Best Practices for Proprietary Deal Sourcing

While most private equity firms have a disciplined approach to performing due diligence and closing transactions, few have a good understanding of how to build proprietary deal pipeline. Yet, many stake their future and track record on closing proprietary deals.

Listen to this recorded webinar with Exit Strategies, a buy side deal origination firm, to learn the psychology of approaching business owners, and the tactics to establishing a successful relationship. (Spoiler alert: this is vastly different from auction deals.)

Topics will include:

First impressions – do not approach a business owner like you would an intermediary!

Timing – the optimal window of engagement.

Process – how to build an effective origination strategy.

Discipline – bring the same rigor and structure to origination as due diligence.

Pipeline – how a broad bandwidth of deal pipelining improves opportunity quality.

===Transcript===

Allan Siegert: Welcome to the webinar! Don’t lose the deal where proprietary phycology is different. I am excited because we’ve got a great panel today. I have been asking Exit Strategies to do this for a long time, because our clients are always talking about proprietary deal flow and best practices. Exit is the perfect company to tell us about this because that’s what they do, they are a buy side deal origination firm that’s been involved in more than seventy five deals. And they’re not going to tell us about their secrets but we’ll hear about the psychological aspects of deal origination and some of the tools and processes they use and some benchmark metrics that you’re going to find useful. With us from Exit Strategies are the President and CEO Mark Wagner, Ed Harms the Director of Sales and Jordan Wagner the Co-Founder of Exit Strategies and Manager of Deal Development. I am Allan Siegert of Navatar. Jordan, so I suppose we ought to define what a proprietary deal is?! Although I suspect that everybody on this webinar already has a good idea what a proprietary deal is. How do you define it?

Jordan Wagner: Thank you Allan, I appreciate it. When we look at a proprietary deal at Exit Strategies. We really look at the first case is the direct relationship with the ownership or the founder of the business, as opposed to an intermediary like an investment bank or advisor who is putting the company up for auction. What we really focus on here, we try to be a new type of resource for business owners where they may not want to go to a formal process and have their information out there, create a distraction for the company, that’s not an option for them but they do need a new exit at some point. They don’t have a succession plan, maybe it’s a third generation business and they know they need to take some liquidity, and need some other alternative but don’t want to go to a larger process, but want to feel like they have the right company to work with. And that’s really what our firm specializes in. So when you look at the proprietary deal advantages and what really come with that. As I mentioned, it’s the direct relationship with the owner and we are uniquely positioned, talking to hundreds of business owners every month, trying to get a sense of what they are looking for and what questions they might have about a process. And really try to educate them and have them understand that a Private Equity group can really help them, but again they are not looking at a larger process where they are against 10 or 15 other Private Equity groups. You really get to meet the business owner and work towards a deal together.

Hopefully, our goal is over the time that we would build the relationship with the business owner, that by the end of the deal you don’t feel like you’re negotiating, you feel like you are both working towards closing a deal that you both want to be partners together and I think that’s the biggest advantage that we bring. Of course there is no option where you are going forward and just bidding back and forth against competitors, there could be value on the buy of the terms of course but really we think the relationship is the biggest key there and that’s what we focus on. When you look at the challenges of proprietary deal, I think the biggest one is that you have to do more work educating the business owners, more work kind of slow walk down this path with less certainty. The business is not up for sale, its more nuance than that. Usually, the business owner is taking a call, he received some interest from you and he wants to hear why this make sense. And, we talk to several business owners where this may go either way and based on how you interact with that business owner during the time determines whether or not he might be willing to do something.

