ‘command and control.’ When I was in grad school, someone worked in a huge, well-known company where the environment was you couldn’t just go mingling with and talking to people; if you wanted to talk with your bosses’ boss, you needed your boss’s approval. This just blows my mind, and it is still prevalent today; there is still this siloed bureaucracy and chain of command culture. It is so foreign for me going back to my time at Abbott, things were very open, and you could talk to anybody. So, I don’t quite understand that and believe that we must continue to evolve and democratize more employment.

 

 

About The Wetrich Group:

The Wetrich Group is a health care management consulting firm founded in 2001 by James G. Wetrich. They pride themselves on their experience, each of their associates has over 25 years of experience in a variety of senior leadership positions. They offer comprehensive advisory support and consulting resources to their partner clients. Through leveraging their experience, they provide their clients with substantive, thorough strategic and tactical guidance, rooted deep in sound execution. Their consultants focus on creating value for their business and provider clients. Learn more at wetrichgroup.com.

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Deal Makers Interview Series: Scott Taylor

Deal Makers Interview Series: Scott Taylor

In the Deal Makers Series, we interview leaders, experts, and innovators in the Merger & Acquisition and the Private Equity space about how they get successful deals done. The series highlights perspectives of investors and buy and sell-side advisors working across industries and geographies.

For the fifth installment, we interviewed Scott W. Taylor, attorney and principal at SmolenPlevy in Tysons, Virginia. Scott received his law degree (Cum Laude) from George Mason University School of Law, and he holds a Bachelor of Science Degree in Business from Virginia Tech.

What is your current role, and can you tell us a little about how you got there?

My practice is primarily focused on general corporate and business law, mergers and acquisitions, transactional planning and structuring, and business succession and exit planning.

I’ve always been interested in business. I pursued a Corporate and Securities concentration in law school after studying business as an undergrad. I’ve spent my entire 20-year legal career here at SmolenPlevy.

Tell us about a typical client for you. What does the work with them consist of?

My clients are primarily owner-operated businesses, meaning the owners are also key executives, managing not only the strategic goals of the business, but the day-to-day operations as well. Most are service providers—consultants, software developers, government contractors, or professional firms.

My merger and acquisition work breaks down into roughly 75% seller representation and 25% buyer representation in the small to mid-market range.

You’ve worked on a variety of acquisitions and other deals. What are some factors that contribute to a successful merger or acquisition?

In general, bringing legal counsel in early contributes to successful deals. We focus on the process and the documents involved with the deal to help clients avoid unfavorable terms/the “uh-oh” moments.

Clients tend to focus heavily on the financials and—particularly for sellers—the sales price. We help them understand everything else involved in the transaction. When we’re brought in prior to signing the letter of intent or before discussions begin, we explain the terms for confidentiality agreements, binding and nonbinding clauses, tax issues, and ways for buyers to pull back money through indemnification provisions.

Purchase agreements tend to be much longer and more involved than first-time business sellers are expecting. They are not simply glorified letters of intent.

On the sell side of transactions, deals are successful when clients understand the factors involved before and after the sale. The seller needs to think about what they want for themselves. For instance, are they really prepared to work for someone else after years, decades even, of working for themselves or with a handful of partners, even if only for a short period after closing?

The company culture after closing is rarely considered. Target companies often go from operating in a smaller environment to operating in a much larger one. Employees who are used to having direct access to the previous owners on a daily or weekly basis may no longer know the new owners and may find there are two to three layers of management between themselves and the top decision makers.

Are there any common lessons or themes you’ve seen in deals that are not successful?

Less successful deals usually go bad within the first year after closing, even after all parties spent months, even years, working on the deal. Financial issues tend to cause most problems, but unpredictable events do occur—for example, the COVID-19 pandemic.

When I say deals go bad, I mean that the deal does not achieve its objectives if the target company fails to realize its potential post-closing. Buyer’s usually have a “theory of the deal,” the strategic goal the deal is meant to accomplish, but often overlook aspects of the target company that could impact achieving that goal.

How often do these problems become clear before the transaction is complete, versus once the deal is done?

