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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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read more

Ready to grow a stronger organization? 

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.

 

You may also be interested in:

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read more

Ready to grow a stronger organization? 

Contact us to get started.

3 + 5 =

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:

Well-Being Matters

Well-Being Matters

Organizations often have programs to support well-being, but what does this term really mean? Is there a connection between well-being and belonging?

read more

Ready to grow a stronger organization? 

Contact us to get started.

2 + 3 =

How to Develop Leadership & Culture to Optimize Value

How to Develop Leadership & Culture to Optimize Value

In acquisitions, both sellers and buyers spend great effort in financial and operational due diligence, yet far too many transactions fail. Why?

Leadership and culture are critical to a successful acquisition, but frequently they’re ignored. For sellers, recognizing that leadership and culture are linked to enterprise value helps them mitigate risk and drive value in preparation for sale. For buyers, leadership and culture play a critical role in ensuring a smooth post-transaction integration.

Key Learnings:

Leverage real-life examples to learn why the evaluation of leadership and culture matter leading up to a transaction.

Understand what a pre-transaction leadership and cultural assessment looks like.

Learn how addressing these types of risks can drive value for sellers and buyers.

About Value Scout:

Value Scout is the first value creation platform. It enables entrepreneurs to pinpoint their business value today, create and drive a plan to create the value they’ll need tomorrow, and exit on their terms. Value Scout enables entrepreneurs to take a deliberate, proactive approach to value creation. Business leaders and their advisors use it to identify, plan for, and drive all their value creation activities – from growing revenue and increasing efficiencies to improving cash flows and strengthening leadership teams. Learn more at getvaluescout.com.

You may also be interested in:

Well-Being Matters

Well-Being Matters

Organizations often have programs to support well-being, but what does this term really mean? Is there a connection between well-being and belonging?

read more

Ready to grow a stronger organization? 

Contact us to get started.

10 + 10 =

Deal Makers Interview Series: Jack Tillman

Deal Makers Interview Series: Jack Tillman

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 second installment, we interview Jack Tillman the Head of Corporate Development for a leading network of community hospitals in Georgia.

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

I’m the Chief Real Estate and Corporate Development Officer for the largest health system in Georgia.

I consider myself a generalist. Over the years I’ve had many different roles from consultant and executive to foundation and a university administrator. But, what has been the running theme of my career is an interest in humanity that’s lead me to work within large non-profits across the education, healthcare, and research sectors.

What were some of the biggest building blocks to helping you achieve your leadership position and personal perception of what is good leadership?

I’ve had a commitment to the truth and being a direct and honest communicator since I was very young. Those were values taught in the Catholic school where I was educated and also by my stepfather who was CFO of a major private corporation. He really educated me on the ways the world, especially the business world, actually works, with a focus on common sense and hard work.

Over the years, I’ve built relationships and mentorships with people who also deeply value truthfulness. My current boss who is a mentor of mine, and a former partner, also a former boss, is a great example. We have a high level of candor with each other and that makes both of us better at our jobs. If you are diligent, thoughtful, honest, and back up opinions with data, you may not know the answer right away, but these values will help you get to the best business outcomes in the long run. Those values, and being a person of consistently high character, enable you to have a straightforward reputation that others will gravitate towards.

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

Diligence is super important. It’s important to be thoughtful and honest about what you’re really looking for and develop an opinion early on about what will make a good deal. Then you lay out the spectrum of all the different ways a deal might go, a series of options, from the situation where we don’t act on a deal to the one where we overpay for the acquisition. You then carefully consider all these options and scenarios and make plans from there. There are a million different ways a transaction can go, but the key is to be specific about your assumptions and then try to predict how you expect the people to act. You then do the math and base your decisions on your understanding of all the possible outcomes. I’ve learned a lot of these skills from bankers and lawyers involved in transactions, but I think they are also just a good way to approach business in general.

Having a solid deal team in place is also essential. You can’t see everything and we all have blind spots, so having a partner to point out what you’ve missed and who can help observe all the small details and dynamics going on is important.

Beyond the bankers, lawyers, accountants, experts, you need trusted partners who have your back as you make a deal. Deal teams that take this approach, they get consistently good outcomes.

You’ve always worked for mission-driven organizations where culture plays an important role. How important do you think leadership and culture are in creating value?

They are sort of everything to me personally. I won’t work for people or cultures that I don’t align and harmonize with.

