Welcome to the Growing EBITDA Podcast, where
we unlock the doors to management and technology
insights in the middle market. Join us as we
explore innovative strategies to drive revenue
and EBITDA growth, interviewing industry leaders
and technology experts. Whether you're looking
to streamline operations, understand the latest
tech trends, or lead your company towards exponential
growth, you're in the right place. Stay tuned
and let's grow together. James, I got a question
for you. Who sang our intro song? Do you know
this person's name? I don't think we know. I
think producer Matt knows the individual. Maybe
we have producer Matt as a guest one day on the
cast. What do you think? Someday. You think he's
ready? I think so. Hey, just to make fun of ourselves
for a minute, Mike, do you mind if I make fun
of us for a second? That's your best skill set.
I know. We were such newbies. We loaded our podcast
zero as season one, which was our intro. And
then we immediately jumped to season two with
all of our content. So maybe one day we circle
back with having a producer Matt on and we can
attach it to season one. I actually thought that
that was the only way we could guarantee getting
renewed for a second season. I thought that was
part of the plan. That's true. That's a fair
point. That's a fair point. Yeah, I thought that
was part of the plan. Today, we're talking about
integration today, post -acquisition integration,
post -merger integration, PMI, goes by many different
names. And to get us started today, I want to
know, I know mine, I want to know the most interesting
place you've ever done an integration. Let's
digress for a second here. Tell us the story.
I know you've got some good ones. Oh, man. I'll
say I did it. It's this town called, so take
you a little bit of a story. I started working
for a company that went through a lot of M &A,
and I was working out of the Mexico office supporting
integration work for companies within the US.
And one of the acquisitions we did was in Bonham,
Texas. And so coming off of that, we had just
acquired a group in La Jolla. in California,
so outside of San Diego. So it was a great integration.
We spent a lot of time, beautiful city, great
hotels, awesome food. And we go to Bonham, Texas,
and we go out to visit the site. And the site
had done a nice job of booking a hotel for us,
so we didn't have to find a hotel. Number one,
we had a fast food restaurant that also doubled
as a grocery store for lunch. And then we get
to the hotel. And for those that are aware of
the hotel America's Best, which is... Not to
shame anybody, but America's worst. It was a
pretty bad hotel to the point that really uncomfortable,
not a great area. Well, as a team decided, well,
we're not going to stay there again. We'll do
it to make the target happy, but we're going
to not stay there again. So we commuted an hour
and 20 minutes about every single day there and
back. So two and a half hours every day to go
to this little town to integrate this business.
The other memory I have from that business is
they took a break. Every couple hours. It was
a manufacturing facility. And they would go and
drink Monster by the back door. And I remember
I had never had a Monster before. Not something
I'd ever had. And it was the old big ones with
the screw top. If you remember that one, Mike.
And so I went through a rough period, man. I
went through a Monster phase. where i was drinking
monster driving two and a half hours working
in the middle of nowhere texas that integration
i i was like i want that la jolla business back
how do i get to that la jolla life so uh yeah
man we don't go to the always the best and nicest
cities when we're trying to integrate but i'll
tell you what's the population of bottom Well,
calling back to another episode, Mike, I'd have
to use Chad GPT and some AI to serve up that
answer. But I would say great people, man. I
also gained a ton of weight because some very
hearty meals, cookouts in the parking lot. Let
me tell you, the worse the town, the better the
people, I feel. And so it was a great time to
make some great contacts. I still talk to some
of those folks today, but not my favorite city
by any means. How about you? Actually, can I
ask you? That was such a long answer. We might
have to make that its own episode. I didn't know
I'd ask for a novel. My favorite, most interesting
place I ever did an integration was Rattlesnake
Bayou, Alabama. Oh, wow. I'll make my story much
more brief and just say it lived up to its name.
That was a good one. Rattlesnake Bayou. I don't
know who came up with that name, but they named
it right. We'll just leave it at that. I'm looking
it up right now. So let's jump in. Let's talk
about integrations. And let's talk about where
bad integration hurts the most. What usually
goes wrong first? Trials and tribulations, lessons
learned. Get us started down that path, James.
