Buying growth through digital acquisitions

[Music] so let's get into the first one so you know as we reflect on kind of the environment today boards are facing you know a shareholder environment that rewards acquisitive companies uh you know it seems like companies are accumulating cash reserves and they kind of have a mandate right now it seems like to do more m a more transactions do you find broader macroeconomic considerations material helpful in considering your acquisitions or or how do you pick it up rocky um you know i think i think what you described as sort of the environment of motorola solutions we've been fairly acquisitive over the last several years the board has encouraged it um you know the cash is available to do it so we've done that um if the question's kind of about you know there's there's a sort of cloud hanging over there's this recession that's going to happen any moment i don't know that that really impacts our view of deals um you know when when we look at the business case and we put the business case together we're looking for growth companies so you know to say that they're not going to start to grow makes it a little bit difficult i think we you know we you know we're optimistic about the future i guess maybe is what you look at and the businesses that we look at are growing right good james yeah as i say i think we we think a lot from the strategic objectives and i think economy comes into play a little bit but probably not as much i mean we kind of have our key areas that we want to focus on as far as acquisitions we have talked a little bit about timing the market but it's like really hard to get right and i think there's also that temptation to buy bargains and there's cases where good things can happen to bad or bad things can happen to good companies which that's an opportunity if the market's in a downturn but there's also sometimes cases when the market downturns there's a reason why this company is not doing very well and that's something you have to be kind of thoughtful about too so we definitely look at it very conservatively on that end for a tech company right andre yeah i mean i would say right now macro environment is probably we call it neutral right it's uh valuations are high but many people want to sell at the same time we you know we want to own assets forever so we're looking for through cycle long-term growth profile of the business but being a public company kind of the nobody wants to step into something that craters next year so there is uh sensitivity to that and uh you know there's this convention the digital eminent software it's all you know only growing from here there's still cycle right you kind of need to look at those second order insights like well if it's some sort of process manufacturing automation and it's driven by cheap shale gas in the u.s and reshoring that manufacturing it's cyclical right so yes it's software but it will build yeah we talked we talked about this before earlier and and you know it's interesting um not many of our clients uh when we get engaged to help with transactions actually make that part of the analysis that we do so it's interesting to hear you know the reflection across different companies and how it doesn't seem to be a big driver for kind of what they want to assess when they're doing this picking that up picking that up a little further than as you think about kind of digital acquisition specifically what do you guys look at in terms of um financial or non-financial metrics how do you pick it up and what are you looking for andre would you would you take us through kind of your thinking yeah i mean at the end of the day i think our duty to shareholders is to generate returns right so financial metrics uh will still be front and center and we believe everything is quantifiable at the end of the day it may be uncertain you may need to think about scenarios but it's quantifiable now in in in digital and especially given the valuations environment um i think sometimes you may take creative kind of lenses how you look at it for example you know make versus buy for us a very often um a relevant lens so we would think okay if we strategically we know we need that capability we can develop it organically knowing we start from kind of a lower base it will take long time it will be risky in terms of execution certainty it will be costly and sometimes that valuation for a digital asset may be actually well it's cheaper and and safer right and uh also thinking more creatively about what does it really get us not just kind of basic synergies cross-sell but you know it's you can create a better mousetrap a new to the world solution by merging in our case in a way an industrial manufacturer emerging software or some sort of sensorized digital offering with an equipment it wasn't there before you're just creating new streams of value there's defensive play sometimes you know like you have equipment and it's controlled by software and it's let's say kind of agnostic and if your competitor buys that it kind of creates problems for your installed way so there are lenses to look at in the end um it's a little slippery slope you always need to tie it back to kind of well what do we have to believe in to drive returns for shareholders right james yeah i think a lot of ours is similar in ways we think about customer impact and so i'll give a short example of a company that was a technology acquisition this tiny little company called timely which does um that great problem of when you're trying to schedule a meeting it looks at everybody's calendars and tells you what's free that's part now of our google calendar system but at the time we were looking at it and saying you know we're going to need to spin up this group we're going to have to build it inside we started building you know bringing some engineers and then we saw timely and it's like we can just bring this in it's already plugged in it works so it was an accelerator from a technology standpoint the the other half of that equation is that we look at engineers as a key asset in our in our company and we actually encourage engineers to move around a lot so once the timely folks had kind of come in done their little thing and gone off and now they're spread across several parts of the company a couple of them are actually working on some very interesting other problems we see that as another way to kind of look at the return so it was you know time to market customer value and then a group of talented engineers and we actually baseline the engineers that come in through acquisition versus flat out recruiting and they actually do a little better so that's been a way for us to kind of even quantify that yeah we paid a little bit more but we actually are getting a little bit higher return they get promoted a little faster they tend to be more key uh key contributors so it's another way for us to kind of look at the equation not just the pure financial right interesting right yeah i think uh when we look at the uh when we look at acquisitions we look at the financial implications of it and we're you know constantly modeling out what are the you know what are the revenue streams what are the synergies uh that we can achieve with