Performing Strategic Due Diligence in M&A | Andrey Galiuk w/ Kison Patel

Doing very well, thank you. How are you?

Yes. Thanks for coming. Yeah, based in Downers Grove, outside of Chicago in Downers Grove, Illinois.

Part of the reason. It was before my time, but I think that was part of the reason. Kind of being an industrial manufacturer headquartered in New York fell out of fashion at some point.

Yeah, sure. I'll reach kind of far back just to give you the building blocks of my background. First of all, my accent, everybody will notice I'm originally from Ukraine, that's where I grew up. I did a couple of years of investment banking there before coming here to do my MBA in Chicago. And then I met my wife while at school and one thing led to another and now I'm in the suburbs of Chicago. Post MBA, I've done over seven years with BCG. I was a management consultant and my specialty was corporate development functionally and industry-wise it was industrial goods, which made Dover a very natural landing spot for me when I decided to transition out of consulting into industry. I joined Dover in 2017, almost seven years ago, as an AVP of M&A and over time I picked up a few other roles and functions, so I oversee our strategic planning process and corporate strategy and also investor relations. We're a publicly traded company. Now I will caveat that I'm here in a private capacity, so I'm not representing Dover. I think it's important to mention.

Dozens. I don't remember the exact count. In our investor materials, there's always a slide I jokingly call it my resume slide because it shows all the deals we've done cumulatively over the past five, six years. Just a little bit of history, Dover was built through M&A. In the '50s, a group of investors pulled some money, they bought several manufacturing businesses, good manufacturing businesses, and some of them are still in the portfolio. And then they took the company public and then they used cash that those businesses generated to buy more good businesses over time. So it's over this 65-year history, hundreds of acquisitions. It's an active portfolio management business and it continues to be central to the strategy, to the story. That's kind of part of the value proposition to investors. It's an investment company to a large extent.

Just to quantify it a little bit, if you think about a public company as an example, but if you look at average cash flow yield, which is the free cash flow that the company produces per year divided by market capitalization, right, is 4 to 6%. The last I looked was the S&P 500, it's changing obviously with the valuation level. But think, if you are a CEO entrusted with a business and your tenure is let's say 10 years, you are making decisions about reinvesting that 4 to 6% of free cash flow times 10 — over half of the market capitalization of the business. Free cash flow after capex, right, so if you back-add capex, you probably get somewhere 7, 8, 9 up to 10% cash yield. So in 10 years, you're basically redeploying the whole value of the business in some form of fashion, either organically, giving it back to shareholders, or investing in M&A. So M&A is just one of the options you have as a capital allocator. I think that magnitude makes capital allocation a very important skill, and that's why being strategic about it and thoughtful is so important for success in the end.

Yeah. We articulate our capital allocation strategy and priorities pretty clearly to our investors. The first is always organic investment: capital expenditures, R&D. Those tend to be highest confidence, highest certainty investments. You're investing right back into your business, you know its economics, you know the underlying trends pretty well. The execution risk is typically just executing that project well. It doesn't have what M&A brings in terms of culture and integration risks. So organic reinvestment is number one. Now the reality is, even though we're an industrial manufacturer, a relatively asset-light or capital-light business model — it's assembly manufacturing, it's not the heavy smoke stack production type — the reality is you can only spend that much on logical, good organic investment projects. And that's why M&A is our second priority. So after we've funded all logical good organic opportunities, there is always cash flow left to be deployed. And then your choice is to either redeploy it in M&A or give it back to shareholders. You can't accumulate it indefinitely. Our second priority, M&A, is a productive redeployment of capital. Now obviously we will look to do it responsibly and in a disciplined way, investing in a logical way in things that fit our portfolio. And that's where strategic diligence and strategic thinking comes into play. And then if you couldn't spend it organically, didn't find the right M&A in a given year or period of time, then you can give it back to shareholders through dividends and share repurchases.

