Today we are joined by Klint Kendrick, the author of The HR Practitioner’s Guide to Mergers and Acquisitions Due Diligence, to cover various topics, from how to incorporate Maslow’s hierarchy of needs into your business, to the integral role that trust plays in organizational leadership.
Without the proper communication and change management plan, employees can be left feeling confused, stressed, and insecure, which can have tangible consequences for your staff turnover, customer retention, and ultimately, your bottom line.
Welcome back to Consolidate That. Ivan, I’m glad to see you again. We’ve got a Friday recording, so I’m getting some good energy going into the weekend here. How are you doing?
I’m good. I’m good. I just got my morning coffee. So I’m very excited about this conversation today because this is very close to the topic that we really embraced recently. So Klint Kendrick is joining us today. He’s a result-oriented human resource professional, offering 15-plus years of experience leading key growth initiatives in diverse industries, including manufacturing, aerospace, and defense media and information technology; recognized as an authority on people culture and leadership issues in M&A; author of The HR Practitioner’s Guide to Mergers and Acquisitions Due Diligence; Director of HR Strategic Workforce Initiatives at a large company. We’re going to be talking about issues dealing with sort of HR and people-related during mergers and acquisitions.
Klint, welcome to the show. Thank you for finding the time.
Great, thanks for having me.
So maybe just to acclimate you with our environment, our listeners are usually the executive teams of consolidation industry in the veterinary domain. So there’s tons of mergers and acquisitions. It’s a roll up industry. Basically, it’s veterinary industry but it’s roll ups in veterinary industry. The merge of a culture are, I like to call it, more like clash of cultures. It happens every week in some companies because they’re adding new teams. The veterinary business mom-and-pop shop that’s being acquired, they could range from 20 to anywhere to 100 people or more. How do people maintain the culture as an organization, and what are the best strategies to add new micro cultures or how to create that environment where the culture fits is very important to us?
We’re trying to find that out, especially with the degree of burnout that we have in our industry. We know one of the burnout triggers and one of the reasons why 40% of veterinaries want to leave our industry is misalignment of culture, big surprise. So we’re going to try to dive into that with you. Can you give us a little bit of background on how did you get into the HR and then people world, and how is that related to M&A?
Sure. So my background in HR, it goes back quite a few years. Very early on, I was actually part of an M&A. I was a recruiter at the time, and my company had just been acquired. I had a two-year-old and about a two-week-old at home, and we were all called into the big central office and told, “Hey, we just got acquired,” and everybody will talk to you and tell you what’s going on. Or everybody will get talked to and told what’s going on rather. When I came into my new boss’s office – Now, mind you, this is a person that I’d never met. This is a person who didn’t know me, I didn’t know him, and I’m really convinced that he had probably just learned my name, as I was being ushered into the office, told me how my compensation package was changing. It was changing so dramatically between base and bonuses that I was worried about being able to pay the rent and feed my kids.
Ultimately, I left that job, and I ended up moving across the country and taking another job. I took a million dollar book of business with me when I left that opportunity. I stop and I think about that now and I’m like, “Who won there,” right? The company that acquired us lost a million dollar book of business. I ended up moving across the country and going through all of that stress. I think about that experience I had, as I look at the M&A work that I do now. Since then, I’d been part of a couple of other mergers as either a catching manager of people who had been brought into our organization through acquisition. When I finally had the opportunity to learn how to be behind the curtain and planning the M&A, I carried those really rough experiences with me, and I’m really committed that people don’t have to have those kinds of experiences. We can do this well, and we can handle the people side of things well.
So that’s really where I’m coming from. I’ve done about 90 deals in my career, working for large strategic acquirers. I’m also the chair of an HR M&A roundtable, so I get to learn from other really smart, really great HR people who have a very strong passion for people. So I try to take my experience, their experience. Hopefully, we can really make M&A go well because we’re really focused on the people side of things.
That’s great, Klint. Well, can you sort of elaborate on the idea of the M&A roundtable that you do? I think it’s interesting because we’ve actually had a couple guests on our show that are executives of consolidators, and one of the things about the veterinary industry is that it is extremely – It’s a big business but it gets extremely small very quickly. People know each other very quickly, but then a lot of executives are scared to share what they’re doing or their ideas. I think they probably think Ivan and I are crazy for having a podcast where we’ll talk about everything that we’re doing every day. But how does that work for you guys and how is a roundtable the best format for that?
