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[Music]
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meril Advisory Group is a a boutique
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bank that uh that was founded by uh all
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the principles are our combat veterans
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uh uh almost all of them are alumni of
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West Point or the Air Force Academy uh
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they graduated from Top tier Business
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Schools and joined the the ranks of the
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airspace and defense practices of the
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large bulge bracket Wall Street firms uh
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they recognized that that the lower
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Middle Market companies are relatively
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very under represented in the space when
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they get acquired by uh large large
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aerospace companies so they decided to
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go ahead and and bring that big bulge
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bracket experience to to their lower
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Middle Market clients I'm also the
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founder and co-president of of Wharton
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Aerospace Wharton Aerospace is an
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association of senior Executives uh who
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have a shared tie or shared ties and
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commitments are to the Aerospace and
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defense Industries W and Aerospace is is
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is our initiative to Foster closer ties
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and relationships between the Wharton
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School our Warton Aerospace participants
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who are alumni of Wharton business
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school whether through the full-time
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program or the many executive education
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programs and the industrial
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Base today we we actually conducted a a
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best practices panel on best practices
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in m&a and and a common theme was all
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the different ways that that that
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companies can can fail in in their deal
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process and and the quote that was in
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the back of my mind during during these
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whole discussions was the quote from
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Tolstoy to roughly paraphrase all happy
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companies are happy the same families
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are happy the same way but all unhappy
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families are unhappy in their own way
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and and and to abstract I think what
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tsto meant is that you know you know m&a
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is a process and if you're going to do
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it right everything has to be right and
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that's why the successful companies are
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all happy in the same way whereas
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there's so many ways that you can be
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unsuccessful in in your deal process so
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you know to get this to get the strategy
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formulation incorrectly to have a poor
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strategic fit to overpay for the company
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to to fail in the post mer integration
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planning and th those are very high
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level sources of failure but you can
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decompose you know to overpay for a
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company what does that really mean to
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overpay for a company you know it may be
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that that you you didn't have you didn't
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appropriately value the company in terms
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of the discount rate that you use or you
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know you failed to model in the the the
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the success rates that you going to have
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on on the programs so it's not just the
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financials but how you operationalized
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the financials or it may be the fact
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that you didn't know how to quantifi how
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to identify quantify and capture the
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revenue synergies which is a very very
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elusive thing and these were the sorts
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of things that we had very rich
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discussions on today during during our
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our Wharton airospace
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panel as as as the leader of the panel
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the the point that I drove home is that
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no no deal gets done just because of how
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brilliant the Strategic rationale was or
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how sharply modeled the financial
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analysis was those are hard enough to do
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just to begin with but the real key to
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success of the transaction is the
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ability of that that internal m&a or
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corporate development executive to
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provide the alignment and get everybody
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saying yes to his deal because uh a lot
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of companies look at many many they kiss
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a lot of frogs before one of the frogs
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becomes the prince and you know how do
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you how do you compress that Gant chart
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and go after the deals that are
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successful and and the key to the
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successful deals is providing purpose
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Direction and motivation in these large
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complex highly cross matric
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organizations where they hear that most
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deals fail and and these are risky and
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they may be CER limiting moves how does
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that m&a guy go ahead and get everybody
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to go in front of the CEO or the board
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and say yes we want to go ahead and
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pursue something that we he typically
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fails and at the end of the day that's
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all about emotional intelligence
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understanding organizational Dynamics
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and behavior you politics it's it's
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really the the soft side
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of of the
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deal typically when a when a company is
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looking to to acquire another company
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they're using merges and Acquisitions as
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an adjunct um to to fill a gap it could
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be on their business development side in
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terms of being able to penetrate a
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market or a channel such as the
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Aerospace company that now wants to get
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into clean energy or Healthcare it um or
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it could be a technology Gap in terms of
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a more engineering Focus that they're
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looking for a company that has a
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technology embedded within them that uh
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you know this is this the acquisition is
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a substitute for internal research and
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development so many airospace and
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defense companies will actually
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formalize and codify their their their
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Gap filling process whereas part of the
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pursuit order capture process they will
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actually list as part of their color
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team reviews or their go noo decisions
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you know what are the gaps or on the
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tech technological side as they come up
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with
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Capital budgeting and capital allocation
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plans and they link that to the
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Strategic plan they will actually
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identify the gaps but what's very in
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very Insidious about this is they
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formalize the process should be easy
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but there there dozens and dozens of m&a
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Executives that'll go ahead and lament
