MAU 13 | Doing Due Diligence


One of the lessons you can learn from an unsuccessful deal is the importance of doing due diligence. This is what Tom Minichiello discusses in this episode, both on a buyer and a seller perspective. Tom was named the CFO of Emcore Corporation in 2019. He previously joined Westell Technologies in 2013 as Senior Vice President, Chief Financial Officer, Treasurer, and Secretary. Prior to this, he worked in various other leadership roles for companies such as Tellabs, Andrew Corporation, Phelps Dodge, Otis Elevator, United Technologies, and Sterling Drug. Tom insists that businesses need to make sure they have the right team in place to handle the diligence during the process of selling and to line up external resources if necessary.

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Tom Minichiello: Be Diligent In Your Diligence

I am pleased to welcome Tom Minichiello to the show. He is a seasoned financial executive and has held several senior financial positions with many firms across a broad range of industries. He is the Senior Vice President, CFO, Treasurer and Secretary of Westell which is a leading provider of high-performance wireless network infrastructure solutions. He’s also a prolific marathoner and a fellow Yankees fan. Tom, I couldn’t believe when I read your profile that you’ve completed a marathon in every state. That’s 50 marathons and every single one of them was under four minutes. That is unbelievable. Welcome to the show, Tom.

Thanks for having me. For the record, it’s under four hours.

Did I say four minutes?

You almost had me in the Guinness Book of World Records.

As you can tell, I’m not a marathoner.

That’s okay. Thank you for the kind introduction.

That takes incredible focus and stamina. I can’t even imagine. In what time period did you complete all of those marathons? How many years did it take?

I did most of them, believe it or not. I can send you the article from the paper that does a nice job of summarizing it. Daily Herald had an article that was done back in January 2014 which is when I finished it. I did most of them in late 2011, 2012, 2013 time frame. I had 44 of them and done six prior to that 2 to 2.5-year period. I decided that since I was in my early to mid-50s, it’s now or never. It was harder scheduling them and doing all the travel than running them. Once you’re in good shape, you’re doing it. I was on a mission to get it done.

Any sense for how many people have done that? That seems to be a high bar.

If you were making the biggest purchase of your life like buying a house, you certainly do a thorough inspection. Click To Tweet

Yes. There are three groups that I know of. There is the 50 States Marathon Group, 50 State Plus DC Marathon Group and 50sub4 Marathon Group. I was in all three. I don’t know how many there are. They probably are over a thousand or somewhere in that range that has done all 50 states but there’s over 100 in the 50sub4 completion group. A lot of people do them but they’re not shooting for any time. They only want to finish them. I took it one step further and decided to do them with a certain prescribed time. Under four is where the bar is set by this informal club that somebody from Glen Ellyn, Illinois started. He lives in Texas now but it’s a great group of people with a common bond.

The show is not about marathons but I find that interesting. I could go on and on, but let’s move to the topic at hand, which is mergers and acquisitions. Let’s start with your career. You’ve spent your entire career in finance. It looks like you pick that lane early on. I’m curious on why finance?

I realized I had a knack for it. Back when I was at college, we moved off campus and for some reason, there were eight of us. We were looking for an off-campus house to rent. I was the only one with any wherewithal to go talk to the landlady and figure out the rent, divide up the bills and make sure everybody was paying their fair share every month. I said, “I like doing this.” I handle all the finances, and that led me to a professional career in accounting and finance. I love what I do. I couldn’t think of doing anything else.

It sounds like those early traits are certainly paying off. When you and I first met, you had mentioned to me that you’ve been involved in a number of M&A transactions, buy-side and sell-side. Starting at a high level, looking back now in the rearview mirror, are there some common themes and threads that you’ve seen in those transactions that you’ve been able to take from one deal to the next? What are those?

