Exclusive Middle Market Report: 3 Ways Top Executives Make the Most of M&A
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This presentation recaps a webinar presented by Rhythm Systems, ACG, The National Center for Middle Market, and SunTrust to share exclusive research and insights on making mergers and acquisitions successful.
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Exclusive Middle Market Report: 3 Ways Top Executives Make the Most of M&A
- 1. Exclusive Middle Market Report 3 Ways Top Executives Make the Most of M&A
- 2. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. R e c a p o f I n s i g h t s f r o m THE RIGHT INSIGHTS THE RIGHT ADVISORS THE RIGHT SYSTEMS A SMARTER DEAL PANEL
- 3. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. MIDDLE MARKET M&A INSIGHTS
- 4. Source: NCMM, Middle Market M&A, 2018
- 5. Source: NCMM, Middle Market M&A, 2018 M&A IS CRITICAL TO MID-MARKET GROWTH
- 6. Source: NCMM, Middle Market M&A, 2018 STEADY RHYTHM – LIMITED EXPERIENCE
- 7. Source: NCMM, Middle Market M&A, 2018 LARGE COMPANIES ARE MOST ACTIVE In the last three years …
- 8. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. TOP CHALLENGES
- 9. Source: NCMM, Middle Market M&A, 2018
- 10. Source: NCMM, Middle Market M&A, 2018 THE MIGHTY MIDDLE MARKETMOST COMPANIES RELY ON THEMSELVES
- 11. Source: NCMM, Middle Market M&A, 2018 BUT STRATEGY IS THE MOST CONFUSING PART OF DEAL MAKING
- 12. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. WINNING FORUMLA
- 13. Source: NCMM, Middle Market M&A, 2018 THE MIGHTY MIDDLE MARKETBECOMING ”DEAL-READY” IS KEY TO SUCCESS
- 14. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. REAL WORLD INSIGHTS
- 15. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. Organic M&A RIGHT STRATEGY + RIGHT RESOURCES Our mid-market clients have lots of great ideas but not enough resources to do them all. They have to choose whether to drive growth through M&A or invest in organic growth.
- 16. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. Our Winning Moves exercise is one tool to help decide which growth opportunities to pursue.
- 17. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. BE CLEAR ON WHAT SUCCESS MEANS
- 18. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. SUCCESSFUL INTEGRATION
- 19. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. PREPARE FOR SUCCESSFUL INTEGRATION 50-90% of Acquisitions Fail in the First Year!
- 20. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. SUCCESS TIP #1: ONE TEAM - ONE SYSTEM I t i s v e r y i m p o r t a n t t o h a v e o n e s y s t e m t o d o p l a n n i n g a n d we e k l y m e e t i n g s a s o n e t e a m f r o m D a y 1 a f t e r t h e a c q u i s i t i o n . Yo u n e e d a s y s t e m t o p l a n a n d wo r k t o g e t h e r.
- 21. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. AVOID UNWELCOME SURPRISES One system for consistent reporting across your portfolio Real time information alerts you when a key priority is off track
- 22. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. The key to getting organic and M&A growth initiatives done is to do strategic, planning and weekly meetings right so you can keep your plan on track. THE RHYTHM SYSTEMS PLAYBOOK BHAG Core Values Core Purpose Core Customer 10 - 20 Years CORE STRATEGY 3 - 5 Years Yearly Focus Annual Initiatives Critical #s Annual FOCUS PRIORITIZE 13 Week Race Execution Ready KPIs & Priorities Cascade Quarter Weekly Meeting Prep Collaborate Make Adjustments Week In Sync Week Daily Huddle Actions Do the Work Day STAY ACCOUNTABLE WIN ALIGN TEAMS T H I N K P L A N D O Winning Moves 3-5 Year Targets Brand Promise
- 23. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. DON’T KEEP YOUR PLAN A SECRET O n c e t h e e x e c u t i v e t e a m g e t s a l i g n e d , c a s c a d e t h e p l a n t o d e p a r t m e n t s s o e v e r y o n e k n o ws wh a t t h e y n e e d t o d o t h e m a k e t h e c o m p a n y s u c c e s s f u l .
- 24. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. ADJUST WEEKLY S o l v e p r o b l e m s f a s t a n d k e e p y o u r p l a n o n t r a c k .
- 25. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. SPREADSHEETS DON’T WORK O u r c l i e n t s u s e t h e we e k l y d a s h b o a r d i n o u r s o f t wa r e . T h e y s e t u p p r i o r i t i e s a l o n g wi t h t h e s u c c e s s m e t r i c f o r e a c h p r i o r i t y.
