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Corp. Development

Strategic Acquirers, You’re Missing 75% of Deal Flow — Here’s Why

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Nearly 8,000 baby boomers in the United States turn 65 every day. With this aging population comes the potential for a sharp uptick in middle market business sales — as well as more and more boutique investment banks looking to represent these deals.

For strategic acquirers, creating and nurturing relationships with bankers is key to building a steady pipeline of acquisition opportunities.

It’s important to reach smaller bankers as well as larger firms. While it may be tempting to focus your corporate development strategy on high-volume bankers, this could mean missing out on almost three-quarters of deals. According to data from Sutton Place Strategies, 73% of deals over $10 million in enterprise value were represented by so-called small-tier intermediaries — firms that typically bring only 1-9 deals to market each year.

What’s the most efficient way to meet and network with small-tier investment bankers? Because these smaller bankers bring so few deals to market, the chances of a single one sharing a relevant deal is relatively low for a given year, especially if the corporation is in a niche industry or has a very specific investment mandate. It doesn’t make sense to spend herculean amounts of time and money on nurturing relationships with each firm (this would be financially and logistically impossible for most companies anyway).

The key is to find scalable and effective ways to keep your company and its acquisition criteria top of mind. “You need to be on the radar for all appropriate regional or industry-focused investment banks,” says Stenning Schueppert, formerly the Senior VP of Strategy & Corporate Development at Total Safety, where he made eight acquisitions in his first 18 months.

If you’re a Fortune 500 company, it may be true that every investment bank already knows who you are. But this isn’t the case for most middle market companies, particularly if you’re a first-time or occasional acquirer. “In most cases, middle market investment banks have very good organizations around financial sponsor coverage, but in few cases do they have good coverage for strategic acquirers,” says Schueppert, now Managing Director at CenterGate Capital. “As a strategic, it is your responsibility to get your mandates in front of investment banks.”

How?

  • Do your research. Research which banks are most applicable by creating the proper database of who has represented buyers or sellers in your space,” says Schueppert. “All banks publish tombstones and/or press releases on their deals — they’re easy to find. You’ll quickly be able to figure out which banks, and most appropriately which bankers, cover your space. If they’re not already aware of you — they should be. A buy-side question is always of interest to them as they’ll be thinking about trying to eventually secure your sell-side mandate.”
  • Market your acquisition interests online. Your company likely already has a marketing website, which may or may not be the appropriate place to surface your investment interests. However, that doesn’t mean you shouldn’t share your mandates anywhere. Deal sourcing networks like Axial provide a targeted place to reach relevant bankers (and business owners), network, and review deals that meet your criteria.
  • Make sure bankers know whom to contact. Bankers will resort to contacting the CEO or CFO unless they can easily find the contact information for the corp dev department. Build your own digital presence to make sure bankers contact the right person and good opportunities don’t get lost.
  • Publicize your acquisitions. Use press releases, social media, and content marketing to spread the news about recent acquisitions and keep your firm top of mind. When possible, leverage testimonials from CEOs and management teams your company has worked with in the past.
  • Flip the script. Business owners often receive cold calls for investment bankers sizing up their interest in an exit. Instead of hanging up, tell bankers that you’re not interested in selling — but you are interested in making acquisitions. At the least you’ll create a new relationship, at best they might have a deal to share that’s in your wheelhouse.
  • Attend relevant events. This includes industry events and trade shows, as well as dealmaker specific conferences hosted by organizations like Axial, ACG, and AM&AA. If you don’t know where to begin, ask a few top customers if there are any events they find particularly useful — chances are you’ll find potential acquisition targets there.
  • Pay attention to regional specialists and industry-specific firms. The Axial Advisor 100, a list of top-referred middle market firms, is a great place to start your research. The list includes not only household names, but also smaller and more far-flung bankers whom you may never heard of, but who come highly recommended from the buy-side.

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