Roland Lessard – The M&A Value Creation Playbook – Ep.209

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(00:00:00) – Intro

(00:04:34) – Catching up

(00:06:45) – Categorizing M&A

(00:09:45) – Why should someone consider pursuing M&A?

(00:16:22) – Horizontal deals

(00:21:48) – Building Integration Teams

(00:33:44) – Having a 12-month outlook, maximum

(00:41:03) – Creating a dealbook

(00:47:31) – Benchmarks for processes and projects

(00:55:07) – Categories of integrations

(00:59:56) – Metrics to track in order to make sure you’re staying on goal

(01:04:23) – The role of debt

(01:08:31) – Key Takeaways

Alex Bridgeman: My guest on this episode is Roland Lessard, former co-CEO of Morningside with his partner Tom Klein. Morningside is a language translation services business that served over 4,000 clients in 55 countries before the business was sold to Questel in 2021. A core piece of their thesis revolved around M&A, and Tom and Roland, through that experience, acquired deep domain expertise in creating value through methodical M&A and, more importantly, integration process. This episode is all about M&A and corporate development, both for companies doing occasional M&A and those with more programmatic strategies, which is where Roland is spending most of his time now as an advisor to CEOs. Today, Roland and I talk about the why of M&A, how M&A most often destroys value and how to avoid this, getting the team right prior to beginning M&A, assembling and leading an integration team, planning for integration and pitfalls to avoid, and the role of debt. Please enjoy this fantastic deep dive on M&A with Roland Lessard.

Alex Bridgeman: Did you get to the Brad Jacobs podcast?

Roland Lessard: I have not. I have not. I’m looking forward to it though. I actually made a separate document just for like catch up. I’m planning on doing a lot of podcasts while I’m down here, enjoying the weekend, just sitting back and doing a little R&R. Nothing better than a few podcasts rolling through while you’re doing it, so I feel like I’m looking forward to it. He’s top of my list.

Alex Bridgeman: Yeah, it’s a really good one. You’ll like it a ton. The Met should be one, Shore Capital was another good one for like deal specific stuff. So, I’ve really gotten in the M&A deal frame of mind in the last two weeks. So, I’m really excited for this. But thanks for coming on the podcast for the second episode. You and Tom were on two years ago to talk more about Morningside specifically. So excited to dive into a kind of comprehensive M&A discussion as that was a core part of your strategy there. And you’ve had a lot of experience before. For folks who haven’t listened to that first episode or aren’t as familiar with your background, what’s the kind of 30 to 45 second elevator pitch on Roland and then your partner, Tom, and the businesses that you ran?

Roland Lessard: Well, that’s great. I was actually looking back at that. I think it was sometime mid-22. The one thing I would say was it definitely had a strong connection to M&A because that was part of our thesis, obviously, but it was more of a case study on Morningside itself. Obviously, we did a few bolt-on deals there that really created a ton of value as one of our legs of growth. I think it definitely connects well to this, but I know we’re going to go a little deeper on that. I also think about it in a funny way, Alex, because I feel like I get a lot of inbounds from either active searchers or people who are perspective searchers or even operators, and they always bring up that podcast. So, I feel like it’s a great thing, but also it’s taken a little time for Tom and I. But I would say the 30-second rundown on that, I mean, again, I just think when you’re in an industry that allows for a bit of consolidation and you get your business right first, it’s a great lever of growth. And so, in the Morningside story in that prior episode, Tom and I kind of walked through how that lever of growth created value for us and for our shareholders and for the employee base itself. And so, we get a couple bolt-on deals, extremely value creative for our organization. I think you learn a lot from it. So go back to ’22.

Alex Bridgeman: Do you have a sense for categorizing M&A? Like there’s something like there’s a strategy of M&A which is focused on many, many deals per year, M&A is a key driver of growth, and there’s kind of like more opportunistic M&A where every couple of years maybe you’ll look at something. Do you have a broad categorization of M&A strategies and maybe which one Morningside kind of fit into?

Roland Lessard: Yeah, I would say, obviously your industry has got to be- you’ve got to have fragmentation, enough fragmentation in your industry, like thinking about your rule of TAM. And I think we’ll get into that a little bit later. But I’m a huge advocate, especially in early days, to be focusing horizontally, like thinking about competitors, lookalikes versus trying to cut your teeth on verticals, which are definitely harder to underwrite or execute on. I would say, some folks today, their entire theses, whether it’s mid-market PE or the search fund, independent sponsor ecosystem, I think there’s been a movement towards more consolidation theses. And I think 10 years ago, that was really frowned upon, dependent on backgrounds, but even when Tom and I, I won’t say it was 10 years ago, that was 2017, it wasn’t that long ago, but I think the world’s evolved quite a bit since then, Alex. And I think, again, there’s certain folks that are kind of on the forefront of that, helping driving that and supporting entrepreneurs. But I think there are kind of two categories. I think you hit the nail on the head. Like some folks may do one deal, and just it’s very accretive and it helps the overall organization, but the way their industry is set up, it’s just not akin to that. And I think there’s other industries that fit really well with M&A. And I think we are obviously in translation services, but highly focused on intellectual property first and foremost. So, if we were purely in translation, Tom and I could have done another 10 deals easy, like we could have gone on into perpetuity doing deals. There’s plenty to be had. But when thinking about it with a core sub niche of intellectual property, that kind of limited our overall TAM and the ability to acquire a lot of companies without diluting who we are and within the translation or in the ecosystem focused on intellectual property. So, again, that is a great industry that you could do a massive consolidation on. However, if you’re focusing on really a sub niche, whether it’s intellectual property, life science, or what have you, you start shrinking your opportunity set. And I think that becomes somewhat constrictive. And so, if you’re more bland within your industry, and you’re in an environment where there’s fragmentation while especially kind of like both ends of the bell curve, I mean, you could gobble up forever. Now, what that pace looks like and feels like, I think we’ll get into a little more during this discussion today. But patience is a key virtue, not just in life, but also in M&A. So I think we’ll get into it a bit more. But I think you bucketed those quite concisely.

Alex Bridgeman: Yeah, we’ll definitely get into that more. Maybe like a- I know one thing you really hammer with M&A is you have to understand why you’re doing this particular deal and maybe taking a step back beyond just one particular deal, but why M&A as a strategy, as a component of value creation for your company, why do M&A, why does it make sense? And then why would it make sense for any particular deal? Can you dive into that concept? I love that, you talked about that last year in our retreat, that have a why for this acquisition. I’d love to dive into that more.

