Cultural Fit Over EBITDA: How Salas O'Brien Built a 30-Merger Program Without a Single Failure

0:00Here's what one of our members values most. The M&A Science Intelligence Hub doesn't just give you an answer, it shows you where it came from. Every insight is backed by practitioner interviews, so you can trust what you're acting on. When you're trying to assess culture fit, not just a checkbox, but really understand that this team can integrate with yours, the Intelligence Hub helps you ask better questions, how do operators evaluate leadership capability, what do they look for in management meetings, where do cultural issues typically surface post-close, its AI with receipts, grounded in real operator experience, because the best deal financially can still be the worst deal culturally. Check it out at M-A-Science.com again that's M-A-Science.com. This episode is sponsored by DealRome and if you're on the buy side, you know the pain.

1:00Most M&A tools, especially those clunky data rooms, aren't built for you. They're made for sellers and it shows. DealRome is the number one platform built specifically for Fire-led M&A that's designed to help you lead the deal from pipeline to diligence to integration, with the structure and visibility you actually need. You get features like built-in project management, templated deal rooms, real-time collaboration, and AI contract review, all built to support how buy side teams really work, no jumping between tools, no messy workarounds, and no hidden fees. Check it out at dealroom.net or click the link in the description to see how it makes buy side M&A a whole lot easier. Leave the deal on the outcome. There's to the deal. I'm Keith San Patel and you're listening to M&A Science

2:00where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies, and what actually happened during M&A deals. Hello M&A scientists. Welcome to the M&A Science podcast. This show is part of our mission to rethink how M&A is done and build the operating standard for buy side M&A. That old-school cell-led approach, dead, buy-led M&A is about strategy, alignment, and execution, putting value creation at the center of every deal. It's not about closing the deal. It's about making it successful. And that comes from learning directly from the best. You want to go deeper? We've got you covered. There's tons of free resources on our website. Frameworks, guides, tools, all built from real operator experience. We also have the M&A Science Membership, which gives you the full system, exclusive frameworks, templates, expert Q&A sessions,

3:02direct access to me, and the AI-powered intelligence hub. It's a home of buy-led M&A. And if you do want to keep up and just stay sharp, we have a free newsletter on the website. You can check that out. It's all at mascience.com. Let's jump in. I'm your host, Keith San Patel. Founder and CEO at M&A Science. Today, I'm joined by Nathan Rust, Senior Vice President of Corporate Development at Salis O'Brien, an employee-owned engineering and technical services firm that's rewriting the rules on M&A success. They've completed over 55 deals in last 15 years, with 30 of those just happening in Nathan's three years there. In an industry where most M&A deals fail, Salis O'Brien has cracked the code and treating mergers like true partnerships rather than transactions. Nathan oversees everything from sourcing the deal execution for a firm that's become a buyer of choice in their space, so much so that companies actively seek them out. But today, we're going to talk about how these source deals have volume.

4:03But where do the critical first calls look like? And how they built an M&A machine that puts people before spreadsheets? Nathan, how are you doing today? I'm great. It's all right. I'm making sound. Thanks for taking the time from doing deals to have a conversation with me. You pets, my pleasure. Yeah, I don't get a lot of free time, but I appreciate the opportunity to share a little bit about myself and about Salis O'Brien. Hey, just so you guys listening, I'm getting over a bad, whatever kind of a throat virus I've had. So I sound a little crappy, but I'll punch through them. I'm sitting on a bunch of green tea and honey and some cough drops here. So Nathan, can we kick things off a little bit about your background? First off, thanks for having me on this. And thanks for all your efforts for advancing our industry and our expertise. It's okay with you. I'll probably spend a little bit more time about my background than probably what is normal, but I think that's important just to build a foundation for this conversation to get an understanding of my life experiences and my philosophy. Go on way back. I grew up in the Appalachian Mountains on a small town on the border of Virginia and Tennessee.

5:05We were kind of on the border of the Rust Belt, so we had a lot of manufacturing growing up. My dad worked in a factory at one of those manufacturers and over time he was able to kind of work his way up into a sales type of role. He still works at that company today on a consulting basis. He's been there for about 50 years now, which is crazy in this day and age. He's been through multiple LBOs. He's been through bankruptcies, offshoring, and everything in between. He's seen a lot in his time and he's at a conference in Las Vegas for that company right now. My mom's job was probably a lot harder than my dad's. She was a stay-at-home mother for six children while my dad was on the road almost every single week, often acting like a single parent and a crazy household of six kids and a 2,200 square foot house. It was bad luck when she managed it well. Once we were all in school, she was able to go back and get a degree in nursing became a school nurse in our school program. Anyways, my parents made a lot of sacrifices for myself and my siblings.

6:07Extremely grateful for them and the opportunities that they opened for us that might not have been available for them. But yeah, going back to my dad, although he was able to retain his role at the company for over 50 years. A lot of other people weren't so lucky. There was a lot of offshoring, a lot of the manufacturing jobs kind of left our small town. It caused me to be exposed to a lot of people who struggled to make ends meet at no fault of their own for something that impacted them. So at a young age, I really wanted to find a career that would help me avoid being negatively impacted by something outside of my control. So I had a very narrow frame of reference. All I thought was, if I want to make a good income, I should look around and see who's driving nice cars in my city or I guess town. So I saw the doctors drove nice cars and car dealers drove nice cars. So that was like, all right, I'm going to do one of those two things. First year in college, I kind of went down the doctor path and realized very quickly that wasn't the path for me. So I quickly shifted to a business management type role.

7:08And after graduating, since that's the only way I thought that I could make a good living running a dealership, I ran a Harley Davidson dealership for about five years. It was really cool and really fine. I learned a lot about sales and customer service and really just the life cycle of a client. That was a good basis for me. Ended up going back to school and getting an MBA from Virginia Tech where thankfully I was able to learn that there are more opportunities than being a doctor than a car dealer. I pivoted from there and I got into corporate finance. So I moved to Denver after Virginia Tech worked for a couple of large firms there. The organization that I was working with was merging with another firm in London. That was communicated to our team that some would lose their jobs. But we didn't know who. However, if we stayed for some indefinite period of time, we might be eligible for some severance if we were impacted. I decided I didn't want to wait to see if I was going to be impacted or not. So I started looking for opportunities and I was lucky to find an acquisitions role that had me moved down to the Phoenix area.

