M&A Management and Virtual Data Room

Kison Patel CEO & Founder of DealRoom speaks on M&A Management and Virtual Data Room services.

KISON PATEL: I’m Kison Patel, I’m CEO and founder of DealRoom. We are a project management software for managing mergers and acquisitions. Our goal is to make M&A more collaborative and people focused.

My previous career, I was an M&A advisor, I ran a boutique M&A practice in Chicago. During that experience, I dealt firsthand with a lot of the inefficiencies and challenges of M&A, knew there could be better technology solutions, just having a deep interest in technology. From there I’d create some in-house solutions for our company. But it wasn’t till later, during the recession, when I got more involved with other tech ventures and got exposed to the way engineers were solving some of their information management problems that even surfaced additional ideas, that I wanted to bring to our industry.

B2BNXT: What inspired you to launch DealRoom?

KISON PATEL: So in 2012, we set out and created DealRoom, essentially as project management software. Seeing that there’s a trend happening with a variety of industries that are adopting project management tools and thought that we should get ahead of the curve and start creating solutions because even today, the billion-dollar deals are still managed on Excel and there’s a lot of problems with that.

B2BNXT: Who is your competition?

KISON PATEL: We compete with a lot of legacy providers, there are the ones that originally took physical data rooms, where you had a room full of banker boxes and maybe there’s a security guard or it’s in a law office. And you had to physically go on site, something about the good old days and they transformed that into more of a digital platform in terms of having the storage online.

So even transforming that, they would actually go to your office, scan your documents for you, put them on servers and the servers were expensive back then. So 20 years later, now everything is Cloud based, there’s quite a few vendors, it’s become a lot more cost effective. We do compete with a lot of the legacy, virtual data room providers and then there’s a handful of project management tools for M&A. I would say they’re really focused or very much focused on integration and specifically as an internal tool. I think for us, we found our crossroads as a balance between both of them, where we do the data management, plus we’re taking a multi-party approach in the project management.

So really managing a transaction through the life cycle, but not just as one party, with all the participants involved, the buyers, the sellers, the attorneys, the consultants. And really giving a venue for everybody to collaborate and work together on and taking away from the old model, whether using Excel sheets to manage all the tasks, the requests that happen in the transaction. Email is the main form of communication and then having that virtual data room as a storage for the documents, which essentially is like a Dropbox with some additional compliance and security functionality to it.

But these tools are all disconnected which created a lot more complexity in terms of managing your process.

B2BNXT: What differentiates you from competition?

KISON PATEL: I think the deeper, underlying differentiator for us, is our understanding the problem. For us, we spend a lot of time with our customers and get very deep rooted in terms of working with them to develop solutions. And at times it’s not purely the technology, a lot of times if you look holistically at the way companies approach M&A, their bigger and sometimes not obvious challenge is just their project management approach and methodology.

 So over the past few years, we’ve been emphasizing Agile in terms of seeing the benefits and impact it’s made in the software industry, transforming their approach from Waterfall into Agile and being able to respond to changes that happen during your projects, which was always a big challenge with software development because once you start creating your requirement plan, start developing it, have your engineers working on it, change course, it’s going to cost you a lot. It’s going to cost you time and there’s going to be resistance because nobody wants to be associated with those. And if you don’t comply, then you’re going to end up building a garbage product.

So, with Agile, they’re able to; we’ve just seen it, it’s making better quality products, it’s making it a lot more cost effective and just seeing a lot better technology coming out as a result of it. Large corporations are even transitioning to more of an Agile approach, we see the same challenges with M&A. When you’re doing an M&A deal, you may model out a company and see that it makes sense financially, on paper. But when you pursue the deal and start doing diligence, you’re constantly acquiring new information. And that process, you’re going to come across things, you’re going to come across some findings where you’re going to have to prioritize and respond to it.

So, there’s always a fluctuation of priorities throughout an M&A process and it intensifies as you go to the integration phase, where it becomes even more critical that you have a plan in place. That you have this ability to iterate on it because you don’t want to map something out and say, “Hey, we have this standardized playbook and that’s what we’re going to do.” Not two deals are alike, in building a house you may have that commonality, if you’re going to build a house and the next house is going to be similar, you can improve your process by standardizing on it.

