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Proactive M&A is not easy. Proactive M&A requires keeping tabs on multiple companies, reaching out to them directly, and convincing owners to sell their businesses to strangers. Yet, the ability to tackle all of these actions are what make a great corporate development team. In this article, Andrew Whitcomb, Sr Director, Strategy, Corporate Development, M&A at Builders FirstSource, shares how to approach deal targets. 

"It's not helpful to beat around the bush for the cold call. Tell them who you are and why you're calling, and you will get a straightforward answer." - Andrew Whitcomb

Approaching targets

When approaching targets, check for referrals from their regional managers or sales reps. An introduction is a lot easier if someone can vouch for you. However, if Andrew does not have any existing co-contacts, he likes to call the main office of the target company and ask for the owner. If the office phone is screened and Andrew is unable to get through, he resorts to cold outreach using email or Linkedin. 

During the first conversation with a potential target, Andrew avoids beating around the bush and is direct about why he wants to meet with them. Andrew’s company is not interested in partnerships, so he cannot give the target leadership any other offer. Andrew is forthright about his intentions and frequently receives honest answers. 

When told no, Andrew likes to understand why. In his vast experience, there are instances where the issue is addressable, which could change the mind of the target company. However, if the seller doesn't want to sell the business for logical reasons, back away. 

But if told otherwise, set up the first meeting. 

First meeting

During the first meeting, whether virtual or in-person, the goal should be to secure an NDA and start gathering preliminary information. Obtain enough information to give an indicative valuation of the target's business. 

In Andrew’s experience, the seller often sets up an in-person meeting in a restaurant or invites him to their facilities to further discuss their business. Either way, it is a positive sign when a seller is eager to meet up in person as a positive sign.

Initial Diligence

Here are some of the things Andrew looks for pre-LOI:

Acquire qualitative information through conversations and facility visits:

  1. How do they operate the business
  2. The efficiency of the operation
  3. Capacity for expansion 
  4. What are their tools
  5. Relationships with customers

Tangible Data Request

  1. Any information on their property (leases or appraisals)
  2. Financial Information (audits, processes)
  3. Ownership
  4. Compensation arrangements (to family members and ownership)

After initial diligence, Andrew’s team takes around three to four weeks to release an LOI if there are no red flags.

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