Problems usually become clear after the deal is done and the real integration work begins. Often, the information was there before hand and not identified as a problem. There may have been a “pink” flag, but not something the parties really honed-in on. It’s rare to experience a brand-new problem that, looking back, wasn’t somewhere in the due diligence process or deal documents.

But as the recent COVID-19 crisis has shown, it is impossible to foresee every potential problem in advance. COVID-19 was a brand-new situation that none of us had experienced. But with a quick and successful switch to remote work for many companies, what at first seemed like a situation that could cause deals to go bad turned out not to be the case.

Good deal documents protect both the buyer and the seller, and fairly allocate the risk if an issue does arise.

To the end of avoiding problems and mitigating risk pre-deal—as you advise on a transaction—is company culture typically seen as an important part of due diligence?

Honestly, I would say that company culture is almost never on a due diligence check list.

There is usually an “HR/Employee” section that mostly consists of checking a few boxes regarding payroll systems, employment agreements, non-compete covenants, NDAs, etc. But buyers rarely do a deep dive into company culture, to their detriment because it is such a fundamental aspect of the success of a transaction.

Often, organizations start to address cultural issues only when there is a problem. In an ideal scenario, when would leadership and culture come into play for an M&A deal?

Ideally, cultural considerations would be part of the due diligence checklist to expand on the review of things such as employment contracts and nondisclosure agreements. Analysis to evaluate the workplace can include factors such as cultural norms regarding approaching senior leaders, how or whether ideas are allowed to bubble up from lower levels, the level of obedience required, and what collaboration looks like.

When looking at a deal, most buyers and sellers don’t consider their respective leadership styles.

Most owners expect key people to be successful on the other side of the transaction. But, if the acquired company’s culture is more collaborative and the buyer’s company culture is more authoritative, those key people may not be in an environment that will allow them to thrive. The buyer will not have the same workforce after closing if that situation results in significant attrition.

Have you ever seen leadership and culture drag down a deal or hinder growth? What did that look like?

Transactions often don’t work if the buyer doesn’t understand the company they acquired. There can be a tendency for buyers to move on to the next deal. That may be fine if the leadership is in place to allow the acquired company to run on its own. But if the acquired company needs attention, then ignoring it is not going to produce the intended goals.

How about on the flip side? Where have you seen strong leadership or culture drive growth?

Strong leadership is essential to the success of an owner-operated company. My clients are mostly well-established businesses with strong, focused leaders. They know their business and their people well. They understand the people behind the numbers; that their people make the business work. Culture influences how the company operates and communicates. That’s what needs to be integrated after the sale.

In the successful deals I have seen, the buyers understood what they were buying and how best to integrate the new company and its employees into their operations.

As you think about the next few years, and the evolution in your field, what are you most excited about?

I am curious to see what “normal” looks like as businesses try to bring employees back to the office. What will company culture look like?

The M&A environment has remained active and moved along well during COVID-19. There are still plenty of buyers looking for targets. Baby boomer owners still want to sell their businesses. I expect this momentum to continue. 

We’re so grateful to Scott for sharing his expertise and insights on M&A. Check back here for future installments of the Deal Makers Series!

Learn more about Leadership & Culture Due Diligence »

Conscient Strategies was founded with the idea that every organization is capable of thriving through change. With a focus on strategy development, program implementation, workplace dynamics, and leadership development, Conscient Strategies equips leaders with the tools necessary to continuously navigate the constancy of change in ways that not only benefit their team, but, equally as important, their business outcomes as well. From mergers to c-suite changes to sudden or explosive growth, organizations turn to Conscient Strategies when change is threatening their financial health and cultural wellbeing.

Based in Washington, D.C., Conscient Strategies is comprised of a talented group of consultants, executive coaches, strategists, and account executives. The team has worked with organizations of all sizes in the private, federal, and non-profit sectors across the United States and Internationally.

 

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Deal Makers Interview Series: Christine Jones

Deal Makers Interview Series: Christine Jones

In the Deal Makers Series, we interview leaders, experts, and innovators in the Merger & Acquisition and the Private Equity space about how they get successful deals done. The series highlights perspectives of investors, corporate development executives, and buy and sell-side advisors working across industries and geographies.