Roland Lessard: I think that’s a great opening. And I’m going to connect that a little bit to why most M&A doesn’t work and why it destroys value and connecting it back to that why. And so, I think it’s pretty much generally accepted. I mean, whether it’s our Business Review or pretty much any paper you want to read, about 70% of acquisitions fail to kind of achieve their intended outcome. And I think there’s a lot of reasons for that, but I think the primary reasons are it failed integration because, not to knock anyone from a corp dev perspective, but finding a deal is one thing and it’s not easy, especially if you don’t have a platform. When you have a platform, you have a very succinct list as a strategic buyer. And so, it becomes a little bit easier. But integrating a company is generally where it fails. And I think the first driver of why integrating a company fails is because people don’t spend enough time really thinking about the why. And what I mean by that is like measuring twice and cutting once. And it’s basically the foundation for doing the transaction. And I think folks just get excited about a deal and they’re just ready to go. And of all the folks I spend time talking to, I would say three quarters of them, which kind of aligns to the 70% metric, don’t really understand why they’re buying the company. And that sounds so outlandish, for lack of a better term, but saying that you want to buy a company because they have this product or they have that service or they’re in this geography or I’m going to get two million dollars of synergies or what have you, that is not a succinct statement on why you’re buying a company. You need to have a very clear vision of what the end state looks like, and if that end state Is way out in the future, like post 12 months, post one year, I think that’s crazy. I think that is where people have a hard time putting together that vision. That vision needs to be both quantitative and qualitative. The most important thing I think folks will get out of this is when evolving what your company, your combined company is going to look like 12 months from now, how it’s going to act from a financial, from an income statement perspective and a balance sheet statement on a go forward basis. If you cannot have linkage between the activities that are going to drive that and what you’re trying to accomplish, like you’re starting off behind the eight ball before you even get going. And so, you cannot spend enough time, strategy up front, really defining what value you’re trying to extract from this company. And that is also why I’m advocating hard, hardly for everyone listening to really focus on lookalikes and horizontals first because you know your business well. And so, if you’re looking at a competitor, you have a huge advantage to be thinking about value extraction, what you’re trying to pull out of this business. And so, it’s just very important to be able to, at the end of the day, when Alex asks you why you bought this company, you should be able to do an elevator pitch that ties quantitative outcomes of why you bought this business with drivers. One by themselves is not a full succinct statement on why you’re buying the company. And every step you take throughout your journey of integrating that company, whether it’s communications, internally or externally, whether it’s linking back to your deal book, everything you do should be connecting back to why you originally bought that company and the value you’re trying to extract.

Alex Bridgeman: Can you give a few examples of whys that get to the heart and root of why you would acquire a business? You gave a couple of examples of reasons that are maybe incomplete to go buy a business, but what are some great examples you’ve seen for the rationales for buying a specific company?

Roland Lessard: Well, so, I mean, there’s a whole plethora, but here’s a great one. So for example, if you’re in a smaller business and you have inherent customer concentration, and you’re buying because you’re the founder, you bought the company from or the way you ran it, it had a couple of big fish, and you got through that somehow, like in your original purchase, but you’re sitting with your top eight are heavy, your top one’s heavy, I mean, it’s a great way to blend your overall client makeup. And when thinking about that, another one is geographic footprint, so if you’re trying to expand to a different region, especially if your business has geographic constraints. Many businesses don’t, some businesses do. But those two qualitative things, just like, hey, they have a better client-facing application, or their API is hooked into a million different partners, those are all great qualitative connections. But if you can’t bridge those specific actions and how they’re going to benefit you financially, again you have a gap. Just like if you sit there and say, hey, I’m going to create a ton of synergies on a run rate basis and everyone’s always going to jump to SG&A salary synergies without really doing the hard work and COGs and other areas. Like great, okay, how is that going to impact the overall value prop that you’re delivering your clients? Again, the whole point here is you have to have both sides of the equation. You have to have a quant income statement deal book driven. But you have to have the why underneath that if you’re going to lead with finance. If you’re going to lead with gems, products, platforms, services, geographic footprint, client concentration, so on and so forth, it has to tie back to financials, which is another reason when people buy vertical acquisitions, especially at the beginning of their tenure, it is very hard to quantify cross-selling to your current client base, especially if you have no history or understanding of doing that prior. So, it’s kind of like it’s a lot of vapor. And especially when you start getting into high-growth businesses, it becomes even more complex.

Alex Bridgeman: Yeah, you mentioned doing horizontal deals first versus vertical. Can you talk about that a little bit more? That sounds like a good tie in here.

Roland Lessard: Yeah, I think that is a good one. I think it also comes back to what is your overall corp dev strategy, right, Alex, thinking about like, hey, what is my business going forward? And so, part of it just comes to knowledge base. And so, especially if you’re a listener here and you haven’t done a deal yet, and again, for lack of a better term, Tom and myself I would consider kind of deal hogs. And so even when we bought Morningside, and I think we brought this up last time, was we didn’t do a deal for the first year and a half, two years we owned Morningside. I mean, which was very- it tested our personal patience because we knew it was a major value lever that we wanted to pull. But before we get to horizontal, and this connects to horizontal tremendously, if your business is, I don’t want to say a mess, but like most businesses when you buy them the first year, you’re figuring out infrastructure, you’re figuring out who sits in the right seats, you’re building an organization. If you go buy a company too early, so part of your corp dev strategy is patience. If you go put a big mess on top of kind of a mess, all you have is a very complex mess. You will not be able to get the synergies that you want because your business is still in flux. And so, if you- again, no business will ever get to 100%, no business will ever get perfect. If not, I would love to meet that person that has a 100% perfect business. I’ve never heard of one, but again, maybe there’s one out there. But again, at least getting your business from when you bought it being a C business, you might have thought it was- you underwrote it as an A to your investors, but it’s really a C business, and that’s why you’re there. That’s the value you’re creating. If it was an A, why do they need you? And so, you bought a C business in an A industry, hopefully, and you’re an A operator. And so, the key is how do I get my business to a B at least? How do I make sure I have, from a key man perspective, my org chart feels pretty good. I have the ability from an infrastructure perspective to manage my business from maybe not 30,000 feet but at least 15,000 feet. If you’re still managing your business from 5,000 feet and you do an acquisition, good luck to you because I’m not sure how you’re going to pull that off. So, patience would be my first feedback when it comes to a corp dev strategy. My second bucket, to answer your question, would be more around like, hey, let’s cut our teeth on a horizontal acquisition and let’s make sure it’s not like our same size. Let’s make sure it doesn’t have massive customer concentration, like some basic building blocks, but it’s even more important on your first deal because not only are you going to get smarter about M&A, but your integration team is going to get smarter, and they probably don’t know anything. And so, this is the opportunity for them to cut their teeth with you. And the risk that you create by screwing this up is enormous. And that’s a key thing to think about. Alex, I think we talked about this last time. I think people are like, okay, well, I bought this deal and it’s whatever, $5 million purchase price, whatever that may be. It’s not the end of the world. No, actually, it’s pretty damning if you screw up your first business. Number one, it’s not just the ROI or your IRR on that asset you acquired. It’s also what it did to your core business. When you go to sell your business one day, people are looking at a combined entity. So, if you ruin all that growth in the acquired company, what does that do to the growth of your company? What does it do for the trust that you’re trying to establish with your board, with your lenders? How about your employee base? And so, it is paramount that the first deal you do, you do it and you’re successful. And so, take a smaller bite and make sure your business is ready to go first. And I highly recommend making sure it’s horizontal. Find a lookalike, find a competitor, find someone sub your size. Again, some people have smaller businesses and they can’t do this, but you want a business that’s- you don’t want a business, like people say a third, but definitely not more than half your size. At the same time, if you buy a business that’s got like five or ten people in it, is everyone going to be on the integration? And so, as a rule with the integration, the whole purpose is to complement and not distract your core business. And so, if it’s too small, that’s virtually impossible. And so, you want to find that nice sweet spot where you’re creating leverage from the acquisition that’s horizontal and you’re rolling it into your business that’s running at a solid B. And by having that B, it allows you to get not just SG&A salary synergies, which are kind of lazy synergies to be honest with you, you’re able to get COG synergies, both data and labor. And again- or raw materials, depending on what kind of business you’re in. I’ve just exchanged data for raw materials or what have you, data content, however you want to think about it. And on the SG&A side, because you’re able to get those COG synergies, because you’re able to consolidate applications, stacks, platforms, you will be able to cut and go even deeper on the SG&A side. So that patience up front, buying a company that’s the right size within this space that you already understand, including the end buyer, your customer of your product, makes things so much easier. Get a W, folks, before jumping and doing something complex.