it and and you know i think like andre said sometimes you have to get a little bit more creative with with how you look at it and and and some of the opportunities may be a little bit riskier and you have to factor that in but at the end of the day you know when we go to management they're looking for what are the financial implications that this acquisition is going to achieve what's the return that they're going to get and then we work with the businesses because ultimately the businesses need to own it uh whichever one is sponsoring the acquisition great and just following up on that one one other question around that so so what seems to resonate most with your boards rocky is it is it back to what you said it's all about the numbers or is are there some other things when you're doing these digital acquisitions that are maybe smaller that they really kind of hone in on i think you know it it starts with the strategy you know there's a conversation with the board around what the strategy is and where the areas that we're looking to go um you know which areas we may need to do inorganically and which ones we're going to focus on organically you know the return is a is is a key component of it but then with the strategy you know some of the acquisitions that we do provide a platform that um you know that allow for additional growth that maybe hasn't been included in the in the in the business case uh because it may be a little bit further out but it it it creates a platform that we can grow in addition in in new areas that we may not be if we were just doing it organically got it it's interesting i mean for our threshold for this something come to the board it has to be pretty high and definitely at that level it's something that we're looking at for innovation doing something different we still have kind of this heavy bias for thinking about how we impact billions of users and what that means i mean search is such a big yardstick to kind of compete with so that's that's part of the calculus that comes into it is you know will it improve search or will it improve kind of our google apps perspectives from that end it's it's how you have high impact it's definitely a key thing when it gets to the board level at a lower level we definitely are thinking about speed and time to market customer value sergey likes to say you know if it passes a toothbrush test it's something that you use every day that's always something key to think about so you know if we're doing that and kind of making that as part of people's lives then that's probably a good idea to work for yeah first and foremost i mean board will be looking in our case uh you know are we build building a better business um right like that's that we're not looking to just slap together some you know a bag of digital assets right so like does it really enhance you know your are you becoming a better competitor right and then do we know what we're doing are we stepping too far outside of the core um clearly and then then financials right so it's kind of strategic intent first and then returns [Music] if you're interested in additional information on innovation in m a i encourage you to check out the transaction advisors institute which is a robust source for knowledge on m a best practice we host a series of m a conferences run an elite m a academy offer m a master classes conduct m a research organize the m a leadership council and publish a prestigious m a journal members of the transaction advisors institute include corporate executives board members and private equity investors that are interested in understanding the critical issues impacting transaction planning structuring and execution i encourage you to get more involved in the institute let's take a couple of quick questions if we have any um interestingly enough you know the bulk of our i think our clients when we get hired it really is about the financials and i think pr probably because we do mostly larger transactions right where they're looking at big mergers or multi-billion dollar acquisitions so it really is about the analysts are looking they're publicly traded the analysts are looking for what are you going to save how's this going to improve our bottom line and so you know it is it is interesting to see how you pick it up a little differently questions i'm going to kick it off then with a quick one james when you talked about valuation per engineer are you is there a pretty sophisticated view you think that's developing as to what that value is per engineer and is it bifurcated that certain engineers are worth x and certain versus y um and so any any additional detail that you think would be helpful for us to think about as we consider that metric would be helpful i definitely think that there right now we're kind of going through that thought process because i think as we looked at some of our core products like um a hardware engineer definitely has a different skill set than somebody who's a search algorithm expert so we are realizing that there are some kind of differently verticals that make more sense to have different i would say levels of engineering or thinking about it that way but i think we really do try to encourage engineers to be very fungible across the organization we find that if we we actually want to bring bring in a new engineer we actually had them work three projects in their first year just to see different things and then they can kind of pick like okay i want to go work on android or i want to go work on search um the other side is is that you know there was a financial component that i want to come back to is that if i can impact search which is advertising then that has got large numbers and i remember somebody's coming into one of our campuses and watching a bunch of engineers playing volleyball and the person was like why are you letting this happen they were just like this does not make any sense to me and actually i knew one of the engineers was playing volleyball there and that one had managed to save 10 10 seconds off of some of the back end queries for search and he can play volleyball for the rest of his life from our concern but he you know the problem the interesting thing there is you know he that's how he thinks and so yeah it is a different yardstick to think about but we do definitely think about different types of engineering um and we have had kind of some we do bifurcate right now between hardware and software but we are thinking about different soft times of software engineers because like an ai engineer is going to be different engineering than somebody who's kind of working on the enterprise applications which is maybe highly redundant highly stable but not as out there as far as like pushing an algorithm hi don so you mentioned the financials do matter but the title of the topic is growth through digital acquisitions we're finding a lot of the companies that are being acquired or profitless today so how do we how do we square that and then also for for james i guess a deep mind might be an example of one mirror maybe doesn't have direct relevance to the search but clearly it's a it's a growth vector for you so so maybe some color on that yeah i forgot to also ask if you would introduce yourself