Uncovering the best M&A deals requires a process involving strategy, research, outreach, communication, due diligence, and finally, deal closure. The process for sourcing the right deals varies from firm to firm, as the deal must fit with the overall aim and unique risk profile of each individual company.

Fortunately, global M&A deal flow hit new highs in 2021, breaking prior records. The number of announced deals exceeded 62,000 globally in 2021, up an unprecedented 24% from 2020, according to consultant PwC. Publicly disclosed deal values reached all-time highs of $5.1 trillion — including 130 so-called “megadeals” with a deal value greater than $5 billion — a stunning 57% higher than in 2020, and a considerable amount above the previous record of $4.2 trillion set in 2007.  

“Economic optimism remains high, there’s a strong deals pipeline, capital is in abundance, and companies across all industries badly need technology,” notes PwC in their Global M&A Industry Trends: 2022 Outlook report. 

With all of this potential, how can companies and investment firms better source M&A deals? More importantly, how can they source the right deals, so as to ensure proper pricing, less friction, and greater efficiency during the due diligence process?

This article will serve as a guide to sourcing M&A deals. While not every strategy will work for every firm, it can be instructive to be aware of how other firms might uncover and initiate deal flow, to better inform one’s own firm’s processes.

Why Companies Decide to Sell Themselves to Another Company

As a way to source M&A deals, it is helpful to understand why a company might decide to sell itself to another company. Some of these factors may or may not be apparent from publicly available information.  

Indeed, some of these issues or motivations may become apparent during the discovery process, when an acquiring company is surveying the market for potential deal flow. Of course, even for publicly traded companies, these intentions might not be widely known. It is the general perception that a company interested in getting acquired can have negative connotations, which could increase the risk associated with a deal by disrupting relationships with customers and employees, thereby impacting business performance. As such, sourcing deals can be tricky, requiring acquiring companies to tread lightly and manage these sensitivities appropriately.

Cashing Out

Company owners, usually of privately-held businesses, often have a significant portion of their net worth tied up in the business. As such, they might see an M&A transaction as a way to “get paid” or take out a significant amount of capital out of the business. Getting acquired or even receiving a cash infusion from a private equity firm can be a way to cash out partially or fully from the business.

Management Issues or No Clear Succession Plan

Companies with management issues or no clear succession plan can leverage an M&A transaction as a way forward for business continuity. In this way, a sale of the company is an effective way to ensure strong leadership, even if some assets are sold or employees leave.  

Strategic Combination

A company might decide that the only way to sustain the business would be to combine strategically with a competitor, customer or supplier. This can be the best way to ensure the survival of the business, or that particular products or IP survive.


A company might be facing liquidity (i.e., cash flow) issues. Rather than restructure or dissolve the business altogether, the company might decide that selling itself to another company would ensure that its customers can still receive the products and services they demand and that at least some of the company’s assets could survive.  

Determining Whether a Company Is the Right Acquisition Target

While the motivations cited above could be valid, an acquiring company must still dive into the financials to uncover the true story.

When a company is acquired, it comes with both the good and the bad. If the target company has massive debts, a string of lawsuits, or incredibly disorganized financial records, those issues are now the new company’s problems.

“The benefits from acquisitions are often outweighed when the acquiring company also acquires a list of costly problems,” notes Investopedia.

Debt Load

Acquiring companies should examine the target company’s debt load. Prime acquisition candidates would be companies that have reasonable debt at a high-interest rate which a larger company could refinance for much less.

However, unusually high liabilities, even for a company in industries known for high debt to equity ratios, such as banking, telecommunications, and transportation, should send up a red flag to potential investors.

While legal challenges are common for many large businesses, a good acquisition candidate is one that isn’t dealing with a level of litigation that exceeds what is reasonable and normal for its industry and size.

In fact, sometimes an M&A transaction is used to thwart or reduce pending litigation. Johnson & Johnson continues to endure hundreds of thousands of lawsuits against its various products, and its recent decision to split into two companies will enable the company to divvy up legal liabilities, according to legal news website Legal Examiner.  

