What are the different stages of sourcing acquisitions? 

Stage One: Source – build a list of potentially relevant companies to target for acquisition and enrich it with data that will help you understand the market and prioritize the list for your outreach.

Stage two: Engage – deploy a programmatic outreach cadence to introduce yourself to targets and attempt to schedule a meeting to discuss the acquisition opportunity further.

Stage three: Qualify – seek out additional relevant information about the targets of your outreach and ensure they fit the specifications of your search. 

Stage four: Nurture – until you have hit your acquisition targets, continue to find compelling reasons and ways to get in front of your top prospects to nurture the relationship and revisit the viability of an acquisition. 

Note: for more on sourcing, especially related to add-on acquisitions, read Dan’s companion guide

Engaging

When you start to engage, what should your first touchpoint be?

Start with cold outreach – I don’t start with a trip or a conference, the first steps are sitting at home and doing cold calls and outbound research to prospective 

What should your outreach cadence look like? 

You need to have an intentional process – take a programmatic approach to reach out to prospects during your search. Most people send an email, then they have a million other things going on, and maybe they follow up every once in a while. So over a period of three or four months, you may send several emails but they’re ad-hoc, not building up to anything, and those efforts end up dying on the vine. 

Build a sequence with 5-10 touches in a dedicated period – it needs to have a starting time and stopping time, with a set cadence for each touch. Be tenacious. I borrow from sales best practices for cold calls and outreach. Most people will give up after 2-3 tries, and the reality is that you need to get to 8-9 different touches during outreach. 

Give contacts a chance to respond – these are busy CEOs. Start with giving them a week to respond, then you might shorten the intervals where you’re giving 5 business days, three business days, and one business day. 

Use all available mediums to reach your targets – it might escalate to calling on the phone, pursuing on LinkedIn, or calling their connections. You might send them gifts, or even show up at their office. The CEO can tell you to buzz off, but the point is to get an answer.

When and how should you attempt to meet prospects in person? 

Happen to be places – it’s one of the most effective ways to get an audience with target CEOs. You can’t book a million geographies at once, but pick a few cities where your top prospects are and happen to be there. This isn’t how you start outreach—you’re not going to be in 500 places for your top 500 prospects because that’s a waste of time, but once you know who you should be talking to, show up in person for the real needle movers. 

Find an excuse to be in even the smallest towns – if a top target is in a small town in Nebraska, email the prospect and say you have a meeting in town and happen to be there—-if they say yes to meeting with you, book a flight immediately and find another meeting with a low-level meeting or banker that’s a reason to show up. 

If you don’t get them the first time, ‘happen to be in town’  four times a year – every significant deal I’ve been able to move has been a result of meeting people in person. It can be in their town or at a conference—even if you have no other reason to be there. It’s a function of knowing where the target will be and following them there.

How do you know when to stop your outreach cadence to individuals?

At some point you have to stop – you pursue with a structured cadence and persistence for a dedicated period of time—but at some point, you become noise drowned out in the background and you need to hit stop. You can’t use the traditional sales practice of a “breakup email” because it doesn’t work here. 

Pick it back up in a couple of months in the nurture stage – if you’ve time-bound your first barrage of outreach, you can drop it and then pick it up with a good reason after a break of a few months. 

How should those managing the pipeline of targets prioritize activities? What’s the right balance of time spent on the different sourcing activities?

Everything you do is part of a funnel – just like in sales, you have to manage the funnel in private equity sourcing. You have to make sure at all times that you’re adding new things to the top of the funnel, and massaging the funnel to ensure movement of opportunities. 

Time box your day into three categories – it has to be a routine that you build up to. You have to have repetition and build good habits that you do every single day. If you want to bench 400 pounds, you’re not going to walk in the room and do it tomorrow. But if you put the work in every day, you going to get there:

Outreach (Morning)	It’s a numbers game – in order to get the volume of deals you need to close for the year, you need to start with a ton of calls and outreach for your conversation ratio to work out to the requisite number of deals. Do a minimum of 20 new outreaches every single day. If you need to time-box it to the first four hours, do it and get it done. It’s a different number for different firms with different conversion rates.
Calls (Afternoon)	Schedule folks that want to meet with you – get them on the calendar, whether it’s someone you talked to and need an NDA for or whatever follow-up you have to conduct.
Research and Preparation (Evening)	Prep your outreach for the next day – set yourself up for a productive morning, and to hit your targets inboxes when they’re most likely to see your messages.

You have to have grit and determination – sourcers need to be willing to put in work for a long period of time without seeing immediate results in order to actually get your end goal. It’s hard for a lot of people to have faith in the process that you’re going to get there. You can’t be delinquent on cold calls and outreach and expect to get there. 

Qualifying

How should you prepare for your first call with a prospect company?

Do a little research on the company in advance – to understand what they do, what their market is, and how they relate to other players. But don’t go overkill—it’s still a numbers game. You can’t put too much time and energy into any given opportunity because the probability that it is going to be the one is pretty low. 