that's derek from orange silicon valley who's awesome by the way thanks for being here derek thanks derek yeah we actually talked about this last week rocky you want to take a shot yeah i think i you know if it's you know we're buying it for the future you know not they may be losing money now but the question is what can we do with it you know when we when we bring their capabilities into our company and we may have projects that we want to add to it and resources that we add to it and so ultimately we're looking at the long term what can we do with the with the company and you know you know really depends on we believe that we can grow with it they you know most of the companies they they're growing or they believe they're going to grow and if we have that mutual belief you know we can still run financial numbers on it to show that it's going to get the return down the road now you know when it gets a little bit tricky if it turns you know if it creates dilution um you know publicly traded that can be that can be a big challenge and so you know if it's dilutive it gets a lot more scrutiny but you know we wouldn't be looking at it if we didn't think that there was growth of the two companies together and time horizon matters right so yeah it can be unprofitable now in five years with that growth trajectory like low marginal cost you can easily see that becoming profitable so that and sometimes software companies you know they're chasing many different things and that's why the cost base is so high you know they're kind of going that and market that and market different solutions and um you can sometimes bring just clarity and focus you know we're going to this end market and sometimes we can give them some platform and channel to that market so you can actually quickly get to something that was unprofitable standalone to profitable as part of bigger enterprise we certainly see that i mean oftentimes a very small company who's not making money they drop in and they're part of a feature set that is now you know part of a global larger offering that that is something where we see an instant return um you know i think oftentimes engineers are really struggling with the scale that we work on and the size um you know they're solving a problem for hundreds of users and we need to address a billion it's like it's a different kind of concept there but it is a high impact i mean um i think for the the question around deep mind and some of the other ones is we definitely set aside a chunk of our funds and think about long-range bets and that is a lot longer horizon and we're willing to kind of take these leaps of kind of faith that there'll be something at the end and we do see that i mean we saw you know when we bought this tiny little company called android um several years back you know it was like why are you buying a mobile operating system mobile operating system it's a huge platform now so we have several of those in our history we also have several that failed i mean that's okay too other questions right here interview yourself first as well hi i'm abhishek jain from schneider electric so as we talk about some of this digital assets and it seems engineers are the real assets there which are driving this are there kind of some new uh mechanisms you are putting in place to secure them for longer term maybe google is probably less of that problem because you have a strong brand name but for some of the lesser known software companies like duo or probably more known as an industrial company and not as a software company probably same case with my company how do you kind of ensure that retention uh kind of financial is probably one part but from a structural or transaction perspective and something people below the management level who are probably not uh part of any or not or those kind of schemes well we're going to build a volleyball court i guess but yeah i mean i are just you know retention mechanisms that are standard right not necessarily unique to digital and they still work right at the end of the day um it's a very valid incentive um if if it's small and you're buying from owners you know they earn out structures kind of you know let's participate in a success together that resonates pretty well if you can spell it out reasonably clearly up front managing expectations upfront i mean obviously you know many software companies they will just everybody freaks out that they will be part of some big corporation that will be you know just useless administrative tasks and so you kind of manage expectation and kind of tell them um bring people who who went through that process before kind of calm everybody down um and i mean your operating model your management model i mean it's a choice right like we are fairly diversified and decentralized and we try to kind of keep people where they are um but you know we don't change kind of brand name so not a lot actually changes for them um they just get a little bit more of a scale behind um and i as i said like it's a choice that companies make how they integrate that inquisition so it's interesting we did a survey about a year a year and a half ago it's actually some of the stuff's back there but 1100 executives and when we interestingly enough 66 of them said that when they did a digital acquisition they didn't integrate the acquisition into the broader company so so they were very cognizant of i think what you're driving at which is how do we maintain number one all the things that the company's doing that i wanted to you know i wanted to have as part of my portfolio but also how do i ensure that i'm not going to lose everybody right so saddling it with this big bureaucracy maybe that they're not used to is critical and i can tell you from personal experience we did about a hundred acquisitions last year's essential all over the globe most people don't even realize that because they're all really small when we first started doing that a few years back what we found was that it was great because we'd bring them into this big machine and drop them in there and they just floundered because we just crushed them with the weight of this thing and so our internal um you know development people said wait we got to stop because we're not getting out of them the value that we wanted because we are crushing them with this big thing so now you see them carrying their same names bloom fjord all the companies that we're requiring to fix into this big um animal we call accenture we're allowing them to operate to ensure number one retention but also just to continue to drive value so let's take a couple let's do a couple more we got another one yeah go ahead hi i'm helen jenn so i'm from navistar so we're a commercial vehicle manufacturer based in chicago actually so um so our industry is currently experiencing a lot of disruptions so we have autonomy electrification connectivity and etc so i actually have a question for audrey um andre sorry so um because you mentioned you know you're also from a traditional manufacturing company so you have experience you know kind of integrating or looking evaluating different you know new technology companies so i just wonder if you can comment from your experience how you evaluate these new