In September 2022, Grata and Alumni Ventures hosted a webinar discussing what tools the modern corp dev team uses or should be using.
Corp dev teams are largely running behind their PE peers in technology. Over half of US PE Firms in a 2022 survey report said that they leverage machine learning (60%) or AI (57%) in the investment processes, either through third-party products or in-house efforts.
In addition to lagging behind PE firms, Corp Dev deals on average take much longer. The average PE due diligence phase lasts from 3-6 weeks, while a corporate deal can take up to a year to complete.
What’s the solution? Corp Devs need the right technology to become more efficient, especially at the top of funnel sourcing stages.
Who’s in the room
Alex Fries, Director of Corporate Development at Progress. Progress (Nasdaq: PRGS) is dedicated to propelling business forward in a technology-driven world and helping businesses drive faster cycles of innovation, fuel momentum, and accelerate their path to success.
Aaron Polack, Head of Business Development at Lion Equity Partners. Lion Equity Partners is private equity firm focused on acquiring middle market companies across a variety of industries. They have unique experience with the nuances of corporate carve-outs and other special situations requiring speed and certainty of closure.
Hosted by Ludwig Schulze, Managing Partner at Alumni Ventures Group, and Nevin Raj, Co-founder and COO of Grata.
How Does the Corp Dev Tech Stack Stack Up?
In 2022, Aaron Polack conducted an in-depth Corporate Development Trends and Compensation Report and shared his findings during the call.
Top takeaway: here are the three main buckets of data that corp devs should be tracking with their technology.
- Deal specific data. Elements like revenue, EBITDA, etc.
- Sourcing data. Where were these contacts found? Is it a proprietary find?
- Funnel data. What is the contact strategy? What stage of the deal is each opportunity?
What are corporations using in the TOFU M&A?
Alex Fries: So mapping is something we've been working on for the last year: building out a really comprehensive map of the infrastructure software market. We’ve broken that down into six large categories and within each category, there could be 10 sub-sectors. [This process] is never ending. We never stop mapping because new companies are always being created, gaining scale, or ownership's changing. It's always evolving. But we use a few tools to do this.
We use Grata. We run searches on the platform all the time. We share those searches with our business unit leaders for feedback and are always incorporating new companies. We use PitchBook and CapIQ to look up companies. And we also leverage Gartner and IDC technology industry reports.
We, as a corporate development team, review those reports and incorporate the new companies we find. There are also tons of product managers working at Progress and part of their role is understanding the competitive landscape. As they research competitors in various areas, sometimes they'll kick companies to us and say, this is a new company we recently came across and here's our thoughts on them.
So it's a very holistic approach from various sources.
How Does Grata Fit into the Tech Stack?
What data points are you using to evaluate a company?
Alex Fries: From our perspective, the first thing we look for is product fit. In our deal mandate, we actually can be pretty loose as long as it's within infrastructure software and helps companies to develop, deploy, and manage business applications. So first we want to make sure the strategic rationale makes sense. So business descriptions are very helpful. That's probably number one.
Then, I would say we have a set of financial parameters and guidelines that we look at and we're pretty disciplined when evaluating these targets. If they don't check the majority of these, we tend to move on pretty quickly. We look for businesses with over 20 million in revenue that are break even profitability or better, that have over 70% recurring revenue, and low professional services. Also, we look for over 90% net retention rates. We have a one-pager that we share with bankers and people that we talk to a lot. They know our parameters, so we can be laser focused.
Aaron Polack: Revenue data is probably the hardest metric to find. I mean an accurate revenue number. We look in CapIQ, PitchBook, and others, and with our targets being some of the smaller divisions that we're looking for, they are usually inaccurate.
So what we do is triangulate that data using employee count and other things. It's trying to cast a wide net and then use a screening process. We have a business development team of three people and we're out there constantly having conversations. That's the best source: talking to the company directly. It's just hopefully you narrow down the herd to the point where you're actually having useful conversations.
What tools are you using for initial outreach?
Aaron Polack: We really lean on our technology, our CRM and deal pipeline management tool. Within that, there's a lot of functionality in tagging. So everything from types of firms, professionals, different strategies or whether we should be reaching out to these folks or not. That helps put them in different sub-segments. We have a pretty massive database. I think we're over 40,000 contacts— people that we reach out to pretty regularly.
In order to do that, we have to tag them and taper that list down to specific messages. Whether it's our investment banker universe, maybe more specific industries, or having more of a targeted message. That's a key point: it's great to build this large database, but if you don't utilize it appropriately by tagging and carving out more bespoke, curated messages, then you're gonna fall short there.
Audience Question: What are your strategies to get teams on board with M&A?
Alex Fries:
1. [Leadership -level] I would say one other thing we use DealCloud for that's helpful is even if a transaction closes even if we weren't necessarily directly involved, but it's in our space, we like to track what's going on in the broader infrastructure software industry. It's great for our knowledge but also we include that information in our board decks and share it with them and the business unit leaders to keep them abreast of what's happening in the M&A market.
2. [Company-wide] So something we've done at Progress to educate the business units on inorganic is we have an M&A seminar. We put together a deck and an hour long presentation explaining the benefits of M&A, educating them about the M&A process. A lot of these employees are not familiar at all. They're technologists, they're marketing, they're in sales or in human resources. They've never worked on an M&A opportunity before. So putting together this seminar was very valuable.
The other thing we do is sometimes we'll work with the thought leaders on brainstorming themes for M&A. We'll put a meeting together where we ask everyone to come with an idea or two, and then we all share our ideas. And then, we'll think through them, work through it together, and then hopefully we leave that meeting with one or two really solid ideas that then the corporate development team and our third party firms go out searching for companies.
Watch the Full Webinar
In order to close the right deals, you need the right tools.
“Google is not built for deal professionals. Grata is a tremendous search engine for many reasons, but one thing that I like about it is there are many different ways to search.” -Alex Fries
Learn more about how you can trade-in generic search engine sourcing for deep search. Set up a demo.
