Building a 50-Deal Proprietary Pipeline Without Brokers

**Justin Vo:** Good morning. My name's Justin Vo. I manage a long-term holding company called Evermore Industries. We started about a year and a half to two years ago and bought a business called Iotty based in Cincinnati, Ohio. We sell internet of things sensors to corporate office occupiers around the world. While we were based here in Austin, we ran a fairly large scale sourcing mechanism to acquire businesses via the proprietary channel. So while hearing from Clint was fantastic, we didn't really use the broker channel a whole lot. We were very much direct to business owners.

**Matt Henson:** I work for a private equity backed transportation business as Chief Development Officer. 100% of my time is spent on proprietary sourcing of acquisition targets and add-ons. We're going to speak about how we go about doing that without a broker. We want this to be more of a conversation, so get your questions in.

**Why a strong pipeline matters**

Number one is improved quantity. The goal is to have a pipeline robust with companies that are actively potentially selling. With higher quantity, the probability you can identify a high quality target is much higher. And then it improves the post-LOI process. Having the confidence to close on a business because you've seen enough opportunities, you know what good looks like and what not good looks like, requires repetitions.

While Clint has a phenomenal close rate, the statistics I see, particularly through the proprietary channel, show that about 20% of signed LOIs end up actually closing. So if you're putting all of your eggs in one basket, that's a big risk.

Repetition is your friend. The way you get better at doing deals and negotiating them post-LOI is by doing it a lot. The problem with first-time searchers is the chances are very high you're going to shoot yourself in the foot when you're going through the deal. The most likely reason is you'll get one deal under LOI, think you've hit the finish line, and you won't be able to say no. You'll give up on bad terms or lose control of the process. You're going to be afraid to walk away if you don't have a good pipeline.

If you have a pipeline full of 50 deals and a seller pushes back on terms, instead of negotiating, the answer is "see ya" and you call the next one on the list. Inherently with 50 deals in your pipeline, the quality of the top five is going to be much better than if you only have five total.

**Four channels for outreach**

We think about outreach in four main channels, bucketed into broad outreach and narrow/direct outreach.

**Email (broad outreach):** Highly scalable, customizable. The downside is everybody has 150 unread emails this morning, so it's hard to stand out. That's made possible through follow-ups, persistence, hanging around the rim, and having a hook in that email that lets the owner say, "Wow, Justin actually looked up my business."

**Hard mailers:** A literal letter, a one-pager, or a three or four page summary. These tactics are a flywheel and they all play off each other, so you have to do every single one. A lot of the businesses we're searching for are sweaty mom-and-pops. Some owners don't even check email. There may be 10,000 unread emails in their inbox. Put something in the mail to their house, business address, or wherever you can find them. It doesn't have to be handwritten, it can be a presentation, but it shows them you're a real person with money interested in buying their business.

**Call campaigns:** I'm not talking about cold calling, though there are industries where it makes sense. If you can get a mobile number, a lot of guys live on their cell phones, particularly in plumbing or HVAC. Targeted outreach via calls to the same folks you're emailing and mailing, so you punch through and get them on the phone.

**In-person outreach (most important):** Building credibility is incredibly difficult, particularly when you look like you're 14 and have no industry experience. Start kicking down doors. I traveled a ton during the search process. If an industry expert says, "Justin, next time you're in Atlanta, give me a call," guess what, I'm in Atlanta next week. Attend industry conferences. Spend a few days beforehand sending emails and setting up meetings. All of a sudden you're a real person with real interest. When you send that next email and say, "I was at the MRI conference last week, I saw you on the list, I must have missed you," your outreach stands out.

Part of the reason freshly minted MBAs get a bad rap is you show up with a fancy degree and say, "I can run your business," but you don't know any words, you don't know the terminology, you don't know the people. The easiest way to make that investment is to get out from behind the computer screen and meet them in person.

**Matt:** A lot of folks trying to buy businesses for the first time forget about the job to be done. The job is to find a business and close a transaction. The job is not to run a mini private equity firm or play searcher-bro. Particularly if you come out of investment banking, private equity, or management consulting, you are used to processes and SIMs coming to you. In this world, there is no such thing as process. The way you find deals is you get in your car, knock on somebody's door, and talk them into selling.

For instance, after this conference I'm flying to Dallas Sunday. I emailed my analyst and said send me a list of every business in Dallas similar to ours that is a potential M&A target. I'm renting a truck and driving around to every one of those businesses to knock on their door. They may say no, but I never want a case where someone said, "We missed you." It also gives me ammo to circle back. Instead of a cold email, it's, "Hey, I'm Matt Henson, I stopped by your office last week and unfortunately missed you. Do you have time to talk?"