I first got a taste of it as an auditor for my first job at a school, with a large pharmaceutical and consumer products company. We were doing an asset deal. I got on the project and I got assigned the inventory. We were buying the assets selectively. It mattered to value the inventory correctly. I had to fly all over the country to different warehouses. I enjoyed it. I enjoyed the project-based nature of it and that got me started in it. It’s been a common thread through all of my roles in different companies and it’s been mostly due diligence work. I’ve been involved on the whole start to finish targets all the way to finishing the deal. I would say the common thread is the level of diligence, which in my book is important to not cut any corners. Don’t rush through it and be thorough. In most cases, it’s a big chunk of money that the company is going to invest in an acquisition. It’s like if you were making the biggest purchase of your life like buying a house, you certainly do a thorough inspection.

To the M&A Unplugged show community, you’ve been involved mostly if not exclusively in publicly traded transactions.

I’ve been working for my entire career there. Now the transactions haven’t always been of other publicly traded companies. If I counted them by a number of deals or would be deals that I’ve been involved in, because sometimes they don’t always come to a deal, we probably purchased more private, family-owned, entrepreneurial companies and startups even in our business because we’re in technology. The targets have not always been, in fact, more often than not, public companies. I haven’t been involved in larger deals and it has involved other public companies as well.

Our community is going to be interested in the private transactions that you’ve done. Family-run businesses and smaller businesses, were these add-ons to the businesses that you were running? Were there vertical integrations in there? What was the nature of some of those transactions?

You hit upon two of them. They were vertical integration in some cases, family. I recall one, it was three engineering individuals who I had worked with in a large public company. They had good skills and found themselves without jobs. They started a company and they developed some interesting technology that turned out to be something that we were looking for to fill in a little bit of the white space in our own product portfolio. That’s an example of not only family but a group of individuals who got together and started their own company. They did a pretty good job of building it to a certain point but they need to get to that next level. They need to sell their company to an established name that can get them greater reach in the markets.

MAU 13 | Doing Due Diligence

Doing Due Diligence: When you go into diligence, you’ve got to make sure that you’ve got a team that has the time and the bandwidth to do the proper job.


You talked about diligence and the importance of diligence. We talk about that all the time when we talk to our buy-side clients and also our sell-side clients in preparation for getting out into the market in the deal and making sure that their houses are in order. What have you learned over the years and over the many deals that you’ve done about diligence? What are the best practices that you’ve brought to the table in regards to diligence?

You have to first realize that the employees of the company, whether it’s the law, finance, engineering and marketing departments. Everybody has a day job. When you go into diligence, you’ve got to make sure that you’ve got a team that has the time and the bandwidth to do a proper job. If you don’t, I would strongly suggest hiring outside companies to do that for you or do that in conjunction with you. Of course, you can’t not be involved. You’re the company acquiring another company, but you’ve got to make sure you have the right bandwidth. You’ve got to make sure you’ve got all the areas covered and you do a pretty thorough job.

Getting down into the weeds a little bit, are there particular things in the process of due diligence where you pay special attention to? You mentioned inventory and interestingly enough, I’ve had Tad Render who is the principal at Miller, Cooper, a local accounting firm on a few episodes ago. He talked about the fact that inventory is an issue in 9 out of 10 deals, which shocked me. I knew it was an issue because we deal with it all the time but I had no idea to that level and that extent. I’m curious to know if there are aspects of diligence, like inventory and what those might be in and what do you do to prepare for those?

I would agree. In my experience, it’s not every single case but in almost every case. These are companies that have inventory. That’s not a service company, these are product companies. In fact, I can’t think of one where it wasn’t an issue in my experience. It’s a multitude of reasons. If you’re buying a smaller family-run company, they probably didn’t keep inventory records sometimes at all. They would buy things as needed. There would be inventory physically present in the warehouse but there would be no system around it for withdrawing and adding as you would normally have in a company where you add receipts into the books when you issue material, it’s booked and recorded. In some cases, there is no transaction. They’ve never counted it. They take it like it’s a coffee mug out of your cupboard. You come in and it’s like, “Oh my God.” It becomes the centerpiece of a problem. You’ve got to do a physical, you have to reinvent their inventory accounting from a certain historical point in time and roll it forward in order to understand what you have. It impacts the earnings and the gross margin and all that.

