Dr. Klint Kendrick has been in the world of M&A for more than 10 years, starting as an acquired employee, a catching manager, and then the HR leader on nearly 100 M&A transactions for multiple Fortune 500 companies. Many of his transactions have...
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Ronald Skelton 0:06
Hello and welcome to the how to exit podcast where we introduce you to a world of small to medium business acquisitions and mergers. We interview business owners, industry leaders, authors, mentors and other influencers with the sole intent to share with you what it looks like to buy or sell a business. Let's get rolling.
Welcome to the How to exit podcast today here I'm here with Dr. Clint Kendrick, Dr. Clint Kendrick has been in the world of m&a for more than 10 years, starting as an acquired employee, eye catching manager, and then an HR leader, nearly 100 m&a transactions for multiple fortune 500 companies. Many of his transactions have involved founder led firms where he helped onboard the CEOs and their teams and amidst much larger organizations. Clint is also the chair of the HR mergers and acquisitions roundtable, and author of two books for HR practitioners working in the m&a space, one on due diligence and the other on culture integration. Welcome, Clint. And it's great to have you on the show.
Klint Kendrick 1:15
Well, thanks for inviting me Ron.
Ronald Skelton 1:17
Awesome. So what I always like to start is kind of give us your background, how did you get into the mergers and acquisitions space? You know, what drew you here? And kind of, you know, who are you what you stand for kind of thing?
Klint Kendrick 1:29
Sure. So my first experience with m&a was a quite a while back, I was an acquired employee, like you mentioned, I was working as a recruiter at the time. And the company that I was with had been part of a roll up strategy by a firm that then wanted to sell to one of the, you know, one of the big boys out there.
The first time nothing really changed. Ron, I just I got a new email address right? A second time, they changed my compensation so much that I ended up leaving, I had a brand new baby at home, I you know, had a two year old and it just ended up changing things so much that I was worried about how I was going to pay my rent and buy groceries. So coming from that place where I had a really rough experience with m&a. As I continued through my career, I really kept that with me and kept in mind that we got to take care of people when we're doing m&a work. So I became a catching manager when a company I was with did an acquisition, and also not a great experience. Nobody let me know, hey, you're going to end up with a couple of new team members, because we've just been the spy. In fact, I found out about the acquisition when one of the people at that company called me and said, Hey, I think you're my new boss. And I'm like, I don't think so they would have told me Well, three weeks later, I was his new boss. Really, really not well handled. So fast forward about 10 years after that, which is about 10 years ago, and I was with a with a big company in the aerospace and defense space. And I was offered the opportunity to do some work in m&a as an HR leader, and taking those lessons with me and really trying to understand how we, how we work with people how important people are in these transactions. And then learning from a company that actually did the people side of things very, very well has just given me a profound opportunity to share that knowledge with others. I've since moved on. I'm now with my fourth company, doing m&a work leading an m&a practice, and just really, really passionate about making sure that the people the leadership and the culture issues are attended to so that we don't end up with people like me going, Oh, my gosh, how am I going to pay my rent? Right? How am I going to take care of my kids?
Ronald Skelton 3:43
That's awesome. We have a lot of guests on here. I've had brokers, attorneys, and you know, mergers and acquisitions, guys, mentors, coaches, but I haven't had anybody that has your specific school skill set. So when my assistant Merrill said, Hey, what about this guy, I looked at your profile. But you know what, that's something that we really haven't covered yet. And if we don't, a lot of these guys get themselves in a lot of trouble. So I think what we're going to spend a lot of time to talk about today is what do we do with the people. And I want to work with you what kind of let's just start from, I guess, the beginning. You're going through a deal. There's a due diligence that I think I've read one of your buy books that actually talks about due diligence does their due diligence you do on this staff.
Klint Kendrick 4:26
It depends on the deal, but so often when you so all of my experience, Ron has been with Fortune 500 except for a couple of joint ventures that I did when I was working for a China based company. So setting those jayvees aside because the cultural context for m&a and China's just so very different than it is in the US. So setting those aside. When we think about m&a in the US and Europe, where we do a lot of this typically the brokers and the folks that work on the diligence side they're primarily concerned with the financials night I complete
We understand that right? When a company chooses to purchase, they're making a decision on how they spend their money, right? You can dump it into r&d, you can do a new marketing campaign, you can do people salaries, you can go buy a company, right? We got lots of choices on how we spend this money, and it comes down to the money. But you want to make sure that money's well spent. And I think we've all seen the stats that 70 to 90%, of all m&a Is failed to deliver deal value. That's not me. That's Harvard 70% of all deals, destroy value, destroy shareholder value. And again, that's not me, that's Harvard. And when you talk to those business leaders, they will tell you that people and culture issues are primarily responsible for that failure. But there's a gap in how we do those things. So we tend to look at spreadsheets and audited financial statements. And the diligence on staff is usually limited to whether or not the buying business sponsor or the corp dev team are the broker likes the founder, right? That's the diligence process. Do I like you do I think we get along and ensure that's fair, it's an approach, we got to make sure that we like the people that we work with. But it's not a particularly thorough process. And it's not always the most thoughtful process. So what I've tried to do with my book on due diligence is is talking about not just those leaders, but there's also a cultural component, there's a compliance component. And then there's how people affect the actual operations of the business. And of giving an example one of the early deals I did, we bought a founder driven company that was doing training materials, and they had 20 employees or so small, firm, and their way of hiring people is they pick up the phone, and they call the local community college. And they would say, Hey, we got a job opening, send me your two best people. And they'd come over and they'd start the next day. Well, I was with a big company. And our hiring process took about 75 to 90 days, right. So imagine what that does to a high turnover business when you're used to hiring people in two days. And then all of a sudden, it's now taking you 75, you can't stop and as people leave, work starts to fall behind your customers don't get what they want on time, and it hit hits your reputation, right, you're not delivering what you committed to. So I like to look at not only those top level leaders and whether or not we like them, and think that they can do the job if we keep them on board. But you know, how does it affect at the staff level, some organizations will, depending on the nature of the transaction, dig into, you know, staff at pretty low levels. But usually, I see that early diligence happening on the founder, and the C suite.
