The mergers and acquisitions (M&A) teams must consistently source deals to keep their pipelines full and manage deal flow. Deal sourcing is fundamental to M&A activity and represents the first stage of any transaction.
It all involves identifying potential investment opportunities, positioning your firm to prospective buyers and sellers, generating leads, and managing relationships with potential intermediaries. Here are a few steps the M&A teams can use to identify potential targets and build relationships with buyers and sellers.
The M&A deal sourcing process
Private equity firms, investment banks, and venture capitalists rely on sourcing to find investment opportunities. During deal origination, the goal is to identify targets based on well-defined criteria like strategic fit, competition, and financial performance. The smaller firms need to be proactive in sourcing their proprietary deals.
During deal sourcing, acquirers and investors seek to tap into the broadest possible pool of potential target companies, so they can expedite deals and streamline their workflow.
There are many approaches to dealing with sourcing. For example, some companies use dedicated in-house teams to handle deal origination, and some engage with investment banks or other advisors—but no matter what your approach is, having a vast network of contacts is very important. During deal sourcing, acquirers and investors seek to tap into the broadest possible pool of potential target companies, so they can expedite deals and streamline their workflow.
Widely used methods for M&A deal sourcing
• Build your database
Build a database of potential investment opportunities by collecting contacts within that target industry by conducting outreach via social media, online research, and networking.
You can purchase a third-party database like Crunchbase, CB Insights, and Pitchbook. Then, monitor the news and other events to refine your list regularly.
• Keep your network warmed
Long-term networking and building a robust network are vital to maintaining quality deal flow. Often, investment bankers act as intermediaries in deals by bringing two sides together. Therefore, the more time you can spend on relationship building, and the better your reputation is, the more consistent your deal sourcing will be. Build relationships strategically by practicing intelligent, consistent follow-up practices.
• Use an M&A deal origination platform
The successful M&A dealmakers use online deal sourcing platforms as part of their deal origination process to build long-lasting, engaged relationships with target companies and others in their network of contacts. However, the M&A deals are complex and long-term, on the buy-side and the sell-side, and it’s easy to lose track of critical relationships across the many deals you’re managing.
• Identify opportunities with company announcements
Changes in strategy within companies – like spin-offs/subsidiaries- can also lead to acquisition opportunities for investment banks.
the more time you can spend on relationship building, and the better your reputation is, the more consistent your deal sourcing will be. Build relationships strategically by practicing intelligent, consistent follow-up practices.
How to consistently source deals
If your firm is still using Excel spreadsheets to manage M&A deal sourcing and track workflows, it might be time to consider a better solution. M&A teams can leverage relationship intelligence technologies to source high-quality M&A deals by:
• Automatically capturing information from emails, calendars, and public sources and eliminating manual data entry
• Build the custom lists of relevant targets by location, industry, and investment stage
• Use smart alerts and triggers, so deals don’t fall through the cracks.
This approach dramatically reduces the risk of errors and saves hours annually so M&A teams can focus on building relationships and filling their pipelines with quality deals.
Dr. Satish Patil