M&A Deal Sourcing & Origination

There's no way around it — proprietary deal flows in the M&A space can really help you find unique deals that few others are competing for.

There are several reasons firms prefer to source their own M&A deals instead of relying exclusively on intermediaries and advisors. That could be to diversify M&A deal sources, save money, or even carve out a unique business niche.

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Whatever the reason, if you’ve already nailed down the basics of proprietary M&A deal sourcing, it's time to move on to more advanced M&A deal origination tactics.

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As Simon Blackburn, a senior M&A partner at McKinsey put it, "It's not enough to have a digital strategy. You need a strategy that's robust in an age of digital disruption."

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These M&A deal origination methods will help your company stay ahead of the curve and find deals that nobody else knows are out there.

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What Is M&A Deal Sourcing and Origination?

M&A deal sourcing and origination refers to the first phase in which prospective investors search for potential opportunities. M&A deal sourcing and origination is the process of matching and identifying opportunities to get the best deal possible.

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One of the main features of M&A sourcing is finding contacts and building relationships with M&A intermediaries. These activities serve to ensure that the entire process of M&A deal sourcing runs smoothly, but also that the deal is concluded for both parties to achieve their desired outcome.

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M&A deal sourcing is also part of the early stages of the M&A transaction process and may vary from company to company. Some companies manage their deal sourcing strategy in-house using software tools while others decide to use external firms such as investment banks or consultants who can be experts in finding deals.

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In today’s competitive environment, more and more firms are choosing to explore proprietary M&A deal sourcing strategies. When executed properly, a proprietary deal sourcing strategy can yield better outcomes like lower transaction costs and higher ROI.

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Essentially, a key part of a successful process of finding and closing an M&A deal is getting to the deal first. Establishing a proprietary deal sourcing strategy is an excellent foundation for finding and closing an M&A deal, regardless of size or complexity.

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The Process of M&A Deal Sourcing

If you want the M&A deal sourcing process to achieve its main objectives, you need a strategic approach from the outset. This approach includes, among other things, identifying and pursuing potential acquisition opportunities.

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It is recommended to start the M&A acquisition process with an accurate market assessment. During the market assessment, your team must conduct a thorough analysis of market conditions. Key questions at this stage include:

• What is the overall size of the market?
• What are the precedent transactions - and how much does it cost to transact in the market?
• Who is doing deals - investors or corporates?
• What are accurate public and private comps?

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It is also important for the M&A deal sourcing team to accurately identify macroeconomic trends, threats, and risks that may jeopardize the investment. Once the market hypothesis is confirmed the BD team explores possible targets and engages with business owners. When there is a mutual fit, both parties sign a letter of intent (LOI), which signifies the acquirer’s intent to proceed with a financial transaction, pending thorough due diligence and negotiations, often involving lawyers and accountants. 

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The main objective of the process is to strategically engage the right targets, where the investor stands a higher chance of reaching their desired outcome. Company intelligence software tools, relationships, and first-party data, often stored in a customer relationship management system (CRM), play a crucial role in selecting the right firms to engage with at this crucial early stage.

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Advanced Deal Sourcing Strategies & Tactics for M&A

To beat your competitors and be the first to the deal, consider advanced M&A deal sourcing strategies.

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Advanced M&A deal sourcing strategies integrate innovative technologies, first-party data, and relationships to increase the probability of doing a deal. Having more accurate and recent data on your market and target companies can give you an edge, just like having well-established relationships with bankers, service providers, and industry experts.

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One of the advanced strategies is the use of social media, especially LinkedIn. Utilizing social media expands contracting opportunities by expanding the network. LinkedIn is also a fantastic platform for brand building and thought leadership. If you become synonymous with doing deals in a particular industry, you will have established a new channel for inbound M&A deals.

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Another advanced  M&A deal sourcing strategy is partnerships. Working with partners and industry experts helps to broaden horizons and uncover new information and fruitful relationships with potential targets.

