Redefining the M&A playbook: tools for scouting targets

January 27, 2022 Jelle Stuij
Head of Marketing & Operations

A dealmaker’s role is not what it used to be. With the best opportunities often found outside conventional business boundaries, a successful M&A approach employs a continuous and systematic search for acquisition targets across a much broader marketplace. Speed, agility, and accuracy are essential.

For professionals operating in this space, whether M&A is all or part of their role, the evolution of M&A digitalisation has brought much greater visibility, accessibility and efficiency to the scouting and screening process. Those that successfully embrace this step-change can quickly uncover and evaluate opportunities, find the right deals, and gain an all-important edge on their competitors.

Is your market only as deep as your network?

Traditionally, M&A deal sourcing was time and network intensive. Individuals had to build and maintain strong and credible relationships with multiple third parties (investment banks, in-house origination teams and finance intermediaries, for example) and visit regular trade shows and conferences to keep abreast of deal opportunities. Access was often restricted, with larger, more reputable companies typically prioritised, and the speed and quality of information flow were frequently poor. Even for those that were ‘in the know’, the breadth of opportunity was always limited by the widest reach of that specific network. Inaccurate word-of-mouth networking could frequently lead dealmakers down a cul-de-sac, where they believed one thing, but the reality was another. The result? Costly aborted deals.

Fundamentally, the sourcing market was inefficient. Fast forward to 2022 and the digital evolution is penetrating this activity. Some of these trends can be attributed to the move to online, for instance, the abundance of company information now on the internet has made trade shows and conferences – once the bread and butter of deal sourcing - less vital.

The evolution of M&A

Within the M&A market itself, there are several developments that have necessitated a change of approach. M&A is no longer the prerogative of larger companies but an integral element of most companies’ growth strategy, whatever their size. Whether it is to target emerging technologies or redefine business models through cross-sector or cross-geography moves, the motivations have also diversified. Scope deals are increasingly common and represent huge potential for firms to leapfrog the competition. With this new ‘outside in’ approach to expanding capabilities, it is vital to widen the search and increase the addressable market to more potential sectors and targets.

Companies are exploring all available routes to execute these transformations. Non-traditional deal structures such as joint or minority stake ventures, corporate venture capital, and partnerships are gaining ground. These structures bring additional complexities to the traditional M&A process. The ability to manage them all and to nimbly leverage their unique benefits will be increasingly important for success in the coming years, notes Bain & Co.

M&A screening is evolving to incorporate an outside-in approach where a deeper understanding of the broader ecosystem plays an ever-important role. Only by developing these ‘market sensing’ capabilities can M&A professionals effectively scout for new growth and capability targets in today’s M&A world.

A new deal sourcing lens

Online M&A platforms can provide real-time access to multiple parties simultaneously. They naturally provide the M&A professional with a much larger pool of potential targets than the traditional approach because they do not suffer from the same industry and geographic constraints. This opens up opportunities with counterparts that would previously have escaped the radar.

Instead of communicating about opportunities with other professionals in the industry and reacting to any leads, online platforms engender a proactive approach to deal sourcing by providing the ability to define exactly what you need at the outset. What do you want to buy and what do you want to gain? Analytics and AI-based tools like Dealsuite allow you to set up multiple search profiles, inputting criteria, such as geography, cost, financial performance, headcount and so on, in a systemised manner. This formalises your needs, filters out those that are irrelevant and keeps constant track of the addressable market for you, highlighting potential targets as they arise.

That is not to underplay the human role in the M&A process, which will always be crucial. The right technology should empower the dealmaker, providing them with targeted, accurate information that they can assess and act upon. As PWC Director Clément Mengue said recently: “We are observing the positive evolution of M&A digitalisation, but most M&A practitioners are not tapping into the full potential of digital possibilities.” Those that can add these new approaches and tools into their existing skillset have a lot to gain.