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 »

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