Grow Your Business Through the M&A Pipeline
Scaling your business requires understanding the types of investors and knowing the state and status of their portfolios.
The vast majority of venture capital and private equity portfolio exits occur via M&A, as opposed to through an initial public offering (IPO) process, so understanding these investors is a must.
Editor’s note: This is piece is the second part of four on Mergers & Acquisitions (M&A) Strategy- Author’s note: The activities that lead to the identification and ultimate execution of an opportunity are very intertwined and subject to continuous learning and improvement.
With that in mind, I will summarize four main activities in the M&A (mergers and acquisitions) Process Lifecycle over the course of four different articles as follows:
- Acquisitions– part 1
- Sourcing- article below
- Approach
- Execution
What are sourcing Activities?
Sourcing activities start with clear initial Corporate Strategy guidelines and an initial formulation of a practical M&A Strategy, companies look to systematically step into the market to develop a pipeline of opportunities that have a high probability of success.
Building Productive Relationships Systematically
To communicate interest, increase its presence, and gain access to the flow of information, companies need to establish and maintain a relationship presence in the M&A ecosystem with professional investors such as:
- Venture capital (VC)
- Private equity firms (PE)
- Investments banks
All of firms represent important sources of information about and in some cases, influence, over potential targets.
The stronger the relationship that companies forge with the ecosystem, the higher the likelihood that they receive a steady flow or relevant opportunities. Although companies should always exercise care when sharing information that might have competitive or implications, it is possible to have meaningful, productive dialogues.
Venture Capital and Private Equity Firms
The vast majority of venture capital and private equity portfolio exits occur via M&A, as opposed to through an initial public offering (IPO) process.
Understanding these investors and knowing the state and status of their portfolios is worthwhile for pipeline development. At the same time, these investors are keen themselves to build relationships with and an understanding of the universe of potential buyers of their portfolio companies. Elements of a relationship strategy around VC and PE firms includes
Senior-level relationships and regular interactions with VC and PE firms that actively lead investments in target areas
It’s crucial to stay up to date on insights of the VC community specific to their priorities and initiatives of commercial or technical interest to companies in a VC’s portfolio. Commercial potential may exist before a full understanding of the full strategic opportunity develops – which could bring substantive benefits in the short-term.
Investment Banks and Unsolicited Opportunity Processes / Roles Investment Banks
Investment Banks have transaction capabilities and a far-reaching network of senior relationships that they can bring to bear to help a company execute on its objectives. With this level of connectedness in the marketplace, investment banks will certainly be in the middle of situations that are relevant to a company either directly or more tangentially.
Companies should employ a strategy vis-à-vis the investment banking community to:
- Systematically build out relationships with investment banks that spend time and have capabilities in their specific industry areas,
- Clearly communicate target objectives to investment banks and encourage the development and presentation of ideas and opportunities, and,
- Prioritize and reward strong, consistent contributors to the company
- To encourage a consistent regular dialogue and to provide the appropriate feedback to the investment banks regarding the quality of their efforts and contributions, companies should periodically assess the banks on various dimensions and prioritize and direct its relationship efforts accordingly.
Unsolicited Opportunity Processes / Roles
In the event that a company is directly contacted on an unsolicited basis and requested to consider an acquisition or investment opportunity, company Business and Corporate Development organizations should serve as the gateway between to the investment bankers, with the information regarding the opportunity and process provided.
Business and Corporate Development needs to ensure that these inbound opportunities are managed through an established transaction process, in an attempt to adhere to external timelines and dynamics typically imposed by these types of processes, while adhering to internal process and decision discipline.
The next two parts of the M&A strategy and financing will be on approach followed by execution.
Related content:
You Too Can Execute a M&A Strategy
Acquisition What Is your Company’s Valuation?
