2 OCTOBER, 2023
Karina Collis & Peter Globokar (co-founders of Dialllog)

The Ultimate Guide to M&A Deal Flow: Win Your Next Mandate

In this article you will learn how to win the next mandate and unlock the secrets to a successful M&A deal flow with insights from industry experts.
From our experience, we've found that maintaining a robust mergers and acquisitions (M&A) deal flow is crucial for long-term success, but it's far from easy. The M&A advisory landscape is continuously evolving and intense competition for deals is a permanent feature. Investment bankers often say that a successful M&A deal takes more than a single sale: "You need to sell twice to make any money". Therefore, first, you need to win the mandate, then you need to sell the business. As you can see, everything starts with finding the next mandate and ensuring a steady M&A deal flow.

We've created this guide putting together our years in the field to provide you with the key strategies, best practices, and pitfalls to avoid in sourcing new M&A deals and effectively organizing your deal flow. We back our insights with industry data, expert testimonials, and real-world examples.

1. Understanding the M&A Deal Flow and Sourcing Process

M&A deal flow is at the heart of any M&A advisory mandate. To secure the pivotal role of becoming the advisor to either a seller or a buyer, a deep understanding and effective management of your M&A deal flow is essential.

Whether it's through building relationships with potential clients or scouring the marketplace for promising companies and cold-calling them, those involved in M&A deal flow advisory must be constantly on the sourcing trail. From what we've seen and experienced firsthand, one key to long-term success is maintaining a robust level of active M&A deal flow and always being on the lookout for new opportunities.
Hereby, bankers can position themselves for long-term success in this exciting and dynamic field.

Keeping track of a pipeline of potential opportunities and making sure you don't lose a mandate for lack of tracking and for not going through the right steps.
Pro Tip

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2. Sources of M&A Deal Flow: A Brief Overview

The sources of M&A deals are complex and varied. Here are the most important ones:

  • Referrals: M&A opportunities mostly arise from professional networks. McKinsey's research found that 90% of M&A deals come from referrals, underscoring the importance of building strong connections with companies but also their investors over a period of time. Former clients are usually a very prolific source of referrals: people ask them who helped them with deals to identify advisors.

  • Direct Outreach: According to a PwC 2019 survey, 53% of CEOs were considering strategic alliances or joint ventures. Every private equity fund is in the business of buying and selling and so are venture capitalists and angel investors. So it is easy to see that the vast majority of companies are actively seeking to sell, or buy. Cold calling works but you have to have an angle, and perhaps an introduction

  • Events, conferences, and exhibitions: As Warren Buffet wisely advises: "Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble." The right events, conferences, and exhibitions can feature high concentrations of C-level executives and investors and can therefore be excellent sources of M&A deal flow. Attending conferences and networking events is definitely a source of great connections and sometimes immediate M&A opportunities.

So, who should you network and build relationships with to enrich your M&A deal flow?

Company CEOs, founders, institutional investors such as private equity and venture capital, but also legal firms and consultancies are all good sources of referrals and can significantly contribute to a healthy M&A deal flow.

From our experiences, we've learned that building an M&A advisory business goes beyond short-term transactional interactions, but rather genuine long-term engagement with the ecosystem. M&A deal flow advisory is a marathon peppered with many sprints, one sprint for each execution process.

3. Sponsor Coverage in Investment Banking: Why it Matters

Robert W. Baird, a prominent figure in the investment banking industry, once revealed that 60% of his company's deals originated from relationships nurtured over several years. In today's world, where private equity continues to become a prominent owner of companies across all industries and a growing number of countries, building relationships with private equity funds is essential.

In investment banking, building long-term relationships with private equity funds is called "sponsor coverage", in reference to financial sponsors of companies. At its origins, private equity was all about leveraging the buyout of a company, i.e. using large amounts of debt to finance the purchase price of a company. Today sponsors have widened their business models from pure financial engineering to build-ups of companies through M&A deal flow. So sponsors require M&A expertise at multiple levels, on the buy and sell side. Ultimately, every private equity and venture capital fund has a 10-year lifespan, and a lot of acquisitions and divestitures or exits will happen in that time frame. Private equity funds look for support:

  • On the buy side when they are looking to make a new investment

  • On the buy-side when they are helping their portfolio companies to grow inorganically throughout their holding period

  • On the sell-side when they sell their portfolio companies to other funds or strategic acquirers, usually 4-7 years after their original investment
The continuously increasing volume of M&A coming from financial sponsors has meant that sponsor coverage is now a function in every larger investment bank. Ther are teams dedicated to "Financial Sponsor Coverage" who develop and maintain relationships with private equity firms over the long term, from helping funds find acquisitions (sourcing deals for them) to helping them with exits (selling portfolio companies, assisting with IPOs, etc.).