It's not that sort of mechanical, right? But yes, I think every business lead has a view on what kind of organic investments are required. There's always just maintenance capital you need to keep the lights on, keep the assets healthy and functioning, and then there is growth and productivity investments organically. But also every business leader is tasked with having an M&A strategy. It's an important long-term driver of value, keeping the business competitive, having a good offering, growing over time — all the elements of long-term value creation. Now I will say that I like to use the term capital allocation is not a democracy. So not every business gets capital dollars just because it exists in the portfolio. I think that's a sometimes a pitfall that people fall into: 'Well, we have to do deals in a given business in a given market just because we are in that market and that's all we have.' You almost need to put your shareholders' lens on and think about: would your shareholders, given the alternatives they have where they can put their money, would they want to keep funding this business? So I think one of the foundational elements of strategic diligence and the conviction in deploying capital is actually being able to articulate why a given business deserves investment. And by the way, no hard feelings. You can be a successful value-creating business without M&A. If you can be growing organically or improving your returns and margins over time, you will be plenty busy without layering M&A risks and effort on top of that. So this concept of capital allocation not being a democracy is very important, and in my career, even before Dover and in consulting, I've seen people not quite follow that.

Meritocracy, right? I use this word 'deserve.' It may have a negative connotation that someone is undeserving, but you don't want to be arbitrary. I don't think it's the right word, but it's still driven by strategy at the end of the day. By opportunity. Deploying capital is an entrepreneurial risk-taking endeavor fundamentally. You are placing bets. 'Bets' again has a gambling connotation, but you are never certain about the future and yet you need to do something, make the move, and you want to see that opportunity and have conviction about it and do it because of that, not because you need to signal to a given business that you're giving them capital or just following some math of everybody gets 2% of revenue as capital to spend. It all rolls back to discipline on capital allocation, one of the key skills of the CEO.

Yeah. First of all, there's no line between strategic diligence and other diligence, right? I divide it between strategic diligence and confirmatory diligence. And by confirmatory, I mean these are the type of activities you do once you have conviction that this is the right move to make, and then I send an army of accountants, lawyers, tax experts to go check all the boxes, understand that we're not stepping into some risks, liabilities, understand exactly what we are buying, to be ready for integration. But there is a layer of work and thinking that happens before you go on that final sprint that is fundamentally about articulating your thesis about that opportunity to place a bet, make good risk-adjusted returns for whoever that capital comes from. We typically, all of us in M&A, rarely invest our own money. I mean, there are entrepreneurs for sure, but I think if you think about private equity, family office, corporate CEO, corporate development, we're all investing somebody else's money. It's the process of building conviction about the opportunity to invest it productively and responsibly before diving into the sort of check-the-box type final diligence. Deal people get a tombstone for just doing a deal, which I never celebrate. A deal? I like to wait a couple years to see how the thesis played out. I'll get a tombstone from a bank, but each deal has two value creation components: it's making a good decision, placing a good strategic bet, that's really what strategic diligence is about, and second is deal execution, that's doing the deal right, the right way, making sure you actually know what exactly you're buying, you're not stepping into some sort of risks.

I personally would speculate that probably two-thirds is driven by placing the right bets, making the right strategic decisions, and the third is the confirmatory deal execution frame. If you are placing the wrong bet, the terms of a purchase contract are not going to really save you. Now don't get me wrong, you can execute badly and it can sink the deal, but that execution alone won't make the deal great. So it's more of a table stakes, you have to do it right. Now there are examples where structuring is a source of returns, and maybe you have a structural multiple arbitrage opportunity, and that's many rollups: go buy smaller businesses cheaper and then trade them as a bigger enterprise for higher multiple. That's value creation and I would say it's more sort of execution driven. I mean, a good example is Warren Buffett, a lot of his greatest deals from the past were these interesting structures with preferred coupons, not just a straight equity investment. It's more opportunistic.

That's a good point. I should probably caveat: if you go back to my two-legged stool of strategic diligence and deal execution, it should be a third leg of integration and executing on your thesis. I'll have to go back and revise my weighting. It would be half and then quarter and quarter? Quarter and quarter. Okay, so half: buy the right company. Quarter: nail that confirmatory diligence, make sure you identify those risks and so forth. And then the other quarter is your ability to maximize value and integrate it, capture on the investment thesis. Now reasonable people may disagree with that, and if you read sort of literature and articles, a lot of people talk about integration as being that holy grail of value creation. Yes, it's a must. You can have a great thesis and do a deal and then if you don't execute rigorously on that thesis well, what good is that thesis? So it's another sort of table stakes, but in my mind, it all rests on that bet of making the sound decision in the first place that even positions you to execute against a good opportunity.