Ronald Skelton 7:39
I actually got to I did, I was just thinking of this while you're speaking, I got to witness firsthand, and I can't see it was because of the way I was hired and what I did, but I can tell you Red Hat bought a company after Red Hat was a linux unix guy. Oh, it was originally open source. And then they started having some paid stuff. They bought another company that was primarily in the open source arena. And the cultural differences, because they can you know, those guys considered Red Hat a sellout for making corporate products, when they bought this new company, and I don't want to say who it was, because I'm going to say something very ugly about him. That particular company, the culture rift was so bad, they had employees walking out with servers stealing equipment, oh, my God, I was literally hired in as an IT manager on a contract basis, just for a few weeks to identify where all this stuff was going. And to create cases against those individuals and get them out of there. Right. And this is way back. But, you know, the just the cultural difference, cause, you know, I honestly don't think that any of those employees would have done that in any other situation, right? But they felt betrayed. And because their leaders did not communicate that there was a merger going on or an acquisition going on. And they kind of got surprised with it. And there was just a kind of a cultural, a call an uprising or whatever. So I can totally see that if you don't pay attention to the cultural differences. Even just the work flow differences, like you were talking about, you can really disrupt, you know, a company so a company could have been producing steadily, you know, great sales, great performance, customer reviews, and then all sudden everybody comes to work the next day and they hate their job that impacts everything.
Klint Kendrick 9:35
Right? Yeah, the way that I look at it and you're dead on that's a pretty extreme case. I've heard similar stories in the past where, you know, employees feel betrayed and then they they sabotage right they. The other thing that I've seen happen a bit is because people are so distracted, your workplace accidents go up and I've worked for manufacturing firms and I mean, you know, people should go home in the same condition they came to work right I mean, you know, we don't want bad things to happen to people. But but people get distracted, their safety goes down, their productivity goes down. And, you know, we like to say people don't like change. But that's, I don't think that's true, right? We live in a world of constant change. People don't like change being forced on them. And so, you know, we need to just honor the fact that people who come over through an acquisition, we can't always tell them up front, right, there's usually rules against that we got to make sure that we follow the law and, and there's confidentiality agreements. But as soon as we have the opportunity to communicate, we should, and we should communicate in a respectful way. And one of the things that I see a lot, Ron is that, you know, the, the founder, or the folks at the top, are often very excited about the sale, because they're, they're making bank right, they're getting a substantial check out of this. And they go up in front of their team, and they're all smiles and very excited, because they've just a lot of times just been made a millionaire, right. And then you've got the team and and what's going on in the team's mind is, wait a minute, do I still have a job? Right? Can I still feed my kids? You know, can I pay for college? Can I take care of my medical issues, because you know, here in the US employment, medical care, joint hip and thigh. So we we end up with these announcement meetings, a lot of times that are super tone deaf, where the founders all smiles, and the team is in shock. And, you know, a little bit of empathy in those kinds of situations goes a long way.
Ronald Skelton 11:31
So it sounds like, in addition to a corporate, cultural and environmental, like understanding during your due diligence, understanding what their culture is, what are their values, what is the mission, but actually a communication plan on how you're going to communicate with the employees and then align them with any shifts in that culture, that vision and their current set of goals and objective. If I think if you handled both, like if you handled, like, here's, here's the way it's always been, here's the kinds of things we're going to change. Like, here's where here's the similarities. And here's like, where it's going to be different. Right? And here's, I haven't been in your seat, but you know, tell me if I'm wrong. If that stuff's in place, it can lessen the blow of the what's going on?
Klint Kendrick 12:19
Yeah, no, you're absolutely right. That it, you want to make sure that you understand where the culture clash is gonna come up, right. And the way that I think we have to look at this is that we can't pay attention to everything, you know, there's, there's just only so much time and so much capacity for us to really focus on issues. So, you know, we've done a little bit of research into what the key drivers of culture clash are in most of the deals that that are out there. So I want to be real specific for a second. So one of my, I don't know if it's an issue, it's just a little bit of my perspective, is a lot of when we talk about culture clash in m&a, you end up with the stories about like Daimler Benz, and Chrysler, you know, these mega mergers that involve billions of dollars 1000s of employees, but the bread and butter deal out there is a company with fewer than 100 employees being picked up by a firm that's a little bit bigger. So we're not, you know, able to really scale those lessons from you know, Daimler, Chrysler, or from you know, any of these other big mergers that really make the headlines, but because that's not what we do most of the time. So when we dial back from those really big, big deals and look at what's out there, where most of the conflict comes up is around decision making, you know, who gets to make decisions? What kind of decisions are they allowed to make? How are the inputs to those made? Is it gut feel? Is it data? You know, that kind of thing? How do teams collaborate? So what are the roles and responsibilities for different members of the team? Are there different expectations of the tools that go, I worked on a number of deals for tech companies where the companies communicated on Slack, the firm I was with didn't have slack. And so that team collaboration broke down, because they were no longer on Slack. And I always kind of make a little bit of fun of them. Because we have this perspective that these small startups are more agile, and more pliable. I tell you what, you take slack away, and you'll see exactly how agile they are not right. So
Ronald Skelton 14:25
I'm laughing because I have my slack window with my assistant open right underneath there checking on sound quality and everything else that I live inside. I'm a computer nerd my previous trades.