Schedule it as a Zoom call – there’s a big delta in the information density between a phone call and a video call. There’s also a big difference in the degree of trust you can generate with folks in being able to show and demonstrate emotion, hand gestures, etc. Doing it on Zoom also means that you’re performing every day. You have to look professional, be dressed up, and look like an executive approaching another executive. 

Who should be on calls with the target?

First call: associate or analyst – a lot of times, the first call is for verbal qualification, confirming and expanding information you have from data enrichment.

Second call: VP or Principal – the second call will go deeper with a more senior member of the deal team, as well as the platform company CEO in the case of add-on acquisitions.

The involvement of the early career will dwindle as things get more serious – as you’re handling the NDA and Financials, more senior figures from the firm will be involved.

What kind of mindset should early career professionals adopt for outreach and early conversations?

Think of yourself as a CEO with one company as your top priority for three weeks – the top priority is writing to them and conducting that outreach. Think of it as a three-week engagement where there’s no way that someone is not going to give you an answer. The answer could be no, but you’re going to pursue an answer breathlessly. 

Early career professionals need to have a coequal mindset with CEOs – the most important trait in sales is empathy, understanding the other person and what their day-to-day looks like. A lot of people doing outreach are early career professionals, and they’re reaching out to CEOs. They need to be in the right mindset to relate to and deserve attention from CEOs. They need to put themselves in a mindset of prestige on par with whoever they’re reaching out to. That’s hard for a lot of people to do. 

You have to be a genuine, authentic, friendly, and approachable person – that’s tough for a lot of people. This mindset informs everything; the way you write your emails, the messaging you use, the timing you suggest for meetings, and the cadence you follow up are all tied into that mindset. 

Enter conversations with knowledge about the space – as you learn, you need to understand where the company you’re talking to sits in relation to all of the other companies in the list. 

What does a good pitch look like on the first call? What does a bad pitch look like?

Bad pitch

“We’re ABC Capital and we have $20 Billion AUM and we’ve done 35 deals over the course of the last year. Our criteria are we’re looking for companies with $20M+ in ARR, with 50% EBITDA margins. It seems like you guys might be an interesting fit. We help founders take some chips off the table, but keep some equity to take a second bite of the apple. We might not be the highest price right now, we’re a little bit opportunistic and look at these differently.”

Good pitch

Know where they live – don’t jump on and ask where they’re calling from—take a chance to look on LinkedIn and figure out.  Have something to say about where they live – this is how you break down the wall and become a real human being to the founder.  Develop a personal connection – find out some commonality that is interesting to both of you. You need to humanize yourself and be vulnerable. Make yourself someone who is not perfect.   Show up on time – you agreed to a time and place to meet. Do what you said you were going to do and meet there.

Think about what it takes to build trust in another person – they want to know a little bit about who you are, what you do, and what you’ve done in the past—some of that high-level stuff is important to contextualize. But just as importantly, they have to believe you’re a person of your word and that you’ll do what you say you’re going to do. 

Embody an authentic person rather than a stiff – a lot of early 20s people walk in and try to put themselves on a pedestal. They’re trying to embody someone that they’re not and get nervous. They put on a face trying to be overly stiff and professional because they think that’s what works. The reality is that what gets you there is being a real human being. 

Try to connect yourself to the industry you’re sourcing in – discuss why the space you’re looking in is personally relevant to you. Give a short personal anecdote that develops a little connection. For example, my family was in the hospitality business growing up, and if I were prospecting into a related industry, I would tell relevant stories. You can throw out a few different ones and see which sticks. 

What do you want to learn about them on the call and how much pitching do you want to do? What’s the right balance? 

There are two objectives for the call:

• Break down the prospect’s defenses – get to the point where you have some sort of personal connection, because they need to remember you and think about you as a human. People want to do deals with people. They’re making emotional decisions and backfilling with logic. 
• Learn about their company – it’s a bit of a dance. You’re trying to learn more about them, and qualify them while pitching at the same time—you don’t want to fall too far on either side of that. If you’re just pitching, they’re going to be on their heels—if you’re just asking questions then you won’t give them the information they need. 

Example intro text: “I know it’s the first time jumping on a call, you probably don’t have a ton of context for who I am–would it be helpful for me to give you a little bit of background around who am I and what we do and then I’d love to dive in an learn a bit more about you?”

If you’re open and curious with the right tone, they’ll mirror that – you want to get into a synchronous dance where you’re working together. By offering to share information, you’ll prime them to share information in return. Pay attention to your body language and be personable. 

What kind of discovery questions might you ask on your first calls with a target company? How can you politely discover relevant information? 

Priority 1 should be to determine scale and interest – what is their scale/revenue and is there a case that they could do a deal with you? If you can get them committed to interest, then you can go back and ask “priority 2” questions.

Tip: Don’t ask for revenue directly – if you go in and ask for revenue straight out, they probably won’t share it. If you say something like, “Our research team had down that you guys were doing about $5M-$10M in revenue, are we in the right ballpark?” You might get an answer because instead of asking out of an infinite array of numbers, you’re giving them a yes/no question. 