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Personal strategies, like attending industry conferences, foster trust and lasting impressions, although they are time-consuming to put into practice. Proprietary sourcing, a growing trend, allows firms to search for qualified opportunities autonomously, using a variety of intelligent and AI-powered tools.

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It is important to note that the process of deal sourcing is quite complex. To navigate it, you may want to consider integrating multiple strategies, as well as a holistic approach to achieve the best possible results.

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Thematic M&A deal sourcing

It's easy to feel overwhelmed with the sheer level of M&A deals your company could potentially source. Instead of flitting from industry to industry, pick a niche in which you can specialize and become an expert. Not only does this allow you to build a community, but it often offers higher returns as well. Limited partners and investors often prefer this approach.

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You shouldn't necessarily choose a singular theme or industry forever, but you can build up a cachet among a handful of industries over time. You may have a hard time finding deals in your target industry and size. That's when a B2B search engine comes in handy — you can search quickly for specific information and then have the correct contact info ready.

Predictive signals in M&A deal sourcing

It's important to know that you're finding the right companies at the right time. When you're M&A deal sourcing, it's worth finding out information such as:

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• Is the company growing?
• Is the company shrinking, or does it need capital?
• Is the company going to raise a round of funding soon?
• Are they expanding, or entering a new phase of their journey?
• Are they hiring for roles that signal their interest in being acquired?
• Has leadership changed recently?
• Has the founder/owner hit retirement age?
• Is the company doing acquisitions?

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Uncovering these predictive signals will help you to better-qualify leads and close deals faster.

Proprietary data

In one Accenture study, 97% of those surveyed acknowledged that proprietary data was "very valuable" or "quite valuable" to differentiate the company from competitors.

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Proprietary data offers a powerful source of information that allows your company to find better M&A deals even faster. The more data you collect, the more options you have.

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Building customer personas is a tried-and-true market research method that works for all types of companies. Software like Gong offers a great opportunity to collect data from current prospects and customers.

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However, collecting proprietary data from phone calls and meetings doesn't help companies find new deals. For that, you need a way to get it from outside in. As Forbes Insights shares, there are a few primary ways to hack together your own proprietary data:

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• Scraping – Collecting publicly available but scattered data
• Partnering – Exploring partnerships between different established companies
• Crowdsourcing – Asking teams to collect data or outsourcing the work

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Dig deeper for industry-specific data sources, or look for nuanced tags that tell you more about a company. Any details might help you fill in the blanks and get a better understanding of where you can find new prospective clients.

Similar companies

Which companies have you invested in with success? Are they in a specific industry, do they have a specific employee size, or are they at a certain company stage or funding round? Break out all these pieces so you can develop a strategy that targets lookalike companies. Over a short period, this should save your company market diligence time, with less time to close and an increased chance of closing.

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M&A List Expanding 

Chances are, if the company is listed in some kind of media, competitors are already looking at it. For the most cutting-edge proprietary M&A deal sourcing, you'll need to discover companies before everyone else does.

Take an industry list of companies and find similar companies that competitors aren't looking at. You may find this list from conferences, industry organizations, blogs, or other data sources.

Here are some other creative ways to expand your list:

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• Try Facebook's lead ads
• Host or sponsor webinars
• Create free online courses
• Offer downloadable content, like whitepapers
• Use Google ads for targeting
• Conduct industry surveys

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Whichever niche you decide to target, taking deals into your own hands will open up a wealth of opportunity that will build on itself over time. Gathering M&A information and building long-term relationships are the most important investments you can make in your company. 

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Grata can help

Grata is a modern company search engine for proprietary M&A deal sourcing and targeted B2B campaigns. Grata’s search engine enables you to find private companies by strategic fit: what they do, how they’re positioned, and the markets they target.

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Break free from legacy databases and Google search and leverage NLP-driven search to find companies that are right for you. You can learn more about Grata by speaking with a member of our team. Get started here.