February 16, 2017

You Need to Build Relationships to be Successful in M&A

When asked what he would teach a younger version of himself, Scott Kaeser had a surprising answer…

With over 15 years in M&A — including impressive stints with Ernst & Young, Archstone Consulting, Sterling Partners, and Wolters Kluwer, before moving to his current role as Vice President of Corporate Development at United American Security — his experience led to a quality discussion regarding hurdles, deal disasters, and advice for managing successful processes.

When discussing diligence, Scott says,

“Diligence is a tricky area because you can get yourself into trouble if your process isn’t streamlined.”

He believes it is important to narrow down the core questions to understand the company. “You need to find the key drivers and major red flags.” At the same time, Scott warns of overburdening potential acquisitions with diligence requests. “Make sure you’re not overburdening a seller with extraneous questions or processes that you wouldn’t necessarily need to put them through.”

Scott shared an example to illustrate this point. When completing a small deal, due diligence grew too intense for the seller and company. The buyer’s team of 15 experts overwhelmed the seller with requests and fine-tooth combing.

In hindsight, small details were given more attention than necessary. While the deal closed, the seller and key staff members quickly left the company. Scott learned how important it is to balance the size of the deal with the size of the seller.

Scott discussed the process of walking away from deals and tips for post-merger integration, including what he prioritizes in a 100-day integration plan. He believes the transaction only makes up 10% of a successful deal, the other 90% is comprised of integration. This led to Scott’s surprising, single piece of advice to his younger self.

His biggest lesson learned this far is the importance of building personal relationships with the other side of the table: sellers, brokers, and advisors.

He does not believe there is a magic ratio. It does not require a complex Excel spreadsheet. Simply put, Scott says you cannot forget to care.

“Build your relationships with the seller. I’ve found in my career, that’s what helped me be successful in the deals I’ve done. It’s a personal process.”

Soft skills often get pushed aside, but Scott believes developing personal relationships is imperative to healthy deals. Scott enters each deal as if he’s using his own money. By doing this, he aims to understand the seller’s perspective. Often times, the seller is also the company founder, owner, or operator and the organization is their baby.

“It really matters to the seller who’s buying their company, how you’re buying their company, and how you’ll treat it — and their employees and customers — going forward.”

He believes relationship-building should be done outside of the conference room. “It’s vitally important.” Whether it’s dinner, an event, a round of golf, or a day of fishing, the environment should invite conversation about families, hobbies, or past vacations.

Regardless of the deal size, forging a human connection is an important part of the process. While buyers undoubtedly care about the numbers on the table, they cannot forget to care about the people around the table.

“It’s not all numbers and LOI’s and purchase agreements, but it’s interpersonal relationships as well that not only helps get a deal to the finish line, but helps make it successful.”

Scott has proven his ability to work with security companies and successfully close deals. This podcast is full of valuable insight regarding M&A post-closing surprises, lessons learned from bad deals, and the importance of interpersonal relationships.

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Listen to the full podcast here.

This Podcast was brought to you be DealRoom, a technology company that helps corporations on both the buy and sell side transform their outdated M&A process. See for yourself what a modern deal process looks like.

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