Those in the financial sector who work at buying, selling and investing in various stages of companies will all tell you the same thing when it comes to the difficulty in their jobs: deal origination and deal sourcing is perhaps the most difficult aspect of their jobs. M&A advisors are always looking for that perfect company to sell while the buy-side folks are intent on doing the same thing, only to enhance their proprietary deal flow. All firms have the same difficulty. They’re all looking to effectively scale the number and quality of deals that flow in and out of their practices each year. This is true regardless of firm size. Everyone is looking for new deals and better flow.
The struggle on the buy-side is that it’s a real seller’s market right now. There is too much capital chasing too few deals that being the only one to the trough when an opportunity hits, let alone the first to the trough, doesn’t matter today. We’re seeing more M&A auctions–even among financial buyers. With the supply/demand economics of most deal opportunities completely out-of-whack, it makes it difficult to find the good deals that don’t already have at least three other interested players. This bodes well for sellers and their intermediaries, but provides complete annoyance for the private equity groups and family offices looking for a good place to put their financial capital.
The sell-side can often be just as fierce, but for different reasons. The potentiality of all the baby boomers retiring has bolstered the market for sell-side investment bankers and M&A advisory firms all competing on the same turf, for the same deals. Increasing the supply does have the effect of decreasing the costs inherent in transactions and M&A fees, but
One thing is for certain, the only constant in life and in business is change. And the sands are changing quickly, especially when it comes to how both buy and sell-side opportunities are sourced and deals are done. This is true from both a deal origination standpoint and a deal structuring standpoint. Here are some ways operators in the mid-market may be using technology and media to network themselves into the next generation’s deals:
While noting beats your personal network and the “who you know” approach, the winds are certainly changing when it comes to overcoming the difficulty in sourcing deals and opportunities on both the buy and sell-side of the deal. What are some other ways M&A deal sourcing is changing the way we operate in the world of finance?
It can be difficult to adapt when traditional methods seem in a constant state of flux. Waiting for the dust to settle before shifting resources is a recipe for failure. Effective methods for sourcing the best business opportunities with top talent have shifted over the last decade–and they will continue to do so. Deal originators should be aware of the shifting tide or competitors will arrive first.
Sourcing opportunities in the financial world is often the bottleneck of revenue. It’s one of the more time-consuming, but necessary tasks used for keeping a full pipeline. Even the most well-connected rainmaker still needs to keep a warm network so as to remain top-of-mind when the next big opportunity crops.
The Changing Landscape of Deal Origination
Marketing has undergone drastic changes in the last decade and the metamorphosis is still marching on. Much of the change has greatly benefited the green horn startups that often lack the financing necessary to really move the needle. Shoestring budgets are now en vogue.
Performing deal origination in the 21st century will be very different than it was ten years ago, regardless of whether you’re funding startups or sourcing elephant M&A deals.
Before you go decimating your outside sales team in favor for some social media alternative, might I suggest true “origination” is still sourced from direct contacts and partnerships. While each opportunity requires a personal touch, the original opportunity source–at least in the 21st century–is likely to arise from a much more varied group of activities. In short, true deal origination in today’s day requires a much broader net given the bifurcated nature of today’s networking world– a feat that is more difficult to manage, but ultimately doable given the tools available.
The Death of “Smile and Dial”
No, no, no “smile and dial” deal origination is not dead. One of our partner affiliates operates a call center with a half a dozen agents. They’re not in the United States. They’re in the Philippines. Their English is fantastic and their understanding of the nomenclature and nuances of the industry are superb. They’re also well educated. And, as one might imagine, they’re significantly cheaper than their U.S.-based counterparts.
There will always be a place for good, quality push marketing and networking, but fortunately today’s tools for reaching your next viable business partner or growth opportunity are much more scalable and immediately accessible.
I like some of the non-intrusive methods for keeping on top of some of the closest contacts within your network. SlyBroadcast is one such tool that allows for pre-recorded voice messages left on the phone numbers of your choosing. Make sure those your’e sending know you, otherwise the FCC may come calling. It’s only non-intrusive if the individual wouldn’t be surprised to receive a follow-up message from you.
In short, nothing takes the place of a direct discussion, especially if it’s face-to-face. In the end, business is personal.
Scaling Deal Origination
Perhaps the most difficult aspect of deal origination is attempting to increase quality and quantity at the same time. It’s not possible. While Mr. Buffet keeps the riff-raff out of most of his stock by never undergoing stock splits, the rest of us must continue to kiss frogs. It’s not necessarily a quantity over quality mindset, but at some point the best deals don’t come around until you’ve reached scale. Scale in deal origination usually means scale in your contacts and a highly-effective CRM system, including detailed information about each of your contacts.
Our team uses X2Engine. Like SalesForce, it’s feature-rich. Unlike SalesForce, it’s free and open and with Amazon’s free 5GB, we’ve still not even come close to maxing-out the capacity (that after we’ve grown our business contact list to over 1,000,000).
Your deal-sourcing will only be as good as your data. Constant massaging and pinging old contacts helps you to keep track of folks as they may move and change career paths.
Getting to complete scale with your deal-flow ultimately requires casting a very broad net. It’s a holistic approach, combining all aspects of marketing–both the old and the new. Today’s net is just much more diverse and dynamic than that of yesteryear.
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