Ep. 161: Omar Choucair - M&A Operations
Omar Choucair, CFO at Trintech, joins Count Me In to talk about why and how corporate merger and acquisition (M&A) operations are falling short in today's competitive business landscape. Omar is a senior level financial executive with broad experience in corporate finance, accounting, corporate governance, and FP&A management skills. In this episode, he is able to discuss the specific challenges firms are facing and how to overcome them. He also addresses related trends and what he expects in the future. Download and listen now!
FULL EPISODE TRANSCRIPT
Welcome back to Count Me In, IMA's podcast about all things affecting the accounting and finance world. This is your host Mitch Roshong, and I'm pleased to introduce you to Omar Choucair. Omar is the CFO at Tritech a world class financial operations and insights company committed to transforming financial processes to best in class levels of efficiency and effectiveness. Omar is a senior level financial executive with broad experience in corporate finance, accounting, corporate governance, and FP&A management skills. Here, in episode 161 of our series, he talks about why and how corporate M&A operations are falling short and where he sees the trends going in the future. Keep listening as we head over to the conversation now.
Omar, thanks so much for joining us today, and we're gonna jump right into things in Bain's global M&A 2021 report, they state that M&A is expected to spur 45% of revenue growth over the next three years. Up from 30% over the last three years, one of the first lines of the report says as the world locked down and masked up M&A endured, do you agree with their sentiment?
Yes. Wholeheartedly. And, thanks for taking the time it's, you know, the last 18 months have been quite overwhelming in terms of, the things that have happened to, you know, public companies and private companies. And, you know, to the extent that, somebody would said back in, the February, March timeframe of 2020, what was about to happen? I think a lot of people wouldn't have believed it, but yes, it's, it's been astounding.
Definitely. I think everybody's just their minds have blown what's happening. but what's great is that business seems to be booming or not really booming, but increasing, which I think is one of the things that with everything locking down, we're still moving forward, which is great.
Yeah. It's if you go back and think about just how many companies have grappled with, employees working remotely and the technology and the processes and the procedures that all these companies had to deal with early on in the pandemic. And to think that whether it was, you know, strategics, large strategic public companies, private equity, venture capital that this M&A engine continued, and not only continued, but accelerated all the way through the end of 20. And then, continuing through the first, you know, 10 months of 2021 is absolutely stunning.
So even with this positive outlook that we've been talking about, many corporate M&A operations seem to be falling short still, can we focus a little bit on why and how this continues to occur?
Sure. I would say a couple of things. So first of all the large strategics, you know, they had the capital. So I don't think there was an issue with respect to capital. I think they had cash on the balance sheet. They had plentiful access to, you know, to public debt, private debt, et cetera. I think what could have happened was that these large strategics had a process and a control procedure about how to do M&A, it was like very programmatic. And I think what could have happened was when everybody went and started working from home and the remote side, that a lot of that programmatic process, it wasn't hardened for people working from home. And that's my personal belief. And I think additionally, to the extent that those companies, those large strategics had, built in technology, whether it was on the FP&A side on the financial close side, just in terms of, you know, R&D, those companies that were really hardened and connected on the IT side, I think they did extremely well versus their counterparts that maybe had not invested in technology. And they saw this like, gap between what they thought they could do and what they actually could do. And just the, the astounding pace at what's, the M&A, you know, market continued. It really, it probably put a lot of pressure and squeeze on some of those companies.
Do you think that there was a bit of a change management gap as well for those companies that were not kind of up to par?
I think the, the change management is always difficult. And if you kind of, you know, zoom out a little bit in terms of change management and just the integration, I know the first hundred days are just, it's almost like it's the, it's all the due diligence, you know, up until the time that there's an M&A deal that gets signed. And there's a whole process around that. And I think we can talk about that in a little bit, but in terms of the first hundred days after, those first hundred days after are critical in terms of culture, in terms of what did companies buy, did they buy technology? Did they buy, did they make customer list? Like, what is it, what was the strategic asset that they bought? And I think that's really important.
Do you think that first hundred days is even harder when you have a remote workforce?
I think the first hundred days are significantly harder when you have a remote workforce. And the reason is because there's two cultures that have to get fused. It's the it's, you have to prep the buyer's culture, right. In terms of now we have this additional responsibility. And a lot of times, you know, the C level and the board, they're all super excited about, you know, doing the M&A, but then it's the mid-level management. Everybody else go, wait a minute, I've got all this additional work I have to do. Right. So, sometimes there's a gap between the board and senior management and what, you know, the people that actually are doing some of the work. So I think there's that. And then I think also to the extent that, you know, the systems and the process and technology are not really running at optimum level, when you bring on an additional, you know, set of revenue streams, and HR and people and technology, it can be a very stressful period. And then if all those people are working at home and they don't have that culture. Yeah. It's a lot of work. And I think, you know, for the CEO, CFO, et cetera, there's a lot of gut checks that have to be made all along, all along the way.
All right. So we've been talking a little bit about the, how and the why and how it affects the people, but can we focus now just what's some steps that we can take to overcome these challenges and the things we've been discussing.