It makes total sense. In your role as a CFO and on the finance side, how do you approach and how do you present a target acquisition to the CEO and the board from a return on investment perspective? Do you have a model or a methodology that you follow? The reason I asked this question is, I talk to clients all the time on the buy-side about understanding what your target return should be and how you’re going to measure and then measure it. I‘m curious how you approach that.

There are a lot of ways to start in response to that. First of all, there better be a growth strategy for the company and for the business. There are two ways to grow. In our business, you can internally develop products and technology for the market or you can go out and acquire them. In both cases, you’re going to have to do a similar return on investment analysis. In the case of buying or acquiring, those can happen quicker, but there is also a larger initial layout. They’re much riskier as opposed to the internal, which is going to take longer, probably won’t cost as much, but it will take longer and a little safer.

In either case, in our business, when you’re in technology, a lot of things don’t pan out because of technological change, market shifts, market cycles and things like that. When you put it all together and you decide you want to buy instead of internally develop, we do a discounted cashflow with an ROI analysis. In the case of acquisitions, it has to be north of 20% to 25% return. In fact, I get nervous when it’s at that amount because things happen. That’s the minimum. If it’s not doing that, you need to retool the offered price or maybe look at the projections and do something there and adjust it. If it isn’t going to work, there’s no sense starting a due diligence effort process because it’s time-consuming and expensive. Who wants to waste time and money?

To put some clarity around that, the benchmark of 20% to 25% is your floor. Are you looking at that on a cash-on-cash basis of how much money was invested into the business and how much is it spitting back on an annual basis? Is that the basic calculation or do you do a more detailed calculation on that?

That’s pretty much the essence of the calculation.

Sometimes the best deal you do is the one you don't do. Click To Tweet

For the M&A Unplugged community, if you don’t understand this measurement tool, if you look at how much money you put into a deal or ancillary dollars that go into a deal. It’s not only your equity infusion, but it might also be third parties that you brought in to help analyze the deal. If you had to take an internal resource and dedicate them to getting the deal done. You’ve got all these sunk costs to do the deal, you need to factor all of that in and look at what your annual profit is on that business and divide that. That should give you your return. 20% to 25% is a pretty common measurement that we hear of on the low-end. That fits with a lot of the things that we hear from other folks.

That’s good to hear. One thing I would also add on this topic is, in my experience, we’re in telecom technology and we make equipment, but it’s based on a certain type of technological feature or features in the product. If they’re set up to sell or they’ve been thinking about selling but haven’t done anything to set themselves up, which is a whole different problem, what will happen is, in recent periods leading up to the time you engage, they probably already begun the process of underfunding their development and some of their marketing and things like that. You have to be cognizant of it because it comes with experience. You’re going to pay a certain amount and you’re going to have transaction costs. You’ve got to consider everything, but you’ve got to also consider if you’re going to bring the R&D funding back up to a certain level in order to make it successful. That’s got to go in the model.

You brought up such a key point for the M&A Unplugged podcast community. What Tom is talking about here is, a company goes out to the market and the company and the bankers want to present that business in the best light. It’s important to make sure that they haven’t paired back on key fundamental areas of the business and starve the business so when you take over, you’re not taking over a business that might stagnate. You have to pay attention to that because sometimes, there are some window dressing that goes on with a business that’s been taken out to the market. You need to make sure that the foundation is solid and there for growth. If not and if need makes further investments, you need to incorporate that into your models. That’s a great piece of information. Thank you. You talked about deals that you walked away from. You can learn more, even if not as much more from the deals that you walk away from. What lessons can you share about your experience walking away from deals?