Alex Bridgeman: So going from a C to a B for your platform company, what key roles on that team need to be there and humming before doing any other M&A deals, any other horizontal, that first deal, what roles have to be there?

Roland Lessard: Great, and so I’m going to kind of take that into twofold. This is a lot of fun, Alex, so thank you, by the way. By the way, your podcast has become like the most optic podcast for like this asset class. And I think it’s, by the way, kudos to you because I feel like it’s- obviously you have this amazing beachhead in the search fund ecosystem, but like that’s really expanded to mid-market PE, and I think it’s kind of the go-to cast for everyone in the space. So well done, old boy. So, I think to your question, for everyone out there on their core business, without being too general, I always tell people to think about it in three buckets – org, metrics, and activities, and always in that order. Smart people are always going to jump to a solution. It’s like that old movie Office Space with the jump solution mat everyone loves. Like it was a comedy and a lot of funny, but it’s actually realistic. And I think the smarter you are, generally, the more often you are going to jump to activity because you feel like you have the solution, you have the activity, let’s go. And I always make kind of the analogy, like you’re driving a car from Florida to back to New York City. And you’re thinking about, everyone’s like, okay, what’s the fastest route? Should I take 95? Should I go around the beltway? How do I- that’s the wrong way to start. The first way to start is actually who’s driving. Because that’s a long drive. Is anyone driving the whole way? Who’s my navigator, and who’s my backseat driver? Because everyone’s got a backseat driver in their life. And it’s usually their spouse or their partner, but that’s a different story. But I would say figuring out who should be on your team. Like do I have the right leaders in business development? Do I have the right leader in my backend with my COO on my operations? Do I need an FP&A function to get going, or is my CFO or my head of finance strong enough to both be debits and credits and also FP&A? So, getting your org chart together is very, very important. And the other thing I would say before getting to activities, I think I alluded to this earlier, I call it like metrics, but to me, that’s just overall infrastructure. Like how do you view your business? Are you able to track your KPIs in a very efficient and quick manner? Whether you’re using visualization and things like Power BI or not, can you see and track your business and the success or challenges it’s having from 15,000 or 30,000 feet? If you can’t and you are in the weeds for every little daily activity, how are you going to acquire a company? I just don’t think that’s, again, it’s possible. On your core business, making sure you have the right people on the bus, sitting in the right seats, going back to my analogy of the drive from Florida, know where you are. So, I’m in Florida right now, that’s my current state. What is the current state of my business performance-wise? Where do I want to go? I want to go to New York. If you don’t know where you are and where you’re going from a metric perspective and goal perspective, how can you buy a company? Then and only then can you start figuring out what is the best route, a.k.a. what is the best activity? Will I go around, will I take the Beltway, will I go around DC, will I go through DC, so on and so forth. So, once you’ve got that figured out, to your platform question, then that starts reaching into like, okay, what functions are important for my integration team? I think that’s kind of, Alex, where you wanted to kind of jump to. I’m just reading you on this one, and I’m figuring that’s kind of where you wanted to jump to next. And so that is a very important question. So, no different than your overall organization, think of your integration team like this. And so, here’s a little thing I like to think about. You’re starting with one company. Before you get back to one company, you’re going to go to three companies. And so, your three companies are your current company, the company you acquired, and NewCo. And NewCo is your integration team. And that’s exciting for every member of NewCo because on NewCo, you feel like you’re running and leading a business. And so, the same functions that are representing your core business and the acquired entity should be on your integration team. You should have a marketing function, an HR function, a business development function, technology, whether it’s software infrastructure or separate or together, again, debatable. Like, I don’t know your business. And the same with back office and finance and so forth. And so, you’re basically running a cross-functional project. And so, with a cross-functional project, you need representation. And if you walk into the first day and you’re telling everybody how important they are in the acquired asset and how you’re going to listen and learn and we’re going to be one plus one equals three, how do you do that if you don’t put the acquired entity’s employees on your integration team? Like that’s just a flat out lie from day one. And that is no way to start a relationship. And so that cross-functional team, professional services is another one, whatever it’s five, ten functions you have in your business, you need representation from both companies. And that is essential. Now, again, some smaller companies might, one person might be doing both HR and maybe finance or something or another function. So, you have to be crafty about how you do that. And the other point with that is you definitely do not want, and I see this all the time, you definitely do not want an integration team full of executives from both companies. That is doomed for failure, number one. Number two, you’re not creating any bench strength. And most importantly, number three, how are you not going to distract your business if all your executive members from both companies are on NewCo? And so, the key is how do you find the leaders of the business? And we like to say, who are the sergeants, not just the officers? And I think we said this on our last podcast, Alex, and I was like, it’s like those old World War I movies, like the officer popping out of the trench of warfare and like being taken out versus like this old grisly sergeant with a cigar hanging out of his mouth. And you think about your company folks. If you have a bug issue, if you have a software issue, are those folks calling the CTO right away? Are they calling the CEO right away? No, they’re not. They’re calling their lead developers, they’re calling program managers, they’re calling someone who understands it first and foremost before escalating upwards. That’s the person you want on your team. And when a sales rep’s on a call and they’re having a client, they’re having an issue trying to convert, are they going to the head of the sales? Are they going to their VP of sales, director of sales, or kind of their mentor who brought them on? That’s the leader you need on your team. In some functions, based on bench and depth of the company, you might have an EC member. Like HR was one that came up a lot. It’s hard to have an HR person that’s not kind of the key leader because you don’t want just a generalist person. You don’t want a recruiter. You need someone who has an all-encompassing view of the organization from an HR standpoint. But generally speaking, especially in the bigger functions, how do you staff those without taking all of your executive team from both companies? And so, a cross-function. So does that answer your question a little bit, Alex?

Alex Bridgeman: A little bit. When you say you don’t want a team of all executives from both companies, do you mean every single executive from both companies is on the integration team, so it’s a lot of people, or it’s just, it’s not the-

Roland Lessard: No, it’s a drain. It’s a drain from your overall company. And so, at Morningside, for example, we had a great COO, killer, great, fantastic. He helped support M&A from afar, but he was never on any of the integration teams because when I was facilitating getting the groups going, he had to do a lot of my stuff and help contribute at a higher level in maintaining the core business. And I think that’s important. And even Tom and I, we have specific roles that we divvy up, whether it’s by function with the business, but it’s the same for M&A. Tom does a lot more of the front end, and I do a lot more of the back end, and that works well for us so that we can scale. If you have one person trying to do everything, how are you going to scale? So, scale is always top of mind for both of us. And I think you need to think about that even from an M&A perspective. So, if you’re doing all the sourcing and all the integrating, one of them is going to fall backwards. And so, how do you build that bench strength? And so, as a CEO, I would advise you, especially in the first one, to 100% be involved on the integration team, but try to do it from a role of facilitation and then find someone in your company to kind of play a project manager role on that. And you might be spending a tremendous amount of time coaching them on that first deal, but that’s going to allow you to scale to do deal number two, deal number three, and each time a little less oversight by you personally as a CEO.

