Get a deal pipeline - not a pipe dream

June 14, 2023 | Blog

Get a deal pipeline - not a pipe dream

A strategic acquisition is always a major endeavor. That’s as true for serial acquirers as it is for those who only rarely attempt it. In fact, for companies that make regular acquisitions, those deals tend to be the core drivers of growth. They enable expansion into coveted geographies and capabilities, the adoption of new technologies, the influx of human capital, and of course, an edge over the competition.

That’s why such deals should never be seen as ancillary or one-off. Each should be a step in an ongoing project-of-projects that’s critical to the entire enterprise. In other words, a healthy M&A pipeline.

So it’s no wonder that pipeline management consumes so much time and energy. If deal flow gets clogged or diverted, your business can lose key opportunities that will never return.

Spotting the right deals

Origination alone can be a full-time job, with few shortcuts. Brett Simon is Senior Director of corporate development for Coupa software. His advice? ‘You have to pound the pavement and make sure you’re getting out there.’ Speaking at a Datasite corporate webinar, he explained that Coupa’s most strategic acquisitions happen ‘when we’ve really gotten to know the companies in the space’. He added that conversations with founders are especially valuable.

Be prepared as you connect with your network. Whether you are talking to a founder or an investment banker, you can offer value through your conversation rather than just extracting data from them. Develop a list of speculative targets and news tidbits, and come to the meeting willing to share information as well as get it.

These insights can generate new contacts and unexpected meetings as well, but only if you put yourself out there. It doesn’t much matter if this is in-person or virtual, or whether it’s with longstanding or newer connections. Constant, regular activity is the key – because markets are continuously in flux. If you don’t play this numbers game, you’ll be playing ‘pin the tail on the donkey’.

The takeaway from this process will be a huge store of contacts, tips, and notes – which of course you don’t want to lose inside a giant haystack. This means storing them in a readily accessible format – one that’s more seamless and searchable than a stash of spreadsheets, emails, and Word docs. Jumbled information is as bad as none.

Concurrently with all this lead-generation, you need to be diving into what’s already on your list. Stay up to date on existing prospects and their inflection points, so you don’t miss a bid deadline or a founder’s retirement date.

When each prospect has a unique timeline, reminders are essential. One family-owned company may be interested in selling in five years; a PE-owned company may be fast approaching its investment horizon; an IPO hopeful may view a sale as a Plan B; and yet another CEO may be interested in talking, but unsure of whether a sale is the right path. One acquisition can take a few months, while another can be a multi-year process.

Between this variety of deal types and timelines, and the gray areas between origination and execution, or networking and the deal agreement, promising targets can slip through the net. And the ones that are most prone to getting lost – such as those with unique stories, longer timelines, or unclear plans – are potentially the most valuable.

So nail those automatic reminders in place. When was the last time this founder was contacted, and who contacted them? Did that person leave your firm in the meantime? What milestones did the company want to reach before it would be ready to sell? Walking the tightrope between origination and execution means being able to convert conversations into deals at the right time.

Up to speed on strategy

Defining your internal strategy brings the entire deal pipeline into focus. Some targets may fit strategic gaps like a puzzle piece, but usually it’s more complex. Geographic reach, revenue model, company culture, and many other factors may play a role. The flow between your company’s big picture strategy and the minutiae of an individual target can change as you learn more about the target, while your strategy evolves with the market.

Opportunity costs are currently very high for everyone – a point raised on the Datasite webcast by Robert McIntosh, head of corporate development at Stripe. Because of these costs, strategic priorities can help determine how much of your time, and your team’s time, to invest in opportunities that may or may not materialize – and when to shelve less promising leads.

GE HealthCare, recently spun off from GE, is a case study in integrating pipeline management with overall strategy. President and CEO Peter Arduini, when asked about M&A during its investor day last December, first reminded investors that they had ‘a lot of organic places to go after’. Because executives know where the organic opportunities are, they also know where M&A opportunities fit.

Executives discussed past tuck-ins that benefited from the company’s scale and reach, such as an ultrasound technology deployed into operating rooms where GE already had business. CFO Helmut Zodl noted that four recent acquisitions and more than 20 strategic collaborations have done well, emphasizing how M&A complements organic growth.

To stay up to speed, top executives from GE HealthCare meet weekly with their M&A team to look at the pipeline. Their view extends both inward and outward beyond the company itself, to industry news and deals. Arduini drew attention to this at the investor day, calling it ‘good hygiene’ to understand the competitive landscape.

Organizational hygiene

Tired old technologies are hard habits to break – particularly for M&A professionals who are too busy to consider other options. According to a Datasite survey of more than 400 M&A professionals, 75% of dealmakers still manage their pipeline with Excel spreadsheets. At the same time, 68% of senior dealmakers say their workload has increased due to market events. Inevitably, there will come a point at which the old tools are no longer fit for purpose – indeed, for many dealmakers it has already passed.

Multiple alternative solutions already exist, from CRMs to sales software. But that ‘multiple’ is another cause for concern. When documents and contacts are stored in disparate places, scattered between the cloud, hard drives, thumb drives, emails, and paper documents, this fragmentation snarls up the pipeline.

Easing the pipeline pain

In a series of surveys, Datasite has identified the five major pain points of M&A pipeline management.

The first – as just discussed – is using disjointed tools that do not connect across the deal process. Transitions (such as moving from a deal agreement into due diligence) should be seamless. The second pain point is visibility: if collaboration and communication aren’t reported in the same place, then you can’t easily map the one onto the other – and won’t be able to see the forest for the trees.

Thirdly, as deal flow increases, old technologies start to creak. Any system you use ought to be able to handle potentially hundreds of opportunities per year, so that no target gets lost at the bottom of the heap when it should be rising to the top. The fourth pain point is updating such tools easily – and syncing them to avoid errors and time-consuming duplication of effort.

Finally, you need a way to save the history of ongoing and past deals, regardless of any employee turnover in the meantime. Your pipeline needs a continuity independent of anyone who is (or isn’t) in your team.

When the pipeline is the deal-maker

The final, hidden benefit of a robust pipeline is the higher confidence it inspires in your prospective targets. A well-executed pipeline strengthens your reputation with every transaction, and so may convince a prospect to take the next step with you.

You don’t want to be seen as a company that manages deals ‘on the backs of napkins’, in the words of one executive. Older founders may not be as tech-savvy, but they do appreciate user-friendly technology that preserves confidentiality, and an acquirer who is easy to work with. That alone can make the difference between the target selling to you, or to your competitor.