Certainly you can make a lot of money and there are plenty of successful businesses out there that don’t care about those things, but success is fleeting if you don’t have the right leadership and culture in place.

In my work, I regularly meet with the many CEOs of hospitals in our network. It’s a great opportunity to see how different leaders and culture do the same work but in different ways. All our hospitals are focused on quality, safety and service. I’ve found that the highest quality leaders who develop high performing cultures are also the stewards of best financial results, at least in our system. Our best performing assets are those with solid leaders with good business acumen who get the very best performance from their team. 

What are those leadership traits that get the best performance? Where exactly do you see the effects of leadership on business outcomes?

Better leadership results in consistent and predicable strong financial returns. These leaders and their organizations still of course have ups and downs, but over time, they provide us predictable and reliable returns. These are the leaders who have a clear understanding of their performance and why it is the way it is. They can explain here is what’s happening, here are the steps I’ll take to address the current situation, and here is the expected result.

These really good leaders are also the ones surrounded by really great people, they are magnetic. Good leadership attracts high performing employees. Good people come in clumps in my experience, they are clumpy. The best leaders unlock the capacity of their teams to perform their best. It feeds on itself.

I also often say that you know who a really good owner is because they can hire bad consultants and experts but still get good outcomes. Weak owners on the other hand may be surrounded by the best consultants and experts, yet their outcomes will continue to suffer. If a leader doesn’t know what they’re doing and does not have good reasons for doing something, then they won’t get the outcomes. Good owners and good leaders drive strong cultures and raise the performance of their teams, internally and externally. 

Do you have a way of evaluating the leadership and culture fit of a potential acquisition?

I’m not in the day-to-day of those decisions and evaluations, but for instance we are in the middle of two ten-figure acquisitions and our CEO and EVP are out there interviewing hospital executives. They’re focused on figuring out how real are these people? Will these people follow through what they say they are going to do? Are they going to execute consistently?

I think a great measure of if someone is “real” is if they are willing to admit they don’t know something. They should absolutely have predictions and opinions and they should be clear about their assumptions, but the best admit the limits to their knowledge. Anyone who says they know everything isn’t very honest, and the people around them respond to that. 

When we evaluate leaders, we are also looking a lots of body language and observing how people treat others around them. What are the team dynamics? How engaged and present are they? Do they know the names and stories of their colleagues? By observing people and their behavior, what they are doing and what they are not doing, it becomes pretty obvious who the real people are. 

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

Our company’s plate is full. We have multiple acquisitions being finalized, so I’ll be laser focused on integration work for the next year and half or so. I oversee that work and am highly involved at the executive level. We have enough economic risk that we engage heavily in overseeing the details of an integration. Of course, I love deal making, so while it won’t be my focus, there may be some restructuring or small acquisitions we make. We also have a JV urgent care business that has been knocking it out of the park, so continuing to grow that will be fun.

Our focus for the near future is to execute well. We are going from 11 to 18 hospitals and we are dedicated to ensuring that every one of the community hospitals in our system is performing at the highest levels of quality, safety, and service. We aim to provide high quality outcomes with a cost-efficient platform. 

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: Jonathan Moore, PKF

Deal Makers Interview Series: Jonathan Moore, PKF

In the Deal Makers Series, we interview leaders, experts, and innovators in the merger and acquisition and 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 first installment, we interview Jonathan Moore, Partner and head of Advisory Services at PKF O’Connor Davies, a leading accounting and advisory firm.

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

I’m a Partner at PKF O’Connor Davies, a Northeast-based regional accounting firm with approximately 1,000 employees. We provide full-service accounting, tax and advisory services to our clients. I head up advisory services which includes the consulting practice, transaction, risk, cyber and digital advisory, along with our TalentConnect and investment banking services. 

 Before joining the firm, I was a Partner in a smaller accounting and advisory firm that merged with PKF O’Connor Davies in 2016. I wear many hats within the company.  I lead both the Transaction Advisory Practice and am also  the Head of Corporate Finance for PKF North America.

Tell us about a typical client for the Transaction Advisory Practice? What does the work helping them consist of?

Seventy percent of our transaction advisory business is generated from working with private equity (PE) firms who are making a new investment in a business to acquire it or are purchasing an add-on to an existing platform company they own. In this case we perform the financial due diligence, provide a quality of earnings report about the target and  analyze the tax and other financial implications of the transaction.