Alex Bridgeman: You mentioned also that that integration team, that is NewCo, that’s the third company that you’re running with, current company and acquired company being the other two. Are those folks on the integration team, that third company, are they meant to be the leaders of the combined organization?

Roland Lessard: Great question, Alex. And the simple answer is yes. And so, let’s start, let’s go with that. On top of that, if you think about why did I say three companies, well, going back to rule number one, compliment not distract, you almost need a wall within your business. And so, every time you have a client challenge on your core business, and it is bleeding into your integration team, that’s scope creep. That’s a distraction. And as we mentioned, what kills deals? Scope creep, poor communication, not understanding the why behind things. And so, if every time there’s a challenge in the core business or the acquired entity, and it’s bleeding through the integration team, they’re not focused on building NewCo and having one combined company. Again, you’re going to go from one to three back to one, but to do that, you need to kind of wall off each of these entities, otherwise you’ll make no progress. And it doesn’t mean that people on the integration team, they have a day job, but while they’re in the integration group, while they’re in that meeting, while they’re working on those activities, and believe me, they’re excited to because they’re learning a tremendous amount that they cannot learn in a regular day to day job. And so, all the deals we’ve done, people will be fighting for these opportunities to be on these teams after the first one or two because they realize like, wow, I get to really have a say in things, I really get to kind of show my leadership skills. But again, it’s very important to kind of wall off those core businesses because you care about realized- your performance on a realized basis where the integration team should really be focusing on run rate basis at the conclusion. Like am I going to hit my deal book targets on a run rate basis and not be penny wise, pound foolish on a realized basis coming through? And they need to have a myopic focus on that, otherwise they will fail like 70% of the other people. So, these are all things to give you the best opportunity to be part of that 30%. And so, I think patience, going smaller, being horizontal, being thoughtful, understanding your value, your value extraction, building the right team, and having the mindset and the discipline to not let scope creep move between these organizations is so, so important. Alex, I make a joke. I can’t tell you how many times I’ve talked to people or even interviewed people for jobs and asked them about like, oh, you guys just did a deal. Like, we did a deal. Yeah, I’m still involved in integration. I’m like, when was the integration? When did you buy the company? They’re like three years ago. I’m like, what? And I just kind of sigh. And in my head, I’m like total failed integration. I don’t care what anyone tells you. There’s no one out there that underwrites a three-year integration. I’ve never heard of it. And if they did, like not a very smart person, no offense, but like you do not underwrite a three-year window. Three years ago or four years ago, there was no COVID, interest rates were 0%, the world evolved wildly over said period of time. And so, you need to be thinking about time fences that are no longer than a year out. And again, it doesn’t mean you won’t find new things, have new ideas, new projects, but those are exactly that, new ideas and new projects. They are not part of the original value extraction and the finite amount of scope you’ve created for this integration. Everything else is a distraction.

Alex Bridgeman: Can you dive into that just a little bit more, having that 12 month limiter, that vision for the end state? I assume you’re meaning that every task, every activity within integration, whether it’s systems or moving customers over to whichever person’s platform you’re going to use, all has to be done by 12 months? I assume you’re referring to effectively that structure?

Roland Lessard: Yes, 100%. And that goes back to what value am I extracting? Now, everything always links back. So, if you’re talking about extracting value that’s two or three years out, do not underwrite that. For everyone listening, every investor out there, do not, and I don’t think most of them would, but do not underwrite that because the probability of it happening becomes less and less as every day goes on. And I would actually, like for all your folks out there, I would always try to target nine months as kind of like, hey, what can I get done in nine months, knowing you may have some bleed, you may have some things. But again, 12 months is fine. Most lenders will give you credit, even going backwards, like from a pro forma or from an ad back perspective, like on expenses through that period. So that 12 month window is pretty common I think from a lending perspective, for some reason, people don’t take that into a planning perspective, which is where the gap and the disconnect between scope is created. And so, it’s just important. You start thinking about, all right, like this is what my org chart is going to look like. Am I going to be on one stack? Am I going to be on one platform? Like if my professional services is going to be completely aligned and my KPIs across functions should be aligned. I’m going to be on one budget. I’m going to be on one balance statement. Like all those things, if you can’t get done in a year, then your scope is too large. And that might even dictate in some instances in my past lives, at Sterling or other prior industries I worked in where I’m doing M&A and my long-term goal is obviously consolidating platforms because I only want one stack, one application, one client-facing experience, and I’m buying a horizontal company. However, this goes back days when there was no APIs and everything was hard-coded, XML feeds, and so on and so forth, and there would be major client customization at an integration basis for Fortune 100 companies. And so the answer was, all right, I’m going to do a hybrid. And so, as part of my integration, I’m going to make the entire backend integrated. And from a client facing application perspective, I’m going to have like almost a shell of a screen that looks the same to what they’re currently dealing with. So, it’s more of a mirage, but the backend is completely integrated. But I’m still- I can’t get to that 100% integration. I can’t get that complete consolidation. I’ve got to still manage two stacks possibly, but I’m going to get a majority of my synergies in my first nine months and feel good about it and then have a separate project around sunsetting that application completely and migrating the rest of those clients. That may be your thesis. And to me, I would rather do that than plan for something that’s going to take two or three or four years out. It just doesn’t work. And so, especially if you think about platform consolidation, really spend some time upfront during diligence on feature functionality assessments and be tough. And be tough, be willing to push. Because it’s about change management. And I think we spent a lot of time on that last time. When it comes to M&A, that is core to everything. It’s a change management project. It is not a technology project. It is not an operational project. It’s not a sales project. It’s a change management project. And so, once you grasp that concept and you’re working within a certain time fence, you’ll start realizing what can be accomplished and what couldn’t be accomplished reasonably, underwrite that, and it doesn’t mean you have a follow-on project in year two or year three that is not tied to what success looks like and the value you’re extracting and underwriting for that deal.

Alex Bridgeman: Yeah, it sounds like this could also dictate the types of companies that you would acquire. If there’s a company that’s mostly integration or value extraction you couldn’t get done in 12 months because the systems are too different or what have you, it sounds like that’s something that would go in the too hard pile.

Roland Lessard: I think that’s right. I think, and again, not to kind of circle back, but I would really focus on what you could eat, what you can eat in a comfortable time, especially in the first deal. And so to me, I think as you get more experience, you can get a little more complex.

Alex Bridgeman: Yeah, perhaps this is just a first deal.

