putting together the puzzle pieces of acquiring a company

DHIS19: How to Kill a Great Company

The breakout session had good attendance; people were no doubt interested in the art of acquiring, or rather, killing a great company. But rest assured, the panel took on more of a pacifistic approach in their counsel—more like absorb than kill. The panel comprised Matt Hawkins, CEO of Waystar; Christopher McFadden, Managing Director at KKR & Co; and Yumin Choi, Partner at Bain Capital Ventures. Chris Chandler jumped right in with a question about team building.

Team Building

“Team is the most important thing,” Yumin Choi said to start things off. He pointed out that the different phases of a business can create challenges. As business scales, its needs change. “I make it a point before we sign anything to have dinner with my CEOs and talk about their trajectory, their skill sets, and when the right time is to take things over.

“I almost never have a conversation in which people say, ‘I wish we had kept that CEO on longer.’ You are waiting and seeing whether they learn and pivot and adapt.” 

Christopher McFadden uses the strength of the team around the CEO as a barometer. “In early-stage companies, personality and a little luck can get a CEO there. But how collaborative and strategic is the team? If you aren't prepared to share and delegate, you are almost certain to hit a wall.” 

As someone who comes in during late-stage opportunities, Matt Hawkins has to be very intentional about building teams. He has paid the price when he has made mistakes, “such as leaving someone in place a little longer to see if anything happens.” Matt focuses on finding people who are continual learners. “If they are learners, they tend to have lower egos and are willing to adapt. They are self-aware and can see what they are or aren't good at.”

Some businesses may be tempted to use a hub-and-spoke model in which the CEO is at the very center. But Yumin warned that only about 5% of such models are capable of scaling. “You can’t manage the business from being at the center,” he said, while also admitting that “the ones who make it can have a good return. You never know.”

Matt had an inclusive perspective regarding executives or founders who want to remain a part of the acquiring company. In Matt’s experience, they often want to stay in a management role or scale to a broader position but can’t emotionally do it because their egos hinder them.

“You can find a good spot for them as an executive advisor,” he said. “Sometimes we have found the most success in value creation is to strike that conversation early on with the founder or CEO who is selling that business to us. I used to think that I didn't want that founder helping me, but it is okay to embrace them if you can get them to the right spot as an advisor or contributor. Don't be afraid to use people as key advisors.”

Important Measurements

“The client measures are super important to establishing a benchmark,” said Matt, “such as a net promoter score and whether we are measuring that objectively. If we merge two companies together, will the loyalty of the client improve? What do we do to make it improve? How do you treat your team members? That will affect that net promoter score.”

Matt talked about a scoreboard that Waystar used in its early development. The scoreboard comprised three categories: to integrate successfully, to grow through integration, and to build a platform for success. “Our rule of thumb was that things had to be simple enough to fit on the scoreboard. You had to view it from the stands and see who was winning and losing. Getting everyone familiar with that helped everyone to go in the same direction.” 

Yumin warned that businesses in the early stages are at a higher risk of applying false precision to metrics. If the sample size is small, a business can make metrics appear however they want them to appear. The company first needs to scale. “Killing companies often happens because you are misaligned with what you are tracking,” he added.

A couple of the panel members spoke of the need to be aware of why you are transacting. Is your acquisition or merger on your road map? Are outside influences causing you to lose track of your goals and unintentionally shift into an adjacent opportunity?

Culture

Matt suggested bringing in a third-party advisor to do a thoughtful profile of each person on the team. Then you have a deliberate conversation about the natural abilities of each team member. “You start there and have that experience emanate to the rest of the organization.” 

“Set a tone that helps the long-term culture,” Christopher said. “Bad culture isn't just about a bad organization; it's about recruiting.” The people you hire or retain need to fit into the culture of your organization.

Yumin suggested that although challenging each other can be an aspect of good culture, someone might come in who is quiet and doesn't like to be challenged. There can be different types of good cultures that are just different. The question is whether there is a fit. If two cultures don’t speak and operate in the same way, they may not work well together. 

Christopher summed up mergers and acquisitions nicely when he suggested that “handoffs are more art than science.”

Chris Chandler closed by asking the attendees whether they appreciated an investor-oriented breakout. The response was positive and enthusiastic. Clearly, the investment space might be worth exploring in future KLAS endeavors. 




Photo cred: Adobe Stock, howtogoto