One of the primary roles of the corporate development function is doing M&A. And while that may sound fun and exciting, deals don’t just fall out of the sky. Any serious acquirer knows that inbound deals are not always the best way to get leads. Proactively sourcing deals is the best way to approach M&A. In this article, Jeremy Segal, EVP, Corporate Development at Progress, teaches us how to source deals and build a pipeline.
“It's so important to build trust and relationships with target companies so you can leverage the intangibles in addition to competitive price, speed, and certainty to close.” - Jeremy Segal
The first step to building a pipeline is to step back and evaluate the different industry sub-sectors. In addition, talk to the general managers and product leads of the business units in order to understand:
These exercises will help generate a large list of companies that can be monitored for potential deals.
“My biggest fear as a corporate development leader is to miss a deal that I should have looked at, or to have a banker or a venture capital firm not think of me when they're selling one of their assets.” - Jeremy Segal
Also, Jeremy doesn’t like missing out on transactions and is very welcoming to inbound leads. This is why he has regular dialogue with the venture capital community and investment banks. Jeremy socializes his M&A strategy with a broad community so that he can get his hands on every possible opportunity in the market.
Regardless of how big a pipeline gets, do not approach every company on the list. Perform initial diligence on the target to ensure that they fit some of the major criteria before even approaching them. For example, there could be company that looks interesting, but if they are too small for your organization, they're not going to be worth the time and resources.
At this stage, you won’t have access to sensitive information that might be critical. But you can use tools such as PitchBook and CapIQ to access specific information to help decide if the target is worth approaching.
After populating a pipeline with multiple companies, it’s important to learn how to manage the pipeline. Each company has its own strategy which will dictate how to look at the target’s attractiveness. Jeremy’s team, looks at the growth rate, recurring revenue, customer retention rate, profitability, and strategic story.
Use CRM tools to monitor the progress of each target company. Jeremy’s team has three buckets to identify names on their list:
Interested - If it is a company that they are currently in contact with.
Parked - If it is a company that is probably too early in their life cycle or valuation expectations are too high. They still keep an eye on them for any changes.
Passed on - If it is a company that they have no interest in it is currently constructed.