Roland Lessard: Yeah, on a first deal, 100%. Like going back to the kind of lesson we shared before, you definitely want to go horizontal. You definitely want to go to a certain size, not too small, but definitely not too big. You don’t want- I mean, look for a lot of technology that- again, if you’re going to consolidate platforms quickly and efficiently, and you’re willing to push things through and client migration, then it matters less. But understand those little key things, even things like who owns a client relationship. These are things that you want to get done during diligence. So that’s the other cheat, or people like to use the word hack. I love hearing it all the time. Like try to get ahead during diligence. So, people thinking about like, yeah, I got to get my Q of E done, I got to get my legal diligence done. Like, no, like this is a moment, during diligence is a moment in time for you to start your integration plan, to start building your deck. I tell people a little rule of thumb, one of the secret sauces that Tom and I, again, in many deals, again, over a dozen, it didn’t work all the time, but trying to get in as early as possible. Try to ingratiate yourself with that management team, spend time with them. If you can go hang out at the business, great. Have management meetings just have management meetings. Don’t let a broker, if you’re not doing a proprietary deal, do not let the broker box you out from the staff. That’s like a pencils down kind of conversation, personally speaking, like that would be pencils down for me. If you’re hiding the team, there’s something there. Red flag, pop it up. How do I remediate that red flag? And there’s plenty of other ones, but that is a great one of like management meetings are never a waste of time. So, you want to go through your functional review, do your technology diligence, do all your diligence, get to know people on a personal basis because you want to get to know them, but you also want to know who, you want to determine who their key lieutenants are. Who are those sergeants within those EC members that you get to meet? Because now you’re starting off already a little farther than others would. And it’s like, can I kick off my integration team a week or two before diligence, before you close? That’s a nice thing. Now, again, not all owners will let you, and I’ve had to go both routes. Now what’s not acceptable is not being able to kick off a microcosm of that team. I’ll call it the day one team. That’s a non-starter also, like if you can’t prepare with their marketing, HR, and sales guys or gals prior to close, huge red flag. Because you have one shot at a first impression. Alex, we spoke about that before. That saying is so true and it couldn’t be any truer in M&A. You’re walking into a company and all they hear about is 70% are failed acquisitions, everyone loses their job, their benefits change, and most of it’s not true. But that’s what they know. And that’s what they see on the news. And that’s what they see in the papers. And so your job is to calm that fear. Your job on day one is all about anxiety management. You want to reduce the anxiety in your employee base and reduce the anxiety in your client base. And so that is paramount to get going, and that connects back to the communication concept also.

Alex Bridgeman: Yeah, you talked also about this, a lot of this planning is kind of circling around this deal book that you’re creating. I’m envisioning this thick binder that you’re like issuing to your entire integration team. What are the major components of that deal book?

Roland Lessard: From a deal book perspective, I think, to me, it’s kind of like the summation of all these pieces we’re talking about. And so, if you’re thinking about your value extraction, like, hey, what’s my core financial picture of this business? And I’ll get into more detail on that. But this is like kind of how you memorialize all that. And so there needs to be a level of accountability on that integration team and you as the CEO for taking this leap of faith and buying this company, like how are you going to create accountability without memorializing a document? Like some model that’s on version 50 of Excel throughout this deal process is not memorializing a deal. I want to see org charts. I want to see company snapshots. I want to see headcount tables pre and post all the synergies and reduction in force if there are. I want to know how we’re going to migrate. I mean, how are we going to integrate? Are we going to do a client migration? Are we going to do a systems integration? I kind of talked a little bit about that earlier where it’s kind of a little bit of smoke and mirrors to a point. Are we going to- or is it more of like if we’re buying something totally vertical and it’s more of a business enhancement, like not a big fan, but done that before too. I want to know what’s the client migration plan, when’s it going to start? If you’re buying a company in January, you are not migrating clients in February. I can pretty much guarantee that right now because you have features, functionality, alignment to get done. You’ve got to align a lot of things beforehand. When are you going to start the migration? Are you going to start it in April, in May? When are you going to do that? How long is it going to take? What is your schedule? What clients are going first? Which are going last? What’s your client count versus your revenue count? I want to understand both of those because your client count is going to move a lot faster than your revenue count. I can guarantee that because your big fish are going to move last. Because you want to- just like buying a company, you want to cut your teeth migrating clients that are smaller and less valuable because if you screw up, it doesn’t hurt as much. So that plan should be in there. Obviously, your financial summary. Like your run rate synergies, your prior year financials, your year over year, and your realized. Again, the integration team’s number one focus should be run rate, but realize matters, including cash and what you’re spending. So, another component of that would be like, what are your one-time costs? I see that missed on the majority of deals I look at and thinking about, okay, if I have severance, how am I backing that in? It might be an ad back one day to your bank, but that’s real cash. And so, understanding what those are and then not allocating money for that is a risk, especially when thinking about retention bonuses and stay pay. So you might have an individual that becomes very aware, you’re very aware, like three months from now, they’re not needed. Once I migrate these clients, like there’s a whole bunch of folks I’ll need, but in the interim, like there could be someone that I might pull a trigger on too fast. And again, that goes back to penny wise, pound foolish. Have some money in there. I’d rather pay someone that was important that I needed for three months, but really needed the first two months and pay them for three months. It’s just, to me, that’s de minimus from a perspective of a damage of having that knowledge gap loss. And I think a client- a lot of technology folks from that perspective. On retention pay, I like to think about client facing folks. And so, if someone’s got a strong relationship, whether they’re great or not, if they’re not great, your focus should be, okay, longer term, they’re not a good fit for my business, but how do I transfer that relationship in a very succinct, common way? Day one, the first thing you’re telling your clients is your client contact is staying the same, your price staying the same, everything is staying the same in the short term. You cannot change that. If you need that person for X amount of time, make sure they’re happy to stay, and if you need financial incentives to do that, do so. But that should be documented in your deal book on your one-time bucket cost. Then obviously, last but not least is a returns model. So, I mean, those are kind of covering the main buckets, but things like headcount tables and org charts are so essential because they visualize what you’re trying to accomplish. Kind of like your key tasks by function are so important also. And I think about those folks, when you’re underwriting a deal and building your deal book, those should be like 15,000 foot level. So, here’s a great example, like sales function. I need to consolidate my CRMs. Okay, that’s the goal: I have to consolidate CRMs. How you map fields from Salesforce sales, how do you do this? How you do that? Like that is for your sales- your rev ops team to figure out or your sales business, like who’s ever in charge of that application or that platform within your business. That’s a 5,000 foot level. They’ll know more than you do on how to do that. And if they don’t, you have the wrong person or you shouldn’t be a CEO. They should know better than you. However, you should be smart enough to say that is part of your accomplishment, your goal. I need aligned pipelines. I need aligned commissions. Again, these are just examples of tasks by function, and those at the 15,000 foot level should be laid out in your deal book because that is the linkage for the value extraction of the quant and the qual. And it’s like, how are we going to go do this? I need to be on one platform. I need to be on one stack. I need to be on one communication. And that’s an earlier thing. Like you can’t have some people on a Google package and other people on a Microsoft package and think people are going to communicate effectively. It’s not going to work. And so, that’s a goal for your infrastructure group, but also your HR group because we’re going to deal with people for that stuff. And that’s where these things start overlapping. And not to jump too far in a tangent, but like when you think about your integration team and you as a facilitator, one of the most important things you can think about when people are discussing tasks and activities is highlighting where things overlap. And so, I can give you a billion examples, but one could be as simple as like, hey, our brand’s going to change. Like, okay, well, who does that affect? Or guess what, that’s going to affect the finance group even on invoices. Things that you would- I use that example because it’s so small, people don’t think about it. And they’re like, all of a sudden, hey, we co-branded or we did this, and all of a sudden, the invoices are still going out the same way. No, no, no, no, no, no, no, no. Even that little thing matters. So, your finance person and that integration meeting needs to be listening when marketing is giving an update. The sales folks need to know when that invoice shows up, it’s showing up looking in a different format. And they’re aware of it. So, the client calls me like, hey, why does my invoice look different? They’re not surprised. They already have an FAQ ready to go walking through why it looks different and why the pricing hasn’t changed. Like important concepts when it comes to overlap, Alex.

