Struggling to source / originate deals?

Work in corporate development for a sponsor backed company and we are really having trouble originating deals. LMM company in a somewhat niche but growing industry.

Most of the firms we approach are not interested in selling or decline to speak with us / don't respond altogether. We are doing all the traditional outreach - emails, LinkedIn, sending letters, attending conferences but just seems like there is zero appetite for M&A.

Anyone else having a similar experience?

Comments (5)

  • Associate 1 in PE - LBOs
Jun 29, 2022 - 2:32pm

1) If you're trying to do proprietary deals, will be very hard to get a founder to bite without any sort of relationship. You really want to develop a longer term rapport / communication flow before you can expect them to be open to selling their business to you. You have to remember these businesses are the baby of their founder. Would you be offended if someone you never met, had never built a relationship with, and barely knew of asked if your baby could come live with them?

2) Sending letters in 2022?

3) If you really want to start doing deals you're going to need to go through brokers. Given your size, these don't need to be the BBs and EBs of the world. Literally find any small / regional / internet based broker and ask to get on their email list. Even better if you can find one that specializes in your industry. With these you know the target has some willingness to sell and it will still fly under the radar of most PE firms so its not like you're bidding a broad auction. Google "sell my business" and you'll find tons of these sites. Have to sort through the shit to find the diamonds in the rough of course.

Most Helpful
Jun 29, 2022 - 4:29pm
arb432, what's your opinion? Comment below:

A few thoughts from someone who has done a lot of sourcing:

  • Rejection is to be expected. Firms won't respond for a variety of reasons - maybe they never want to sell, maybe they only respond to warm intros, maybe they just hate private equity. Regardless, the fact that most firms you reach out to aren't responding is to be expected. You shouldn't expect a response rate of much higher than 25-30%
    • That being said, if there's a company you are really interested in, it pays to be persistent. Don't be afraid to follow up again and again even if the other party is unresponsive. Obviously not every day, but monthly check in emails are totally fine.
    • Also, given rejection rates are so high, you really have to play the numbers game to develop a consistent deal pipeline. It's not glamorous, but you probably will need a lot of at bats to score, which means lots of cold emails, calls, conferences, etc.
  • Sourcing is a long-term game. As the above commenter mentioned, nobody is going to want to sell their business to someone they just met. Most successful proprietary deals happen something like this - reach out to owner and have intro conversation, stay in touch with that owner for next 2-5 years on a regular (at least quarterly) cadence, visit them in-person to nurture the relationship, then when that owner decides to sell, they might put you on the shortlist of potential buyers. 
    • Of course, you could do all of this, and then the owner just decides to sell to a PE firm where the lead partner was in the same fraternity in college. Have heard of this (or something analogous) happening quite a few times before. 
  • Leverage brokers and LMM IBs - they know the businesses in your industry that will come to market in the next 6-12 months and it's their job to make these connections. 
  • Is your approach differentiated from other buyers in your space? 
    • Geography, deal structure (do you let owners cash out 100% and be done with business?), speed of closing deals, post-close operating strategy, etc. Tough to say without knowing your industry, but there are lots of ways in general to differentiate from other buyers. I would give some thought to this and alter your approach accordingly
  • Finally, it's possible that current market conditions may reduce selling interest. Not sure what industry you're in, but in tech where multiples have declined steeply over the last year, many founders are in wait and see mode
  • Associate 1 in CorpDev
Jul 2, 2022 - 12:31pm

Original poster here, appreciate all the well thought out responses.

I think our team and the sponsors expectations were unrealistic for this industry. The points made above about relationship building are spot on, our firm does not have many relationships in the space so we can't tap into our sponsors / founders network to generate deals where the trust is already there. So in many cases we are building the relationship from scratch.

Jul 6, 2022 - 12:38pm
takenotes08, what's your opinion? Comment below:

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