The 2 Drivers of a Successful Inorganic Growth Strategy

Stenning Schueppert spent four years as the Senior Vice President of Strategy & Corporate Development at Total Safety, an outsourced provider of integrated safety and compliance solutions, where he completed eight acquisitions in his first 18 months. “It was obviously extremely busy,” Schueppert, who is currently a managing director at CenterGate Capital, laughs.

We talked to Schueppert about what he perceives as the two hallmarks of a successful inorganic growth strategy.

1. Treat Your Acquisition Pipeline Like a Sales Pipeline

Just like a sales team, no strategic acquirer bats 1000, says Schueppert. “You’re not going to get everything you go after.” It can be value, timing (for the buyer or the seller), financing, or simple bandwidth.

When it comes to an inorganic growth strategy, the best place to start is developing a pipeline for proprietary deals. “Unless you want to dramatically overpay, you should be looking at more than one acquisition, and to the degree you want to do many acquisitions, you should be looking at a large multiple of that number.”

By the time Schueppert left Total Safety for CenterGate, he had built its pipeline to over 300 companies. “A pipeline doesn’t necessarily mean that you’ve talked to all of those companies — it’s just the landscape of potential acquisitions we could do. Since most of these are private companies, we may not have a lot of data on all of them.”

That’s OK, says Schueppert, and general awareness can be enough to make educated acquisitions further down the line. This familiarity will allow you to better understand what you may be giving up on when you pursue a given acquisition — e.g., the company’s competitors or those that operate in a similar geography or service space.

As Schueppert describes it, finding the right acquisition is a little like finding your perfect match; it’s pretty rare that the stars align. “You don’t know when an acquisition will come to fruition. It might not be the right time for the seller. It might not be the right time for the buyer. Financing may not be available right now.”

Finding the right acquisition is a little like finding your perfect match; it’s pretty rare that the stars align.

Frequently, Schueppert says, conversations go something like:

Seller: I can’t (or don’t want to) sell my business for less than $X.

Acquirer: I can pay $X once you’ve grown your business to $Y.

As an acquirer, “I can’t just pay you a lot of money because you want it,” says Schueppert. “I have to pay an appropriate multiple.”

Mismatched expectations mean these conversations may stall for years, until the company has matured enough to narrow the valuation gap. That’s why it’s never too early to develop relationships with potential acquisitions, says Schueppert. That way, “you’re the person they call when and if they’re ready to monetize. Even if they go to an investment banker, you’ll be in a pole position in that process, because you’re already a trusted partner.”

2. Get in the Flow

Building a pipeline is key to drumming up proprietary deal flow (i.e., deals in which you’re given an initial, exclusive opportunity).

But what about banker-led deals? For these, “you need to get in the flow,” says Schueppert. “You need to be on the radar for all appropriate regional or industry-focused investment banks.”

This is especially true as a strategic acquirer. “In most cases, investment banks have very good organizations around financial sponsor coverage, but in my experience, in few cases do they have good coverage for strategic acquirers,” says Schueppert.  “They may think they do. And they may make pitches that involve both financial and strategic buyers. But inherently, not every investment bank is aware of the capability or appetite of what every strategic buyer is looking for and when. As a strategic, it is your own responsibility to be in front of the investment banks if you are looking for that kind of deal flow.”

Schueppert says events through organizations like Axial, ACG, and AMAA are a great way to make connections as you kick off your inorganic growth strategy, as is gaining visibility through online deal sourcing platforms. Beyond that, “it just takes effort” to continue to maintain and grow an active network.