Sure. So I’m a firm believer that a rising tide lifts all boats. So when we come together as people sharing our ideas, I think that it really makes a difference for everybody in the room. We all increase our capacity and capability. Now, there are certain confidentiality requirements, and we ask people not to violate those. We’re not sharing our company’s business or acquisition strategies. We really tend to be sharing around tactics and strategies to handle the people side of things. I don’t think that a lot of folks believe that how they handle their announcement day, how the employees find out that their company has been acquired is a key strategic advantage for their firm, compared to other firms. So we do try to keep the conversations to those things that are in bounds.
We also have the Chatham House Rule, which is an old rule for organizations that come together where it’s when you share what you learned at our roundtables, we ask that you share ideas, but don’t share names or company affiliations. That keeps it a safe place where people can come in and share what’s going on with them in a fairly open dialogue. We just are measured about how much detail we share so that confidentiality obligations are kept secure.
There’s so many topics I want to dive into. One of them you just mentioned. There’s no strategic secret of when you announce to your targets or the teams on the target acquisition. That’s a huge topic because to date, I think there’s now we know a couple companies that do tell – The clinics that they acquired, they actually tell them. You have to tell them two months before the company being acquired. Some of them have this very interesting strategy that I definitely love that the day of acquisition or the actual transaction is completely unnoticed. So the announcement happens a while before. Then the day of, nothing changes. You just continue working for a certain period of time.
Then some or a lot of veterinarians, because they are afraid and rightly, so their teams to leave because a lot of the thesis and a lot of synergies for post-acquisition success, depending on the people that are there. So what is the best practice, in the big world or smaller world? I assume you work with larger acquisitions than 20-people team, but I don’t think that that particular tactic is different. Or is it? So what’s your opinion?
Sure. So I’ve done acquisitions with two people. I’ve done acquisitions with several thousands. So it’s all over the board, and the one common principle that I like to think about is begin with the end in mind. How do you want this to look a year after the acquisition has happened? Where do you want to be? What are the steps that you need to take along the way so that at the one-year post-acquisition mark, you have the people that you need in place, you have the systems and technology you need in place, and you have the customers that you started with as well?
So all of that touches on the employees, and the employees are a big part of that, but think a year down the road at what you want. There’s an idea of different levels of integration. So in some cases, if you’re going to leave a practice standalone, you’re not really going to do very much, except maybe consolidate the financials and maybe stick a little tagline on the sign so that that looks a little bit different. I think that approach works really well. You’ll let people know a little bit in advance, “Hey, this is what’s happening. This is the business model that we’re looking at. This company is really only interested in consolidating revenues and some back-end systems. This is what’s going to change. This is what’s not going to change.” Because I promise you, if you say, “Oh. Well, nothing’s going to change,” they’ll think you’re a liar, and they’ll probably be right because something always changes.
If you’re going to do something a little bit more complicated, where you’re going to be rebranding the entire business, you’re going to be using new systems, you’re going to change your pricing structure, share that with the employees at an appropriate time so that they can begin their change journey. Private and public companies will often have different rules around who can know things when, so I think those considerations have to be taken into account. I think that it’s just really, really important to have that communication and change management plan really be customized for where you’re taking this business over the course of the first year. I wish I could give you a cut and dry answer to on day one do this, and on day 12 do that. But unfortunately, it’s just not that simple.
I was looking for that. I was like, five days post-acquisition…
We were betting on that.
The episode is scrapped now. Cancel and throw it away. Okay.
Great couple things. I want to dive into, well, one on the culture as we’ll probably leave that for now, but the actual integration points. So in our domain, for the most part, the idea is to – There’s two different strategies actually for roll-up in the veterinary. Everybody thinks that there’s one, but it ends up being two. One is arbitrage. So you consolidate businesses and then you sort of recap to the next private equity upstream. Then the second piece of the thesis is to increase EBITDA, so your multiple on the second transaction is higher, which is quite logical.
