Question on B2B Services and Brokers

January 14, 2021

by a searcher from Harvard University - Harvard Business School in Palo Alto, CA, USA

I've been single-sponser searcher about 5 months with a primary focused on B2B services, mainly BPO services. I've been running a proprietary and intermediated mix but I've been surprising by the lack of deal flow from the intermediated channel. Would love to get insight on what might be missing.

Setup:
Our search criteria is fairly standard fare:
- Revenue: $5-35M
- EBITDA: $2-5M

I'm somewhat geographically restricted, but not meaningfully so (Geo includes entire (WC, PNW, SW, Rockies, TX, GA).

Our source of funding is pretty transparent -- we have recent deals that can be found on Google, with terms disclosed. These deals are in the same $10-40M range I'm looking for now.

Question:
I have between 4-5k intermediaries on a quarterly cadences, and I have seen nearly 0 deal flow for services in 5 months. Usually get a 'we don't have anything for you' or I'm sent some manufacturing type businesses. With the volume of my outreach I'm pretty shocked I haven't seen a single B2B service offering that fits my criteria in 5 months. Is there something I am doing wrong/missing?

Reply by an intermediary
from University of Memphis in 5000 Linbar Dr, Nashville, TN 37211, USA

We all understand that 2020 Covid issues had a material impact on most businesses. Some in the outdoors and sports markets saw increased demand but had supply challenges while others saw revenue and the corresponding net income drop. Most business had experienced YoY revenue increases for the preceding years so owners that had a negative impact are currently less likely to place their business on the market, thinking they need to recover first to support the valuation they believe their business deserves. And the fact is that owners & lenders have a challenge in forecasting when or even if that recover will occur for an individual business. Consequently it is logical that fewer companies are coming to market. We conduct custom acquisition searches across the country and can confirm that owners are very concerned about reduced valuation. If you can get to the owner there often can be some flexibility in building an acquisition structure that can be fair to both sides but it usually requires building some trust with the owner to get them to invest their time in a sale process. But there are owners that need to sell., owners that just do not have the energy to lead a recovery and in many cases businesses need to change some of their go to market approaches that current owners just are not familiar with or have the ability to execute.

Reply by a searcher
from Indiana University, Bloomington/Indianapolis in Indianapolis, IN, USA

In addition to the helpful input from others, I’d expand on the point that many intermediaries will seek to validate and vet you or will have an agreement with their client that requires them to receive approval from the client before speaking with you. If they can’t bring information to the entrepreneur or owner that makes you look like a legitimate candidate, they’ll be shy to bridge that topic. I’d suggest a couple ways to help with this: 1) Quality over quantity in your relationships with intermediaries. It likely doesn’t do much good to be in countless CRMs and/or email lists if there is little information attached or no personal connection. 2) Your transactions may be able to be found on Google, but intermediaries are likely not counting on Google as their primary information feeder. Check private databases such as CapIQ, Pitchbook, etc. to make sure that you’re being found inside the systems that they are using and that your transactions appear in that system – rather than just your company profile. This can legitimize you as a party who has the capacity for, and history of, closing deals.

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