Park Place Technologies grows its global footprint by buying companies that provide maintenance to the infrastructure inside the data center and expand its offering.
“Instead of us having to build it organically, we will go out and search for firms that have the offering we want to expand into and use that as our platform for growth,” Park Place Technologies VP of Mergers and Acquisitions Kelly Greene said at the Cleveland Smart Business Dealmakers Conference.
In her search for that growth, she says she’s discovered that after the pandemic, many people became accustomed to working from their home. Many companies maintained that remote option post-COVID. Given that Park Place believes that collaboration happens when people are in the office, she says they’ve been struggling when buying companies to get those who come over in a deal back in the habit of going into the office and collaborating.
Something else she’s found is that many companies were laying off folks so they could keep their margins, which meant shifting more responsibilities — sometimes adjacent to their main focus — to the employees who remained. That has had an impact on post-deal integration.
“When you go to diligence that, you can't tell by the census and all the job titles that are associated with people,” Greene says. “And so when you get to integration, it becomes very difficult because the synergies you anticipated getting, because you thought you could eliminate all those back office jobs — HR, accounting, whatever — because you're already established, no longer holds true.”
And because the company is focused on growing its global footprint, the legal diligence has been key.
“You learn pretty quickly that the way we do business in the United States does not hold true across the globe,” she says. “And having good legal partners, understanding that our rules around foreign corruption are not as tightly held in other countries, those are really critical things that you have to get under the covers and ask about and really put your mindset in a slightly different place.”
Cyber security is another key issue. Park Place has a small government practice it wanted to expand it, so it bought a business in that field. She says it’s not apparent how critical security is until a company is dealing with the government. One company had a breach occur and only those within their organization who had top security clearances could talk to the seller about what transpired.
“Every deal, you just really have to keep your eyes open,” she says. “You have to have your playbook. That's where you start your framework of diligence from. But you really have to ask good questions and keep your eyes open for things that aren't common, especially when it's outside the United States or outside of the realm of the services that you offer.”
The most complicated deals she says they’ve done are with sellers who don't have strong advisers. Sometimes a quality of earnings report uncovers issues the seller had no idea existed, which leads to adjustments that can significantly affect the purchase price.
She says sellers should close whatever open litigation they have before they go to market. As a buyer, that can lead to indemnity hold backs and reps and warranty insurance and a host of other things to try to keep the purchase safe.
Another issue that can trip up a deal is when the seller doesn’t fully understand their customers.
“Just because a customer has been with you for a long time does not mean they're going to stay with you post transaction, and that's the fastest way for a buyer to lose money on a deal is not understanding where your top customers are going and growing, or are they going by the wayside,” Greene says. “It's really important that you can articulate the relationship that you have, understanding your top customers and being able to tell a good story about growth opportunities.”
Post-deal integration can be complicated depending on how divergent the culture is between buyer and seller. She says Park Place has made a practice of putting folks from corporate headquarters at the site for numerous months to build awareness and map their practices to the acquired business. But it’s not always the case that such a transition to the new culture can happen.
“Sometimes you shouldn't be afraid of saying, ‘The way this company that I'm in diligence with, the way their culture is, is no way a match for ours, and I don't think I can transition it,’” Greene says. “I would say, do not do that acquisition. It is absolutely critical to the success of the integration and the ultimate revenue and EBITDA that you're going to bring on board, and growth, that you have mindsets that are similar, or at least moldable.”