For the fifth installment, we interviewed Christine Jones, Co-Founder and Managing Partner of Blue Highway Capital, a US-based investment firm growing small middle-market companies nationally, focusing on the Northeast and Mid-Atlantic regions.

What is your current role, and can you tell us a little bit about how you got there?

I co-founded Blue Highway Capital after stepping back into the professional world following a 10-year hiatus to attend to my children. I like to say that children are a form of investing, though with longer tails. Returning to investing, I was looking for a structural break in the market, a place where capital wasn’t actively being deployed. Looking back at my own track record, I realized that—overall—two-thirds of my investments went to rural regions, and those investments outperformed the remaining investment portfolio. This coincided with the time that the country was beginning to highlight underserved areas.

Statistics show about 74% of PE and venture capital is invested in California, Massachusetts, and New York—53% goes to California alone. Approximately 85% of that capital is under management in California, Massachusetts, and New York, with California once again holding the majority at about 57%. So, it becomes straightforward—money goes to where money is. Naturally, people look to community banks in rural areas for investment capital, but in 2019, the Federal Reserve noted that just 16% of those loan portfolios were dedicated to business development. Building on our thesis that we can do well and do good; this is how our strategy came to be.

So far, we haven’t ever competed with other funds for our investments, a fact that has helped us to establish trust and a strong reputation with the management teams and communities we deal with.

What makes for a successful investment?

The first answer is people, the second answer is people, and the third answer is people. Its exceptionalism around people and the ability of people to adapt. We saw this with COVID—the determination and drive to persevere yielded results beyond expectations. Pandemic-related issues around the supply chain, finding people for open roles, and so much more highlighted how essential people are in making suitable investments. You can always have a business plan and other added factors, but what every business doesn’t always have is an exceptional management team.

We also have two nonfinancial metrics that we evaluate each year. We want our companies to do well economically, but we also track job creation and ways companies have shared their prosperity with the community. For example, we have a company that hires neurodiverse candidates, and we report this as part of our metrics to our fund partners in our annual report.

How do you evaluate whether the team and people are the right folks to bring an investment/company to its next growth point?

We are not a VC fund or investing in things such as technology innovations or new engineering years down the road, or a company that will burn cash for a long time. We look at strong fundamentals from the beginning. Having done this over time, I will say incremental change is more of our type than growth by leaps and bounds, i.e., hypergrowth. There are challenges with hypergrowth; it is not a panacea. We value incremental growth, because it is born out of the experiences of the management team and the guiding principles are clear.

So, you ask, how do you know? You don’t always know, but we do our due diligence around people and their adaptability, background checks, and get recommendations. Ultimately, you don’t truly know, so you need other people in your network to be there to assist you. These networks can manifest in the form of added independent board members, other investors with specific skill sets, etc. No one investor can do it all.

What are common lessons or themes you have seen in deals that didn’t work out as planned?

I wouldn’t blame a company for failing—but I will say where I failed as an investor. It’s really around the people question. For example, I invested in a company brought to me by a person who had a stellar recommendation, and he vouched for the team, and it ended up being misplaced.

The lesson I took from that is, you can’t always take the advice of someone you know very well and think highly of. You must be careful you don’t misplace your trust. I can take on opportunities from people I know and are well intended, but I still must do my own work—pay more attention to my own instincts, trust myself and my experiences—so ultimately, trust and verify.

Are problems transparent before deals?

Not always, but they do manifest quickly. We have a saying, that lemons ripen quickly.

What are the most critical pieces of data that you obtain or activities that you perform during the due diligence phase?

We do a lot of financial due diligence. Most companies don’t initially have audited financial statements—more frequently their statements are reviewed—though at times, they have only QuickBooks and other simple ways of keeping records. So, we spend more time with the quality earnings report, and we have accounting expertise on our team who spend time verifying trends and numbers—as numbers tell your story—so there is a lot of work around that. There’s also a lot of work in structuring the investment to ensure that it’s aligned. We always do background checks and talk to references, customer vendors, accounting firms, insurance brokerage firms, and attorneys to get to know people around them.