In essence, sponsors are working closely with investment banks throughout the lifecycle of their investments.

Therefore sponsor coverage programs are a critical component of a successful M&A advisory business, particularly in sustaining a high-quality M&A deal flow. By building relationships with sponsors, investment banks can position themselves to win mandates and secure a steady stream of high-quality M&A deal flow.

The key to a successful sponsor coverage program is building genuine, meaningful relationships. This means going beyond transactional interactions and engaging with sponsors in a way that reflects shared visions and synergistic values. By doing so, investment banks can establish themselves as trusted partners and gain access to a broad network of potential deals.

A critical component of any sponsor coverage program is obviously staying up-to-date on industry trends and developments. By maintaining a deep understanding of the market, investment banks position themselves to identify emerging opportunities for their potential clients, on the buy or the sell side, further enhancing their M&A deal flow.

For all of this, it's essential to have a disciplined, data-driven approach to sponsor coverage. Leveraging the right tools to track and analyze sponsor interactions, identify opportunities, and measure progress - can be a game-changer in managing and optimizing M&A deal flow.

That is where it is highly beneficial to use a CRM that can help manage any sponsor coverage program. It's essential to choose the right CRM, one that offers robust sponsor coverage features, such as tracking all sponsor interactions, analyzing historic interactions across all projects whether a sponsor was a client or a counterparty, but also tracking all affiliate interactions with portfolio companies.

4. Creating The Right M&A Deal Flow Management Process

The process is the skeleton of M&A deal flow generation. A structured and streamlined M&A deal flow generation process is essential, in particular for facilitating collaboration among a team of advisors. Investment banking teams are increasingly valuing collaboration, understanding that in the complex world of M&A deal flows, collective efforts often yield more prolific results than isolated endeavors.

For M&A deal flow to be truly effective n, information must be efficiently updated, shared, and tracked. A dedicated CRM is key to this process. The industry is finally witnessing a paradigm shift from using tools like Excel for M&A deal flow tracking to leveraging specialized CRMs. The right CRM saves time, brings efficiency, and encourages information sharing, which in turn allows the team to leverage their knowledge and relationships to win deals.

To start with, teams should define their deal opportunities clearly. Dialllog CRM for M&A proposes the following fields (which can be modified and expanded) to effectively prioritize potential mandate opportunities in the M&A deal flow funnel:

  • Mandate Type: sell-side, buy-side, divestiture, recap, strategic advisory

  • Fee Potential: Projected earnings from the deal.

  • Transaction Value: The financial worth of the transaction.

  • Stage: Current position in the sourcing process (see below)

  • Point Person: The team member leading the hunt for the mandate

  • Team: The internal team supporting the sourcing of that deal or the pitching

  • Pitch Date: The date of the proposal or presentation

  • Quality Rating: This is used to assess the quality of the potential mandate. It can be based on size and profitability criteria or on more subjective criteria and can be given a gold, silver, or bronze rating for example.

Dialllog CRM's Sourcing workflow, designed by our founder's extensive M&A experience, recommends to use of the following pipeline stages (which can be modified and expanded):

  • Above the Funnel: potential prospects to approach

  • Periodic Discussions: regular touchpoints with decision makers, every quarter for example

  • Active Transaction Development: the prospect is formulating an M&A event and the need for advice

  • Bake-Off & Advanced Discussions: the prospect is inviting multiple advisors to pitch or is discussing options only with one team

  • Engaged: Firm commitment from both parties to sign a mandate.

  • Rejected: Opportunities that did not meet your requirements (usually size or probability of success)

  • Mandate Lost: Deals that couldn't be secured and were lost to another advisor

And here is a key tip: always retain information from rejected deals. Those prospects might resurface, and understanding previous objections provides invaluable insights for future negotiations. It is surprising how few M&A deal flow advisors implement this best practice!

