Improving deal flow from intermediaries: The forgotten mid-tier

By Nadim Malik and Catherine Daly, Sutton Place Strategies

Current trends in the M&A market suggest that there is an abundance of sell-side intermediaries compounded by stagnant deal flow. That begs the question: Where should a firm focus its deal sourcing efforts?

Comparing data from Q4 2014 with Q4 2015, closed M&A activity in the U.S. and Canada was down 10 percent (2,057 closed transactions in Q4 2014 vs. 1,858 closed transactions in Q4 2015). This downward trend has continued in the first quarter of 2016; closed deal activity is currently down over 15 percent in Q1 2016 compared to the Q1 2015 timeframe.

Sutton Place Strategies has long advocated that small-tier intermediaries, closing one to three deals per year, prove valuable when looking to fill gaps in coverage. Yet, what if there was an additional untapped market for deal flow that is both accessible, as well as capable of delivering relevant deals on a consistent basis? Well, there is, look to the forgotten mid-tier.

Mid-tier sell-side intermediaries consist of 211 firms that closed between four and 20 deals in 2015. Compared to the 562 small-tier firms (closing one to three deals per year) and the 34 large-tier firms (closing 20-plus deals per year), the mid-tier has consistently closed more deals in aggregate from 2013 to 2015. This is reflected in the “Intermediary Breakdown: 2013 – 2015” table, demonstrating that from 2013 to 2015, mid-tier intermediaries have increased the number of deals closed by 28 percent.

Source: Sutton Place Strategies (SPS)
Source: Sutton Place Strategies

As the “Intermediary Breakdown: 2013 – 2015” table illustrates, the deals-per-firm ratio has steadily increased over the past three years for mid-tier intermediaries. The average, which ranges from seven to eight deals per year, is significantly higher than the small-tier intermediaries, which on average close 1.5 deals per year. Furthermore, the number of active mid-tier intermediary firms is less than half the number of small-tier intermediaries, thus allowing for more time and resources to be focused per relationship.

When analyzing the trend’s net results, there are more small-tier, boutique intermediaries that move up towards the mid-tier range, than mid-tier intermediaries that move down toward the small-tier range. This emphasizes the importance of building early relationships with small-tier intermediaries, for some of these firms will progress toward the mid-tier range and become a source for more relevant opportunities.

Considering the composite breakout, is it worth investing time and resources into this forgotten mid-tier? The short answer: absolutely! Contrary to the criticism leveled at the small-tier’s lack of consistent deal flow, more than half of the 2013 active mid-tier intermediaries have remained in the mid-tier range for all three years, and over two-thirds of the 2015 mid-tier intermediaries were the same in 2014.

Source: Sutton Place Strategies (SPS)
Source: Sutton Place Strategies

As validated in the chart, “The Number of Mid-Tier Firms by Closed Deals,” the number of deals closed per mid-tier intermediary is relatively consistent over a three-year period. For example, from 2013 to 2015, there were approximately 12 intermediaries that closed 10 deals, 10 intermediaries that closed 11 deals, and five intermediaries that closed 14 deals. This trend has been consistent for firms closing upwards of 20 deals from 2013 to 2015.

Given the deals-per-firm ratio of 47 in 2015, as shown in the “Intermediary Breakdown: 2013 – 2015” table, shouldn’t large-tier intermediaries be the focal point of any successful deal sourcing strategy? Not necessarily. These intermediaries typically have a considerable number of deal professionals, proving it difficult to effectively manage relationships and stay abreast of changes. Compare this to the mid-tier intermediaries, who are often regionally focused. That results in a more manageable, less daunting coverage process. Furthermore, the mid-tier provides a more accessible employee count that fosters repeat business of relevant deal flow from established relationships. Finally, large-tier intermediaries typically employ a competitive auction process which is rife with complexities. By focusing efforts on the mid-tier intermediaries, the cumbersome and competitive auction can, at times, be avoided.

Considering the current economic climate, business development efforts should be strategically focused on those intermediaries that yield the highest likelihood of closing a deal with your firm. For the past three years, mid-tier intermediaries have consistently closed more deals compared to small- and large-tier firms, as well as offered a steady source of deal flow and a more adaptable coverage model. This is not to say that the large-tier and small-tier intermediaries should be avoided. Quite the contrary. Any successful business development strategy should incorporate all intermediary types, for each tier has unique advantages. As mentioned previously, it is prudent to build relationships with small-tier intermediaries, considering the number of firms that will eventually move toward the mid-tier range, as well as the potential for a less competitive process. In terms of large-tier intermediaries, they represent the most favorable deals per firm ratio, and the competitive auction may be unavoidable for the highest quality assets. However, given the recent trends and market conditions, mid-tier intermediaries offer a compelling long-term return on invested time and capital when it comes to deal sourcing.

About the authors: Nadim Malik is CEO of Sutton Place Strategies (SPS). Catherine Daly is responsible for business development and integrated marketing communications for SPS. Malik can be reached at; Daly can be reached at

Nadim Malik, CEO, Sutton Place Strategies. Photo by Dennis Trantham at Westside Studio
Nadim Malik
Catherine Daly, Business Development & Integrated Marketing Communications, Sutton Place Strategies. Photo courtesy of SPS
Catherine Daly

Waterfall photo: A view of a waterfall in the protected forest at the Welirang mountain in Malang, East Java province, February 10, 2010. REUTERS/Sigit Pamungkas