Okay, well let's talk about the five W's of strategic diligence: what it is, why you do it, who does it, when, and how. And I think when you sort of alluded to the 'when' component of this, but let's start with 'what.' What it is: articulating your thesis, how it links to your strategy, what you are betting on, and why your business deserves that investment, going back to our meritocracy and not a democracy concept. Okay, so that all starts there: this is why I want to invest in a given space and I think it will be productive, value-creating, and a reasonably safe investment for the owners of the capital that I'm investing. Good. Then identifying that thesis. There are, again going back to the concept of this is a risk-taking, entrepreneurial endeavor, the future is uncertain, there will always be uncertainties in your thesis. There will be many of them. Identifying the ones that are least certain and most impactful, and really pressure testing them well. That's in a nutshell what diligence is about. A lot of it is what people would call market diligence or commercial diligence or a combination thereof, but it's not just that. Second W: 'why' you do it? Well, first, it's the foundation of making a good business decision, but second, it allows you as a corporate development and M&A professional to look good. You will probably find yourself pitching that acquisition to an investment committee, to your executive team, to the board of directors, whatever the decision-making process you are facing. Having a crisp, well-articulated, well-supported strategic thesis of why it's a good investment will make you look good in addition to making sure you're actually recommending good decisions. Who does strategic diligence? I would say the key participants would be the business. In the corporate context, typically you are adding to an existing business. Sometimes you are buying a new platform, in a private equity context. So a business leader pitching the acquisition, but someone on the investment team will need to wear that hat. It will not necessarily be a deal hat, but more of a formulate-a-thesis hat, whether we are doing a roll-up in a given market or we see an opportunity for adoption of new technology. There's someone wearing that business hat, then corporate development M&A professionals supporting them, and lastly you would often involve some external resources or other functional resources as needed. When do you do it? I would say it starts way before the deal. If you're starting to do strategic diligence when a specific CIM pops up in your inbox, it's possible, but it's probably too late. It's all grounded in the portfolio strategy and the business strategy. And that's why the engagement with the business, if you're in a corporate role and you're adding to existing businesses, you would want to engage with them pretty closely to understand what they're building, what is the game in their marketplace, what is the competitive landscape, where it's moving, what are the investable opportunities and changes happening in the world. That's why I view having corporate development and M&A professionals also involved in corporate and business strategy as very synergistic. It makes you a more astute and insightful M&A professional if you understand that underlying business strategy. Also, way before the deal, I would argue the best practice is what I call the 'ponds and fish' approach about thinking about investment opportunities. We can elaborate on what that is. Once you've identified good ponds to invest in, good markets, good businesses, then you validate the specific target. Get that, either you cultivated it or it just came onto your radar from the external world.