Klint Kendrick 14:33
The other things that we tend to see are around operational expectations. So you know, what are the goals of the organization and what are the expectations? I have a buddy who just sold his he's got a consulting business that works in the diversity space. And his firm, when he was running it when he was in charge was all about customer relationships, customer intimacy, kind of doing what they could for that that social justice mission that they had around diversity and inclusion, they were bought by a PE firm and all of a sudden his emphasis shifted to billable hours, because there was an earnout structured in there, and he had to hit certain revenues to get that urn out. Well, that changes the way that that company operates. And I'm pretty good friends with with one of the employees there. And she's really wrestled with how that's changed how she does her job around those, those operational expectations. communication styles is another big one. So you get some leaders that are super open, and some that are really closed. And I don't have any values, judgments around these things. By the way, it's just the way that companies set themselves up to operate. So sometimes a leader who's too transparent can actually be a bigger problem than a leader who's too closed. And then, the last thing that I think you got to look at is the organization's kind of self concept how the organization sees itself out in the world. And then on top of those five things, I think there's three other things that you have to look at, to figure out where those culture clashes are going to happen. And these are the ones that the dealmakers like, so you know, communications is kind of a soft HR guy thing, right? So, you know, employees will eventually adapt, but there are three big deal pieces that I think you've got to consider. And one of those is synergies. So if you've got a deal that's based on some kind of synergy realization, and you've not tested whether or not you can put that synergy into place, effectively, then then there's a bit of an issue. And a lot of times in the HR side, those synergies are usually around pulling systems out putting systems in consolidating locations, and that can cause a big problem with the employees, and how they perform and how they produce the second called the three S's. So it's synergies, secret sauce, and sacred cows. So, you know, those pieces of secret sauce, you know, those are really important things we hear about that a lot in deal making is, you know, what's the secret sauce of that company? Well, usually, it's a technology piece in the things that I've done, or they've got some sort of process or proprietary IP. And you can destroy that when you force a company to change the way that they do business. So you can really, you know, burn the secret sauce as it is. And then finally, those sacred cows, those tend to be a little bit softer.
But you know, you there's, there's tales of bound out there about, you know, US companies that will go by a firm in, you know, England, and they'll, they'll disconnect the tea service, right. And so employees will be up in arms, because, you know, the tea service isn't happening, or I have a friend whose company was bought here in the US, one of the big perks was snacks, right? So you have developers and those developers are working, you know, 12 hour days to get something out the door, and they see the snacks is kind of fair trade, you're going to feed me, I'm going to work extra hours. And you take that away, because you're cost cutting. And all the sudden those employees, kind of like your folks that took the server's feel betrayed, they feel upset, and they're like, Fine, you're paying me for eight, I'll work for eight. And all of a sudden, you've got increased staffing costs, you got people quitting, you have people who are stonewalling and being less productive, just because you touched one of those sacred cows, and did it to save a couple $1,000 Well, it cost you a lot more than that, because you just messed with the way that organization works. So I know that those are a lot of things to think about. But it's a lot fewer to think about those eight things than it is to try and look at the whole organization, because it's just such a big, big thing to look at how an entire organization works, we got to be able to focus somewhere.
Ronald Skelton 18:41
You know, we're, I was laughing because we were talking about the cultural stuff and like the sacred cows, but I was a little shocked to lock into a culture like, you know, as a as a direct senior director, right at the, you know, I was trying to, you know, trying to earn my VP slot, you know, I'm trying to figure out how do I how do I crawl up to that kind of space in the world. And here I have 180 Something employees that were working for me and 90 plus of them have a full blown liquor cabinet in the cubicle. Right. And then the second Friday, I think it was after I was there, I seen a CAGR truck pull up. And I was like, Okay, it's just part of the culture, they, they work hard, they party hard. But I imagine if some company bought that said, You know what, that's a that's an HR liability. That's a big problem. It's all going away, there would have been a cultural uprising there because they just liked the freedom of it, though. It was kind of an ego status thing for them to have on their desk where we would bring, you know, EMC or some big computer or Sun Microsystems at the time or some you know, big, you know, storage company or something would come in and pitch us and they would see everybody with their walkie and walk through there and everybody's cubicles had their own liquor cabinet. Yeah, it was a it was kind of a weird cultural bad. Just say, hey, we work here. We get to do what we want.
Klint Kendrick 19:57
Yeah, but I have to tell you, I've had more conversation, In my career about liquor than probably any other topic, because I've worked for big companies with those zero tolerance rules, and I live in Wisconsin now, man. So, you know, we got, I think nine of the 10 most drunk cities in the nation. I don't personally have a problem with it, I got a keg in my basement. But, you know, I've had to be that guy a few times. And I tell you, that is not a fun conversation to have. And, you know, with my last company, where that became an issue, we finally figured out that it was causing problems and worked with our risk folks to figure out, Okay, what's the happy medium here, and finally, we landed on, you know, we'll lock the keg taps up during the work day. And then you know, we can take them off after five and just make sure that people have a, an Uber, you know, subway ride home, depending on where it was. But yeah, it's, it's pretty amazing what people get wrapped up on.