We do a lot of work on operational components, looking for ways to add value and generate sales. Sales channels are shifting so quickly now that a lot of work is focused on customers, identifying who your tribe is, and how you can get more sales from them. There’s also thought on how you expand your tribe and measuring these customer acquisition costs. Looking at the competitive landscape, we like to find niche opportunities, especially if they can exploit regulatory or other market gaps. So, looking for unique ways they approach the market.

How important do you see culture as a growth mechanism for companies looking to grow?

From my lens, it’s important. However, I have seen companies do very well with cultures that aren’t great, though I don’t see them as healthy when compared to others. They don’t do well for a long duration, but they can be okay if you can get them to a particular place where they can eventually sell. When you look at Silicon Valley and see what gets funded, some funded companies have dysfunctional cultures. If you measure success by returns on investment, it’s possible to achieve returns in the short run. In the long run, a dysfunctional culture will not yield as much success.

Have you come across an investment that meets your criteria but wasn’t a good fit for BHC?

We back away from 99 out of 100 opportunities. The major reasons an investment might not be a good fit include: 1) people, 2) ability to scale, and 3) the lack of an addressable market.

Looking ahead to the next few years, what excites you?

I’m excited about our strategy of investing in rural America. People have started heading back home, and rural America is exploding in terms of opportunities. There isn’t currently enough capital to take advantage of those opportunities. I think more people should look at the rural areas—the more the better.

We are a women-run fund. We can grow the economy much more broadly and in a more democratized manner; that is exciting! 

We’re so grateful to Christine for sharing her expertise and insights on M&A. Check back here for more future installments of the Deal Makers Series.

Learn more about Leadership & Culture Due Diligence »

Conscient Strategies was founded with the idea that every organization is capable of thriving through change. With a focus on strategy development, program implementation, workplace dynamics, and leadership development, Conscient Strategies equips leaders with the tools necessary to continuously navigate the constancy of change in ways that not only benefit their team, but, equally as important, their business outcomes as well. From mergers to c-suite changes to sudden or explosive growth, organizations turn to Conscient Strategies when change is threatening their financial health and cultural wellbeing.

Based in Washington, D.C., Conscient Strategies is comprised of a talented group of consultants, executive coaches, strategists, and account executives. The team has worked with organizations of all sizes in the private, federal, and non-profit sectors across the United States and Internationally.

 

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Contact us to get started.

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Deal Makers Interview Series: Curt Cyliax

Deal Makers Interview Series: Curt Cyliax

In the Deal Makers Series, we interview leaders, experts, and innovators in the Merger & Acquisition and the Private Equity space about how they get successful deals done. The series highlights perspectives of investors, corporate development executives, and buy and sell-side advisors working across industries and geographies.

For the fourth installment, we interviewed Curt Cyliax, Managing Director at Strategic Exit Advisors in Pennsylvania, an Investment Bank for entrepreneurs helping owners achieve their Ultimate Exit.

What is your current role, and can you tell us a little about how you got there?
I am a Managing Director of a niche investment bank located outside of Philadelphia. We got into the business by bringing several solo practitioners together 15 years ago. After that, we all wanted to move upstream and work with bigger companies—so we did—and over the years, we have grown. We work for entrepreneurial owners who want to exit, and typically have a unique characteristic about their business or themselves that they want to preserve, and we help them achieve that. From a size standpoint, we work with companies (revenue-wise) from about $5 – $50 million, which is an enterprise value of about $10 to more than $50 million. I have spent 20 years in the industry and ten years doing this on my own, and just love making deals and helping people achieve what they want to achieve. We also tie in the emotional piece because when you sell a business, it is a draining process, and can also be an emotional one. This is evident especially when dealing with an owner/founder who starts a business and gets it to a successful level, or a later generation owner of a family business who must wait until the family member who owned it previously leaves this Earth before they can sell. So, when a child or management team doesn’t want it, and they want to sell it in a third market, that is where we come in.
When working with a typical client, what are the primary services you provide for them?

Our services consist of leveraging our experiences to help sell clients understand:

  • What the value of their business is, and
  • That the culture and people—the most critical assets—are taken care of.

