Don Scales | How to Buy and Sell Over 40+ Companies – with the CEO of Investis Digital

John Corcoran 0:40
All right. Welcome, everyone. John Corcoran here. I am the host of the Smart Business Revolution Podcast where I get to talk each week with smart CEOs, founders and entrepreneurs of all kinds of companies. So go back and look at some of my past episodes with founders, CEOs, entrepreneurs of organizations like YPO, EO, Activision Blizzard, Lending tree, Open Table, x software, and many more. By the way, I’m also the co-founder of Rise25, where we help to connect b2b business owners to their ideal prospects using podcasts and content marketing. And before I introduce today’s guest, I want to give a big thank you to Fran Biederman-Gross of Advantages. She was the co-author with our guest today on their first book, but we’re talking about the next book that came along. And so I’m excited to talk to Don Scales. He has more than 30 years of award winning digital experience. He joined Investis Digital as CEO of US operations in March of 2016, became Global CEO in January 2017. He previously led global operations at interactive agencies iCrossing, and

Don’s vision is to lead a company unlike anything else in the digital communication space. He put together a team, with deep expertise in investor relations and corporate communications, and united them with innovative performance marketing experts to raise the bar for all audiences. He has dual undergraduate degrees in chemical engineering and mathematical physics and a Master of Science in chemical engineering from Rice University. Pretty unusual for someone in the work that he does. Very scientific background, also an MBA from Harvard Business School. And the latest book that we’re going to be talking about is “The M&A Solution: A Values-Based Approach to Integrate Companies” and Don such a pleasure to have you I’ve interviewed you one time before, so it’s a pleasure to interview you again. And there’s a shocking statistic you start off with in this book, which is between 70 and 90% of mergers and acquisitions fail. That’s an incredible number. That’s really amazing considering how frequently you turn on the news. And you hear the stories of some big high profile deal that’s happening to companies that are merging. So first, let’s start with why do you think that number is so high?

Don Scales 2:46
I think that the focus pre-deal for most companies are on the things that are easily measurable, and things that are important to the market, like financials and market share and those types of things. And, and so what they really do is they tend to overlook the importance of, if you will, the softer issues like culture and values and things like that. And as I mentioned to you earlier, you know, if you were to go look at most acquisitions, and there’s plenty of people out there who assist in acquisitions, and they come up with acquisition checklists, and diligence checklists that companies should go pay attention to prior to doing your deal. What you find what you won’t find on those checklists is something to do with culture, or culture and values and those types of things. Yet, when these deals fall through, and they don’t materialize or don’t generate the kind of returns that they’re expecting, the first thing they say is wow, the culture just they just didn’t they didn’t fit and the values weren’t aligned. Well, it raises the obvious question like, why not? And why didn’t we think about this before? I think that’s really what it is more than anything is that it’s harder than you think?

John Corcoran 4:13
And what are some of those questions that companies should be asking themselves before a merger to prevent something like that from happening?

Don Scales 4:21
Well, the web in the book I talked about, the first thing it needs to do is get the CEOs together, and just have them talk and see if they can see how they where they come from, and if they have if they can relate to each other. And are there their vision for the company or they’re somewhat aligned, are they going in different directions? And so you can glean a lot from just a couple of conversations between CEOs, whether or not the same makes sense. Sometimes, and a lot of companies do that. But sometimes even if they get even if they’re getting warning signals to this may not be the best deal. The numbers are so compelling, they do it anyway.

John Corcoran 5:05
Or they’re just kind of like, put it under the rug.

Don Scales 5:09
We can work our way through it anyway.

John Corcoran 5:13
So a lot of times maybe there are red flags from the beginning and they just don’t acknowledge them.

Don Scales 5:17

John Corcoran 5:18
Yeah. And tell us about you know, you’ve done over 40 M&A deals yourself. Can you think of a time when that happened, where you were the CEO sitting down across the table from another CEO, and you just got something in you to raise a red flag?

Don Scales 5:35
Well, there are lots of deals a lot. Fortunately, a lot of deals where I felt like that those weren’t deals we consummated. So I met it, we just walked away from those deals. But there’s a couple, you know, even you have to take into account, even the small deals take a lot of time. So I can recall, one, when I was at iCrossing, we bought a company called sharp analytics. And I liked it. I liked the CEO, and he and I got along. But it was such a small deal, I died, this, nothing will get this done. It’s mostly a tech play anyway, blah, blah, blah. And then we did the deal, and came to find out that, you know, what he had represented in the tech stack, from his standpoint wasn’t quite exactly what we were buying. And honestly, that’s all on me, you know, I should have taken the time to get that right. And I should have walked away from that when I was one, you know, when I first saw it, but I didn’t. And so that’s one words, I should have said I needed to pay more attention upfront,