There’s an old saying, “Sometimes the best deal you do is the one you don’t do.” The worst thing you can do is overpay for an acquisition. Doing no acquisition and left with only your initial dilemma of how do I grow my business while maybe square one back to the drawing board. That’s better than all of a sudden having on your hands something that you paid too much for and you’ve got a boatload of other problems that, in my view, are typically worse. Sometimes you do overpay a little bit in a lot of cases but you’ve got to be careful of that. I’ve been involved in several where we did as much diligence as the seller would allow before we went into LOI and into diligence. Once we got into diligence, we found things that we didn’t know where we’re going to find.

When we put it all together, we didn’t like the deal, the structure of the deal or the amount that we were paying. In most cases when you go back to renegotiate, at least in my experience, the other party is not open to renegotiating what was in the LOI, so you walk. You’ve got to stick to your criteria, strategy, and financial model as a business. You’ve got to be willing to do that. Some people find it hard to do but the negative consequences of not doing to me are not good. We’ve done that.

You have to have a lot of discipline as a management team to do that. I imagine as the CFO, you’re more often than not in a position where you’re having to be the voice of reason when it comes to that stuff. The marketing team is probably excited about the potential of bringing on this added service or product. How do you manage that internally effectively and get the management team to coalesce around that concept that you don’t want to overpay and make a big mistake?

In good companies, when you are in the middle of these projects, people are going to listen to everybody. There’s a team and certainly if the returns and model aren’t working, if we’re finding things in diligence that are negative and hampering what we’re trying to do here under the current structure and value, folks are going to listen to the CFO. The CFO would say, “The way it’s put together right now is not going to work for us.” You’re right. There is an element of management, whether it’s the CEO or the sales and marketing people or the engineering people who may not agree. They figure they can fix these things. We only want to do the deal because we’ve got to do it. That’s part of your life as a CFO, you’ve got to deal and manage with it. That’s part of managing the team. In public companies, we have a board of directors as well that’s on any acquisition that you do, would be involved in the entire situation. They’re going to definitely listen to what the CFO has to say. I find if you manage it properly, you’ve got a good rapport with the team. You’ve got the board doing their oversight work. Smart people usually come to the right answers.

You’ve got the model. At the end of the day, you’ve got the financials in the model and that usually can hold the day. Unless there’s some other compelling reason to go do the deal.

Having chatted with you about this topic, I do recall one where we did successfully redo a deal. It’s a small one with a family company. It’s not that it can’t happen. It’s all gets back to motivations and willingness and where people are at with their company and life. There are a lot of factors, as you probably know, that can work for you. The more that you know each other as a buyer and seller, the chances of getting a deal done if everyone’s motivated, the right way goes up.

MAU 13 | Doing Due Diligence

Doing Due Diligence: There are two ways to grow – internally develop products and technology for the market or go out and acquire them. In both cases, you’re going to have to do a return on investment analysis.


You hit the nail on the head. If you’ve got motivated parties, you usually can find a way through the bumps in the road and get a deal done.

It always gets down to the money but there are other things too. There are relationships and other factors too but there’s no question, the money is the main centerpiece.

Tom, how has M&A work when doing transactions? Early on, you were on the audit side and now, you’re driving the bus on a lot of the stuff that you’re looking at from an M&A perspective. How has that made you a better CFO in performing your role day-in and day-out for the company?

I will say this, especially here in my role, but I know everything I’ve done. It’s not the only answer. You don’t have to grow by acquisition. There was the Cofounder of Microsoft, Paul Allen, who passed away but I will never forget his interview on TV a few years back. He made all those investments and acquisitions and none of them work after Microsoft. Most things in technology do not pan out. What I’ve learned is, you can do things internally. You’ve got good engineers, a team and people who can build things, develop products and write software code. M&A is not the only answer. In a lot of cases, you need to step back and look at that and say, “You can do this. You can make it by. You can do the make side of this thing. Perhaps better than anything out there that you might think you could acquire.”

