E233: Guide to Sourcing Deals and Increasing Deal Flow for Business Acquisitions with Expert Tips - Watch Here

About the Guest(s):

Conner Young\ Conner Young is the co-founder of Kairo Data, a company that focuses on helping investors and searchers source and find business deals. Conner has a diverse background in traditional investments, having worked with various investment firms managing portfolios, trading, and offering wealth management services since 2016. His expertise lies in creating innovative solutions to bring off-market deals to clients, particularly in the small and medium business (SMB) space.

Episode Summary:

In this engaging episode of the How2Exit podcast, host Ronald Skelton interviews Conner Young, co-founder of Kairo Data. Their discussion dives deep into the art and science of sourcing business deals, particularly those off the beaten path and not publicly listed for sale. Conner shares his extensive experience in the investment sector and how his journey led to the creation of Kairo Data, a platform that leverages proprietary databases and cold calling to unearth high-quality business opportunities for clients.

Conner discusses the various tools and strategies employed by Kairo Data to find these elusive deals, from their proprietary data solutions to an organized approach to cold outreach. He highlights the challenges and intricacies of sourcing businesses in different industries, from marketing agencies to cabinet manufacturers. The conversation also explores emerging trends in the mergers and acquisitions space, such as the increasing interest of private equity firms in smaller deals and alternative financing options that avoid personal guarantees.

Key Takeaways:

• The Importance of Quality Data: Clean, accurate data is the cornerstone of successful deal sourcing, significantly impacting the efficiency and outcome of cold outreach.
• Cold Calling Effectiveness: Direct phone outreach remains one of the most effective methods for sourcing off-market deals, supplemented by strategic email and text follow-ups.
• Shifts in Private Equity: There is a noticeable trend of private equity firms moving towards smaller deals, especially in service-based industries like pest control and HVAC.
• Kairo Data's Unique Model: Conner Young explains how Kairo Data operates without charging commissions or fees on deals, instead offering a subscription-based platform for accessing off-market business listings.
• Challenges and Opportunities: While industry nuances and the need for personalized communication in deal sourcing present challenges, they also offer unique opportunities for those willing to put in the effort.

Notable Quotes:

1. "Deal flow affects everyone. It doesn't matter if you've got 600 million ready to go after deals or if this is your first time with $10,000 in the bank and you want to go after your first SMB."
2. "The data is gold. If you can get that, and it is perfect, then that leads to the entire amount of volume that you should go after."
3. "Why would you buy at a 20x multiple when you can buy a business making 5x on cash?"
4. "We tell business owners we do not charge a fee or a commission, and people are like, how does that make sense? How does that make you money?"
5. "You either have more deals than money or more money than deals, and you're playing that ebb and flow game."

How to Effectively Source Deals in the Mergers and Acquisitions Space

Key Takeaways:

• Effective deal flow can be achieved by leveraging a multifaceted approach, including direct calls, meticulously cleaned data, and customized outreach sequences.
• Combining various data-driven strategies with personal outreach can significantly enhance deal sourcing success rates.
• Emerging tools and platforms like Kairo Data are revolutionizing the process of sourcing off-market deals, making it more efficient and accessible.

In today’s rapidly evolving Mergers and Acquisitions (M&A) landscape, sourcing quality deals remains a persistent challenge for many investors, especially in the Small to Medium Business (SMB) sector. As highlighted in a recent conversation between Ronald Skelton and Conner Young from Kairo Data on the "How to Exit" podcast, there's a fundamental need to understand and adapt to the nuances of different industries to find the right opportunities. By employing innovative strategies and tools, potential acquirers can significantly improve their deal flow and ultimately their investment success.

Accurate Data: The Foundation of Effective Deal Sourcing

Detailed Data Sources and Cleanliness

According to Conner Young, the key to finding good deals starts with reliable data. “The data is gold,” Young emphasized. Whether you are investing in commercial real estate, private equity, or seeking business acquisitions, accurate data is crucial. Young’s platform, Kairo Data, invests heavily in building a proprietary database, which has proven invaluable for their clients.

