100+ Add on Acquisitions Learning and Lessons on Integration by Scott Cook

Great. Thank you. For more than 30 years, I've been in situations where I've been able to help companies and executives solve problems. It sounds a little bit odd, but I keep finding myself in situations where I run to the ugly, where the problems aren't necessarily clear at the outset, where there's a lot of different options and then the people involved are going through some type of angst. But I've worked in a number of industries from engineering construction and defense contracting with nuclear and fossil fuel power plants. I have been in residential services with pest control, HVAC, plumbing and electrical, and a few others along the way. Private equity backed, public and private. So I just describe myself as a problem solver who tries to work with people and organizations to solve the problems that aren't necessarily easy. Currently I'm doing some freelance and I'm managing director for Fahrenheit Advisory. We do business advisory work in finance, accounting and human capital.

I've been thinking about this quite a bit. The first I would say is default mechanism I think for most of us is to bring technical solutions to problems that are really adaptive problems. You know what I mean by that? I use a personal example. My father-in-law is late into his 80s, can't see really well, lives alone in a part of the country where they get feet of snow, not inches of snow. And it's increasingly difficult for him to live alone and the family's concerned. The technical solution there is really easy. You take his keys and you put him in assisted living. The problem is the reason he won't agree to do any of that. It's the adaptive bit around I'm losing freedom, I'm losing control, this makes me agree that I'm old. All of those things. And as I think about it, we do this in organizations all the time. We bring a technical solution to a problem that has a huge adaptive component. I was talking to a client a couple of weeks ago who's trying to take multiple acquisitions on multiple pay plans and bring them together into something that's unified and is running into all kinds of resistance. This was the conversation that I was having with him. He was trying to turn, particularly in their largest business, a group of technicians that were install technicians. They would go in, diagnose, sell, do all the work. So full service technician trying to go to a more professional sales model. The more we started to unpack it, even though it was really clear that this was the best financial move for the company, probably the best financial move for the people, they were totally missing the adaptive piece of this, which is a guy that's been doing that for 30 years is probably a little bit afraid about sales. They also probably take some pride in getting in there and being the technical expert, fixing the work, puttering around and just the whole loss of control piece. So I think a mistake that repeats itself particularly when you're moving quickly after an acquisition is to go in and say, 'Boy, the technical solution is really clear. Let's dive into it.' The pushback that I see is that people say if you take all this time to manage the change and do it that way it takes longer. I would argue it takes shorter because the J curve that you go through ends up being less steep and less broad in terms of the performance that goes down. So I think I see that pretty frequently and I think for most of us it's almost like a default or a defense mechanism. 'Oh, this has worked before. Let me plug in this thing. The solution seems so clear.' I had it drilled into my head pretty early on in my career by a mentor that intervention without diagnosis is malpractice. And you kind of related it to if I go to the doctor and say, 'Your stomach hurts. Well, let's just cut you open and see what's going on.' You've committed malpractice. You haven't diagnosed. But I find that we do that pretty frequently in organizations by doing a plug and play with playbooks that have worked before. Does that make sense?

