Mergers and acquisitions (M&A) teams must consistently source deals to keep their pipelines full and manage deal flow. Deal sourcing is fundamental to M&A activity and represents the first stage of any transaction. It involves identifying possible investment opportunities, favorably positioning your firm to prospective buyers and sellers, generating leads, and managing relationships with potential intermediaries.
In this beginner’s guide to M&A deal sourcing. You’ll learn the steps of the M&A deal origination process and discover the deal-sourcing strategies. That corporate development teams use to identify potential targets and build relationships with buyers and sellers. You’ll also learn how leading teams are using deal-sourcing software and other new technologies to accelerate their M&A deal flow pipeline.
The M&A deal origination process
The M&A deal origination process is unique in some ways, however.
During deal origination, your goal is to identify targets for acquisition based on clearly defined criteria like strategic fit, competition, and financial performance.
The M&A deal origination process happens in one of two ways:
You contact parties in the market who are looking to close transactions in the market. Like business owners and technology companies
Parties in the market contact you about their willingness and availability to close transactions
The smaller your company or firm is, the more likely it is that you will need to be proactive in sourcing your own proprietary deals. Good deals—whether they are sell-side opportunities or buy-side deals—generally won’t arrive on your doorstep unsolicited.
There are many approaches to deal sourcing. Some companies use dedicated in-house teams to handle deal origination and some engage with investment banks or other advisors—but no matter what your approach is, having a wide network of contacts is crucial.
During deal sourcing, acquirers and investors seek to tap into the widest possible pool of potential target companies. So they can expedite deals and streamline their workflow.
The best methods for M&A deal sourcing
Build and refine your database
Building a database of potential investment opportunities is critical. Pick a target industry, and start collecting contacts within that target industry by conducting outreach via social media, online research, and networking.
You may also consider purchasing a list from an industry association or a third-party database like CB Insights, Pitchbook, Factset, or S&P Market Intelligence. Leading M&A software platforms automatically enrich your existing datasets with external data partner information, so you can build your database even faster.
Refine your initial list. Categorize your potential opportunities into “A” and “C” deals that will protect you from getting too aggressive or missing out on deals. To categorize acquisition targets, consider what types of deals you’re looking for.
How do leading M&A professionals consistently source deals?
If your firm is still using Excel spreadsheets to manage M&A deal sourcing and track workflows. It might also be time to consider a better solution.
Affinity’s M&A software platform eliminates manual data entry by automatically capturing information from emails, calendars, and public sources. This not only dramatically reduces the risk of errors, but it also saves your entire deal team hundreds of hours per year so you can focus on building relationships and filling your pipelines with quality deals.
Affinity’s relationship intelligence algorithm can help your team source high-quality M&A deals by:
Capturing a complete historical view of communication and activity. Showing your team’s interactions with a contact or a company, and also ensuring consolidation of the information.
Instantly calculating relationship strength with Affinity’s patented relationship scoring.
Creating custom lists of relevant connections by location, industry, and investment stage.
Setting smart triggers and reminders so important contacts or deals don’t fall through the cracks.