Knowledge Sharing: Corporate Development / M&A

mickcollins's picture
Rank: Chimp | 13

Hello,

I am currently working on implementing an M&A department within the group I work for. As our industry is really fragmented we need to grow in the coming years as the market will consolidate.
We did several deals in the past years mainly based on sell side presentations of M&A consultants. However, to complement we now want to actively search for targets by ourselves. I have the following questions regarding the search process, that I hope some experienced corporate professionals might be able to answer:

  1. What search tools do you use to identify private (non-listed companies)? So far I found the incumbent operators such as CapIQ, FactSet, ThomsonOne as well as PrivCo and Pitchbook. Are there any alternatives?
  2. Do you search targets by yourself and/or are there specialized research firms (other than M&A consultants)?
  3. Once you identified a bunch of targets, what system/database/... do you use for monitoring the perhaps long process? [Background: Our industry tends to have approx. 30.000 market players. The M&A search will be a several year long process as we intend to acquire lots of small players.]
    Do you use Excel or are there any good solutions to build your own Target database?

Mick

Comments (17)

Jan 23, 2017

1) and 2) - Those resources can be helpful. Our ops guys know the players in our industry though, so if we're being proactive, a lot of the potential target ideas come from them since they know the competitive landscape better than us. We'll ask them "Who are the main players who have X and Y capabilities in Z geography?" and they'll have at least a couple ideas.
3) We just use excel; however, with our strategy, the number of potential targets is much fewer than 30,000.

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Jan 23, 2017
  1. industry trade associations can be helpful
  2. if you can find a customizable CRM tool, that could be useful
Jan 24, 2017

Thanks for your input

Jan 24, 2017

Virtually all our legitimate leads come from our commercial team (sales, marketing, etc.). We also attend tradeshows in areas of strategic interest for us. Generally a lot of buzz around startups or interesting companies in the space.

The industry I am in definitely has an "ecosystem" so the majority of targets are intuitionally funded and have an exit in mind. This creates a collaborative environment where the targets are actively marketing themselves and acquirers consistently looking for prospects.

If your industry consists mostly of "mom & pop" companies it will be much harder to locate and engage with targets. I'd start with the people in the field asking them to identify competitors in their respective areas and go from there. A lot of industries have consolidated in this manner (funeral homes, home auto parts, cable) so there should be some decent case studies to look at. Another more qualitative thing is once you do a couple acquisitions I'd imagine word of mouth spreads and people looking to retire or cash out will begin approach you.

I hold monthly meetings with our different business units to review the pipelines, new targets and status of various deals. Try to keep decent records in a centralized location as to why we passed as many of deals will come back a couple years later, "deals from the crypt".

Currently just use excel to maintain the pipeline but am considering shifting it to a project management tool of some sorts. We don't have any of the major databases above except for one industry specific search tool which is worthless IMO.

Hope that helps. Note that I do more L&A (licensing and acquisitions) than M&A.

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Jan 25, 2017

Thanks for your answer. Just realized that I already have quite a lot of this in implementation status or on my plan to achieve. But nice to see what other folks tend to do.

Jan 26, 2017

Hi Mick,

Do you use any of the aforementioned providers of data currently? Some will have great features for really honing in on a target list of Acquirers/PE Investors.

I know PitchBook has integration with CRM systems as I'm sure others do, alternatively you can download to Excel.

Having the Lead Partner details, email, contact, LinkedIn profile can really help identify the right people for you internal screening.

Also you can find CEO, CFO contacts too.

Let me know if you need any other insight.

Jan 26, 2017

In my experience, it's almost impossible to source a proprietary deal these days without a dedicated BD team. Attractive targets of material size are approached almost daily by PE and strategic buyers. Simple phone calls and interest letters don't get it done and you really need to pound the pavement and truly build a relationship with target companies.

If you are just building an M&A team, I would focus more on establishing relationships with key bankers in your industry and making sure you are on the buyers list for any assets that come to market.