technologies um which you don't really have a lot of resources internally you know in terms of evaluating how viable it is and also how do you kind of compare different companies and select the ones that will you know be most likely to be successful in the future right that i mean it's always a challenge with with new technologies and i mean i think it's probably double challenging for an industrial investor we don't have a kind of venture capital type mandate kind of place 10 bets and hope one works out and nine doesn't just expectedly die it's like no everything needs to work out in a way uh that's just how shareholders think about industrial companies and uh but at the same time some you know sometimes it's existential challenge um in in in and you have to do something um i would say i mean our our bats and technologies we expand into you know they're not as like a deep mind level right it's sort of maybe put a sensor and a pump and or measure its vibration uh so it's it's it's a little more straightforward in in because of that we can rely a lot on our operating leaders kind of people in the marketplace i mean they they see kind of they hear from customers they see what starts getting traction where like what do they really need and in that sense that gets us pretty good insight as to like what's real what's not um i think you know just just to answer it when we've had and we've gone in to look at a company that may be a little bit further afield from where our business expertise is and the individuals that we have either in the cto organization or in the business we've looked at you know sort of outside advisors to help us out in that area and then we've also um there are some organizations out there that try to you know that can connect you you can give them hey i'm looking for you know people of such and such a profile that maybe have worked at these you know five companies in the past that we know are in the industry or competitors um and they'll set up you know interview sessions with them you know there's a fee associated with it but you set up interview sessions and you learn you sort of pick their brain about what they know about the industry that you know we don't know about and so you try to get smarter that way about it so those are those are kind of two approaches that we've used to you know try to address that question i got nobody i can't you know i can go ask you know i can go ask you about you know tell me a great powertrain company you know and that doesn't help if if you don't have the expertise those are a couple of the tools we've used so so let me jump to another question quick follow-up side interrupt but um do you have any specific names that um i know of one um i think one is insight and i'd have to go i'd have to go look for the other one okay but i can i can get those to you well and i was introduced to gerson lehman by peter granit who i know has done a lot of work with glg i think they they yeah those are yeah so so if anyone else has any other specific names because that does sound like a great resource in particular for the customer insight yeah and understand you know it's it's hit or miss i mean you can be on the one you know you can be a phone conversation with somebody for 15 minutes you know okay this is not going to go does not get the right one and then there's another one that you'll hit and you go boy i could like just talk for another couple hours and you know usually you can make that happen so so let's turn a little bit so let's talk about as you're doing the transactions how heavily involved are your business unit leads um in in your due diligence and your acquisition kind of activities in that versus you know kind of driving it from a corporate development place so the business unit leads may not be really skilled or knowledgeable around transactions in general trick talk about the trade-offs and having them involve the pros and cons kind of the challenges andre well as i mentioned before right so first dover operates 20 almost unrelated businesses right we make pumps refrigerators printers garbage trucks i mean there's a lot of commonality there's no way i can know all of those markets you know that closer like and especially as it comes to this cutting edge like what's really new like what's happening so we rely on business leaders to really come up with that kind of cultivation with their ideas and cultivate relationships so i mean they had same trade shows they are kind of pitching same customers so they develop good relationships and then on that stage we we partner with them just kind of as a sounding board is that like can you articulate the business case that i can sort of go and take it to my board um and later on the execution front obviously you know like that's where we step in much more in terms of just process diligence documents and all that we certainly look for strong sponsor support i mean that's actually one of the key things that if we don't see it then we we actually that gives us pause um that's the that's our earliest indicator if a deal is going to be successful or not um but that said we also as corp dev you know they may fall we're company of engineers and they fall in love with technology and sometimes it's not how you monetize it so there's a little bit of sometimes where we have to be that other counter voice um and that's something we do play as part of that conversation um and then we also do a bit of kind of representing that because we do that voice will kind of provide a counter to we'll have a a in a very googly way of sponsors sort of ghoulie pounding the table um and then we'll be kind of providing kind of the other counterpoints of here's some of the issues or some of the concerns so in some ways we're almost a little de-accelerator at the beginning to make sure that we get that but as soon as we kind of decide that this is the deal we want to go through then we we're pouring resources on to make sure that they get it we also have the benefit of a pretty large percentage of our population has either been in an m a acquisition because of the being in the valley or has been acquired by google i mean in some teams it's i can't quote the exact number but it's maybe as many as one in 15 in the team have come through an acquisition so sometimes in that conversation there's already somebody who's been acquired so there's another voice that i think helps in that kind of yeah it's a lot of work it's not coming for free there's a risk yeah i would say you know similar to andre we're very we look for a business unit sponsor um you know when i was in strategy it seemed like everybody's answer to strategy was go buy something you know it was the easiest thing to do was go buy it and we you know sort of have to you know on the corporate development side sort of explain to them okay you know there's a lot that comes with it there's a lot that you need to do but you know we we look for a business unit sponsor you know if it comes from strategy and we're trying to nudge a business in a certain direction um you know we'll work with strategy to sort of help get the business up to speed and help them get on board with why we're looking to acquire in a specific area and we'll play a support role