Okay. How to perform strategic diligence well. First of all, it's a multi-disciplinary, multi-functional endeavor. I can't stress this enough. M&A is one of the most fun and sought-after roles in the corporate world because you have to think about so many things. You need to be dangerous enough in so many areas of the business. Obviously tax, accounting, some basic legal concepts are table stakes in M&A. You need to understand that language, but if you are also credible and dangerous enough in operations to be able to talk to operations leaders and validate some of the elements of your thesis, if you understand how the commercial side of the business works, the go-to-market organization, the different models, you can validate that side of your strategic thesis well. The talent you involve in strategic diligence has to have that ability to operate horizontally. There's this analogy: fox and hedgehog. I think foxes are the ones I can't remember who is the one who's got a more narrow but deep versus broad. Anyway, you would want to be a fox or a hedgehog, whoever is sort of expert in a broader set of things. Another animalistic analogy: you want to operate as a hawk, and what I mean by that is you want to be able to soar at 30,000 feet — I don't think hawks fly that high, but basically zoom out, understand the landscape in the market, what are the opportunities, what is kind of the grand thesis you're investing behind. But you can't just be there. You can't be at a high level and be credible and rigorous and insightful. You have to be able to just pivot down to the level of detail. Remember I talked about identifying those important and uncertain elements of your thesis, being able to really zero in on those and go deep and be rigorous about that. Let me give you a couple examples. Someone tells you about customer stickiness: 'Oh, it's a business with customer stickiness' and just trust us. But do you truly understand why those customer relationships or your products are so sticky? The switching cost, right? It's very expensive for your customers, but do you truly understand where is the threshold? At some point, the customers will switch, right? They will. Do you understand how far you can push it? Often it's not switching cost, it's some career risk: nobody wants something to fail. Do you understand how your product, who buys it, how does your product fit into their view of what else they do in their organization? How are you helping them be successful? There's a lot of detail, and you just need to go and talk to those people. With the expert networks and some of the tools we have, you can and should be doing that. Being rigorous: there will be a consulting report that just said the market is growing 5% and it has grown 5% and will be growing 5%. Do you truly understand why? Some reports would be more insightful than others, but do you truly understand what is driving it? What is the change happening in the world that this product or service is needed at a growth rate above the rate of the general economy and GDP? Who is adopting this technology? What is changing and why? What is the total addressable opportunity? Market is a flow concept in accounting: it's just the amount of goods traded every year. Do you understand the stock? How many of these kinds of products or potential customers are out there, and can you articulate that well?

Yeah, exactly.

Yeah. It's not my term by the way. I heard it at BCG, they use this concept of pond and fish. The basic premise here is it's more important to pick the right pond to fish in first. By pond, that's an analogy to the market or the type of business. When you translate it to business and M&A context, before you start throwing the line, if you pick a wrong pond, then the wrong pond could be too little fish in it, or the kind of fish not the taste your family likes. You can be the best fisherman with the best equipment — think of diligence and execution — your family will still be hungry. That's why it's so important to pick the right pond first. What is the right pond? This may sound trivial, but you would be surprised how often I've seen in my career, before, people have a bit of tunnel vision. I referenced it before: 'We will invest in this market because we are already in this market.' Not a good argument. Everybody will want to fish in good ponds and generally people will agree on what good ponds are. Everybody wants to be in a software business; it's a great business objectively. So there is some art and skill and luck in identifying these good ponds either earlier than others, or having a unique view on what makes a good pond good for you, and that's really the strategic fit. How to go about mapping, finding these ponds or markets or businesses to invest in? First you need to map out the universe of markets and determine how far you are willing to go. That's applicable both in the corporate context and private equity or portfolio investment context. Some may have a strategy 'I'm absolutely omnivorous, any good business can be in my portfolio.' And some would be much more comfortable investing closer to their set of competencies, their core businesses. There is a separate discussion and work that needs to happen around that. That will, by the way, be driven by what's the impetus for you to invest outside. Is it just because you have some free cash flow and instead of just giving it back to capital owners you would rather try to invest it productively? Or are you in a business that may be dying and you know it and you need to reposition it and you have a sense of urgency? There's a lot that would go into that thinking about what universe you would look at. And then you evaluate these markets.

Thank you. Pleasure.

Ponds through a lens of strategic attractiveness and fit. Attractiveness, people would generally agree on it's growing markets with credible and understood growth drivers, stable with good margins, good returns, good market structure, well-behaved competition, nobody is too powerful in that market. The Porter five forces, right. The fit element is a little trickier. It's very straightforward if you invest close to your core. If you go buy competitors, you understand why it fits. That's a business I'm in, I'll buy them and take out some cost and that's a synergy. I know exactly what business this is. Now the further out you step out in adjacencies in that universe of ponds, you will need to start thinking more creatively but still have conviction about the fit. And here you will often need to start thinking about the business model. What is the type of business my team is good at running or investing in? Is it making something small or big? Is it project driven or am I selling nuts and bolts? Am I going direct to customers or through distributors? Is it online? Is it heavy manufacturing or light assembly? Is it serving a single market or customer segment or is it global? I'll sell my product to 15 different markets. You can be successful stepping out pretty far from your core business and find good investment opportunities if you can think rigorously about why is it a good fit, why do I have the right to play or fish in that pond. So going through the ponds is understanding the universe I'm comfortable even evaluating and going after, and then systematically evaluating with attractiveness and fit. Best-in-class companies would have a very precise, almost quantitative way of going about it. It's not just an intuitive feeling. All of these elements of attractiveness, growth, returns, all of those things are quantified, but things like balance of power in the market and elements of fit, each portfolio, each company needs to articulate for themselves what fits you. And that may differentiate you in the hunt for good ponds. Because everybody will recognize attractive ponds, but not all of them will fit everybody.

