For corporate development M&A teams, corporate development deal sourcing involves much more than simply finding and vetting new investment opportunities. Research shows that M&A deals are growing increasingly complex, and that due diligence often devolves into a frenetic, disorganized process.
Firms can combat this chaos by implementing organized systems and processes — starting at deal origination. By investing in management technology to improve the deal sourcing processes, firms can enhance internal and external collaboration and strengthen their hit rates.
Leverage M&A deal- and relationship-management technology
When it comes to strategic acquisitions, many firms rely on sources like business brokers, word of mouth, accelerators, service providers (like M&A lawyers), buy-and-sell marketplaces, or cold outreach. The largest source has historically been M&A advisors, though deals are occasionally sourced when competitors’ transactions fall through, or when seasoned dealmakers revive years-old conversations with contacts.
Because no two deals are alike — and because multiple team members source opportunities from various, disparate channels — deal origination teams and M&A leaders need a tool that can successfully manage all their information and organize deal origination details at the source. However, before investing in a system, firms must first explore and understand their options.
Learn the basic functionalities of generic customer relationship management (CRM), workflow management systems, and deal and transaction management tools. From there, explore ways these tools typically fall short for users in the private capital markets industry. For example, a CRM may refer to you as the seller, your targets or advisors as customers, and transactions as sales. The system may also offer irrelevant features that M&A dealmakers don’t need, like invoicing, accounts receivable reports, and payable reminders.
Next, learn about available M&A-specific tools, and explore three or more industry-specific solutions. If a system doesn’t have all the following features, feel free to move on to a more robust tool:
- Business development activity tracking
- Industry-specific data analysis capabilities
- Investment workflow process creation, customization, and control
- Secure data room and document management
- Robust, real-time private company monitoring
- Investment banker, target, and service provider coverage and relationship management
Adopt a system that’s made to capture and manage the details involved in every interaction of an M&A deal. Schedule a demo with DealCloud to set a baseline for the features and benefits you should expect from competing solutions. This experience will give you a list of deal management system features to look for and compare against other deal sourcing organization products.
Evolve your processes to leverage new tools
Too often, firms will adopt new corporate development deal sourcing technology, but fail to update their deal sourcing processes to take advantage of their new tool’s data management capabilities. As a result, firms miss opportunities to increase deals and improve the organization of their targets, contacts, and other deal details.
As soon as inbound opportunities arise, firms should manage them based on the following factors:
- Industry and sector — Within these categories are subsectors, specialties, and the target’s key differentiators.
- Business growth stage — If the target’s maturity doesn’t match your usual investment thesis, what other factors make this bargain worth the stretch?
- The acquiring operator’s strategic fit — Is a business unit within your organization planned, ready, and hungry for exactly this kind of opportunity? If so, how long has this been the case?
- In-house capital raises — The strategic fit may be there, but what about the budget?
- Best acquisition approach — Sometimes it’s better to invest in a portion of a business rather than buy it outright. Similarly, when you vet an acquisition target, you may learn that it’s better to build the asset(s) internally.
- Bid plan — Would it be best to preempt an auction? If so, are your team members equipped and ready for quick negotiations?
- History — Has your team gone after similar targets in the past? Who was involved? How did it work out?
- Responsibility — Who on your team will take point if the opportunity passes the initial screening? What is that person’s experience with similar deals? What is that person’s network like, and how can that network support the transaction’s success?
- Competition — It’s imperative to know what other buyers might consider this target a potential hit.
Advance your processes to route newly sourced opportunities based on these variances. To upgrade your processes, first assess where you’re spending the most time on manual data entry or extraction. Next, leverage your new information management system to automate or streamline these routines. This will free your dealmakers from the heavy manual workload of managing all these details themselves.
Upgrading your technology and processes will produce visible results within your firm. For example, one corporate development team originally used a basic task management tool to manage the internal approval process. To their frustration, team members discovered that they were doing tasks out of order because the app failed to manage dependencies. They later configured DealCloud to send customized, event-triggered workflow alerts to let members know when a deal is ready for their contribution, what’s required of them, and next steps. This reduced their need to constantly call and text their advisors, and sped up their approval process.
Another corporate development team adopted a new centralized information repository with firmwide access. The team’s new process now begins on Friday, with a self-generated draft of the briefing. The briefing draft is automatically sent as a PDF to an analyst to double check for completeness, then the software formats and distributes the report to every team member — allowing team members to start the week fully updated while cutting the length of their Monday morning staff meetings in half. The group hopes to soon ditch information-exchange meetings altogether in favor of relationship-building exercises.
Empower business development teams and partners with more, better data
Increased competition means that corporate development deal sourcing staff need the most relevant information at their fingertips. Without it, they cannot win, integrate, or even divest as profitably as they need to.
As your firm builds institutional knowledge, DealCloud helps your teams quickly and easily find the answers they need — and then use that data to generate new insights. Your teams can also supplement their centralized, shared internal data with real-time market data to make more informed decisions when assessing each opportunity.
You can also provide your staff with more, relevant market data by integrating DealCloud with sources like Preqin, SourceScrub, Factset, Wall Street Horizon, and PitchBook. You should also leverage websites like Glassdoor and Fishbowl to keep track of employee sentiment at acquisition target companies.
Organize your information for a healthier, faster deal flow
Research shows that mental and physical clutter slows down teams, and that our brains work best when we don’t have to keep track of everything in our heads. That’s why today’s fast-moving firms need a secure, easily accessible deal management system that stores and organizes their teams’ deal flow information — while also providing firmwide visibility into their data. By making key information easy to access and find, teams can speed up and improve the deal sourcing process for healthier deal flow.
For more actionable tips about how corporate development teams can improve their strategic acquisition deal flow, subscribe to DealCloud’s quarterly corporate development newsletter.