8:09So I live here with my wife who are blended family. We've got five kids who are from our first marriage and one together. We've been here for almost nine years and my youngest just turned 10 last week. We're out of the single digits and I got a couple out of the house been here for nine years. I've been working in M&A roles since I've moved here. When I joined Salazar Brian a little over three years ago, it was me and our CFO doing M&A. We were doing the best we could and we were doing pretty good but we had an opportunity to grow our team and we're now up to three full-time team members in our corporate development group including myself. We've accomplished a lot over three years. We've done over 30 mergers now. We've got 100% success with those 30. We've done a recapitalization during that time period. Black stones and minority investor for us and refinanced our data a couple times as well. So we've definitely stayed busy in the past three years. It's a great story. I think the part that that keep my interest was when you're on the other side of M&A

9:11and it sounded like they had some poor comms communication that you're like, I'm not going to wait to see what happens to screw this and you wouldn't laugh and find the next thing which I can imagine can give you a little bit of a not so positive sentiment about M&A. Now I know in your last roles we had conversations before. You definitely don't have that same sentiment. You maybe walk me through a little bit of that shift and what that looked like. Yeah, you're right. That experience at my job in Denver made me a little bit. Maybe Jay, that isn't the right word, but a little skeptical of M&A and just my experience growing up in a small town where I saw people losing their jobs because manufacturing was being offshore and they were never able to really financially recover and saw a lot of people suffering from that. And I was like, I don't want to be a part of this. I'm not saying that it shouldn't happen in some cases but I don't want to be a person who has that implication on another person. That was my goal. And yeah, prior roles before Saul Sobrine, I think it was always communicated that look, we're not going to impact the team members.

10:12But then there was oftentimes a lot of team members who it was determined relatively quickly that they weren't a good fit. It wasn't in practice as much as it was discussed kind of up front. Frankly, when I was interviewing with Saul Sobrine, I was a little bit skeptical. I'm like, yeah, I've heard this story before. Yeah, you don't lay anyone off. I've heard that, yeah, sure. Okay, we'll see. We'll prove it out with time. I've been thankful that during this time period, it's confirmed to me that's not the approach we take that we are a people organization and should probably share a little bit more about Saul Sobrine but we're an engineering firm. So our resources, our main asset is our people and they leave it every single day and go home. So that is our most important asset within our organization. And we've got to make sure that we take care of them and creating fear or creating a risk of losing your job. You're not just going to lose on your performers in that case. You're going to lose some of your top performers who like me and my job is like, like, I'm not going to wait around and see if this is going to impact me. I'm going to control my own destiny and find the right opportunity for me. That's a little bit of my experience

11:14and why I like working for a company who really make sure that it's a win for all stakeholders, including employees, including clients before we do M&A. The stats, 93% leadership retention across 55 deals and 30 deals in the three years. Walk through your core philosophy of M&A to make that work that way. Just to clarify, that 93% statistic that isn't an annual retention. That is cumulative. For everyone who has joined us through a merger in the past 15 years, the shareholders of those organizations, 93% of them are still with us today. Most of the 7% who have left have left because of retirement, many much later than what they had originally planned, like the first person who retired after a merger retired at the age of 83 years old. You typically don't see that after someone sells their business and then decides to stay on for another 10, 15 years. So we have team members and legacy shareholders who believe in our organization and want to see it grow.

12:15The core driver of that success is really we don't compromise. We look at over 200 opportunities a year, less than a third of those probably make it past that first call. But in that first call, there's really, I would say three things that were really focused on to evaluate that we want to make sure that the leaders are committed, that they're looking to stay around for a long time, that they're not just looking for 100% all cash deal and they leave the day after it closes. That's what they're looking for. That's okay, but Saul Sobrine isn't the fit for them. We want to make sure that number two, that those leaders are passionate about the work they do. Going back to my dad again, that example, like he's in the HFAC world and he loves compressors. It's a little bit nerdy, but I remember over by family dinners and him taking me to business meetings just hearing his passion about new technology for compressors, about scroll technology, about two speed compressors and things like that. And we've got the same thing as Saul Sobrine. And like I love sitting down with people

13:15and hearing how passionate they are about soybean processing or cheese manufacturing or data centers or university HFAC systems or whatever geothermal systems. It's refreshing to hear how excited people get about those things that guys like me who don't understand cheese manufacturing might think that's a little bit weird or a little bit nerdy, but I love hearing the passion and it's important that people who want to join Saul Sobrine are passionate about the work they do. The third thing that we make sure is we want to work with people we like. At the end of the day, we're spending more time with people we work with and we're spending with our spouses and our families. So it's important that we enjoy working with those people. So I remember after one of the first calls that I had with an intro call with our CEO, Darren, he asked me like, hey, what'd you think of that call? And I wasn't really sure what he was looking for. So as a new guy on the team, you know, I kind of hedged a little bit and talked a little bit about, hey, you were the positives and here were the negatives. And you know, at the end, he's like, well, what would you go out to dinner with him and his wife?

14:16Because that's something you would enjoy. And the answer's no, it's probably not a good fit. Those are kind of our initial screening things that we're looking at. Committee leader passionate about the work they're doing and they're likable. That's pretty simple. That's interesting. I was thinking about the likability the other day actually. They had like an initial diligence call in a deal and just hit it off so well. And it was like so excited about it. Even though that could be not always a good thing. But it was like so nice counter to the other deals working on where it's like, I was cringy. I'm still working through that one, but it's like you sort of look at a very different. I got to ask though, based on that, when you think of this retention rate as a success metric and now come, is it really driven off of this? So this is the fact that we have this parameter and that we're really buying the right companies. Or are there like post-closed drivers that set this up for success? Chicken right, which one? Maybe both. They're not mutually exclusive, but they're both. It's definitely important from us. We have to pick one. I should have said that. You have to pick one.

15:17It's more important. I can't. I can't do it. We're both equally important. Yeah, it's important to make sure that you have someone who's going to fit culturally. It's someone who you're going to like working with because it's going to get challenging. There are going to be hard days. And if it's someone I don't like working with, it's going to be much harder when those hard days come than if it's someone who I consider a friend and appear who, when something bad happens, like we rally together and we get it done and we figure out and we solve problem. The second part is we're buying firms that are often found their own and they're entrepreneurs and they're not used to having a boss. Post-integration is what really matters as equally as important as screening is making sure that they still have the autonomy that they had before, that they don't have a, you know, air quotes corporate overlord, telling them what they're doing wrong when they've been successful for the last 25 or 30 years. We don't buy fixture uppers. We only buy well-run organizations and there's more than one way to skin a cat.

