As the number of transactions in the investment banking industry continues to grow, sellers face several challenges when seeking potential buyers. Chief among these challenges is the process of creating a targeted buyers list, which can quickly utilize an excessive amount of time and resources.
How can investment banking firms create a promising buyers list when there are thousands of firms to consider in today’s dynamic market?
We recommend streamlining your search by utilizing DealCloud to build an expertly curated list using buyer data and industry-specific CRM-filtering features. With this twofold approach, the investment bankers at your firm can identify potential buyers that have the financial resources, industry expertise, and strategic vision needed to acquire their client’s business.
Here, we detail four steps in building a targeted buyers list using purpose-built software for financial services professionals.
1. Define your ideal buyer
The first step to building a targeted buyers list is clearly defining your ideal buyer. As you research potential buyers, consider the following questions:
What is the buyer’s funding strategy?
It’s important to understand the funding strategies a buyer has used to close any recent deals. You should also seek to understand the types of transactions they’re open to. For example, if your client is a midsize company and you’re looking for a private equity buyer, it’s reasonable to focus on buyout shops that have bought companies of a similar size. However, if your client is an early-stage or growth-stage company, you should expand your search to include venture capital firms and strategic acquirers.
What are the buyer’s financial capabilities?
The buyer’s access to capital determines their ability to fund an acquisition. If a buyer lacks sufficient financial resources, they could struggle to complete the transaction. On the other hand, a buyer with significant financial resources may negotiate a lower purchase price or more favorable deal terms that could impact the financial outcome for the seller.
What industry does the buyer have expertise in?
It’s also essential to consider the buyer’s experience and knowledge of your client’s industry or sector. For instance, if your client operates in the health-tech space, being able to quickly identify buyers who have already invested in that market can set your deal up for success from the get-go. But if a buyer needs to take time to familiarize themselves with your client’s market, the likelihood of a successful sale decreases dramatically.
What geographical location does the buyer operate in?
The location of a buyer can also impact a deal. Buyers who are familiar with the regulatory environment of your client’s location are better equipped to navigate any regulatory and operational challenges, ensuring an acquisition’s success. With dealmaking software such as DealCloud, you can filter for buyers with an investment focus in a particular region, such as the Asia-Pacific, for example.
With accurate, up-to-date data from an industry-specific CRM, you can combine keywords, industries, and verticals to narrow your search and quickly compile a list of potential buyers. For example, say your firm represents a midsize healthcare technology company in the Asia-Pacific region that’s looking for strategic acquirers. Using DealCloud’s advanced filtering options, you can generate a highly curated list of active Asia-Pacific financial sponsors who prefer investing in healthcare and have a history of buyouts involving similar-sized companies.
2. Understand your buyer’s motivations
Once you’ve defined your ideal buyer, refine your list by identifying why buyers would want to acquire your client’s company. Why would they want to make this particular acquisition? How would it benefit their business?
Understanding your buyer’s motivations helps you to position your client’s company more effectively and thereby negotiate a successful sale.
A buyer may be interested in your client’s company because they see opportunities for growth that they can’t achieve on their own. For example, there may be a unique product or service that the buyer wants to add to their portfolio, or your client’s company may have a strong market position in a particular industry or geography that the buyer wants to expand into.
Procter & Gamble benefited from its acquisition of Gillette because Gillette had a strong presence in emerging markets, such as Brazil and India, while Procter & Gamble had a strong presence in China and the Philippines. By combining forces, both companies were able to introduce their products into new markets much more quickly.
A buyer may be interested in your client’s company because they can achieve synergies by combining the company with their existing business. These business synergies include cost synergies — such as consolidating back-office functions — or strategic synergies that combine complementary technologies or product lines.
In 2014, Apple purchased Beats Electronics, which had recently launched its own music-streaming service. One reason Apple wanted to make the acquisition was because, at the time, the market was moving away from Apple iTunes toward streaming services like Pandora and Spotify. To be able to offer their customers a music-streaming service more quickly, it was more expedient for Apple to buy an existing one.
Buyers are always looking for a financial return on their investments, which may include earning a specific rate of return, generating cash flow, or increasing the company’s value over time.
Comcast Corporation acquired NBC Universal to expand its content and distribution capabilities. In the deal, NBC Universal’s EBITDA was used to identify potential buyers that could see the value in the company’s content assets and entertainment properties. This analysis provided Comcast with valuable insights into the company’s financial strength and growth prospect, giving them confidence in their investment.
With DealCloud, firms can utilize integrated third-party market intelligence tools such as S&P Global Market Intelligence, PitchBook, and Preqin, thereby speeding up market research, querying, and filtering so firms can quickly gain insight into a buyer’s motivations.
3. Leverage your relationships
Although information about a potential buyer’s motivations is important to a successful deal, strong relationships are equally as essential. Solid relationships are especially significant when negotiating the terms of the sale, as buyers are more willing to trust a seller with whom they have an existing relationship.
Leveraging your business relationships to create a buyers list can save your firm the time and resources that would have been allocated on marketing the portfolio company to potential buyers through more traditional means.
Financial services firms typically have an extensive network of business contacts, including private equity firms, investment banks, and strategic buyers. These contacts can be invaluable when identifying potential buyers for a portfolio company.
With a CRM, you can search for up-to-date, accurate data that measures the strength of your relationships. The CRM can help your firm answer such questions as:
- What value do we place on this contact?
- Who was the last person at the firm to speak with each potential buyer? Do they have a personal connection or is it strictly business?
- How long ago did a conversation take place? What was discussed?
- What was the buyer’s feedback on the last deal presented to them? Did they pass? If so, why?
- How far down the deal funnel did they get? Did they get to the letter of intent or management meeting stage?
- Were there any special synergies that could be useful to know for another deal?
- How competitively has the buyer bid on previous deals? Are they particularly bullish on a certain sector?
- Have you seen the buyer at any conferences? If so, what were they looking for there?
The capability of measuring relationship engagement is critical for understanding why a buyer should or shouldn’t be considered for a deal.
With DealCloud, you can track potential buyer engagement, manage relationships, and save time and resources — all of which increase the likelihood of a successful sale.
4. Customize your approach
Although it may be tempting to apply the same marketing strategy to every transaction, the nature of dealmaking will never fit a “one size fits all” approach. That’s why it’s essential to be able to customize the way your firm builds a buyers list.
Whether you host events, attend conferences, hold offsite meetings with potential buyers, or simply keep track of the inbound queries you receive, your firm’s strategy should be effectively captured and reflected in a CRM system like DealCloud.
Having the ability to toggle and filter between various custom fields in your technology platform is the first step in making your firm’s institutional knowledge accessible firmwide. This functionality helps team members connect more dots, triangulate more relationships, and avoid pitfalls such as conflicts of interests, allowing them to move swiftly through the sales process.
Leverage DealCloud to create a robust buyers list
Gathering and harnessing buyer information, leveraging relationships, and integrating a personalized, data-driven method via your CRM can empower your firm to execute highly sophisticated deal processes that result in optimal outcomes for both you and the buyer.
Whether you’re compiling a list of buyers for a growth-stage company or a large enterprise, DealCloud has you covered. With DealCloud, you gain insight into your deal pipeline, complete with advanced filtering capabilities, market research tools, and relationship management features. These resources help you identify the best potential buyers for your client and create a more targeted outreach strategy.
Schedule a demo of DealCloud today to learn how it can help you identify potential buyers that have the financial resources, industry expertise, and strategic vision needed to acquire your client’s business.