Private Equity Deal Sourcing & M&A Relationships Are About Quantity in a Cloud Computing World

My investment banker buddy at Morgan Stanley insists that dealmaking has always been about fewer quality relationships, and will remain so.

Not everyone agrees, though. An increasing number of dealmakers today are taking a very different approach to relationship building. These savvy private equity or strategic buyers approach intermediary relationships as more of a science than art. They are investing their efforts in building much larger and efficient networks, to compete for deals in the fast-paced age of cloud computing and social media.

The “old way” of doing business, for private equity buyers/sellers, was centered around maintaining 100-200 closely held relationships with intermediaries. A lot of nurturing went into these relationships – frequent phone calls, meetings & lunches required a significant investment of time.  ”Word of mouth” was usually the way to learn about and be introduced to new intermediaries.

In the new online world, “quantity” is the key to success. Today’s dealmakers maintain 5,000 – 10,000 intermediary relationships that they can easily initiate using online deal marketplaces (such as Navatar Deal Connect). The time they spend on each relationship is really minimal – some of them only make 5 minute phone calls to each intermediary 2-3 times a year. Instead, they use email blasts and social media tools such as twitter and linkedin to communicate regularly and use cloud-based CRM such as Navatar Private Equity or Navatar M&A to manage the communication, relationships and the resulting deal flow.

At the end, intermediary relationships are still critical. What is changing is the efficiency needed to manage a much larger number of these relationships, to increase the deal flow correspondingly.  Maybe it’s not as important for some of the larger players, who have their own worldwide networks – but for smaller firms, the new order is a necessity.

Ask Martin Stein, Managing Director of Blackford Capital, who has been one of the pioneers of this new approach. In this recorded webinar, The New Rules of Private Equity, Martin provides a lot of metrics around these efficiencies and how a firm’s deal sourcing efforts can benefit from them. According to him, one big advantage of this approach is that a smaller firm, with limited resources, can have the ability to compete with much larger players, for similar deals.

Intermediaries are also taking notice. After all, they are the ones that may be able to push this change faster.

Alok Misra

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