Learning the Best Practices of an M&A Finance Process

Welcome back to CFO Weekly, where we're talking with financial leaders about how to build efficiency in their team, create time for strategy, and ultimately get results. With your host Megan Weis. Let's jump right in.

Megan Weis: Today my guests are Mark Miller and Liz Hosman. Mark works closely with Walker Sands board and senior leadership to define and execute finance-related initiatives and plan for future growth, including budgeting, forecasting, pricing and strategic planning. Prior to joining Walker Sands, Mark was the Director of Finance for a mid-sized professional services firm. In this role, he led budgeting and reforecasting activities, due diligence and valuation for acquisitions, while overseeing the firm's FP&A function during a period in which the firm more than tripled its revenue.

Mark earned his MBA in finance and accounting from J.L. Kellogg School of Management at Northwestern University and also holds a B.S. in finance from the Kelley School of Business at Indiana University.

As VP Finance and Business Partner, Liz collaborates with leaders to support the goals and objectives of the service departments. Liz coordinates with other corporate functions such as HR/talent, IT and marketing to execute cross-functional initiatives that support department and agency objectives.

As March's longest-standing employee, Liz could not be more thrilled to see the agency grow and join forces with Walker Sands.

Liz holds a bachelor's degree in communications from Marist College and lives in the beautiful state of New Hampshire with her family.

To provide you all with some context for this episode, March Communications, a Boston-based PR agency was acquired by Walker Sands, a B2B tech agency in August of 2021. As a combined company, they make the fifth largest technology-focused firm in the country.

Today I'm speaking with Mark Miller as VP Finance and Liz Hosman VP Finance Business Partner, to discuss tips, tricks and best practices they've learned along the way during the acquisition. Liz and Mark, thank you so much for being on today's episode.

Mark Miller: Thank you, Megan, for having us.

Liz Hosman: Yes, we're so excited. Thank you, Megan.

Megan: Mark, let's start with you. Can you tell me a bit about Walker Sands?

Mark: Sure. Walker Sands was founded in 2001 by Ken Gaebler and Ellen Hanson. At the time, Walker Sands was originally a PR agency and especially over, I'd say, the last five or six years, it's evolved into an integrated marketing agency where we have added considerable capabilities and staff, and creative, demand generation, digital marketing, and web. We've grown, now we have about 155 Walker Sands employees. If you add in the March employees, we're getting close to about 180 employees. Walker Sands offices are in Chicago, our headquarters, Seattle and San Francisco.

Megan: Just real quick there, how many acquisitions have you personally gone through?

Mark: Personally, on the buy side, this is about my third, I think my third or fourth.

Megan: Liz, can you tell us a bit about March?

Liz: Sure. March was founded in 2005 by another dynamic husband and wife duo of Martin Jones and Cheryl Gale. Martin Jones was the CEO and Cheryl was the managing partner. March has offices in Boston, so our headquarters is in Boston. We also have an office in Atlanta, and we partner with innovative tech companies to bring their stories to life. We compliment Walker Sands, Walker Sands compliments March, so it's a really good fit so far.

Megan: Liz, was this your first time going through this acquisition?

Liz: It was. First time going through the process, learned a lot along the way. I think that's what we're here to talk about and provide some good tips and tricks for everyone.

Megan: Awesome. Tell me a little bit about the driving force that brought these two companies together.

Mark: Yes. I can take that one. We have a private equity sponsor and we partnered with them in August of 2019. I would say, once we got through the pandemic turbulence of the first part of 2020, we really started to focus on our M&A strategy in 2021. There were two real key tenets of that strategy. One is, that a target company, we really want them to have the focus in the B2B tech space, which March absolutely checks that box.

The other thing we were keen on is, establishing a foothold in the east coast of the United States. As I mentioned at the top, we're headquartered in Chicago and we have a strong and growing presence on the west coast in Seattle and San Francisco. Getting that coast to coast presence was really important to us. We took a close look at these east coast markets and identified Boston and Atlanta as areas where we wanted to be, one or the other, and March hit and checked both of those boxes. They were a really attractive business for us to take a closer look at.

Megan: Liz, anything to add?

Liz: Yes. I think I'll just chime in with, we had a rough stint with COVID as like most companies have, and it was time for a change. We needed something really positive and uplifting for our employees. We knew that most people wanted to stay, so we wanted to give people more opportunities. I think that's what really attracted us to Walker Sands.