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Feb 27, 2017

We use the following strategies in my Corp Dev group;

1) Maintaining a contact list of IB firms - This part is cumbersome but I have maintained a list of 50+ bankers that work in my industry. The list was cultivated by making cold calls to each banker, explaining our businesses and what we are looking for in growth. Over the years they have filtered in companies that they thought would be a good fit take it from there. This definitely has the best hit ratio.

2) Depending on how many businesses/business leaders are under your corporate umbrella, reach out to them and ask if they have any insights as to companies that they are interested in, know personally or know to have a good reputation in the industry. We have had several decent sized bolt-on acquisitions stem from this.

3) Attend trade shows - walking around and checking out different companies is not the most enjoyable process but by maintaining these relationships with the companies you meet, when they are ready to sell, they may just think of that convo they had with you and give you a call.

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Mar 7, 2017

The advice you've gotten here is pretty consistent with our approach too. Getting your name out to Bankers is good, but that just ensures that you'll be included in auctions. What you really want to do is get your name out in trade associations, trade shows, to your targets, etc... As mentioned, use your business leaders to help facilitate this. This will help get your name out to targets and it will help you learn who to target.

I don't know the size of your company, but if you start getting the message out and you have some scale, it will be very rare that a deal gets done that's a surprise to you. My F500 is known to be acquisitive and we've paid fair prices for assets recently, so everyone thinking of selling checks in with us.

I will add that we use CapitalIQ, but it is pretty worthless with private companies. If private companies are your target, I'd probably save the $ on CapIQ.

We just use excel to manage our target list. It works fine, but a CRM might be nice

twitter: @CorpFin_Guy

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Best Response
Mar 7, 2017

Mick, I am sure most of this has already been covered, but here is what my firm does:

  1. We have multiple internal M&A groups broken up by functional area and/or subsidiary. Each M&A group is made up of our corp dev team as well as four to six ops people. The ops people are in constant contact with customers and/or competitors, which leads to some very valuable insight and targets given in these meetings. We have an internal call once a week and assign "homework" for the next call. We go through a pretty large process where we start with coming up with acquisition criteria, then companies, and we finally wittle it down to a succinct list of actionable targets. This process take a lot of time, but produces the best results as you are working with people "on the field". M&A needs to be a FIRM-WIDE process. If your corp dev team is just fumbling around in the dark, your head of corp dev needs to have a serious talk with your CEO.
  2. Network with investment banks. To be frank, most banks are going to show you irrelevant teasers, and most "advice" given by investment banks to potential buyers as far as M&A targets go will be useless, but maintaining a good relationship with a bank can be very beneficial when you need the bank to slow their process down a bit to accommodate you or you are trying to avoid the processes where the bank is clearly using you just to bid up the price. My company rarely gets any hidden gem targets from banks.
  3. Industry experts. I have no seen this mentioned yet, but there are many services out there that will charge you a fee in exchange with connecting you with an industry expert or even having an industry expert author a research paper for you. My company regularly uses GLG and Frost & Sullivan. I am not sure what we pay, but GLG is worth its weight in gold. Frost & Sullivan puts out research and will do custom research, but we tend to favor talks with experts first (specifically since many of these experts used to work at our competitors or potential targets).
  4. A robust pipeline. If all you have is a list of potential targets and some financial metrics (i.e. a CapIQ pull), you're not doing it right. A good pipeline needs to be maintained and pruned. We use Excel, which I personally hate because I think a real database would be much better, but you should be using your pipeline in a way where you regularly reach out to companies, especially ones that previously said no. Remember, your goal should always be a principal to principal transaction (though, they are rare).
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Mar 7, 2017

@mickcollins I worked in a Business Development role and was also tasked with spearheading our M&A group so I'll chime in below:

1.) What search tools do you use to identify private (non-listed companies)?

The resources you described are what we used. I also recommend any analyst reports on the industry and studies completed by firms such as Markets & Markets. M&M does a good job of breaking down an industry by players, geographies, and giving you high level details.

2.) Do you search targets by yourself and/or are there specialized research firms (other than M&A consultants)?

The approach we took is myself and a colleague would do searches ourselves but we would also interview GMs, VPs, engineering/product development folks, and others depending on what we were interested in. If we were looking to fill a product gap we would naturally turn towards engineering/product development.

We also had the benefit of an in-house marketing analysis team. The head of this group was very knowledgeable on the major players as well as niche providers so I interviewed her as well for ideas. We were also approached by banks but they usually discussed with higher ups and gave us pitch books for review and consideration.

3.) Once you identified a bunch of targets, what system/database/... do you use for monitoring the perhaps long process?

We relied on Excel where we used a color coding method to keep track of who was in play, no longer considered, or being engaged for further analysis. We also created an M&A pipeline via PowerPoint and placed various targets in different buckets to be able to show upper management where the targets were in our viewpoint.

For example, the top section of the pipeline was focused on game changing technology whereas the bottom section was on players that allowed us to consolidate the market in our favor (not a monopoly but allowed us to have a significant coverage in a particular segment such as oilfield tools for onshore fracking applications).

The above strategy helped us keep things organized and enabled us to provide quick updates when needed. I also HIGHLY recommend creating 4Blockers which are basically quick snapshots about the targets that you can provide to help bring management up to speed.

The 4Blocker, as an example can contain quick summary in Quadrant 1, financial statistics or market share data in Q2 (going clockwise), major announcements or items of note with dates in Q4 and in the bottom, left hand section have information on what the target provides/divisions within target and what they do to round off Q3.

Hope this helps. Good luck!

Mar 10, 2017

1.. What search tools do you use to identify private (non-listed companies)? So far I found the incumbent operators such as CapIQ, FactSet, ThomsonOne as well as PrivCo and Pitchbook. Are there any alternatives?

We use all of those as well. Crunchbase pro has been worth the money <$50 a month. We've actually found a few diamonds in the rough using Tracxn (just read their free monthly reports)

2. Do you search targets by yourself and/or are there specialized research firms (other than M&A consultants)?

Our market is small but rapidly growing, so we can access a company pretty easily through our connections with PE firms or investment banks. Plus our C-suite knows everyone and having them make an intro call isn't a problem.

3. Once you identified a bunch of targets, what system/database/... do you use for monitoring the perhaps long process? [Background: Our industry tends to have approx. 30.000 market players. The M&A search will be a several year long process as we intend to acquire lots of small players.]
Do you use Excel or are there any good solutions to build your own Target database?

We use salesforce and export to excel. I built templates to automatically populate our Excel reports to do weekly updates on deals/conversations that happened over the past two weeks for our C-suite/board. It's fairly straight forward and just took me a few days tinkering around in salesforce to configure the reports. It works for us, plus reminds our VP to call certain companies to maintain relationships. Our pipeline is <2000 target so take my information with a grain of salt.

Mar 10, 2017

Anyone have a suggestion of somewhere you can get betas or transaction comps (non-pay)? Don't have access to CapIQ and Bloomberg anymore.

Mar 10, 2017

If you have relationships with bankers you can usually get them to provide their latest comps pages for a given sector or sub-sector without too much hassle. I've found that just shooting an email to the associate or VP from the coverage team you work with usually gets you what you need quick without too much clamoring for a pitch meeting with your boss (in my case, CFO / VP-CorpDev).

Given how much scrubbing was required to get data from even high-quality, specialized deal databases (e.g. WoodMac for oil &a gas) into a shape resembling client-ready, I can't imagine a free database would be worth much, if it existed.

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Mar 12, 2017

Yes, that what we currently do sounds like it's the best way short of an expensive subscription

Mar 13, 2017

One thing that our company does that I haven't heard mentioned yet is to sign-up for and regularly read industry newsletters. How useful this will be will depend on what industry you're in; in our case we are in a fairly niche online segment so it works well for us. The newsletters (usually weekly online in nature) often detail things like: who just raised what funding, what M&A has occurred recently in the space, who just launched a new product/service, etc.

Through this, we get lots of names of new and up-and-coming companies we wouldn't have otherwise known about.

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Mar 16, 2017
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