I worked with a guy at Renill, he was the CEO of the North America business for a long time. His name's John Meyers. He would talk an awful lot about combining transparency and humility. So when we would go in and try to introduce change, he would talk a lot about being transparent with people about what you know and what you don't know and how you think, but then also focusing on not being right all the time, but making sure you get it right. That's the humility piece of it. And I really added a third leg here and that's around authenticity. So let's go to the integration of an acquisition. You're standing in front of a group of people day one. The seller if they are there and involved, they're going to want to stand up and say nothing's going to change, which you all know that everything's going to change or many things are going to change. But it became more and more helpful to stand up in front of a group of people and say we know things are going to change, but we'll always commit to you that we're going to tell you what we know. We're going to tell you what we don't know, which today is this really long list, but most importantly, we're going to start to tell you how we think about this situation. So use the pay plan example. Chances are we're going to look to combine pay plans, but here's how we think about it. We don't want to take people backwards. We want to make sure whatever we do, we want to make 1 plus 1 equal three. So we're going to move you forward this way and here's how we tackle it. The authenticity piece is being open to have the discussion that says, 'I don't know.' The humility piece is being open to say you may have a better way of doing things that we do and that could perhaps be why we were interested in acquiring you. And the transparency is all along the way helping work people through it. So it sounds really simple but in a pay plan scenario telling people here's how we think about it and in other situations it's worked. We're going to run things in parallel for a month or two. I remember a situation from a couple years ago, I won't name the company or the industry, but these folks were so resistant to any change in the pay plan. We ran them in parallel at the end of the first month to a person. They all made more. 'Well, we don't believe you.' Okay. Well, we'll do it again. Maybe we missed it. So it's that kind of iterative process of let's listen to you and talk to you enough about what are some of those inherent areas of resistance. And for some of those folks, it ended up really being not just they didn't trust us, they thought they were losing control. And what were elements that they still had control over how they did their job, over customers that they took ownership over, over routes that they may have had for many many years. So to me it's that combination of being authentic about who you are. I read a definition: authenticity is learning to be yourself more and more skillfully. So as a leader, the more comfortable you are having those kinds of conversations with people and not backing away and just going to the default of 'hey, nothing's going to change here, you just trust us,' combining that with the transparency of here's what we know, here's what we don't know, here's how we think, and then the humility to say, 'hey, maybe we didn't get this right. Let's go back and try to get it right together.'

I think probably the simplest way to define it is communication. But if you start to peel back the onion on communication, what is it that gets in the way of communication? It's not just about the message isn't delivered right or it's not just about the person isn't listening. There is almost an inherent immunity or an inherent resistance to the change you're trying to walk people through. I read a great book years ago and I've just reconnected with it again. That's actually called Immunity to Change and it really talks about how people build up this internal immunity based on assumptions that they have about how this is going to play out. So what I find is walking people through almost backing it out. What's the worst that could possibly happen here in this circumstance that you're resisting? Flipping the question around: what can you do to make sure that the worst thing happens? And people go, 'Wait, wait, hold on a second.' But that unsettles where you are a little bit and has you think about the problem differently. I think the other thing that I see that's a repeatable pattern in acquisition and in growth is that the pace of change is so fast. What you miss is clarity of roles, clarity of expectation, and kind of starting with what's the vision we're trying to accomplish here and always bringing those things back. Whether it's a simple change, a complex change, or just a weekly update, bringing it back to here are the three things we said were important. Being crystal clear about who's doing what to whom in roles. I think that's where people stumble a lot particularly in leadership transition. Charlie Munger referenced a lot around when he looks at a business and they've just made an acquisition or investment as they would put it, he asked the question of what do we need to do in order to make this business a complete mess. And he used to ask himself that a lot which is interesting that your frame is similar to that basis of what would we need to do to get this all wrong and then he would build out 'well let's just do the opposite of that.' I guess sometimes that kind of shake just shakes people up just enough to say I'm able to reframe the question now and maybe you get a little bit of laugh, take a little bit of tension out of the room. But if I go back even just because we're talking about acquisitions, I go back to a lot of the way that diligence gets done. I've been in many many circumstances as recently as a couple of weeks ago where it was really clear that diligence wasn't diligence, it was deal confirmation. It's like we really want this and we're excited about it and the spreadsheet says it works. But the things that get missed along the way that can be uncovered. Sometimes it takes longer, but sometimes it can be uncovered. What are some of those immunities to change that are built into the culture, built into the way that the organization was run? What are some of those patterns that may not be consistent? You've been around this enough. Almost everybody stands up day one and says, 'We love you. We love you for these reasons. Our cultures are the same.' I find that to be not true. The best you can hope for is that your values line up. But if all you're doing in the diligence process is deal confirmation, and you miss some of those deeper conversations with leadership, read between the lines, what are you seeing, what's there, what's not there, and put that lens on it. Those are the things that tend to derail especially from the get-go first 90, first 100 days and if you don't recognize them then they become so embedded by the time you deal with them 18 months later it's already passed.