Yeah, so I think we... And to call back to another
episode, but to just baseline, Travista does
a lot of work in the PMI space after some M &A
event, whether that's private equity, whether
that's a large corporation that's a publicly
traded entity that's carving out a piece of its
business. We deal on both sides. So think carve
out in or M &A come together. And so we work
on both sides of that. I think where we see some
of the challenges and where we're brought in
to help a lot of times. or kind of shore folks
up because they've already kind of begun the
process. Number one is where I buy these two
businesses because I like these two businesses.
These businesses work well. I don't want to do
harm to these businesses. But unfortunately,
as I start to bring them together, I may make
some decisions that cause some operational disruption.
or cause challenges to the business. This could
be by bad systems. As an IT individual, we see
that a lot. This could be operational inefficiencies.
Frankly, a lot of times we see you make a Salesforce
change in the field. Let's say you have a field
rep team and you make that change. It could disrupt
those businesses. So one of the first things
you can do is disrupt the two great entities
that function today because we all go into these
with the hope that we can drive synergies, become
a better business, drive out costs, and become
a better combined entity. It can go. wrong. The
second one, I don't know if we've talked about
this one before, Mike, maybe we should do a future
episode on this. There's a recruiting arm at
Trivisa that helps companies find individuals
at executive levels within their practices or
firms or companies. And so we actually do a lot
of time helping with this challenge, which is
the talent flight. So we know when we go in and
we do a diligence, we look for key man risk and
we indicate those key man risks. But sometimes
folks leave, whether it's the team that owned
the business and they transition out or talent
at the business because maybe they had a windfall
or a good financial outcome due to the transaction.
And so they leave. There's a lot of times that
that talent comes out and then the... businesses
scrambling to figure out how to shore that up.
Because not only are you trying to get these
entities figured out, you're also making up for
the talent side. And then the last one is, and
this is something maybe you can talk about here
in a second from a financial perspective, is
this idea of these synergies and these kind of
financial synergies. Going into this deal, no
PE firm or no business is going to go into a
deal blind. They're going to build a model. they're
going to have an expectation of excellence, and
they're going to have an expectation of outcome.
So you're going to have those conversations up
front. You're going to know what you want to
do. And if you don't or you can't materialize
those kind of changes, whether it be from the
systems, from the team, or from the process,
and you can't hit those synergies, at the end
of the day, it affects the bottom line. So maybe
we could take that, Mike, and maybe that's somewhere
you can come in because you know much more about
this than I do, where those kind of poor synergies
or bad impacts affect the financials and kind
of... disrupt the deal a little bit, or at least
the idea of what the deal was going to be. Yeah,
absolutely. Well, I'll build on the comment that
you made about talent flight. If you lose the
wrong people in the business that you're buying,
or you didn't disenfranchise some of the folks
on the team that you're already running, huge
costs can be associated with that, you know,
especially if you start losing high performers
who think that maybe they weren't involved in
kind of the strategic decision making process
behind acquiring this, this other company. Maybe
they feel like they get exposure to comp models
now that are very different, and they're kind
of realizing that, hey, maybe I should have been
making a lot more money than I was all these
years. It could be any number of different things.
You start losing key people, that's a major hit
to the bottom line, right? And that could be
at your current company or at the target, the
business that you're acquiring. So I think about
things like talent flight, like you mentioned.
I think about margin erosion. Many times people
are going to model in, lots of synergies in these
deals. They're going to say, Hey, look, we're
going to bring company A and company B together.
