No deal is perfect, but Dan Weingartz, CEO of W&P Management, says that it's just gotten to where there needs to be cleanliness across everything — the financials, the strategy, the leadership and management — for his company to look at anything right now.
"The reward has to be greater for the amount of risk that you're taking," Weingartz said during the Detroit Smart Business Dealmakers Conference. "So, we're just looking for clean all the way across. If operationally they're doing well and the financials make sense, there's still deals that can be done. But it's just got to be clean."
When exploring target companies, honesty and transparency, by both sides, are imperative to getting deals done.
"We've had a lot of deals die either after first meeting or early on in due diligence just because the story didn't match. What they're telling us about what the motivations are, the place in the market based on what we know, the financials, people," he says. "We're not a corporate or private equity where we have a large team. It's a team of us that also are responsible for running the business. And so, when we're going into these, it's all kinds of red flags when somebody comes in and we feel like we've got to divine information from what they're presenting to us."
He says at the start of one potential deal, he went in with the idea that they were going to do a straight acquisition. But because the seller was very upfront and honest, which made for transparent discussions about motivations, it became clear that the right answer was a joint venture strategic partnership, in part because the owner didn't have the desire to exit the business and Weingartz was looking for his team to be engaged in the plan to bring things together in a new vertical.
"It's not so much about the pricing of how you're looking at things, but understanding motivations, where things are, challenges in the business, the story has to match," he says. "It helps to get better deals done that meets everybody's needs and what they're looking for."
Weingartz says he and his team are always looking to understand what the deal is going to look like after everything is put together — whether he's bringing in the management team or the target is bringing in its management team, it's important to ascertain how that is going to mesh.
"Culture gets talked about a lot," he says. "But early on, as we started looking at acquisition as a strategy of ours, we were looking at the deals. We were always looking at the financials and really discounting what was going to happen with the people after the fact. These relationships, when we're talking about transparency and going into deals with an open book, it's about learning is it going to mesh well?"
He doesn't believe that there's good culture and bad culture, just different. Some organizations have strong cultures that would be tough to mesh with his. That's good to know upfront.
He says the most challenging deal that he's ever done was one in which they liked the financials and were excited about the business, but didn't anticipate the impact the cultural differences would have on the rest of the business.
While they discovered that there was more opportunity there than they first projected once they put their systems and processes in place, he says they were challenged by the impact the extreme turnover had on the rest of their business while doing that.
"Because these things can absolutely corrupt across the different businesses, the different verticals that you have, we've become much more aware early on in those conversations. We really want to know how are these cultures going to get together?" he says. "And I would say, in the last several years that has made for some really great mergers and partnerships that we've done that have been way easier on the team because we didn't have to rebuild what was happening on the culture side."
What Weingartz says he and his team missed in the diligence phase of the deal was how management and the workforce related to each other.
"There was a lot of mistrust," he says. "It was an organization that was hierarchical. There was definitely a management layer and then an operations layer. And that's just not us."
When his company entered the picture, he says they talked about how everyone was going to work together. And the looks he got in response made it seem that the other team didn't work that way. The bad culture mix almost sunk the deal.
"Ultimately that got very close to us throwing in the towel on that deal and looking at divesting from it because it was such a challenge on the culture side."