Alex Bridgeman: Yeah, certainly. You’ve laid out a couple different timelines for like systems integrations or key hires maybe needing to stay on for a few months. Do you have a sense for benchmarks for over that 12 months to get to that end state, how long any process or project should be taking? Like people, projects should take this long, CRM this long, tech this long?

Roland Lessard: I would say, okay, here’s a great one. I’ll start from the beginning. So, when you close your business, when you close on a transaction, you show up there and you give a speech and do a town hall, and hopefully we build up day one properly where we have like FAQs and we’re ready to go and we have breakout sessions and all sorts of stuff I can go on for another three hours on. But what we’re going to do, going back to activities for the sales function, and this is why each function, some are super heavy in the beginning, some are super heavy in the middle, some are super heavy at the end. If you’re thinking about the sales function, on day one, where other people have activities such as like going to breakout room and getting to know people and sharing their favorite sports teams with a different office or what have you, they can start calling clients like right away. I mean, so a press release is basically an ego driven activity, whether it’s your financial sponsors or you yourself. And so, I’m not opposed to this. I’ve done plenty of press releases, and it’s fun to put your name out there on the PR news wire and have all the fun stuff and totally support it. Not until after every client’s contacted and every employee’s contacted and then anxiety’s broken down. If you let your clients find out about a transaction through the news and not you, you don’t deserve to be a CEO. I don’t have any other way to say that. And so going back to an activity, within the first week, every client should be contacted with the news of a transaction, why it’s good for them and then why nothing’s changing for them at the same time, which is a funny message to mix. Like you’re focusing on like, hey, your client contact’s the same, your pricing is the same, everything’s the same, and this is going to make us better because of X, Y, and Z. And those value props are also what you’re sharing with your employees and the overall market. But that’s a day one task. And so, within the first week, while other people are getting to know each other and like become friends, the sales teams calling and calling and emailing. You better have scripts for the call script, you better have a voicemail script, you better have a follow up email script, and they should all be exactly consistent. And when someone asks a new question that you haven’t heard before, add that to the FAQ list. Variability in messaging, whether it’s to employees or to clients, will cause anxiety. Anxiety will cause attrition, whether it’s your clients or your employees. And attrition, unwanted attrition is the one thing that you don’t want when you’re buying a company. And no one likes to hear this, but when you buy a company, you’re buying clients. And so, if you lose a client, there goes part of the value that you just bought. And so again, from those clients, you’re hoping to derive incremental margin, you’re trying to get incremental EBITDA, so on and so forth. But the client is the top of that funnel. And so, if you screw up and lose clients or you lose key people that you need to do all this work, you’re in big trouble. And so, managing that message, not having variability is essential. So, like the day one client thing on the sales side. Here’s another one that has to happen right away if you’re a sales function. You can’t have, especially if you’re buying a competitor, you can’t have a company you acquired and your company calling the same prospect with a different pitch, different price points because you look wildly unorganized, especially since you just called them and told them you’re one company. Getting aligned on prospecting, which by the way, if you have a good sales function, is never an easy task because there’s a lot of egos and a lot of pride going into that, be smart about that. Put some time into it and ensure that you guys are- I don’t care if the first week you’re working off Excel or two weeks until you can start getting a better view of your CRM and using that properly, getting access seats, all that kind of stuff. But I don’t care if you do it with Excel for the first three weeks. Like, okay, I’ve done that many times. The damage, the work putting in there that made you rework it to a point, the damage of calling a client, especially a big client, and looking stupid is way worse. Because you look like you don’t know what’s going on, and that will cause them- and they have a lot going on, I wonder if I should look for an alternative supplier in case something goes wrong here. You don’t want that crossing their brain. Here’s another one, again, maybe on your product or platform team. When you start thinking about, hey, this is the URL or this is the integration they work with, and we’re going to consolidate platforms, I might have done a demo or two during diligence, they have a great dashboard, ours is weak, we have this, they have that. No, those first few times, the first month, the first few weeks, you’ve got to dive in way deeper. I want a very clear understanding of scalability. I need to do hardware testing or whatever you’ve got to do. Understand scalability all the way to feature functionality and actually not just feature functionality, who’s actually using it. I can’t tell you how many times people are like, hey, we’ve got this really cool functionality that we built for our clients. And you guys don’t have that, you just bought us. You start getting into it and no one’s using that functionality. So, it doesn’t matter. So, when you start thinking about consolidating platforms, if you go and develop that functionality, you’re just throwing more bad money at a bad function. And so really understand the feature functionality and then developing, close those gaps. And closing those gaps generally takes like three months in my life, like whether it’s URL or integration based, it doesn’t make a difference. Usually like between close, I can’t start migrating clients for probably four months, something like that, Alex. And that migration is usually maybe two months, six weeks, eight weeks, something like that to migrate clients because your first group is more of a pilot group, small clients, just getting them to actually realize that you’re a client and you need them to- and all the training that goes with that. And you’re breaking a few eggs maybe, but hopefully not, but you’re really getting your process down. And so, then you might have a week or two of learning from that and then move. Also on that feature functionality, if there’s something essential and it’s going to take four or five months to develop, the clients that are using that application become the end of your migration. So, you can get that done, but you’re not waiting. Everything doesn’t need to run in series. Some things can run in parallel. And so, you’re getting some of that done right away. Infrastructure, another great example, you can’t sunset a stack until everyone’s migrated. So that’s at the end, like the end of the application, of your integration. However, you need everyone, going back to what I said earlier, talking on the same phone system. You need to talk to them using the same- whether they’re using Slack or Teams, you need everyone to be able to communicate effectively ASAP. Priority number one for that group. However, the sunsetting of a stack might not happen for seven or eight months. And then make sure you’re looking at contracts during that time. Do you have an evergreen clause in there where you’re going to renew an entire- your cloud application all over again? Because now you just bought it for three more years. Think ahead, same with leases. And so that’s a great example of infrastructure where you have an activity eight months down the road, and you have an activity month one. And so, lining up all those activities by function at 15,000 feet as a goal, that’s important, realizing priority and timelines on those so that you can feed those, I like to call it seed plant with each function so they have like- they walk in day one, their first integration meeting, their planned activity bucket is full of things that you told them they need to accomplish as part of that function. Some of them might be six months out, some of them might be three weeks out, but that will be kind of like their own little Gantt chart.

Alex Bridgeman: Yeah, you’ve mentioned a couple of different styles of integration or categories of integration, mentioning your favorite is to go into one brand, one system, one team, but you outlined a handful of others, client systems, hybrid, and then kind of an enhancement support. Can you outline some of the different categories of integrations?