Right. I would say it's really in two pieces. So the large public companies, you know, they have obviously the large public companies versus, you know, private, you know, PE-backed companies, if you will, it's a different ballgame, right? So those public companies, they have, you know, legal obligations to have programmatic controls and processes, et cetera in place. So, so any company that's a public company. And then we can talk about the SPAC and little bit, they they've had to jump into that public company real quickly, but to the extent that they have controls and procedures, it's a little bit easier for them to solve the gaps because they have a roadmap and they have certain monthly and quarterly controls that have to get done. And they're very well documented. They're very well tested. They have third parties that are testing them all the time. So the gap is a little bit easier for public companies because I think they know what to do. I think the real question then is for the management is how do they get folks that are working at home to continue to meet those controls and procedures? Cuz that is a challenge with people working from home. That challenge is alleviated. If they have good technology and they have good systems, you know, and back office tools, cetera. On the private side, you know, whether it's to PE companies, et cetera, those controls and procedures probably aren't as robust as they would be at public companies. And I think, the private companies, they probably have a different skill set in terms of their, you know, their management team. And they probably pivot a lot quicker. They probably more nimble, more flexible. They can do things, you know, quicker and sooner than what, you know, public companies can just because of the nature of their business. So cause of that, I think they can move. They can move a lot faster.
So do you think size matters then when it comes to this process?
It could, I think there are some large, you know, multi-billion dollar companies that can move very quickly because they have the people that they need to move. Right? The valuations now are so competitive that if companies do not move quickly, they get eliminated very fast. So, so I think a lot of larger companies have, you know, very robust M&A that they can move pretty quickly. Other words, they have a process down to move quickly. They can get approvals, they can diligence quickly. They can get approvals quickly, et cetera. I just think there are certain ones that do a lot better job than others, right? On the private equity side, I think they can move extremely quickly, very fast. They have a lot of resources inside, you know, the PE companies, a lot of the companies have very experienced, M&A, you know, teams that can go through things quickly. They have accountants and attorneys and consultants on speed dial. That can jump in, even though it's getting harder and harder to capture those folks, cuz they're in such high demand, you can still find people that can, when you say jump, they say how high. And they can move in quickly. So, they can be pretty nimble if they need to be. And then, you know, we haven't talked about access to capital, but you know, there's a lot of cash on the sidelines, a lot of access to public and private debt.
Do you think that's why the SPAC market has been like going through the roof too? I was reading the other day, how many have happened? And just in 2021 alone, it's like in the hundreds and you're like, what! I think that seems to be the way people are way companies are going. Why do you think that is?
It is a completely, well, it's not a new vehicle. There used to be blank check companies that were just called blank check companies years and years ago done this for a long time. And they were always around, but I think what's happened is that there's just so many new opportunities. Just take, for example, you know the EV car companies, you know, Lucid Motors came out and I mean, there's so many different opportunities now that I think they took advantage of the SPACs. And I think the SPACs can be very lucrative for the owners of the SPACs. And so once there's a investment vehicle that is, that's interesting. A lot of people, you know, the herd mentality, they jump in and the SPACs were really popular at the end of last year and they continued to be popular. But I think in the last two months, it slowed a little bit just because the SEC came in and has, you know, has taken notice in terms of the SPACs. And, you know, they're putting a lot more, you know, public company disclosure around certain metrics inside those companies. And, you know, the values were really, really strong through the summer. And I think over the last couple of months, they they've tailed off a little bit. I think maybe some of the views may be that some of the companies that went public through a SPAC might have been a little bit early in terms of really being, game time ready to be a public company. That's just from what I've read and seen. So, I think that kind of remains to be seen, but there are lots of opportunities on this back side, just given the vehicle and given the, you know, the people these are very sophisticated investors that are in SPACs.
Definitely. And it's almost like it's overcoming what the normal IPO used to be. Right. And the SPAC is like the new fan gold, like low gold that people are like, Hey, let's jump to that one in a sense. Right?
Speaker 3: (12:37)
Well, I think they did that. Cause there was so much in terms of, excitement early and early wins. And when people saw the early wins, it just brought more and more people and you had movie stars and you just had a lot of different types of people that came into the SPACs and, and that created this massive windfall for accountants and attorneys and people it's just, you know, just massive amounts of work that went through there.
And again, with all of that going back to earlier in our conversation, just thinking about how that affects, you know, management and then middle management, and then the other workers, as they're trying to get all these things ready and prepare this, it's creating a lot of work, which again, affects so many people, you know, being spread out through so many different places.