16:18So I don't need to go in and tell them that they need to do something drastically different than the way they have been before because that's what's everybody else is doing. It's just a matter of, it works for you, keep doing it. Keep doing what made you successful. Keep having the same autonomy you had before. Keep making the same decisions that you made before. And if there's ways that I can help you and help supplement your business and help you grow your business and help add resources to your business, come talk to me. But keep doing what you're doing and continue to grow your business. That's why you're part of our organization not because there's something that needed to be fixed. Okay, by criteria. Make sure you're buying good, healthy companies. Now, what about the companies that are financially performing well, strong even what makes them not a good fit? The opposite of the three screening criteria if the leaders are not looking to stay on. What does that mean? Like long-term wise, like what's your timeframe that you're looking for a leader to stay on? Because if a guy comes to say, hey, I started to think about exit. If a guy wants to retire next year, you don't want to do that deal. You're three to five years too late at that point.

17:19It's a good lesson here. And that's a whole thing when it comes to exit planning. People should know that. But the guy's like 70 years old or something like that. Where do you draw the line? I don't know if there's a hard and fast line. I would say typically we're looking for at least three to five years of them staying on board. And oftentimes we see those people stay on for much longer. The founders of our organization, Carl Solis and Dana Bryan are still in the organization today. We were celebrating our 50 year anniversary last year. Neither of them need to work right now. They're doing just fine, but they're passionate about what they do. They love training the younger team members. They're not working 60 hours a week. They work what works for them. Whether it's 30 hours or 20 hours, they're taking more vacations, but they're with the organization today. They're wanting to see it grow and they're helping those next generation leaders continue to develop. Three to five years is typically what we're looking for at a minimum. Sometimes if they've already gone through a transition and the next level or next generation of leadership is stepped in place and they're in a chairman role

18:21where they're not active in the day to day, there might be some flexibility there. Would you use an urn out as like a means to commit to that timeframe? We don't want anyone to be part of our organization. It doesn't want to be part of our organization. Employment agreements we don't view those as golden ham cuffs. So we don't want someone to stay if they don't want to be here. So there is no one back to that 93% retention. There is no one here because they have to be here. It's because they want to be here. It can really sour make culture and a relationship if someone is somewhere that they don't want to be there. So it's our job to make sure that they want to be part of our organization for long term. And if for some reason they were to leave, like that would be a failure on my part in our leadership's part. Oftentimes there are urn outs, but I don't think it's used as a tool to make someone stay. Someone's got to want to be in our organization. It's actually you're using urn out for bridging valuation gaps. Yeah. Do you primarily use urn outs? Do you roll over equity? Is it typically a whole biop?

19:22Going back to kind of the criteria. One thing is that there needs to be a significant role in equity. That's different for everyone. There's no hard and fast role of what percentage of total consideration that is. But that's typically in the 20 to 40% range of consideration. It's rolled into solace of Brian. And it's really to ensure that we have our interest in the line long term. You want them to retain 20, 40% ownership? Oh, 100%. They want to retain 100%. That's good as well. But it ensures that our interest continue to be in line to how we've had great share growth in the past 15, 20 years. And we see a lot of great opportunities in the future. And we want to make sure that they see that vision as well. And that's a true put your money where your mouth is. If you're willing to invest in solace of Brian as a whole, it shows that you're committed and you see the vision just like we do. What's the terms around that remaining minority state that do you eventually keep like a first-wire refusal or an option to buy that out later? We kind of act as a market maker. Solace of Brian does for employees who own shares.

20:22So 95% of our employees own shares in solace of Brian. So we're broadly held within the organization. We have a minority investment from an external private equity, but we're super majority employee owned. So employee ownership is a big tenant of what makes us successful. And it's something that we want to see, not just with the senior leaders for everyone across the organization from the person who's just got hired after their internship, our senior leaders. So that minority stake is actually rolled over into equity solace of Brian. That's correct. Got it, that makes sense then. So then that's why everybody's on stake. That makes sense. That's right. Do you roll out equity across all employees? Is that part of the company in general? Yeah, every year our employees have an opportunity to purchase shares in solace of Brian. And we always have active participants every year, several hundred people who invest into our shares on an annual basis. There's also a match in our 401k component in solace of Brian shares. All right, let's get into some fun stuff. Walk me through your whole sourcing model

21:24and the end. Let's start from the beginning. Yeah, so there's really multiple different ways that we're going to source our opportunities. We cast a very broad and that time. As we mentioned before, we have over 200 introductory calls every single year. It really comes from multiple sources. I kind of bucket them into four different areas. The first is our team member referrals. Our team members have good experiences being part of solace of Brian. A lot of them have worked for other companies before they've joined solace of Brian or they have sub-consulted for other firms or vice versa. Those firms have sub-consulted for solace of Brian and they see they're able to have those experience and say look, this company would be a good fit for solace of Brian. And so we get tons of employee referrals of you should reach out to this firm or that firm. I've worked with them. So I've got a track record like, we're looking at more than just their financials. Like we have true real world experience of are these people we want to work with. So we got we get a lot of those team member referrals and that's one of our biggest drivers of sourcing.