But with M&A there is such a variance between your deals that you have to have this iterative approach and you have to be able to fluctuate your plans and be able to accommodate or really be able to tailor towards that deal specifically. And all that new information that comes during diligence integration, it may change your plans or may change your goals and you’re going to need to be able to realign your teams around those new goals. So, we see a big importance around just the project management methodology that’s being used in M&A and there’s and common framework today.

So that’s a big initiative we have, is trying to create a common framework and working with companies that are using Agile today, such as Google and Atlassian and really learning from them, building our case studies and seeing how they’re doing things. Taking that and building a common frameworks or initiative is called Agile M&A around that. A lot of its mindset, if it really comes down to it, so you think Agile, it’s agility, it’s really being able to be flexible and responsive and if you think fundamentally, a typical project and your natural way of doing things is procedural. We create a plan and we go and follow the plan.

Now if you look at it more from an Agile perspective, it’s more about being responsive to changes. I would say that’s the big fundamental difference, if you think about one of the core things that’s introduced part of Agile in a lot of the different frameworks because there’s a variety of them, it’s the concept of a backlog. And it’s pretty simple and straightforward, it’s creating a list of your tasks and keeping them or maintaining them in descending order of priority. As you approach the tasks that are more imminent to being worked on, that’s when you really detail them out and spend the time to flesh it out.

So in software it’s nice, where you may create a list of five or six core features that you need to develop and you start detailing the first or second one. But the rest you don’t really work on… get a detail on till you get closer to it and if there’s a fluctuation, realize, “Wait a minute, we assumed that we needed this, but we were dead wrong. We’re going to throw that out, we need to ship this one and bump it up in priority.” It doesn’t impact anything in your current scope of work, so that’s the model really, is to be able to have that adjustability as you go through your process.

We see it apply really well with M&A because when you’re doing diligence today, a lot of people use Excel and they batch things and they’re creating these large lists. So you’re a buyer and you want 100 different items, request for information, clarification questions. And when you submit that and you’re waiting days for responses because somebody on the other end, spending the time to meticulously answer every little thing, go to the management team of the company and get all the responses and send it back. And then for the buyer side, some poor guy gets a whole avalanche of work right on his desk and they go through it and it’s a back and forth.

There’s so much wasted dead time between those steps, where taking more of an Agile approach, having your list in descending order priority, you may not answer that whole list. You may just do the first 10 or 15 respond, send it, you know, review it, check it off, whatever and send it back to the other party. But it allows that person to continue their work, it allows them… and their getting the responses to the most important things. So they could come back and maybe get the follow up responses, and you may get several rounds of those follow up responses within that same time-frame they were to get those initial responses.

The reality is 20 to 40% of those responses don’t even get looked at or initial requests don’t even get looked at, so you’re saving a lot more effort and really concentrating on the actual valuable work that needs to get done.

B2BNXT: What is the tactic you recommend to drive growth?

KISON PATEL: I definitely believe it varies company to company, I think you’ll probably see that if you’re asking a variety of different businesses. I would say for us, it’s just being iterative. Again, even building our initial product, we had a lot of assumptions that we found out we were wrong about. I think when it comes to growth, you start looking at your competitors and seeing what they’re doing and mimicking them, that was a huge mistake for us.

We thought we needed this outside field sales team and it was costly and didn’t produce a lot of results. We just kept iterating, trying different things, I think with that, you don’t want to go too wide. You want to stay focused enough, so maybe trying two or three things that you’re confident that you’re putting a very full effort towards. That you’re comfortable that you really achieved a full… You just really put the effort in and it wasn’t half-assed, right? Otherwise, it was a waste. Trying to do 10 things at once, it’s not going to get you anywhere. But then really figure out what’s working, try the next one and experiment with it.