We provide examples from situations where we have accomplished these goals. We are not dealing with a market segment where two companies are merging, and they are getting rid of many people due to duplication. We are typically dealing with a company that is an add-on to an existing company or platform, where a financial or strategic buyer puts more money into a business—regarding people, resources, and so on. We educate sellers on valuation, what a buyer looks like, and how a buyer will treat operations.

What makes for a successful acquisition?

The most successful acquisitions involve vetting what is important to the owner and conveying that to the prospective buyer group. Our process makes it more apparent which buyers will meet many or all the owner’s needs. For example, there are many fragmented industries around the world, and the typical financial buyer comes in and buys one of our companies as an add-on, holds it for three to five years, and flips it after that. For our business owners, that’s not an attractive buyer; they are concerned about what happens with their employees three to five years down the road. By understanding what our clients need and holding their hand through the process, dealing with the emotional issues that must be addressed throughout, and trying to tackle them upfront as quickly as you can, it isn’t a “say it once, and everyone understands it,” approach. We try to find business buyers who have a more permanent type of equity, where they will take a company that we sell, and their goal is to keep it—maybe not forever, but to not flip it in three to five years and instead want to keep it and help it grow.

How do you assess culture and people fit between a buyer and seller?

We emphasize what is important to the owner, but don’t lead with that. Our approach allows the prospective buyer and seller the chance to get to know each other on a short call before they start doing a deep dive into the business. Now, in the world of Zoom, you can read facial expressions, reactions, and some body language, which helps with vetting from the get-go. The buyer’s intent comes out very quickly in the conversation—this is the foundation we set for both sides to understand “what is this company really,” and, “what are the buyer and seller about?”

We insert the human. Before they get the entire book, they get a piece or a summary of it, and then they get to talk to the owner. Then—in real-time—the buyer must sell themselves, and the seller communicates precisely what they want, and the buyer can go, “this sounds good.” They have the option to listen to each other’s needs and intentions. It sets the tone for discussion just as much as the culture and the people. When employees work for someone for 40 years, they are like family—the people component is a big piece of these relatively smaller businesses—and even a $20M – 40M business.

What are common lessons and themes you have seen in deals that didn’t work out as planned?

Normally, we try to vet our prospects well before they turn into our clients, but we occasionally miss the mark. We see something attractive in a business, and we do our research and sometimes find out it’s not what we thought. The common reason companies do not transact many times is that they are too small to do so. Often, in certain situations, we have owners talk to psychologists before they move forward, so we get their familial tension out of the way. But sometimes when we get into it, the business isn’t as valuable as we thought—this is our mistake. Another possibility is the owners don’t decide as a unit, or an unexpected event, like COVID, happens.

For example, last year, we worked on two transactions at the same time; one was a business selling directly to consumers over the internet, and it hiccupped for about four weeks. The company made cuts, and within eight weeks, there was a turnaround, so those people came back, and then they were looking for more people. In this scenario, the culprit was resistance due to an unforeseen event—we were in the management (final) stages, so we took a break, and when we picked it back up, it was back on the beat. We worked with another company that was into internal communications for pharmaceutical companies—which was a luxury, nice-to-have thing before the pandemic. When the pandemic hit, the need for this technology instead became a must-have, causing them to become so busy that both the seller and prospective buyers needed to be put on hold. We picked them back up in the last quarter, and the buyer’s interests and price had grown exponentially.

Do you see scenarios where deals are anticipated to be good before close, but afterwards turn out otherwise down the line?

We do stay in touch more with the sellers as we are on the sell-side. We get the seller’s perception of what is really happening. We find out from them regularly how it’s going, about once a year or so. We see growth potential for these companies—you won’t replace the owner as there is minimal upward mobility. It’s a win/win when we talk to the owners. These owners tend to stay in touch with their people to ensure they are being taken care of. Another point of interest for them is that they want us to make sure the business they developed is successful for the new owner. They want to see them happy and making money, but also for the company to grow—they often maintain the original name under new owners. There is no need to fix it if it isn’t broken.