22:27We've got eyesight representatives who help us out as well. We'll identify the key things that we're looking for from a merger candidate that go out and find opportunities for us. And a lot of those companies want to work with us just because of they've heard our experience in M&A. We've been very successful. We're no nonsense approach to due diligence. We're not looking for reasons to retrait or not do the deal like we want to get the deal done. So we're preferred buyer in the space. So we get a lot of first looks at opportunities that often results in other firms not even getting a look at that. That's a good opportunity there. As we continue to grow, we're starting to participate in more call it competitive sale processes. I would say when I started probably 90% or more of our mergers were done proprietary on a proprietary basis, not through a sale process. But as we continue to grow and look at larger opportunities, we're starting to see more through a sale process. So we're still on price 70 or 75% of our mergers

23:30through proprietary process. But starting to look at more opportunities brought to us through advisors and bankers and brokers as well. Then really the last of the four is direct outreach. We're in close contact with our operational leaders on a regular basis. And they're sometimes where they have needs either for a specific skill set or a specific geography or both where we've got a software that we can find really quickly 20 or 30 firms that get their needs and we can do outreach for them. And of course we don't get 100% response rate when we reach out to them, not even close to that. But every time we're going to get a handful of people who respond and we can have some of those intro calls that make up that total of the 200 and we're able to whittle it down and find an opportunity that helps fit our operational needs and helps grow the business. We'll start typically on outreach and employee referrals. We'll start with an email directly from the CEO. So I was going to come right from him and there's not a response. We'll connect through LinkedIn and then again,

24:31I've got software that will tell me the conference as they're attending and if I can't get a response, I'll go attend a conference that I know they're attending and track them down there and we'll find opportunities to make those connections and do the outreach. Okay, so one is the team member referrals. Two is inbound. Just you got a reputation and people come to you like my buddy Soul is complete. He want to talk to you. And then three is a competitive sale process. Baker brings you a book or is direct outreach like true proprietary. Those are the four right? That is correct. Give me the percentage. I want to know who channels are the best. How did you break down percentage wise from the different channels? I would say our employee referrals and those I call them by side introductions. I make up the majority of our introductions. It's probably two thirds to three quarters of our opportunities. Direct outreach is probably our smallest right now because we've been lucky. We've got an embarrassment of riches of great opportunities in front of us and we're not making good versus bad decisions. We're making good, better best decisions. I don't have a shortage of opportunities in front of me.

25:34We continue to see them. But I'd like to grow that segment. Direct outreach has been pretty successful with us for us and going back to my sales days at Harley Davidson. I just the thrill of going out and doing the direct outreach and seeing what I can get from that. So I'd like to see that grow over time. What about the inbound people just coming to you directly? Is that a significant amount? It's probably 10 or 15% of the intro calls we have. We've got a good story with, we merged with a firm and we call them mergers from a philosophy of partnership. A lot of them from a legal perspective are structured at us in acquisition. We're looking for partners. I'm not looking for someone who I have to tell what to do. So I call them mergers. But we had a merger right when I started called plus group that joined our organization and not long after plus group joined another firm who had a relationship with the leader of that plus group reached out to us and said, hey, I know Grant. I really like Grant. He's told me great things about your organization. Can we talk? And one thing led to another in Wayne

26:35and his team joined our organization. And then another firm reached out and said, hey, I know Wayne and I know Grant and they both had really good experiences. I'd like to talk to you about us joining your firm and Ivan and his team joined our firm last fall and another firm in Atlanta, same thing. So kind of a fly will affect that. I know that's a big private equity term. I don't typically like to use private equity plus words. But I've seen it in Solace of Ryan or a success breach success. Competitive process. Is that a significant percentage? Yeah, it's probably 10 or 15% of the opportunities we look at. There's certain opportunities where we know if they're private equity owned and they're looking for top dollar, it might not be the right fit for us going back to, are they going to roll equity in the Solace of Ryan? Probably not in that case. Are the leaders committed? Maybe not. What was competitive deals? Like what percentage do you think you actually have a win rate on? I'm curious about because I feel like it's such a pain in the ass. The ball has worked, not knowing if you're actually going to win the deal. So like a percentage of, if we decide to participate,

27:37I would say our success rate is pretty high. It's probably close to 50% and want to be the process against you, like, no, thank you. Hi, hope you're not. Goes back to those intro calls. When we start out with those type of intro calls, a lot of these people are founder owned on. They've got people who've worked in their organization for 20 or 30 years and that's made them very successful. So they want to make sure that the lady in accounting or the guy in HR that they're going to be taken care of after they sell their organizations. So when we have that track record and we can show like, hey, here's our experience, it's pretty compelling and it's something that people want to hear and they want to make sure their team members are taken care of. So most of this business development comes through team member referrals. What's your incentive, what's the model look like to get them and bring those deals to you? They're all shareholders, what's it? There's no kicker. There's no like you get some, get a new bends or something that we like to win at the end of the day and like, that's the satisfaction. It's going to grow the business. It's going to give them more opportunities

28:39to continue to grow their practice. No financial incentive. How do you activate it? Are you on a monthly company call until everybody, hey? They're emailing me, yeah. What's the email yet? Yeah, we have people who reach out to us almost daily of, hey, here's a firm that I've worked with, you should reach out to them and then I'll have a call with them and say, hey, is it better for me to reach out cold or should you do a warm introduction? Based on your experience, what do you think will work better? And once we get that, yeah, we go from there. How are you activating the team to bring you these deals? What's the pitch? They want to see us succeed at the end of the day, that's it. Do you communicate that directly? Hey, if you want to see this company succeed, you should be actively looking for companies you can acquire. I don't think we communicate it in that way. We've got a page on our internal website of, hey, here's our mergers, people know that mergers are a big part of our business and it's okay. If there's a firm that you know that you think would be a good candidate for Solace or Brian, share it here and let's talk. So that's really the crux of it.

29:39Almost like in the culture then, people know they see you announce about deals and they're like, obviously actively buying. Interesting. Okay, so the direct outreach, you mentioned, you got a few different things you're doing there. You're doing emails from your CEO. You probably found the converts better than reaching out to CorpDev. Definitely converts better for sure. I'd like to thank people want to talk to me, but it's very important to see that in the signature line. You have like another email of is that you set up, or do you somehow have a yay push it through? How do you actually send emails out without bugging the CEO every time to send emails out? Mergers is a big part of our business. So it's important to him. Darren is on every single one of those intro calls that we have, but he meets with every single person post-merger. So it is a big part of our business. So we will draft an email for him and we'll say, hey, here's how it looks. What do you think? And looks good. Let's send it. And we'll send it. Built by deal makers, four deal makers. The M&A Science Intelligence Hub takes real world practices

30:41from over 400 M&A professionals and makes them instantly accessible. No panels to sit through, no generic advice, just AI-powered intelligence that understands your role, your deal stage, and your specific situation, where M&A mastery needs machine learning. Learn more at ma-science.com. Again, that's ma-science.com. Are you on that first intro call? Yes. So the team's coming in, obviously they responded because the nature of the conversation is about, what does that email sound like? What does it say to say, hey, we want to talk to you to know you? It depends on how we learned about the organization. If we learned about a firm and employee referral, we'll ask that person, like, are you okay? If we mention your name or not, and sometimes they say yes, and sometimes no, but if they say they do, we'll say, hey, we were talking to Keith Han, and he mentioned that you would be a great candidate, the partner with Salis or Brian.

