Small Business Dealmakers Menu

Chris Hyland: Assume nothing

Hyland CFO on why it’s so critical to ask the tough questions

Chris Hyland

December 15, 2017

By: Mark Scott

As CFO, Chris Hyland has played a key role in the deals that have helped make Hyland Software Inc. Cleveland’s tech superstar, including this summer’s acquisition of Perceptive Software. That deal was a game changer, adding more than 1,000 customers and setting the company on the road to 40 percent revenue growth over 12 months.

As difficult as it is to get a deal done, Hyland says, the real work starts after the close.

Without buy-in from all parties, it is very difficult to get the support needed to assimilate the acquired business and realize the deal’s full benefits, he says.

“The opposing parties will continue to swim in the opposite direction,” Hyland says. “With complete support, everyone will be pushing in the same direction with the same goals in mind, which can lead to success and ultimately profit.”

Hyland spoke about the importance of asking the tough questions and why you can’t always trust sellers to paint a true picture of the culture at your new acquisition.

What are three critical elements that can make or break a business deal?

First, have the “guts” to ask the tough questions to the seller before the deal is done. Learning as much as you can in the diligence process is key. It allows you to protect your organization from known risks that could otherwise make the deal go sour. Be sure to ask every question you want answered. The seller may have fatigue, but if they are near the finish line, they will supply the answers you need.

Second, plan to put the effort in after the deal is done. It took a lot of work to get through diligence, negotiations and post-close planning. It takes the same amount of work, if not more, to make the deal a success after the deal is done. Be sure everyone is committed to making it a success by communicating regularly where you are going, what has changed and what you need your team to do.

Third, know when the best deal is no deal. When you uncover significant risks prior to the close, you need to be willing to walk away, despite everything you have learned and invested already. If you walk into a bad deal, you will not profit going forward. At the very least, you will struggle to seek the profit you desire. Respectfully walking away can allow you to maintain your current profit and the health of the current business versus jeopardizing everything.

How do you evaluate the culture of the company you are targeting for acquisition?

This can be hard as you are often limited to interacting with ownership, founders or just investment bankers. Their feedback can be biased and not paint a real picture of what the culture is like. You can get a sense of the culture, but the real culture diligence will occur post-close when you can really interact with the newly acquired team. Leadership often does not have their finger on the pulse of the real culture. It is important to ask questions about culture a couple layers down following an acquisition.

Everything should be carefully evaluated. If the employees are in another location, allow the new team to give you suggestions of what they like about their culture and what they would change for their environment. You may find there is nothing to change or you may find there is much to change, within reason. Either way, let them have input in to what will make the environment their own. They have to work there and if they buy in, it will reap rewards for you later.

What are some tips that can make the M&A process run more smoothly?
  1. Don’t assume sales and/or growth will continue post-deal.
  2. Set expectations for sellers.
  3. Spend time with the seller.
  4. IP and product diligence — know what you are getting or “getting into” and plan day visits for relevant topics (product day, finance day, etc.)
  5. Make the tough decisions Day 1 — rip the Band-Aid off once, not twice or three times. Do it right away so that everyone can move on quickly.
  6. Appoint a capable leader to oversee the integration of the acquired company.
  7. Create meaningful financial and business checkpoints. Don’t assume you bought it and it’s over. There is meaningful work that can last as long as one to two years before all the dust truly settles.

How to reach: Hyland Software Inc., www.hyland.com