there and then as we you know we work hand in hand with the business through you know the the initial high level what the financial case looks like when we get into diligence we you know we tend to use a a a group you know all the expertise all the different functions you know we sort of try to avoid you know throw it over the wall and hope they catch it so we get them involved on the diligent side up front um but there's always a business person in there there's sales there's r d as we're going through that process so that's by the time we get to the acquisition you know everybody should have a really good feeling or a good understanding of what they're getting you know what the approach to integration is things like that james um you talked about you know there's challenges with having them in there too so how involved are they in the value case itself or is that really driven by corporate dev and then you kind of walk them through it it's usually most of the time the valuation is done by us and then our corporate finance team so and that's kind of another check and set of check and balances there so definitely yeah because they'll be uh yeah this is going to solve the world it's going to make the greatest thing it'll be you know i mean you know you love that engineering enthusiasm and then it's kind of okay but you know it's going to take us nine months to get it onto the platform and you know there's there's we think there's a key issues around the data that we could bring in those kinds of things so it does help kind of ramp ramp it back down um but back to that kind of the more we can have other people that have been through it or either either done an acquisition and bought for google or been acquired and said yeah there's truth in that they're going to make you fix all these things it just helps kind of get a more pragmatic view so that it's not just please go buy something because strategy is the answer we have had our episodes where we bought just about anything that walked by the door and that didn't work out very well we thought we'd stick it all together and it just didn't kind of come together so i definitely i think that's that was a lesson we took away from that i think on our side with the the business unit leaders are involved because our you know our our executive committee ultimately is going to look to them to follow through on the numbers and our board is going to ask you know our board asks regularly for follow-up on the larger acquisitions and how are we doing versus the business case that you came in and said you would achieve and and you know that's that's a lot of why we get the business leader involved and we'll you know it's a it's a process where you know we'll ask them for what they think it's going to do and then we'll you know we'll say you know okay that's great but you're going to have 120 percent of the market then and it's probably not really realistic so it's a it's a bit of a give and take and we and we you know generally end up on a you know a reasonable business plan that you know they're not over committing when they don't need to and make it something that they can achieve good andre i think i responded to that so same kind of thing yeah yeah okay good questions hi uh jenna sandon from ibm i'm curious uh from each of your organizations how often do you have multiple lines of business sponsoring a particular deal and what's your approach in either signing out or doling out the business case uh post-closed results how do you manage to that easy answer for me very rarely because the businesses are so unrelated um there might be some you know overlap like while we are buying a company and they actually your supplier you know so kind of uncover some synergies um but it's typically a small part of cardiothesis we actually really struggle with that because there's definitely challenges there and we kind of try to move the mass to the center of one key sponsor and then kind of have the others as secondary but we've had very mixed results of that to be candid i mean it's something that we just have not we've looked at even kind of dividing up the organization a little bit but then when you divide it up and you lose the functionality or the synergies so it is not one that we have done historically very well yet it's one that we keep asking how we can get better so if people have suggestions i'm all ears yeah i think i think most of ours there's a clear business owner there's a couple that i can think of where you know we've sort of we've got a product organization and a software and services organization and it's uh you know you need the product to get the service and the and the and the software sale and you know we we spend a lot of resources to divide up okay how much goes into product and how much goes into software and services and i think like james i don't know that we've got a real i don't know that there's a really easy way to do it all right uh derek beatty from caterpillar uh how do your organizations think about aqua hires in terms of valuing structuring evaluating uh the the assets you'd be acquiring me you may do it more than we do a lot sorry i'm probably not the most i i think it's it you know the the first comment is a very expensive way to recruit although i think there is a value if you get a whole team or a key set of leaders that you can then kind of have a clear objective and have them go forward that makes a lot of sense but um i think there is a you also can struggle with kind of that if you bring the small group in and they're dropping them into a very large organization i mean google's now 80 000 people they can get lost so you need to make sure if you're going to have an echo hire that you have a very clear sponsor and a clear leader who's going to say i'm taking this group and bringing it under my wing and i'm going to you know i'm going to get this value out of them because i think that is it it's easy for them to get lost i mean and even a little demoralized i mean they were in a small tiny little company probably doing something really cool and then something big and where do i go and maybe you're using it for something different yeah exactly yeah yeah they didn't succeed in what they were doing then but yeah and they're like okay i really just want to go back to doing that and then that's a really and maybe that's not what we've all decided we want to do so or what we've decided yeah yeah yeah it's a hi peter granted from sai global what's what's the role in your organizations for corp dev post close how much responsibility accountability do you have to to chase down synergies and make sure things happen in the first 12 months let me just comment on that andre yeah well we have a well well-documented kind of integration playbook and process which we help kind of deploy and then i participate you know with these monthly integration calls that monitor what's happening and then we report our board regularly on we have again a set format of kind of scorecards against what we committed to and how we're doing against that so that comes through our corp dev department as well but you know the bulk of the actual integration work is done by the businesses right so it's kind of it's a monitoring role i would