Ronald Skelton 20:55
I'll tell you, I was only there for about a year and a half for two years because of the bankruptcy, they went through. And I ended up going to another startup. But either my team is not and that had some I'm still friends with a lot of the guys that work there. There are some amazing people that work there. And just to clear things up, so I don't want to I want everybody think excited. You know, the excitement police were drunker jersey? Sure. No, they were really good at never letting the director senior director guy see that they had a problem with it. Or they just managed it well, and did not have a problem with it. Right? I've never had an outage become worse, or, you know, somebody gets stupid drunk and, you know, pass out they're desperate? I think so. Yeah, you know, it's either that or they hit it really well, from me, which is, you know, it's all still slightly possible,
Klint Kendrick 21:36
but speaks to some of the cultural Oh, sorry, go ahead.
Ronald Skelton 21:40
I was gonna say, let's jump right back into kind of that. I want to I want to get into how to us as acquisitions entrepreneurs, learn and what I mean, what questions should we asked to kind of figure out what is the culture there? What is the sacred cows? Like, how do we discover this stuff? As part of our I would call it necessarily due diligence, but it is due diligence, part of the discovery of learning that company, and you know, if we want to do a deal with them, I think that is to be part of the discovery. So what are the what type of questions we ask, what do we look for?
Klint Kendrick 22:11
Yeah, so I think there's a couple of ways to gather cultural intelligence. And, you know, I use that term interchangeably with cultural due diligence, but it's really learning about the company that you're about to do a deal with, whether you're on the buy side, or on the sell side to make sure there's a level of compatibility. So there's a few things one, when you're in your pre loi stage right before that that initial indicative offer or letter of intent goes out, you have really limited limited options. A lot of it is looking for public information, checking out you know, Glassdoor reviews on the company. And most firms will have a glass door, even if there's only one or two entries on it, if they're a particularly small company, you know, looking at the LinkedIn profiles, what people brag about, if they've done any kind of press releases, that sort of thing. And that can at least give you an early indicator of what's going on. One of the things that I tend to do or have members of my team do is look at the social media feeds. So at my last firm, we did a deal with a founder driven company, who had a number of different enterprises that he was engaged in, there was the one we were buying. And then he had a couple of other businesses. And when I looked at his media interviews, they were all about this other business he was doing, and which is great, right? I'm entrepreneurs are great folks, and usually have multiple interests. So he had matured this business to a point where it was sellable. And he was working on building the other one, which honestly, he had a little more passionate about. It was a new project. That's what led him up and motivated him. And I went and talked to our team doing the buy. And I said, Hey, we're not going to keep this guy for very long, right? He's got other passions, other interests. And we should be okay with that. But we should also have a plan B, so that if he only wants to stick on for a while, well, between you and me, and I guess everybody listening, HR guy new to the company wasn't really listened to. And it turns out, we close this deal without a plan for him. And he comes in and he says, I just want to be a consultant for six months. And I get a call from our corporate development leader going What are we going to do here? And I'm like, Well, maybe you should listen to the HR guy to start with. But that aside, I mean, all kidding aside, you know, that was really valuable for understanding where that founder was coming from. And it was just looking at a social media, which was all about this other business he had, then when we get into the formal diligence process, it really depends on what you're asking for in terms of your documents. Look, if all you're asking for is financial statements and go to market plans, you're not going to learn about the culture of that organization. And maybe you're okay with that. Right? You got to figure out what your risk tolerance is for not understanding that company's culture. But if you go on site, and you look at the way that that company operates when when we're allowed to see each other right. And you look at what's on the walls and look at the way that the work is organized. And you look at the way that the people interact. It is amazing what you can learn just from going on site and laying eyeballs on the company's work environment. Or if they're virtual, there have been a number of management presentations where the sellers pitching to us that I've said in On, and I've just watched the interactions between the staff, you know, if everybody's got an equal voice at the table, or does everybody look at the leader? Before they answer a question, you know, that's really telling about the culture? Or the answer superscripted? And the banker is driving the conversation? Or do the leaders in the company drive the conversation? So there are these clues that we can pick up without asking a bunch of extra diligence questions, just from being aware of our environment. And I personally would like to ask more questions than that. But I also have a very realistic expectation, Ron, that when somebody is trying to sell their business, they're trying to get the highest price available. They're in a particular mindset, where they're really highlighting the positives of that. So I'm not expecting a completely balanced answer, I don't think I don't think people intentionally lie to us during diligence, or at least I like to think that those instances are pretty rare. But we have to take that kind of thing with a grain of salt. And that's why after the deal is announced, and you can start talking to the employees, it's really important to get in and talk with those employees, and not just talk at them, but actually listen to what they have to say back because that's where you get the real sense of the culture, and the real sense of how things are going. It is consistently amazing to me how disconnected when you get an organization that's really over about 100 people, the disconnect between the leaders, and the folks actually doing the work tends to grow, the bigger those organizations get. And so I can ask the leader questions till the cows come home, and not get an accurate answer. But the minute we announce and I can get in and start talking to the employees, I get a better sense of what's going on with the company.
Ronald Skelton 27:04
Cetera stay now, I think it's a great idea to use both Glassdoor and their social media. So I'm looking at a particular company right now, they've only got eight or 10, I think, 11 people, but most of them, almost all 11 of them are posted on their website, I'm going to pull up every single one of their social media and put it in some type of I don't know, like tool, so I can watch it. But so during the during the conversation, look at the history, the history. And then if I do put together a team and acquire it, you know, during the interact during that, you call it the integration and, and working with them just monitor that, like, you know, I think it's a great way to you know, both in Glassdoor monitor what's changing, you know, you know, is it a positive conversation that's changing? Or is there a negative side of it? Without saying anything I, you know, I don't know, I'd even make an actionable item out of video unless somebody is really bashing or something. But I think when somebody knows it's being monitored, they would definitely change their behavior. But uh, you know, a lot of people don't just don't assume that anybody's even going to have you know, from their company is going to look at their personal stuff. So, right.
