E263: Want to Find Hidden Acquisition Gems? The Secret to PE Deal Origination in the Middle Market - Watch Here

About the Guest(s):

Brian Scanlon is the Managing Partner of DealGen Partners, a company specializing in deal origination primarily for private equity funds and their portfolio companies. With a career path that started unexpectedly in college through managing Facebook posts for a PR firm, Brian built and exited his first business right after graduation. Further embedding himself in the market, he gained experience at a boutique M\&A advisory firm where he honed his skills in B2B lead origination. In 2019, alongside his partner, he launched DealGen Partners to focus on originating acquisition opportunities in the middle-market for private equity investors.

Episode Summary:

Join host Ronald Skelton in a fascinating exploration with Brian Scanlon, Managing Partner of DealGen Partners. The episode dives deep into the world of deal origination for private equity and portfolio companies, showcasing how DealGen Partners uniquely operates within this space. With a rich tapestry of entrepreneurial experience, Brian narrates his journey from unexpectedly entering the business world to establishing a firm dedicated to sourcing acquisition opportunities, primarily focusing on platform investments and tuck-ins for portfolio companies.

Throughout the episode, Brian Scanlon delves into the mechanics of deal sourcing and the importance of full market coverage. He shares insights on generating leads for private equity and how DealGen Partners earns from such transactions, emphasizing their success-fee-based approach over pre-arranged retainers. The discussion also highlights the significant role of intermediaries like lawyers and CPAs in off-market deals. Lastly, Brian touches upon the dynamics of working with sellers and investment funds, how technology, especially AI, is transforming their processes, and his thoughts on the challenges and prospects within the M\&A landscape.

Key Takeaways:

• DealGen Partners specializes in deal origination for private equity firms, focusing on acquisition opportunities in the middle-market.
• The firm transitioned from retained search relationships to a success-only fee model, allowing greater flexibility in matching deals with the right funds.
• Intermediaries such as lawyers and CPAs play a crucial role in sourcing high-quality off-market deals.
• The landscape of M\&A is evolving rapidly with technology, especially AI, streamlining processes in deal evaluation and lead generation.
• Emotional readiness and proper preparation are critical factors influencing the success of small to medium business acquisitions.

Notable Quotes:

1. "We focus on originating acquisition opportunities, kind of true middle-market private equity style deals, both platform investments and tuck-ins for their portfolio companies."
2. "Anybody that tells you it's going to be a quick process, hey, we'll close this thing in 30 days. No chance."
3. "The grass isn't always greener, you really need to exhaust that opportunity because there are very few companies that people are lined up waiting to bid on."
4. "For off market deals, it's intermediaries. Right. When I say intermediaries, I don't mean bankers. I mean lawyers, CPAs, RIAs."
5. "All we ask from them is let us know quickly if you pass. I might move it down the line to the next group."

Article:

Unlocking the Secrets of Successful Deal Origination: Insights from Industry Leaders

Key Takeaways

• Emotional Dynamics: Business sales often involve significant emotional elements, impacting decisions and the sales process.
• Importance of Intermediaries: Lawyers, CPAs, and RIAs play a crucial role in sourcing off-market deals.
• Adaptability to Market Dynamics: Firms exploring smaller market sectors emphasize adaptability and strategic positioning to harness new opportunities.

Navigating the Emotional Journey of Business Sales

In the world of deal origination and business sales, the emotional aspect often gets sidelined in discussions dominated by financial statistics and business strategies. Yet, as revealed in a candid conversation between Ronald Skelton and Brian Scanlon in the provided transcript, emotions play a pivotal role in the decision-making process of business owners considering a sale.

During the conversation, Scanlon addresses the inevitable emotional hurdles that both buyers and sellers face: "I've yet to see emotion not come up in a deal one way or another." Potential sellers often feel a strong attachment to their businesses, likened to raising a child. This perspective can be a significant hurdle, especially when business owners grapple with the valuation of their "baby." As Scanlon points out, "nobody is worth what you think you're worth."

Building rapport is critical to navigating this emotional landscape. Scanlon emphasizes the importance of understanding clients' backgrounds and sharing similar experiences. "Everybody on our team has built and sold a company…," says Scanlon, highlighting the importance of empathy and insight into the business owner’s journey. This shared experience helps bridge the gap between cold numbers and personal narratives, leading to more successful business transitions.

The Role of Intermediaries in Sourcing Quality Deals

Deal origination in the private equity world demands a nuanced approach, especially when seeking off-market opportunities. Scanlon identifies intermediaries such as lawyers, CPAs, and RIAs as essential players in this arena. These relationships often lead to high-quality leads because “if an RIA shows us one of their client's companies…it's a win-win," encapsulating the multiplier effect these professionals provide when their clients sell a business.

Such intermediaries, aware of firms eager to acquire, are pivotal in identifying businesses poised for acquisition. They benefit both sides by aiding business owners in their objective to sell, while also aligning with buyers looking for businesses with potential.

Furthermore, when brokers are involved, DealGen Partners ensures a seamless experience by interacting directly with both sides, ensuring no "gaps are left for errors," as Scanlon states. This is reinforced by their systems to track each interaction, using technology to maintain efficiency and prompt feedback — a necessity in a competitive and fast-moving landscape.

Their approach not only establishes trust among all parties but showcases the advantages of a meticulous deal origination process tuned to leverage professional networks effectively for better deal closure rates.

Adapting to Market Volatility and Exploring New Opportunities

Private equity firms must remain adaptable to evolving market conditions, and DealGen Partners exemplifies this adaptability. Scanlon reveals their approach to exploring beyond traditional mid-market targets, stating, "we're seeing some pretty sizable funds willing to look a little lower now."

This shift signifies a growing acceptance among private equity players in pursuing smaller transactions as a strategic move. It reflects their readiness to venture into markets previously considered less appealing. For sectors like HVAC and car washes, whose business models necessitate territorial aggregation or capturing market synergies, smaller assets present unique growth opportunities.

Such adaptability is vital as market valuations and dynamics change. Scanlon mentions sectors like SaaS that demand keen evaluative strategies due to tech's rapid evolution and volatility. Such industries require a reassessment of traditional acquisition valorization metrics, given the uncertainties tied to rapid technological advancement and competitive pressures.

The broader implication of this adaptability highlights how firms can future-proof themselves and diversify portfolios, addressing the unpredictable nature of markets. By broadening acquisition criteria and reevaluating asset classes, these firms leverage opportunities where growth lies, establishing security and expanding brand portfolios.

As digital tools and AI systems continue transforming deal origination and due diligence, DealGen Partners stays ahead by integrating modern technologies — signaling not just responsiveness but proactive evolution.

Navigating the intricate landscape of deal origination requires a blend of emotional intelligence, strategic networking, and market adaptability. Business owners considering a sale and private equity firms poised for acquisitions must consider these components as they maneuver through complex transactions. Leveraging relationships, understanding emotional nuances, and adapting to market changes create a successful framework for satisfactory outcomes in the world of business acquisition and exit strategies.

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