Megan: Yes. That's great. Can each of you talk a little bit about your role within the M&A process. Liz, let's start with you for this one.

Liz: Sure. I played a key role in the due diligence process which was essentially gathering company data. Historical information, present day information, and no request was a silly request. They needed everything, and we had really great record of everything which I think really helped with the process. Think tax returns, financial statements, staffing requests, budgets, and we worked really closely with Walker Sands leadership team at the private equity sponsor, and then various consultants and accounting legal tax advisors just to get to the finish line. There were always really tight deadlines and long hours, but it was definitely worth at the end.

I think one challenge that both parties faced in the due diligence process is that, you want to disclose as much as possible, that you don't omit disclosing something. It's like figuring out, I think it's best to just throw everything out there on the table because they want to get a good feel for the company. Being organized with accurate record is vital along the way.

Megan: Mark, tell us a little bit about your role.

Mark: Yes. I worked really closely with our PE sponsor on some of the commercial and business due diligence, really just looking at the business of March Communications from all angles. Things like their revenue and profitability trends over time, what's their average client size, what's their mix of retainers versus projects, what industry are their clients in. It's a lot of the same metrics that at Walker Sands, before March joined us, we would look at these metrics just to keep a pulse on the health of the business. I worked closely with the PE sponsor and other members of our executive team to make sure that everything was checking out.

Megan: From beginning to end, just curious, how long was this process?

Liz: I want to say, was it November of 2020 was like the initial start.

Mark: Yes. That probably lines up. I would say, late 2020 we said, "Hey, there's this company March Communications in Boston that is interesting to us." Then I think we signed an LOI probably by May of 2021, April or May, and the deal closed in August of 2021.

Liz: That sounds about right. I was heavily involved from May onward, so the due diligence process was through May through late July, and then mid-August it was closed. Yes. That sounds about right.

Megan: How was all this? How was it to manage this as well as your day to day jobs? I'm sure it was stressful.

Liz: It was, but there was a lot of overlap too, so I think it was just trying to figure out what was important. This was my day job for three months as I'm sure it was for Mark and the Walker Sands leadership team too.

Mark: Yes. You really have to bifurcate what you're doing between the M&A and the day to day. It's like you have this second job of managing the acquisition process that very few people know about. It's confidential up until the last moment. It's hard to balance sometimes.

Liz: Right. That was challenging too because you didn't want to push back on someone and say what you were working on, because you couldn't say what you were working on.

Megan: I'm sure that adds to the stress.

Liz: Yes. Then people understood once they found out in August like, "Oh, that's why you were so busy." I was like, yes.

Megan: Do you two have tips that made the M&A process a bit easier?

Liz: Sure. I can start with that one. From the March side and really any side, having strong record keeping processes was essential to meeting those tight deadlines as I previously mentioned. All our financial records and reports are in QuickBooks. They're easy to pull, easy to export, easy to upload payroll datas and paychecks, and then all corporate documents are on a secure server. You want to make sure that everything is secure. When you send things, everything is password-protected or on a secure server.

Given the nature of working remotely, we're going on two years now because of the pandemic, it's logistically helpful just to have a really good internet connection at home and a printer if you need it, and just some quiet space to hunker down and really just focus.

Megan: Mark, you?

Mark: I would reiterate what Liz said, just about the organization of all of your files and everything is super important because if you can't respond quickly and accurately to requests, that starts to knock down the confidence level of any buyer that's looking at you as a solid asset. I think as a company looking ahead, if you're interested in selling, having well-defined and documented processes and procedures are really important too, especially as a professional services company.

What any buyer is buying, they're buying people and clients and process. Being able to demonstrate that you have all of those things to a buyer, is really important and can increase the value of the company and the amount that any buyer is willing to pay.

Megan: I'm sure no buyer wants to buy an asset that's all in somebody's head. Like you said, having those processes clearly documented and yes, I'm sure that goes a long, long way.

Liz: Right. You'll just get a backlog of requests too, because everything is all tied to one another. One request leads to another leads to another, so you'll just get fall completely far behind with requests.

Megan: Tell me something new that you two learned during this process, and any advice that you could give for a company that is currently going through a merger or looking to maybe go through one in the near future. Liz, let's start with you.