That for us has done well, where a lot of… there’s so many different things, especially marketing is a good example, where you could have done a lot of different things. But for us to find out that here’s some long term stuff that works really well with SEO, so that’s an ongoing strategy for us. A lot of the content marketing we’re pushing out. Now we’re seeing good traction with doing PR and we’re pushing more to do PR and starting to develop that function in house. Then paid ads, we did a lot of paid ads, but it’s saturated in some areas, if you’re doing Google paid ads.

We realized that quickly, spending $500 for a lead wasn’t going to cut it for our business. But we’re finding other areas on the video side and re-targeting that’s very cost effective, that does work well for us.

B2BNXT: An example where you had to shift your strategy?

KISON PATEL: We had DealRoom products in the market since 2012 and part of our offering, we have a virtual data room within the product, and I noticed we were turning away these small little firms. So, what we did, was we carved out our data room product and just made it a standalone data room product, and wanted to really create as a self-service solution, make it cost effective, so we priced it at 500 bucks a month.

A lot of the competitors are out there charging anywhere from 10 to 50,000 dollars for a six month term. And what we initially did when we kicked off the product, was do direct response marketing. We just emailed people that we knew were M&A practitioners, whether we bought lists, scraped the data, however we got the emails and it worked. I mean when we kicked the product off, we got six signups in the first week. But that descended down really quickly, that’s a good example, even you may find a tactic that works, but it could be a really short term thing.

Then there’s trend stuff that changes as well. So there’s definitely a lot of learning you got to keep up with and find those favorite blogs to follow and keep getting fresh ideas.

B2BNXT: Something that does not work well?

KISON PATEL: The first one, when we did the outside sales was a big mistake. I think that was just too big of a cost for sales for a small company. I can see for the large companies, where they built their initial model around a real enterprise sale, where it may have worked. Where you have a sales rep, you’re paying them a salary, benefits, travel expenses, expense card and they go out and they wine and dine clients and got business that way.

We still come across that, where we have to compete against that, but for us, is to really focus on the value that we can provide. I think that was one area where that didn’t work for us. Again, it’s understanding your particular business and what you’re trying to achieve, so our business and the goal and impact we want to make at the market, was totally different than the other companies that had success with that model. I think too, content is a good example, where you want to naturally create content where you see another company’s got a lot of buzz around it.

That may not work for you, I think it took us a while to really figure out where we want to create a core competency. We wanted to initially look at all these different things around M&A but it’s really process and we laser focus on process and go deep into it. Now we’re talking about the methodologies and developing our own framework around the methodologies. We’re talking about best practices using technology, anything around that, even productivity tips and things that may be involved with other tools. We integrate with Slack, we’re big advocates of Slack and seeing how that’s such a value add and alternative to using email. Especially cleaning up communication, organizing it.

So we talk about that, but just really figuring out that area when you do your content strategy that you want to own. And it’s thinking that position, we want to be the best in the world at something, what are we going to be known for? So, for us, it’s M&A, specifically the process part of it. We do M&A process better than anybody else. People get obsessed with the numbers, when you hear about a big acquisition, right away you think about the billions of dollars that just transacted and they think of it as a financial transaction but it’s not.

You are merging two large organizations, two cultures together and there’s a lot of the analogies around a marriage, where you can think of bringing these cultures together and what that entails. A lot of that changed management aspect that comes along with it, those are the real challenges, if you do a deal and you lose leadership from either party because of it. And I just see it time after time today, when you think of M&A, particularly as a person working for a company that’s getting acquired, there’s a lot of fear and uncertainty that happens. And people are just worried if they even have a job, what they need to be thinking about for their career and people lose sight.

I mean a lot of these transactions are driven by innovation, where there’s a vision of something better and creating a better and creating a better organization, but once they go through this process and by the time they hit day one, everyone’s scrambling. That vision gets lost pretty quickly, that big picture isn’t aligned across their teams and organizations. And havoc happens and that’s why you see those big stats about a failure rate or they don’t achieve these investment thesis. I talked to a company the other day, where they did analysis of the last 12 acquisitions they did. Not one single one achieved the value that they initially projected in their investment thesis, out of 12, not one single one.