We also do work with sell-side clients, helping business owners get ready to sell. We prepare a quality of earnings report evaluating the financial position and earning potential of the company. This helps a seller understand how much they can expect to sell their company for. We also assist with tax due diligence and often conduct cyber and IT reviews as well. In the digital age, and now in a more virtual work environment, cyber and IT considerations are becoming more critically important for buyers and sellers.

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

In terms of the numbers, the quality of earnings report is key. The valuation and purchase price for a company are directly tied to a company’s historical financial results and the quality of earnings is how we measure this. Target acquisition companies or owners who provide numbers that are defensible, understandable and trending in the right direction is huge for ensuring a smooth and relatively quick transaction.

Other key factors that make for successful transactions include a leadership team that presents a clear vision and an understanding of their growth targets plus data to back it up. When companies show they have systems to monitor performance and have given thought to the type of culture and workplace they are fostering, those are also positive indicators.

It’s about companies proving with data that they have plans, strategy, vision and strong financials. When these components are in place then deals happen fast and all parties walk away happy.

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

Yes, my team often jokes about how we should create a podcast like “Confessions of an M&A advisor.”

On the financial front, an inability to provide and show trustworthy or reliable financial information is the biggest  impediment to a successful deal, buy or sell side. If there is a lack of insight on what is driving a company’s performance and little ability to explain why targets are missed, then it can be challenging to get a deal done. A buyer won’t trust that management can deliver on what they are promising.

Too often, I’ve seen transactions fall through when there is a clear mismatch between the culture, mission, values and communication styles of two organizations. It becomes clear during negotiations and discussions around a deal that the two companies are simply not rowing in the same direction and in these cases deals are typically  not finalized.

There are also challenges when a seller doesn’t necessarily understand all the very complicated and nuanced features of the deal. If someone has never done this kind of transaction before, especially if they’re selling to an experienced and larger buyer, then the seller may not understand all the potential implications of the deal. For instance, they may have been conducting business on a cash basis for the lifetime of the company, however the buyer is evaluating the company’s financials on an accrual basis – or a more detailed level. The discrepancy in the expectations of the financial differential between these two perspectives can result in a mismatch of expectations and even unexpected tax implications for the seller, and I’ve seen deals fall apart for this reason. 

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

For issues related to finances, they typically appear as due diligence is completed and the terms of the deal are negotiated. But for culture, leadership or communication issues, these often don’t show up or are ignored until the integration phase at which point the deal is already closed. The focus is then on how to fix them in the best way to keep the return on investment (ROI) of the deal on track. 

To avoid problems and mitigate risk pre-deal, as you advise on a transaction, what are the most important pieces of data you perform in due diligence?

From a quantitative perspective, everything is on the table. We focus on reviewing historical business trends across product, margin, sales, fixed vs variable costs, cash flow, inventory, customer churn and concentration, supplier terms and more. What is most important can vary based on the value drivers of the specific business. 

 What we also find  important is asking buyers, “what are the value drivers in this acquisition? What is your investment thesis?” This helps us frame our work in the way that is most relevant to the client’s strategic decision making.

 When we work on the sell-side, we draw on past experience, working with the founder to identify what the investors are going to want to see. We want to help them present their company and its financials in a manner that is reliable and defensible and also be in a better position to mitigate risks. 

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, it’s before the deal is even talked about. I think about this from the perspective that every business should have a succession plan which identifies the value drivers of the organization and how to ensure that the company keeps growing even as leadership may change. Culture is a key part of these value drivers and evaluating it should be part of the succession planning process. Indeed, culture can trump numbers. When thinking about a deal, if everyone shares the same values, then it’s easy to move forward and get the desired financial results. But if two organizations are not aligned on values, culture and mission, while  the financials may look good, they will find it challenging to grow together. So really, the earlier the better.

Culture can trump numbers. When thinking about a deal, if everyone shares the same values, then it’s easy to move forward and get the desired financial results. But if two organizations are not aligned on values, culture and mission, while  the financials may look good, they will find it challenging to grow together. 

 I’ve experienced firsthand why culture matters in M&A. I worked for a small firm and when we were small it was easy to manage culture, then as we grew and as we looked to merge, we had to really consider culture. When we started to look to merge, it became evident that it wouldn’t work for us to join certain firms because our cultures were too different. We didn’t want to merge if it would require throwing out the culture we’d worked hard to develop.