Another dimension for progressing potential M&A deal flow opportunities is to define a set of milestones that you believe can fundamentally increase your chances of winning a mandate. These milestones can be thought of as a checklist to success.

In Dialllog, the proposed milestones (which can be reduced, modified or augmented) to increase your chances of winning a mandate include:

  • RFP received: the prospect has clearly issued a request for a proposal

  • NDA signed: usually a sign that the prospect is willing to share data

  • Briefing pack received: you can't pitch with some initial level of data and not getting much data from a prospect is a red flag

  • Management meeting held: essential that you meet the CEO of a potential client company at least once face to face.

  • Board members covered: whether board members or investors, key decision makers must be spoken to. Not doing this greatly reduces your chances of covering all the angles and understanding the dynamics around the M&A project

  • Internal mandate review - approved: formalizing a review process in your team is essential for quality control purposes.

  • Internal mandate review - rejected: keeping track of what prospect has been rejected but also the reasons behind a rejection will help you affirm your differentiation in the market.

  • Pitch: keeping track of the pitch events (but also saving the pitch presentation in your CRM) is a key practice

  • Mandate lost: also capturing the reasons given.

  • Mandate won: also capturing the reasons given

Informed and continuously updated pipeline fields, status progress, and milestones are designed to feed real-time tracking of situations across your team but will also feed regular internal reviews of your M&A deal flow which is a crucial part of the management of your team. Updated data should be the centerpiece of regular weekly meetings, fostering team collaboration and shared insights to secure deals.

Dialllog CRM offers both a Kanban view as well as a table view to offer optimal visualization of M&A deal flow sourcing progress to advisory teams.

An intuitive dashboard is imperative for a holistic view of the evolution of your deal flow, enabling teams to strategize and prioritize effectively. In Diallog CRM, the deal flow analytics dashboard allows you to show the progress of the M&A funnel across stages over user-defined periods.

5. The Bake-Off in M&A Deal Flow Sourcing: The Moment to Shine

Most of the time, potential prospects invite multiple investment banks to compete for a mandate, a crucial step in the M&A deal flow. This is the case for all types of transactions, big or small. Much like bakers presenting their best pastries for judgment, banks present their credentials, expertise, and proposed strategies to showcase why they are best suited for the task at hand. That's the bake-off, the "beauty parade".

Creating pitch books for bake-offs is a race against the clock, with the primary objective being access to information that can set you apart in the M&A deal flow competition.

A key tip: If you keep all your historic pitches in your CRM, you will massively increase the chances of identifying previous pitches that you can repurpose and recycle at multiple levels: for the credentials section of your pitch, for the strategic discussion section, but also for the valuation or buyer or target universe presentation.

In a pitch of M&A deal flows (especially on the sell side), two areas make the difference between winning or losing: valuation estimates and buyer knowledge.

On the valuation, it's simple: don't go low because sellers want to sell high. Pitching a high valuation is an expression of your confidence in your ability to sell the asset. That is the irrational part of every pitch.

On the topic of buyer knowledge, advisors must be able to demonstrate that they have access, to recent and relevant knowledge or experience with key individuals in buyer organizations (sponsors or strategic). How do you know if your team has any of these? While manual inquiries within the team are an option, they may not provide a comprehensive overview.

Successful teams keen on streamlining their M&A deal flow, leverage structured information about their interaction history with their entire ecosystem and can leverage that information in a pitch.

That is where a CRM makes all the difference. Within Dialllog CRM, teams capture all their interactions with counterparties in each client mandate and across coverage and relationship workflow. Because of the novel information structure of Dialllog, getting a 360-degree view of connections and dialog history with any potential counterparty is extremely efficient. Integrating proprietary data about potential transaction counterparties is fast and simple.

What if you lose at the bake-off? Go deep on recording feedback and immediately pick up the dialogue with the people you met, even if they didn't pick your team. The world of M&A deal flow is vast, and there will always be future opportunities.

6. Generic Deal Flow Management Software vs Investment Banking CRM

When we began our careers, the digitization wave was just starting. Now, it's transformed industries, including M&A Advisory, in ways we could never have imagined. A recent Gartner report noted that CRM software grew by another 15.6% in 2022, reaching a heady $48.7 billion. This massive growth in volume underscores the transformative power of CRMs platforms in shaping M&A deal flow dynamics.

