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PE firms looking to differentiate themselves are reconsidering how they approach proprietary outreach.

Often, proprietary inbound looks like a phone call or email from a BD analyst asking to buy a company. There are more creative, collaborative ways to engage business owners that lead to more buy-in and higher returns. Systemic executive outreach is just one piece of PBD (Proactive Business Development).

"The problem is the traditional way still works. The returns are lower, but you can still get deals done." -Scott Estill, Managing Partner, Lancor

In Grata's webinar Proprietary Inbound: 6 Ways to Get Deals to Come to You, Estill shared Lancor's nuanced, yet systematic approach towards developing relationships with executives.

The Limitations of the Traditional M&A Approach

The traditional M&A approach: focus on inbound leads from bankers, and perhaps, send cold emails to a company owners. Although this approach is efficient, it often leads to diminishing returns due to the saturated market and a lack of strategic depth in the deals. Typically, the conversations are transactional and shallow, only revolving around the immediate scope of buying or selling assets.

The Systematic Approach: Integrating Executives into the Deal Flow

One of the ways to improve your deal sourcing strategy is to create a more structured and systematic approach to developing relationships with executives who possess industry-specific knowledge.

For example, let’s say a private equity (PE) firm is interested in acquiring a fire and life safety business. Instead of directly negotiating, they first consult industry executives who can provide invaluable insights into the viability of the asset. If the asset looks promising, the executive might even join the board, adding weight to the acquisition process. If the asset is not considered worthwhile, there are still next steps. The executives can help identify better opportunities in the market.

The Incentives for Executives

From an executive's perspective, the incentives to participate in such activities need to be worthwhile. They usually seek significant equity positions or board memberships, rather than small consulting fees. This ensures that the executive has enough skin in the game to provide meaningful input.

Timing and Flexibility: Aligning Interests of PE Firms and Executives

One of the main challenges in M&A is the timing imbalance. A PE firm might be ready to invest, while an executive might be unable to sell. Alternatively, a PE firm might not have an opportunity for the executive at that moment they are ready to make an ownership or funding change. The systematic approach allows both parties to discuss real and current topics and to build deeper, more meaningful relationships over time.

Executive-to-Executive Dialogue

The best part about building meaningful relationships with executives? The need for cold emails or phone calls lessens over time. When executives are the ones initiating or participating in these discussions, the conversation becomes significantly different. An executive can make the introduction to the right business owners and share their rationale behind choosing to work with your specific PE firm and explain how the asset fits into the larger scheme of things.

These peer-to-peer conversations are generally more up-front, constructive, and lead to higher rates of successful deals.

Conclusion: Why this Matters for M&A Deal Flow

The strategic involvement of executives in the M&A process means,

  • Better Asset Evaluation: Executives with industry experience can provide invaluable insights into asset viability.
  • Higher Returns: Deals guided by seasoned executives often lead to better financial outcomes.
  • Operational Insights: Executives provide actionable, operationally relevant advice as opposed to purely financial analyses.
  • Relationship Building: The systematic approach fosters deeper, more strategic relationships between executives and PE firms, enriching the M&A landscape for future deals.

It's time to shift the paradigm and bring in a more systematic, relationship-oriented approach to M&A. Grata is the leading proactive business development and research platform for private markets. Set up a demo today to learn how Grata can support your PBD efforts.

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