Effective M&A Deal Sourcing

Building out a brand new corporate development function can be challenging, especially if you don't know where to start. Scott Kaeser, Owner / Head Of Corporate Development at First Choice Dental Lab, has over ten years of corporate development experience. He is here to help you start from scratch and set up that crucial origination process. 

"Corporate development needs to be viewed at that senior level of the organization because you are working with the senior leaders and the board members to enact the growth strategy." - Scott Kaeser.

Creating a List

It all starts by creating your database of potential targets. It should not be too broad that you are trying to boil the ocean and not narrow that you only have five names on your list. You need to create criteria or filter to help you refine your target companies. 

Investing in a paid list can be a good investment if you are just starting. Industry-associated lists are another excellent source of potential targets, aside from just googling companies online. Lastly, salespeople who are at the front lines are also a great source of potential targets. They know the competitors that they keep losing to, or the technology that your company lacks, which can give you the idea for your next acquisition. 

Mining that List

Now that you have a decent size list of potential targets, it's time to mine that list. First, find the owners or the company's decision-makers, together with their contact information if possible. Building relationships with these people can help you make the deal smoother. It also puts you on their radar if they decide to sell their company down the road. 

When it comes to prioritization, Scott says that you should narrow it down to deal size. Depending on where your company is right now, specific deals might not be big enough to make an impact. Some companies are even too large for your company that those deals won't make sense. It's one technique that you can use to narrow down your list. 

Gatekeepers

Gatekeepers are people you're going to have to deal with when you're in a corp dev role. They will do their best to keep you from talking to the owners, especially if they find out that you are an acquirer due to fear of losing their job.

Building a relationship with these gatekeepers will make your life easier. Scott likes to be on a first-name basis with gatekeepers to make them feel more comfortable and build trust. Another thing that Scott likes to do is create a cover story, maybe an investment offer that could make the owner interested in taking his call. 

Getting Past the Gatekeepers

"You have to have a pitch ready. Short and succinct to the point." - Scott Kaeser

Whether you got past the gatekeeper or got the owner's direct contact information from somewhere else, you have to have a prepared speech at this point. This initial conversation is crucial if the deal is to move forward. Owners are typically busy, and you need to be short and precise in your call. Make your intentions clear while making them comfortable that it is in their best interest to sell their company to someone like you. 

After that initial phone conversation and the seller appears to be interested in selling their business, Scott starts collecting enough information to see if it's worth his time to pursue. One of the first things he asks from the seller is the business metrics that help him know how big the company is. It is important to note that Scott treats all information confidentially as a corp dev professional, with or without an NDA. 

If the deal is worth pursuing, it's time to meet in person. Having lunch is Scott's favorite meeting. It looks casual, and it takes the owner away from his office, where they are more comfortable and less worried about being seen by employees of his company.

To maximize this meeting, prepare a list of the five most important questions or topics that you want to make sure you cover. Listening is key! Owners love to talk about their business, and they know more about their business than you will ever will. So the best thing to do at this point is to take notes and listen.

However, any difficulty in providing some of the basic information should be considered as a red flag, says Scott. Especially if the seller struggles to elaborate the value driver of their business, these are signs that you should walk away from the deal as quickly as possible. 

Some companies are not ripe enough for your company right now, but it could be a good acquisition down the road. Do not burn bridges as you can always revisit certain companies years from now when they have grown and suddenly fit in your criteria.

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