Well, strength you can describe them either as things I have, assets that I can leverage better by adding M&A to it, or things I'm good at, I can do well. They are slightly different: assets versus capabilities.

Well, I'll give you an example. It's well known in the business world and kind of relatively dated, but I don't remember the name of the brand, but Arm & Hammer, consumer goods. I think the company at some point realized they had a much narrower portfolio of products, and now you'll find that on soda and a ton of consumer products. The asset they had was well, we have this channel into big retailers and shelf space and some brand recognition. How can we add to it? Once I'm sending a truck to Walmart, what else can I put on it? You can productively exploit that through M&A. That's an asset I have. What can I add to it that wouldn't necessarily be obvious if you didn't think about it that way? Toothpaste, right. You can keep building it out. That's leveraging your assets. Capabilities are more what I talked about: what am I good at? And that's where you can invest behind businesses that look similar. It's not the same customers, I can't leverage my distribution channel, I can't make it in my plant, my sales team can't sell it. It's completely unrelated. I can't leverage any of my assets, but I know how to run that type of business. If the product is something that sells for a unit, it's a little widget, goes through distribution, light electronic assembly, and I'm good at running that type of business, doing the sales and operational planning, optimizing the supply chain, that assembly, optimizing distributor management, doing some of the R&D in that space, I can go and invest behind businesses that look like that, that have nothing in common in terms of customer segments, specific customers, specific channel, production facilities.

One of the elements of actionability. Okay, so maybe there needs to be a third element of a pond assessment: strategic attractiveness, fit, and can I do something with it? Because sometimes you will see a pond, it's a great business, it's a duopoly, and none of those are available, so it's not investable because it's not actionable. So finding out the number of fish in the pond and the actionability, what is the reason to believe I can actually go and buy some of them, should be that third element. And you know how they say one deal is not a strategy. Just saying, oh, that's the market and I can go buy this target to enter that market, okay, it's very binary, it will happen or not. It's a strategy if you are convinced I want to invest in a given market, well you better make sure there are three, four, five, six targets, and hopefully you get one or two. Now there are 15. Your thesis can be, well I'll go and roll up seven of them.

I think you would need to think about if there are already three market leaders and you are rolling up some sort of long tail, is the thesis that you are creating a scale competitor that will be able to take some market share from the leaders or not?

Well, I think you're leaping over. If you think about the core, it's just data room. That's a segment. There is other M&A related software, I mean there is deal pipeline management that's not data room, right? There are other tools, but they are still within M&A. So you would be leveraging your channel. I know corporate development professionals, I can sell them, and I can add more things. But we're not jumping too far from the core. Stay in the software domain. Even before going to software, okay, there is M&A software, then there is other business software. So maybe a vector could be: I have data room and I can expand in other M&A software, or I can leap and say, I'm good at selling professional automation workflow automation software to highly professional users in corporate America. That's a capability. There's other software that's not M&A related that fits that. And maybe you can find now many of those markets are mature, but maybe you find a niche that's more emerging, it's AI-powered tools. And I would argue after that you would leap into more of a service. You can also think about, well, I can provide more services around M&A than just deal room. I can advise on M&A, you can be creative.