And we don't need 15 salespeople anymore. We
only need 13. So, you know, we get some headcount
reductions and some cost savings for starters,
unless you have a very robust plan. It's pretty
simple when you're talking about two salespeople,
when you're talking about larger enterprises,
you could be talking about. integration synergies
across the sales team, the marketing team, the
back office, finance, IT, reduction in licenses
on the IT side, purchasing power and trying to
drive purchase price reductions because now you're
spending more with certain suppliers. I mean,
it could cascade across manufacturing distribution,
really cascade across the whole business. If
you don't have really robust kind of day one
communication plans, day one. implementation
and integration plans, if you haven't appointed
somebody who's really responsible for waking
up every day for the next couple of years and
running all those costs out of the business and
driving those synergies, you stand to not realize
many of the synergies that you expected at the
onset, right? And quite frankly, Not that I would
label this necessarily a crisis, but we have
a saying, never waste a crisis, right? Never
waste the opportunity when there's a lot of things
going on to execute flawlessly, maybe make a
couple of mistakes along the way. But if you're
going to go and do M &A and part of the logic
is driving for synergies, you better be very
focused on driving and achieving those. And I
think one of the things that we find... oftentimes
a letdown is that people don't realize as many
synergies as they originally modeled. We tend
to find that that's oftentimes a function of
lack of good old -fashioned project planning
and tough decision -making and staying on top
and holding teams accountable to actually going
and doing what we all agreed we were going to
do in the first place with these deals. Then
you can get into things like customers. where
day one planning and even day zero planning is
critically important. How are we going to announce
this to the market? If it's not well received
and one of your largest customers decides, geez,
I don't like what's going on over there now,
that could be a major revenue and margin hit
to the business. So all different kinds of margin
erosion, if you're not implementing appropriately,
you've got customer loss, you've got employee
challenges. And also, quite frankly, there's
a lot of brand damage that can be done, right?
And you got to be very thoughtful about brands,
right? You may have a brand in your current company.
You may be buying a company with a solid brand.
Maybe you're buying a company with a weaker brand.
Figuring out what the right strategy is to kind
of go to market on a go -forward basis, being
thoughtful about the communication path, actually
integrating. the tools and the systems. So you
actually kind of look out in the marketplace
as if you're one company now together, not doing
any of those things. Well, number one is typically
going to drive a lot of costs in the business,
but also not doing any of those things. Well,
could actually hurt your brand long term or hurt
your employee relationships long term or what
have you. So a lot of real financial impacts.
can come out of poor integration. And, you know,
we tend to work with a lot of companies that
maybe they've done M &A in the past. Maybe they
haven't done M &A in the past and it's their
first time. So in many cases, you could be dealing
with management teams that haven't had a lot
of experience doing that. And it's important
to equip them with the appropriate resources
and tool sets with which to execute on them.
Because otherwise, why are you making your life
that much more complicated in the first place,
right? If you're not going to kind of go after
it and attack it aggressively, maybe rethink
it. Yeah, and to read another chapter from my
novel from earlier for that plant in bottom.
Do we have enough, producer Matt, do we have
enough time? The brand damage side. So this plant
at a bottom was acquired. by a company out of
Mexico. And we manufactured in Bonham, Texas,
right? It was a manufacturing facility. And after
the acquisition got out, news got to the local
area like, oh, they're acquired by a Mexican
company. And so the rumor was, oh, well, they're
moving all their manufacturing to Mexico, which
actually we're moving manufacturing from Mexico
to this plant to help with capacity. And so we
had done poor planning, poor communication, and
poor articulation of that to our clients and
did cause some brand damage. It actually caused
quite a hearty dip in sales. So you are 1000
% correct that that's something that needs to
be contemplated and really work through and not
just assume that everyone will know. Yeah, absolutely.
So James, I talked about what can go wrong. How
do you get it right? Yeah. How do you start off
on the right foot? I love what you said, Mike.
Day zero planning. A lot of people focus on that
first day. There's a lot of upfront work that
can happen. One of my favorite things is when
clients have us do a diligence on an entity that
they plan to acquire and then either bolt on
or build as a platform and bring another business
together, almost like two platforms coming together.
And they call us after that and say, let's get
planning. Let's start tomorrow on what this integration
looks like. So that early integration planning,
starting immediately. even a little bit in due
diligence or pretty dang close after diligence,
really helps set that tone, really opens up conversation.