call okay so i think in in our case we've got uh in the corporate development group there's a couple of individuals that are in what we call the integration management office they have the playbooks um that we use on on the deals we you know as i said we have a group that does the diligence so all you know hr it finance you know they're all asking the questions of the target company to understand what it is that they're getting knowing how we want to operate it afterwards uh and then a lot of times those same people that have done the diligence are the ones that are are the are participating in the integration management calls which you know which will be really on a weekly basis where they'll go and they'll talk through okay here's the integration playbook where are we what's the target when we're going to get to you know it's different for each function and each deal kind of may change as to when we do you know full integration on payroll and full integration on i.t and get them on the erp system and things like that but there's a there's they sort of coordinate all the different resources across the functions in the corporation and then um you know and a lot of that's on the blocking and tackling but it also gets into the blocking and tackling necessary to achieve the synergies so for us we every deal has a series that we manage by okay ours and so every deal has a series of okrs so on one level if the occairs are being tacked you know ticked off then we can that that's when we do the handoff that's the short answer we have a team of integration folks in the corp dev team that's actually almost equal to this number of deal leads and we stay involved in the deal until all those are done or until there's somebody fully catching them and that can be anything from acting as an interim co for a period of a couple years in some cases to actually one of my teammates has never given away his deal yet because it's not quite done yet and so you know he goes and meets with that team every monday and works through more integration issues because there's still a lot there so it is a little bit of a elastic piece but when we feel like the the host organization and sponsor organization is in a place to catch it and it's well managed and maintained then we will step off but yeah i think the bulk of our clients typically handed off out of corporate dev to another group you know just as a rule and specifically when it comes to digital there's there's oftentimes not a lot of integration that actually happens so it's a little lighter touch so you get a little mix there but but when it's a real heavy lift like a large acquisition or a big merger they usually they usually hand that off yeah the example like for timely that was 30 days they came in started working on the engineering team they were off to the races it was done so that's a short one uh good afternoon my name is abig jane i work for adex corporation in lake forest so similar to dover we have it's an industrial manufacturing business we actually have 40 companies under the idex umbrella uh so andy a question for you when when you look at technology acquisitions or digital acquisitions are you looking as much as you can sort of company wide so you know can i apply the same technology to different industrial businesses or is it more sort of by company yeah it's a good question yes i think they we aspire to do that more the reality is especially the more early stage it is the more probably kind of you know focus it will be on a given vertical uh but we do always kind of probe and encourage people to think well where else uh can can we go with it i mean i'll give an example so we bought a couple of years ago a company that makes kind of cameras and video monitoring solutions for we make garbage trucks right and now all garbage trucks have cameras around them and inside monitoring the driver for signs of fatigue any kind of erratic behavior everything that's happening around if there's an accident you know you have a proof of insurance and then now you can send the confirmation to the client i picked up your trash or it was blocked and here's a fine for you and then so that's that's a vertical and but that's applicable to many other verticals right so yeah that's that's always um i don't i don't know many successful examples of that so that's why i called it aspiration so so question um so how often do you look at a digital acquisition and think about using that to reinvent your company or or a business within your company rocky you know i would say that uh you know we've been you know the acquisitions that we've done lately have really been in the software and services area so historically we've been a telecommunications equipment provider for mission critical communications and there's been a strategic drive to get more into the software and services area so we've done you know besides some organic stuff that we've had we've done a lot of acquisitions that have added on to the software capabilities that we've had and you know it it drives the you know it gets more revenue in that area but what's more interesting is it drives a different conversation and it drives you know different possible acquisitions because the adjacency changes you know as you as you bring on somebody and we we don't really do anything that's really far afield we need to have some adjacency for it but when you add on you know the first adjacency then you have the second adjacency and then you're further away and you're starting to have different conversations because they all have ideas of here's where we could grow that we would have we wouldn't have thought of in you know prior to that acquisition for example or maybe not had the conviction that the new acquisition has that that's that's an area you need to go acquire in so that helps to reinvent and change the conversation which then opens up more possibilities for where the company can go right james yeah we have a couple mechanisms i definitely think for like technology like the timely example it's a tuck-in and that's a quick simple solution but if it's something that we look at and it's like really unique like the example of deep mind we'll leave it as a standalone i mean that's an opportunity for us to see it observe it watch it and we have a couple places where we can park those is that with google x and alphabet we can create an alphabet and leave it completely alone or in the case of like waze which is not fully an alphabet company it's kind of half in google and then half with maps it's a little bit of a blending so that we can kind of let gaze do its own thing and let maps kind of do its own thing and then figure out what really makes sense and there's there's merging now but you know that's that's the deal we did five years ago and we're still kind of working through kind of assessing that and so yeah if we see something that's really you know one order or two orders away our tendency is to leave it alone and watch it and incompete incubate it i think our strategy is i would say kind of incremental compounding right so we don't want to swing for defenses or be in a position where you kind of missed something and now you have to right so for old economy companies it's important to