- 26. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. M&A – INTEGRATING PEOPLE
- 27. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. SUCCESS TIP 2: PEOPLE PLAN IN PLACE T h e s e c o n d d i ff e r e n t i a t o r f o r c o m p a n i e s t h a t d i d M & A s u c c e s s f u l l y i s t h a t t h e y h a d a n e x t r e m e f o c u s o n p e o p l e a n d m a k i n g t h e m s u c c e s s f u l a n d e l i m i n a t i n g d r a m a .
- 28. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. ROLE & GOAL CLARITY Build job scorecards 1. CEO 2. Executive team 3. Repeat with management
- 29. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. JOB SCORECARD
- 30. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. 1ST COMBINED EXEC TEAM MEETING R e c o g n i z e t h a t wh e n y o u h a v e N E W P E O P L E y o u h a v e a N E W T E A M . I n y o u r f i r s t m e e t i n g , r e v i e w c o r e v a l u e s , s t r a t e g y, a n n u a l g o a l s a n d s p e n d t i m e t a l k i n g a b o u t r o l e s a n d g o a l s
- 31. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. E X E C I N S I G H T “I was so proud of our people. Our tree bent but never broke because our culture was so strong. The tree bounced back.” – Steve Hoffa, COO, Alpha Guardian
- 32. NEXT STEPS Schedule a conversation Schedule 30 minutes to see how our business execution system can help you get more ROI. cindy@rhythmsystems.com
- 33. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. THE DEAL TEAM
- 34. Source: NCMM, Middle Market M&A, 2018 EXPERIENCE TO ADDRESS BUYER CHALLENGES
- 35. Source: NCMM, Middle Market M&A, 2018 IT integration planning Be tax efficient, but don’t let taxes override strategy Business / personal / sales tax implications Preparing and maintaining financial statements for all requested periods THE RIGHT TEAM OF AD VISOR S
- 36. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. OUR GIFT FOR YOU Vi s i t o u r s i t e t o a c c e s s K e y F i n d i n g s f r o m t h e M & A r e p o r t a n d b l o g a r t i c l e , 5 C O O I n s i g h t s t o K e e p Yo u r A c q u i s i t i o n s A l i v e .
- 37. rhythmsystems.comCopyright © 2018 Rhythm Systems, Inc. C i n d y P r a e g e r c i n d y @ r h y t h m s y s t e m s . c o m ww w. r h y t h m s y s t e m s . c o m T h o m a s A. S t e w a r t s t e wa r t . 1 4 9 0 @ o s u . e d u ww w. m i d d l e m a r k e t c e n t e r. o r g THANK YOU
Editor's Notes
- ACG Introduction Welcome – We’re really excited for this webinar today – Tom Stewart, Executive Director for the National Center for the Middle Market and Cindy Praeger, Co-Founder of Rhythm Systems and 4 time serial entrepreneur. Both Tom and Cindy do regular webinars with ACG and their topics always draw large audiences, so today we’re lucky to have them presenting together.
- We are excited to have you join us today. Tom and I both have a deep passion for the middle market are are looking forward to helping you in 3 areas. Tom will be providing insights from The National Center for Middle Markets new report on middle market mergers and acquisitions. He will also be sharing information from SunTrust on The Right Advisory Team Over the last 10 years Rhythm Systems middle market clients have used our software to execute over 250,000 growth initiatives including acquisitions, product launches, employee engagement and process improvement. We have seen lots of strategic plans and acquisitions play out and I will share insights on what our clients do differently to succeed and be top in their industry. Whether you are a buyer or a seller, we will help you do smarter deals. Tom and I thought it would be nice to do a question and answer style conversation today. And we invite you to be part of the conversation. We love to take questions – feel free to chat in questions anytime.
- CINDY ASKS: Tom, the insights from the report are really interesting. Give us some high level stats and learnings.
- 400 participants, major study
- 85% of middle market companies are private – so much data does not show up. This report reveals their insights.
- Also the surprise factor - the amazing thing is in 40-45% of the cases the company wasn't planning to sell 1 out of 5 buyers weren't planning to buy
- as you see M&A activity increases with size size matters among the selling community - people maybe just sold a piece or division or taken investors it's not all or nothing (it's not scottsdale on a golf course)
- CINDY ASKS – Tom, those are really interesting insights. Can you share the top challenges that middle market firms reported?
- we see this tendency for all cash deals ...
- CINDY ASKS – Tom, So what did you learn about the winning formula for companies that did M&A well?
- What makes you successful in doing a deal is what makes you a better company day to day. Most deals take less than a year; but becoming deal-ready takes years. Companies that are well prepared will be more successful. Plan, execute and put the right team together.
- TOM ASKS: Question to Cindy Your companies do M&A well. What are they doing differently? Give us some practical example of your clients get the highest valuation or best strategic deals done.