Tip: Guess a larger number– however big you think they are, guess a much larger number. If you start with a small number and then they say how big they are, it sets the wrong tone and they’ll feel more important than you. You can continue to narrow it down with follow-up questions to get at their revenue number. 

Priority 2 – growth and health metrics, including:

• Revenue growth
• Retention
• Gross margins (net and gross)
• EBITDA
• Customer Concentration 

Tip: Try to figure out what makes the business interesting (and not interesting) – it’s more important to find out what makes this business uninteresting and where there is something you don’t like. Constantly probe in your mind for the things that could make that uninteresting. 

When should you try to get an NDA and financials from a target? When do you push for an IOI or LOI?

Get an NDA and financials right away – a “maybe” is a “yes”, if you can get a hook in then push forward with securing financials and an NDA. Make sure you get these right away—because they can change their mind pretty quickly. 

Get an LOI or IOI as soon as interest is indicated – I used to do a marketing-forward indication of interest. Most IOIs are just a PDF piece of paper with no points of interest. That’s why I use it as a sales doc to share why it’s interesting, why you should work with us, the executives you can bring to the table, and the add-ons. 

Nurture

What is the goal of the nurture phase?

Nurture is about finding interesting and engaging ways to stay in front of people and find opportunities to catalyze a transaction – when you’ve hit the end of a rope on an outreach cadence, or if a prospect has said they’re not interested in being acquired at the moment, you don’t want to just give up on them in case they change their outlook in the coming months.

Nurture is all about being thoughtful and building human relationships – the best deals that I’ve gotten done are the ones where I’m texting the Founder, CEO, and shareholders of that business and having that personal relationship. 

Nurture is one of the most important pieces of the equation – a lot of people mistakenly think that they can engage someone once and because they talked to you, they have to respond to you when they decide to do a deal. You have to actually build a meaningful relationship—that doesn’t come from talking with someone one time six months ago. 

What are some strategies for continuing to catalyze touchpoints between yourself and target companies?

Continue to “happen to be” places – if they’re truly a top prospect, then get a partner,  a member of the ops team, or an executive from the portfolio to go out there. Meeting in person is one of the most effective ways to demonstrate sincere interest and weight. Get on a plane, meet with them, and spend time in person. 

Stay in touch – in order to keep the relationship alive, send them notes and thoughts on:

• Personal stories or updates
• Shared interests
• Life news
• Industry and competitor news 

Share value creation resources with your prospects – re-leverage the resources that you create for the portfolio and share them with prospects. Show them how you can create value for portcos, share portco success stories, etc. 

• Invite prospects to portfolio events – the best practice sharing events that you host for your portfolio execs are likely also relevant to prospect companies. Events can be a reason to reach out and can allow you to extend your relationship to more of the leadership team (e.g. encouraging the CEO to share a sales event with their VP of Sales).
• Share resources – create sendable versions of playbooks, templates, benchmark data portco success stories, etc. 
• Introduce your growth team or portfolio advisors – it helps build a degree of credibility and a sense of trust. Sharing some of the mutual pain points can be helpful. Come into the calls with something to share, but also a spirit of collaboration.

Once you make contact, how do you ensure that you’re making progress toward an acquisition?

Use general catch-up calls to continually check in on their interest – take a forward approach to getting an offer in front of them. Come up with a catalytic item, even if it’s completely made up—for why you want to do something now. Create an excuse for why the CEO of the portco needs to get something done right now. Sometimes, we’d tell them that the CEO is getting a lot of pressure from the board from M&A, they’re the top priority on the list, and he wants to do a deal with them. 

Have an agenda – the agenda is to get something done, and get an offer in front of the management team. Check if they would be open to even seeing an offer on paper. Even if they’re not interested in doing something, they might be open to just seeing an offer. Just ask for the P&L and it shouldn’t take long to turn around an offer.

You can make them come to you – I don’t always play the takeaway games, but sometimes you can tell the add-on that your mandate from the board is to get a deal done, and if it’s not going to be with you then there are other folks lower down the list you can spend time with. That can help put pressure on the deal to proceed with tentative sellers in the right situation. 

Overall

What are common pitfalls to avoid?

Don’t let urgent deal work crowd out outreach activities – sourcers should do outreach every morning, and do nothing else until they have to get your outreach done. Outreach falls in the “important, not urgent” bucket in the Eisenhower matrix. But you need to do outreach, and it doesn’t matter what else comes up during the day. 

Don’t play into PE stereotypes – Private Equity already has a bad rap as “the barbarians at the gate”. A lot of Private Equity professionals do a disservice the moment they jump on the call because they’re catering to those stereotypes right away. In all likelihood, CEOs have spoken with 50 other private equity firms; they’re getting hounded and other people are reaching out to them. Stand out by building trust, having empathy, and starting with the human aspects.

When qualifying, don’t just ask for the things on your scorecard – ask them how they got to where they are. Get them to tell their founding story and that will get them to tell you the things you need most times. People like to talk about themselves, so give them space to tell them a story. Ask: “Sorry for the long-winded monologue, let me shut up for a minute. I’d love to hear a little more about how you got your start. It’s a cool business, how did you get into this?”