That's a great question. I think I would describe it as balancing those things that are necessary endings and avoiding things that are unnecessary endings. Here's what I mean by that. I read a lot. So some of these things reference books and things that I've come across recently. But I read one a few months ago called Necessary Endings. And the author, Henry Cloud, I think his name is, he likened this to pruning. When you go in and you're pruning a bush, it's necessary to do that for usually one of two or three reasons. One, you're taking limited resources and you're spreading it across the not great to keep what was really good from being great. So getting in there pretty early on and identifying what are those things that could be legacy. It could be lines of business, it could be ways of doing things, it could be a person, a role. That necessarily has to be pruned for the greater growth. The second thing he talked about is if you see something that's dying and it's probably not going to be saved, that's the time to prune. Or something's just dead and you're not dealing with it. But I think the first and the second in particular, what are those legacy things that are diverting resources that you identify early on? What are those things that you're already seeing on a bit of a death path and you can't turn around? Making those decisions early. But then the flip side of it is withholding going in there and falling so in love with your playbook that you go in and say, 'Well, day one we do this, day two we do this, day three we do this.' And again falling so in love with doing that it becomes plug and play. So identifying those things that are keeping it from growing and flourishing. You may not be able to deal with that in the first 100 days, but putting things in those two buckets or categories. What are the unnecessary endings that I should avoid doing? And I think the second learning to me is the changes that you can make early on if you're able to do it in such a way that it doesn't impact customers and it doesn't impact frontline colleagues and you can demonstrate to them that not all change is disastrous change. For instance, nobody cares what gas card you have or what printer company you have or things that are fairly innocuous changes that are not high impact but may have a residual effect financially. The things that you can get on really quickly with almost without people noticing those are really important because that builds you the time and it really buys you the time to have the conversation I talked about earlier about here's what we know, here's what we don't know, and here's how we think. If I go back early where this all developed, it was because of the learnings of not talking enough about here's what we know, here's what we don't know, here's what we think, and being really deliberate about that on a regular basis early on.

When I talk about things that I've learned in diligence along the way and going from deal confirmation, it's really getting into that with the owner. And I mean on some level it's like heavy duty, put your feet up on the couch and tell me how you feel about your mother kind of stuff. But I always talk to the seller about at some point in time there's going to be a seller's remorse and how are you going to deal with that and what's that going to look like and what happens the first time somebody comes in and calls your baby ugly because they want to change something. And just getting them to at least think about that because if you think about the different phases, your deal team's in there, they're in heavy duty sales mode. Yes, they're doing their diligence around the financial pieces of it, but there's such a heavy lean on selling the founder that we're the right company for you and this is the right price that you should accept that you don't really get what's going to be the impact to them. And I've never been in an acquisition where that seller's remorse didn't hit. Sometimes it's week one. You're lucky if it's week one. Sometimes it's a delayed response and that's where it goes off the rails. That's why I go back to early on sitting down and being really conscious of roles and here's the role that we want you to play. And then the conversation that I'm able to get into from my role is what does ending well look like for you? You said you wanted to be in the business till the next turn or you said 12 to 18 months or whatever. When you get to the end of it, what does ending well look like for you and how do we make sure that you get to end well? Some people the legacy piece is really important or I want to make sure I never had the capital to do X Y or Z. I want to make sure this gets done before I pass it on or Johnny's worked for me for 20 years. I want to make sure he's the general manager when I step out. But it's really spending time on that conversation, not just on here's my 200 checklist items for how I cross off early day integration. It's having those conversations under many times it's beverages or sitting out by a fire pit or over dinner to get into that clarity of role. What's ending well look like for you? How do you react when somebody calls your baby ugly? And kind of helping pull people through that. That gets back to helping them release that sort of immunity to change that's coming.