Klint Kendrick 28:17
Yeah. And, you know, look, different people have different levels of privacy settings and have different comfort levels. With that being out there. I'm not suggesting that we cyberstalk anybody that is absolutely not the recommendation, but take a look at what's going on, you know, what are they talking about on their LinkedIn, you know, a public facing Instagram, or a public facing Facebook or even company, social media feeds, you know, it can be really helpful and understanding what they're emphasizing what they think is important, you know, what they brag about, because social media, as you know, almost always skews positive. But if I understand what you're bragging about and what you're proud of in your job, and it's something that I know is gonna go away, when we merge you, I really want to know up front so I can get in front of that communication and decide number one, do we need to take that away? Just like the booze, right? No? Do we need to make some changes to how we're thinking about integrating this organization into ours? It can just be really invaluable cultural intelligence.
Ronald Skelton 29:20
Alright, so that's another like the LinkedIn thing would be kind of cool because I think one of the indicators you want to watch for as you buy something and integrate it in is how many of your employees are out there updating the resume because that's a cop you know, if they're out there updating their doesn't mean they're trying to move I don't think it means they're uncertain. Right? People start changing and updating their LinkedIn profiles when they're having certainty about their their job. I was involved in a roll up we were trying to do and I say try and but we end up selling it off to some of our partners. But thee the cool thing was is one of the highest during the these are marketing companies and almost every single marketing company a tons of employees are on their, on their LinkedIn profiles. So I could actually look through kind of their team and the skill set and stuff and get a feel about that.
Klint Kendrick 30:13
you know, look, I've got personal judgments about things all the time. But when it comes to really trying to understand the culture, I just have to usually accept that that's the way that that leader does business. And I may or may not agree with it, but at least I understand where we're baselined. So that when we're trying to integrate those employees, or even if we leave the organization, standalone, right, we understand how that leaders behavior is going to impact that firm. Right now, you know, just just our non m&a circumstance with a great resignation, we've got so much change going on in the workforce in general. And we're really starting to see it affect organizations, right. We've all seen the restaurants shut down and such. And for a while, we weren't sure if that was a wage issue or an unemployment issue? Well, I think that's been resolved, right, because the unemployment stimulus, that extra money has gone away, and they're still struggling to fill a lot of those jobs. So we know now that it wasn't an unemployment stimulus issue, we know that that's a cultural issue inside a lot of those service industry jobs, where employees are saying, Hey, I won't work in certain conditions. And when you think about right now, I was listening to the news this morning, we have one and a half jobs for every worker in the country. So employees have a lot of choices. And when you come in and you do an acquisition, you're you're creating to your point uncertainty. In my book, I address uncertainty quite a bit as well as a what I call an identity crisis, kind of who am I now I'm working for somebody else, what does that mean for me. But that uncertainty means that those employees aren't updating their LinkedIn, they're looking to jump. And if that employee is part of your secret sauce of your organization, then you better figure out how to retain them, whether that's with money, or with the culture, or with some kind of other non financial incentive, like a title or an opportunity or a special project that they can do. That's going to keep them on board and engage. So you know, m&a, as much as we like to think that it happens in a vacuum. It happens in a broader economic context. And right now, it's a it's a workers market, right? The people who are out there with the skills are the folks that are driving whether or not these businesses can even leave their doors open, in some cases, so we got to treat them, right. Especially if we're going to get value out of these deals.
Ronald Skelton 32:38
Essentially, I like I like what you're brought up there, there's something you triggered a thought in my head, there is an inherent value to who you work for, right? There's a sense of ego or identity of I work for x, right? That changes when they when they go through this unless you're the acquiring party, and nothing changes on your name and stuff. The if you're the acquired party have this, that identity, there's a sense of pride around that. I think back to my tech career, I actually one of the biggest financial mistakes I probably made in my life, is I had an interview two or two round with Google to do some computer security work for them. And I turned it down and then went to do the rest of the interviews because I had a startup, much smaller startup in the anti spam, anti viral space. And Google was just the search engine at the time. And I was like, Yeah, you know, you know, and I ran, the site.com had a huge email system, I want to say at its top 12 or 13 million users probably. Right. So it's one of the most emails one of the most complex systems on the planet to run because of the economies of scale. And just a lot of weird things, how many small files are going through everything. So when I got a chance to go to play in the anti spam, anti virus, you know, realm, to put a stop to that. I jumped that over it, you know, you know, the mission, I guess, of stopping Spam was more interesting than building a better search engine. And I did that I did the math once that it was early in Google stage. I think I think the number was in the in the 10s of millions of dollars worth of stock options. I told no to. Yeah, but as funny thing is I even after I got a different college degree, I got a master's degree in marketing. I moved Oklahoma and they have a data center here in Pryor, Oklahoma. They somehow they figured out I moved here. I don't know how they even do. They interviewed me. I went through seven or I was not I knew I did not want to do it. I was done with it. And I went through seven rounds of interview interviews with them before I told him no. Because I was like, I just I've never tell him no again. That was a big financial mistake. I shouldn't have told them no. The reason I told them now that time is the day and my last interview is the day after my father had passed and I told him I just was just like, my head's not on straight. Yeah, and the the hiring manager No, no, no fault to Google because every you know, Google has stuff, dozens of employees. I'm sure they have more than one asshole. But, uh, right, this guy was like, Well, I understand that happened. But we still have to do the interview today. And I was like, Look, I don't want to work for any company that sort of treat you that way, you can have a nice day. Right?