And that’s where we see the problem is, it’s really the people to people issue and we need to create a better way to collaborate. Even today, when we see M and A, it’s not evidence based, it’s just there’s nothing out there that’s really teaching and sharing best practices so we can become better in terms of how we’re executing M&A deals. So there’s a gap in the technology side and there’s a gap in the education side.

B2BNXT: How will you help companies tackle the “people” side of M &A?

KISON PATEL: I started a couple of years ago with doing a podcast called M&A Science where I interview M&A practitioners.

And part of it was early in the business, learning the hard way that you’re going to have a lot of assumptions, whether you realize them or not, everything you think is right is essentially an assumption until you validate and prove it. And I’d have these interviews where I’d call practitioners and do a discovery session with them, to really validate the pain points that we assumed were there, and make sure it’s really worth solving and how we should approach solving it. In that interview process, you learn so much, just talking to people about their challenges and pain points, how they’ve overcome them and taking that idea, why don’t we share this knowledge?

So why not record, if I ask for permission to record it? Let’s make a little podcast out of it and that essentially, was the idea of creating M&A Science. Now today, with our marketing team at DealRoom, we’re expanding on it, we’re building webinars, we’re creating round table events with corporate development practitioners, where we get six to 10 together and each practitioner can address to the group what their biggest challenge is that they face and everybody can weigh in on it. But there definitely needs to be more of that because there’s no real…

You can go to get an MBA program and you’ll learn about the strategy aspects of why M&A deals happen and the financial aspects of it, but when it really gets into those core people to people issues, there’s not a lot of education out there. There’s definitely a gap there and that’s an area that I’m looking forward to working with some of those business schools as well, is introducing that into their process as well. Just with M&A specifically, there’s a lot that just hasn’t been formalized or developed in terms of a knowledge that’s shared.

But I definitely think there’s a huge opportunity to be able to work with experienced practitioners to develop that kind of knowledge base that can be shared in the industry. The thing I’ve been really intrigued by, is chat tools. We deployed one with a company called Drift a couple of years ago and when we first started it, I think I took it off for a period of time because we would just get a bunch of spam responses on it. I was like, “All right, this annoying and it’s wasting our time.” And we took it off and then I think at some point we said let’s try it again.

Especially on the support side, when we found a support, people started latching on, where they would chat response and we liked it. It goes right into our Slack. I could be out at a restaurant and I can respond back to somebody in support because a lot of times it’s pretty easy or if it’s something more complex, maybe one of our engineers picks it up. Could be some, just a software issue or something like that. So it’s nice because it pings more people at once and we want to be responsive, we want to create the best customer experience. If somebody needs help, let’s help them as soon as possible.

So I like the aspect, how it increased a response rate on support and enabled us to provide better support. But on the growth side, we started seeing more adoption from inquiries. Today, we get 50/50, half of it’s coming on chat and the other half is coming on forums and I even had an experience with our vendor where I was on the site looking at some content they had and a person pops up and said, “Hey, did anybody show you this new functionality we have?” And I said, “No.”

And then started chatting about it, but the experience, where A: he caught me at a good time, it’s evening time, I’m just doing research online, I’m not distracted right now. Two: to be able to have this conversation with me while I can surf through the website and read about it, I thought it was a great experience. And it just sold me to progress through and I actually appreciate that sales experience versus the traditional cold call, let me take you out to dinner, this and that. And we get bombarded and think today too everybody’s inbox is just getting ready to explode full of spam from all these inquiries coming in to sell you so many different products.

Where here, it’s just flowing a lot more natural and when you’re interested, you’re getting a faster response. That’s a big thing, I think for M and A industries specifically the big trends I see, people realizing that what they’re doing, this traditional approach isn’t cutting it. One of the things that we’re working on right now is writing a book and really building off of what I mentioned earlier about M&A process and taking what we’ve learned, what we’ve seen from the best of big corporate developments and they’re essentially the tech ones, large tech serial acquirers, where in their integration process, they have engineers that are very familiar with Agile techniques.