I'd probably have to think about a little bit longer but I might challenge the notion of what you said the CFO's role is and making proper simple there.

So here's how it strikes me. When you're thinking of both the CEO and the CFO role, particularly when you start to get to scale, I get it. When it's small, just a couple acquisitions, you can see and touch and feel everything. But when it gets to a certain scale, the CEO's role is still strategy and seeing up over the next hill. The CFO's role is still to teach, to learn, to make sure that you have insight into the business and getting stuck in the day to day keeps that from happening. And that's really where I've experienced it more is when companies start to get to scale and thinking that the CFO and the CEO are going to play the predominant roles there. I think their roles become the defining context. Here's what we need to accomplish at the end of X period of time. For the CFO, it could be I need to be able to get to a five day close within 60 days or I need to be able to make sure working capital is settled out by X period of time or that we're on a common financial system. It's setting those things. But if they're getting into the weeds of what bank account are we using and how are we collecting checks and blah blah blah, you've lost the battle of what you need the CFO to do. So that's why I think there's such huge advantage to having folks, it sounds self-serving, but to play the kinds of roles that I've played that have been able to come in and really manage both of that. It's under the context of the CEO and the CFO. Here's what we need to accomplish. Now what's the best way to get through this? And it's not just heads down project management. It's being able to do the diagnosis and the kinds of things that we've talked about. If I talked about a couple of people that did this really well, I'll go back to some of my Renill examples just because the pace of acquisition there was so great. We had a CFO that came over from the UK first to come over as a transformation officer and he was fantastic at setting context and making sure people knew what the roles were. Yes, we would roll it up and keep score and do all of those kinds of things, but he had enough insight into the business to let the in-force finance community focus on keeping score, closing the books, blah blah blah. And he was able to translate between the two. And then I mentioned John, Andy Ransom was also fantastic at this going in and saying here's really the value prop around particularly these larger acquisitions or this set of acquisitions. We need to come up with a language where we can talk about this but now go because I need to focus on again. John in particular back in 2015, 2016, 2017, we were doing more than one a month somewhere in North America and you can't possibly have the CEO that involved in all of those at an organization that was then $800 million. So it was how do we restructure what we do that starts at diligence. It's not just deal confirmation. You start planning your integration. You plan the people side of the integration. Get early on those things that are I'm calling them non-value added. They are value added because they have a financial component to it, but it doesn't piss off your customer and doesn't piss off your employee. And it was those, you were asking specifically about a CEO. It was a CEO that recognized what got us to this level of growth. I need to change the way that I operate a little bit in order to get us to the next level of growth because my primary responsibility is not integration. I need to make sure that happens, but I still have to deliver organic growth at an almost unlivable rate.

Absolutely. In a couple of different businesses, I was actually working with a client a couple of weeks ago who's really dealing with this. A former founder owner in an executive role kind of wants to sunset that. But it was he and I having this conversation over a period of time about what does ending well look like and listing some of those things out. For him it was some legacy but to still feel like I matter even though I don't want to matter 60 hours a week. So it was carving out projects. What I've seen work really well is to take former owners and treat them almost like an advisory committee to the CEO where it has multiple benefits. Number one, if they're well known and established in the industry, they can help sniff out acquisitions. This happened in the pest control industry a ton because our former owners were so happy with the way the integrations ran. It was kind of a tight-knit industry community. They were able to bring acquisitions to the table that somebody smiling and dialing from a development office may not. So you may get insight into acquisitions or get a first and last look. But second, they can be used on projects that, hey, I really need you to go to Keokuk, Iowa because this branch is really struggling. You've been there before. Could you go spend a couple of weeks off and on mentoring this GM? We'll pay you XYZ, whatever. But it's a way to help them transition to what the definition of ending well looks like for them. Keeps them engaged. You're still getting the best of their thinking. Even if their thinking is dated, you're getting some of the best of their knowledge and mentoring. So you're growing your internal staff, taking advantage of these folks, and again have seen tremendous benefit in them being able to bring acquisitions to the table that you might not otherwise get a sniff at.