“We have over 18 million plus businesses that we can just do internally source… constantly being cleaned and improved,” said Young.

For many investors, leveraging such extensive and clean data can provide a significant edge. Ronald Skelton shared similar sentiments from his real estate investing days, where meticulous data collection and cleanliness helped him achieve a response rate of 15-20% on his outreach efforts.

Overcoming the Limitations of Existing Data Sources

Both Skelton and Young noted the challenges with traditional databases. Often, data from well-known sources have a low accuracy rate, sometimes as low as 30-35%. This necessitates additional layers of data validation, which can be both time-consuming and expensive. By creating a system that pulls data from various sources including web scraping and publicly available records, and then rigorously cleaning it, Kairo Data offers a superior alternative for deal sourcing.

Ronald Skelton recounted his current project involving cabinetry companies, acknowledging the significant effort involved in validating contact details.

“We pulled that up from Data Axle… myself and two VAs taking turns cleaning that data. And that’s man hours.”

Multi-channel Outreach: Engaging Business Owners Effectively

The Power of Direct Outreach

Phone calls have emerged as one of the most effective ways to engage directly with business owners. Despite the rise of digital communication methods, the personal touch of a phone call remains unrivaled when trying to establish a connection with potential sellers. According to Young, the persistence and nuance demonstrated through phone calls can lead to successful acquisitions.

"Calls are just the most effective strategy," Young remarked.

This hands-on approach is complimented by Conner Young’s experience, where their team of trained overseas and local callers apply rigorous and tiered outreach strategies. Nevertheless, such methods require patience and skill, reiterating that there isn't a one-size-fits-all solution.

Integrating Technology and Personal Touch

Emerging AI technology tools are beginning to find their place in cold outreach efforts. While these aren’t yet perfect, they hold a lot of promise and could soon revolutionize the M&A space. The key, according to Young, lies in hitting the right balance between automated processes and the invaluable human element.

Skelton supports this by recounting his own experience with direct mail campaigns in real estate, which included a personal touch and follow-ups to build rapport over time.

“Our letter basically says, hey, we’re trying to reach out to you… by the way, if you don’t respond to the letter, we’re going to call you in a week or so.”

Flexibility and Adaptability: Crucial Elements for Success

Tailoring Strategies for Different Industries

Different industries necessitate unique approaches due to the varied nature of business owners and their preferences. For instance, while LinkedIn might be an excellent resource for marketing agencies, it is virtually useless for cabinetry companies. Understanding where and how to reach potential sellers is crucial. For industries less active online, other methods, such as attending trade shows and leveraging local networks, become vital.

Leveraging Networks and Partnerships

Partnerships and networks also play a significant role. The ongoing collaboration between Kairo Data and a non-personal guarantee (PG) lender is a prime example. By offering flexible financing solutions without the need for personal guarantees, Conner highlights a unique approach that opens up new opportunities for both buyers and sellers.

“Their whole thing is… we don’t require a PG, and that has turned some heads,” Young explained.

Broader Implications of Effective Deal Sourcing

The landscape of deal sourcing is rapidly changing, influenced heavily by innovative approaches and emerging technology. These changes are not just transforming how deals are sourced but are also making M&A more accessible to a broader range of investors. Programs like Kairo Data democratize access to quality deals, supporting novice and veteran investors alike.

Effectively leveraging data, combining it with a smart mix of technological tools and personalized outreach, and maintaining adaptability across industries, form the pillars of successful deal sourcing in the modern era. As both Young and Skelton demonstrated through their experiences, those who master these elements are well-positioned to thrive in the competitive world of Mergers and Acquisitions. Using these strategies, investors can navigate the complex but rewarding space of SMB acquisitions with greater confidence and success.

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