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Deal Origination & Private M&A


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This is a presentation on the state of deal sourcing in the middle and lower middle private markets. The presentation goes into detail on the state of the market, best practices for sourcing deals, …

This is a presentation on the state of deal sourcing in the middle and lower middle private markets. The presentation goes into detail on the state of the market, best practices for sourcing deals, etc.

Published in: Economy & Finance, Business
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  • 1. From Spears and Rifles to Magnets and Watering Holes How the Networked Economy Is Changing The Deal Origination ROI Paradigm
  • 2. Agenda Our Analysis of Macro Trends & How they Impact Private M&A 1 Hunting Large vs Small Game 2 The New Channel 3 Takeaways & Q&A 4
  • 3. Deals Aren’t Sourced Only on the Golf Course Anymore…
    • 65 million professionals on LinkedIn
    • 58,000 subscribers to peHUB Wire
    • 200,000 social networks on NING
    • 13,400,000 Google search results for “private equity blog”
    • 2,000+ deals delivered online via AxialMarket in 2009
    • 70 million in secondary trades conducted via SecondMarket in March 2010
    • 100+ million users of Twitter
    • 500 million people on Facebook
    The internet’s web 2.0-driven communities have created a whole ecosystem where conversations are occurring and people are meeting one another and transacting The internet has become stable and scalable enough to facilitate and initiate significant B2B interactions
  • 4. Outbound Marketing Still Works, But Less Effectively
    • Spam filters and unsubscribe capabilities block unwanted emails
    • Caller ID helps business professionals choose who to speak to
    • Conferences & Tradeshows getting more and more niche
    • LinkedIn has a group for everything and everyone
    • DVRs and TivO allowing people to block out unwanted content
    People are blocking outbound marketing Traditional outbound marketing such as telemarketing, trade shows, direct mail, email blasts and TV ads are becoming less effective as people/firms develop blocking tools
  • 5. # of Hunters Has Grown Substantially Over the last 20 years Private equity firms, hedge funds, family investment offices and high net worth individuals have become more active The middle market used to be a secret hunting ground; less so as globalization, capital and leverage enable greater and greater middle market transaction volume than ever before Source: CapIQ ~10,000+ Hunters are out there looking for prey
  • 6. What Does This ALL Mean For Private M&A?
    • Firms with demonstrated and published thought leadership will receive greater deal flow through online prominence
    • Finding buyers will become less challenging for sellers, but finding the right buyer will remain complex
    • Cold-calling, while valuable, may become less of a differentiator
    • Owners will increasingly be doing more research and business online
    • M&A Advisors that specialize will win more mandates
    • People will be initiating more relationships online
    • Deals will increasingly be discovered and initially evaluated online
  • 7. Hunting Large vs Small Game
  • 8. Elephant Hunting…. Requires big spears & elephant rifles Requires a skill set specific to the targets: big ammunition ($5B or more in capital), government relationships, Fortune100 CEO access, Invitations to Davos The targets and deal sources are known by all parties
  • 9. Hunting Smaller Game Requires different hunting strategy With 15,000+ opportunities in a DOWN year, how many high quality, actionable opportunities are missed? Many transactions in the middle market are done without a full-service investment bank representing the buyer and are not reported 2009 Deal Volume Under $200 Million Source: Thomson Reuters; AxialMarket estimated The Top 10 M&A Advisors represent less than 3% of closed deals in the middle market High quality deals not getting closed for various reasons
  • 10. Sources of Deals in the Middle Market Challenge: Staying “top of mind” with relevant deal sources Deal sources outside the top M&A advisors represent over 30,000 different and unique sellers of companies Full-Service Investment Banks
    • Experienced in running a sell-side process
    • Large databases of buyers
    • Resources to reach many potential buyers
    • Easy to contact
    Regional / Boutique I-Banks Business Brokers Corporate Divestitures Attorneys Accountants Industry Execs Business Owners
    • Varied experience running a sell-side process
    • Limited databases of buyers
    • Fewer resources to reach potential buyers
    • Difficult to know who has relevant deals
    • Significant variation in quality
    • Not active in reaching out to buyers
    • Few resources
    • Difficult to know who has relevant deals
    • Will do small deals in-house
    • Typically former i-bankers
    • Contact only strategics or buyers they know well
    • Not experienced in running a sell-side
    • No database or resources available
    • Impossible to know who has relevant deal flow
    • Can establish relationship now for later transaction
    • Difficult with lack of guidance
    • Questionable commitment to transaction
    < 7% of the Market 93% + of the Market
  • 11. Traditional Outbound Deal Sourcing
      • Utilizing industry contacts
      • Buy-side search firms
      • Cold-calling
      • Direct mail
      • Email blasts
      • Industry trade shows
      • Conferences
      • Network of intermediaries
      • Marketing events
      • Portfolio company executives
    Focus on creating a large deal pipeline and closing only a few of the opportunities Traditional deal sourcing tools are all outbound in nature, creating low yields and high costs. All Outbound Techniques Direct Sourcing Results in High Costs Per Deal Closed