John Corcoran 6:42
it’s gonna be harder to walk away from a deal, when, especially if you put some time into it. So you’re a little ways down the road. And then you’re starting to get that feeling you can’t quite put your finger on it. But you just feel like there’s no value alignment. And then you have to go back to the rest of your team and say, guys, I think I think we shouldn’t do this deal. Can you recall, you know, the difficulty or speak to the difficulty of

Don Scales 7:06
learning that lesson the hard way, because when we started doing deals that involved iCrossing, we did a couple of different deals, and I started getting this reputation from the board as he never saw a deal. He didn’t like those almost like, oh, if that stuff gets in your blood, and you really want it, you do one deal, you kind of feel good, you’ve grown by a certain percentage, let’s go do another one, then let’s go do another one. If you don’t, if you don’t spend the right time upfront, then you’re gonna get one wrong. So you have to learn the hard way. What if the first thing about doing a deal is if you want to deal so bad, then chances are you’re going to get a bad deal because you’re you want it too bad. And you’re gonna give away too much.

John Corcoran 7:49
Yeah, talk about you, while you’re iCrossing you acquired Spanner works, and that really helped you grow. So talk about that one,

Don Scales 7:58
that was a very, that was really a well done deal. So my partner at iCrossing, the founder, Jeff Herzog, a great guy, he was looking to grow the business. And he had always wanted to be international in scope. So he said, let’s see if we can find something that’ll take us outside the US. So I found this company called Spanner works down in Brighton in the UK. And the first thing I did was I wanted to get the CEOs together. So that could see if they even liked each other. And come to find out that they were undergoing a process. So they have lots of suitors. But, but they were willing to spend some time and get to know us because we know, they thought it might be a good deal. So I ended up having this, the two founders met for lunch in Paris of all places, and then went over and they spent like, three hours and four hours together, just talking about a lifetime of kids talking about big homes over buildings and all this kind of stuff. And they came back beginning to like each other. And I kept encouraging that relationship and kept encouraging them to talk. And we ended up being selected for that deal. And it must have had at least a good dozen people competing for it. And I think it was all because we did the work upfront to get these two guys to spend time and find out that they could get their values aligned. And that turned out to be one of our better deals for iCrossing for quite some time.

John Corcoran 9:41
Yeah. Now you say that preparation going into the deal is incredibly important. And you know, understanding these values you mentioned as an example getting CEOs to sit down together and just talk it through there anything else that should be done as preparation and anything else See recommend,

Don Scales 10:01
you can go look at I mean, spend some spend some time on what, what the company’s saying about itself. And back when we did Spanner works, it was a lot less. I mean, there’s so much communication and information about companies that are out there today. But go look at the websites, go look at what they’re saying about themselves in social media, go look at what people say about the company. And what you’ll find you’ll glean a lot of information around what the company stands for, what they’re aspiring to be. And then it’s a function of understanding what your company is doing. And hopefully you have a good handle on that. And that, then you can get a sense of whether or not there’s going to be some alignment when these two come together, because the cultures are going to have to merge in order to make this work.

John Corcoran 10:51
Yeah. Let me ask you from an acquirer standpoint, how do you find the right company to acquire, especially if you want to make sure that there’s value alignment, and that’s not something that necessarily is going to be put in a prospectus?

Don Scales 11:06
Right. So like, what we do today at Investis Digital, we have a fairly robust M&A roadmap. And so what we do is we’re always canvassing companies and trying to find companies that might have technologies that we’d like to integrate in. If we find something we like, then we actually either do it ourselves, or we might have a representative of virus call in to see if we could just start by having a get acquainted session, maybe getting a demo of products, find out more about each other and start at that level. And, and don’t rush it. If you walk in the first time you say you want to get bought out if we do this? Yeah, that’s where you can make mistakes. If you go find out what, what, what these guys do for a living the technology they have, tell me about the CEO? What’s your background? Where’d you come from? What do you like, what don’t you like, it could take months. But then at that point in time later on down the line, I feel like, then you can ask them, Well, where do you want to? What do you want to do? What’s your vision for the company, then you can start talking about alignment. And ultimately, you can get to a point where you can say, well, maybe we should put these things together. But if you did, if you move too quickly, you could be asked.

John Corcoran 12:31
And one thing that companies that are being courted by potential acquirers are fearful of is that companies coming in are gonna just steal their IP or steal their strategy, and they’re going to take it so how do you? If you’re the quarter if you’re the potential acquirer? How do you deal with that, so that they the companies, you know, trust you obviously beyond like an NDA,

Don Scales 12:56
I think, I think, honestly, this is where you have to establish trust, and you have to be very transparent in your approach to these guys. So if it is, they have to think a lot of style. I mean, if they think you’re an honest, trustworthy guy, and you’re sitting down to your sheet straight with them. Hello, they’re gonna go do their homework, they’re gonna call mutual friends and find out Oh, what do you think of Don, you know, what do you think of John, they’re going to find out something about you. So if, so, if you’re just if you’re consistent in your approach, and you and you are frank with them, and she’s straight with them, that’s going to come out that that honesty and integrity have come out, that’s gonna go a long way. Because once they feel comfortable talking to you, and they, then I think, then you’re, you know, you’re kind of moving in the right direction.

John Corcoran 13:51
I asked about from an acquirer standpoint, how do you find companies that align with their values that are a good fit, what about from the company standpoint that may be acquired? How do you ensure that a company that is thinking about acquiring you has values alignment?

Don Scales 14:07
Let’s see, that’s real, that’s a very interesting challenge. Because what you have there is a CEO. It’s not just how you feel about the deal, you have shareholders, you have stakeholders that own a large portion of your business, and they may only be interested in the highest price, right? So you know, you have to be you, you better have a good relationship with your board. And you better know, then you better be willing to talk to the board about what the options are because one of the things I found out in selling iCrossing was that the management has a lot more clout and leverage in the process than you may think they do. So as a result of that, you know, without management being on board, even the shareholders, even the equity holders don’t have as much leverage because you’re not on board. So if you’re not part of it, then they’re probably not a sale there. So it really is a balancing act between the company they’re selling in the wants to buy you, met you and your management team and then your shareholders. It’s all good. There’s all kinds of parties that have to balance that case.

John Corcoran 15:25
Yeah, you’ve done over 40 acquisitions. If you could go back to a younger you before your first acquisition, is there anything that you wish that you knew before your first M&A deal? Other than values? Of course, as we’ve been talking about,

Don Scales 15:40
I think patience, I think, when you’re younger like that, like I said, this stuff does get in your blood. And when you’re younger like that, you can, you can say, Oh, this is really, this is what I want to get

John Corcoran 15:52
hooked on the crack.

Don Scales 15:54
And then you can do and you can do some bad deals if you brush it. So I think if you’re patient, and you take the bigger picture, I think, I think that’ll help a lot.

John Corcoran 16:05
You wrote in the book about the Sirius XM, acquiring Stitcher not that long ago for 30 to 25 million, you want to share that story? Are there any other high profile stories out there that come to mind? You know, AOL, Time Warner is one of the famous ones out there?

Don Scales 16:20
You know, I don’t know, this is why I don’t know all the specifics of what happened behind the scenes there. But I can tell you, it’s just the alignment of that’s right at the top to I’m at that’s CEO, CEO type of thing there. And they’ll end the values just mark the same, but the numbers were so compelling, that we’ll work through that stuff later. Right. You know, and that’s where it gets into trouble.

John Corcoran 16:46
So what about Sirius XM?

Don Scales 16:48
Well, again, I think that I think the jury’s still out. I think it had, I think it was, you know, people look at these deals like that one, from a strategic standpoint. And on paper, it makes a lot of sense. But whether or not you know, a lot, then depends on how you execute, and whether or not your integration plan is going to take into account cultural and value differences that you may see. So even if there is just because the values may differ, or there may be a difference in how the companies look at each other. That’s not to say the deals are doomed to failure by a lot depends on how you approach it in integration. Right, right.

John Corcoran 17:29
Another thing you write about in the book is the importance of timing, making sure the timing is right, for an acquisition, do you want to touch on that piece also?

Don Scales 17:39
Well, I say in there, there’s never a bad time for a really good at. But I think you can, you have to make sure that the timing within what’s going on in your company, and what’s going on in the marketplace, that you don’t want to do one acquisition and try to follow it up two months later, or you or you may maybe something’s on the other side where they need to, you know, maybe they made an acquisition, and they need to integrate, and you have to look it up, you have to look the longer picture and find out exactly how it’s gonna fit into your overall strategy of bringing this forward. But, you know, again, I say, though, if you find something that really makes sense, and it looks like it’s a good fit for your company, then even if it’s not quite the right time, you should find ways to keep it warm, keep it moving in some way so that you can get yourself right

John Corcoran 18:41
I want to ask you about it in the thick of negotiation, so I’m going to be a bit of a devil’s advocate here. So you know, I’m going to say, Alright, this sounds great and everything, but in the thick of negotiation, you got a guy, you got to a potential company on the other side. And you know, they just want top dollar. And you want to convince them that the values are what’s most important, but you also want to make sure you get a good deal. How do you approach that conversation? How do you take it into the thick of negotiations and get the other side to appreciate the importance of values?

Don Scales 19:16
So if it depends on how you want to structure the deal, let’s say if you have somebody that I’ll give you a good example, we did a deal about a year and a half ago with a company called vertical mesh, Arizona. Now, the CEO was an older gentleman that was looking ready, he was ready to retire. He said that upfront. And I was prepared for that. So that wasn’t, that wasn’t a big issue. But the issue was that I wanted to integrate them right. And I knew that if he left on day one dedicatedly had a detrimental effect to the way we integrated. So because he was committed, and he had founded the company and because he was committed to the future that I actually convinced him to stay on for a period of time, ultimately made it worth his while in the deal to stay on for a year, just to help me with, if you will, the integration and making sure that he was the chief cheerleader, if you will, for the deal and making sure all the employees knew that he had put it into good hands. That was well worth whatever it costs during that year, because he came across a whole lot better integration.

John Corcoran 20:46
We’re running a little short on time, but we would be remiss if we didn’t talk about after the acquisition and making sure it lasts, making sure there’s lasting value that the companies integrate well together. So if you would just touch on that point, some of the things that companies should be cognizant of after the M&A deal happens when the companies are being merged together.

Don Scales 21:08
I think the main The one thing I would just emphasize is communicate, communicate, communicate. So as soon as you buy something, that’s not the end, that’s not the start, or the end of the effort. That’s the beginning of the effort. And then you need a good marketing department to help you communicate all the time with not only, you know, here’s, here’s the vision of the combined company, here’s how we’re going to go to market, the people understand what you’re trying to accomplish. And then you have it, you have to have a detailed integration plan. And you’re always communicating that with the management on the other side. So everybody’s in alignment, if you’re going to have bumps in the road. So make sure that you’re flexible, and make sure you can work arounds. But all this stuff is just part of it.

John Corcoran 21:56
Great. All right, last two questions. As you look around you, I’m a big fan of gratitude. And as you look around at your peers, so others, perhaps other agency CEOs out there, who do you respect, who you admire the work that they’re doing.

Don Scales 22:13
A couple have come to mind. I have a lot of respect for a guy named Will Margiloff who was CEO of a company called 360i, which was a competitor of ours when I was at iCrossing. he’s a stand-up guy. And I think he was a good competitor. Very smart guy. But he was always you know, he was always a good guy to talk to and you could run a really good company. And you could just tell he was very solid. He had solid values and made for it. I always had a lot of respect for him. And then there’s a gentleman who runs a company called Merkle, David Williams, who put together a long history. I mean, he’s built that company from scratch. And he’s put in a lot of years, and it shows in the companies. It really is a formidable competitor. So I have a lot of respect for somebody like that.

John Corcoran 23:15
And what is it you respect about him in particular?

Don Scales 23:18
Well, staying power, stamina, energy, vision. You know, he knows what he knows where he wants to take it. He’s got a solid team that stayed with him for a number of years. You gotta respect that. Yeah. And, again, he’s executed year in year out for? I don’t know how long he’s been here. 15-20 years now.

John Corcoran 23:44
Yeah, yeah. And then the last question, let’s pretend we’re at an awards banquet, much like the Oscars of the Emmys and you, Don, are receiving an award for lifetime achievement for everything you’ve done up until this point. And what we want to know is who do you think, you know, of course, family and friends, of course. But in addition to that, you know, mentors, coaches, investors, business partners, professors, anyone in particular, you would acknowledge

Don Scales 24:08
one that would probably look for me to thank him, which is miles CFO from iCrossing guy named Mike Jackson. Because most of the time, he was standing right beside me when we did deals. And he knew how to do so and I think we learned from each other. But then there’s another guy who would never even though he was a mentor to me, a guy named Randy Weisenburger was CFO of when I was the CEO of I hadn’t done that many deals back when I first got in there. And I used to go over and place deals in front of him and the first three or four I did, he laughed me out of the office and he said he hadn’t thought about this, you haven’t thought about that. Go back and forth, back and forth about the 10th deal. We did. kind of knew how to think about deals. And so I think I appreciate Randy for putting me through the school of hard knocks.

John Corcoran 25:07
That’s great. But Don, this has been great. The name of the new book and where people can go learn about it

Don Scales 25:14
It’s “The M&A Solution” that will be out in May it’s it’s going to be published by ForbesBooks. So stay tuned.

John Corcoran 25:22
ForbesBooks, Adam Witty, right. I had him on my podcast as well. Great guy. Great company. Don, such a pleasure. Thanks for taking the time.

Don Scales 25:30
My pleasure.

Outro 25:32
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