M&A Origination Methodology
M&A origination requires coverage, relationship-building & pitching. You first need to establish your coverage of a given industry and sub-sector to develop your awareness and expertise. From there, you need to go about building relationships with both strategic and financial buyers to get an idea of the buy-side. This includes obtaining investment mandates which will either be formally listed or informally given from corporate M&A departments for strategics. From there you are going to need to establish sell side relationships by giving market updates to executives and telling them what is going on in the M&A and capital markets. As the relationship is established, you can then pitch them strategic alternatives including selling their company. Throughout the relationship building process, there will be lunches and dinners to catch up on what the target has been doing and their strategic plans.
Step 1a: Determine Coverage Industries & Sub-Sectors
Step 1b: Build Industry and Sub-Sector Index
Step 2: Database Utilization & Emails Collected
The following email is used after pulling a county list from infousa.com or screening in Salesgenie and screening for revenue size ($2.5M +) and contact person (owner, CEO, President). Starting from the end of the database (Z), go through each account in the database and determine the business owner’s primary email address either from the database itself or by going to the website and acquiring the email address. Once 30 to 50 emails are obtained in one day, the process of emailing begins with the best practice below. The response rate to the emails should be approximately 3%.
Step 3: Email Inquiry
It’s a pleasure. I work with AltQuest Group right here in Fort Lauderdale. Would you be willing to take an offer on your business from a private equity group?
Please let me know.
Step 4: Offer & Price Inquiry
After receiving initial response, you will then message them that you will email them when you have the offers and ask for the price of the business. The following is the email that should be sent:
Alright. I’ll notify you when I receive the offers. What is your expectation regarding the price of your business?
Step 5: Phone Call Request (by Sellers) or Meeting Request
After requesting price, some sellers will request a phone call and provide their contact information. If the seller provides price information, they reply with the following email:
Step 6: Phone Call or Meeting
Phone call or meeting:
During the phone call you will introduce yourself and state that you work on behalf of private equity firms in locating quality cash flowing companies and that is how you found their company. From there you will state that you want to get an initial understanding as to the price of the business. After the price of the business is found, ask how the business performed last year (revenue and net income). The following is your outline for the phone call:
***If meeting, they may have their financials on hand to view and you view them. You can ask to keep a copy to aid in recasting.
Step 7: Fee Agreement
After sharing with our buyer the information from our call, they are interested. Even though we do not have an agreement in place, we would still like to connect you with our buyer. Do you accept our 6% success fee? We only earn our fee when our buyer purchases your company.
Please let me know.
After we send, Would you be willing to take an offer on your business from a PE buyer, we speak with our buyer and then get back to the seller the next week with this email to get a fee agreement in place.
Step 8: Add Backs Calculated and Teaser Created
After the meeting, you now have the financials or financial data needed to do add backs to get to an owner’s benefit or EBITDA number. From here you can input the recasted financials into the teaser and then complete the teaser based upon the general information (usually from the website and meeting conversation) of the business
Step 9: Marketplace
Then we put the opportunity on BizBuySell and find a strategic buyer ideally and at least a financial buyer
Step 10: NDAs Signed with Buyers
Once inquiries are received from buyers from the M&A marketplaces, you will send NDAs to the buyers which they will then sign and send back to you.
Often times, this email will precede an NDA:
Sure. The company is Vel Jets located in Fort Lauderdale, FL. The website is www.VelJets.com. If the company seems like a fit, we can sign an NDA and I will send you their financials.
Please let me know.
Step 11a: Teaser with Name Given to Buyer
Once the NDA is received, you can give the buyer the name of the business on the teaser and request an IOI from the buyer after reviewing the teaser and summary financials. The following is the email to accompany the teaser:
After reviewing the teaser and summary financials, please submit your initial indication of interest (IOI) and we will set up a buyer/seller meeting.
Step 11b: Teaser with Name Given to Buyer
Often times a call will be requested by the buyer. On the phone the M&A professional finds out the following, taking notes on the call:
Questions (that the buyer has):
Multiples that buyer is seeing or that they typically do:
Step 12: Connect the Buyer and Seller for a Call
Then we arrange a phone call to take place between buyer and seller
We are waiting on updated financials right now. Let’s set up a call between yourself and the owner so that he can answer any of your questions. Does a call later this week work for you?
Please let me know.
Step 13: Financials, Adjusted EBITDA, & IOI
Then we get financials from seller to buyer and then we get IOI. After reviewing the financials and the first buyer/seller meeting, you ask for the IOI with price and terms. IOI turns into agreed deal and they write purchase agreement with lawyers.
Step 14: IOI from Buyer
After reviewing the teaser and summary financials, the buyer will notify you that they are interested in purchasing the company (IOI).
Step 15: Buyer Seller Meeting
After submitting the IOI, you will arrange an in person meeting with the seller which is called the buyer seller meeting. If the buyer is unavailable due to distance or timing, a phone call can be set up.
Step 16: Purchase Agreement Given to Seller
After the buyer seller meeting, you prompt the buyer to submit a purchase agreement and then give this purchase agreement to the seller.
Step 17: Signed Purchase Agreement with Different Terms
After the seller reviews the purchase agreement they will either sign the contract or counter with different terms. They are to sign the contract with the contingencies written into the contract.
Step 18: Enter Due Diligence
After receiving the counter, the buyer can sign the agreement with makes for a legally binding purchase agreement contingent to the items that will now be explored during the due diligence period. As items are explored, the buyer signs off that the items are no longer in question one by one.
Step 19: Complete Due Diligence
After all the items in the due diligence list are completed, due diligence is now completed and the closing can be scheduled. The documents are sent to the closing agent with instructions as to the M&A fee as well.
Step 20: Closing & Flow of Funds
After the both the buyer and seller sign at the closing, the checks are cut and you receive your M&A fee and bring it to your bank or have the fee wired to AltQuest’s account. Make sure that your firm is on the Flow of Funds document to ensure that you get paid.