So I think when you look at the challenge there, it’s that you may feel like your risking some time where you don’t have a certain guarantee that the business owner is going to sell. But as we show you through this presentation we feel there are ways to increase your odds and provide more certainty that over time the numbers will come in your favor. And while you won’t close all the proprietary deal you work on, you can increase your odds and know which ones to focus on and that’s really where we come in. When you look at the information that the business owner sends you, obviously a private business owner, maybe an older guy who ran his business for fifty or sixty years. He may not have the deal packaging and the numbers perfectly laid out the way many Private Equity groups are used to seeing from the investment bank and you might have to work through that, be patient and teach or coach the owner through that process of why you need certain information. They could be easily overwhelmed by a massive data request that they don’t understand the use for it and it might let them paint the Private Equity as the suits for financial guys that there not topically looking to work with. So it takes a certain level of patience and nuance to understand the business owner and what they are looking for, they need a little hand holding. I will pass it to Mark and he will tell you a little story about that as we move forward.

Mark Wagner: Thank you Jordan. About a year ago we had what we considered, pretty close to a perfect target. He was a specialty niche manufacturer, eleven million in revenue and about almost five million in EBITDA and he had cleverly constructed a way that there wasn’t much competition for what he did. The one issue was that he was a little prickly and a little defensive, he was going to sell one hundred percent of his business, he had management in place but he was scared and defensive and wanted to make sure people had the money. And asked for some things that was a little unconventional. He needed some hand holding, I met with him in person and he was a lot better in person than he was over the phone. But as most people know, most of these proprietary deals start with a phone call and a lot of people just weren’t willing or comfortable. Specifically, there was one person we introduced that just didn’t want to do the hand holding necessary. The deal closed 3 months later with a strategic, it definitely was one of those things that we knew was going to close. It was a good business and had a lot of upside and I think it’s important that if you’re going to be in proprietary, you need to be versatile sometimes to get these deals done. You did have to overcome the Principals personality but after that everything else was good. I am going to turn this over to Ed and I will be back to talk to you later.

Ed Harns: Thanks Mark, that’s a scenario that we’ve seen many times. So let’s talk about some of the fundamentals that under pin building a successful search and successful proprietary deal origination engine. Process Orientation, Timing Sophistication, Discipline and as we’ve been already discussing, a Unique Psychological Approach. Many investment enterprises really view the origination process as a kind of undisciplined, a haphazard rush to an initial hand shake and this perception is really so powerful in the space that we see many investment enterprises. They really don’t even acknowledge origination as part of the overall continuum or deal processing and we think that is a very very big mistake. As in a very sophisticated sales process, so many challenges that we see emerging late in the deal process, that sometimes even prove not just damaging to the process but fatal to it. Some of these factors could have been surfaced earlier and dealt with far more effectively, even in the origination process before the company and private equity or investment group became fully engaged. I’m talking about a myriad of possibilities here when it comes to issues. It could be properly identifying all the centers of influence, servicing that wild card equity holder for instance or timing the introduction of the investment group with a potential seller around. A company’s significant litigation issues or perhaps a major sales or business development success. It could be any number of things that if had surfaced early, fleshed out and prepared for, it could have been managed much more jointly than if it was brought up late in process.

So one of the organizing principles that we really believe into optimized deal flow and quality, is really formalizing and structuring the origination process. So that it’s seamlessly as possibly, folds into the overall deal making process. This structuring the process, really translates for us into a number of components, as I’ve mention process orientation. We really want to treat and believe the origination process should be treated in the same way that a very sophisticated sales organization that’s animating a very complex sales process would be the front end of their solution sale. Same attention to details, the same sensitivity to nuance is required. Then we move on to Timing Sophistication and Timing mechanisms. We don’t agree that timing is everything, we don’t agree with that but it sure is really really really important. So we put timing mechanisms in place that we think are critical to the health of a deal process and when that introduction is made has a huge baring on the ultimate outcome of a proprietary deal process. Then we move on to discipline, the decisions we make on behalf of our investor and private equity clients. Regarding how to engage and when to engage, we make sure there driven heavily by a process, by analytical measures and not just the gut feelings or what may be pretty poorly informed intuitions. We call that discipline.