start kind of thinking about that early and kind of constantly kind of monitor so you're not in a position where you have to now buy growth or you know there is existential crisis so we we do incremental we have patients who wait five ten years and we're like those incremental improvements to the solutions then in the end oh wow 10 years later it's a completely different business right okay so we talked about financial and in your valuation and kind of your due diligence um when it comes to the actual integration kind of playing on a question that was asked a minute ago do you find it's better to have a standard playbook irrespective of you know what kind of transaction you're doing or are digital acquisitions do you have a separate playbook for that and then for a more traditional kind of deal you use a standard playbook for that as well you know i think what you know when we've been doing a lot of software acquisitions we had a playbook for that uh you know we've we've i would say there's one sort of broad playbook that will adapt to the specific acquisition but lately it's been a lot of software services type acquisitions and we've got a playbook that works fairly well for that and you know each deal is each deal is different i mean sometimes we've integrated them right away sometimes they they've they've been separate for a while so you know the value of the playbook is to sort of say okay here's all the decisions you kind of have to make here's all the things you need to think about but each deal you may you know where when you get to the end state may change and that end state may be a little bit different but there's a lot of you know there's a lot of a lot of the the functions that are that are fairly straightforward regardless of the transaction james playbook is one of those words that gives the folks ebgb's at google um we we say oftentimes that every deal is a snowflake and we do see that there is some overlap which i think is the key uh so what we focus on is actually having a series of tools in the box that are more parts of those programmatic pieces but we will then reshuffle those based on what we plan to do with the deal how fast we plan on integrating it so there is an awful lot of overlap but we kind of we do reserve the right to kind of completely change the order or completely tune it just because of yeah there's something that we want to accelerate or something we want to de-accelerate that so we use some broad categories to kind of align people but we do each deal is pretty bespoke so probably seventy percent of the process and approach is similar uh but i think there's increased uh you know teams and boards are more sensitized to issues around ip is it real who developed it who owns it is an infringement right so there's like a whole layer of work around that and a few more tabs in diligence requests and an integration some of the discussions around retention like you're really buying often talent and kind of how closely to integrate it that's kind of another kind of more pronounced layer of discussion compared to general industrial right so following up on this you know a couple of these questions around retention and stuff what would you recommend from the standpoint of um how do you handle cultural differences between the existing organization and and and the digital capabilities that you acquired what's some of your make sure you do this kind of questions or maybe even more importantly please don't do that um you know i would say that on on on you know culturally it really is kind of where it's going to sit within the organization and this goes back to the business leader ownership we've got a software organization that our software acquisitions can fit into so there's a there's sort of a similar thinking and we're buying something that's somewhat adjacent maybe it's uh you know it fills a portfolio gap so there's generally you know some commonality of thinking when we when we have had some potential cultural issues um we've we've tried to deal with them you know before we do the acquisition and sort of have the tough conversations with you know either the owner who is going to have you know they're not going to own it and call all the shots anymore and trying to have that conversation up front with them that's one of the ways that we've tried to deal with that great okay you know i think building on that i think at the core we find that where we see cultural differences is how things get done and i think talking more explicitly about this is how things got done before the close and this is how things will get done or how we want to make things work after close is really important because oftentimes people are like oh well it's not really that different but just a different little bit so it kind of de-emphasizes some of that culture issue the other one is is that we have this real strong bias to increase as much surface area with the new team and with google so we'll do everything from embedding engineers into the organization uh up to a one-to-one ratio in some cases if we if we have to or bringing them rotating them through different organizations so they understand not only the why we're doing it or the how we're doing it but why we did that because i think that's the other piece is oftentimes engineers will you know it doesn't make any sense and if you if you get to the why then they're like oh i get it now you know it's like here's why we're doing this because this was a problem a long time ago this is our nature so i think those are the things that kind of ramp that down and we yeah yeah and i think we'll look for opportunities to take engineers that maybe we've acquired and put them with another team to help solve a problem yes you know so that we can start cross-fertilizing the ideas and start you know everybody's oh okay you're not that different and you know and and and there's more commonality than maybe they think they think that's right we haven't when we've had some like high-risk deals where we wanted to like really do something big we actually created a throwaway project that we put them all on go do it you know figure this all out they figured it out then hey we all work together then we send them off to go work on that really tough problem because they were all formed at that point they figured out how to work so so kind of structure the communication early so that there's lots of communication and then also kind of force the interaction the collaboration so that they develop those relationships andre um yeah so that's a hard topic and lessons are hard learned transparency up front definitely helps and keeping people sometimes even physically you know that going back to that not integrating too aggressively unrelated to m a but dover opened recently digital center it's a group of engineers and e-commerce specialists i mean it's not deep mind but kind of putting our pump catalog on online things like that and it's in boston right and it was part of that is just talent base not to disparage chicago but boston was deemed better but also just create some of that physical separation and let them do their thing and also especially if you're buying a small company you can create an exciting narrative for them like look you're