Traditionally, corporate development sources deals by looking for willing sellers. While that is an excellent way to find initiate M&A, there are alternative options.
Companies that are looking for buyers have been dressed up for sale and are under-invested for profit maximization and growth. According to Rishabh Mishra, Vice President and Head of Corporate Development at Infostretch, buying growth companies in their raw state can end up being a more lucrative acquisition.
In this episode of the M&A Science Podcast, Rishabh Mishra, Vice President and Head of Corporate Development at Infostretch, talks about how to source companies that are not for sale.
"Knowing companies in your space is the biggest asset of M&A professionals. Even if you have to value one company, you need comparable transactions because transactions happen at market comparables." - Rishabh Mishra
Unlike founders and entrepreneurs, businesses can perpetually exist. Companies can be handed down from generation to the next, and at some point, there will be a board of directors or successors willing to sell. This is why Rishabh believes that target companies can come from anywhere.
Potential targets can come from friends, family, cousins, work, Google, bankers, consulting teams, and many others. Rishabh believes that industry conferences are a great outlet for sourcing deals. At conferences, you can potentially meet the CEO directly and cultivate relationships.
Rishabh prefers targeting companies that are not for sale because if there are more interested buyers, valuation goes up, and the success ratio of securing the deal goes down. Furthermore, proprietary deals are much faster than going through an auction; you will receive raw information and can process it according to your taste and decision-making.
The most challenging part of sourcing is establishing trust with the target company and initiating M&A. The best thing to do is act like a banker for the seller and analyze what they want, show them comparable transactions for their company's value, and make them comfortable selling their business.
To keep a robust pipeline, keep in contact with every potential target. Rishabh ensures he reaches out to every one of his Linkedin contacts in whatever city he is visiting. Even if someone is not available, reaching out to them opens up an opportunity to catch up on the phone.
He also has regular cadence meetings with investment bankers. Rishabh is still open to working with bankers if it's a favorable process and the valuation is not too high.
During the initial outreach, Rishabh likes to prepare extensive research regarding the target company. If it's cold calling or emails, the best thing to do is catch their attention quickly by talking about their company and complementing them.
If you secure an initial conversation, be direct. Understand that these people have no time to waste on pleasantries, and you need to give them a reason why they should entertain your proposed transaction. Ask them about their pain points and explain how you can help grow their company.