That are using Agile techniques in their integration process as those large acquires continue to acquire organizations and mature, they bring those integration folk early in the process because they realize the importance of them having them involved in the planning. Having them ensure there’s a smooth transition going from diligence to integration and there’s not a big information chasm that happens. Having those people upfront, so they can actually validate those value drivers of the deal. So those investment pieces don’t fall short when time comes back to actually reflect and see if they met their goals.

But when that happens, now you’re bringing that Agile to that full process and we’re seeing it with the larger, high volume serial acquires in the technology and we think that trend’s going to come across to other industries in the corporate development side. Sooner or later the investment banks and the consultants will catch up. But we definitely see that, so we’re working on a book right now, to be able to build off of some of the cases that we’ve seen and start building an initial framework for the industry that can evolve over the coming years. A lot of it’s just process, you get a lot of lightened ah hah moments by just showing them a better way to frame their process.

A lot of times companies go to tech solutions as a solution itself, where they say, “Hey, we’re going to buy some project management software and it’s going to solve our problems.” And they start thinking of what they want that software to do and they make this extensive list of features, functionality. And they go shopping and they typically end up buying the software with the longest list of features and they pay or sign a contract, multi-year contract and nobody uses a thing and it’s a total waste. I see that happen all the time, we see it happen in the CRM and any big investment technology. When companies hit those pain points and they realize they need a solution, the first thing they need to do is do a real assessment.

They need to think about all the personalities involved with that process, personas and interview them and understand what their pain point and challenges are. But importantly, prioritize them to make sure… you know, in order of priority, one of the biggest pain points and how much weight that pain point has for all these different personas. And then start assembling a list around that, so you have this clear idea of, these are the problems we want to solve in order of importance. Then start looking at a solution and assessing the solutions based on how well they solve those problems.

That’s a big thing and I’m guilty of it too, starting in the industry, where I thought you build a bunch of cool widgets and features and hype up AI, but that’s not the case. At the end of the day, you got to solve problems and I see time after time, where the companies don’t understand their problems, they don’t really spend the time and it’s… sometimes it’s a turn off when we talk to them about that, they don’t want to have those conversations. But we want to talk to it, we want to talk to people in the front end of your process, we want to talk to people in the middle, doing the diligence, we want to talk to people in the back end, doing integration.

A lot of times there’s tons of underlying issues and going back to the empathy, where people just don’t understand each other and their challenges, surfacing that alone helps a lot. But then from there, when you can really put all those issues on the table, have everybody transparent, understanding what’s going on, then you’re seeing more of a direct path and what [inaudible 00:23:46] solve those problems. There’s a lot of books and I really think it depends on what you’re trying to achieve. For me, there was leadership development and I found a lot of value, not so much with the traditional leadership books that you’ll find, but more so the organizational psychology books.

And I think as you develop your business functions, you’ll find a lot of books on the marketing, the sales aspects of it, that are valuable to get an understanding, ideas, help cultivate a strategy and just develop in general. Bring ideas to the table, but I always like, especially if I’m working with somebody that’s new in a management role or even coaching high school and college kids, my favorite book to start them off with is a book written by Mark Goulston called Just Listen. Essentially he builds a story as a PhD psychologist that trains hostage negotiators and he walks through a hostage situation in the beginning. But walks you through the whole psychology of a person in that sort of intense situation.

And it gives you a really a good understanding of how we respond emotionally to these type of situations and creating awareness that it’s difficult to really understand what a person is thinking. He based that and then… and takes you into a lot of different work situations that you can actually apply that thinking towards. But essentially the core lesson is empathy, so it’s a really good book in terms of understanding empathy, how to communicate better with others and work better and deal with those difficult situations. But I feel like getting that early, especially with leadership and they can set that example, it’s a really good skill to have and even for young professionals, to be able to understand it.


Kosta BoardStudios.com

Founder of Board Studios Inc, an animation production agency that helps B2B companies simplify and communicate more effectively. Specializing in B2B makes a big difference because we know what information your clients need, what works and what doesn’t. B2B communications can be very different than B2C, so if you get your video explainer from a B2C agency you may not get the results you deserve.

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