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How to Have the Best Strategies for Advantageous Deal Sourcing

Practitioner Playbook: The Best Strategies for Advantageous Deal Sourcing

By: Scott Kaeser and Kison Patel

Corporate development teams work day in and day out building relationships and mastering a cadence of communication in order to favorably position themselves to prospective sellers. In this article, we will explore how the best corporate development teams identify their targets, move past “gatekeepers” to build relationships with sellers, and gather essential information so they can ultimately get a deal closed. 

corporate development team meeting

Origination Process:

1. Build a database - building a database of targets is critical. Here, industry association lists are extremely valuable; pick an industry you are targeting and purchase a list (they are usually not too expensive and certainly when compared to the value a deal can generate, they are a small price to pay). While industry association lists are the best place to start, social media, such as LinkedIn, is another place to gather data.  

2. Refine your deal criteria and organize your database - once you have your initial list, you will want to refine it. Consider what type of deal you are looking for. Also, consider deal size - is a deal too small to invest your time and resources in, or is it too large? Are some of the targets on your list just plain unrealistic (i.e. a company such as Amazon being on your list).

Next, determine and build lists of “A” deals and “C” deals - this will help protect you from not overpaying or getting too aggressive. An “A” deal would be a company that not only appears to be a strong M&A target, but also is ideal in size and strategic fit. Here you need a delicate balance between knowing the type of service you are looking to acquire and not being so specific you end up without any deals to pursue and fail to realize value creation and hit revenue targets. 

At this point, you will also want to get your list into a data room, project management platform, or Excel so it can be easily organized and shared. 

3. Put in the effort - work the list (and it is work making calls and creating relationships)! 

4. How To Get Through the Gatekeepers - You must possess a skill set that allows you to move past the gatekeeper and get to the seller or C-Suite executives. While this is never an easy process, it can be done. First, consider who you are talking to. Administrative assistance? Manager? COO? If you’re dealing with someone who might be out of a job by letting your call go through (such as a CFO, a president who is not the owner of the company, or a COO), you can ease anxiety and begin a conversation by discussing something more benign such as “partnership” and “growth opportunities.” This will allow you to establish a less fearful interaction, while at the same time build a relationship with the target company and gather information.

On the other hand, if you are talking to an executive or administrative assistant, you can generally be a bit more forthcoming, asking to speak to their owner or seller regarding a matter of strategic importance and explaining your title and position so they know you’re not a cold caller, but rather a senior level professional. A small but mighty move when speaking with these gatekeepers is to ask their names (and write them down) and use their names when talking. This is the commencement of a solid relationship and oftentimes helps individuals to let their guard down. 

These methods stand in direct contrast to the trend that has recently developed of brokers and buyers sending mass mailings out to companies. A personal touch helps differentiate corporate development teams from these vague letter offerings. Certainly personal involvement takes time, but it has been shown to produce better results. 

5. Pause and then connect with the seller - Once you are able to get through the gatekeeper and/or obtain the seller’s direct line, if possible don’t connect with him/her right away. Review your notes from your database and conversations with the gatekeeper and then gather data on who you will be talking to. How old are they? Where did they work in the past? Where did they go to school? (Here LinkedIn is a very useful tool, as is Google, but sometimes Google can require a bit more work and patience on your part).

Next, work on your script - you need a polished one as not to get caught off guard and/or become flustered. Knowing what you will say, anticipating the seller’s reaction, and having background information on the company and the seller will help the cadence of the conversation. Specifically, you want a short, rehearsed speech that covers: why you are a good buyer and, more importantly, why you are a good buyer for his/her specific company (you might speak to similarities in culture, strategies, and/or services). Then, to put it bluntly, it is time for you to close your mouth and listen. 

What To Do After You Connect With the Seller:

corporate development team

After the first call, you need to review your information and determine if it is worth your time to keep pursuing the deal. You will want to examine revenue numbers and KPIs if you do not have this information, you will have to send over an initial data request to help you with your decision. 

Next, you will want to get together in person. Again, just like with your initial phone call, you need to have a specific plan for this meeting. We recommend generating five essential questions and/or topics you would like to cover in order to fill in any information gaps and keep the potential deal moving forward. 

Essential Takeaways for Making The Offer:

  1. The sooner you can make an offer, the better because the seller and advisers will see you as a legitimate buyer and view you favorably. 
  2. Make sure your first offer is solid but gives you a little wiggle room to negotiate.  Starting too high or too low can delay the process or kill an opportunity altogether.
  3. Sending offers via email is efficient when you are making multiple offers a week. Also, sellers like to have time to think over offers, which email provides. We find that making offers in person is not necessary today. 

The Red Flag To Be Aware Of:

We believe you can work around quite a bit and still get a deal done (i.e. lawsuits and tax liabilities do not have to crush deals), but there is one major red flag corporate development needs to take heed of: the seller’s inability to quickly provide basic information about his/her business. If the seller does not seem to have a good handle on the business or cannot elaborate on value drivers, this should be a warning. Similarly, if the seller sends you non-pertinent data and seems to be an unorganized mess, this is a cause for concern. Likewise if a banker / broker is unable to provide succinct information on behalf of their client, it is also a bad sign as it means he/she is likely not focused on the transaction. 