Mark: Ed, can I throw in a story on timing? We have a deal we were excited about. A software deal and the Private Equity, the investment company was also very excited about it. As we got a little further into it the subject of evaluation became more definitive. The Private Equity talked about it and decided to pass because to was a little above where they wanted to pay. The company did have explosive growth and they were not rushing the deal but pretty firm on their evaluation and this was a timing thing. I think I got a call a few months later the deal had closed and we probably should have done something there and the growth they were having, we probably would have been in the ballpark if we hung in there a little longer on the timing and I think it goes back to what I said in the first story. With the proprietary deal I think a lot of versatility is important because sometimes you’re not really at least initially competing against anybody else. So you can somehow slow walk it in or use some other strategy, you may get the deal rather than a quick pass. So that’s another illustration of something that happened here. I’m going to pass it back to Ed and I will talk to you later.

Ed: Thanks Mark. So the fourth of this list of four we have here. The Unique Psychological Approach, really what we see frankly is that the proprietary deal really does have to be managed. I think the antidotes Mark has offered really does illustrates that, really have to be managed differently in a lot of respect. It’s interesting, we work with 68 investor and private equity groups and it’s our estimate that about seventy five percent of the clients we work with, when we began working with them. We really were in sync with the psychological demands of working with an owner on a proprietary deal bases, where they were unpackaged and coming to the table in a far different place than many of our clients were used to dealing with someone. So let’s go back a little bit, let go back to process orientation and dig in a little bit and let me explain a little further about how we view that. I will elaborate on each of these points just a little bit if I can. One of the most important, one of the most common and costly fault lines in proprietary deal origination. Is kind of what I call a wild west or what we call the Wild West mentality. Many Private Equity’s and investor groups bring to the front end of the process. So our goal in working with a client is to help them to bring the same type of rigger and structure and analytics to deal origination that they are so good at bringing to due diligence on the back end of the deal process.

So to get specific, what are some of the pieces of that process orientation?! Well, one thing we do is we have developed a proprietary classification process for a prospective deals. We classify all prospective sellers, using fixed and usually highly objective criteria. In some cases for very specific and unusual type of search we’ll even develop customized classifications for that particular search. What we are looking for there with what I call classification systems, is to create internally a very shared, highly objective language around opportunity. The thought being, we want to expunge or take out as much subjectivity as we can using these classification systems. So in the end the systems allow us and ultimately our client to allocate their best resources against the highest quality of opportunity. We then move on to put management protocol in place, we establish flexible guidelines but guidelines none the less, for how each classified opportunity, each classification should be managed. We then move on to rules of engagement where we formalize and define when the introductions should be made and to who. So we’re looking to orchestrate the right investor to the right opportunity, at the right time and rules of engagement tend to give us some structure there and help to advance that critical objective. Then we move on to a system of structured internal review that we take an opportunity through, before it even reaches our client, and then when we do trigger the introduction, we’re looking to bring about an extensive pre engagement briefing for our Private Equity investor client. Just to ensure that when that first meeting happens, that first impression which you only have one opportunity to make, why that everybody is well aligned. So let’s move on to talking a little about timing sophistication in this process and the role of timing mechanism.