Status of Financial Statements

Clean and organized financial statements are often a characteristic of a good acquisition targe. This makes it easier for the acquiring company and its advisors to perform proper due diligence and execute the takeover with confidence. 

Accessible and organized financial statements are a risk avoidance strategy, helping prevent unwanted surprises from being unveiled once the acquisition is complete.

Deal Sourcing Strategy: Inbound 

Inbound deal sourcing includes all prospective transactions that come into an investment bank or private equity firm through direct referrals, recommendations, and even cold calls and emails from company founders and executives.

A benefit of an inbound lead, just as in marketing, is that there is less “work”: the lead arrives right on your doorstep. However, a negative of inbound deal sourcing is that companies have less control over the quantity — and quality — of leads that arrive through inbound channels. Strong networks and relationships can help, but deal flow can be uncertain.

Further, inbound lead generation makes it difficult to create accurate forecasts and goals since lead quantity and quality are unpredictable. Additionally, companies looking to get acquired are probably contacting multiple acquiring companies and their representatives at once, making the situation much more competitive for everyone.  

Deal Sourcing Strategy: Outbound

The opposite of inbound, an outbound deal sourcing strategy has the acquiring company’s bank or PE firm actively reach out to uncover and connect with potential opportunities. 

The benefit of an aggressive outbound deal sourcing strategy is that it enables companies to take control of the quantity and quality of target companies they reach out to, thereby creating a more consistent and measurable deal flow. While more laborious and research-intensive, it can also give acquiring companies a leg up on the market or the competition, long before a target company makes it known that it is in play. 

However, an outbound deal sourcing strategy often proves difficult because of the challenges of uncovering reliable information about private companies.    

Deal Sourcing: Databases

As its name implies, deal sourcing from databases, or what is referred to as “data-driven” deal sourcing, relies on data to pinpoint relevant investment opportunities prior to reaching out to or connecting with target companies. Deal sourcing with databases is often used in combination with outbound strategies. 

Indeed, this “new school” dealmaking aims to utilize a combination of data, technology, and processes to take a proactive, structured approach to finding and closing deals.

According to a study performed by two of these providers, SourceScrub and Pitchbook, new school dealmakers transact 55% more deals and return on average 8.3 percent points of IRR than do their peers.

An obvious advantage is that leads are pre-qualified, saving time on research performed by the investment banking or private equity team. 

However, while deal sourcing from databases might seem efficient, it is important to keep in mind that the quality of data varies and that the database is most likely being accessed by other firms chasing the same deals. As a result, there is often higher competition, and thus conversion and success rates can be lower. 

How to Ensure That Information Remains Secure 

Having a trusted virtual data room partner is crucial at every stage of M&A —  including during deal sourcing. A world-class VDR like CapLinked can ensure that highly-sensitive initial documents like confidential information memorandums and initial acquisition inquiries remain secure. This is key to help mitigate some of the public perception risks that can arise in the early stages of M&A deals as we discussed in this article.  

What’s more, using CapLinked’s Activity Tracker feature, workspace administrators can monitor and compare activity across multiple groups. This allows the sell-side to anticipate which leads may be the most interested in doing a deal, and the buy-side to track the progress of multiple potential acquisitions at once. Data like this is invaluable to M&A teams as they strategize how to follow up and plan the early stages of a deal. 

Once a deal moves into the due diligence phase, CapLinked’s VDR delivers confidence to all parties that the strongest security measures are in place, and the tools included will help expedite the entire process, making the data flow more smoothly and shaving off weeks, if not months, off of the entire M&A timeline.

Start your free trial today to see how CapLinked can help streamline tall aspects of the mergers and acquisitions process.

Jake Wengroff writes about technology and financial services. A former technology reporter for CBS Radio, Jake covers such topics as security, mobility, e-commerce, and IoT.


Investopedia – How to Assess Acquisition Candidates

PwC – Global M&A Industry Trends: 2022 Outlook

ReadyRatios – Debt-to-equity ratio – breakdown by industry

Legal Examiner – How Johnson & Johnson Split Could Affect Lawsuits

SourceScrub – Take Control of Your Dealflow