But not every CRM is equal. Many investment banks and M&A boutiques have gone and are going for the CRM that would intuitively be the safe choice: leading CRM software for sales organizations, the likes of Salesforce, Dynamics or HubSpot.

But generic sales-centric CRMs don't deliver for investment banking. Not even for Dealflow sourcing.

Investment banking is about developing and growing entire ecosystem relationships over the long term not about transactional sales.

A specialized investment banking CRM platform offers a 360-degree solution, tailored to manage an array of tasks, from sourcing to the final handshake, helping advisory businesses to create their own virtuous circle of sourcing deals and executing deals within the same ecosystem of relationships.

Investment banking CRMs deliver on:

  1. Holistic Platform: M&A deal flow processes often juggle dozens to hundreds of prospects, clients, relationships, and counterparties simultaneously. An investment banking CRM offers an organized platform to handle the gamut - from the initial sourcing, client onboarding, and crucial compliance processes such as AML/KYC, right down to the intricate stages of deal-making with many stakeholders.

  2. Deal Execution & Client Communication: The CRM isn't just a passive repository of information; it's an active tool for deal sourcing and execution. It facilitates streamlined communication with clients and transaction counterparties. With everything housed in one central platform, the process is simplified, ensuring faster turnaround times and minimizing chances of oversight or duplication.

  3. Collaborative Ecosystem: The actual essence of efficient M&A deal flow sourcing and execution lies in team collaboration. A dynamic CRM system promotes teamwork, enabling teams to share critical information in real time. With provisions for tracking, updating, and collaborating on live deals, it ensures stakeholders stay aligned and informed, fostering a cohesive approach to deal-making. But it also ensures strict, secure confidentiality and Chinese walls where required.

  4. Financial Sponsor Coverage: Beyond the standard deal flow, investment bankers have another critical arena to oversee: Financial Sponsor coverage. An adept CRM recognizes the weight of these relationships, providing tools to monitor, manage, and harness them, thereby unlocking a stream of high-value opportunities feeding directly into the M&A deal flow.

7. Introducing a CRM for M&A Deal Flow: A Simple Blueprint for Success

Integrating a Customer Relationship Management (CRM) system can revolutionize M&A deal flow management. To ensure successful implementation, consider the following tips:

  1. Customize the CRM to fit your specific M&A needs.

  2. Invest in comprehensive training programs for users.

  3. Provide ongoing support and encourage feedback from users.

  4. Continuously evaluate the CRMs performance and evolution.

By thoughtfully customizing, training, supporting, and evaluating the CRM system, firms can maximize its potential, ensuring every deal is a step towards success.

Too many CRMs get implemented and never used. The right CRM will empower users and they will not want to do deals without it.
Pro Tip

Unlock the true potential of your M&A deal flow with Dialllog's specialized CRM.

Schedule a personalized 1-on-1 live demo with Dialllog and discover how to manage relationship building, sponsor coverage, and a tailored digital backbone. You'll be equipped to navigate the intricate world of M&A sourcing and emerge as a leader in the field.

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Conclusion: Securing Success in M&A Deal Flow

The intricate world of M&A deal flow sourcing, as aptly described by Jamie Dimon, CEO of JPMorgan Chase: "The heart of any business is its deal flow." To master M&A deal flow sourcing three key elements emerge as paramount.

  • Firstly, cultivating and fostering the right relationships forms the bedrock of M&A mandate wins.

  • Secondly, it's crucial to run sponsor coverage programs, intertwining the power of connection with strategic initiatives.

  • Lastly, in our increasingly digital age, having a robust, tailored CRM acts as the quintessential digital backbone, functioning akin to a virtual investment bank.

Looking back on countless deals, negotiations, and strategies, the true essence of M&A deal flow, for us, lies in the relationships we build and the growth we witness with Dialllog's CRM. As M&A deal flow is the intersection of intuition, strategy, and tenacity, professionals must harmonize these elements, leveraging human insights digitally to ensure their team always remains at the forefront of the M&A landscape.

What is Dialllog?

Dialllog is the first ecosystem relationship CRM software designed specifically for PE, VC and M&A funds to manage the full investment cycle.
No more endless Excel spreadsheets, docs, notes and emails. Dialllog brings all the sporadic information into one PE software to create data-driven workflows.