So let’s talk a little bit about timing sophistication here. An analysis that we’ve done, more or less a forensic analysis we’ve done has led us to conclude that up to ten or fifteen percent of the deals that fail in negotiation. We call them disengagements, are largely or solely attributable to significant timing issues. You could argue that it’s hard to make that kind of definitive statement given all of the abstractions that are involved with a deal negotiation and the point is well taken. But by using a number of analysis methods, look back methods, we really feel very comfortable about this number, it’s very very high. The destructive impact of missed time deal process can be explained, we think by a kind of, I don’t know how else to put it but by a kind of an attention deficit. The kind that exist in a proprietary deal space, the kind of fixation on the now and that’s especially true of firms that are involved in origination in this space. So we really work really hard at chronologically pipelining opportunity and having the patience that’s required to make sure that that investment, that potential opportunity gets its best opportunity as far as timing. So in the final analysis we’re probably as interested and probably as focused on placing that opportunity in the right chronological place in our pipeline as we are with selecting the right investor to entertain it, the right client for it. So that’s how important we think it is. Let’s move on to just talk for a moment about what we call discipline. Our first discussion or series of discussions with a prospective seller who is maybe thinking about a capital event or at least open to one. That first conversations we had with him or the first series of conversations, really can have a lot of the same kind of convoluted prospective, lack of proportion and balance that could be associated with the first date. It really is conducive to generating a lot of instincts, gut feeling and tuitions that may not be exactly in alignment with the reality. Those types of things invade our thinking quickly, they can skew a process by causing us to engage on one of our clients too early or perhaps selecting the wrong client or perhaps just promoting and pushing the time a week position.

So for us we have a heavy reliance as I’ve already outlined on process and protocol. I want to say that for those of you are listening, who have decades of refined instincts and tuitions over many deals. We’re not arguing against the role of instinct and intuition and gut feelings and proprietary deal origination or in any deal for that matter. But we think those instincts if you will, those intuitions have their place and they need to be kept in their place. So in essence what we’re trying to do is to create a very effective, very elegant process that accommodates intuition but doesn’t completely grow eye on it. So that’s kind of what we internally call Discipline. So let’s move on to the fourth component which Jordan has been talking about, I think Mark has been giving us some real world situations. Many of which may resonated with your own experience in the deal negotiating in making process, this different psychological approach. Let me try to illustrate what we are really talking about here. If you were to contemplate a transaction, let’s say two different types of transaction environment, for instance. It would be ludacris to contend that a retail transaction that you conducted over the counter of a department store, where the buyer walks in and knows exactly what they want and need. If you were to compare that transaction environment with a situation where you have to deal with a Psychological dynamics of finding the buyer, uncovering their need, building vision, creating alignments, solving overt and abstract problems and then only then negotiating the transaction. I mean they are very radically to similar environments.

So clearly your approach in these two transactions and situations will be radically different, I think we could all accept that and we could also accept that it would be disastrous to use the same type of approach in both of these different situations. So we commonly see in our Private Equity clients that it’s a matter of understanding the difference between building a deal which Jordan referred to earlier and bidding on one. Way too often and I think we could tell you hundreds of stories and you might of experienced, you’re in conversation, you’re in discussion with the business owner, the seller and he’s beginning to feel like he’s interrogated, he’s beginning to feel like there is a bright light over his head and he gets asked one of six or seven questions that were clearly misaligned with where he’s at Psychologically and he turns and in frustration says “well you called me”! You called me”! I’m not chasing you, you called me”! Well when we get that type of response from a business owner, it’s a cringe worthy moment for us and it’s time for damage control, because it shows somewhere we’ve lost alignment with where that business owner is. So the reality from our view that has to be embraced is that when a business owner engages in investment bank, they get packaged, they get investment ready. They’ve already gone down what is a long road for them, an expensive long road, full of all kinds of psychological challenges and difficulties. So that by the time they get to the table to talk to an investor, to talk to a Private Equity. They are in a very very different place than when you deal on an origination bases, where they haven’t gone through that process. Most of our proprietary Deal owners have not been down that road yet. They haven’t taken that journey and to pretend that they have or they’re aware of what the journey entails, big mistake! A failure to recognize and adjust to this reality is often, not only bad for the deal but can be fatal for it. Mark, do you have any other items to support that?

