Unlocking New M&A Strategies: Uniting Venture Capital Insights and Public Equities in M&A

Interview with:

Vice President, Corporate Development at Ziff Davis, Inc.

By:

The dynamic nature of the M&A market makes it difficult to predict future trends and identify suitable targets. Intense competition for attractive acquisitions further complicates the process. These factors make developing and executing successful M&A strategies more complex.

To help demystify this process, Thomas Le, Vice President of Corporate Development at Ziff Davis, offers his venture capital-inspired insights to unlock new M&A strategies in this article.

“Try to add value if and however you can. In venture, the companies that have great traction aren’t actively fundraising, and in M&A, the companies that are highest-quality are oftentimes bought, not sold. So you have to be top of mind and in the discussion already.” – Thomas Le

Deal sourcing and product market fit

Deal sourcing is the first step in discovering and pursuing new M&A opportunities. It provides the raw material for developing and executing innovative M&A strategies. However, the process can be emotionally taxing as companies of interest might reject investment offers, and those seeking investment might not be suitable.

This mundane task often leads corporate development functions to outsource deal flow generation to brokers and bankers. With a venture capital background, Thomas shares Ziff Davis’ two-way approach to deal sourcing, which drives better investment outcomes.

Network-Driven Sourcing - Leveraging existing relationships and networks, including colleagues, past associates, investors, and bankers, to generate deal flow.
Thesis-driven sourcing - involves conducting in-depth research on specific themes or industries with strong growth drivers, creating a market map of potential targets, and systematically ranking and reaching out to them.

In evaluating potential acquisition targets, it's equally crucial to assess the product market fit to make informed investment decisions. This involves analyzing the industry, customer pain points, and where the target company's product stands against competitors.

Map the ecosystem: Identify all key players and their roles within the target market.
Direct product experience: Personally use the target product and its competitors to understand user experience, pain points, and strengths.
Comparative analysis: Create a grid to compare and contrast features of different products.
Customer feedback: Gather insights from customers through surveys or interviews to validate findings.

Strategic networking for building a pipeline

Building strong relationships with founders, CEOs, and investment bankers early on is crucial to creating a robust deal pipeline. These relationships increase the potential acquirer’s likelihood of being included in deal discussions and improve their negotiating power.

When meeting founders and CEOs, it is essential to practice attentive listening and seek to add value by offering support and resources, such as industry research, introductions, or talent referrals.

At Ziff Davis, the reverse coverage approach is a key strategy. This networking technique involves proactively reaching out to and cultivating relationships with key intermediaries rather than passively waiting for them to initiate contact.

Making an effective initial outreach

Cold outreach can be a powerful tool for pipeline development. As Thomas emphasizes, personalization, in-depth company research, and strategic follow-up are essential for successful initial contact. Here are his key strategies:

Personalization - Avoid generic, automated emails. Instead, tailor your message to demonstrate a genuine interest in the target company and its industry.
Concise yet informative - Outreach emails should be brief but informative, highlighting your company's relevance and potential value proposition.
Strategic follow-up - Persistence is crucial. To increase response rates, utilize various channels, such as email and in-person interactions at conferences.
Leverage conferences - Attend industry conferences to meet potential targets in person and collect attendee lists for follow-up.

Culture fit

Cultural fit is just as crucial as product market fit in the early stages of evaluating a potential investment. Different companies have varying cultures, such as those focused on innovation and experimentation versus those driven by ROI. Merging these cultures can be challenging.

Potentially, one company's culture can overpower the other. In other cases, both companies can maintain their distinct cultures, or a new culture can emerge as a combination of the two. It’s best to consider this aspect, after all, successful M&A highly depends on the ability to align and integrate cultures effectively.

Applying the Mosaic theory to M&A due diligence

The mosaic theory helps in gathering diverse data points from multiple sources to create a comprehensive understanding of a target company. This ensures that acquisitions are not just opportunistic but also strategically sound, gathering detailed information from the following sources:

Directly from the target company - financial data, KPIs, and access to internal dashboards (e.g., Google Analytics, HubSpot)
External data sources - customer interviews, competitor analysis, alternative datasets (e.g., credit card transactions, web traffic data)
Customers - The financial health and spending patterns of the target company's major customers help to understand the likelihood of continued business and the potential for future growth.
Competitors - Compare the target company's financial performance with its competitors. Analyze revenue growth rates, profit margins, and market positioning to identify operational strengths and weaknesses.
Natural acquirers - Examine potential acquirers' M&A strategies by examining their acquisition history, capital allocation priorities, and financial metrics. This helps predict competitive bidding behavior and set strategic pricing.