31:41We'd love to have a conversation just to talk a little bit more about the ways that we could make each other stronger. Let me know if you're open to an intro call. It's about that simple. General partners, like a pretty positive term that's a lot of broad meaning to it. For sure. Let's just have a call, get to know each other, and then if that fails, you send a LinkedIn. Yeah, we'll connect on LinkedIn. Are you connecting or the CEO connecting? Who's connecting a LinkedIn? I will do it. Darren does a lot of outreach himself. He is very active on LinkedIn, and yes, he has a lot of connections on LinkedIn as well. We'll do outreach there, and again, it doesn't always work, and that's okay. And sometimes I'll try and track him down out of conference, so there's an M&A conference. I want to start going to more industry type conferences. Just haven't had the bandwidth yet, but that's the next plan. It's okay. I know what conferences you're going to. So I can go there and just say hi to you. The LinkedIn has worked though. You've actually been in the LinkedIn actually responded on that. It's low success rate for sure, but yes, it has worked. Fair enough. It's only about the conferences. You mentioned you use software to track which conferences

32:42can you tell me which software you're using? Yeah, we use a, it's called SourceGrab, but it just got acquired by Grata. So I don't know if they still have that name or not, but yeah, one of the key aspects of their software is it shows conferences that people are attending. So we'll try and if I'm considering a conference, I'm able to go in there and see who's attending, or if I know a firm that I'm interested in, if it's a large enough firm, I can go see what conferences they're attending. If it's small, it's harder to get that visibility, but yeah, that's what we used to identify conference attendants. You're a real stalker, you know? I am, yeah. It goes back to my Harley Davidson sales. It makes sense. I know Grata was rolling out a version of that is interesting because you'd have targets and tell you like, oh, they're going to this conference. Now when they put together SourceGrab, I'm sure they're gonna have more coverage of it. I can see that being pretty powerful, or by the way, around just going to know who's at these conferences once you find one to go to. For sure. One thing I really love talking about is like getting these deals actionable. And you mentioned that you never talk about numbers

33:44in the first call, and it's all about the person and their story. Can you just like walk me through one of those conversations what it's actually like? My introduction was a little bit intentional. That is often how it starts out as we will share our backgrounds of what made us who we are today. I want to get to know those leaders. I want to know what makes them tick, how they got to where they are today, how they've overcome adversity or challenges in their lives. I find out a lot about what's important to a person when there's an open interrequest to just telling about yourself. So we always start out kind of lead by example, hey, here's me, here's all the good, bad, and ugly about me, here's how I got to where I am today. And then we ask them to reciprocate and we learn a lot about those. Most of our calls are 60 to 90 minutes. And oftentimes after we get through introductions, we might have 10 minutes left where it's really just bouncing off some questions back and forth. What are they looking for? What are the things for them? Is they're making a decision from a partnership perspective?

34:45But yeah, in that 60 or 90 minutes or whatever, I've generally heard enough to assess whether it makes sense to continue conversations, to call it more traditional diligence areas like financial performance in the day, like we view this as a marriage. If I can't enjoy getting to know someone in 60 minutes, or like I said before, enjoy having dinner with them and their spouse and my spouse, then it's probably not gonna be a very successful marriage. So yeah, those intro calls are really just getting to know them, getting to know how they got to where they are today, hearing what they're grateful for and who helped them along the way to help make them the successful person that they are today. So from the intro call, you get a sense of these three key areas that are committed there as a leader, fashion, and likability. Yeah, totally. It's interesting because it's very much around stories and introduction. You typically go first. We do, yep. I feel like that's setting the tone because you'll come in and tell a story just like you did with the podcast, which made it personal. Now I feel like I really know you and you're upbringing,

35:45we could talk about Harley, talk about a lot of things, family, all this stuff. You have the same thing and it sounds like a lot of vulnerabilities like a part of that story when you mention that your things are good, something that we're not, you're bringing pretty open. And is that set the tone for people to reciprocate and they're being a little bit more open with you given that you've got a lot more open on that first and true? For sure, absolutely. I remember when I was looking for my next opportunity before Salis or Brian, I don't have a traditional M&A background. I don't have an investment banking background. I don't have college, a top 10 MBA background or anything like that. And some people that was important to it and other people that wasn't. And I remember as I was thinking like, how should I tell about myself? And like, you know what? I'm just gonna own it. This is who I am. If you don't like it, that's okay. I'm not the right fit for you. But somebody's going to like this about me and like my story. And yeah, and I remember that first interview with Grant and he started out telling about himself and telling about his family. And I was like, holy crap, like this company.

36:47It's like, they speak me. So that's important to us. Work is hard and family's fun and talking about your accomplishments and the things you do outside of work and things like that. That's what gets people excited and enjoy talking to each other. So yeah, even my first interview as I was a Brian, a lot of it was just like talking background. What do you do outside of work and what makes you tick? Kind of the approach we have. The underdog story, I can relate because I don't have a college degree. I remember it was like the same dilemma. And I remember winning some of these early deals was just a little small boutique practice I was building, but the founder of the CEO is like, you know what, you remind me of me when I was your age. I'm not convinced you're going to do anything or I'm going to give you a shot. It's like, okay. So you're right, it's getting relatable. You're building a relationship, building trust, you do it through the story sharing, letting people really know you beyond the business personally and then you sort of get back at them in terms of understanding their view, their story about the business which gives you that sense of how committed they are

37:48what their outlook looks like, the passion and then the likeability part of it. After that, you'll dig into what are you looking for? That's not so much about me, but it's like, where are your goals? Where do you see yourself? I'm curious between any of that. Is there some of that part where there's just this the part of the story that sort of grabs people or you really spending time and they kind of realize that? I've had inbound inquiries with the last business I was running to acquire the business and I could tell people who would get wrong who would just be like, or just better together this and that. Now, once they asked what I was looking for, now once they ask, hey, do you have a timeline? Do you have, what are you trying to do? Are you trying to bootstrap this so the day you die, you're trying to miss the mark completely? Of that, do you think there's some real strong parts that you really are the sort of key nuggets in the central call that helps align it from the beginning? This sort of gets interesting. I want to figure out how do you get these deals actionable? There's that and then there's the readiness because people always say they'll always play on that first call.

