Ludovic Gaudé, CEO of custom software development services provider intive, knows what to look for when it comes to M&A, having overseen four acquisition deals in recent years. Gaudé began his career at Nokia Networks in the early 1990s, and held global management positions across Europe, China and Latin America. In 2007, Gaudé joined Google as the company’s director of strategic partnerships in the UK.
Chief Executive spoke with Gaudé about why CEOs should focus on company culture when weighing acquisitions, the importance of keeping company founders on board once a deal is done and the red flags to look out for when doing due diligence on a potential acquisition.
Q: What are some of the things that you look for in terms of culture when you’re considering acquiring a company?
A: This is quite a broad topic and it is always at the core of successful transaction. But, I’d like to take a couple of step back because it comes from the way we architect the transaction when we buy a company. It is actually more like selling, yeah? When you buy a company, actually you are selling. So as an acquirer, I’m selling the idea that for the acquiree to join us makes sense for them, makes business sense for the owners and it makes sense for the employees, because usually when you buy a smaller company than yourself, it’s still led by the founders. And the founders, beyond the money, they also feel very strongly about the people that they’ve led so far.
“The company might be super, and the employees and the management and the owners fantastic, but if there is no match, there is no match.”
You actually know after a half-hour meeting with the owners or the management team of the company you are acquiring if this is going to work or not. Now you don’t need to do a lengthy analysis because it has to do with, do you like the people that you are meeting? If you come in shorts and they are coming in ties, you know there is a problem, yeah? These both are little elements when you first meet them, you see if there is a fit or not. You should basically retire very quickly if you see that there is no fit. And here the fit has nothing to do with are the guys good or bad. It’s just about the fit. The company might be super and the employees and the management and the owners fantastic, but if there is no match, there is no match. There is no reason to continue.
Q: Are there any red flags or areas that immediately stand out to make you realize that this is not going to be a fit or it’s not going to work out?
A: There are red flags, like the current management team doesn’t want to stay, or the initial conversation is about their exit fees, or their personal benefit that they would get out of it. When the management team starts figuring out what is in it for them personally—which they should do and we totally understand that and this conversation needs to take place—but it cannot be the priority and it cannot occupy the majority of the conversation. So right there when you see something like that, you know that something is not right.
Then, when there is a fundamental process in production, for example, that is really different. If they are using different accounting systems, we will fix this. If they are using a different sales tool, we will fix this. But here I’m talking about, let’s say, you are acquiring company and all of their software development, R&D, is developing in waterfall methodology, which is old way of developing software, and then suddenly…then you are, as we are, doing 100% agile—right there you know that this is too big. It is too much. Because it’s really ingrained in the DNA of the people, and unless the company has 50% agile and 50% waterfall, then you know that you can somehow work around it. If the methodology and the daily routines are fundamentally different from a philosophical point of view, it’s like we are wasting time. It will take too much time. So, you already know right there that you are up against a really big hurdle.
Q: Tell us about the value of keeping company founders on board, so that you’re able to leverage their institutional knowledge once a deal is closed.
A: In my experience, in developing companies, you have three types of people. And they are kind of are all working trying to find a way to work together.
You have obviously people like myself, which we are more like professional managers. We are paid to do a job and we are paid to be CEO. Then you have investors, private equity. And then you have founders, who have actually created the company. All of those three different people have totally different expectations of the company. So, you need to understand that, and you need to be able to articulate how to work with all of those different people who have actually a different vision for the company and a different way of working.
When we look at companies, when we look at founders, very rapidly we are able to identify if founders of those startups are lifestyle entrepreneurs, meaning people that just like to start new things, people that are of spending 15 hours in the office, going to parties, and doing things like that, as people who want to sort of stay small because it’s fun to be an entrepreneur, it’s fun to be part of events, etc.
And then you have other entrepreneurs who are more growth entrepreneurs. By growth entrepreneurs, I mean people who like to be entrepreneurs, but they are willing to take the risk to develop the company further. They have the maturity, the wisdom, to acknowledge that they have strengths and weaknesses, but the ultimate goal is to continue to grow themselves and grow the company. So very quickly we are trying to identify those two types of characters, those two types of profiles. And that gives us an indication of what we want to do with them. Usually the lifestyle entrepreneurs, they want to move on to the next company, to the next project. So they go back to incubators and to things like that. So very quickly you identify that.
The growth entrepreneurs, of course, are the ones that you really want to keep because they are the ones who are going to stay, who see the benefit, and you need to shape a role for them that will continue to motivate them and inspire them, and you need to keep this sort of the heartbeat of the company that you acquiring, because everyone else has been hired by that guy. Everyone else know this growth entrepreneur and it’s quite fundamental that the guy is staying, at least for a certain period of time, until you are able to accompany and integrate properly the rest of the organization that you are acquiring.