In our last episode of Building Successful Businesses with Duncan Painter, we chat about making M&A work and what lessons he’s learned about successful execution.
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Fiona: In this final episode, chatting to Duncan Painter, CEO of Ascential plc, we discuss how the business has successfully completed 15 acquisitions and I ask what he thinks is key to an effective M&A strategy.
Duncan: Firstly, what I would say, having done a high proportion of M& A in my career, is that it is a very dangerous sport, and it’s a very dangerous sport that can very, very quickly go wrong if you’re not careful. If you’re buying businesses, you definitely do not want to abdicate or you want very, very empowered people making those choices. You need to be willing to say no right up to the last night, no matter how much you’ve spent on it, no matter how much you’ve committed to it.
It’s not something we would want to do too often, but we have pulled out of a couple of deals where we’d spent six to nine months on them, on the last night. We don’t see that as a failure. We see that as making the right choices. You have to do really comprehensive due diligence and get in amongst the business and get in amongst the customers. One example I’ll give you that most advisors are surprised by, but when we get commercial due diligence or any form of due diligence that involves customer interviews, I don’t want summaries. I want full verbatims of the customer interviews, and then I will often go out separately and meet customers, directly myself. Because again, that is the number one best source of information about a company that you are thinking of acquiring. Talk to the people who use it day in, day out.
For us, we’ve been quite deliberate about the acquisitions we’ve been making. We’ve made a number, but we’ve made a number to build out a capability very quickly in a segment. We used to call it our jigsaw model, where effectively we had literally a jigsaw diagram that would have every capability that we felt the system had to have to make customers work really effectively. We would systematically look at who were the organisations we felt really fitted the jigsaw piece the best. Then the other factor we’ve put on our strategy for M&A, Fiona, is, we have conditioned that with the ability to easily integrate that technology into our system. So, if the company that we look to acquire was a brilliant company, but had effectively developed and built their technology in a totally different sort of architectural approach or capability set to what we used, we wouldn’t acquire them.
Fiona: In terms of where you’ve seen it go wrong at other companies, do you think the biggest hindrance is that defining the strategy in your own jigsaw upfront hasn’t happened? Or do you think it’s that leadership teams go so far down the track of thinking it’s going to happen, it’s then too hard to withdraw?
Duncan: Look, there’s probably lots of factors why it doesn’t work. And as I’ve indicated, you know, not all of ours have been fabulous successes, right? Certainly, we’ve had our fair share of where it’s not quite been what we thought. So, what I would say is it doesn’t matter how much due diligence you do on a company, you never quite know what you’ve bought until the day after when you’ve bought it. So, you’ve got to be as open-minded in the first 90 days about what the plan is as you were going in.
I think the other thing is that having the true north around customer feedback and end-customer feedback of those companies has to be your true north. I’ve heard this said many times, which is, “Oh, that’s okay because we can fix that.” The second you start saying those words is probably a reason not to buy that business, right? Because very rarely can you fix it. I had a colleague when I was at Experian who came out with this absolutely fantastic comment, which was, “You know, we really, really wanted to buy this business, but we’ve now figured out we really would be tethering a donkey to our racehorse.”
It’s very, very hard when you’re at the end of an exercise to admit that. But, my feedback to anyone is, you’ll have doubts, of course, Fiona, you’ll have doubts anyway, so it’s not like you won’t have doubts. If you don’t have doubts about a deal, there’s probably something slightly wrong anyway. It’s just trying to gauge just, you know, are those doubts getting to a point now where you just know no is probably the right answer?
Fiona: Don’t get M&A fever.
Duncan: Well fortunately, the thing I can say to most of this audience is, always listen to what people are telling if they are, you know, deal professionals. That’s the other thing that I learned very early on. It was one of the great lessons that Sean and people taught me, which is, have people that you fundamentally trust to work on these things for you. How do you know that you trust them? Well, because you do, right? The only way you get that is to do more with them regularly.
So, you know, if I look at every single major M&A transaction I’ve done in the last 25 years, you know, Edmund Reed at Travers Smith has been my lawyer on every one of them. Edmund happens to now be the managing partner of that firm, but that’s nothing to do with my work. We had to pick a really good individual there, but what we got to was a consistency and a trust where when flags were coming up from Edmund, you listen to them. You don’t think, oh, is it just, you know, this advisor trying to earn their fee and demonstrate their value or whatever the arguments are?
So, picking a group of professional advisors, and in the case of when ECI is invested in you, listening to the investment leads, is what I’d encourage every leader to do. My final parting gift on that is not only when you’re buying, but also when you are selling. If I’d had my way, I would’ve sold Clarity Blue the year before to an offer that we had. Sean and Ken and the team really advised me not to do it and 18 months later, we sold it for 4 times the price.
Fiona: That is a great parting gift.
Duncan: So, you know, in that case it was listening to the professionals saying, “No, no, no, we can do much better than this.” And having the confidence that we could do much better. Because there’s a prime example of how because we were all fully aligned and I trusted the people involved in our business, we got a phenomenal outcome, as you said at the start of the exercise. That lesson taught me more about how to de-risk M&A than anything else I’ve ever done.
In that case, to me, the only set of advisors that I wanted to listen to were the people who had real skin in the game, which was, you know, Andy as the chairman and Sean as the investment director, and also ECI because they were a significant shareholder with us and had real skin in the game. Andy obviously had equity but had also proved to have extremely good, consistent advice. I think at that time, no matter what everyone else around you is saying, that’s where you’ve just got to trust in those individuals. Go into a locked room, figure out the best answer between that group of stakeholders.
Fiona: So, other than how great ECI are and listening to your private equity investors, do you have any other last advice for CEOs or entrepreneurs when it comes to building successful businesses?
Duncan: I think my biggest piece of advice that I’ve tried to stick to in every case is never create a business to sell it. Create a great business. At Sky, this mindset was completely true, which is this is my business, it’s family-owned, and we are going to own this business forever. Now what are the right decisions to make? Sky had a phenomenal tagline that was as much about how we worked internally as it was with the customers, which was, “Believe in Better.” It was such a simple three-word thing that just said, every day turn up and believe in better. You know, you can make this company, no matter what job you are in, a better company by the end of the day than when it started by doing something that is investing in making it better.
That would be my advice. If you do that and you do it consistently for a number of years, as well as if you’re in the right market and all the other factors that have to line up, then I suspect you’re going to consistently get good results.
Fiona: Duncan, thank you so much. Always a pleasure to catch up with an ECI alumni, and loads of great advice around putting customers at the heart of the strategy, how their feedback ties into M& A, and how to build more successful businesses.
Duncan: Cheers, Fiona. Bye-bye.