Mark: Yes I do, perfect timing Ed. I was ready to go. The biggest thing I believe, everybody can take out of this presentation, at least one of the biggest things. Is this Proprietary call, this first call needs to be a conversation and not an interrogation. Ed mentioned that and I think it’s one of the biggest mistakes we see and things can go south really quick. Business owners have their own set of egos and defensive postures and we understand that there is hundreds of questions that an investor needs to ask. But they need to get them in a conversational tone and not feel like someone’s answering a check list worth of questions. You only have that one chance to make the first impression and we want to try to do it right. You’re dating?, You’re not engaged yet?, And it’s got to be treated that way and it’s probably the biggest thing we see and we see it more often than we want to see it. There are some people who are really really good at that first call and there others who struggle with it and handle it in that interrogation type of way. One of the recommendations we have for this situation is to support the budget of the investors, to have a point person in there office who handles this most of the time and its common assigned Proprietary calls, it’s one of the things they do. They tend to get good at it, they tend to have a nice calm way of going about it and it makes a big difference, rather than just slipping different people in all the time, and you don’t know what you get. So you need to take one thing and I think that important thing as a take away from the presentation. I’m going to hand it back to Ed and I will talk to you soon.

Ed: Thanks Mark. So just to summarize then. What we really talked about here very very briefly, are the elements of these key cardinal elements that is under pin successful Proprietary Deal. Origination Process, Timing, Discipline and the unique psychological approach. We really believe that for any enterprise to build out at Proprietary deal generating engine successfully, that these cornerstones can’t and shouldn’t be just have distractions, just ideals that they sign on to. It’s really got to be infused and integrated in everything they do on a executable bases every single day. It’s got to be in the fabric of how the enterprise performs. So just to wrap up, we ensure this rubber meets the road approach to these components by classification systems to create a common language around opportunity, to suppress subjectivity, opportunity management protocols by class, customized rules of engagement to ensure timing and discipline, and then a rigorous internal Investment review, and extensive Pre engagement briefing with the investor group of the Private Equity to make sure that they understand and they can communicate effectively to the psychological positioning of the prospective seller. So all of these elements we believe, as you build your own internal engine or look for someone to help you with it, are mission critical to an individual search and success and building a powerful, efficient, effective, proper generating deal origination engine in the Proprietary space. But even with the focus on all these elements of process, it’s not without its distinct challenges. Why don’t you tell us a little bit about that Jordan!

Jordan: Thank you Ed, I appreciate it. Whether you’re building a deal origination engine for your internal team or working with an outsource team. There is definitely challenges, I think most of the people today would agree with that and I think the first one is very simple. It’s that, deal origination is a fulltime job, we have many clients who have a good year and then they’ll be a little bit behind next year and have to close a few deals and they want to start up and start saying, ok, how do we go about finding proprietary deals and it just doesn’t work. The lead time that you need, we think is really kind of two years of a cost and effort until we see the really the deal flow start popping up monthly, where you just have continuous actionable deals to work on. There is a long lead time to that because most of the deals we have under LOI today were people we started building a relationship with over 24 months ago. So that really gives you a sense of how much focus needs to be on that area.

Another challenge is maintaining relationships with business owners and thousands of businesses, when you know that if you look at a larger segment of the number of companies, most of them will not be deals and you have no way of predicting which deals are going to close. So you have to treat them all that they might be that deal is going to be the next one. You have to maintain those relationships and it takes effort, it takes time, and it takes an internal team to do so. We found another important aspect, is creating your own narrative and defining what you want and as you guys know, many Private Equity groups based on the system today with investment bankers are reacted. They’ll wait for deals to come in and then decide which may or may not make sense for their fund and it’s not so easy to be proactive and decide what you want to target ahead of time. But doing that helps Proprietary deals, it helps designates with business owners and it creates a narrative where the business owners can respond to it and understand how you are trying to operate. So if you’re looking at starting a search in an industry or a segment and you want to go about that. How would you do that?! And when we look at it, and I’m going to repeat myself a few times here because we think it’s important. It really is a numbers game, as much as we place emphasis on process, on materials, on relationships, we really believe that you have to have a certain amount of volume in order to get the results you’re looking for.