Liz: Sure. If any of the listeners heard my podcast from March of 2021, you may remember that my background was not in finance. I was actually March's first employee and I started on the PR side, and naturally moved to the finance and operation side of the business. I really thrive on learning and trying new things and I enjoyed learning how a larger company operates financially from different ways of reporting and just more sophisticated operation.

What March did was great, but we were at a smaller scale, so just learning how the ins and outs of a bigger company. That's everything from day to day accounting and audits and calculating EBITDA, and before the summer I had no idea what that meant. If you don't know what that means, no big deal, it's earnings before interest, taxes, and depreciation. A little fun fact there. I think in terms of culture, March and Walker Sands are very, very similar. We put our people first.

It's really important to be transparent with changes through regular staff communication. People want to know what's going on, especially when it's a big change like this and it affects everyone across the organization no matter what level, even from interns to senior vice president. We put integration task force in place at the end of August, we meet weekly, we discuss key areas, finance, operations, HR, marketing. Legacy employees can expect change, so we need to make sure that a support system is in place, so all their questions can be answered timely and just the new March, which is now Walker Sands, set us up for success.

Megan: Just real quick right there. Were most people scared of this acquisition, was it frightening for them or was it something they were excited about?

Liz: Really excited, but then with excitement comes nerve, what happens next. I think that we did a great job of positioning this as an opportunity for everyone across the board. There's opportunities to go to a different sector. There's different client team. I think more excitement than nerve for sure.

Megan: Mark, I'm interested to know your answer here as well, having gone through this a few times.

Mark: Yes. I think as much as you want to try to define a playbook for acquisitions and that is helpful, everyone is definitely unique from how you structure the deal financially. Do you pay cash, debt equity, some combination, how do you integrate the business? Do you fully bring everybody together or do you let the company work independently on the side. I think the one constant variable once you make all those decisions that will define success, is the compatibility of the management team.

I think from our very first meetings with Martin and Cheryl and Liz and the rest of the March team, it was just clear that culturally we're similar. Very employee-centric organizations. We think about our clients and how we service them in a similar way. Then when all the ink is dry on the paperwork and it's day one of the combined company, where do we go from there? How do we set up new norms and processes and communicate that, I think that's really important so that the deal stays together. You have the company that you thought you bought, and I think that both sides have done a really good job in setting the tone with all of our employees.

Megan: It's interesting to me that you both mentioned the importance of being culturally similar. Would you put that as the most important factor in a successful merger or is there something else that dictates success?

Mark: It's a little bit of a chicken and an egg thing. I think it's the most important in some sense, but the other important thing is the health and the viability of the company that you're buying. Do they have the types of clients that you want? Do they have a good sales pipeline? Are they able to service? Do they have good leadership? Okay. Once you can check all those boxes and make sure that the company that you're buying is solid, none of that matters then if the cultures don't line up. Yes, I think the most financially sound deal can fall apart if the cultures and the management team aren't aligned.

Megan: What kept you up at night during the merger or what is currently keeping you up at night right now?

Liz: I am probably the world's worst sleeper, so a lot of things keep me up at night. If anyone has some sleep hygiene tip aside from don't look at your phone and meditate before bed, let me know. I would compare this to the PPP process and I know I told a friend about the process before, how it's like going on like a first date when you're in your 20s and you're like, are they going to call me back? How long do I wait?

I think with the PPP it was like, when are we getting approved? When are we going to get the money? Can we tell people? I think that was the questions that were going through my head. What else are they going to need? How is it going to affect my colleagues? I think being March's first employee, it's a family to me and I care about all the people there, even people that are brand new. Then when the finish line approached, it was just a huge sigh of relief and then more questions came up. What is this going to mean for employees next year? What is it going to mean the year after? That's just the type, the circle of life of my sleep schedule.

Megan: Liz, that reminds me of the process of going through and getting a mortgage, stressful, right at the end more questions come up, so yes.

Liz: Exactly. Same for like a house, you put an offer. Yes, exactly.

Megan: Mark, you?

