Axios Event: Front-loading is the way to post-deal success, experts say

Integration, high-quality management teams and alignment among stakeholders are key components of a rewarding deal, speakers said at a virtual Axios event on June 11.

Axios' Lucinda Shen and George Moriarty spoke with Shan Aggarwal, Coinbase vice president of business development and ventures; VMG Partners general partner Carle Stenmark; and Matthew Frankel, co-managing partner at Levine Leichtman Capital Partners, at the event, sponsored by Cooley.

Why it matters: Navigating the nuanced transition of ownership after a deal can be tricky for founders and investors as they balance new leadership dynamics and stakeholder interests.

What they're saying: "When we think about the deal structure, we actually work backward by first thinking about what the integration strategy is," Aggarwal said.

• "[R]eally what determines success or failure in any acquisition is the integration and whether that's successful." The No. 1 item he focuses on immediately from the first day is cultural integration, he said.
• Coinbase recently acquired Deribit for $2.9 billion, the largest ever acquisition in the crypto ecosystem. The strategy behind the deal is to create one integrated platform that supports spot options through Deribit's and Coinbase's existing futures platform, he said.
• He said leadership also wants to ensure alignment on incentives between both teams from the start.
• "The one commonality that holds true in almost every successful deal is the quality of the management team," Frankel said, who has been a private equity investor for over 20 years.

The bottom line: Alignment on desired outcomes for a deal is crucial to set all parties up for success, speakers agreed.

• "After we consummate any deal, we host a kickoff meeting. A part of this meeting is really to get alignment with all the key stakeholders, most importantly the founder, on what they're ultimately looking to accomplish," Stenmark said.
• On the consumer side, they typically work backward from a three- to five-year time frame of a strategic exit, he said, deciding what the company needs to build over that period to be most attractive to the largest number of strategic acquirers.

State of play: There are new technological, regulatory and economic risks that require more consideration when doing due diligence in the acquisition process.

• Aggarwal said cybersecurity standards and regulatory compliance stand out as two risks he has had to focus more energy on in recent ventures than he previously did.
• For manufacturing-oriented businesses, higher consideration is being given to the effects of tariffs, regulatory changes and global supply chain shifts, Frankel said. "We are really thinking long and hard about those deals."

Content from the sponsored segment:

In a View From the Top conversation, Cooley partner Amelia Runyan Davis emphasized the importance of aligning expectations among founders and private equity sponsors for a deal.

• "I think this starts before the deal even happens. … One of the most important things is to make sure you're aligned on the vision for the future," she said. "Making sure you're partnering with a PE sponsor who is aligned on the vision is really the best way to set yourself up for success. Part of that is how do you create a win-win incentive structure."