- Regarding the right strategy - one of the key factors our clients grapple with is that they have limited money, time and resources. They have lots of great ideas but not enough resources to do everything. For most, driving growth is their key priority. There are a variety of ways to drive growth and one of the ways is to do a merger or acquisition. The other way is to invest in organic growth. Our clients think long and hard about all their options and which ones are the right moves for them. I am going to share an exercise we do with our clients to help you through this. The first question you want to ask is if a merger or acquisition is the right move for you.
- Here is a great tool we use with our clients to help rank growth opportunities more analytically. This is called a Winning Moves exercise. Here is how it works. Take each winning move - assess and rate it Impact 1 to 10 Ability to execute or do 1 to 10 – this is where many companies go wrong. It might be a great financial opportunity, but you have limited to ability to get it done. Think hard about the talent you need in place to get these results, For many an acquisition looks great on paper that it will drive revenue, but in reality your ability to do the deal and integrate if not very high. The likelihood of success is not good. For our clients, they are very disciplined and will either build up their ability or choose a different winning move. Here are a few tips to use this tool well: Your impact scale needs to be the same for ALL the ideas Ex: If #1 Impact = $9M, then #2, rated at 10 - met be > $9M TIP - Don’t show the chart till AFTER discussed and agreed upon Impact/Ability When people see the chart (AFTER Agreeing to impact and ability) Then an aha happens And it people choose wisely together…
- If you decide to move forward with an merger or acquisition, you need a clear success metric and time frame to achieve it. Here is research from the M&A report that talks about how companies are measuring success. This aligns well to what we see. The next step is create an execution plan for a solid integration. Those that are ready and prepared, get the ROI they are looking for. Without preparation chaos can happen pretty easily.
- TOM ASKS: Question to Cindy As you mentioned, you have seen a lot of plans play out. Tell us a little bit about what companies that do successful integrations do differently.
- Tom – Successful integration is hard. Think of it like building a Custom Home. It’s exciting but you do not have a lot of practice doing it. So you need to be hyper diligent to prepare and be ready to do it well. Do not underestimate the effort this will take. Unfortunately 50 -90% of acquisitions fail to meet their objectives depending on what study you read. The numbers are not good regardless of what study you use and I want to share some insights to help you change the odds in your favor. There are two things you have to get right for a successful integration. Systems and People. Let’s talk about Systems First.
- The first differentiator for companies that did M&A successfully is to develop One Team and One System It is very important to have one system to do planning and weekly meetings as one team on Day 1. You have acquired a company and its people and they need to get to work. You do not want them to be confused how to work. Be ready for them with clear roles, goals and meeting rhythms. So they know what to do, what team they belong to and what meetings they need to be in. I am talking about a system to plan and work together. This is what drives predictable results and gets people up to peak performance in a short period of time.
- For Private Equity Firms – having one system for your portfolio company is critical as well. For many of you, you promised to be a strong and helpful operating partner. Having real time alerts allows you to be the most helpful to your companies. Many of our clients who have private equity investors welcome the help if they have strong trusted relationships.
- What does the right system look like? First, get your people organized to keep your plan on track and make adjustments fast when problems arise. Step 1: Get the right meeting rhythms in place. Here are the meeting rhythms our clients have in place. This is the way work gets done, information gets shared and adjustments get made to keep your plan on track. Set this up BEFORE you acquire a company so they can integrate into an existing system. Make sure that each new person knows what team they are on and what meeting rhythm they need to participate in. If you have this in place they can integrate into work. If you don’t – chaos will ensue.
- Once the executive team gets aligned, they cascade the plan to departments so everyone knows what they need to do the make the company successful.
- Step 2: Make sure that your weekly meetings are set up to solve problems, not just report status. All key employees should be in a weekly meeting. On Day 1, make sure every employee knows what weekly meetings they need to attend.
- STEP 3: Use a system to identify when a priority is off track and give you all the information you need to fix the problem fast. According to Business Insider, $37 billion is lost every year to unproductive meetings. It does not have to be this way. Our clients use the weekly dashboard in our software. They set up priorities along with the success metric for each priority. We suggest using Red-Yellow-Green and SuperGreen for each success metric. Green is goal, red is failure and supergreen is the stretch goal. WRITE THIS DOWN: Each week BEFORE the weekly meeting every person spends 15 minutes preparing for the meeting. They update their success metric – on track or not. If not on track, they put a comment in to explain why they are stuck and what help they need to get unstuck. Knowing that a number is off is not enough. You need to know the story behind the numbers to fix the problem. Get this information before the meeting. For our clients, they are diligient about this. This is one of the reasons why they consistently are top of their industry and get above average results. When each person puts in their information, Rhythm automagically creates one group dashboard to review at your weekly meeting. Now, you can run a weekly ADJUSTMENT meeting to solve problems. You can see the example here. Integrate Acquisitions, all the people involved. When doing a post merger acquisition, this is critical. You have many departments and leaders working on this. You must have a total view of all the players and what is going on. You must be proactive versus reactive. This is critical to getting ROI. On Day 1, make sure every employee has an individual dashboard that links up to the department and company dashboard. Visibility and collaboration are key factors to success. FOR CEO’s – see birdseye view and drill down – ROP For Exec Team/Departmental Leaders – how is team doing – Cross Functional Teams - how are cross functional priorities doing – KILL SILOS – fighting for resources, dependencies (M&A as well as product launches, opening new markets, scaling operations). This is what we our clients use to manage the integration process to get the right priorities done on time successfully.
