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Deal Makers Interview: The Truth Behind Failed Acquisitions

by | Mar 1, 2022

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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