38:49They're always like, oh yeah, it's nice to meet you and they can't tell until they call you up later and they're like, hey, I want to talk to you again. And they're like, okay, they're probably serious. People all, they do that. They hold their cards to the chest here. Yeah, and I'm just kind of wondering is there certain elements that you know or it's from CG plant or some clear indicators that you know that deal is actionable from that first central call? The more that they're willing to reciprocate and share about themselves is shows that our approach resonates with them. If people are more open and share experiences, one thing and I share this because our CEO shares it with it everyone, but our CEO is adopted when he shares that on that first call and that often brings up like, oh, well, I'm adopted or oh, I have adopted children or things like that. And then those type of things that kind of show that our values are somewhat aligned if there's an appreciation of our story and the fact that we put our pants on the same ways everyone else one leg at a time. We're just doing the best we can and we're trying to make something successful and you could help us make it more successful because we don't have all the answers,

39:50but we're doing pretty good. But with you, we think we could do better. So yeah, it's having those discussions that really help us make sure that this is a good fit for us. And when there's a good reciprocation of sharing what's important to them, what are their values, what do they do outside of work, those type of things that kind of increases the likelihood that first call is going to go beyond just a general discussion. You're any key like cut through the crap questions that you ask, like a job interview. People always say the things you want to hear, but then you got to dig in. And I even figured out the job interview yet. So if you got it from, it'll be great. Yeah, I'm not great at job interviews. We take our job interview approaches the three months of diligence. But we know that people can say crap in a quick one hour call. That's why we don't have behavioral interview questions in our intro calls. I'm going to see that behavior over the next three months. If there's a mutual interest in moving forward, it is highly likely something is going to go wrong in the next three months

40:51because that's just the nature of M&A. And then I get to see how you respond to that. And I get to see if you step up and you're successful or if you back off or if you're confrontational. That's that three month time period of due diligence. It's like the best job interview you can have. I'm going to see experiences. I'm going to dig through your financials for the past five years. And I'm going to see when you had strong times and rough times and I can talk specifically about what happened here. And I can see how you act as a leader. So our job interview is basically a three month long due diligence process in our view. Fair enough. I was just trying to see those early red flags or something that you probe for in that first call. I don't think we probe for anything, but if it comes off kind of selfishly of just how much money are you going to give me? Are you going to pay me top dollar not asking about teams and what happens to your team and things like that? That's a little bit of a red flag of, okay, maybe they're not focused on the right things or maybe the only thing they care about is a big payday. Those are kind of, I wouldn't even call them red flags

41:52or somewhat yellow flags. I've had that before where I couldn't even get the person to meet because they were just fixated on. I want to know. What are you going to pay me? I'm like, I don't know if this is going to even work. I don't know if this is going to make sense for us to do. I want to learn more. I want to learn to see if there's a management fee here. That's right. And then these inbound deals, you've obviously become like a buyer of choice when companies reach out to you directly and they're skipping a whole auction process and they take it, reputations are a big part of it. How do you get that? That's a dream is to get people to come to you. And keep it simple for one thing. We know engineering. We're in the business of engineering. We've been doing it for 50 years. So I don't need to use due diligence to equate myself with engineering. Like, I know what diligence areas are important and I know which are less important. So I can focus my due diligence on the things that matter. And I wouldn't say due diligence is ever easy. It's not. It's always challenging, but I can make it relatively smooth versus a call to very broad 500 question list where everything is marked as top priority.

42:54I can make it much more specific. Our initial due diligence is 10 questions. That's it. Here's the 10 items I'd like to have if you have all 10 cool. If you only have three of them, that's all right. I'll make it work too. Just give me what you have. I don't want to make it hard for you. We'll work with the information you have. If there's any gaps, I'll call you and we'll try and figure out an easy way to fill this gap. And the other thing we do is everyone we speak to, we give them a list of every single merger that's joined the organization with that person's email and phone number and we say, call anyone you want. Ask them about their experience. Ask them about how it's gone for them. Ask them about whether or not we've fulfilled our commitments, whether or not they've grown, things like that. Don't take my word forward. Call people. Our team members, our legacy shareholders from merged entities are getting called off the time. And they answer the questions truthfully and honestly. So you're making the diligence process pretty streamlined straightforward easy, which helps. And then you're encouraging reverse diligence. So it's like, hey, here,

43:55go talk to other folks of soul. What does he does? That is a red flag. If they're not doing that reverse due diligence, it's a red flag to me for long term alignment and their commitment to the organization. If they don't want to find out about how the experience has gone for others, if there's been layoffs or anything like that, that's a bit of a concern to me. And the more people they call, the more it shows to me that, again, going back to you can say anything you want in a one hour conversation, but it's like showing your actions and they're saying, my team members are important, but you don't call anyone. Yeah, are you sure? So it really shows that it's important to them. Interesting. You set the cards out and hope that they come up. Yeah. On these offbound deals, what is the average time it takes to make a deal actionable from first conversation to ready to sign NDA and move forward? There is a long tail. That is hard to say. I know I just want to get an average and just try to give some realistic perspective. Could people ask me these kind of questions? I keep thinking back to a firm

44:55we merged with in New York City that we had. It was a 12 year relationship with them before they were ready to share financials. And obviously that predate to me because I've only been here three years, but I would say on average, if someone's willing to take call and there's mutual interest in moving forward, it takes six to nine months from those initial conversations. If it's me, just trying to say hi to someone at a conference and then trying to schedule follow calls and stuff like that, I would say it takes longer because anyone's willing to say hi to conference, but once you send out an email, I'm like, hey, let's reconnect. You don't always get 100% response rate. If we resort to those and that's okay, it's probably takes a little bit longer than that six to nine months, probably 18 months. Well, it depends on how it comes in, but those helpful to get a sense of that through a spinal cord reach, obviously there's something to the back they had there thinking about. The spread between what they want and what you want, the bid at spread. How do you bridge that? What's each of you some negotiations here?

