The first, and often most important, step to any deal — deal sourcing — is the search for investment opportunities that align with a client’s strategic objectives. It involves uncovering valuable opportunities and is the foundation for constructing a resilient strategy. As the M&A landscape changes, so do deal sourcing techniques.
The process is not one-size-fits-all; it requires a nuanced approach tailored to the client. In all cases though, it consists of some combination of scanning market trends and potential opportunities, leveraging networks, contacting potential clients, and conducting preliminary due diligence. In a volatile market, this process can be challenging, however, merger advisors are more optimistic about the pace of their business than they have been since the beginning of 2022. In our October 2023 survey, 59% of advisors reported expecting deal volume to increase in the fourth quarter. With this potential, how can you better source M&A opportunities?
Narbe Alexandrian, Founder and CEO of Define Capital Inc., advises starting early and shares that on average, it takes 3.5 years from the first point of contact to closing a deal, so it’s never a bad idea to seek out companies that may not be ready to sell presently, but will be in the future. From traditional to tech-driven deal sourcing, here are tips to prepare you for the best approaches to deal sourcing.
Traditional Deal Sourcing
Personal Networks
Collaborating with fellow M&A professionals, financial institutions, friends and legal experts can expand the pool of opportunities. Leveraging your pre-existing contacts offers access to insider information, exclusive opportunities, trust and credibility, referrals, quick communication and collaborative opportunities.
Brokers
Keep in contact with brokers who can enhance deal-sourcing capabilities, streamline the acquisition process, and increase the likelihood of finding suitable opportunities for their clients. Some of the ways they can contribute are by providing market knowledge, a network of contacts, access to listings, transaction support, assistance with deal negotiation and confidentiality management.
Industry Events
Attending industry events, joining associations, and calling acquaintances can lead to opportunities. Depending on your industry, your best target might be across the country. Dan Flaherty, managing director at Janney Montgomery Scott, shares that, “conferences are a great place to meet, socialize and network.” At working conferences, people are generally more approachable and in a mindset to have these strategic discussions.
Technology-Driven Deal Sourcing
Online Networking and Digital Platforms
Alexandrian suggests keeping an eye on LinkedIn, government vendor sites, B2B software review sites, and M&A marketplaces. Online platforms offer efficient information gathering and break down geographical barriers, allowing advisors to connect with potential collaborators from around the world. This expanded reach increases the pool of opportunities available for deal sourcing.
Leveraging CRMs
Find proprietary deals and streamline the deal process with the help of a customer relationship management system. They can provide centralized information management, improved collaboration, relationship tracking, lead and deal tracking and data analysis.
Deal Sourcing Platforms
Deal sourcing tools, such as Axial help facilitate the discovery and execution of transactions. Benefits include access to a diverse deal pipeline, increased deal visibility, benchmarking and comparative analysis, targeted search and deal flow management.
Tips When Deal Sourcing
Clearly-Defined Client Objectives
Before embarking on a deal-sourcing journey, you should clearly understand your client’s objectives. Whether it’s expansion or diversification, aligning with client goals is paramount.
Data-Driven Approach
Utilizing data analytics to identify trends, assess market valuations, and predict potential buyers and sellers enhances your ability to make informed decisions.
Creativity in Outreach
Differentiate yourself by adopting creative outreach strategies. This could include personalized emails, engaging content marketing, or utilizing social media platforms to showcase expertise and attract potential sellers.
Buyer/Seller Representation
Establishing yourself as a trusted advisor for both buyers and sellers opens doors to exclusive opportunities. By understanding the needs of both parties, you can bridge the gap and facilitate successful transactions.
Conclusion
Deal sourcing is both an art and a science, requiring a delicate balance of industry knowledge, networking finesse and strategic thinking. Mastering deal sourcing positions oneself as an invaluable partner to clients, driving successful transactions and contributing to the growth and success of businesses. By combining traditional approaches with modern strategies, advisors can navigate the ever-evolving landscape of M&A, uncovering hidden gems and creating value for their clients.