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

In many situations the current management or ownership will stay on even after the deal, to lead the transition or roll over some of their ownership into the new company. Private equity firms are looking to back specific leadership teams. A critical part of our work then is to understand the investment thesis of the buyer and how specific leadership traits or teams would fit within this thesis. Buyers need to evaluate if leaders really share their vision for the growth and strategy, and if they have the skills and behaviors needed to execute. 

Often, buyers just go off “gut feelings” but everyone is on their best behavior during a transaction and the “gut feeling” cannot ensure that when the deal goes through that the leadership is prepared to implement changes and achieve targets. Buyers want evidence and data to back up the financials and performing systematic assessments of leadership and culture during due diligence can ensure there is evidence to back up “gut feelings.”

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

I’ve certainly seen instances when we have dug further into a deal, leadership and culture problems have become very obvious. There have been major issues with communication and misaligned values and vision. If we’re lucky, these problems become clear early in the due diligence and plans to address them can be made, but sometimes these issues are not clear or are overlooked until a deal goes through and targets are missed.

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

I find markers of strong leadership and culture to be when leaders are answering questions before I even ask them. This shows that a company is motivated to get the deal done and is thinking through the implications of the deal. When the target company answers questions based on fact and not emotions or projections, that’s a sign of good leadership. I can think of specific transactions too where the culture of the target acquisition was very focused on empowering employees to drive results and the positive evidence of that culture could be seen in the financials and in how people interacted.

Overall, when those involved in the deal are looking for a long-term investment and growth, rather than a quick pay off, a transaction goes on to be successful.

As you think about the next few years, and some of the evolution, what are you most excited about?

In general, there is so much momentum for deals. There is so much capital, between dry powder in PE and lots of cash sitting on corporate balance sheets, to be deployed. Then the baby boomer generation is starting to make succession plans and look to transition out of ownership. I’m excited about how much liquidity is in the market —  so much capital looking to be deployed. Plus, there is all this new technology that is changing the ways we work. I think this combination just makes me excited for a future full of robust M&A activity. I’m looking forward to getting the pandemic behind us and ramping up our transaction practice.

Beyond that, I am also excited about shifts internally about how we do our work. I think we are starting to take a more holistic approach to evaluating a business, looking at the quality of earnings but also the quality of leadership, systems, technology, data and culture. Additionally, looking at how business on both the buy- and sell-side and considering the environmental and social impacts of their work. That kind of impact evaluation is something new that we’re beginning to focus on. I think it’s important we incorporate all these facets into how we do our analysis and then leverage technology to make the process even more seamless and efficient. 

We’re so grateful to Jon 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:

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Organizations often have programs to support well-being, but what does this term really mean? Is there a connection between well-being and belonging?

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Money Left on the Table

Money Left on the Table

Investors who perform only financial and operational due diligence are leaving money on the table.

It is standard for investors and companies to perform rigorous financial and operational due diligence when preparing to invest. They spend money to hire valuation experts, lawyers, and financial experts to gather data and help them decide exactly what a company or investment is worth. Yet, most deals fail to achieve the target ROI1.

 Traditional due diligence doesn’t fully consider the leadership and culture factors that are critical to organizational growth and success. A good “gut” feeling about a leadership team or using a personality assessment will not provide insights as to whether a leader has the capabilities and behaviors necessary to grow their company and achieve the investor’s strategic objectives. Further, cultural considerations, particularly in the case of M&A deals, require a greater level of evaluation. Two executive teams getting along does not necessarily mean that their organizations’ cultures will integrate seamlessly. If leadership and cultural considerations are left unaddressed until the post-transaction stage, costly problems can arise that undermine growth and slow integration. Investors who are looking to create lasting value and achieve their strategic objectives can go beyond the numbers and leverage leadership and culture due diligence to mitigate risk up front and improve financial outcomes.

 When you dig a little deeper into the numbers, many private equity and M&A deals go wrong when the leadership or culture at the newly acquired firm isn’t prepared or capable of driving the growth and implementing the strategy desired by the investor.

Rather than writing these failed deals off as par for the course, or spending massive amounts hiring consultants to try and fix the problems, investing in leadership and culture due diligence alongside other diligence activities allows investors to evaluate and begin to address potential leadership upfront, saving money, time, and costly turnover in the long run.

