Improve Deal Flow: How Private Equity Firms Should Share Their ‘Sweet Spot’ With Sellers

Deal Sourcing Improved by Sharing Investment Criteria with Sellers

(From left to right) David Mahmood, Chairman & Founder, Allegiance Capital Corporation; Bruce Cameron, Chief Executive, Berkshire Capital; Ulrich Schneider, Partner, Proventis Partners; Tim Page, Managing Director, Whitehall; Martin Stein, Managing Director & Founder, Blackford Capital

Buyers want quality deal flow, but too often sellers don’t have a good sense of their investment criteria.

In fact, these days “private equity firms all sound alike in what they are looking for,” said Allegiance Capital chairman David Mahmood, during a recent Navatar roundtable on “Why Buyers Must Redefine Their Intermediary Deal Sourcing Strategy.”

Given that boutique intermediaries control access to a majority of transactions in today’s deal market, buyers need to build relationships with a large number of boutiques. At a minimum, they have to make sure all these intermediaries know about their current investment strategy, so that bankers and others can channel the right investment opportunities to them.

Here are some of the approaches that buyers commonly use:

1. The “High Touch”: Coffee, Lunch, ACG

The conventional approach involving face to face interactions is effective, and remains important for relationship building. But there may be thousands of intermediaries, and even ACG events may not cover most of them. Websites sometimes include detailed information on preferred industry verticals, bite range, geography and transaction type. But this strategy relies on sellers bothering to visit your site, and risks violating nebulous marketing regulations that restrict GPs’ ability to disseminate information publicly.

2. The “Low Touch”: Email Blasts, Online Marketplaces

The newer, more sophisticated approach is to use mass communication tools. This allows a firm to reach hundreds of intermediaries simultaneously. Bulk email campaigns are a prime example. Online deal platforms are another. Navatar Deal Connect, for instance, is used by firms to share basic investment criteria like industry verticals as well as sharper details around target company revenue, EBITDA and other key industry metrics. Sellers then use these metrics to better filter deal flow.

Sellers use Investment Criteria Sheet to Help Buyers with Deal Sourcing

“Show me mid-size farm businesses in North America ready for a buyout”

3. The Hybrid: Combining All Strategies

Combining all approaches means figuring out who should be the “high touch” candidates versus the “low touch” ones, so you can deploy all the strategies for a broader outreach. This is where smart technology really comes into play. Buyers who use Navatar Private Equity, for example, can grade sellers based on the quantity and quality of deals they receive from each seller.

Improve Private Equity Deal Sourcing with Navatar

“Some relationships deserve more nurturing than others”

This approach allows them to devise multiple outreach strategies, based on the level and quality of deal flow delivered by intermediary. In other words, the right system sits together the right people for those limited coffee meetups.

And that is where the really meaningful conversation can take place. What is the firm’s secret sauce? What types of management teams does the firm work best with? You say you like healthcare deals, well which type? Answers to these questions further hone deal flow to the right prospective buyers. And for intermediaries like David, solves the problem of GPs sounding too similar.

See below for a full replay of “Improve Deal Flow: How Private Equity Firms Should Share Their ‘Sweet Spot’ With Sellers.” 

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