  • 12. Yes, but you’re missing more and more deals... It is possible to review ~1,000 opportunities annually and make fewer than 5 investments
  • 13. Some Conclusions……..
    • Even with dedicated best-in-class outbound techniques, buyers can miss just as many qualified opportunities as they’re receiving
    • Traditional direct sourcing, although costly on a per deal closed basis, remains effective and should remain a priority
    • Incorporating an online and distributed deal origination strategy helps increase deal flow, build new relationships, and is cost-effective
    There is still a place for traditional sourcing techniques, but how long can buyers continue to not see 95%+ of the opportunities Instead of exclusively hunting in the jungle, spend some time on the savanna looking for the small game, where the watering holes are forming and small game is congregating
  • 14. Introducing…..Magnets & Watering Holes
  • 15. Find Game by Visiting Watering Holes Supplement your outbound origination techniques by joining and monitoring online watering holes and creating your own watering holes
  • 16. Some Watering Holes to Join… Find thought leaders to discover the watering holes where people are gathering on-line Web-based tools such as Listorious allow you to quickly discover thought leaders
  • 17. Monitor, Separate Wheat from The Chaff LinkedIn Groups can be productive watering holes to source deals and deliver your firm’s message There are no boundaries of time or space and other people can listen in easily LinkedIn Groups Members Discuss Share News Comment Mergers & Acquisitions 7,364 Middle Market Private Equity & Investment Banking 3,189 Private Equity and Venture Capital Group 60,326 Mergers & Acquisitions Network 9,003
  • 18. Monitor the Interesting Discussions Associate with thought leaders to monitor those discussions Twitter is an information tool allowing you to know when the thought leaders have posted new content
  • 19. Create Compelling Content That Reveals Niche Expertise As you create content and become active in the conversations, you become a credible and value-added member of the community By creating relevant content and using appropriate cocktail party etiquette, you can become a thought leader
  • 20. Contribute At The Watering Hole  Engage In Discussions By knowing the thought leaders, going to the watering holes, and creating content, you will be able to engage in the discussions Reach a target audience to ultimately find transaction opportunities
    • For the best response, engage in discussions similar to a business cocktail reception
    • Meet people and start conversations
    • Answer questions
    • Ask questions
    • Fit into the conversations
    • Do NOT use it to spam a message
    • Become a thought leader
  • 21. Conclusion: The Internet Is A REAL Deal Origination Channel
    • Online media uses the web to allow people to connect publish, network, share and transact
    • Start simple and slowly, don’t dive in. Get help if you need it.
    • The tools of social media: LinkedIn, Blogs, Facebook, Twitter, DisQus, SiteOptimizer, ScribeSEO,Tumblr, Postling, and on and on…..
    • Keys to initial success:
      • Screen for the Right Watering Holes
      • Screen for the Thought Leaders
      • Monitor and Listen
      • Create & Contribute where appropriate
      • Engage & Transact
    Social media enables historically golf-course or cocktail party conversations to move online, and to occur without the constraints of time or space Allows for the creation of water holes to attract the opportunities
  • 22. Takeaways
  • 23. A New Channel Has Emerged – Acknowledge and Engage
    • The conversations once reserved for industry trade shows, conventions, golf courses and other social settings still happen there, but they ALSO HAPPEN ONLINE!
    • If done properly, online efforts can enhance your organization’s reach and reputation
    • Do not be overwhelmed; start slow, get help.
    • Five simple things to get part of the conversations
      • Create LinkedIn profiles for yourself and firm; Join relevant LinkedIn Groups (search groups: “M&A”)
      • Start sharing some of your expertise with the right communities:
        • - Speaking engagements, Blogs, Whitepapers, Research Papers
      • Improve the SEO of your existing website – visit Google for free help on what they look for
      • Join Twitter and start following relevant CEOs, thought leaders, etc.
    Online media is an effective channel to grow deal organization efforts and relationships By becoming part of the on-line conversation, you will increase you ROI on Deal Origination
  • 24. What’s AxialMarket? “the eHarmony of Private M&A” AxialMarket is a secure online platform that connects qualified buyers and sellers of privately held businesses
  • 25. AxialMarket: Web-based Deal Origination Portal Source deals from over 1,000 intermediaries and direct sellers listing over ~2,000 opportunities each year Develops a funnel from low-volume long-tail sources of deal flow for various buyers Entrepreneurs/ Business Owners Corporate M&A depts Business Brokers Boutique I-Banks Industry Executives Members Private Equity Portfolio Companies Full-Service Investment Banks
  • 26. AxialMarket: Web-based Transaction Management Portal See only the opportunities that fit your investment criteria, decide and get the NDA all in AxialMarket’s proprietary portal
  • 27. AxialMarket: Web-based Deal Origination See only the opportunities that fit your investment criteria, decide and get the NDA all in AxialMarket’s proprietary portal
  • 28. AxialMarket: Web-based Deal Management See only the opportunities that fit your investment criteria, decide and get the NDA all in AxialMarket’s proprietary portal
  • 29. Q&A Email: