Target Search and Deal Origination

Company Target Search and Deal Origination

While FaMAS already originates about 400 opportunistic deals per year, we understand that only very few may be a fit for a specific investor. Even so-called industry agnostic investors often need to screen hundreds of opportunistic deals to find one suitable target. We strongly believe relying on sell-side brokers and consultants to bring deals will usually not enable an investor to make a GOOD transaction. The simple reason is that in a competitive auction process it is the seller who defines the rules of the transaction and not the buyer. Needless to say that sellers hire advisers who are strongly incentivised to maximise their pay-offs and sell to the highest bidder. With the exceptions of less than 1% this is not a good way to make good deals for the buy-side. Therefore, we offer support to investors in direct deal origination approaching possible competitors directly for them. Experience shows that this is the superior deal origination process because:

  1. More and Better Target Matches
    Targets are pre-screened to meet the investor profile. The good match on paper is much more likely than relying on an opportunistic approach. Our experience shows that the matching probability increases 100-1000%.
  2. More Time for Evaluation
    Since the sellers are usually not in a process to sell their companies, the investor has much more time to evaluate the opportunity. This is often useful for many first-time investors who must be careful in making significant investments in Germany.
  3. Higher Travel Efficiency
    Since there is more time to evaluate and meet the target company, there is an option to arrange 2-3 company visits in one trip. Most introduction meetings do not last more than 3-4 hrs. To take the burden of travelling by plane, often in a group of 2-3 people only to spend ONE meeting may be worth it, but having one trip with 3 meetings is certainly a big advantage. It also increases the chances that the trip will not be wasted.
  4. Better Investment Terms
    Clearly the most important factor are the investment conditions. Having more time to meet and negotiate in private without competing bidders queuing in front of the target, it is usually easier to make a good transaction. The price will be lower, but also many other aspects may be more favourable. Not least the local financing for the deal in Germany can be structured in a better way, with less capital commitment required from the investor.

Target Search for Foreign Corporate Investors

FaMAS has a standard and tested approach for corporate investors which involves the following steps:

  • Definition of realistic target search parameters with aspects based on industry, product, company size, profitability and financing requirement.
  • Evaluation of a long-list (usually 50-100 companies) with prioritisation by the investor.
  • Specialist approach of stakeholders of target by FaMAS professionals (in-house only).
  • Introduction telephone calls for investors and target company stakeholders.
  • Travel planning and site visit for selected target companies.
  • Agreement of basic investment terms and subsequent due diligence.

Expect such work from large service firms to cost EUR >100.000. Request a quote from FaMAS to compare.

Deal Origination for Foreign Private Equity Funds

Having served a number of small and large foreign PE investors we have a tested and optimized process which quickly generates deal flow. FaMAS individually markets PE investors to the German community, screens deals, meets targets or its advisers. Each year we have about 1200 such conversations. The service includes weekly update calls and structured activity reports on new and running deals. The support also offers guidance on offer letters and transaction structure. If requested, FaMAS can also provide support in selection and coordination of a good local DD team (legal, financial and industry experts etc.).

However, the service is currently limited only to a maximum of 5 PE funds simultaneously and only if sweet spots are not creating deal/investor conflicts for FaMAS. Each PE investor receives an exclusive service.

According to calculations based on our own and PE Funds’ estimates, the FaMAS PE Origination Services saves up to 80% of the fixed costs compared to even having the smallest office in Germany staffed with only 1 professional. At the same time it generates faster and more deals. According to our experience it frees investors’ resources from time consuming screening, meeting and travelling. This way investors can focus on more critical functions like deal structuring or preparing and managing exits.