So for us, if we are going into a space or sector, we think about 200 companies that we think are privately held and are worth calling, would be the minimum in order to go after that sector. For us it’s definitely important to create a strong narrative. We want a business owner to understand the vision of the Private Equity and our firm. Why are we going into their space?! Sometimes we’ll say, this industry is fragmented and we believe there is a rollup opportunity here and we believe you could be the platform there. But taking them behind the curtain and letting them understand the vision, really resonates with business owners because there not financial analysts but they are very sharp. If you can explain the larger vision and how you think you can grow the business to something more, which resonates with many business owners. It’s very important if you have a long view approach which is critical here to create a presence in the space you are looking at, whether that’s attending trade shows, you’re calling on companies and meeting with business owners. You really want to create a presence and let the industry know that your firm was targeting that space. As I mentioned before, you can’t predict where these deals are going to come from. We had several deals that come from referrals from people who we met with many times who indicated they had no interests in selling. But they want to hear more about our planning the space, what our client is looking to do and they ended up calling us and saying, I’m not looking to sell but one of my friends is in a similar business and I told them about what your plan is and I think you should meet. Sometimes those are the strongest leads we get.

Lastly, I’d say it’s very important to know when to end the search or when you are in a weak industry. We went to an industry last year where a high percentage of the business owners we contacted, had already been contacted by a strategic buyer who was paying prices that frankly Private Equity wouldn’t match. They had a strategic reason to roll up the industry and after a few months we realized, even though it’s supposed to be a year engagement that it would have been a waste of time for both our client and us because the competition there was just too much. The differential in price was too great and it was time to end that search and I think that’s an important one. As we have so much time and knowing where to spend it its crucial. As you look at the numbers of this and I mentioned it’s a numbers game, we break down our numbers and we round it out in percentages here but this is very accurate to our database. When you look at a thousand companies we’ve contacted and you breakdown that 50 percent are not interested and 10 percent of those companies have institutional investors and this is after we use the internet and different databases to check that they did not have investors but they’re private companies and not always available. And we go through the business owners who did not respond. That thousand companies breaks down to about 50 companies who have some level of interest.

However, most of those companies will be too small for a Private Equity investment. Private Equity groups tent to look for the best of the best in this country in businesses and most companies, if you look at the numbers are far below that point. So out of a thousand companies we usually end up with 5 to 10 platform opportunities and not all of those opportunities will close but they will be there for us to work on and hopefully a few of them will get to the finish line with some of our clients. Why would Outsourcing makes sense?! Why would using a firm like Exit Strategies make sense. Well first we really put a fulltime focus on origination and I think whether your firm is doing this internally or outsourcing, it’s not possible just to call a small number of companies or work on this from time to time. It really just takes a continuous effort, week after week, month after month, developing relationships, building the pipeline and you just don’t know where these deals are going to come from. Ed mentioned that we focus on phycology, we really try to understand the business owner, what they want, what they are looking for, and what their timing looks like and hopefully overtime those things develop in this deal.

But we have no way of predicting which ones those are and I think that’s a big metric because if a Private Equity knew which couple of deals were most actionable, you would have the ability to resource it and the time to focus on them, but it’s really about focusing on many deals and very few are actionable and using a firm like Exit Strategies allows you to focus on only the actionable leads while we kind of bring these deals and build them until they are ready for you guys to move on. In the trenches feedback as we call them, is the reports and the information we pull from every business owner. Whether they are not interested, interested, too small, we try to have a dialog and understand what’s going on in there industry, who else has been contacting them, what are their competitors sold for, are there any dynamics that they want to talk about? But when we call thousands of business owners, this feedback really develops and creates a competitive advantage for our clients when they go into an industry. Usually if our clients are buying a platform in the space, they’ve already spoken with or we have 50 to 100 businesses in that same space and that feedback is very very helpful as time goes on. The cost savings I think is the most simple answer here, it would take a team internally fulltime to focus on this and year or two lead time before you see true results and I think that is a big investment for most Private Equity groups. Unless they are planning on having a whole time origination team for the proceedable future. So I think Outsourcing allows us to focus on origination while you focus on actionable deals and continue to focus on closing deals. I’m going to pass it over to Allan, I am sure there are some questions.