Mark: Yes. I think this is something that I think a lot about, and I know Liz does and of the rest of our leadership team, but it's just how to balance the needs, wants, desires, of a diverse and growing group of stakeholders. I think when Walker Sands started 20 years ago, where there was a core group of people and everybody we recruited from a lot of the same places, people were brought up and trained similarly. Our pipeline was our internship and everybody came up and grew up at Walker Sands in the same way.

Then even before March, we had people coming in from other agencies, different backgrounds, and then we acquired March. You just have people coming in with all different sorts of perspectives and expectations, and how do you work together in a harmonious way that can keep our growth going strong.

Megan: I'm curious here, are you guys both still remote? Is everybody working remote or are you guys in an office?

Liz: For Boston the office is open. It's optional if you want to go in. I think given the recent surge in COVID, we're encouraging to stay remote. In terms of then your future, it's really hard to predict and I think Walker Sands is pretty similar.

Mark: Yes. We're open for business, but I think between the snow or the ice, the 20 degree weather, COVID, people just not wanting to commute. Most people are remote at the moment.

Megan: I lived in Chicago for a while and yes, I remember the winter. It was not fun. Has that made the integration any more difficult in your opinion?

Liz: I don't think so. I think that we proved in the past two years that people can be very efficient working from home and it gives people the flexibility. I have a young son, Mark has a young daughter, and just being able to work when it works for you. Being able to have that cliché work life balance. I put laundry in before I started my day and it helps. It definitely helps.

Megan: Yes. I'm a huge fan of the flexibility provided by work from home.

Liz: Yes. For sure.

Megan: What are you two looking forward to in 2022 as the new Walker Sands, and what advice would you give finance teams looking to drive strategic value to grow revenue and margin?

Liz: I personally cannot wait to be part of a bigger finance team. The March finance team was myself and the CEO. Now we have a team of, five of us and being a very process-driven person, I love all the new tools that I'm learning and beginning to use. It's the Salesforce suite and Power BI and even the switch from Microsoft to G-suite, that was a huge hesitation on my end, but it's actually making my day very productive. Then, Mark, if you want to talk about how finance teams can drive some value.

Mark: Yes. We're really focused on building out three areas of our team. These have been three, I would say more informal areas that we've thought of ourselves in a certain way in the past, but we're more formalizing it this year. The three areas that we have within our finance and accounting team is first, is a technical accounting. We have an accounting manager and an accounting coordinator who run our technical accounting team. Those individuals maintain our general ledger. They do month-end close, they run payroll. At the end of the day their mandate is to maintain accurate data within our system so that we can pull anything out of the system and know that it's accurate and reliable.

The second piece is, FP&A financial planning and analysis. That team takes a lot of the data that we get from our accounting system, our CRM, resource planning system, and they transform that data and really bring it to life in our forecasts, our board reporting, our budgets, and helping support decisions across the agency.

The third one, which is more of a nascent arm of our group as we grow, and Liz is going to be playing a big role in this for our PR department this year is, business partnering. The job of the business partner is to really bring all of this data to life and communicate it to our practice leaders. Vice presidents and above typically who are not finance and accounting professionals, and be able to communicate this information in a way that they can understand, that draws a correlation between the decisions that they make about clients and pricing and hiring. Then what do those actions produce in terms of financial results.

Liz in 2022 is going to be focused on our PR department, which is about 40% to 50% of Walker Sands' revenue. Helping them answer questions like, how many people do I need to hire? When do I need to do it? What areas and what levels do I need to hire these people? If we lose clients unexpectedly, what does that do to profitability in the short term and what do we need to do to recover? In many ways the business partner, a right hand to agency decision makers, department heads, to enable smart decisions that keep us within the guardrails of our budget.

Megan: Yes. I would argue that last category of business partnering or creating insights from data, is the wave of the future for finance and accounting.

Mark: Yes. I think so. We're putting our chips in that area and I think it's the right thing to be doing.

Megan: Liz and Mark, thank you so much for being my guests today.

Liz: Thank you, Megan. This is great. This is really fun.

Mark: Yes. Thanks for having us.

Megan: Yes. I really enjoyed speaking with you and hearing your tips and tricks for a successful acquisition. If the company's integration is half as energetic as the partnership that you two have demonstrated today, I'd say you guys are set to be a huge success.

Liz: Thanks, Megan.

Megan: To all of our listeners, thank you for tuning in. Please join me again next week for another episode, and until then take care of yourselves.

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