Yeah. The entire M&A ecosystem, you know, impacts everybody across the spectrum, you know, impacts, you know, all your employees, not only just the C-suite and the board, but you know, everybody down because at the end of the day, a lot of times when you think about an M&A, you know, being a CFO from the finance side, you know, there's culture, and did you buy assets? Did you buy technology? Did you buy customer lists? But you know, most everybody says, well, let's grab the checkbook early. Right. So grab the checkbook early, and then you can avoid a lot of, you know, concern and confusion down the road, but there's grab the checkbook early, but then it's also provide the autonomy to the new, you know, to the new target. And then, you know, in my experience, it's always been good to have best of breed. So it's always good, you know, to line up, you know, sometimes you could have two of the same, you have two sales leaders, two finance leaders, two engineering leaders. And a lot of times it's good just to take the best of breed. And, you know, we haven't talked about synergies, but even though the synergies may be talked about early and the banks may have baked in the synergies, almost everybody looks at it down the road and says, yeah, there needs to be some synergies that come through. And I think that's when the hard part comes in terms of, you know, separating, you know, best of breed and getting the right people in the right spot because the new company, they would like to see some of their folks in leadership positions, in the combined company.
Yeah, to make them feel like they're not being completely pushed out.
Correct. And that can be important for a lot of different reasons. Not to mention culture is like one of 'em for sure.
Yeah. Well, cuz you're mixing two cultures together, you know, especially if it's two, like, company, you're integrating another culture into one company and then it's helpful for people who are coming on to say, oh, I know that person or I recognize that person to kind of make, it's almost a comfort in a sense as you're adapting.
Yeah. I mean the flip side is we haven't talked about just how difficult it is to retain talent and retain people. But a lot of times what could happen is if you're the target company and you're about to get sold most, it's just human nature. Most people think I'm about to get fired. And so that's really difficult on both companies cuz somehow you need to reach out and say, you know, don't leave. There's great opportunity for you, you know, in the combined company. And most of the time there is, but it's hard to tell people that when, you know, they don't have any information, the communication could be spotty and they have three job offers in their email to go, you know, to go make more money somewhere else. So that's the difficult part of retaining talent.
Yeah. I was just going in that direction as I was thinking through what we've been talking about, you know, how do you retain the top talent in the midst of a big acquisition?
It's very difficult and it's multiple factors. And I think probably to me, the most important part is if the target sees their leadership being woven directly into the combined company, in my mind, that's probably the most important piece, is that they can see that their CFO, their CEO, their sales people, that the acquirer is making a concerted effort to bring and blend in everybody. That's really important. I think the other part obviously is, you know, comp and everybody wants to be, you know, paid fairly. And, some companies have the ability to do that, you know, with stock and in different packages. So I think that's important. And I think also, what type of work are they gonna be doing?
Yeah, for sure.
And, you know, that kind of gets into a little different animal is just the technology. And to the extent that these companies, as they come together have they're on the leading edge of technology. I think employees today, they wanna work for companies that have invested in technology and make their job, you know, easier, you know, just on the CFO side, in our business. And we've done a lot to help companies eliminate manual processes and eliminate, you know, just procedures that are just very routine and convert them and put 'em in the cloud and just make people more streamlined and people can do more value added projects during the day, instead of doing rote recurring, you know, boring, you know, functions every day. And I think that's important for people cuz you know, as we move, you know, there's so much technology available, people would like to be with a company that has invested in the future as opposed to living in the past.
So looking at the future, I know that you watch M&A very closely, where do you see the M&A trends going as we look maybe for 12, 24 months?
Yeah, I think it's hard to see something that gets in the way of just continued M&A growth. And I think there's a couple things that people are hoping continue to happen. And there's a few things that, you know, may happen that could derail it. So one is just continued access to capital. So continued access to capital is important. The interest right rates associated with that capital continues to be at historic lows, even though it might have ticked up a little bit. I mean, it's, it's still really, really nice to have massive access to capital at historically low interest rates. And that in and of itself will drive a lot of, M&A. And I think if you just looked at the PE companies and the venture companies and look at the amount of money that they've raised with their, you know, investors, it's massive, right. And those funds have to be put to use, I think all the strategics that are out there, if you think about what happened over the last year, a lot of these larger companies, they cut back on travel, on sales and market. They cut back on a lot of things. So as a result, guess what all this cash is now sitting on the balance sheet. So you have tremendous amount of cash inside the strategics, right? There's a lot of money sitting with the VCs and the private equity. So the combination of all the cash and access to low capital is a nice recipe for continued like M&A work. And so that'll continue. And obviously there's lots of the valuations are, are very nice for, you know, for people that are trying to exit. So then the question would be what could get in the way of that. I don't see really anything crazy happening next 12, maybe 18 months, but I think the inflation kind of hurts people a little bit. And, you know, when, when people are paying so much more for gas and food, et cetera, I think that does kind of dim a little bit in terms of, you know, do we really feel comfortable making these big bets with inflation? I think there's continued concern about legislation in terms of tax, you know, tax regulations and tax changes, et cetera. It's maybe too early to tell, but that could have a dimming impact as well in terms of, you know, tax rates, et cetera. The supply chain obviously is tough and we're in the software business. So, you know, thankfully we're a little immune from that, but to have know 300 tankers that are sitting outside of Long Beach, I'm sure that that does bother people in terms of people that are dependent on, you know, manufacturing and, you know, the chip shortage. There's a lot of macroeconomic decisions that people go in, but my personal thought is 12 to 18 months. It should continue to be strong.
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