The D.C. merger and acquisition market is huge and growing larger by the day, but the M&A process can be fraught with complications. To understand one of the companies working hard to help M&A deals reach their fullest potential, we spoke with Nick Perdikis, CEO and CRO of Devensoft, a company that runs a software-as-a-service platform to streamline the merger and acquisition process.
ABERMAN: My experience is, mergers fail for a lot of different reasons. But from yours, why do so many mergers, M&A transactions, ultimately fail to deliver the value buyers think they’re going to bring them?
PERDIKIS: So, there’s obviously a number of reasons. The ones that we hear about the most, and see the most, is that there’s unrealistic expectations sometimes set during the deal that, in the post merger integration phase of the transaction, you have a disconnect between what’s expected, and how do you deliver those results. Sometimes, all the individuals that are needed to make those decisions oftentimes are not involved during the early stage of the transaction, during the financial close of the transaction, because it’s not in their purview necessarily, early on.
Now, they may cover some of this in the due diligence phase, and try to address any potential risks or liabilities. However, in the post-close, some of that information is then sort of thrust and dropped in the lap of these functional leads in H.R., finance, operations, sales, marketing, and then they have to actually execute on this, and generate these financial results at their discretion.
ABERMAN: Yeah. One of the interesting things about mergers and acquisitions is that, when you’re looking to buy something, first of all, you don’t want there to be a large number of people to know about the transaction, because you want to keep it confidential. But if you’re CEO of a target, you don’t want a lot of your employees to know because they get distracted. And here’s a dirty reality, most merger and acquisition proposals don’t actually result in a deal. I’ve learned that over the years, having done hundreds of them.
So, you want to keep your people immunized away from the transaction. But the deal happens, and all of a sudden they have to actually deliver, and the buyer has to be able to integrate them. It sounds to me like it’s a cultural challenge, but I know that Devensoft is really interested in technology. How does technology help make sure that these M&A transactions actually work out?
PERDIKIS: Organizing all the activities that have to happen, and setting the right expectations and financial targets for the company, and then trickle that down to the individual functions and the work streams that are set up to actually do the integration, is really important. So our software allows companies to organize that properly and be able to communicate and collaborate with all the appropriate stakeholders from both companies, in order to make it successful. You mentioned culture, that’s a huge component of making an acquisition really succeed at the end, you want to bring these people together.
You want to make sure that you decide which is the best option to go with. You know, sometimes the company you’re acquiring has a better way of doing things than the company that’s doing the acquisition, so you may want to integrate those processes. So, having a tool to manage that, to plan that out, and then as you execute, to track all of those activities, is really important. The results of the financial results of these post-merger integration activities really need to be realized quickly. So, the longer you take to integrate, the less time you have to generate the kind of value that you’re proposing.
ABERMAN: Exactly. So, when you’re talking a process, you’re talking about, for example, how you onboard a new employee, or how you deal with expense reimbursement, or how you track AR, all the different things that a business does to actually be able to provide the bottom of information so management can function. Ultimately, people say to me, well, a merger is about culture. And my answer is, yes, but culture comes out of process. So as you look at this market right now, are you seeing a lot more M&A activity than, say, three or four years ago?
PERDIKIS: I think we’re also in a very active M&A market. Last year, 2018, was one of the hottest M&A markets in periods that we’ve seen, and 2019 certainly, we’ve seen some very large types of transactions announced, in the healthcare space, or in life sciences, and other areas. So, I don’t see any letup. The economy is booming. Companies want to put their money to use and invest it wisely. And oftentimes, when companies limited their organic growth potential, not themselves artificially limited, but just by opportunities. And the market size is only so big, and so, for them to grow and expand, inorganic growth, or acquisitions, are a core component of their growth.
ABERMAN: Well frankly, it’s the quickest way to grow. It does strike me that the merger and acquisition market here is unappreciated. A couple of years ago I did a comprehensive study, and determined at that time there were more than 100 billion-dollar-plus transactions have been done over a 20 year period. Now, I think the number is up to 108, and more than 6000 M&A deals. This is one of the most active M&A markets in the country. Do you find that surprising?
PERDIKIS: Not really. We have one of the biggest customers in the world here, the government, and so, you have a lot of acquisition activity, particularly in that space, in the government contractor space. For a while it sort of died down a bit, with changes in budget and spend within the government, and acquisition strategies or policies. But I’ve seen a resurgence of that, and in fact, even in the in the startup community. I participate in a lot of different startup activities in the area, and so, in looking at these companies, they’re eventually going to want to look at some type of an exit strategy. And so, in order to get to an exit, you have to think about, where do I need to be as a company? How do I need to set up my business?
So, they often want to know, and talk to people with M&A experience, consultants, advisers, attorneys, and others to say, okay, how do we need to structure our company over the next few years, so that we can exit? Whether that exit be going public, or whether selling to a private equity, or to another strategic. And so, one thing we’ve seen is, private equity platform companies, those that PE firms invest in, for then further acquisitions down the road, will come to us and say, hey, can we look at your platform to use, to help us track all of these different acquisition opportunities, and then run that process through as quickly and efficiently as possible?
ABERMAN: It makes a lot of sense, and folks, if you are thinking about growing your business and selling one day, make no mistake: culture doesn’t happen by accident, it happens through really detailed process. Nick, thanks for joining us today, it was great having you.