The number of sell-side M&A firms dwarfs the number of firms offering buy-side M&A services, and unfortunately, there is generally a negative connotation associated with hiring a buy-side firm. This is usually driven by concerns about excessive fees and past bad experiences with little in return in the form of actionable leads. Why use a buy-side firm if it’s likely a waste of time and money?
Today we explore why the landscape of buy-side mergers and acquisitions is fraught with challenges that, unfortunately, lead many firms to struggle or fail.
Most buy-side firms struggle mightily due to a few factors, including very limited or nonexistent outreach, relying exclusively on existing relationships or press releases, outsourcing the outreach and qualification process, and not structuring the engagement agreement in a properly incentivizing manner for their clients as well as internally for their team.
Limited Outreach and Network Dependency: Many buy-side firms falter by spinning their existing rolodex without making efforts to broaden their network. Once they have made it through their network, they throw their hands up in the air and proclaim there aren’t any other targets. They are not interested in investing the amount of time and effort that it takes to conduct outreach. They do not have an efficient and time-tested outreach process carried out by highly trained and motivated team members that are willing to put in the dirty work that is required to dig up hidden gems. On the off chance they actually do some outreach, it’s likely limited, inefficient, and a very manual process where only a few emails or letters are sent each week, as opposed to a CRM-based automated and multi-step outreach process backed by data analysis. Very few firms incorporate calling into their outreach process!
Inadequate or Outsourced Outreach: Some buy-side firms rely exclusively on a single press release in order to find acquisition targets for their client. While a press release can be a useful tool in a larger outreach campaign, on a standalone basis, the effect quickly wears off and most respondents are captured within a week. This once again leaves the firm scrambling to find acquisition targets. In fact, it is not uncommon for our sell-side team to receive inquiries from buy-side firms asking us if we have any potential targets for their buyers!
For the firms that actually perform outreach, some shoot themselves in the foot by deciding to outsource the research, outreach, and qualification processes. This almost always leads to very low-quality research results which are used in outreach, such as misspelling owner names, company names, or identifying the incorrect decision maker. If this incorrect information is used in outreach, it can seriously damage their client’s reputation.
When the outreach process is outsourced, the firm cannot control the quantity or quality of the outreach, and often there are non-native language speaking callers that do not make it through to the owner or can be difficult to understand. This also leads to an incompetent qualification and gathering of initial information where the client ends up wasting time engaging with the target only to later learn about attributes that would have disqualified the target should that have been made clear upfront.
Lack of Persistence: Through data analysis of the Calder outreach process, we’ve learned that it takes on average seven professional touch points (mixture of calls, emails, texts, voicemails, etc.) in order to receive a response from an acquisition target. Most business owners know that salespeople give up easily; after 1-2 messages, they will go away and never be heard from again. That is why they ignore the first few touchpoints. When they are contacted seven times with a down-to-earth message from a buyer that is specifically interested in their company, they often engage. In fact, we’ve worked closely with a data analytics company to hone our outreach process to generate roughly a ~40% response rate! Most buy-side firms that conduct outreach don’t follow up more than once and experience dreadful response and conversion rates because owners are bombarded with one-off emails and know the sender will give up easily. Another reason that a lot of firms forego outreach in the first place, as it’s time-consuming and they haven’t had success with it!
Fee Structure: We believe a fee structure should fairly reward a firm for their efforts and incentivize aligned behavior from clients and the internal team. Many buy-side firms charge a large upfront fee, which motivates action out of the gate but wears off quickly. After a few months when the fee has already been collected upfront, how motivated is the firm to continue working hard to deliver?
Instead of a large upfront fee, Calder charges a reasonable monthly work fee, coupled with a guarantee. This structure continually motivates the team to work hard and keeps the client engaged, as there is regular investment from both parties in the process. Calder also offers a guaranteed number of leads, so that our clients know they will not pay unless we deliver! We have removed the risk and concern of a client engaging us, paying us, and not receiving anything for it, which unfortunately happens all too often with other firms.
Furthermore, our internal team is extremely incentivized by hitting our guarantee, succeeding in getting a transaction closed, and working continuously to ensure our clients are happy throughout the entire process, not just the beginning.
At Calder Capital, we believe in a persistent yet tactful and professional client-centric approach. We understand why most buy-side firms fail and have built our services to be different – not just in what we offer but how we offer it. With a relentless commitment to reaching and exceeding our clients’ goals, we continue to redefine success in the buy-side M&A advisory landscape.
Visit our website or contact us to learn more about our innovative buy-side services and how we can help you navigate the complexities of acquisitions with expertise and strategic insight.