Roland Lessard: So by far, the best one for horizontals, like not even close, is client migration. I’ve spent a lot of time chatting on that already. Like that is- that means you are literally, you have one of everything. You are one company completely. I don’t care if you’re sitting- one office or one group of folks is in India, one’s in Israel, one’s in the US, one’s in like- it doesn’t matter. It just doesn’t matter. You’re one company. Because you’re on one stack, one application, one platform. You’re offering the same set of products. Maybe you’ve got one new product, whatever. Like, that’s what you’re offering. So that’s a lookalike, very, very simple. You will always go deeper on synergies in that mindset than anywhere else. Period. Just because you are literally going as deep as you could possibly go. Kind of the alternative, which I explained, is like, a systems integration where the back office and how you make your sausages is completely aligned. Like say, hey, this is how this works, but for example, there’s certain feature functions that I can’t get done in time, or I bought a company that’s got some mega clients, like this is an example for me personally, where I had homegrown systems that were hard-coded and integrated. To give them an experience that was similar or better was going to take time, and if I waited for all that, everything hangs in the balance. My timeframe goes over a year. Many people sprint to stop, and talk about demoralizing. Like think about your own life, like sprinting to stop is like the most painful thing. I don’t care if you’re running or doing anything in life, that’s painful. So, you make a choice and say, okay, I’m a back office. I’m going to- it’s going to be like- I’m going to have like a cloak or I’m going to have a front for the client. So, they’re going to think everything is the same, but behind the curtain, everything has become one. Everything except for, A, my platform and the stack hosting it, for example, in kind of a technical business, services business. And that’s okay. You’ll get 85% of the synergies and value that you wanted to create, but you won’t get that last 10 or 15%. And you need to keep expertise on an application that you don’t want anymore. So not only do you have the cost of those individuals to do that, like your client facing folks, if they’re covering clients on both applications, need to know both applications. Like there’s an opportunity cost. There’s a bandwidth cost. And so, when I say 80, 85%, like your synergies might be like, well, Roland, I’m the only- there’s only like 5% of my synergies left or 10%, just the hosting fees and this. And I’m like, no, no, no, no. There’s a lot of hidden costs with that. And so, what I call, that would connect to the hybrid model where it’s like, okay, as part of the integration, we’re going to do this as an integration. And then once that’s all done, then, and our deal is done, now we’re going to, for the last 10 or 15% as a secondary initiative, we’re going to do a client upgrade project, like a client platform consolidation project as kind of the hybrid approach. Like you don’t want to do one without the other. And the other bucket, and for those folks out there doing like holdcos with very different end user client bases, which is a whole separate beast, if it’s not a tremendous amount of cross-selling overlap and you’re basically just holdcoing two different businesses, you’re more of a consulting approach. I’ll call that business enhancement. We’re taking a business and you’re getting some shared services leverage. You’re optimizing and realizing like, hey, I got a better contract on legal. My expenses are consolidated. We’re going to move from AWS to Azura for both of us so I can get consolidation on my hosting fees. Like I’ll do some stuff on the business enhancement stuff, but I’m really still running two separate businesses. I need a separate GM or MD to run that business. So, you’re not going to get nearly the synergies that you’re looking for. And again, in some holdco models, that works, but if you’re an entrepreneur looking at a business, looking at an acquisition like that, I would stop, breathe, and then go back to how we started this conversation around value extraction. Is this the right thing for your organization? And I think unless you have a very specific thesis around a holdco model, it’s not a good deal. Because why do you want to have that distraction to your core business? If you’re end buyers- that’s a great way to test it – are your buyers the same? And if they’re totally different, totally different, take a pause, especially in your first deal, like is this the right time to do something like this? And the answer is probably not.

Alex Bridgeman: One part of your deal book you outlined too within this integration and all these different integrations is tracking certain KPIs and progress. A lot of these, especially with systems, I’ve done system integrations, it doesn’t always feel like you don’t always get a strong sense for where you are in the process. But do you have a sense for metrics to track to see if you’re on or off track for that 12 month end state goal?

Roland Lessard: I do. So, Alex, I feel like you’ve done too many deals now, I think, because I feel like you’re asking too many good questions here. So I’m going to put things in two different buckets. And the first bucket I’m spending like very little time on. Number one, you need to have KPI alignment across all your functions. And so, one of the things I like to build on day one is a lexicon, where you’re looking at terms they use, acronyms they use, and the terms you use and acronyms you use. I’ll bet you 80% of them might sound different but are exactly the same. And the ones that are different, you need to align. You can’t have a software development function for one company using different metrics and goals and KPIs than what your software development uses. Same with your project management departments, client service departments, sales departments. Everyone needs to be on the same nomenclature, same KPIs, they need to align by function on what success looks like. So that’s one bucket. But now going back to your question around deal books and tracking mechanisms, that is, I would say, one thing that maybe I personally don’t remind folks enough about when talking with them on M&A. And so, I’d rather- you’re going to laugh when you hear this, but a lot of times, even my first one, you’re in your first month, you do your day one, you feel great. And then all of a sudden, you’re bored or your shareholders are looking for an update. And you write like a dissertation, like five pages typed of all the great things that you’re doing. And generally speaking, there’s very little quant there. And that’s a waste of your time, their time, everyone’s time. Like it’s great. It’s cool. A lot of commentary. But on a tracking perspective, it’s very important to have something monthly that can go out. It’s going to save you a lot of time as an operator. It’s going to save- and it should be repurposed. Every time I’ve done this, my lender accepted what I put forth along with my board and everyone else. And it should be like a simple one-pager that goes out every month. You should have your qualitative wins and gems, like a few bullets over there, but you need to also put in- there should be a top part that’s all quant because this is where people sometimes will be so excited about the integration and one plus one equals three and like going from one company to three companies, they forget there is still very much importance around how that company’s performing on a month to month basis. So that document, one pager, it should be very simple. Your qualitative pieces, your quant pieces should have things like what was budget for revenue? What was my actual revenue? What is my variance and why? And then as you- and again, as you get farther, one of the most important things is like, what were my synergies on a realized basis? What should they be? What are they actually? And why? What is my run rate supposed to be and why? I can’t tell you how many times where on a realized basis, say for a month, maybe three, four months in, the awful little bit, sometimes it’s revenue based, sometimes it could be a client migration bucket, but on a run rate basis, I’m getting deeper. Like I’m trading a penny today for a dime tomorrow, and everyone will want that. And so having that track clearly in a very succinct way, a very easy to read way, one table with a bunch of bullets underneath it with your variance analysis done, will go leaps and bounds for not just you as far as effort and time, it also becomes repeatable. So, every month, instead of writing up a four page paper on something or every two months, or if you get too busy, don’t do it. It’s a simple spreadsheet, a simple PowerPoint slide, whatever you want to call it, that’s got your key quant goals, as we mentioned, like from run rates to realize all across the board from revenue, down to gross margin to EBITDA. And I like to split up COGs two ways, one data and labor, and I like to split up SG&A two different ways between salary and non salary expenses, and just bucket them in those four buckets because it becomes very easy and then realized and run rate for both of those, for all four of those. And that will give you so much purview into what’s going on with the acquired entity, it’s amazing. And then again, on the bottom, put some of the gems you found in, put some of the hair you found. Those are great talking points. But you need the linkage back to the quant side also. Is that helpful, Alex, from a tracking perspective?

Alex Bridgeman: Yeah, absolutely. Before we get into kind of key takeaways, do’s and don’ts, can you talk about the role of debt in all of this? There’s a ton of value you get as you scale and have a flywheel going within M&A where cash flow and debt become the larger drivers of your ability to acquire versus equity on your balance sheet. Can you talk about kind of your view?