It should be one leg of the strategy. You may always look for good deals but it shouldn’t be the only thing that you’re doing. You’ve got to be testing all sorts of things. Are you looking at doing transactions or are you active in the market for add-ons?

We’ve disclosed in our earnings recalls to our investors. We do them quarterly, like most public companies. It’s not going to tell you anything here that we haven’t said on those calls. What we’ve done here is we spent a fair amount of time. I would say during the summer, fall and into the early part of the winter looking at deals, getting involved in diligence. We have not closed any of them for a variety of reasons, some of which we discussed. We have in fact turned more of our focus and attention into internal product development for growth.

We’ve outlined the areas in the markets we think are good investments in its fiber access, public safety and something called CBRS. It’s the Citizens Broadband Radio Service. We’re getting into the weeds now, but it’s a new spectrum for cellular that companies and enterprises can purchase directly. It’s not a market yet but it’s coming. It’s something that came out of the US Navy. These are future markets that we think we can build products for. Having said that, we will certainly entertain and not turn our backs on anything that we have been involved in that’s either stalled or went away, sometimes they come back or anything new that comes up. We’re always open. Our job is to drive the value. We’re doing it both ways. I would say we went from majority focus on M&A for about 8 to 10 months to now more focus on internal development in 1 or 2 quarters.

I’m curious about this CBRS. Do you know enough about this technology that you could talk about how that might change cellular or wireless calling?

Yes. It’s spectrum it’s similar to 4G, 3G and 5G is coming. It’s a spectrum, but it’s going to be deployed differently. This was a separate spectrum that was almost like the internet. It’s something that the government had for years. It was only used by the US Navy for wireless communications and it’s underutilized. This is now going to be made available to the public, to basically anybody. You and I could buy a swath of the spectrum if we choose to do and set up a cellular network in your house like you have a Wi-Fi network. The reason why it’s important is it’s cellular.

The worst thing you can do is overpay for an acquisition. Click To Tweet

Other people probably don’t understand the difference between cellular and Wi-Fi. Wi-Fi was created for transmitting data or for the internet and things like that but it’s terrible for phone calls. It’s not good for texting, unsecured, unlicensed and it’s best effort. Cellular is much stronger. It’s a more solid foundational protocol to transmit wirelessly. This CBRS has been now branded. It’s something called OnGo because there’s an alliance. You can go to the website, You can learn all about it. Essentially manufacturing companies, hospitals, resorts, businesses and offices can deploy their own cellular networks like you have a Wi-Fi network. It’s got all the security and all of the other things that Wi-Fi lacks. You can rely on it a lot better. If you’re a manufacturing plant and you’ve got all your operations and everything from keeping the books, building the product that taking incoming receipts, doing payroll, you can go buy a swath of the spectrum and have your own wireless network.

It’s not something that’s going to compete with 5G, which is all we’ve been hearing about for a couple of years. It sounds like it’s going to set aside 5G and has a tremendous private application to it.

That’s exactly what it is. It’s for private cellular networks. I don’t think it will replace Wi-Fi because it’s evolving too but it will be similar. Two or three years, you’ve got a phone and you’ve got a Wi-Fi chip in there and a cellular chip for 5G. You may have a CBRS chip in there. When you walk into the hospital and you can’t find the nurse or the doctor for the patient you’re visiting, you can hop on their CBRS network like you would hop on their Wi-Fi network and probably find where the person or doctor is or whatever you need.

There’s no hiding anymore.

You’ll find it with a lot more precision than you would under Wi-Fi. That’s what it is.

Is this something Westell is on the leading edge of bringing to the market?

We’re building what’s called a small cell. A small cell is when you look at a cell site or a cell tower, a small cell is all of that in a little box that’s a little bit bigger than a shoebox. You use them for 4G and 5G, 4G now, not yet 5G but we’re building a small cell for CBRS so these things will go up in buildings and wherever manufacturing plants and customers who want to buy the network. They’ll need the equipment to make it all work. That’s what we do. We’re an equipment supplier so we are building something for that market.

