Transaction Advisors publisher William Jefferson Black sat down with Tom McGee, Vice President, Corporate Development at RPM International to discuss his perspective on changes in the corporate development practice, innovation in M&A, valuation modeling and diligence, and the importance of developing personal relationships during a deal process.

This wide-ranging discussion, part of the M&A Methods video interview series, offers some insights on the specific techniques McGee has used throughout his impressive career.

RPM International is a public company based outside of Cleveland, Ohio that has been involved in more than 150 acquisitions over the last 20 years. RPM is divided into three divisions - a consumer segment which has well-known brands like Rust-Oleum; an industrial segment that is a series of B2B businesses; and a specialty products segment, which is a constellation of small, entrepreneurial businesses.

As the interview begins, McGee reflects on the changes to the role and expectations of corporate development officers in the public company context in his career. He notes over the past 10 years, while the strategic and relationship focus of corporate development remains important, the quantitative side and valuation modeling side have become much more robust and sophisticated.

With regard to his methods for building relationships and deal pipeline, McGee discusses building a network of buy-side brokers that help introduce appropriate opportunities. He notes that these introductions might (and in many cases should) take place years in advance of an owner considering a sale.

In addition to outside relationships, McGee places a great deal of emphasis on fostering relationships within his own organization, specifically with the current company presidents, so he can help them grow their businesses through acquisitions.

As the conversation shifts to due diligence, Black questions whether there any unusual or special approaches he has used. McGee notes that in addition to the traditional, formal financial due diligence processes, he also pays close attention to the cultural fit of a target during due diligence. He notes that the seller's approach and attitude during the negotiation process can be a good indicator of whether there will be a good (or bad) cultural fit. He also sees an owner without a strong team around them as a "red flag". In short, knowing whether an acquisition will be a good cultural fit often relies on a "gut" feeling. 

The discussion goes on to include insights into earnouts, the importance of market due diligence, and trends in cross-border deals, including seller quality of earnings reports. 

In closing McGee is asked to look ahead on a 10-year time horizon at how the M&A process will change. While he recognizes that there will be technological improvements and advancements, he thinks face-to-face meetings and relationship building will continue to be the key to successful deals for many years to come.