Allan: Yes, if you have questions, please enter then in the go to webinar control panel over on the right side of your screen. We have a question from Tyler who asks you to collaborate a little more on what type of classifications or metrics you use when you are evaluating potential companies.

Ed: Well that’s a great question Allan and tell her thank you for that. Let me take a first pass at that. Tyler what we’re doing with classifications and the building of metrics around classifications is really a very very careful long thought out marriage between soft and hard data points. So we are looking at things like fully understanding centers of influence, how fully do we understand the decision making topography within the enterprise. We are looking at the contextual analysis of the space that’s around for business, the business space that they’re in. We are looking at health age and lifestyle factors of the major C level players. We are measuring temperament and then we are marrying those to a lot of those mostly had data points, probably between 6 and 15 data points that have to do with the analysis of the status of the business and its direction and measuring its momentum. So it’s a marriage of the soft and hard data that we spend a lot of time in creating classifications and when we do the right work on that, it has an enormous impact on ensuring quality control of the origination process.

Jordan: I will add to that answer Ed. When we have an employee who have a first call or we build a relationship with a business owner. When we look at that classification, there are several stages of that business. So it could be a very strong business financially, the valuation is too high and the owner is not fully committed to sell and maybe there is some debt on the business. And those things go in and create an end grade, so when we go to our meeting we have a hard data point that says what we grade this business as, as likely to closing. It helps us a lot in the beginning, we are trying to use all instinct but it’s difficult to do that and when we go to our investment meetings these data points really helps us to say ok. So now we have a business that has a reasonable evaluation. The owner has a situation where they need to sell in the immediate future and he has a reasonable expectation of deal timing, ok we should place more focus here, as opposed to maybe a more attractive business but there is not as much motivation there.

Allan: Ok, we have a question from Bill. Have you observed any changes in the __ activity of owners being contacted by email or phone? I guess I wonder, do you ever get actually through to the owner or are you going to be hitting a voicemail system and leaving a message there? How does that all work?

Jordan: So generally, and this is a funny statistic. It takes three calls and three emails before we get through to a large business owner and when I categorize large. I would say over five million of EBITDA and that really shows you how long it takes for the business owner to realize that you are serious. They get a lot of cold calls and a lot of emails. So we are hitting them with both to really show that we are interested, we know you have other people contacting you and whether it’s a letter, or phone call or email. I would say the vast majority responses are through email but as we look at our numbers when we receive phone calls back. Those are tent to be the more serious business owners, so that’s always a good sign for us, but in terms of numbers you get more feedback via email.

Ed: If I could add to that just a little bit, I think that’s a great question. It’s important to recognize that these owners are bombarded. The space is saturated with all kinds of approaches and what not. So we spend a lot of time developing an approach strategies and we have a number of Proprietary strategies we use. We kind of call it reaching the unreachable, so for instance we have that wants to do an add on and they have got eighty potential prospects for the add on. A typical origination effort might involve engaging in meaningful contact with maybe sixty or fifty five of those eighty, using the approach strategies that we’ve developed and reaching the unreachable strategy we adopt. We’ll come up with seventy, seventy five of those sometimes and the extra exposure to the extra ten or fifteen prospects on that search can mean that the different a wildly successful add on search and a modestly successful or unsuccessful one. So it’s a great question, approach is absolutely critical in the origination process.

Allan: ok, Steve asks. Where do you get the data you need or use to find deals and how do you handle it?