Tom, it’s been great to have you. Maybe we could put a bow on this. If you were to bring it up to the 50,000-foot level and offer advice to other CFOs out there who haven’t done transactions yet or haven’t done that many or to anybody looking to do an acquisition. What advice overall would you have for them as they go down the path?

For CFOs, be the captain of the project and be at the forefront. The CFOs have a great perspective because you know your business and you know the financials, deals, payback, ROI and all that. Be at the forefront and make sure you don’t skip on diligence. Be thorough in all areas. It’s your job to make sure that you’re diligent on the diligence, not only in your area but across the board. The product, technology, legal, especially and all of that. That’s my advice. These are serious moves. These usually move that in a lot of cases, can make or break a business, a company or an organization. Be at the forefront, make sure they’re done right. Be expressive when you see things aren’t right and speak up.

MAU 13 | Doing Due Diligence

The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers

This is the last question I’m asking all of my guests. Is there any book, in particular, it doesn’t have to be a business book, but it is great, that has left a lasting impression on you and why?

I do have time between family, working out and work to do marathons and reread books. My favorite book is The Hard Things About Hard Things by Ben Horowitz. He founded Netscape Navigator in the ‘90s. I remember that they got shoved by Microsoft but the book is fantastic. I read Jay Wright. I’m passionate about not only the Yankees but about my Villanova college basketball team. He came out with a book called Attitude. The thing that sticks out to me is, there are a lot of things you can’t control in life, but your attitude is probably the most important thing that you totally control. If you go to Villanova and you go to the practice facility, it’s called the Davis Center, and walk-in there, get in there, you can’t walk anywhere, but you can walk around, you’ll see Attitude posted everywhere. It’s all about attitude and the next play. You can’t change the pass. These are the kinds of themes that are throughout his book. I loved it. It’s a great book.

It’s written like a true NCAA head basketball coach.

I listened to his podcast. They’ve got a good podcast. I’m pretty religious about listening to everything about Villanova hoops.

Tom, thank you so much for being here. It’s been a pleasure having you as a guest. I appreciate you taking the time.

Domenic, thank you for having me. It’s my pleasure and it’s been delightful talking with you.

For the M&A Unplugged community, to summarize a few of the key things that Tom brought up. It’s important as you’re contemplating diligence that you look at whether or not you have the right team in place to handle the diligence and the integration that’s going to occur post-transaction. If you don’t have the proper resources to line up external resources because most companies are running at pretty full efficiency these days and to take somebody who’s got a full-time job and ask them to layer on diligence and integration could be pushing somebody over the edge. It’s important for a clean transaction and to make sure that you have the proper resources.

Tom mentioned strategy. We’ve talked about this a couple of other times in earlier podcasts. You should be setting the course and the strategy from day one. Know what you want to achieve, what you want to do with an acquisition so when you go out into the marketplace and start looking at opportunities, it sets the acquisition strategy that you’ve put in place and the whole management team has agreed to. Tom also mentioned that when you analyze a deal, it’s important to also think about if any additional investments need to be made to bring that acquisition up to the point where you can not only keep the ship steady but also take it to the next level.

The last thing, the message for CFOs was to be the captain of the transaction. Quarterback the deal from all aspects because at the end of the day, you’re going to have to present to the management team and the board the financial justification. Not being the captain of that deal could put the whole deal in jeopardy. I hope you’ve enjoyed the show. If you would like to learn more about the process of acquiring or selling a business, please visit our website at or feel free to reach out to me at [email protected]. I look forward to seeing you again on the next episode of the show. Until then, please remember that scaling, acquiring or selling a business takes time, preparation and the proper knowledge.

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About Tom Minichiello

MAU 13 | Doing Due DiligenceTom Minichiello was newly named the CFO of Emcore Corporation.

Over the course of Tom’s career, he has gained extensive experience and knowledge in mergers and acquisitions.


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