Archive for July, 2011

Nicholas Donato explores how technology and social networking are influencing the way private equity funds operate, in his well-written article for the PEI Fund Administration & Technology Compendium, titled:

The fund of tomorrow … today

One of the questions that the article raises is whether social networking can change the way deals are sourced, in a people business like private equity?  Here is an excerpt from the article:

….. Navatar is also rolling out a free cloud service to connect GPs with M&A bankers and other industry contacts to form an online community where deals can be collaborated. Navatar’s social networking site for private equity professionals works by having buyout shops create an online profile describing the types of deals they target alongside their contact information. Bankers, business owners and other sources of deal flow can then access profiles that match their capital seeking enterprises. 

The free cloud service, that Nicholas refers to, is Navatar Deal Connect, scheduled for a beta launch in late August. The article goes on to say:

At the moment GPs don’t rely on portals for originating transactions, sources say. Private equity is after all a people business, points out Philipe Bucher, chief financial officer of Adveq.  But similar to the evolution of social networking sites, who’s to say one portal won’t feed off its own success to morph into a dominant internet presence, a feat Facebook accomplished after eclipsing rival sites such as hi5 and MySpace.“One can imagine a GP in the future sourcing deals from the comfort of an armchair,” jokes Bucher when asked whether portals have the potential to be a significant source of deal flow down the line.

Will GPs ever get comfortable with the idea of sourcing deals from an armchair?  I’ve never been a GP in a private equity firm, so I’m not sure I have the credentials to answer that (although that doesn’t stop me from babbling about how deal sourcing is about to change).  I can tell you, though, that during the early days of Linkedin, most of us who were sourcing consulting business for Deloitte (that’s what I did back then) scoffed at the idea of getting a Linkedin account – of course, most of my management consulting buddies (Deloitte partners) have had a (dramatic) change of heart on this issue.

OK, I’m biased, but what would it take for a social networking portal to bring about this change, in your opinion?

Alok Misra

If you haven’t noticed middle market private equity dealmakers trolling for deal flow these days,  just join the cocktail hour of an industry networking event.  Buyers, sellers, intermediaries (and others) frantically seek each other at these events, exchanging business cards and pieces of paper, as M&A activity heats up.

I’m sure that searching for deals was a similar exercise 20 years ago (maybe even 50). You’d think things would have changed, considering the increased cross-border M&A activity, or considering we have tools like internet, social networking and iPads. But they haven’t. Let’s see why.

Here’s an excerpt from a brochure related to a recent event (organized by Capital Roundtable):

With more and better deals out there, there’s also a great deal of competition.  So it’s never been so important to refine your strategy, improve your tactics, and study the approaches that are working for others. You just don’t want random deal flow.  Rather, you want the right deal flow where you see opportunities that are relevant to your strengths — and likely to be successful.

That takes a thoughtful marketing plan, one that you execute with precision and recalibrate as needed.  And it takes familiarity with all the potential avenues for originating deals today, from intermediaries and auctions and trade shows and ACG parties — to email campaigns and LinkedIn networks and Google AdWords….

And today, most firms are trying to figure out how to leverage social media and Internet presences into tangible deal sourcing.  Yet before you jump in with both feet, you’ll want to know how results are being generated by Facebook pages, LinkedIn groups, and Twitter tweets.

While no 800-pound gorilla website has yet evolved for aggregating private equity deals, …..

So it seems like you need more time (and more money) today to find deals, even though there are more channels than ever to connect with the right people. No wonder, things haven’t changed much.

They will, only if the 800 pound gorilla turns out to be more than just a website or a portal (or a social networking site, for that matter). The gorilla would have to take the critical elements of the old-school networking and relationships and scale them for a global M&A arena.

That’s our goal.

The outcome – Dealmakers won’t have to go looking for sellers (or buyers) – the deals will come to them … without having to pay anything.

The technology – cloud computing (the same technology that Navatar Private Equity CRM and Navatar M&A CRM runs on).

Stay tuned.

Alok Misra