Well, I guess so. You found a good pond. And then I think the question should be, is it possible to pursue it organically, or is inorganic a way to enter? Because when you say licensing and all these barriers to entry, well, go buy someone and that gives you a foothold, and you can build from there. What you're saying is it's probably hard to enter it organically, but that's why inorganic may be the answer. Now on the organic front, depending on what kind of capital you're willing to put at play to pursue a market, some of these high barriers to entry markets at the end of the day they can still be entered if you're persistent and you're willing to place that bet of enough capital. There are examples in aerospace and defense. The company you may have heard of, Anduril, I think it was founded by a person who sold Oculus, virtual reality, to Facebook, to Meta. He went on and founded this defense contractor, which was considered a very small club industry, you know, Lockheed and some of these primes. And with enough insight into what's needed, capital to put at work, persistence and enthusiasm, I think they're making big strides. So be open-minded that there may be a way. In this example, partnering with a reseller could be an avenue to get into the industry. But we found something, we found the pond, and maybe we are getting so, you're right, those are good areas to pressure test.

Well, I think we talked more about ponds. There is evaluating the fish, right? That's where the deals start hitting your inbox. So now my investment thesis got to target a specific fish. Ideally you have a good thesis, you know where to fish. And ideally you would have multiple ponds. I mean, depending on maybe you're a fonded just rolling up dental clinics, that's your pond and your pond could be different regions of the US. If you're in some bigger portfolio, you'd be hopefully working with multiple ponds, and then fish will start hitting your radar. You will need to be evaluating. There is a strategic element to evaluation of targets before the confirmatory diligence. Things like market share, the competitiveness of the products, why do truly customers buy that product over the other product? Analyzing wins and losses: why do they win and why do they lose? Do you truly understand that? So going back to some of this, it has to be rigorous. You have to be able to pivot and not just accept, oh, they're gaining market share, it's growing, hand-wavy.

Look, I mean, you constantly refine. Maybe you can go through some. Maybe you were in a sleepy company that was in a given business, didn't really think about deploying capital productively or didn't have capital to deploy. And then maybe the company woke up, realized we need to do something to be great. And you go through an exercise and you find ponds and you want to be more aggressive. That's more of a one-off exercise, but then you do need to maintain and constantly update your views. I mean, it's a dynamic world and it's changing faster than ever. One market is hot red hot one year and the next year it's not. You need to stay up to date on all the ponds, both that you've chosen to keep validating the thesis, yes it's still investable, but also maybe some of the ones you've written off, deprioritized, maybe they are becoming more investable over time. So it's an ongoing iterative activity.

Well, it's both at the end of the day. I don't think you can rely just on one approach. If you follow the process I laid out with identifying the ponds, validating that there is fish there, you would know what that fish is. So constantly having a long list or short list of both ponds and fishes, targets in that pond, and trying to cultivate it, that would be the best practice. And that's a way to cultivate what people call proprietary opportunities before they become auctions and highly competitive. But you do need that network, you do need a flow, especially if you hunt in this middle market, lower middle market, and that's where most of the deals we do here, kind of middle market, you will probably not know 100% of the targets that are available there. Sometimes you will see a target that's in a pond you just didn't think about, and then once you see it and you go through your thought process, well, is it attractive, does it fit, and you realize, yeah. That process of laying out what ponds you should be looking at is creative. You can say the whole economy, the whole universe, I can go invest, but people usually don't do that. They kind of draw a line somewhere reasonably not too far from the business they are in. And you can miss interesting markets and ponds, and it's okay. It's an iterative process. Then you learn about that pond. Sometimes just through getting an inbound target, I agree, that's a really good way to learn an industry. Study it, and then you can be more proactive.

I would say it's an element of fit. Probably not so much about the pond, the market, as it is about a specific target. You can argue some markets have a kind of culture, something like to be doing business in a given industry. Some industries have a reputation, and you can think about is that the kind of culture I want to be? And by the way, that could be ethical risk, and some industries are just more prone to it.

I would argue it should be. If you identify yourself as an engineering-driven, R&D-driven, technological company, you want to see that similar culture in the target you acquire. So for sure. And by the way, in diligence and negotiations, it certainly should be an element of evaluating that culture when you interact with the leadership, the management of the company. You can pick up the signals, the data points about what kind of culture they adhere to, how they negotiate with you. There is a signal of culture, especially if you plan to retain the sellers as management for your business. How they behave in negotiations, how they approach it, is very much a signal of culture in the business.