 Incorporating a leadership and culture assessment as part of your due diligence process helps ensure that you can identify risks, such as leaders who lack the vision, communication, execution capabilities to drive significant growth or mismatches between a strategy that focuses on innovation and culture that maintains the status quo. Once the risks are known, investors can either plan specific ways to mitigate these risks (employee retention plans, leadership coaching, culture initiatives, or operational changes) or reconsider the investment based on the data. Quantified insights on leadership and culture within a potential investment enhance and complement the financial and operational due diligence.2

 Leadership and culture issues derailing the financial returns of M&A and PE investments are well known, and there is a simple solution: better human capital focused due diligence. Savvy and strategic investors understand that making the small investment to perform leadership and culture due diligence up front and identifying the potential risks can save money in the long run and decrease the time until they see returns on their investment.

Katherine Butler-Dines specializes in project management, strategy design, and business development. With a passion for helping companies grow efficiently and effectively, Katherine focuses on helping people and businesses put into place the structures and processes to not simply adapt to change, but embrace it. She has previously supported quantitative and qualitative research projects on entrepreneurship, particularly about women entrepreneurs, across 11 different geographies.

You may also be interested in:

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read more

Ready to grow a stronger organization? 

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6 Tips to Keep Key Employees from Jumping Ship After a Merger

6 Tips to Keep Key Employees from Jumping Ship After a Merger

with guest author Katie Lipp | March 23, 2021

While a merger is an exciting opportunity for growth of a new company, it can also be a difficult transition for employees. Here are six tips for how to improve employee retention during the post-merger integration:

Create Buy-in with Key Employees.

Before the merger, review the roles of key employees and consider how they may shift post-merger. Then have conversations with the employees to create buy-in for the merger and ensure alignment on any changes to their role. Finally, it is a best practice to have the key employees sign new contracts under the new company and provide them with a retention bonus to stay on post-merger.

Standardize Policies.

It can be easy for companies, and their employees, to struggle with which policies apply post-merger. Audit your company’s employment policies to ensure they are up-to-date, legally compliant, and standardized for all employees.

Get Employees to Acknowledge and Receive Training on New Policies.

Once which policies apply has been determined, there remains the challenge of ensuring all employees are up to date on the applicable policies. Some policies may be new to employees of one of the companies, or language may have been updated in the merger. It is essential to train employees on how the policies work in action and have a signed acknowledgment of each policy in their HR files.

Spread a Clear Branding Message.

Following the merger, it is critical to train employees on the branding message for the new entity and ensure that everyone is aligned on primary goals moving forward. By cultivating a shared brand message and understanding of the new company’s mission, you are encouraging employee buy-in and engagement.

Avoid a One-Size-Fits-All Approach.

Post-merger, employees are trying to see if the new entity is a good fit for them. Flexibility is key to ensure that employees do not get “my way or the highway” messaging.

Be Patient and Give it Time.

Post-merger, don’t expect employees to immediately snap into their new roles. Give transition time, coaching, support, and training on the company’s new goals and objectives. Patience is key.

Special thanks to guest author Katie Lipp

Katie Lipp, Esq., Owner of the Lipp Law Firm, advises companies and executives throughout the DMV area on employment and business law, with a focus on HR consulting and separation of employment. After assisting with hundreds of matters involving employee separations, many times related to a merger, Katie has tips to increase employee retention.

Connect with Katie on LinkedIn.

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:

Ready to grow a stronger organization? 

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Avoiding Misalignment and Maximizing ROI in Operator-Led Private Equity

Avoiding Misalignment and Maximizing ROI in Operator-Led Private Equity

Over 70% of private equity investors and their portfolio company (portco) executives agree that company culture is critical to the successful implementation of strategy, yet only 13% formally conduct an evaluation of their portco’s culture.*

What is culture and why does it matter?

Organizational culture — the assumptions, values, and behaviors underlying the statement “this is how we do things here” — influences employee engagement, strategy implementation, and operational efficiency. Leaders who understand their organization’s culture and how to intentionally align it with strategy can shape the culture to engage their employees and more quickly achieve strategic objectives.

Too often, leaders do not fully grasp or account for organizational culture when implementing a new strategy. This lack of understanding is particularly risky for Private Equity firms with an operator-led investment thesis. A mismatch between portco and the operator who will lead it can be a very expensive mistake. The success and strategy of a new leader can quickly be derailed if their leadership behaviors are misaligned or at odds with the existing portco culture.

The Operator / Leadership Misalignment

PE firms taking an operator-led investment approach, including Search Funds, often work with a roster of operators to identify a potential portco with significant opportunity for growth and where the existing ownership is seeking to exit. The firm will acquire the company and place an operator from their own team to lead the company.

