Successful M&A Boils Down to Culture, Transparency, Guts

BUILD IT LIVE ’22 — Day two of IT By Design’s Build IT LIVE conference began with a rousing panel centered around mergers and acquisitions. The session, moderated by industry and M&A veteran Arlin Sorensen, VP ecosystem evangelism at ConnectWise, featured Kevin Blake, CEO and president at ICS, Kevin Cook, CEO at The Purple Guys, Rashaad Bajwa, CEO of Integris and Neil Medwed, executive director of M&A, Meriplex.

The discussion ranged from biggest challenges, to how to triumph, whether you’re in a position to buy or sell. 

Mergers and Acquisitions: The Market Today

Sorensen started off by asking how the panelists view the current market.

Kevin Cook: “The people side of things is the biggest challenge. For us it’s all about finding the right cultural fit. What does that integration look like? Culture is the most important thing — you have to spend the time on it. It’s about finding the right owner that has built the right culture that we want to integrate into our business. Also, it’s important to remember — you think you know it all, but you don’t.”

Rashaad Bajwa: “People are getting nervous, on both the buy and sell side. Everyone has a different temperature on where the market is right now. That being said, there is still too much money in private equity — that has made things quite competitive. On the larger side, there are too few assets, so prices are still quite strong. Private equity (PE) firms in particular are interested in the managed services space; they want their recurring revenue. They are sitting on billions of dollars that they need to put to work. MSPs are attractive in that sense. Providers are softening a bit, based on nerves, but for good quality, premium companies, the prices are still very strong.”

Neil Medwed: “It’s an exciting time in the industry for all of us. I’ve bought 10 companies in less than two years. PE money is there. The spreadsheet does change when you have to go to the debt marketplace, and recession and inflation fears of course factor in. We’re all looking for high-quality assets, and solutions that make sense. The PE market just validated Meriplex’s path for the future.”

Kevin Blake: “We are really intentional about conveying what our company core values are. PE folks live in spreadsheets, but these are very emotional deals for partners. Every deal is a little different, so you have to take the time to invest, talk and learn. Do your due diligence. It can be a struggle.”

So, how do you actually integrate? asked Sorensen.

Integration, My Dear Watson

KC: “The deal is the easy part. It goes so quickly. The hard work starts after that. Transparency is huge. It’s a people-driven business; we need really talented people, and it’s a fight to keep them. There are some parts of the business where there is an opportunity for synergies. Be transparent with the group, whether it’s the owner or the COO, or whoever understands the team really well. You need to have those conversations early and up front rather than later. We need quality people to run the business on the ground. It is all about the people.”

RB: “Figure out what people’s exit strategy is. Some people want to go sit on a beach, some want to stick around. Find the best opportunity for them. You also need to make sure that there is alignment between leadership. Have a premium-people-first approach. Legacy means working well with the people who build the business.”

NM: “Every owner has certain superpowers. Some things they like doing, some things they don’t. Our job is to figure out what that superpower is, in terms of the leadership of the company you’re looking to buy or sell to.”

Slow and Steady Wins the Race

KC: “Choose carefully, and take your time. This process takes guts. Whether you’re a seller or buyer, take your time and make certain that you’re aligned with the business you’re trying to do this with. It is vital. Make sure you pick the right partner that aligns with your goals. This cannot be understated.”

RB: “Relationships and reputation are everything. You may only have one business to sell. You want to get it right. The relationships that you create are going to be phenomenal in terms of giving you wisdom. If this is a road you want to go down, start reaching out and having conversations. It’s a fast learning experience. The relationships that you create will be vital.”

KB: “Planning. Surround yourself with advisers. Grow your networks; figure out who to trust. It’s not just money, it’s not …

… the biggest dollar, it’s growing and cultivating relationships. Join peer groups. Take your time.

AS: “I would encourage you to learn, and then keep learning. Get as educated as you can. Invest the time and do it so you can make the best decision when the time comes.”

Doing Your Homework

In a breakout session on the same subject, SaaS Alerts’ Jim Lippie and Sophos’ Callen Sapien talked about ‘doing your homework’ before you plan M&A.

There are four main points to keep in mind before launching into a deal.

“Do you have a good management team, can you sell organically, can you retain your customers, and can you retain your employees? These are some of the questions you have to ask yourself,” said Lippie. “If you can demonstrate that and build metrics around it, that goes a long way to filtering down.”

Sapien adds that clear vision and value prop are two huge components as well. 

“Don’t talk across each other,” he said. “The offering needs to be justified, so you must know what the larger vision is. When you’re selling, you get what you get. Don’t set yourself up for potential heartbreak.”

Due Diligence

One thing you can do — fill out and keep up to date a pre due diligence checklist. It’s not oppressive if done early, according to Sapien. 

“This also helps you figure out the health of your company,” he stressed. “You might need to recreate, or even restructure, but you won’t know that unless you pop the hood. It lays bare the gaps in your business that a buyer will notice. You must disclose everything, and it can get messy if you don’t do your due diligence. This also gives you more negotiating power.”

You need to put together a book that tells the story of your business, added Lippie. Owners need to be tight, and earnings need to be legitimate. It sounds simple, but it’s easy to forget this part.

It’s also important to go in with eyes wide open. It is also better to identify potential snags early. Once the process starts, it’s hard to uncouple from that partner. Partners need to be very clear in that vision and data upfront because of this.

Raise Now, Breathe Later

Lastly, Lippie encouraged partners to raise money when they don’t need the money. 

“If an investor knows that you have limited funds and a short runway, they have you over a barrel,” said Lippie. “Investors will do what they can to get the best deal, so you could be in a tight spot if you don’t plan ahead for this.”