Deal sourcing: no cookbook or secret sauce needed

July 2011 » Columns » MERGERS & ACQUISITIONS
Jeff Clark

Finding the right firms to partner with in mergers and acquisitions is similar to dating and marriage. Get out there and make it happen. Tell people from your accountant to your attorney to your friends and business associates on all your social networks what you are looking for, and then assign a dedicated deal-generation person (or several) to help you find it. Basic tasks are all that are required, from networking at events to developing target lists and making the outbound calls to inquire if there—€™s a willing seller on the other line. There is no magical recipe needed to find good companies with which to merge or acquire. However, there are some fundamental methods that can increase your odds of success.

Increasing quality business proposals and opportunities is the top goal for improvement cited by many strategic buyers and private equity groups. Why is this so important? Do you really want to marry the first person you bump into? The dating and marriage analogy works well for understanding successful mergers and acquisitions, especially as it pertains to deal sourcing. Why are online dating websites so popular these days? People want to be able to conduct a thorough search for their Mr. or Mrs. Right and prequalify them before wasting a bunch of time and money. The same holds true for mergers and acquisitions with professional services businesses such as A/E/P and environmental consulting firms. The true assets reside in the people, so here are my top methods for finding and attracting the best merger or acquisition candidates.

Be high energy. Go after what you want with unbridled enthusiasm. There is no reason to act like you are too cool or too aloof to meet with a smaller firm, for instance. Many of the deals I—€™ve done have been with firms earning $1 million to $10 million in revenue annually and have proven to be extremely profitable. The same attitude holds true for larger prospects. No one looking to sell their firm wants to be approached by an apathetic suitor simply going through the motions. Even if you decide it—€™s not the best match in the end, at least convince them to give you their financials. One of the best ways of doing that is to overwhelm them with positive energy in everything you do. I met with a buyer once who wanted me to represent them in their acquisitions; I told him he would have to do a better job when retelling the firm—€™s history than he did with me. Tell them your story and try not to bore them to death.

Exude confidence. If you—€™re a hot firm, then don—€™t be afraid to show it. Showcase your assets, downplay your weaknesses, and give them a sense of security that being with you means the sky is the limit. Opportunity comes to those who believe in themselves. If you talk about how they probably want to consummate a deal with —€œso and so—€ and how surprised you are that they are willing to meet with you, your attempted humble approach is more like shooting yourself in the foot. You are the solution to their problems. You have the prescriptions to their sources of pain. You are the Romeo to their Juliet.

Be creative. Find different ways to reach out to your top prospects, in addition to the basics of repeat phone calls, until you get executive breakthrough discussions with the right decision maker. Send them a hand-written note inviting them to meet with you, forward an article or press release about your most recent acquisition success, or perhaps attend an event where they are speaking so you can approach them in person. I don—€™t recommend sending flowers, but you never know what type of gift might make sense to get their attention (I—€™ve known buyers to have some success sending a baseball bat with a note saying that doing a deal with them would be a homerun). An invitation to one of your project opening receptions may be a great idea so they can get a sense of the quality of your work and the type of client and contractor relationships you have.

Build trust. Do what you say from start to finish. If a miscommunication occurs, address it right away. Seeds of doubt often are created by a lack of action rather than any misperceived action. Acknowledge some of your own firm—€™s failures and get them to open up and feel comfortable speaking candidly with you. The only way to right a wrong is to learn from it. Never let the sun set on an argument.

Know your mojo. There has to be something charming about you and your firm that attracts clients, employees, and others to do business with you. Embrace whatever core elements there are that make you desirable as a firm and display those to potential sellers at all times. No one is perfect, but you don—€™t want your first date to be one where they discover all of the good, bad, and ugly.

Jeff Clark is managing director and principal of the M&A team for ZweigWhite. He can be reached at 919-931-9936 or jeffc@zweigwhite.com.


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