M&A FOMO: How to Deal and Still Get Deals Done

FOMO, or “fear of missing out,” is millennial-speak for the anxiety that is felt when you are left out from something exciting. In the case of middle market M&A FOMO, nothing is more anxiety-inducing than missing a $2M-$10M EBITDA deal where a boutique investment bank is running a sophisticated and limited process.

FOMO in M&A is hardly a new phenomenon, but given the increasing competition for deals in today’s market, unease seems to be at an all-time high. A few clicks around Term Sheet or PE Hub and it’s easy to see when your firm has been bested. For investors, there’s nothing worse than reading “XYZ Capital Partners has acquired My Firm’s Perfect Platform Investment” — when you didn’t even see the deal.

Today’s deal professionals can spend countless hours reading into these missed deals, as well as successful ones. In a 2015 TechCrunch article, CEO of Mattermark Danielle Morrill said that “once an investor has an impressive deal under their belt, they analyze the conditions of the deal and try to draw a correlation to non-essential things.” This pattern is what behavioral psychologist B.F. Skinner refers to as “pigeon superstition,” and is prevalent among middle market firms looking at the top of the funnel and attempting to systematize the process.

But in the current environment, it makes sense to think about deal sourcing more like art than science. We all know the advantages of sourcing proprietary deals: minimal competition, no upward price pressure associated with an auction, and better value on terms. There is an undeniable correlation between time spent on business development and inclusion in deals, but holding yourself and your firm accountable for seeing every single opportunity on the market might actually be preventing firms from doing good business.

If you’re a PE investor, here are our recommendations to avoid FOMO:

1. Stay the course. Have a process that your team can stick to and only iterate on it when you’ve allowed enough time to analyze it properly. Don’t immediately assume a few missed deals means that your process is broken.
2. Be timely. Respond to inquiries promptly and be thoughtful about your responses. If closing great deals is important to you, you need to be diligent about removing less relevant deals from the equation It might be tedious, but it’s part of the game.
3. Don’t be lazy. Apply the same discipline to sourcing as you do to dilligence. You wouldn’t skip a step at the bottom of the funnel, so don’t skip it at the top. On the BD side, keep a detailed log of your interactions with intermediaries and motivate the deal team to do the same.
4. Be human. Get to know your contacts. Help them understand why you deserve to do business with them, not why you’re entitled to see their deal.
5. Have an opinion. Even if your firm is opportunistic or industry agnostic, develop a few investment theses that people will remember. Practice them, and make them believable so that a banker with a great deal will share it with you.

For banks, FOMO might be more appropriately read as “fear of missing one,” as in, one buyer who will be the best partner for the company and will pay a fair market price.

Intermediaries, here are our recommendations to avoid having your deals overlooked:

1. Know the story. Even if the associate at the bank is the one sharing the deal initially, make sure they understand the CEO’s story and goals. If you want buyers and capital providers to pay top dollar for your deal, you’ll need to hook them with more than just financials.
2. Be thorough. Don’t skimp on details when it comes to the first round of outreach to sponsors. Firms will spend the time on the deal if you give them the variables they need. Otherwise, they’ll quickly move along to the next opportunity.
3. Think outside of your Rolodex. Some investment banks think they are only as good as their network. While decades of experience and top-tier industry contacts are obviously a huge advantage, the middle market is just too fragmented for you to know absolutely everyone. Your firm will be known for running a sophisticated process if it takes the time to do research and explore new potential synergies.
4. Be responsive. If you have a high standard for response time, buyers and capital providers will remember that. There are few things that will discredit your firm faster than taking a week to supply and execute an NDA.
5. Have something in your back pocket. When an investor passes on your deal, ask them if they might be interested in something else you have in the hopper where it’s appropriate to do so. This will show them that you understand their criteria and interests and are interested in a mutually-beneficial relationship.