becoming part of a bigger platform and it will be easier to do some exciting things now that you have channel you have access to some blue chip global customers and things will happen actually faster in your world you know you you'll not if you're buying from an owner you'll not have to deal with accounting and all that there's good value proposition right yeah i think that's what we find too i mean the things that you guys have talking about resonate really well when we do when we do post steel kind of analysis for clients we find they didn't communicate as well as they thought they should they they did right they think we're good communicators not so much we're good at change not so much right and then that interaction building those relationships early by getting the teams close together um that's those are all things that really kind of jump out the page at us when we talk to people about how this deal go and you know the executive team has an idea how it went and the people that are really doing the work have a totally different view of kind of how it went so i don't know if we've got time for a few more anymore okay thank you so much i'm anoop tavari from cars.com i run the strategy and biz dev team there and we also do cob dev um we talked a lot about integration and post close evaluations and so on i'm curious to go back to the origin of the deal so almost all of you talked about the need for tight integration with the strategy do do you guys mostly see deals come from your business units and strategy teams or are they mostly coming from your side either inbound or ideas from your teams you know i would say so so we have uh we have a weekly meeting with legal strategy and corp dev and then i know that the strategy team will meet with the business executives on a regular basis where they talk about the whole purposes talk about the acquisitions what's you know what's come in inbound unsolicited if it's still active what are the ones that are you know what we say in the pipeline we're you know sort of working on the acquisition thesis where you know maybe you know we've signed an nda we're working towards an loi or things like that and we we meet and we talk about that on on a weekly basis so it comes from i would say it's probably 50 50 either coming from you know the corporate strategy slash and inbound um you know versus coming from the business we organize around product areas so we'll definitely are part of our corp dev team as part of the strategy arm of that product area so we sit in those conversations regularly and kind of understand kind of key pieces and definitely the engineering team brings a lot of leads to us hey i saw this or boy these people are really doing something interesting the other thing that's kind of unique to google is is that because of who we are we just get about every inbound that can possibly there if you're thinking about selling yourself to amazon hey send it over to google and apple at the same time so we probably get a google's got lots of money send it to them right yeah there's that you know um yeah i've seen something that you do you know what we do so you know we probably have a 100 or plus inbounds a week that we process so that that's something we do get pretty fast at and we've actually built our own tool so we can actually look at it like oh we did look at that company so we can give them an answer but yeah that's a little different um yeah i agree it's probably 50 50 in our case as well there are still some of these small targets that are under the radar and or sometimes the business leader will oh i didn't know they were you know venture funded or would consider selling right so like they they would never even kind of think about approaching them um and but then it kind of surfaces through investment banking hi i'm kyle schneck i'm with ryerson or metals company here in town uh quick follow-up on that do you see differences in the integration after the fact the success of deals based on your sourcing network like do you see better results from some of those under the diamond in the rough type deals versus the ones you get through the bankers i i don't know i think i think uh i think most of the ones that from my experience the ones that are more successful the ones that we've sort of identified via the strategic process and through the interaction with the business versus the the inbound unsolicited um you know if the business is on board with it and it fits with the strategy you're you're you've got two good things uh you know towards a successful acquisition yeah i was gonna say i think that's more the case i mean that the inbounds there is a couple that were like back to your point oh my goodness i didn't know they were even possibly there and we really want that and those are really good ones but there's the other ones where most of the time there's a time pressure so you're you're trying to make a decision very quickly because it's usually you know you've got a short fuse and that tends to not always yield the right thing i mean you get a go by fever and you talk yourself into it and then you realize halfway down uh we're gonna have to really pivot this thing so yeah i haven't looked at that kind of empirically but intuitively the the proprietary cultivated should be positioned a little better right there there would be some relationship there is mutual understanding why why we fit and you know why would they sell to us and not do it sort of broke process so it should be set up to do better i would say okay i'm going to take the liberty of asking the last question quick recommendations you've mentioned capturing best practices in terms of a playbook and you've talked about managing the deal pipeline can you recommend any particular tools other than excel or an email inbox to do that effectively we use it for i saw there are some vendors there that uh we've looked at uh for now we use the the pipeline tracking that's kind of a built on top of salesforce basically so it's salesforce engine but for m a um so you kind of track all the interactions you know tag emails and different people can contribute so then you have history in one place especially as people change over and you know i can go back and see what was going on five years who talked to that owner right so um in in terms of more kind of diligence execution um we've looked at some of the solutions haven't adopted yet we wrote our own shocking and and i would say we we've kind of you know just built ours up using you know office productivity tools over you know over you know whatever years of sort of doing it so [Music] you

Channel: Transaction Advisors Institute

Views: 561

Rating: 5 out of 5

Keywords: Mergers and Acquisitions, M&A, Transaction Structuring, M&A Strategy, M&A Structures, M&A Synergies, M&A Conference at Wharton San Francisco, M&A Conference at Cornell Tech New York, M&A Conference at the University of Chicago, William Jefferson Black, Transaction Advisors, M&A Strategy & Governance, Transaction Structuring & Negotiation, Valuation & Transaction Opinions, M&A Regulation & Litigation, M&A Integration & Culture, M&A Finance, M&A Accounting, M&A Tax

Id: jcoMT5XPYbM

Length: 57min 49sec (3469 seconds)

Published: Thu Nov 19 2020