When looking at the due diligence phase, what are the most important pieces of data or activities that you perform?

I wouldn’t say that data is the most important—but, I will say the process is an emotional rollercoaster, it’s going to be a ride—keep your eye on the end target. From basic factual information, what’s most important—and we stress this from the beginning—is that you are honest. This is the most important thing about due diligence; being honest from the get-go. Credibility matters hugely in these smaller businesses.

Honesty is number one. If you have a “what,” get it out there initially, because a prospective buyer will read this as, “is that is a ‘what’ I can deal with?” For us, due diligence starts on day one. If there is any bad to tell, tell it now so that it doesn’t become an “aha” moment later. Establishing trust, keeping it, and staying honest are the most important pillars of due diligence. The numbers aren’t more important than the processes, people, or vendor-customer relationships. They are all equally important. I will say being honest and having a vision for growth are two key features that must be tackled at the start.

Have you ever seen leadership and culture considerations drag down a deal? What did that look like?

Yes, I have. I will say that leadership is more often the culprit. One of the things we like to do is visit the company. If they tell us one thing, and then when we visit the culture is not as stated, that’s something we back away from. From a leadership standpoint, we have seen leaders that don’t really lead by example and are destructive. We have run into problems where these destructive leaders are also the owners. They are more negative than positive—they’ve grown a nice business but are not enthusiastic about it. Owners must be enthused about their business for prospective buyers to follow suit. We’ve had situations that once you get into it, the owners aren’t as enthusiastic, or their enthusiasm doesn’t come across; you can coach them, but if they don’t listen, you can’t make them listen. This has been our biggest hurdle with leadership.

Shifting to the subject of keeping a company’s original name, banner, and brand post-acquisition—how often is this the case? If otherwise, how does this impact integration?

I think that is the bulk of our work. But I will say that for 95% of opportunities we work on, everything is left alone—the buyers want to learn about the company first and then tweak it later down the road. Thinking back, we’ve only had one case that was an exception in the past; a publicly held company bought and renamed a group of brands before replacing their leadership in a short period.

Do you work with your sell-side clients to define and talk about their culture, so that it’s presented in a way the buyer understands?

In many of our cases, the sellers explain their culture to us because they genuinely believe in it. For them, it is more than a mission statement; it’s an active task they work on throughout the year. They explain it to us, and we take copious notes to facilitate us explaining it to prospective buyers. We try to articulate as best as we can, but the owners can do it better than us.

When they tell it, and we witness it, this is very apparent. We let the owners expand on their “how,” “why,” and “what.” We focus on the highlights—such as incentives and rewards—and then the owner talks about how and why they do it, and what it means to people. When an owner explains it, they explain it from a better vantage point, in part due to their knowledge of their people and their importance. We try to stay out of the detailed explanations, as the owners are the experts in what they do. We are just experts in the process of how to do it.

As you look forward to the next few years and the current evolution in your field, what excites you?

What excites me is getting to continue doing what we do. We can’t control the world—with so many things going on, there are so many things we can’t control. All we can control is focusing on what we do well and making owners happy beyond their wildest dreams. That’s just fun.

The other aspect we use to differentiate ourselves is that we have this “pay it forward” initiative, where with every engagement fee we charge from a successful sale, we take this fee and donate it to charity. For our philanthropic clients, it makes us happy that we can make their sales dreams come true and donate $30,000 – $40,000 to the charity of their choice.

What haven’t we talked about that you think is important for a deal to be successful?

There must be an emphasis—especially for the lower and middle market—on the emotional process an owner goes through when selling their business as we court them. We haven’t yet figured it out entirely, but we have tools and resources to help our business owners get through it. When an owner has been dedicated to a business for 30 to 40 years, and suddenly, they are out of a job and feel a lack of relevance—that emotional process is one we continue to learn about. In our world, money is important, but understanding the emotions an owner goes through as they make decisions, journey through the process, and ultimately turn over the keys to their business can be a real roller coaster. Having these feelings as an add-on when doing due diligence can become a consuming process. We try to hold our owners’ hands a little more through that because we know it is a ride, while keeping the endgame in mind. We must do a lot of listening as the emotional process is a very real thing.