Going back to the last two industries, one being pest control I keep referencing. I think for years the consolidation and M&A activity, I think at that point there were like 19,000 people in the US that identified as pest control in some way shape or other. But it was more strategic companies doing the rollups, your Rentokils, your Orkins, Terminixes, groups like that, Ecolab. I think now you're starting to see where smaller PEs are saying we can start these things from the ground up. The barrier to entry is pretty small to start a pest control business. If I can take and roll some of these up, get it to $10 million, our goal is to be able to sell it to Rentokil, Terminix, or to sell to Orkin or something like that. So I think that's what you're seeing more in the pest control side in my opinion. I think on HVAC it was the other way. When I first went into HVAC, I think there were only maybe half a dozen at most that were PE firms that were substantial and doing rollups and now I think I read something there's like 90. So it's much different. What I've seen just talking to people over the last 8, 10, 12 weeks is where a lot of the M&A activity really slowed or shut down, it's kind of opened up again in some of these residential businesses. I've talked to a bunch of people about roofing, about gutters, about windows, about HVAC. So it seems to be picking up in those areas. But anybody that's touching, and here's where it touches the commercial. If you're in any way, at least in the US, touching government, government services, schools, the defense industry, subcontractor to defense, it's everything stopped. Recruiters can't place people, people aren't placing contracts that they normally would. So I think that right now is just trying to figure out what the new state looks like in the commercial business and how a potential recession might look like, what happens with interest rates. I think that's causing more wait and see on the commercial side in my opinion than on the residential services side.

I guess the other thing that I'm seeing is not necessarily peculiar to an industry but to an approach, some of what we talked about before around the integration. And that's more of an appetite for kind of a fractional, been there done that, whether it's CMO, CEO, CHRO, somebody to come in there differentiated from a consultant that is coming in there and telling you what all your problems are and shining the light and walking away. It's kind of come in and in the early days take the hits that need to be taken, go in and do some of the diagnosis knowing that you're not going to be the one that's ultimately going to perhaps be there through the whole fix. But I think that's seeing that more and more in terms of a good transition device, particularly for some of the small to midsize PEs that may not have the operating partner infrastructure that some of the large ones do.

One I would say is Why Should Anyone Be Led by You? A couple of your countrymen, Gareth Jones and Rob Goffee. Gareth used to be the head of HR for the BBC and their London School of Business, whatever. They did some Harvard Business Review articles and then wrote this book on Why Should Anyone Be Led by You which has been a great reflective thing for me and something that I teach and train and share with the leaders that I work with. And that's really where I got into that definition of authenticity. They come around to say what do followers crave right now? We usually talk about leadership from what does a leader need to do but what is it that the follower needs? And their research came really around to what people crave more than anything else is authenticity in their leaders. And what does that mean? And they go through and describe a way to do that. That's been pretty impactful and I keep referencing back to that at a lot of times. The other one's really personal development. It has a bit of a religious spin to it if you're okay with that. But it's called Falling Upward, written by Richard Rohr. I think it's Richard Rohr. He talks about the two phases of life. It's not really halves. So you don't define it as you hit 35 or 40, but really two phases of life. One where you're learning to build your box, what are your skills, who's in the boat with you, bit about your identity. But then the second half is really around creating meaning. So for me that's been, put into an executive development frame, people build their skills and build a skill set early on in their career. And you're not always going to build a new and a different skill set. It becomes how can I make that skill set much more meaningful and apply that not just to checking a box, but long lasting impact. And that's really helped me hone in on what's the kind of work that I want to do in the last phase of my career. What do I want relationships to look like? I just find myself saying more and more again, the content of the work matters to me, not just the money. Money is the reward. Money is the way you keep score. You can't not have that. But this really comes out of some of that work Falling Upward. What do you do in the second half of life to bring meaning?

Through LinkedIn is a great way to connect.

My pleasure.