By Bill Vinck, Excendio Advisors

M&A: A Variation on a Theme or (Sometimes one needs to change the musical score)


One typically acquires a firm for several reasons. The short list of reasons would include the acquired firm’s EBITDA and the related growth trajectory. Access to clients, markets, and talented staff are also high on the list of sought after attributes.  The acquisition is often felt to combine the operational and financial strength of the acquirer to the advantage of the acquired firm. This model motivates a lot of M&A activity.

There is a related approach which goes beyond the common variety and builds upon it. This approach can be called a Variation on a Common Theme.  This article lays out an overview of the variation concept.

What Is this Variation?

It is a deliberate implementation of the basic M&A theme mentioned above with one interesting new dimension. The acquired firm or firms is/are additionally seen as having certain characteristics that are particularly and uniquely interesting to the prospective buyer. These characteristics, the variations, are part of the business model of the acquired firm. They are part of the operational DNA of the firm. The buyer, however, sees them as more than this and this vision is what really motivates the acquisition.

An Example:

Imagine an acquisition strategy in which, say, three firms are acquired and integrated into the acquirer’s platform as appropriate.

Each acquired firm has a particular characteristic, a variation, of particular interest to the “vision” of the acquirer. In fact, the existence of this “variation” played a major role in the acquirer’s pre-acquisition review. Due diligence verified that the characteristic existed, functioned as thought, and would serve the acquirer’s post-acquisition need.

The acquired firms continue to operate as before and are managed in a “Berkshire Hathaway” fashion. That is, management expertise is shared, capital allocation decisions are facilitated by the parent, but things continue much as before…with one major exception.

The Variation on a Theme Exception:

As we saw, the acquired firms each had a characteristic perhaps unremarkable when viewed in the context of its’ place in the parent firm but when deliberately combined with the certain unique characteristics acquired from the other firms a completely new and different suite of capabilities resulted from this combination. This result was the design intent in the first place.  The construction of this suite of capabilities was a major motivation for the acquisitions. It was the variation on a theme. That is, the acquirer had a particular acquisition design thesis in mind and by acquiring the three firms in this example they began the implementation of that thesis.

A Case Study:

Tapestry Partners, A Private Equity Firm

Meet the Team: Vera, Nora P and Beckham

The team met in school and began a conversation about interesting things to do professionally. They were intrigued by the Private Equity model and decided to pursue it but as a variation on a theme.


Tapestry Partners is the acquiring firm, and it has several operating partners. They have varied but complementary backgrounds. The partnership skill set was very deliberately designed to support the Tapestry Investment Thesis. They are self-described as “Hands-On” Partners. This means they each have significant background and interest in several complementary areas:

  • Business process improvement (BPI): Nora P is the partner particularly interested in BPI related technology such as AI and Quantum Security. She also sings with a jazz group but that’s more of a hobby. She has experience in data enabled BPI optimization. She realizes that not all processes are created equally. She’s particularly interested in customer facing processes with actual or potential digital transformation configurations. She is experienced in the review, analysis, measurement, and measured improvements in customer facing business processes and is well-versed in data mining and creating customer data-based AI algorithms.
  • Silicon Valley Tools (SVT): Beckham is a partner who has done work very detailed work in AI, Machine Learning, Speech Recognition, and Data Analytics, all aka “Silicon Valley Tools”. He knows such tools can be valuably deployed where reasonable in BPI and has deployed them himself in prior assignments. His role is to use his particular expertise to create the “Variation” technical architecture.
  • Integrated Digital Operations Design (IDOD): Vera is the partner who works intimately with the portfolio firms. She is an operating executive with a specific charter. Vera’s interest is focused entirely on influencing and directing specific elements of the operation, i.e., BPI and related data management and SVT technology deployment. Her focus is the design and implementation of Tapestry Partner’s Investment Thesis. She is the business architect with two principal mandates: Create a unique digital business architecture and build the business plan to launch it.

Key Point: The Tapestry Team is not principally interested in day-to-day operational management of the acquired firms. These firms are operationally sound and have a management team in place executing the firm’s growth plan. The idea is for the firms to continue operations as planned while the team abstracts the variations as the key architectural building blocks of a completely new entity.

The Variation on a Theme Investment Thesis is a Digital Transformation Thesis. The DTT is simply a digital business idea that can be implemented by combining discrete and transportable components of the acquired businesses.  Tapestry Partners is ever alert to such capabilities as they review candidates for acquisition. The design of the component integration is key. That’s where the team comes in.

Whereas generally many PE partners have strong financial backgrounds, our Tapestry team is as strong in these specific technologies. They are, for obvious reasons, discrete in their disclosure of these plans as they are highly contingent, prone to delay, and could affect valuation deliberations. The design, construction, launch and operation of such a business is highly risky and this risk must be managed. But Tapestry Partners has built itself around this very idea and is prepared to manage the risk.

The Tapestry DTT has several components: Customers (and their behavior), Products (and their characteristics), and Markets (and their niches). Tapestry sees itself as a niche market maker and they define a niche as the “Financial Point of Intersection between Customers and Products under Mutually Advantageous Circumstances” or (FPoCbCaMuMAC).

How to begin?

Phase One: This could be the start of something!

  • Acquisition in the Business Services segment.
  • EBITDA of $2.0M is the minimum.
  • Data heavy, capital light business operation.
  • Current management remains in place while Tapestry works on the M&A Variation topic, i.e. the Tapestry IT Investment Thesis.
  • Geographically Agnostic.
  • Control 100%.
  • Indefinite holding period.

 Phase Two: This could be very interesting!

The partner’s “Hands On” approach mentioned above lays the groundwork, as an example, for a potential meta-data strategy related to but independent of and in addition to the basic acquisition strategy. This strategy could, for example, combine data from the acquired firms into data sets that enable digital transformation scenarios unimaginable without the completion of the M&A phase one projects and combining them with Tapestry Partners unique vision and skill sets.

Conclusion and a Lesson

Serendipitously, Tapestry Partners found an M&A advisor and, after detailed conversations with each partner, the advisor asked somewhat boldly if the variation on a theme approach was, in fact, the real goal. Somewhat taken aback, without confirming or denying, the partners asked the advisor to propose a plan. He did.

What happened then? Sorry. It’s confidential.  But a lesson here is that some things require some finesse and swag (F&S) and if you find an advisor with F&S, wonderful things can happen. But be careful, the sad truth is that not everyone has F&S.