If you weren’t doing this, what would you be doing?

Something easy. I am an accountant by trade; I got into it, loved it, and outgrew it. Now—with what I’m currently doing—it hasn’t been easy, but still a fun ride. 

We’re so grateful to Curt for sharing his expertise and insights on M&A. Check back here for more future installments of the Deal Makers Series.

Learn more about Leadership & Culture Due Diligence »

Conscient Strategies was founded with the idea that every organization is capable of thriving through change. With a focus on strategy development, program implementation, workplace dynamics, and leadership development, Conscient Strategies equips leaders with the tools necessary to continuously navigate the constancy of change in ways that not only benefit their team, but, equally as important, their business outcomes as well. From mergers to c-suite changes to sudden or explosive growth, organizations turn to Conscient Strategies when change is threatening their financial health and cultural wellbeing.

Based in Washington, D.C., Conscient Strategies is comprised of a talented group of consultants, executive coaches, strategists, and account executives. The team has worked with organizations of all sizes in the private, federal, and non-profit sectors across the United States and Internationally.

 

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Deal Makers Interview Series: Judd Appel

Deal Makers Interview Series: Judd Appel

In the Deal Makers Series, we interview leaders, experts, and innovators in the Merger & Acquisition and the Private Equity space about how they get successful deals done. The series highlights perspectives of investors, corporate development executives, and buy and sell-side advisors working across industries and geographies.

We interviewed Judd Appel, Director of the M&A and Capital Raising practice at BayBridge Capital Advisors, an affiliate of Berkowitz Pollack Brant (BPB) Advisors + CPAs.

What is your current role, and can you tell us a little of how you got there?

I’m the Director of BayBridge Capital Advisors, advising clients on buy-side and sell-side mergers & acquisitions (M&A) transactions. I also raise debt and equity capital for clients, and try to find the unique solutions that our clients need.

I began my career as a CPA with Berkowitz Pollack Brant, left for 20 years to work for KPMG (Transaction Advisory Services), General Electric Company, Honeywell International, ITT Corporation, and Global Infrastructure Partners, and then returned to run the BayBridge Capital Advisors arm of BPB. I truly believe we have a great growth platform here.

Tell us about a typical client for BayBridge? What does working with them consist of?

We work with a broad array of industries covering most everything except probably oil and gas.

Our typical client and professional sweet spot are small cap clients with EBITDA of $3-25M. While our average deals are in this range, we sold a $1.2B auto dealership business last year. We work on a success fee structure so clients pay us when we succeed. We are very selective about the clients we choose to work with and conscious about what we bring to market.

Given that the majority of our clients are first time sellers, we invest a lot of time supporting the client throughout the selling process. Often, these are family-owned businesses. Recent examples include a $10M company owned by three members of a family, and a husband and wife that were running the $1.2B auto dealership group.

This work is very different than the work I did at General Electric and Honeywell where we were experienced buyers and largely dealing with experienced sellers. Since we work with smaller companies at BPB, our deals tend to have a more personal impact on the seller and require much more “hand-holding”.

You’ve worked on a variety of deals and acquisitions. What are some of the factors that you think contribute to a successful merger or acquisition?

The most important factor is to find the right buyer who is aligned with the goals of the seller, be it a strategic or financial driven transaction. Most of our clients want to find a good home for their companies, meaning they want the buyer to invest in and grow their businesses. No one desires to sell to a buyer who will cut costs and resell the business within a year and half to three years later. We spend the time and effort to find buyers who will continue to nurture the business and make the investment for growth.

Another important factor affecting the valuation and success of a deal is continuity of leadership. Buyers tend to want the former owners to stay on for a period to preserve relationships and provide interim stability for specialized businesses. This is a major point of negotiation since some sellers are tired and want to just walk away. That usually doesn’t work well in terms of valuation and success.

Are there any common lessons or themes you’ve seen in deals that are not successful?

It’s imperative to focus on people as they are the most important aspect of every business. If the workforce doesn’t like the new owners, value disintegrates quickly.

Our ability to go beyond the numbers for organizational compatibility and provide a high level of confidential support to our sellers differentiates us from the big investment banks. 