The risk with this approach is that even an experienced operator with an excellent strategy may find it challenging to execute if their leadership behaviors are in conflict with the existing portco culture.

How well an operator’s character aligns with the culture of the company they join will largely determine if they gain the trust and followership of the employees. A leader without the trust and backing of their team will struggle to grow the company and execute on strategic priorities. Further, a misalignment between new leadership’s behaviors and the existing company culture can generate tensions between teams, greater leadership turnover, and operational inefficiencies. It can be difficult to grow a company when the leadership is fighting culture-related internal fires. 

A Simple Solution to Mitigate Risk

There is a simple way to mitigate this risk: assess and understand the leadership and culture dynamics at the outset of an investment. Performing a Leadership and Culture Assessment is the first step to understanding organization culture and the implications of that culture. Conscient Strategies’ PE-focused assessment measures the existing organizational culture and leadership dynamics across 10 key dimensions linked to the company’s specific strategic objectives.

This unique approach allows us to draw out and quantify where an organization falls on the spectrum of important values, such as:

  • Status-quo vs. innovation
  • Top-down vs. consensus decision making
  • Results vs. process-driven

As a result, we help investors, and their operators, identify the key leadership capabilities needed to implement changes and drive growth within the portco’s existing cultural context.

In some cases, we find that the existing portco culture does not serve the strategic objectives of the PE firm and operator. In that context, the culture assessment provides valuable insights into what is working and what should be changed to optimize ROI. Identifying the gaps between the existing and the ideal culture is key to mitigating risk and setting the portco up for growth from the outset. The PE firm, and their operator, can leverage that information to set a strategy that includes shifting the culture to better serve the strategic objectives.

Beyond just assessing the portco culture, to truly create alignment between operator and portco requires evaluating the leadership behaviors of the potential operator(s). Culture is shaped by leaders modeling behaviors and values. Leaders who understand the existing culture and recognize which behaviors will most influence growth can proactively shift the culture. Conscient Strategies’ assessments can quantify the operator’s strengths and skill gaps in terms of key leadership behaviors like:

  • Defining a vision
  • Communicating transparently
  • Building alignment
  • Acting decisively
  • Driving results

The PE firm can then ensure the operator has the leadership behaviors and skills necessary to drive forward the company and shift its culture. Culture and leadership are already recognized as key to successful PE investments and many firms are already assessing how a portco’s culture and specific leaders fit with its strategy. But, doing so in a more systematic and data-driven way will improve outcomes. Rather than relying on gut feelings, using a culture and leadership assessment at the outset of an investment enables the PE firm to more effectively align the operator and portco.

Learn more about Conscient Strategies’ Leadership & Culture Due Diligence »

 

* Source: https://www.alixpartners.com/media/14381/ap_annual_pe_leadership_survey_2020.pdf

Katherine Butler-Dines specializes in project management, strategy design, and business development. With a passion for helping companies grow efficiently and effectively, Katherine focuses on helping people and businesses put into place the structures and processes to not simply adapt to change, but embrace it. She has previously supported quantitative and qualitative research projects on entrepreneurship, particularly about women entrepreneurs, across 11 different geographies.

You may also be interested in:

Ready to grow a stronger organization? 

Contact us to get started.

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The Importance of Culture to Post-Deal Integration and ROI

The Importance of Culture to Post-Deal Integration and ROI

Twenty years after the infamous America Online (AOL) – Time Warner Cable (TWC) merger, the failed transaction continues to highlight the importance of culture in successful M&A deals.

In January 2000 AOL announced it would purchase TWC for $165 billion. Billed as transformative merger that would define the future of media, the deal was the largest corporate merger to date. The vision was that the combined corporation — with vast production capabilities, new technology-enabled distribution methods, and millions of subscribers — would be valued at $350 billion. Quickly after the merger was completed in 2001, it became evident that the deal was a failure and, worse, that it had been doomed from the outset.

Culture is the set of assumptions, values, and artifacts that underlie the statement ‘this is how we do things around here.’ AOL and TWC’s company cultures were so inherently different that the post-merger integration (PMI) didn’t stand a chance.