45:58I work in the software world. It's been the past year looking at a bunch of deals and people see these announcements. They have, and I feel like this is every industry. So let's just have a high expectation. They see the publicly announced deal, which is obviously great favorite deal because private equity firm did it. Even though there's a big strategy behind why they did it. And now everybody, even though they like couple zero, smaller. Yes, I want that same multiplier. Teach me how do you negotiate that? I haven't figured that out yet. I don't know if I have to either to be honest, Keith. So that's a challenge we take at an approach of we want to be fair and reasonable with people. So there's often not a large bid at spread. We're not trying to go in and quote unquote steal any deals because that's not a good start to a marriage. If you feel like you've been taking advantage of or you've taken advantage of someone, it's probably not a good indicator success for your next 20 or 30 years together. So we try and be fair and reasonable. I wouldn't say that our first offer is our last offer, but we don't have 100% room. It's not like I can go out and double my offer

46:58if they're asking for that. We try and put our best foot forward. We want to be fair and reasonable. We want it to be where it's again a benefit for all stakeholders, including our solace of Ryan shareholders and them as shareholders as well. And if they can't identify that as a win-win for everyone, then we just simply don't move forward. Pretty fair. You standardize the process of how you value that on these businesses and reasonable wiggle room in there. Yeah, but we've got a good indication of market dynamics and what firms go for in our space. We've done one or two deals in our paths. We're connected with the advisors in the space. We know what's reasonable. Sometimes their expectations are unreasonable. If that's the case, sometimes the answer is, you might need to go test the market. If your expectation is this, we understand, we wish we could get there, we can't, but if anything changes, let us know. I want to ask you something and see where it goes. But one thing has really been urquimly a lot is retreating. And I'm bringing this up because you made this comment specifically,

47:59that you have this philosophy culture of not retreating and just like really sticking to it for the other analogy you had of treating deals like long-term marriage versus your some game. I bring this up because I've talked a lot of investors this past year. And I feel like that's part baked in the model is retreating where they always come in with this the pretty favorable valuation. They go through first pass of diligence and then they come back with this. I know he told you ADACs or whatever we told you 10X, but now it's six X or eight X, so they drop it down a couple of turns. And I'm like, I feel like that's all these investors model here. And I know other folks that do that, just part of it, go through diligence and screen it and come up with all these things. And that's the thing that took me by surprise, where you're like, we don't do that. I'm like, how don't you do that? Because you do the 10 question diligence stuff. And of course, people sap it together and they get it to you, but then you actually start digging in there. Do you do an external QV or do you do it all in house? We have an external provider to help us. That comes back and then you're like, wait a minute. We need to adjust and walk through some sanity on that.

49:02That's a great question. Should caveat that like if they gave us financials that aren't accurate that are just, if they say they're EBITDA's $10 million in the QE, comes back and says, that's actually $3 million. And then yes, that warrants a discussion. So I wouldn't say we wouldn't move forward in a case like that. Our philosophy of we don't reach it is, I'm not looking for the last penny. That is not my goal when it comes to a due diligence perspective. I want this to be fair and reasonable. I don't want to understate that it is certainly important that we perform at a high level. And we want to see that performance from day one. Having said that, not every single one of our mergers have grown immediately following closing because those faces like diligence is hard. It's distracting. And you've got one eye on your business and one eye on diligence. And there's a potential that it might dip a little bit, but I'm not buying a firm for the next 12 months of EBITDA. I'm buying it for the next 20 or 30 years. And if there is some slight change, okay, if I need to have a discussion, I will.

50:04But that is an exception to the rule. And I don't wake up every morning trying to find an opportunity to retrait. It is very rare that we have to have a discussion where economics need to change. And I'm going to do everything possible I can to hold to the deal that I submitted in the LLI. The fact of the matter is we've built a brand. We're a buyer of choice. And part of being a buyer of choice is you're right. The market, there's a lot of people who love to retrade. People know in our space that is not our goal that if you get an LLI from us unless something crazy happens, that's exactly what the deal is going to close out. So we've built a brand. There's a lot of brand equity in that. And again, we're getting direct outreach because of that. Do I want to quote unquote win a million dollars in a discussion that's going to cost me four or five people doing direct outreach over the next six months? No, it's not worth it. It's making sure that you see the forest and you're not just focused on that one tree in front of you. You've got to look at the bigger picture. Makes sense. You just hold to it.

51:04And it sounds like you got a good, tight process that you are able to stick through. And like I said, as long as it's not a big surprise. Let's story time. They talked a lot about the model that you operate on, but walk me through a deal. Walk me through a deal that I'm proud about. I want to talk about, but don't give me the cleanest deal. Give me one that's got some good bet. There was a firm that we've got a lot of operations in Texas. We've got a client in Texas. We do a lot of work for them. They think very highly of us. One thing that is a requirement for them is they've got operations in different parts of the country. But if we want to do the engineering in that part of the country, we need to have an office in that area. So they had a big operation in their Charlotte, North Carolina. They had like a better words of campus there. They love South Subrind, and they wanted to do work with us. And they wanted us to do that work in Charlotte, North Carolina. But we didn't have an office in Charlotte, North Carolina. So our operational leaders reached out to us. And they're like, hey, like we've got this client. They love us. They want to give us more work, but we need an office in Charlotte.

52:04I don't want to start one from the ground up. Are there any firms in Charlotte that you think would be a good bet for us? So dug into our CRM because that was one thing I did when I started. It was tracking everything from a CRM perspective. Looked and solved the reigning firms in Charlotte. There weren't that were a good fit. Went to our software and found 10 or 15, reached out to probably five of them. And look at what I reached out to on. And the CEO responded like, almost immediately, which is shocking, but it was awesome. He's actually like, we were considering selling five or six years ago. So before my time, we met with your CEO. We really liked him. However, we decided at that time not to move forward, but we told ourselves if we were ever going to do a transaction, we're only going to do it with them. And that's it. And thanks for reaching out. Now's the right time. That was the start of that conversation. They were an esophage at that point. So it took a little bit longer to bring them into the organization, but they joined us last year. It's been a great experience for them.

53:07Esophage are more complicated. They have fairness opinions. They have trustees. It takes a little bit longer from a due diligence perspective. They're doing a fairness opinion on making sure that your stock is valued fairly and all of that as well. So we've got all of these multiple different parties. You're negotiating with management. You're negotiating with the board of the company. And then you're negotiating with the board of the esophage and you're negotiating with the fairness opinion firm. So you've got all of these different intricacies that you're working with. And it took a lot of work. And it was quite complicated and challenging. But again, it was a win for everyone. The Mike and the leadership team joined our company. And they're loving it. And there's firms we're talking to today that are a result of Mike saying, hey, now you need to go talk to this firm in this firm. Yeah, we're working those conversations right now and we're getting close on those. That's a good example. I like this. I pressed you for it. So this one, the good was, it was a great strategic win. Like it literally fulfilled a strategic objective. Post-close, it turned out to be success.