Unfortunately, what we see over and over and over, they start with A, and then they do well at like 30, 40 practices. Then they look back and they say, “Oh, crap. We have all these businesses. Now, we need to run them.” Then the B doesn’t happen. So they just say, “Oh, well. Let’s just merge more and then resell it.” I’ve seen different tactics on sort of post-merger acquisition. Most of them sound like that 100-day plan, 180-day plan. They just plug them in and just push through, whatever changes they think are necessary.
Now, there’s a new strategy that we’re participating in right now in developing, where it’s really acquire with as little change you can. Just as you said, back office their payroll. The name on the check changes, nothing else. Benefit package stays the same. Then put them into the stabilization period before any change management and assess, especially in our domain, their psychological safety, their burnout degree and change management preparedness. Now, there’s pros and cons, like this sounds really great. But if you’re pushed by your investors and your private equity-backed company, then they will probably push towards many changes. So what are your thoughts on those two?
So not being a finance guy, I’ve seen a number of different strategies when I’ve worked for the strategics. I tend to be on the catching end of when private equity has done those kinds of things. So I’ll just be really upfront about my lack of experience with the different financial models. What I will say is that when I think about how the employees are affected in these various things, that they get really scared if they don’t understand where things are going, and they get really nervous when things change from the initial plan that’s laid out. So what I would say is that anybody who’s contemplating doing some consolidation, they’re looking at bringing multiple organizations together, really wants to carefully think about what’s shared with employees.
I always err on the side of transparency. But when I’m doing an acquisition, usually I’ve worked in technology or engineering. They don’t really care too terribly much about the financial objectives at the top. Now, the owners of those companies care a great deal, but we go down a click and folks are – They just want to know, are they going to get paid on time, right? Even before that, they want to know if they still have a job, right? So do I still have a job? Am I going to get paid on time? Am I going to be able to feed my kids? Okay, great. Now that those basic needs are met, I can go on and think about other things like where is my career going, what is my work life-balance like.
It all comes down to sort of Maslow’s hierarchy of needs, what we learned back in our psych 101 classes. When we think about the corporate strategy, the corporate strategy is not in those bottom three layers of Maslow, right? It’s food, water, shelter, my family, then my community. So strategy is way up the chain there, and one of the big mistakes that I often see organizations make when they communicate with employees is they lead with strategy. Only employees don’t really care what your strategy is, until they know and can trust that they’re still going to have a job, that their friends at work are taken care of, and that their customers are going to be taken care of. A little bit of a deviation from the question you asked, but that’s the light that I can hopefully shine on these strategy conversations.
I like that piece of the customers too because that’s something that I think a lot of the people that we’re working with, they do care a lot about the customers, and some of them have not sold their practices or are continuing to work. Especially technicians are continuing to work past when their body is killing them and achy and everything like that because they care about their customers, or more importantly, their patients for veterinary medicine. Sometimes, I wish that this was a video because if everyone could have seen Ivan’s eyes light up when you said Maslow’s hierarchy, it could have become a world famous GIF.
I wanted to ask you, though, Klint, so we’re talking about when you’re acquiring the practice or when you’re acquiring the business afterwards and sort of during that process. What are your thoughts about what people should be really thinking about on the people side of due diligence to get you to that acquisition?
Sure. So when I think about due diligence from the people side, I like to think about it in six different buckets. The first bucket is financial. So how are people playing into the financial model? When I think about that, I also try to think about what’s going to happen with turnover. How much is it going to cost me to replace key talent? How much overtime am I going to have to pay when people leave in a tight industry? What we’re seeing around the great resignation right now really brings the financial impact of employee attrition, front and center.
The second thing I look at is operational. So how are people going to run the business post acquisition, and how are they running the business now? If there’s a difference in the way they’re going to be running it in the future and the way that they’re going to be running it now, you need to understand that. I was once part of a transaction where the company I was with was a giant multinational, and we were buying a 30-person company that wrote technical manuals. The way that they would recruit is they would go to the local community college and they would say, “Hey, send me one of your best students. We’ll have a job for them.” Then those people would work there for a couple of years and then go do what was next for them.
Well, we came in with the big multinational, and all the sudden hiring goes from two days. Well, really two hours, the time it takes to pick up the phone and ask for your best student, to 75 days because you had to post the job, leave it open for two weeks, go through three rounds of interviews. You had to get God to sign a permission slip and then you could finally hire the person. Well, that affected the way that that business operated because it was a high turnover business, and all of a sudden you go from a couple of hours to several days. So the operational impacts of your HR processes on your business are really important to understand upfront.