Yes, there are more painful processes. Yes. So you get early signs just from that. I once saw a seller of a smaller business. You see a lot of quirky things when buying businesses from private sellers and entrepreneurs. I have immense respect for all of them. These are people who built businesses, sometimes they acquired them, sometimes they inherited them, but they made them stronger, maintained them. M&A is not what they do, so they would have some interesting ideas about how to do M&A. Once I remember a seller who was thinking about selling the company, was like selling a house, and wanted an earnest money like a deposit that we are serious, and have some sort of standard pre-negotiated contract before allowing even the diligence. Oh wow, yeah. So people get pretty creative.

It varies obviously by organization. I almost probably should have framed it more as when you start thinking about integration. I would say early on, if you go back all the way to does the business deserve investment, an element of that is can they integrate and execute? Whoever they are, that team you will be trusting. This is before conversations with the team or early conversations. In a corporate context, if you are adding a business to your existing business, thinking about the team I have, can they integrate, can they execute on that? Who would you rely on for that insight? Whether it's the business unit leader or a designated integration function, which I assume you have. Generally, that's a role of senior management, CEO level. They would have a sense, and you'd want to get their pulse. Hey, we're looking at bringing fish into our company here. Do we have the capability or capacity to do it? Very much so.

Well, ideally you would have a blueprint very early on. Even before you start this final confirmatory expensive diligence phase, while you're still formulating your thesis in a strategic diligence phase, you do need to have a blueprint of how I'm going to run this, how I'm going to integrate, and some of the main opportunities, risks, and decisions involved in that. And then obviously you flesh it out as you go through in more and more detail. A blueprint before LOI, a rough idea of how we're going to integrate. By blueprint, I mean it can be in somebody's head, but whoever will be responsible for delivering needs to be able to convincingly say, okay, I have a general idea how we can run it and how it fits into our existing organization.

Big, big hockey stick projections. That's every banker deal. There's a spectrum there, right? How it's articulated. There's a spectrum from complete hand-waving, just trust us, to at least some attempt with a driver tree. Like, okay, this 7%, 10%, 20% growth rate will be driven by this, this, and this. So there's a spectrum. From business evaluating the business standpoint, big wins and losses, customer wins and losses, understanding why they are happening. If it's wins, it will help you understand why they are strong. If they lost customers, you really need to make sure you know it's not some sort of obsolete technology or there is an emerging competitor coming up. Market share gain projections, you would often see just the market growth rate and then a couple percentage points for market share gain, and you really need to pressure test why. Especially if it's happening over the long term, it's a finite strategy to gain share. You need to be thinking about what will competitive response be to your continued attempts to gain share from them. So all of those are market strategy, customer base.

Well, that's highly situation dependent. Sometimes you are more aligned on people that you are sort of bringing over versus less. Sometimes, again, the closer to core you invest, the more comfortable you are that you'll figure out how to run this business. You do need to understand, especially in less sophisticated, small, or less mature businesses, there could be keyman risks, some repository of knowledge that is not documented or codified but is very important. Identifying those people in diligence and thinking about their retention is a big element of any good M&A process.

I like to tell people on my team you have to have an almost quantum mindset. You have to be both the biggest proponent of the deal and the biggest skeptic of the deal at the same time, and not have cognitive dissonance because of that. That will change depending on the audience. Working with diligence teams, driving diligence strategic and confirmatory, you kind of want to be a skeptic. You don't want to take things for granted or just trust, you want to pressure test, validate, be thoughtful about things that matter. But at the same time, as a person who helps decision makers deploy capital, build better businesses, get the deal through approval processes, investment committee, executive boards, you want to be the proponent. You want to use the learnings from being a skeptic to steel-man your thesis and be a good proponent of the deal. That's not trivial. People kind of like the deal or not, and they may default into one or the other mode. I think there's some art in trying to keep both.

Sounds good. I enjoyed it too. Thanks for coming. Those of you still with us, thank you for sticking through. Till next time, here's to the deal.