How often do these problems become clear before the transaction is complete versus once the deal is done?

The people problems usually become clear after the transaction is complete. We try to be proactive regarding this issue since interpersonal relationships of all sorts are often key to financial success. 

Often, organizations start to address cultural issues only when there is a problem. In an ideal scenario, when would leadership and culture come into play for an M&A deal?

Cultural issues must be dealt with on day one of the process. I am not saying it’s impossible for a multi-billion company to be successful with the acquisition of a $15M business, but you will obviously see and feel many cultural differences between large corporations and small entrepreneurial companies. In nearly all cases, the right transition period and predecessor management involvement is required over the first year. 

What is the value of integrating leadership and culture into due diligence? How does this look in practice?

Most of our clients employ a local workforce. The seller wants to know what will happen to their employees. They are not looking for a buyer who will cut a large percentage of the workforce. If buyers are looking for a firm that will integrate, they try to be open and minimize unexpected issues.

It’s my role to give guidance to the seller as their banker. I’ve been in this arena for 25 years. I’ve learned a lot from seeing many successful transactions and of course those unsuccessful ones. As one would always say “the best way to learn is to make a mistake” and learn from it.

Have you ever seen leadership and culture drag down a deal or hinder growth? What did that look like?

The human element, in addition to segment/industry alignment, is so important. From my perspective, people are the most important element in any deal.

From my previous Honeywell buy side experience, I saw plenty of examples of significant consequences when culture was not considered enough. Culture is a big consideration.

One experience was a company run by 6 partners out of a mid-west firm that operated very differently than our $40Bn organization. When clashes develop between the acquiror and acquiree that can quickly diminish the value proposition. In this instance there was a significant impact on client relationships and sales continuity.

Similarly, employees at a British company doing work in the United States felt very empowered to run their business prior to the acquisition by a German company. After the merger, that empowerment was taken away. Voices could not be heard. It was harder to hold people accountable. In this case, sales quickly slowed, and profitability fell, leading to dilution in value of the target company.

I try to educate sellers about these issues and what the situation will be like after the transaction.

There is a lot of concern with my current deals regarding what the company will look like in the future.

As you think about the next few years, and the projected evolution in your field, what are you most excited about?

Completed transactions are at an all-time high. The economy remains robust and many public valuations are up more than 100% year-over-year. We all hope this strong deal market will continue.

I want to create wins and build on my proven track record. I enjoy doing a lot of networking these days.

On the sell side, defining the culture of the company being sold differentiates our service to the seller. It’s important to set expectations to the buyers and work with both sides. 

We’re so grateful to Judd for sharing his expertise and insights on M&A. Check back here for more future installments of the Deal Makers Series.

Learn more about Leadership & Culture Due Diligence »

Conscient Strategies was founded with the idea that every organization is capable of thriving through change. With a focus on strategy development, program implementation, workplace dynamics, and leadership development, Conscient Strategies equips leaders with the tools necessary to continuously navigate the constancy of change in ways that not only benefit their team, but, equally as important, their business outcomes as well. From mergers to c-suite changes to sudden or explosive growth, organizations turn to Conscient Strategies when change is threatening their financial health and cultural wellbeing.

Based in Washington, D.C., Conscient Strategies is comprised of a talented group of consultants, executive coaches, strategists, and account executives. The team has worked with organizations of all sizes in the private, federal, and non-profit sectors across the United States and Internationally.

 

You may also be interested in:

Deal Makers Interview Series: Jack Hendler

Deal Makers Interview Series: Jack Hendler

“One of the main reasons we have success is we bring the appropriate buyer to the table…Sharing the philosophical perspective supports the transition, ultimately decreasing potential unintended roadblocks.” For the most recent installment of our Deal Makers series, we interviewed Jack Hendler, CEO of Avalon Net Worth, an independent investment banking firm.

read more
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Connection before correction is imperative for leaders. When people feel connected to you, they will be more likely to support you and receive your feedback. This concept is easy to understand, yet so easy to overlook.

read more

Ready to grow a stronger organization? 

Contact us to get started.

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