Then I think about compliance. In the United States, we have a lot of wage and hour laws around how people are paid, their treatment and overtime. A lot of small businesses don’t understand a lot of those laws. They struggle to classify employees as exempt or non-exempt, or what a lot of people think about is hourly or salaried. Sometimes, you can end up with back wages owed if people aren’t classified properly. Those can sometimes be substantial if there are significant misclassifications happening, or you end up with a lawsuit. That can be very expensive. So you want to look at those compliance pieces.
Those are what I call the hard factors you want to look at in diligence, finance operations compliance. Then there are two soft factors that I think you need to look at. That’s leadership and culture. Are these the right leaders to take the business from point A to point B? Are these leaders going to stick around after they’ve made whatever amount of money they’re going to make off of the acquisition? In a lot of cases, I work with serial entrepreneurs, so they really don’t want to work for a large, consolidated entity. They want to go do something else and start a new business. So how do you get them to stick around?
Then finally, culture as the second soft factor. I know you guys want to dig into that, but let me just say that when I think about culture, culture is the way people get work done in an organization. So whenever you do an acquisition, you are likely to change the culture. Even if you’re leaving that organization standalone, the buyer usually has some sort of governance requirements that they’ve put in place. They want you to do things a little bit differently so that they can extract value. So, again, something’s going to change, and you want to understand the magnitude of that change. I got a big smile when Ivan spoke about change readiness and change agility, which are very important to understand.
Then finally, as an HR guy, we always have to take care of our own. We need to understand how the HR function is going to run. What are the tools and technologies? What are the processes and practices? How are we going to take care of those HR leaders who, in my opinion, are often the unsung heroes on the sell side? They’re the folks rallying the troops and helping the organization to really manage and navigate through that change, and they’re so often under appreciated.
So I think about those six factors when I look at due diligence, and not only understanding whether or not the financial model is going to be successful in the future but whether or not the change is going to be successful as that diligence information is used to really propel the organization through the integration process.
That’s awesome. We didn’t get a list of the best six practices. So I’m glad that there is like a structured takeaway.
Yup. I have a feeling that those sort of things would be covered in a book if someone were to write them.
Just a teaser for later.
So I can’t agree more with everything you said. The interesting thing about the turnover and the assessment of the culture and how people will stick around or not, it became so detrimental in our domain, which we were trying with Brian and the VAS team for the last three years to put emphasis on how do you take care of people. But I think that most consolidators were focusing on how do you retain business, the client list, how do you treat the P&L, and then labor costs on that P&L.
Then all of a sudden, our industry is in 40% of people want to leave the profession. 40% of veterinaries want to leave the profession. Number one reason, work-life balance. Number two, disconnect of core values with the organization they work for. In terms of numbers, how they can hit your P&L, it takes 10 months to find a veterinarian, which is about half a million dollar dent in your revenue. It takes about $40,000 in recruiting fees and 10 months to find a veterinarian. So it’s a big price to pay, especially if you have a practice with like two, three vets, and you’re buying a practice, and all of a sudden they are not a part of the deal, and then they leave. So therefore, all the synergies that you thought of incrementally increase due to inventory management, vendor management. Everything goes down the drain. That’s where we’re at.
So interesting thing that you touched on, and I really would like to hear your opinion on this. So all of these small businesses have, at least in our domain, they have a leader. It’s usually the owner of the practice. There are sort of veterinaries inside, and those are the ones that I think important to those change agents to understand who they are culturally and work with them, so they can continuously lead the pack. It’s usually like manager or nurse manager in our situation. Or maybe one of the nurses that is like more proactive into new initiatives.
But in terms of leadership, how can you transfer leadership? Because when this acquisition happens, technically, first of all, the leader becomes disengaged because they’re now paid out. No matter how you incentivize or connected with the buyouts and the hold backs and whatever that is, they’re less engaged than when they were driving the bus. Then there’s another group of leaders coming in, higher and above and not in the same building. Then they need to transfer culture of the new organization onto this organization and unite them around one sort of access of culture or purpose or something like that. So how, in your experience, can leaders achieve that and take over sort of leadership or empower leadership in the smaller organization that’s being acquired?