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my company doesn't get it they they just
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don't get m&a there're just a bunch of
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process oriented Engineers that don't
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get it and we talk talk about that
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during whorton Aerospace and you see
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everybody chuckling but you know what I
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suggest to you not suggest but I tell
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you is that that is the lement of the
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unsuccessful m&a executive because it's
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not that it's not that the company
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didn't get m&a it's that that m&a
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executive did not get the company that
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he failed to appreciate or understand
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you know the culture of his company and
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and how to get things done in his
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company so to go back to the example of
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uh the the the Gap filler you know the
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typical approach of the m&a deal deal
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guy is to go up to the head of
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engineering say hey here's the company
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and it fills the Gap and we know this
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fills the Gap and let's go forward and
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the the head of engineering says oh well
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it doesn't really fill a gap because we
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could do that on our own the GU thy yes
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that's the not invented ha syndrome and
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the thing is you know what when we talk
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about being disrespectful or having a
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lack of of of emotional intelligence
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it's that you know what that that
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engineering guy can develop this thing
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but the thing is he hasn't gotten the
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money for it that's why he's requesting
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money in his irat or internal research
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and development plan to do these things
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so let's get this straight you want this
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senior executive to go up in front of
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the CEO of the company and number one
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talk about buying a company that's doing
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something that he can't do that he may
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not look good he wants you know makes
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him puts him in a position off the bat
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that he doesn't look good never mind
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that well it's because the other company
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put in this money was a priority for
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them when we when this target this other
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company was doing things
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in advance uh the second thing is if
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he's going to go forward on this thing
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he's not going to get the money he's
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asking for he's not going to get the
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money he's not going to get the people
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he's not going to get all the things all
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the cures that come with the fact that
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he's going to get this big chunk of
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money so uh this is uh you know this is
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this is a non-starter and this is the
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example of how the m&a guy doesn't get
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it you know the the the know a perhap a
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more a more thoughtful approach would be
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to approach that to reframe this
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discussion with the VP of engineering
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and discuss with him look here's a
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company they they don't you know they're
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doing something we don't do and I know
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that we can do better can you would you
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be willing to take a look at this
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company and tell me how if we owned it
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you would be able to take them to the
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next level because they do something
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that we don't do and I I know that
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you've asked for X millions of dollars
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to do the sort of thing but it would be
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really nice if we could have this
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company you know in three months instead
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of three years because there's this big
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multi-billion dollar program we could
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win that program if we had this
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technology you know the thing is you
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know all I ask of you is to go up in
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front of our board and talk to them
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about how if you own this thing you
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could take it to the next level and
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embed it in our our business and make it
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as great as the rest of us and and and
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by the way I know you're asking for all
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that money but I I don't I don't know if
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you're going to get it because you know
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the the the budgets are being highly
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scrutinized because these things affect
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net income and EPs and that's an
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important metric
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that is that is difficult to fill in
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this current I don't want to use the
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cliche this current environment but it's
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cliches are cliches because they're so
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true however there's a lot of money on
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the balance sheet it's a different color
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of money the past seven years have been
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so successful for airspace companies
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that they've been paying down debt
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buying back shares cautiously cautiously
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increasing dividends uh but none of
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these things prepare them for the
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tougher and tougher environment we're
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going to see whether it's on the
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commercial Aerospace side or on the
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defense side and and you know the CFOs
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are looking for ways to to
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judiciously deploy that money so to to
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explain to the engineering VP that this
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kind of money is available for you and
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by the way to do the things you want to
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do we can work that into the plan in
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terms of the cost to achieve those
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synergies that's money that that'll be
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safer um than the money that even if you
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did did get it and the CFO will will
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like that too because it helps us lower
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the purchase price of the company so
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when you reframe the argument this way
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you're really providing a line
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it's it's it's not being disingenuous
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it's thinking about how can you make the
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engineering VP successful how can you
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make the CFO successful how can you make
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everybody successful so that ultimately
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you're able to do something to support
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the war Fighters because uh you know the
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world is still a dangerous place we have
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infinite requirements um to help Warf
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Fighters you know for example the ISR
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surge in Afghanistan and you know just
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just the the way money is going to be
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tight with with with the government
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there's not enough money to fund all
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these programs so uh the ability to go
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ahead and get these deals right is
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important for war Fighters it's
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important for our national
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security
