Corporate Development with Kento Kitano, Tide
Frameworks, metrics and strategy-setting for Corporate Development
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Today we’re speaking to Kento Kitano. Kento leads Tide’s Corporate Development function and joined in November 2019.
For the readers who don't know Tide, Tide helps SMEs save time (and money) in the running of their businesses by not only offering business accounts and related banking services, but also a comprehensive set of highly usable administrative solutions. Tide has over 500,000 SME members in the UK (over 9% market share).
Tide made its first acquisition in Funding Options and will consider further acquisitions to accelerate our growth and add to the services and products we offer our members. Tide counts Apax Digital, LocalGlobe, Augmentum, Creandum and Speedinvest (among others) as investors.
To align on a common definition, can you tell us how you would define Corporate Development and its remit?
Traditionally, Corporate Development teams focus on Mergers & Acquisitions (M&A) - both sourcing deals as well as the integration of target company.
Similarly, at Tide, Corporate Development focuses on inorganic growth - think M&A and Fundraising. Like any good company, our Product, Marketing and Operations leaders focus on growing organically, while Corporate Development complements these leaders through other means like M&A and Fundraising.
Can you give us a sense of how Corporate Development fits into the org structure of a fast-growing scale-up? What are the reporting lines, which teams does it interface with?
At a fast-growing scale-up like Tide, the Corporate Development function usually sits in the CEO or CFO’s office. As these teams tend to be small, the reporting lines are usually directly into the CEO or CFO.
M&A and Fundraising usually involves lots of different stakeholders to get deals done, hence Corporate Development works with all types of stakeholders, both internal and external, and is a very people facing team.
Finally, at Tide we run deals over 3 “Phases”. Certain teams, both internal and external, will enter and leave each phase throughout the live deal so we can protect everyone’s time, while also allowing us to move quickly through LOI, due diligence and ultimately the SPA signing.
What is the right scale for companies to begin setting up a Corporate Development function?
I believe the right time to start thinking about a Corporate Development function is when the company is past the Series A point. This is because:
At this scale, there’s already product market fit and an upward trajectory of your market share growth to start thinking about inorganic ways to sustain this growth; any time before this will be a distraction to think about inorganic ways to grow your business.
Near this point the company gets to the scale where the Buy vs. Build questions start to appear (see below).
Fundraising (whether debt or equity) will start to become a specialised skill set; ie. due diligence requests from investors become more complex.
When it comes to the perennial buy vs build decision, how do Corporate Development teams measure the trade-offs and what kinds of frameworks do they use to come to a decision?
The ideal starting point is with the Product Vision, which includes the End State Product Vision as well as the 5 Quarter Roadmap. [If your team doesn’t have one yet, I would highly recommend creating one to start].
With this Product Vision and 5 Quarter Roadmap, you can start to ask relevant questions around how much resourcing is required to fulfill this vision. Some relevant questions might be:
How many tech resources will I need to hire in order to build this?
How long will it take for these resources to be fully productive to start building?
Are there any dependencies on internal/ external product plans to achieve this?
Through this exercise, you’re able to understand what the total cost of fulfilling your Product Vision is. For us, this would be the “deriving a value of impact” for our organisation.
Can you elaborate a bit more on the evaluation of internal resourcing vs acquiring tech/talent - what are some rules of thumb one can use?
A certain conversation topic arises during the Product Strategy Roadmap planning - do we have the right skillset to accomplish this Roadmap? If the answer is no, we start to think about acquiring tech/ talent - or “acqui-hire” is considered when there’s a clear lack of skillset or lack of resources required internally to fulfil our End Product State. Some examples might be:
Niche expertise ie. Blockchain, Artificial Intelligence, etc
Buy additional FTE due to difficult hiring market
Writers like CJ Gustafson and Elad Blog have previously covered the wide range of M&A strategies - can you tell us how the Corp Dev teams assesses potential targets against these strategic objectives and how these objectives evolve over time
I want to emphasise that M&A should be considered a tool rather than a strategy. M&A allows a company like Tide to expedite our Product Strategy by a few quarters, however, M&A should not be considered as the primary strategy to grow your company.
With this being said, it is extremely important for the company to first understand what its organic strategy is first.
At Tide, our CEO Oliver Prill sets the vision and strategy for the company; one of the ways we do this is through our quarterly OKR planning. Here, the Product teams are responsible for their specific plans to try and exceed the goals set forth by Oliver and the rest of the C-Suite. This can include strategies such as expanding market share, entering new markets, introducing new products for our members, among others.
If there’s gaps in any of the above, the Corp Dev team will be brought in to proactively look for companies but also be reactive with our external advisors to see what kinds of opportunities are out there which might help bridge this gap. I believe this inwards-out approach is very different from larger companies who use M&A as a tool for growth, a more outwards-in approach.
How is Corporate Development's success measured? What are the key KPIs?
It’s extremely important to be crystal clear in your Value Creation Plan (prior to your Letter of Intent, or LOI) what the deal rationale and key success metrics are. This helps not only get the narrative across to the Board and other stakeholders to get internal buy in, but also makes it easier to track key KPIs, as each deal will have different KPIs.
However, regardless of deal type, some consistent KPIs one can start to track are the time spent on each M&A phase; ie. time in between first contact and LOI, how long due diligence takes ie. LOI to SPA stage, etc.
Also, we track how many LOIs reach our Deal Committee desk, as well as how many get approved. This allows us to work backwards and ask why some deals are not being approved and whether or not they relate to the quality of our leads in our lead tracker, for example.
Finally, the migration time spent during our Integration phase is something we track. The more deals we do, the better we can analyse how effective we are at the migration process, by deal size. One cannot expect a £100m, 1000 person deal to take the same effort as a £10m, 50 person deal as there’s complications in the former like multiple jurisdictions/ tax codes, meaning multiple regulatory approvals, employment laws across multiple jurisdictions, and 10x the amount of software applications, just to name a few
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Awesome read into the mind of a corp dev expert, and thanks for the shoutout! Keep the great content up