Right. That’s a big question. My doctorate’s in organizational leadership, we could probably talk about this for a couple of hours. But in the interest of time, I think the thing that makes the most difference is trust. So we can talk about formal and informal leadership. We can talk about different levels of leadership. But at the end of the day, whether your leadership is formal or informal, whether you’re a top level leader or a middle manager or even a leader among your peers, the reason why people will follow you is because they trust you, and they trust that you’re going to do the right thing for the organization, you’re going to do the right thing for them as people, and you’re going to do the right thing for your customers, and in your case, the patients.
It can make an enormous difference in the level of forgiveness that a leader gets when they make tactical mistakes, if people trust that that leader was well-intentioned, caring, had some empathy for everybody involved. When our leaders are vulnerable and own up to the mistakes they make, that builds trust. When our leaders do what they say they’re going to do, when they said they were going to do it, and communicate if they’re going to do something different, that builds trust. It ultimately comes down to, in my experience, how much the employees trust that leader, and it drives everything from employee retention to employee productivity.
I imagined in some of your burnout work that you’ve seen that those veterinarians who trust or those employees who trust their leaders have lower levels of burnout. We see that in engagement research. So trust would be the key ingredient for leaders to be successful, especially when people are going through a big change event. M&A, again, regardless of what you’re doing on that front end operating model, it feels like a big change because people get very, very nervous about their futures.
Absolutely. I just wanted to go back to why Ryan commented on Maslow’s because we just did a study on another slice of another survey we did last year one, and then we expanded this year to understand two more factors, the work-life balance among different levels of organizations in veterinary domain and also on goal setting. I had this hypothesis that I kind of mapped on to the Maslow’s hierarchy that the basic needs that you articulated, this is a lot of organizations, especially in veterinary domain because they care only about money, and they measure for the most part money. A lot of people say that they care about other things. But when you care about other things but measure only money, you care only about money.
If you measure your feedback, NPS scores of your employees, and things like that, then you can say, “Okay, we care and we measure and therefore we take action.” Then I can see the closed loop there. But the way we kind of articulated this Maslow’s hierarchy is that the food shelter, and basic need, that’s covered by money and that’s the basic, basic relationship of employer and employee. It’s nothing to do with dedication and it’s where the trust starts. But basically, you need to cover those two first levels for people to just exist. What a lot of organizations do, they attach the productivity and bonuses to the money, which means that if you’re not performing your shelter and comfort and safety is compromised because you’re not performing, so you’re acting in a constant fear, instead of the goal achievement.
So the way we did it and sliced it in our organization is basically the pay is of course, and then you get to the sense of belonging and community. That’s where leaders can really build it based on purpose, based on culture, based on that trust and unity. So, yes, it’s love outside of work. But at work, you can build that community as a part of Maslow’s hierarchy. Then the next level that we usually talk about is that achieving of esteem, and that’s where we try to set goals. So you’re proud and you get the dopamine when you achieve certain goals. You don’t have to be immediately motivated or incentivized by money. When you set goals and achieve them or it’s microcredentials that you are within your professional state or anything like that, that’s esteem. Once you cover all those levels, that’s where people act with self-actualization, that sort of happy state. So that’s how we sliced it. That’s why Ryan said that I got so excited about it.
That’s fantastic. It’s just so interesting. I have these conversations with business leaders all the time and I think this crosses industries where we measure money. We measure dollars and cents or whatever the local currency is. I think that there is a disconnect in understanding that money is generated by the people on the front line. So my doctor’s office, for example, was just acquired by a large multi-state health system. In fact, just last week, I was commenting on this on LinkedIn. The front desk was not trained for the change in systems. So I went in for a flu shot, got the bill, a couple $100, which is unusual for a flu shot. Usually, those are free. So I got the bill and I called the front desk, and they were so stressed out because they had not been properly trained in the systems changeover.
Fortunately, I’m a fairly easy going guy. But had I been higher maintenance, I might have actually left the practice because the interaction with that customer service person on the front end was just so – It was stressful for them, and I can see if I’d been a little bit more high strung, how it would have been stressful for me or if I didn’t have the money on my end to pay for a $250 flu shot. I knew it’ll get taken care of, so I’m not particularly concerned about it and I really like my physician. But if I didn’t have that relationship, I would have walked. I can go down the street and find another doctor to go see.