- TOM – Ask Cindy. Question to Cindy You mentioned that there are 2 critical elements of successful integrations – systems and people. Talk a little bit about people.
- The second differentiator for companies that did M&A successfully is that they had an extreme focus on people and making them successful and eliminating drama. Alpha Guardian is one of our most successful clients. They provide safes for homes. Steve Hoffa, their COO, shared some great insights from his current acquisition. They did a great job making sure that this deal was the right move for their company strategy. Growth was their focus and they spent the time to make sure that this acquisition was aligned to their growth strategy, winning moves and growing their core customer. During the deal, having a strong execution system in place helped keep the team focused on the business as well as the deal. They had a strong plan and felt ready. One insight they shared was that the people part of the equation was more challenging than they anticipated.
- When we asked Steve what helped him to integrate successfully, he shared that they needed to have a lot of crucial conversations because roles changed. Here is how Rhythm helps address that: Create role & goal clarity, creating job scorecards. People do well when they know what they are responsible for and what success looks like. Start with the CEO, then work with the executive team and repeat the process with the management team. Let me show you what should be in a job scorecard.
- Here is an example of a job scorecard. These are essential not only when you are integrating an acquisition, but for any growing company. Unclear roles and unclear goals create stress, lack of accountability, and poor performance in an organization. Each person needs to know exactly what they are responsible for and how success will be measured. Completing Job Scorecards will help you clarify each role in your company. With role clarity, your employees will significantly multiply their contributions to the company and its success in the short term. Notice the basic components of the job scorecard and how it sets clear expectations. Job title, who they report to, core purpose of the company, Desired results and KPI’s to measure these results. It would not fit on the screen, but further down, you would see skills & traits, and the core values for the company. These KPIs are connected to weekly meetings so individuals own their destiny, and can have open and transparent discussions - eliminate the drama of knowing where you stand
- Another great insight from Steve were the steps Alpha Guardian took to start working together. Recognize that when you have NEW PEOPLE you have a NEW TEAM. How did Alpha Guardian start off strong? They did a combined meeting that was modified to get everyone working as one team. 1st meeting – review core values, strategy, annual goals and spent time talking about roles and goals. Liz McBride – their Rhythm consultant facilitated this customized session. This went a long way to start the relationship right. They also educated them on their operating systems right away – for them it was The Rhythm System, their core values and Lean. Just like Avid, Alpha Guardian is committed to Annual and Quarterly Planning and weekly adjustment meetings and made sure everyone understood how to execute and adjust the plan when needed. Whatever system you have make sure they are on it right away just like everyone else. Know what meetings they need to be in and share the times and days with them.
- Integrating acquisitions is hard. We are so proud of Alpha Guardian and the success they have had. And Steve is really proud of his team. Way before this acquisition took place, they had invested in building a strong culture and a commitment to their core values. As they faced the challenges together to integrate their acquisition successfully, he said QUOTE.
- We are so proud of all our clients and the successes they have had. For those of you who are on the webinar, and want to understand how using the Rhythm System can help your company, I welcome you to schedule 30 minutes with me to continue our conversation. Just email me with a few good times to connect – I am on east coast time. My email is on the screen at cindy@rhythmsystems.com
- CINDY ASKS: Tom, What did you learn from your research?
- Before we take some additional questions, I want to remind you to please take the survey at the end of the webinar and we will send you the Key Findings from the M&A report and the blog article, 5 COO Insights to Keep Your Acquisitions Alive. If you are interested in exploring how you can use the Rhythm System to drive acquisition ROI you can also request a meeting with me in the survey. (CINDY - ACG will then share a link to the Make Acquisitions Work page in their follow up email with the recording and we will send a follow up email Friday with the blog and key findings download.)
- It was our pleasure to be with you today. Thank you for your time, attention and questions. Best of luck as grow your business and please reach out to us if you would like to continue the conversation! Have a great day!