Constellation has bought 600+ software companies.
I've spent 100 hours studying their sourcing playbook.
Here's how they manage to buy so many companies:
1. Outbound - Army of folks calling prospective owners and managers daily to initiate conversations and/or maintain relationships.
2. Brokers & Advisors - make sure brokers know what markets they are in & types of businesses they want
3. Corporate Carveouts
Constellation is nurturing 10s of thousands of leads.
They want to know where the company is in its development / life cycle, and its thinking in terms of what might be important in a sale at all times.
Goal: be thought of when a company is ready to sell
Long Term Process
The average time from identifying a prospect to buying a company can be upwards of four to five years.
Less speed dialing looking for deals. More long-term relationship building. Often dinners over many years until owners are ready to sell.
Decentralized Hunting Licenses
Many senior leaders maintain their own relationships with prospective sellers in their niche.
They are empowered to close their own deals below certain dollar amounts without management approval.
Carveouts are a great source for Constellation.
Large companies think they want to become software companies. They buy or build something. Try and struggle.
Often not core and want to dispose of assets to focus. Constellation offers an easy transaction.
Constellation is a value buyer. Rarely the highest price.
Offer a good home. Sellers know they're not going to end up in the paper with the buyer having done something terrible to the business.
Ability to close. Always have the capital ready to move quickly.
Constellation uses the First Chicago Method, a weighted four-independent scenario approach:
- Modest winner
- Walking wounded
They have dependable base rates to use after hundreds of previous acquisitions.
Power of Checklists
Constellation uses checklists for everything and is constantly updating them.
Example: if price increases are in the model, do they match up with contractual caps and contract renewals?
Goal: avoid stupid mistakes that have been made before
TLDR on Constellation Sourcing
- Outbound army
- Nurture leads & brokers
- Long-term relationships
- Continuous improvement
- Win with a good home
- Power of checklists
If you are interested in buying, growing, and selling small companies, check out my course & community on it at IndiePE.com.