Standing up a corporate development function from scratch is a challenging, yet exciting task. And one of the pillars of a successful M&A function is a solid team who can effectively run deals. In this article, Kevin Barnes, Senior Vice President, Corporate Development at Premier, will discuss how to create an M&A team structure.
"Once you have two or three active deals with your Head of Corporate Development, that's when it's time to hire a Vice president of Corporate Development." - Kevin Barnes
The first hire must be a senior vice president or head of corporate development. This person needs to be experienced in running deals and a team, as they will directly report to the CEO or CFO. The best way to find this person is to poach them from another company.
Look for a junior associate with experience and bring them over with the promise of promotion. Another option is to find a senior investment banker willing to switch to a corporate environment. Convincing investment bankers to leave their current roles can be challenging since they typically are compensated very well at banks.
Hiring internally is an excellent idea for the IMO, but not with a head of corporate development since they need to have prior experience.
The next hire should be a junior analyst. Kevin says hiring a vice president at this stage is a mistake, as that person would have too similar a role to the head of corporate development. Securing a junior analyst will help the head of corporate development with modeling so the function can start executing deals
After two to three deals under those two individuals, start expanding by hiring a vice president of corporate development. That person should be in charge of hiring their junior analyst, as they will work closely together. From there, expand the team depending on the frequency of deals.
Building out the processes is a combined effort and experience from everyone. The best thing to do is document everything to serve as a guide for future hires. Create a visual workflow of how the organization does M&A and properly communicate it with everyone.
Find targets by starting with the company's overall strategy to ensure the target company makes sense. Customers are a great source of deals as they have first-hand experience with the competition. Listening to their feedback will reveal gaps in the company and what capabilities need to be acquired to take the next step.
Investment bankers are also a great source of target companies. If they know what companies you are looking for, they can easily find the best ones that would perfectly fit the strategy. However, the downside of approaching bankers is the auction process. Auctions are fast-paced and require much speed to compete effectively, which is challenging for strategic buyers.