While the deal was supported by substantial financial risk assessment, leadership put little thought into how the cultures and teams might integrate. As the merger progressed, initial optimism gave way to frustration. The AOL employees were put off by the very buttoned-up corporate culture of TWC while the TWC team was appalled by AOL’s aggressive and arrogant style. This clash led to mutual disrespect, a quick disintegration of cooperation, and stalled strategy implementation. When the dot-com bubble burst in 2001, the ensuing industry-wide economic fallout exacerbated the troubled merger and further crippled any prospects for growth.

The culture clash wasn’t merely an old media vs new media conflict: The integration triggered a conflict over values, priorities, authority, decision making, operations and, ultimately, the question of which company drove the most value for the deal. While the transaction was allegedly a merger of equals, AOL had the more valuable stock and position entering the deal.  Some leaders at AOL believed that status should ensure them a superior position in the post-deal company. On the other hand, TWC executives saw their company as driven by strong values and vision while they considered AOL opportunistic and driven by short-term profits.  Like their AOL counterparts, TWC leadership perceived their company as the superior business. As the two companies quickly realized, the best laid strategy can quickly be derailed by cultural issues.

AOL stock tumbled in the way of the 2001 dot-com bubble and cross-company management fights became public. Former TWC Chairman Gerald Levin — who became the CEO of the AOL Time Warner corporation — complained publicly that TWC was being sunk by AOL. He was shortly thereafter replaced, an act that fueled further, costly executive turn-over. The spiral continued until, by the end of 2002, AOL Time Warner announced $98 billion in annual losses.

Today, neither company exists, both having been sold for pieces to other media and tech players in the intervening 20 years. As Stephen Case, former Chairman of AOL Time Warner and the founding CEO of AOL, acknowledges the merged corporation lacked trust and a common vision on which the team was aligned. Without these essential ingredients of a high-performing culture and effective leadership, integration and growth we impossible to achieve.

While the dot-com bubble burst couldn’t have been predicted, the cultural issues which plagued the merger certainly could have. AOL was a new media technology company, TWC was part of the old media vanguard.

As Richard D. Parsons, President of TWC at the time of the merger, shared in a 2015 interview, “I remember saying at a vital board meeting where we approved [the merger], that life was going to be different going forward because they’re very different cultures, but I have to tell you, I underestimated how different.”

Culture continues to plague M&A transactions today. The 2017 Amazon acquisition of Whole Foods is another notable example. The deal was hailed with great fanfare by both companies. CEO of Whole Foods John Mackey called it “love at first sight.” But the deal hardly turned into a storybook romance for the employees of Whole Foods. The cultural differences between the two firms are vast: Amazon value tight rules, order, and strong hierarchical authority to keep the massive entity running. Whole Foods culture was one of collaboration, de-centralized, employee-driven decision making, and emphasizing the higher purpose and vision associated with their work.

During the post-acquisition business integration, conflict ensued as Amazon pressed Whole Foods to standardize the operations and customer experience in every store. Whole Foods suffered significant employee attrition and falling customer satisfaction. In 2017, Whole Foods was left off the “20 Best Places in America to Work” list, a list it had made for the prior 20 years. The promised  significant price reductions failed to result. Post-acquisition, the quality of Whole Foods yelp reviews have fallen with 20% of reviewers relating their dissatisfaction to Amazon directly. The acquisition is a prime example of how a company – Amazon – failed to account for the importance of culture to the success of the acquired company. In trying to change that culture, the value of the deal suffered.

Both the AOL-TWC merger and Amazon-Whole Foods acquisition highlight the importance of culture in successful integrations. It is not enough to evaluate the financial value or risk associated with an M&A deal. Expanding due diligence to include non-financial factors of leadership quality and effectiveness along with cultural values and behaviors can significantly reduce integration risks. This non-financial due diligence will identify gaps and differences between the two companies so executives can craft a definition of what the integrated culture will look like and a value proposition as to why that culture will benefit employees and the company growth.

To achieve outside outcomes and strategic objectives, leaders must assess, acknowledge, and work with – not against – the organizational cultures that both companies bring to the table. For assistance driving fast and actionable insights on the impact of culture on your transaction, reach out to Conscient Strategies to learn more about our non-financial due diligence product.   

Katherine Butler-Dines specializes in project management, strategy design, and business development. With a passion for helping companies grow efficiently and effectively, Katherine focuses on helping people and businesses put into place the structures and processes to not simply adapt to change, but embrace it. She has previously supported quantitative and qualitative research projects on entrepreneurship, particularly about women entrepreneurs, across 11 different geographies.

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