Klint Kendrick 35:12
And, yeah, you don't want to work for a manager. That's that way, regardless of the company. Absolutely. I don't blame you at all. But, you know, just think for a moment about the last party. So just kind of circling back to that identity crisis piece and think about the last party you went to what's one of the first questions we ask people? What do you do for a living? Right? It's just such an intrinsic part of our identity is you know, who we work for what we do. And so when an acquisition announcement is made, that identity is threatened, right? Because I I'm like, Well, who am I going to be? You know, what is my job going to be? In addition to the the financial uncertainty, so I'm sure a lot of folks out there took the psych one class, right, you remember Maslow's pyramid, very bottom right? Food, shelter, water, right? The next thing up there is your your family, and your social esteem, ends up being higher up on the ladder. So an m&a event threatens both of those things, it threatens your financial security, it threatens your ability to pay your bills to, you know, keep a roof over your head and food in your belly. And then it also threatens that identity that who I am in society, and how I interact with people. So you know, you got to figure that out, you got to kind of relearn who you are. And I realize that's a little bit geeky, you know, but it's kind of what I do, right? I'm a geek, but we manage that by helping the employees who are coming over, understand who we are, right. So you know, this is the kind of company that we end up that we are, this is who we want you to be in the context of our organization. And it's a really, really powerful thing to help the employee understand that. And that's why, you know, when big companies I've, one of the points I make in my book is that culture change cultural integration, it takes time, and it takes money. And I never understood the mindset of a leader who's willing to spend, you know, I don't care if it's 2 million on a transaction, I've done transactions with two people, I've done billion dollar, multi billion dollar transactions in my career, I don't care if it's 2 million, or $2 billion, or 20 billion, you got to have a little bit of time and a little bit of money set aside for cultural integration activities. And that can be as simple as we're going to update your email so that you've got the new domain name that affiliates with the company, we're going to give you a new badge, we're going to give you one of those stress ball things with the company logo on it, right, we're going to help you feel welcome. And embrace that new identity. Just like if you start a new job off the street, right, you get stuff that says this is who we are, these are our core values. As an organization, these are our operating norms and expectations, we're going to onboard you and tell you who we need you to be who that identity or what that identity is, in that context and with the m&a because it's much more jarring to a person because you know, I used to tell catching managers, right, you're gonna get an employee who didn't apply to work for you may not even want to work for this company may not even know what this company is or what we do. And there, they got a foot out the door already. So we got to help them to acclimate, we need to give them maybe a little extra attention that we wouldn't necessarily give somebody who made the choice to join us.
Ronald Skelton 38:32
I got that. So understanding individual identity during the acquisition, and how the employees identify themselves, and then a plan and a communication plan on how to deal with that is critical. As far as integration goes, I think you can almost do a kind of the who you are to me and who I am to you conversation. And really, you know, depending on how big the organization is, for what most of our listeners are, you know, in that buying companies in that 1 million to maybe 10 or $15 million you know, revenue range, I'm sure there's some of you guys out there doing much bigger deals, but the majority of the people that I talked to, and interviewers stuff, that's kind of the space they are, they're in, so they're looking at probably 10 employees to 250 300 employees tops. And you're working with that small of a pool of people really having a, you know, process around understanding how does each individual or at least each key individual, identify themselves outside of the company, and then a transaction or a transition, I should say transition plan to how they what their identity is with the new corporation is critical. And then I think the second part of that and I don't know that you talked about it, but I'm just out of curiosity is what their future looks like what are the what is what is it there that they can get, you know, be promoted into now? If they're especially if You're a small company getting acquired by a much bigger one, you know, what opportunities are on the table now that you're with a much bigger organization that may or may not have been there, you know, had you stayed small. So, right.
Klint Kendrick 40:13
One of the big recommendations I make, and this will be stunning to you, I'm sure is talk to the people. So there's a concept that we call a state interview. So most people have heard of an exit interview. Now my my personal feeling about exit interviews, is that getting an exit interview, you got an employee with a foot out the door, it's like asking for marriage counseling, after your spouse files for divorce, right? It's sure it'll be helpful for your next relationship, probably not great for the relationship that you're ending. A state interview, on the other hand, is where a manager or you know, a founder, whoever has a conversation with a person about why would you stay? And I give some really solid guidance and some sample questions in the book. But usually it falls into why do you come to work? Right? What motivates you to be here? What do you like about being here? And then what would cause them to leave those attrition questions like, Why would you leave what's making you crazy? And then finally, in an m&a context, they're what I call reaction questions like, How are you doing with this acquisition? Right? How is this affecting you what's going on kinds of questions, and it really is an opportunity for the person who's doing the interview to just shut up for a minute and listen, you know, which is something that I could probably use some development. And but, and I think a lot of leaders were used to telling people what to do. And it is a great opportunity to just be quiet for a few minutes, listen to what that person's telling you. And then the most important thing, most important thing is don't ask questions, if you're not willing to make changes. So you don't make promises during that conversation. Unless, you know, you can keep them. But at least you've heard the person and then you can go go back to you know, whatever the core team is doing the integration to decide how much of what's going to keep this person around, can we do, you know, I hear the word bespoke far too often these days. But in a lot of ways, you're kind of making a bespoke job opportunity for these folks where you're, you're shaping the job, to something that's really compelling for that person. And if they're key or critical to that organization operating. And you can just put one or two things in that'll help keep that person around and engaged, it can make an enormous difference. And that's where Ron, I think a lot of the listeners who have smaller companies have a lot of more leverage than the kind of firms that I work for. Because I think smaller organizations have the opportunity to really shape those jobs in a way where, you know, the responsibilities are broad, and the opportunities for development and expansion and, you know, higher responsibility, that's so much easier to do with a smaller organization than it is with the kinds of companies that I've worked with.