**Q: When you knock on doors, are there tactics that work better?**

**Matt:** You have to take off your salesman hat. This is B2B sales, but you can't walk in as a salesman. A lot of people get over the hurdle of walking in but then go right into sales mode: "Hey, I'm Matt Henson with Searcher-Bro Capital, I'm here to talk to Chuck about your landscaping business." Instead, walk in and act curious. You don't know who you're going to talk to. Eventually somebody says, "Can I help you?" I'll say, "I'm Matt Henson, I'm interested in talking to somebody about landscaping." That's broad. They'll say, "Residential or commercial?" I'll say, "Commercial, pretty big opportunity." "Big opportunity" is a key word. Do your homework so you know who the owner is. They may say, "You should talk to Larry, the sales manager." I'll say, "Is there somebody more senior?" People are more likely to help you when you're asking for help versus selling them something.

**Justin:** Owners' guards go up when you show up as a salesperson. They're sold something every day. Once a business is under LOI, the greatest correlation to whether it closes is your relationship to the owner. If you don't know the spouse's name by the time you get to LOI, that's a huge red flag.

**Outreach numbers**

For cold emails, for one person we'd do 100 personalized step-one emails. The follow-ups were automated. Over the course of the automated follow-ups, we'd get about 25 responses. Most would be opt-outs, but eight would be positive. One of those eight would go missing, so we'd have seven owner calls. Of those seven, about 25% would have real interest. We'd send two NDAs and get one company to provide data per week. If one searcher can see financials on one company every week and you do this for a year or more, that's a very robust pipeline.

**Q: Who is writing those personalized step-one emails?**

**Justin:** We ran it all through Airtable. First name, last name, where they work, which email sequence, a source (where I found them: industry list, conference, LinkedIn), and a P.S. statement: "I see that you volunteer with the Boy Scouts. I was an Eagle Scout, wonderful organization." The more personal, the better. I outsourced fairly heavily. The virtual assistant we used was trained on what makes a good target. She'd have the entire list ready. I'd give her a NAICS code, she knew where to pull the data, classify yes/no, and then it was my job to do 100 a week.

**Q (Ross Drew, Atlanta): For the boots-on-the-ground portion, you don't want to tip employees off. If you can't get a senior person, are you leaving info or moving on?**

**Matt:** I'll always leave a card. I know before I walk in who I want to talk to. Everything is nebulous until I can talk to them. I'll say, "I'm in the same business, happened to be in the neighborhood, just here to introduce myself." If I can get in front of the right person in the right setting, I'll broach the topic. If not, I'll leave a card and say, "Have Larry give me a call when he gets a chance."

**Q (Joe, San Francisco): How do you get them over the valuation bubble Clint mentioned, and how do you know when they're really ready to sell?**

**Matt:** On readiness, this is sales, so I'm trying to qualify the lead as quickly as I can. Make contact, introduce myself, then laser-focus on whether they're ready to have this conversation. If not, I'll check back next quarter or next year. There should never be a situation where someone receives an offer in the form of an LOI and says, "I'm not ready to sell." You should have cleared that hurdle first.

On valuation, you have to control the dialogue. Move very quickly. A mistake first-time buyers make is too much latency. They make contact, the seller says yes, and then three days later they're asking for an NDA. You should have an NDA in your back pocket, a form draft of your LOI, a form diligence request list. I see people on Twitter asking, "Does anybody have a good diligence request list for a landscaping business?" You've already shot yourself in the foot. When somebody says they're ready to talk, you need to send them an NDA, request list, and form LOI immediately. That's how you control the process. You've got comps ready. If they push on valuation, you come back with, "I'll ask you to carry more on a seller note," or, "I'll pick more up in an indemnity escrow." That's shock and awe. That's how you control.

**Justin:** Triggers for knowing somebody is ready to sell. One, they're prepared, they've talked to a broker, they can tell you what businesses in their space sell for. Two, they're already starting to spend the money, looking at a beach house. Three, when I ask, "When can I come out and get dinner with you and your spouse?" If the spouse is involved, it's serious. If they say, "No, no, we'll talk on the phone," I'm only willing to commit a quarterly check-in.

On valuation specifically, this draws back to why you want a strong pipeline. If you're trying to talk a seller into a valuation, you've shot yourself in the foot. With 50 names in your pipeline, you can flex that muscle and walk away. First-time buyers think of one deal as their shot and lose the ability to walk. The best tactic to win that conversation is to avoid it.