Roland Lessard: Yeah, I love that. That’s a great question. So obviously, I think everyone that’s listened to your podcast has a lot of respect for leverage and how important that is for maximizing returns. So, there should be no debate amongst any of us. Anyone could build a model, even that business that’s growing 10% with small margin improvements and some leverage, like you’ll create value just- again, you’ll enhance value largely with leverage. However, I think everyone will be shocked when I say this. And so, I’m a big fan of getting to a flywheel and Tom is and that’s kind of how we did it in both of our past lives together. And so up front, I just see a lot of folks requiring additional equity in their first year or two. And to me, that’s a foreign concept. Like I just never even thought about that, like as an operator myself, like going back to the well. You can only go back to the well so many times in your life. I don’t care if it’s for good things or bad things, it’s just not something that you should want to do. And so, my only pitch to folks would be like thinking about that first year or two, the first year and a half, two years, as mentioned earlier, getting your business from that C that you sold everybody as an A, and making sure it gets to a B and like what do you need to make that happen? During that first year and a half or two years, you’re also going to put cash in the balance sheet. And so, all of a sudden, you get your first deal and you got a little bit of cash in the balance sheet and debt, and now you’re moving. And then the next deal. And I mean like, Tom and I, the last deals we had, they were all 100% leverage, 100% leverage. We made first one, like cutting our teeth, maybe a little bit of a mix. And so what I would be- I would be cautious of folks of going too thin too early and then going back to the well. I’d rather be a little more up front and make sure my business is what it is, make the investments that are required in year one and year two. And I’m not saying by any stretch of the imagination, poise capital, I’m not saying put a pile of cash in your balance sheet and let it sit there. That is not a good use of capital. But up front, when you buy your platform company, you should know what investments you need to be making and especially what your EBITDA margin really is and what it’s going to get to in the first year and a half. And really think that through so that when you do get to your acquiring process, you have the ability to end up getting a flywheel going. And when you do that, your returns are exponential. The little bit of extra cash you might need in year one to get your structure right, it doesn’t matter. It pales in comparison to getting on a flywheel when you’re using all debt. And so, again, every business we’ve been in, that’s exactly how it went. The first deal maybe was a mix. And then after that, I mean, every deal was on debt. And you can only do that if you have, if you’re running your C business and it’s running into a B or maybe an A or an A minus at least, and your first deal, again, I used to love looking at like, what did I pay from a multiple perspective pro forma? So, if I was paying whatever, 10X, after I synergized it, could I get it to 5X? That is real value creation right there. And again, that was always, what did I pay, and then what’s my arbitrage post? Instead of trying to hope for multiple arbitrage from getting size, okay, great. To me, I look at that as a bonus. But if I can get there just from synergizing businesses, I got a winning platform. I have a winning platform. So, use debt. Use debt smartly. Get a flywheel going. But beforehand, make sure your business is well suited to do this. If you need to go back and make a bunch of hires to get this done the right way and fix your technology deck, you need to do that first and foremost, and that should have been from your first check.

Alex Bridgeman: Absolutely, yeah. So wrapping things up, what are common do’s, don’ts, and key takeaways that you like to share with folks?

Roland Lessard: Well, I think we’ll go back to how I started the conversation. Do spend time up front. Focus on the why. Focus on the value extraction. It sounds so common sense and remedial, but I promise you, it is not if you do it properly. Think about your deal book, having to draft that before you close, like think of all the work that goes into that. Do you have a succinct value extraction statement that’s both quant and qual that you can constantly look back to and feel good about. Number two from dos, have a finite scope. I think of any large project, again, there’s a lot of things like people cutting too fast, but the two main drivers of failure are scope creep and poor communication. I’ve learned that many times over, many mentors and many assets in my life. Scope creep is the number one killer. There’s always another idea, another project, another thought, we can do this, we can do that, and before you know it, you’re two, three years down the road, you’re like, wait, what just happened to me? Keep your scope locked. And that scope, you start it at value at 30,000, get it at 15,000 feet, and let your folks take them from 15 to five. Number three do, and these are all topics we talked about, build your integration team with the right folks. It’s no different than your company. If you feel like, hey, getting my org chart for my company is the most important thing – by the way, it is – if you believe that, why would you not believe that for your integration team? Spend the time, find people that are not resistant to change, find people that are the leaders of your business behind the curtain, not just by title. Those are the people you want on your team. And the last do would be build up cadence and a process for communication both internally and externally. Whether it’s your integration team, they meet at the same time for the same amount of time every single week, Wednesday at two o’clock, whatever that is, like non-negotiable. This is how we do it, whether using a quad chart or four box, whatever you’re using for a communication tool inside, everyone uses it, not one guy gets to use one communication tool, one gal gets to use another, everyone’s using the same communication tool. How you update progress and track progress, as you asked, very simple, keep it simple, one pager, external, clear cadence and process for communication. Those are probably the four, I would say, key takeaways on the dos. On the don’t, like I love opening with this one, don’t assume absolutism. You don’t have infallibility. You’re buying a company. If you truly believe in one plus one equals three, you are the choir, and do not forget that. But if they do nothing better than you, gosh man, you must be the smartest person in the world. I guarantee you’re going to learn things from them if you open your ears and listen. So don’t assume that your company is the best at everything. Find things they do better. It’s a win for the culture and it’s a win for the company and sooner or later will be a win for your shareholders. And the last one would be, this goes back to your corp dev strategy, don’t be afraid to walk away. A bad deal is way worse than no deal. And there’s an emotional component to that. There’s a pride of authorship component to that. And there’s nothing worse than putting- there’s one thing worse than putting two or three months of work in and then being like this isn’t what we thought it was. It’s actually doing that deal. And so, I implore you to have the discipline to be able to walk away when the red flags that you identified cannot be remediated or not controlled. And so have that discipline and it will serve you well.

Alex Bridgeman: I love the comment on there must be some things that the other company does better than you. In that Brad Jacobs podcast I told you about and his book, he talks about just asking every employee at the new company, what’s your one idea for improving the company? What’s the one thing that we should be doing better? And he said he’s always surprised that every single person has something. There’s always something that they can do better or something that they do really well that they shouldn’t touch and shouldn’t mess with.

Roland Lessard: I think that’s really well said. And folks, if you build your integration team right, those ideas and concepts, because you’ve built your team with representation from both companies by function, will come out in those meetings. Like those will come out. Your job as a facilitator is to figure out which ones of those are really just resistant to change and they’re not that great, not that important, like it’s a functionality that the client doesn’t use, and which ones are the gems. And so, as you go through your business, and don’t underwrite gems, gems are the upside. So, you mentioned one time like, hey, what kind of room do you have? Well, historically you’re going to find gems, things that you didn’t know were so great when you get under that hood. And those are the upside things that help you outperform, or if you’re underperforming a little bit, help you get to par. And so, people will tell you amazing things if you have the discipline, patience, and humbleness to actually listen. And so listen, listen, listen.

Alex Bridgeman: I love that.

Roland Lessard: My wife tells me that all the time, Alex. And I’m like, I don’t know how well I do with that.

Alex Bridgeman: Yeah, it’s good advice. We can all take a little bit of that. Awesome. Roland, thank you so much for coming on the podcast again. This was a ton of fun.

Roland Lessard: Oh, yeah, great time. Thank you for having me. What a great time. I always enjoy speaking with you. And I look forward to seeing you hopefully soon.