Ronald Skelton 42:56
Got it. So inside of the conversation. So it happens sometime after the loi, where you're allowed to talk to employees, I mean, you're getting serious at this point. You're sitting down with the key employees to start with, and eventually for us, the smaller companies, probably with every employee, and I wouldn't be interested, I almost bet money on a lot of these guys I talked to especially companies under 30 employees, or, or less, I would say, I'm gonna well Swagat hears scientific wild ass guess I'm going to swag that I would say maybe 50 to 60% maybe higher. If I asked every employee what their core values were, what the company's core values were, what the company's mission was, do they have a mission? If I just kind of covered that? I would get 45 different answers out of a 50 person company. Yeah. It's not as common as people think it is. Like I think some of the bigger companies do a really good job of setting mission statements and core values and making sure everybody understands them. But unless somebody is using a system like EOS or something where that's just built into what they do, I think it's missed quite a bit. So
Klint Kendrick 44:08
Well, I think you you pointed to something real critical there, which is what they do. So even organizations that have very similar mission, vision and value statements can operate in completely different ways. So the example that I often use, my, my little brother is a former Army, you know, kill you with this thumbs kind of guy, all of my brothers have served. That one was just, he's physically fit, he could run laps around me, you know me. I get on the treadmill once every few weeks, and I consider it a victory when I push 20 minutes out without failing. So this idea of having fun is packing you know, 100 pounds worth of stuff into the desert and try not to die. That does not sound like fun to me. My idea of fun is playing poker with my buddies with the keg nearby. So if you think about a company vision should be value statement that says Have fun. What does half fun really look like? Right? They could be very different. The other one that I see with a lot of startups is they have a value that says we win. And when I think about what winning looks like, well, for some companies winning means you get that customer at any cost, right? You slashed your margins, maybe you even do some things at a loss to win that customer. Well, another firm winning for them might be telling customers No, and maintaining the margins. So those value statements, in my experience, have really limited value unless you understand how they're operationalized how do they work? What do people do? How do they behave based on those values? So I think that's a big trap that people fall into when they're looking at company cultures, is they just stop at those value statements without really looking to your point at what people do and how they behave.
Ronald Skelton 45:55
That's a great one. So when you when you see their values, you know, their mission statements and their values on the walls. The question isn't isn't what are your values that are up on the walls? It's like how do you operationalize that? how is that implemented? And you ask the individual employees like how they implement those values. And that that'll give you a better perspective of what it is like you said, you know, it's funny as you're talking about camping in the woods I went from your brother's style to your style was when I was in my youth you know, idea of camping was take as much gear as I could on my back, hike, hike it a full day into the mountains somewhere away from other human beings sleep on the ground, and the next day hike another day into the mountains. So I'm a two days away from anybody and everything on the planet, and then camp for a week or two and the hike two days out that was that was fun for me. Then, you know, I've taken mistakenly, I think I've taken groups of the worst one I ever did was in the military. I think it took the two guys and 11 Girls, we hiked two and a half days in, camped. I toted a keg that far, by the way, I was I was a little mean, like this is a mountainous trail a lot it was downhill, I figured the cake would be empty on the way out, you know, so I, it's things changed with time. So I really appreciate this conversation, I think it's been missed. And the other 10 or 15 episodes we've already done. We've always talked about buying and legal due diligence and liabilities and asset transfers or, you know, buying the LLC and all this some schematics or you would call it the step by step procedures of what it means to you know, find one, negotiate it and buy it. But what you do when you have it so you don't crash and burn, it is critical, I think the HR opponent, or component sorry, the HR component around this is you know, the people. So there's one, we got about probably five or six more minutes, there are some, there are some things we probably had to look at inside of the smaller space that just for our listeners, in the United States, if I'm bringing the one I know up and see if you know there's others in our states, if I have more than 50 employees that are certain the HR requirements, I have to step in workers comp and all the little posters on the walls and all that click in Are there any other tears that if I go say over a certain number that we really got to change the way things run?
Klint Kendrick 48:16
It depends a great deal on the state. So in some states, one employee is going to subject you to certain rules in other states. 50 is the threshold. So there are quite a number of steps. So what I always recommend is that if you're going to be doing business in a new state, talk to somebody out there, there are a lot of really great HR consultancies, a lot of really great employment attorneys, who, you know, there's a there's a thing called a fractional CHRO, just like you could those fractional CEOs, I have a number of friends who provide those services. So I recommend connecting with one of those people, if you're doing business in a new jurisdiction. Even at this point, now, Ron, we're starting to get cities. So you know, a lot of larger cities on both of the coasts are putting specific rules in around things like employee sick leave, or schedule stability. And, you know, those are really important things to understand. And talking to an expert who knows that area is really going to be the best answer. We don't have a real flat nationwide guidance for a lot of those kinds of risks.
Ronald Skelton 49:20
And I think the other one inside of this falls inside of the Human Resources is not only the comp plan, but all the benefits and stuff that go into it. Do you have a 401k? Does the company match does or install an employee stock purchase option, you know, thing that's new? You know, a lot of these smaller companies wouldn't have any form of these type of employee stock option programs to where the bigger companies companies may. So there's an educational component of the integration for HR is like, Hey, here's your new benefits. Here's that here's how, here's how they benefit you. Yep. And then, I guess one of the things you need to look for inside of this. The whole conversation, you know, when you're just you know, doing that acquisition or you're thinking of this is where are the discrepancies? Right? Especially where are the spots where you might be cutting something that they're, they really see, you know, a good is a good example was there was a company that does construction. And interestingly, they it was woman owned, and she had a lot of female operators, meaning they run the equipment and stuff, and which I'm all for, I love the underdog, you want to create a female rent company in a male dominated space, I'll do everything I can to get behind you and help you I love it. I love disruptions. And I love the underdog. But a interesting thing was as we were talking to her, and another construction guy, he was totally like, Hey, we're gonna use my benefits and stuff. She had one that she wasn't gonna let go of. And as all childcare was paid, right, they had, they'd figured it out, did the math and worked it in to where they literally had a really cool space on the corporate site.