54:08It sounds like integration, everything went really well. But the part part was the structure of the deal that it was an ESOP. That you had a lot of different parties with the exponentially more complicated. You have the management team, technically management team, the board, the board of the ESOP, and then the fairness opinion firm. Was there anything else that drove you crazy in that deal? I think that was about it. But yeah, we've done a couple of deals with ESOPs and it has a bit more complicated. Again, we have a reputation in the ESOP space. There's a lot of engineering firms that are ESOPs and we've got a reputation there of these guys are fair. They're reasonable. And if you're going to talk to them, they're probably going to put together a good strong offer for you that's going to achieve your expectations from a fairness opinion. Well, to hold that for a podcast, how to acquire a ESOP. I think it's a good one. You could do the technical dive on. It takes a long time. That's a lot of work, but it's totally worth it. You mentioned earlier, your CEO meets with every single employee, post-close, and small groups that get to know them personally.

55:08Tell me a little bit about that. We kind of started with the company culture that drew you in. Why are you pretty happy working there? And I wanted to get a little bit more of that part of it. And then I'm curious about that too, because there's usually a point. Like you heard about the founders doing that, all these things, you know, doing the employees. And you're doing the same thing with all these incoming employees. But then there's got to be some point with that a distance scale. That's a great question. When I started, we were around 1500 employees and we're around 5,000 now. So we've grown a lot in the last three years. But I remember when I started, I had these discussions on, okay, how does the announcement look? And they were telling me like, oh, the CEO goes there and he meets with every single person. And I was new to the company and honestly, I was thinking to myself, like, this is a waste of time. This is the CEO. He's got so many important things. Like, how can he do this? And it really only took one of those meetings for me to realize how important those meetings are. Like our organization is a people organization. It's built on our people without it. We have nothing. And what could be more important than our CEO

56:09getting to know these people, to helping them realize that they're important. We see them. We want to see them grow. We want to see them succeed. We're committed to helping them achieve that success. I've been a part of a lot of those meetings now. And I love them. It's one of my favorite parts of my job. They kind of run the gamut. And there's a lot of laughing in those. People will share vulnerable things. So there's some crying out, say, sometimes. But the mutual thing is there's a growing respect amongst peers for the people that they work with every single day. We always get feedback from the leaders of those organizations of how grateful they are that we do those because they learn things about their team members that they didn't know. They're like, you saw him has worked for me for 15 years and I had no idea. He's never told me this and it comes out in those meetings. And it just helps people realize how human everyone is and we're all in the struggle and in the race. And we're just trying to be successful and we all have things at home that's not always ideal. But we're all in this together

57:10and we wanna see each other succeed and we just see those teams getting closer after those calls. I don't know what it'll look like in the future. You're right. I don't know if there's some breaking point of can we continue to do it the way that we're doing it that we will always have those meetings. I don't know how they will always look and it might evolve over time. But it's been one of the most important things that we've done as part of our own boarding and integration, so they're awesome. I'm impressed. You got me so old. Now I'm gonna stop there and to get them into our CEO series over here. You should? Yeah, he's great. I gotta ask you Nathan, what's the craziest thing you've seen in M&A? Oh man, we see a lot of crazy things. It's not that crazy, but going back to those intro calls I love them and one of the icebreakers that we ask is, hey, what's your favorite band? What do you like to listen to outside of work? The ranges are just crazy. And that's what it's crazy is just, you hear these people like one time we were in Canada and there were seven or eight people in the room

58:11and there was a lot of accounting personnel. And they're all like, oh, my favorite band is some boy band. 98 degrees are in sync or backstreet boys. And it's like, the world's going on here like Canadians love in sync. And then we were in Idaho and there was another group of team members who like mumblewrap. I don't even know what mumblewrap is, but apparently it's a genre and you should look it up but they were extremely passionate about that. And of course they all think it's weird when I say my favorite's Taylor Swift, but I have no shame in it. I've got a 10-year-old daughter, so I do what I'm told but she's definitely coddled for me. That's too funny, that's too funny. I get my 15-year-old dialysis as a lot of mumblewrap. So I get that. Oh, that's pretty good. I like it, that's a great one. Hey Nathan, I really appreciate you taking time from doing deals, having a conversation, helping me become a better M&A scientist. I want to thank you, my fellow M&A scientists out there. Send me feedback. I dropped my privacy stuff on LinkedIn, so if we're not connected, send me some feedback. I also want to know the audio quality too. You're listening to on Zoom,

59:12but if you listen to a car or something when we finally publish this, let me know, I want to know the difference between these live ones we do versus when we do them in person. This is a great, I like the feedback here in the chat. Appreciate it. I mean, like I said, we're kind of doing live streams we're beefing up the content since now M&A science is a separate company. And it encouraged you, we're building a membership model. I'm really, make it really cheap right now. It's only $1,000 a year, but check out on the website. We have a whole AI platformy license that makes all this content dynamic and it's more on it. We haven't officially launched it. We're already selling it, but later this month, we'll have all these announcement demos and stuff. This has been great, reach out to me. Let me know if there's topics we haven't covered yet that you would like to see and criticism. I'll take, get some tips on how I can do these interviews better. I welcome it as well. Till next time, here's to the deal. Thank you for taking the time to explore the world of M&A with our podcast. We love hearing feedback. Tag us on a LinkedIn post, add a review on Apple Podcast. We'd love to hear from you. If you need help standing up in M&A function

1:00:12or optimizing one that you already have, we're here to help. And if we can help you, we probably know someone that cares. We're here to help you. We're here to help you. We're here to help you. We're here to help you. We're here to help you. We're here to help you. We're here to help you. We probably know someone that can, you can reach out to me by email if you sign KIS again at M-A Science.com. Or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit M-A Science.com for a lot more content and resources. That's where you can also subscribe to our newsletter. Again, that's M-A Science.com. Here's to the deal. Views and opinions expressed on M&A science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual.

1:01:17This podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions.