What are the Basics of Mergers and Acquisitions (M&A)?

Jeremy Segal, Executive Vice President of Corporate Development at Progress, walks us through the foundational aspects of M&A and discusses exactly what goes into an acquisition.

Progress’ corporate development team has been a key driver of our Total Growth Strategy, a tactical approach to doubling the size of the business every five years. At the helm of this team is Jeremy Segal, a corporate development executive with over 20 years of experience in the field.

Jeremy was recently inducted into the Smart Business Dealmakers Hall of Fame, an achievement he attributes to the value of teamwork, including his own team and other functional teams across Progress. We spoke with Jeremy about the basics of M&A, the importance of due diligence in an acquisition and why it’s sometimes best to walk away from a deal—no matter how good it may seem. Learn more about Jeremy and M&A in the interview below.

How did you get into corporate development?

My career journey started in public accounting. I always like to say that public accounting helped me get some of the foundational skills for corporate development, like financial statement analysis. However, I knew I didn't want to be an accountant for life, so I went to business school where I focused on strategy and finance.

After business school, I did M&A advisory work. This is where I really honed my skills around financial modeling and due diligence. However, I also realized I didn’t want to be a consultant, so that’s when I started doing acquisitions for Akamai Technologies. That was my first stint doing corporate development. I just fell in love with it and have been doing it ever since.

What are the most important elements of an acquisition?

Acquisitions begin by building a relationship with the target company. We want to get to know the target company and allow the target company to get to know Progress as well. It’s a mutual effort. We want to be excited about them, but we want them to be excited about Progress, too. That's a lot of what happens in the early stages.

Then we want to see if a company hits the mark regarding our financial criteria. If a company is subscale, if it’s growing too fast, or if it’s losing too much money, it probably isn’t the best fit for Progress. If it does hit the financial criteria, and if the business unit’s general manager expresses interest in the target, then we want to dig in further and see if we can get to what we refer to as alignment on valuation. Where do they want to sell and what do we want to pay to buy it? Is there an alignment there so that we can continue to have dialogue? If not, wasting further cycles is fruitless.

Assuming there is alignment, we will enter into a Letter of Intent to acquire the business, and then we can conduct a more formal evaluation across all the different functions and facets of the business. That's when we bring in the core M&A diligence team from Progress. They’ll evaluate the business from all angles and determine whether there are any red flags that would make us want to walk away from a deal or things we may learn that impact our view on value.

If all looks good, then we’ll dive into negotiating the deal and planning the integration. We put a huge emphasis on integration planning and making sure that the transition to Progress is as seamless as possible. A lot of acquisitions fail because companies don’t put that kind of effort into the integration side.

What are the primary benefits of M&A in business?

For Progress, it’s about accelerating our top line growth. We want to be a billion-dollar company in the next three to four years, and since we’ve been around for 40-plus years, organic growth for us is in the low single-digit range. It would take a long time to reach that billion-dollar goal without acquisitions.

By doing acquisitions of scale assets—assets that have real revenue streams—we can accelerate the time it will take to hit that billion-dollar mark. We’ve already nearly doubled the size of the business from when we initially launched our total growth M&A strategy.

That’s the main impetus for Progress, but companies can do M&A for multiple reasons. If they have a product gap and need technology and expertise, they may find a company that has those resources. Companies may turn to M&A when they need to accelerate time to market with a product, advance their top line growth, or leverage a bigger platform to run their business more efficiently and effectively.

What do you look for in a company before deciding to make an acquisition?

We have some very specific financial criteria that we look for. We target companies that have $50 to $150 million in revenue (but will certainly look at assets that are smaller or larger than that). We also target companies that tend to be growing at less than 20% because if they're growing faster than 20%, their valuation expectations tend to be outside the scope of what we can afford as a value buyer.

Additionally, we want companies that have a demonstrated history of customer loyalty. Progress is the great company it is today because of our maniacal focus on our customers, so we want to buy companies that have a similar mentality. We also look for companies where we can significantly improve their operational efficiencies. That will create shareholder value, which is ultimately the end game.

How long does an acquisition typically take, and what’s involved?

I refer to it as the deal lifecycle. It starts with sourcing, which is the stage where you’re talking to different companies, investment bankers and venture capitalists; you’re talking internally to different business units. Through all of that, you’re identifying themes and areas that could be good to explore for M&A, and honing in on companies that play in those relevant spaces.

Once we have sourced deals, we try to prioritize the ones we should focus on, and that’s where the financial criteria piece comes into play. We eventually identify a core set of companies that we want to spend time getting to know. We will talk with them more about the Progress platform and how they could benefit Progress, as well as how Progress could benefit them.

After that, we shift into the due diligence phase, which we have talked about. In the negotiation phase, we’re negotiating the definitive agreement to acquire the company. While we are doing due diligence and negotiations, we are also starting to work on the integration plan. The final phase is the integration execution.

That entire process, from sourcing companies to getting the company integrated, can take anywhere from six to 12 months—sometimes even longer. It takes time to build trust, to understand the business and to prioritize which companies we really want to focus on.

You were recently inducted into the Dealmakers Hall of Fame. What does that represent to you and your career?

When I got up and accepted the award, the key thing I called out was that this is a team effort. And not just the amazing corporate development team; it’s all the teams across Progress involved in our acquisitions. There are times when we all get excited about a deal and we all get very close, but we don't win the deal. This could be very discouraging, because we have all done a lot of work. What amazes me about Progressers is that we always look at the positive—recognizing that we learned a lot in the process, and that we can use that knowledge to be better in the next deal. That kind of mentality is what makes Progress such a special place.

What advice would you give to companies who just recently made an acquisition, or who are looking to make an acquisition in the future?

One, make sure you pay a lot of attention to the integration planning part. You cannot underestimate that. You also need to be as thorough and as diligent as possible when trying to uncover any potential red flags or issues that could affect your desire to do the deal or your view on valuation. The more thoughtful you are through that whole process, the greater your chances of success.

Have you ever had something crazy/unexpected happen during a deal?

Once, I was working with a first-time entrepreneur who had no experience doing deals, and he was selling a company that he had dedicated years of his life to. We had agreed on a value for the company. We completed all our due diligence. We basically had a definitive agreement fully negotiated, and then at the last minute he came back and said, “I think the value is actually X, and not what we agreed to.” At that stage of a deal, there’s nothing you can do. We said that if he felt that strongly about it, we will walk away from the deal. And we did.

Six months later, he called and said he’d like to do the deal at the price that we had initially established. We had to tell him that ship had sailed. He had his opportunity. It’s crazy to think that people can get cold feet at that late stage, but it happens. It’s just part of the process. No matter how enamored you may become with a company and want to do a deal, sometimes walking away is the best decision you can make.

Learn more about Progress’ M&A strategy and approach here.