Obviously, it has to be proxied by legal and
make sure it's okay for the deal cycle, how much
you share, where you share, why you share, all
needs to be reviewed. But you can start a lot
of those things in day zero. I think having honest
conversations with your leadership team and making
sure they're aligned. Again, within reason and
protected conversations to say, here's our plan,
here's what we're doing. Oftentimes I see failed
integrations when we're going to do a diligence
and part of our diligence is the ownership's
group is asking us in the diligence, what do
you think they're going to do with us after they
acquire us? If we hear that question, we know
there's a misalignment and probably the message
hasn't been shared in the right way. So that
management team understands. A lot of times the
ownership group understands, but not that middle
management team. And then the last one, which
is something we always say in any project, which
by the way, I love your shout out on poor project
management sets you up for poor success. It is
1000 % true. But the other thing is, how do I
get quick wins? How do I find things that are
very simple? So one of the things that we see
a lot of times on a quick win that gets people
working together, gets conversations going, and
it's a low risk is indirect procurement. Something
as silly as like, hey, we all have paper towels.
We all buy from Grainger. Let's... a line on
a procurement of indirect that we can make sure
we get those materials. We can start to work
on that together. Again, it's not going to really
super disrupt the business. It's a chance for
us to partner. It's a chance for us to figure
out a group rate so we can lower some prices.
And it's a good place to experiment before you
start getting in the tougher things of like,
how do I combine manufacturing facilities? How
do I centralize my call center? Those are tougher
and more kind of frothy challenges. Whereas I
can get some quick wins, build that confidence
on the team and kind of drive that inertia. to
those larger challenges like ERP, CRM, or some
of the sales things we've discussed on here.
So I think those type of things for me is start
talking soon, bring everyone along for the journey,
and get some quick wins. Yep, absolutely. So
James, before we wrap up, we got some two -bit
trivia, I think, here today. All right. You want
to ask her? You want me to make up something?
You got something already figured out? Yeah,
I prep for these. I prep for these. Oh, no, man.
All right, here we go. You know, chat, my buddy
GPT and I, we prep for these. Perfect. So this
one's pretty basic. I think you're going to get
this one. What is the average timeline that experts
recommend to fully integrate an acquired company?
So we preach don't go too quickly because you
could break things that do no harm clause. So
I'm going to go probably a year to 18 months
time frame. So you still kind of know them, but
you're not taking too long. So I don't know,
one year to 18 months. Well, even though you're
close, this just proves you're not as smart as
ChatGPT. But experts say 12 to 24 months. So
we'll give you like two thirds of a point there.
Are we keeping points? Is that how the system
goes? Well, it's one to two thirds then if we
are keeping points because I do have my little
scoreboard here. Yeah. And I think the logic
there is if you're moving faster than that, you're
probably not integrating the businesses, right?
Could be leaving money on the table. Who knows?
Depends on the integration. But you certainly
probably haven't integrated fully the two companies
or maybe that was more like a tuck in, maybe
about a product line and three or four months
in, you've got it. integrated into your facility.
But 12 to 24 months is the guidance, which also
I think has been my experience. So good reminder,
takes planning. My comment about day zero planning,
super important. Day one planning, even more
important. Making sure that you're engaging the
team and holding the team accountable to delivering
it. Yeah, I love it. Yeah, this is something
that's squarely in our wheelhouse. So we talk
to clients all the time. So hey, if you have
a question or want to learn more, reach out to
Mike or I directly. We appreciate when our listeners
listen. When they listen and they reach out,
we appreciate both. But thanks for tuning in
to Growing EBITDA. By the way, you're assuming
they listen. Hey, hey, we got numbers now. Listen
or reach out. Either one, it's fine. Yeah, we
got numbers. But hey, subscribe to Growing EBITDA
and we look forward to connecting in the next
couple of weeks. Thanks for tuning into this
episode of Growing EBITDA. If you liked this
episode, hit subscribe or follow us on LinkedIn
for updates. Got a topic you'd like us to cover?
Drop us a message. We'd love to hear from you.