Common Traits of Fast Deals:

  1. A motivated seller with a strong rationale for selling
  2. A strong cultural fit
  3. Readily available, pertinent financial & operating information
  4. No red flags

Final Thoughts:

Clearly, corporate development teams are essential to growing businesses; therefore, they need to been seen as, and sit at the table with senior leadership. As there is more awareness surrounding the M&A process, more companies are creating corporate development teams - they are surely the future of deal sourcing. In addition, the best corporate development practitioners know that refining targets and cultivating relationships - not price - make for some of the strongest and most efficient deals. Finally, we see that advancements in technology will help these practitioners work methodically and productively.

What Causes Deal Fever? What Raises the Risk?

There are several symptoms that can lead to the disease of deal fever. 

One such symptom of deal fever is getting carried away in the heat of the deal. There is a lot of time and effort spent just exploring a potential deal, let along the negotiations involved. Sometimes people spend so much time and effort on exploring and negotiating the deal that they feel is must get done at all costs, while failing to take a birds-eye view in determining if the deal is really the best thing for the company.

Another symptom indicating the presence of deal fever and one that raises the risk of catching it is when certain executives become more excited about the deal and emotionally involved in the outcome than other members of the group. This can lead to inflating the deal’s potential strengths instead of also focusing on potential pitfalls. In a competitive situation, sometimes certain people want to do the deal much more than others for a variety of reasons. 

Many M&A teams also use M&A software to help them source new deals. Just because a software is telling you a deal is a good idea, that doesn't mean you don't have to do the proper research.

How to Prevent Deal Fever

Great news! There are a number of proven ways to prevent deal fever and keep your company disease-free. Here are some tips to stay deal fever-free:

  • Perform More Research Than You Need To. You can never perform too much research on a potential deal, so we recommend doing even more than you think you need to.  
  • Seek The Opinion Of Experienced Deal Makers. Get another opinion from someone you trust that has embarked on similar deals. What do they think of the deal? Seeking another opinion that can evaluate your potential deal without the emotional involvement will help you ensure the deal is truly one you want to pursue!
  • Know All Of The Potential Risks. Thoroughly evaluating the deal’s potential risks, and involving your team in the process, will help you avoid deal fever. Don’t lose sight of your basic financial calculations! Involving others in the process is essential, as you want to make sure nothing is overlooked and you can remain deal fever-free. 

Resist deal fever by not overlooking the negatives that you may not want to see! If you have been the primary person working on the deal, make sure you involve others so they can help assure that you are seeing everything clearly. There should never be one person working on deal flow tracking. Likewise, don’t let personal pressures to get the deal done get in the way of looking at everything objectively. Sometimes, not doing the deal may be in the best interests of the company.

How to Tell When You Have Deal Fever

Do you have a high degree of risk tolerance? Do you have a burning desire to get the deal done, yet something just doesn’t feel right about it but you’re not sure what? If so, you may be catching a slight bout of deal fever.

Having the above feelings isn’t just exclusive to individuals, either. Many companies surveyed believe that their M&A function of getting the deal done is more important than what follows. If you’re in the M&A department, and you’re not performing M&A’s, something must be wrong, right? No, not necessarily. Inherently good deals are difficult to come by and you may have to pass on many of them before you find the right fit.

If deals contain personal agendas or emotions, or your company provides more incentives and encouragement to do the deals rather than not, than these are signs that your company may have deal fever. Recognize the signs so you can avoid deal fever and ensure you are making deals that have the highest chances of future success for your company.

Deal Fever

Treatment, Care & Medications For Deal Fever

Below are some treatment, care and medications for this contagious disease known as deal fever:

  • Treatment Option 1. Ensure your deal team is incentivized for long term success, and not just for completion of the deal.
  • Treatment Option 2. Have objective, experienced observers review the deal specs, including all of the potential negatives of doing the deal.  This way you can help ensure you’re not overlooking potential pitfalls.
  • Treatment Option 3. Let post-close executives have direct input into whether or not the deal goes through
  • Medications For Deal Fever. Create clear action steps that are to be taken when considering all potential deals. Create a set of red flags, or things to be looked at more closely when they occur. Finally, a healthy dose of objective observation by people not directly involved in the process will both help prevent and cure this debilitating disease!

A very important aspect in our guide on deal fever is to cultivate a business culture in which you have both risk tolerant and risk averse individuals on the team, with both groups having equal say. When both groups sign off on a potential deal, and it is also reviewed by an objective observer, you know you might have a winner!

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Don’t Underestimate the Power of Diet, Exercise & Rest

One of the most important ways to prevent deal fever that is often overlooked is to ensure you have a good diet, and are getting enough exercise and rest. Doing so will keep your mind and body in tip top shape, and will help alleviate some of the pressures incurred from pursuing and evaluating a potential deal. 

M&A deals are complex transactions that often go at a very fast pace and can also be emotionally charged, so ensuring you’re eating well, exercising and getting enough rest can help counteract the pressures of working on the deal.

The Takeaway

Many M&A management can sometimes lack a truly accountable leader to oversee the process. Having a great leader, coupled with the goal of long term success instead of short term, are the highlights of the best things to do to not get infected with this crippling disease. Set the criteria for success and focus on that more than focusing on doing the deal just to get it over with. Make sure your team is incentivized on long term goals and are not acting out of the fear of “what if we don’t get this deal done.”

If you and your team are currently managing M&A transactions, check out DealRoom's M&A virtual data room and project management software. DealRoom's platform also includes pipeline and integration management, which helps teams organize deals for their entire lifecycle.

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