I imagined that I like my vet. I’ve got two little Chihuahuas. I’m surprised they haven’t spoken up during the podcast recording, but that’s a different story altogether. If I had an interaction at my vet’s office that was really rough, and I could tell the staff were not feeling like they were treated well and they were stressed, what goes on in my mind is, wow, if they’re not taking care of their own people, how are they going to take care of me? Having been through a number of M&As, I was able to relate to the stress. But, gosh, so much money walks out the door because on the front line, people aren’t taken care of. If they’re not taken care of, how can you expect them to take care of your customers?
Yeah, absolutely. You reminded me. Last year, I got stuck in Ukraine. I’m originally from Ukraine, so we were there for a reason. But we were just there. I wanted my son to be exposed to the culture where I was born. I threw a disc and I needed a surgery. It was almost like not a real emergency but I needed to do it and I decided to do it there because we get stuck there during COVID. I mean, it was interesting because I came in to have the surgery on the day when they changed their practice management system in the hospital.
I sold practice management system or like in the hospital. I changed 650 hospitals through, veterinary hospitals, through that software. I know how stressful it is, so I could really appreciate. But I’m sitting there with this clerk because they were putting you through all this like billing processes. It’s different. It’s culturally different. But I’m from there. I can understand. But on top of that, they were changing the systems, and the person who was dealing with me, she just couldn’t cope with stress. She was like yelling at me, yelling at people around her. I was on her way, instead of being a customer. It was just so interesting.
I took a sort of backseat, if you will, on this. I was like, “Look, I know what you’re going through. I’ve seen it many times. So please take your time. I know how stressful it is.” She really melted and she was like, “I really appreciate it because it sucks because I can’t get into the system to just print out a stupid invoice for you.” But I’m like, “Look, take your time. Everything is fine.” But it was so kind of obvious that when change is not done right, and the organization can just fall apart. I was getting a spinal surgery. Like you don’t want anybody be rough with you when you’re going for that kind of experience. So luckily, I can move my arm again, and everything is good.
He still drags one leg behind him, but it worked out pretty well.
I have a droopy eye but I’m happy, so I’m good.
Yeah. It’s an overall improvement. I do need to call our time here because we’ve had a great conversation. Klint, I want to ask you our two questions that we wrap up with each time. I think I know the answer to one of them, which is would you recommend a book for people to read if they want to learn more about what you know?
Sure. So I did write The HR Practitioner’s Guide to Mergers and Acquisitions Due Diligence. I like to think that it’s a good introduction to due diligence and really the overall M&A process in the first three chapters. I tried to relate the process of buying a company to buying a house, and I find that that analogy really resonates with folks. So anybody who just wants a basic explainable introduction to what M&A is like can go grab the first three chapters and take a look there. Then if you’re having problems sleeping at night, and you’re not an HR professional, read the rest of the book.
What a way to sell the book. I love that. I was just about to joke about what about beyond the three. But I love that. That’s very –
You have to buy the whole book to get the first three –
Now, you’re happy.
No matter what, it’s – Klint was like, “If you get cold, the next eight chapters are wonderful for kindling, if you’re into those sort of things.” Whatever works, right?
Well, and if you need kindling, you just go buy a second copy. This works for me.
That’s perfect. Perfect. Well, and then our last question is, if you could recommend another person to join us on the show, who would you recommend?
One of the folks that I have found really has a big heart for people and has been through several M&As like I have is Jennifer. She has just an amazing story of being in corporate marketing and being acquired several times and has done just a really great job of helping leaders to understand how the conversations they have with their employees are really heard, really listened to. She’s done a couple of HBR articles and written a great book of her own. I really appreciate the work that Jennifer does to help leaders understand how what they say and what they do impacts people.
That’s awesome. Wonderful. Well, Klint, again, thank you so much for joining us on the show. There was so much to learn. I know we need to both probably dive into at least the first three chapters of the book.
I want to read the last. I don’t want to read –
I’ll read the first three either, Ivan. I’ll tell you what happened. You read the last. But, again, thank you so much for joining us on the show and hope you have a great rest of the day.
Great. Thank you.