Jordan: Yes, its Jordan again. When we look at the list of companies that we are going to approach, it’s really from a variety of sources. So if our clients give us an industry or sometimes they’ll even send us a company and say, we like companies similar to this. We missed on this deal but we would like to see others like it. What we will do is, we’ll use the Cap IQ’s, Pitch books, data.com, Hoovers to pull SIC code list. We’ll then go to industry associations and try to find those list as well as trade shows which we will attend and pull the list from those and our research team will dig throw the list to try to pull the top cortile of those companies and we’ll work our way down. So we’re trying to call the larger companies first and hopefully by the end of the search we may have a platform and the companies we contacted throughout that search can be candidates for add-on’s.

Ed: And not to make Allan blush but Navatar is a critical component of helping us to orchestrate all of this data, absolutely central to just about anything we do.

Allan: Ok, thanks you. Tyler actually has a follow-up question and I did not plant this. He says, how you are using Navatar to drive value to your customers and add cash to your bottom line. I think you just stared to answer that.

Jordan: Yes, and another area we use Navatar is, one it helps us stay organized and keep track of our leads. A lot of these leads are being pipelined and over years and years of conversations, financial changes and we need a way to track what’s happened over that deal as opposed to just what’s happening now. Additionally we have guys calling fifty or sixty companies a day and Navatar allows it to be scheduled. So if I tell a business owner or one of our colleagues tells a business owner we’re going to call you in three months that we call them exactly on the day in three months. When we look at the Private Equity side, we have a system with Navatar that Navatar work with us to customize called our Exit Strategies portal. Where we enter data on a business that a Private Equity may be interested in and we tell the Private Equity ok. They have a username and password, they can sign in and actually see the revenue, EBIDA, growth, description of the business and decide whether or not they’re interested in that deal automatically from there phone when they are on the road or from there computer. So that’s very helpful.

Allan: Ok, Steve asked. What are the size of your clients? Do you do Venture as well or mostly Private Equity or strategics and why?

Jordan: So the average client of ours is looking for three million to fifteen million of EBITDA businesses. We have two clients right now, I’m on an on retainer with one of nineteen billion of assets under management and one is slightly larger than that. So it really varies and for us the size as long as they’re sizable deals and it’s not a preference one way or the. In terms of venture, we have been adding that to our repertoire. Recently we originally just work with Private Equity groups and strategics but as we started to call on the software sector. We would develop relationships with business owners who would tell us, I like your process. I am interested in doing something but in not profitable yet, I’m far too early for Private Equity and now we are just starting to get relationships with Venture groups who may want to invest in those businesses.

Allan: We have just a couple of minutes left. If you have any questions, please feel free to enter them into the right side of your screen in the go to webinar control panel. We have one more question from Bill. Can you outline how an engagement strategic buyer with you would work? How the deal is typically structured?

Jordan: Yes, that’s a great question. We used to when we started this business two yearlong contracts but we decided that we go month to month with all of our clients as a preference because we feel if at any time any of our clients does not feel like we’re close to closing a deal. It’s not worth ether of us moving forward, so we generally have our clients on a retainer and that’s around five thousand a month and we continue to search for them in the sector they are looking and then we are paid a success fee similar to a lehman formula if a deal is to close.

Allan: We have one more question that’s related to email. Where have you found success finding email addresses, I guess that’s of targets?

Jordan: So email addresses is a very tricky one. We use Hoovers and data.com to get a first look at what an email might be and those are the simplest but when we can’t find then there we have a variety of data bases that will ping a server to check if an email was bounced back and try different variations. Additionally we have a simple formula of generally first initial, last name then first name, last name and so on of what the most likely combinations are.

Allan: I think now Cindy is giving me the signal that we are out of time. I want to thank everyone for participating and your questions and for joining us today. One the screen you can see how to follow-up if you have more questions. Also, Cindy will be sending you a link to the recorded version of this webinar. I want to thank the group from Exit Strategies, Mark Wagner, Ed Harms and Jordan Wagner and also Cindy Cao of our Marketing Department for setting this up. If your travels bring you to the Financial District in New York, stop by and see us at Navatar and we just opened up a London office as well. I am Allan Siegert of Navatar wishing you a great day!