And the kids have ever people brought their kids to work. And you know, there was systems there where the, the operator could actually pull up the thing on their phone and see their, you know, see the kids on camera. And, I mean, she went out of the way to make sure that her employees knew that their kids were safe, where they're at work. And the new guy was like, Yeah, I'm not doing any of that stuff. So that didn't go through as an all I was doing is, you know, I knew both parties always kind of helped helping the conversation. And so the cultural differences can kill it make or break a deal. It really can. She was more interested that her female operators when one keep their job, because it's a male dominated space, and to keep their benefits that she was what she was getting out of that deal.
Klint Kendrick 51:56
Yeah. So that that really speaks to that sacred cows that I talked about, right, that daycare space, absolutely a sacred cow. Um, one thing that I do have is, in the books, I've got what I call a total rewards side by side. So total rewards, fancy HR talk for your comp, your basically your pay your bonus, your benefits, your perks, some other elements in there. And I think it's a very, very important part of not only the financial diligence side, right, because those things do cost money, and you need to decide how you're allocating your funds. But it's also really important for those employee communications to really understand what's available for the employees when they're with company A. And if you're going to move those employees to Company B, what does that discrepancy look like? It makes it a lot easier to use a structured approach to understanding those differences. And then I've worked in situations where, you know, we've moved people into a, from a very rich bonus plan, where, you know, bonuses were 25 to 30% of base pay to companies that didn't do bonuses. And so we had to decide, well, we don't do bonuses at this level. So are we going to increase the base pay? Are we going to make some other changes? You know, they, it becomes really kind of a juggling act, because if you've got, you know, one company that bonuses better than the other company, but they have a 401 K match, and the other one doesn't, right? There's a lot of different pieces that go into looking at that. The thing that I found with employees is is that two things, one, anything that goes away feels like a takeaway. It's a kick in the teeth, right? They didn't get a choice, they didn't get a vote, you know? And that can be really, it just hurts, right? It's painful.
Number two, don't surprise him with it. Right? Let him know up front. This is what we're thinking about. These are the changes that we're making. And the last thing if I had one tip that I would give to anybody talking to employees during an m&a about their total rewards or about anything different, do not tell people that nothing is going to change. If you take only one thing away from this conversation, that should be it. If you stand up in front of a roomful of employees, I don't care if it's two people or 2000 people and you tell them, nothing's gonna change, you're lying to them and they know you're lying, then you're probably not doing it on purpose.
Ronald Skelton 54:13
They're BS meters going off right away, like
Klint Kendrick 54:16
they intend for nothing to change. But the reality is that something has changed, right? There is a new boss at the top, there are new expectations of the way that that business runs, and the employees know that so don't tell them nothing's gonna change. Tell them we don't know what's going to change or our intention is to have as little change and disruption as possible. But don't tell him nothing's gonna change. So that's probably my big takeaway when dealing with with employees on a broad basis.
Ronald Skelton 54:42
Well, Clint, it was awesome. We're getting towards the top of the hour here. I'm going to show your contact information double check that for me is that
Klint Kendrick 54:48
Ronald Skelton 54:49
Awesome. So if you guys are just listening to the podcast, you're not watching the YouTube channel. You love for you to go to the YouTube channel and subscribe. But uh, you can find him on LinkedIn.
It's Clent spelt with a k k l i n t. Kendrick, k e n d ri CK Clint
Kendrick, on on LinkedIn as the best way to reach him. How did they find this book? I see it's right on your LinkedIn header. Is there? What's the name of the book? And how can they find it?
Klint Kendrick 55:19
Yeah, so I just dropped my other book. So I'm a I'm also a director to Fortune 500 company leading hr m&a there. So I don't consult independently, but I like to get back to the community. So that's why I wrote the two books. So the first is the HR practitioners guide to mergers and acquisitions, due diligence. So you can tell why I'm an HR guy and not a book marketer, because it probably would have been a simpler title. If I were a marketer, put it out there. Yeah, the other book is the HR practitioners guide to cultural integration in mergers and acquisitions. Both of those Amazon's really the easiest place to grab them. I really tried to make them very useful, practical hands on using a lot of stories, and very targeted at HR people. But I also recognize that a lot of folks doing deals, they don't have an HR person, and they want to do the best they can for their people. So I tried to make it accessible. And I tried to use as little HR jargon as possible for folks that really want to step in, especially on the cultural integration side, and don't want to get super technical.
Ronald Skelton 56:24
So I know I'm going to go to Amazon and pick them both up because I love a good bookshelf and got one right here. Excellent in that. So I'm a big fan of, of having content at my fingertips if I need it. So and I'll have my team pull the links for both of your books off of Amazon and put them in the show notes. So if you're listening to this in the podcast, and you want to get a hold of his books, the best thing to do is go to your app and look at the show notes. I'll have both links to his books in there. I appreciate your time. today. We are where we are at the top of the hour. I'm gonna end this hang out for a few seconds afterwards. I'll chat with you and then we'll, we'll call it a day.
Klint Kendrick 57:01
Sounds good. Thanks for the invitation. It was a pleasure.
Ronald Skelton 57:03
I enjoyed it as fun I learned some things. So thank you again,
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