**Q (Lucas, New Jersey manufacturer): I evaluate tuck-in deals where sellers can't transact unless it's with somebody like me. Their accountant or lawyer gets in the way and tells them it's worth 10x revenue. How do you navigate that?**

**Matt:** Radical candor with the seller upfront and qualifying leads upfront. Before I send an LOI, I have to talk to my investment committee. I have a candid conversation with the seller first: "Listen, I'm here to make you a fair deal, but I've been burned in the past. Is there anybody else you're going to need to talk to for approvals? Your wife, family members, a trusted advisor? Let's bring them in early rather than later." The problem is you under-qualified that lead.

**Justin:** This is a long-term game. If you don't have it figured out today, that's fine. Let's stay in touch. I have a laundry list of folks I call every quarter because their valuation was double. I'm talking to a few right now where their valuation was 2x what I thought three years ago. Their business has grown 50%, valuation is the same, we're closing the gap.

**Q (Grant McClure, Brightleaf Holdings): Your conversion statistics are remarkable. What's the philosophy on messaging and structure within sequences?**

**Justin:** This email sequence has 14 steps over about six months. It's about positioning ourselves as the right answer for that business owner at the right time. I'm not a salesperson. I'm here to be a partner. The first email is very little about me but exhibits some knowledge of their business and industry. Over time the emails get more relationship-building, less about buying a business. By email 13, they go back and search my name in their inbox and see I've emailed them for five months, all clearly sent only to them, though I've engineered that to be scalable. They think, "If this guy is willing to put in this time and effort, that's probably worth a conversation."

The number one reason somebody said they were willing to get on the phone with us was simply persistence. It wasn't because my business partner and I have Stanford MBAs. Nobody cares. We grew up in the Midwest, so if a business is in the Midwest, we have writing in the sequence about the Midwest, but only for that. It's about making somebody feel special and showing them we're willing to put in the work. We had about a 36% reply rate and 78% open rate across 270 people on a more generic catchall sequence.

**Matt:** The sales cycle is so long. Early searchers think they can't send that first email until they quit their job. You can send these emails while you're still working. The third business we bought was from a handwritten letter written the month after we bought our first business. It sat on the seller's kitchen counter for a year, and then we got the call. Play the long sales cycle game.

**Q (Sam): How do you build a list of companies, and is it industry-specific?**

**Justin:** Industry-specific, yes. The green boxes in the email are downloadable and personalized fields, the red boxes are what I wrote. "Two words" is our catchphrase for industry-specific verbiage so I can speak their language a little.

For building a list, there are free resources and paid resources. The best ones change all the time. We used ZoomInfo. I've heard great feedback about Grata recently. Data to include: company name, city, state, owner, email, LinkedIn, and website. I'd come up with a NAICS code, then we'd classify those companies through Airtable as yes or no. We taught our virtual assistant what to look for on a website. "Now part of [larger company]" rule it out. "Custom design and assembling" not my type, rule it out. "Manufacture and distribute" generally not my game, rule it out. Maintenance and repair scientific equipment, yes. We go through rules so all I have to do is identify the NAICS code. The assistant goes from a list of 10,000 to maybe 500, which persists for a month at 100 a week.

**Q (Pat): Is your subject line personalized? What worked?**

**Justin:** We A/B tested a ton. The one that worked best was "quick intro," all lowercase.

**Matt:** What works most for me is being very direct: "Are you interested in buying or selling your business?" You're never going to talk somebody into selling. The time is right or it's not. Cut to the chase.

**Justin:** I was never quite that blunt because I'm okay with meeting owners who aren't ready to sell. I've done my homework on the industry, so a quarterly phone call for the next five years is fine.

**Matt:** A/B test it but titrate for the audience. Interfacing with a physician practice is different from a trucking business or a staffing business.

**Q (Clint): When you hit them with the offer value, do you back it up with your math, or just throw the number?**

**Matt:** Always quote dollars, never quote multiples. Don't tell them your multiple. It doesn't matter. The multiple isn't what hits their bank, dollars are. They can do their own math. My EBITDA is usually different than their EBITDA anyway. I send a term sheet, never an LOI first. It's literally one PowerPoint slide: purchase price, indemnity escrow, working capital, about five bullets. I arrange a phone call first: "Hey Joe Bob, your offer's ready. I want to talk today at 5pm." I send the slide two minutes before we talk and walk them through it. I don't want them reading it without me giving the voiceover.