Dealmaking in 2024: Time for Transformation

The webinar can be viewed at:

A summary of the discussion is below:

20 dealmakers were asked by SourceScrub the following:

  1. How will you make up for 2021 vintage valuations
  2. How will you source more of the right deals in 2024
  3. How will you differentiate in an increasingly competitive environments

A panel including Charles Shannon (VP Corporate Development at Tennant Company), Brandon Knapp (Founder and Managing Director at Evercap Advisors), and Jordan Margolin (Head of Business Development at VSS Capital Partners) discuss the findings and their views.

How do you see 2024 shaping up and impacting the world of dealmaking after a year of slower deal flow in 2023?

  • Geopolitical Tensions: The ongoing conflicts in the Middle East and Ukraine could divert investment away from those regions, potentially creating opportunities in more stable areas.
  • High Interest Rates: Continued high-interest rates will make it more challenging to finance acquisitions through debt, impacting “buy-and-build” strategies that rely heavily on borrowing.
  • Dry Powder Awaits: Private equity and venture capital firms are sitting on a significant amount of unspent capital (~$2 trillion) waiting for investment opportunities.
  • Life’s Inevitabilities: Mergers and acquisitions will still be driven by factors like retirements, divorces, and the need for companies to exit investments (VC/PE firms).

This last year was a year of experimentation for many firms, trying out AI capabilities to improve dealmaking processes. What have you learned?

  • Focus on Efficiency: AI tools can be valuable for handling repetitive tasks like processing NDAs and prioritizing potential targets. However, they shouldn’t replace human judgment.
  • Data as the Driver: The effectiveness of AI solutions depends heavily on the quality and relevance of the data fed into them. SourceScrub’s example highlights how AI can find similar companies and conferences, but human expertise is needed to personalize outreach and understand industry nuances.
  • Adaptability is Key: The M&A landscape is constantly evolving, so choosing AI solutions with shorter contract terms allows for flexibility and adaptation to new technologies.

Many firms are in a tough spot. They made some very expensive investments a couple years ago. Market conditions have made it difficult and/or undesirable to turn those over. All the same time, investable capital has been piling up and LPs are looking for a return. What do you suggest: Patience? Creativity? Or maybe cutting losses?

Creative Ownership Structures: Add-on Acquisitions: Expanding the acquired company through strategic acquisitions to “buy down the multiple.”

Thorough Due Diligence: Increased Scrutiny: Given the challenging market environment, expect a more extensive due diligence process, with a focus on integration planning and potential post-deal challenges.

Structured Deals with Flexible Terms:

  • Longer Earnout Periods: Tying a portion of the purchase price to the acquired company’s future performance.
  • Seller Financing: Allowing the seller to receive a portion of the purchase price over time
  • Larger Equity Rollovers: Offering sellers a stake in the combined company to incentivize the deal and align interests.
  • Warrant Coverage: Issuing warrants to bridge valuation gaps between buyers and sellers.

How can dealmakers adapt to the highly competitive landscape and stand out in a market with fewer willing sellers?

  • Targeted Approach: Develop a “thesis-driven strategy” that defines your investment niche and informs deal-sourcing efforts. Instead of just targeting broad sectors like education, go “granular” and focus on a specific area like school safety.
  • Industry Specialization: Having advisors with deep industry or functional expertise can be a significant advantage.
  • Relationships Matter: A piece of proprietary data Charles viewed showed that 50% of deals did not go to the highest bidder. Building strong relationships with potential targets well in advance (3-4 years) allows for trust and rapport to develop. Understanding a company’s culture, legacy, and employee concerns can be crucial.

How can dealmakers adapt their outreach strategies to cut through the noise, provide real value, and establish meaningful connections with top targets over time in this competitive environment?

  • Dedicated Business Development Rep or Buy-Side Advisor: Having a team or individual focused on building relationships and deal sourcing is now crucial, as opposed to relying solely on traditional deal flow methods.
  • Content Marketing: Ensure your website clearly communicates your investment focus and target industries. Utilize LinkedIn for targeted outreach and thought leadership content.
  • Personalized Communication:  Listen to the webinar to hear Charles’ story of sending a hard to reach prospect a customized golf driver head cover with a note that said if the individual agreed to a meeting, he’d bring a driver to fill the driver head cover. P.S. – it worked!

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