Tag Archives | Private Equity Deal Sourcing

Three (Very Basic) Things Private Equity Firms Should Do More to Win Deals in 2017

Financial Services Cloud Helps Win DealsA new Deloitte survey found that three out of four M&A professionals expect deal activity to continue rebounding into 2017. But this optimism comes with a caveat for private equity firms: the pressure is on to strike good deals. 

That’s partly because corporate strategics have the benefit of sitting on the sidelines without having to answer to impatient stakeholders, partly because money continues flowing into the sector at such a rate that we’re calling it private equity’s greatest test yet to come, and partly because investors still expect private equity shops to deliver outsized returns.

In fact, a Coller Capital LP survey found that 77 percent of investors plan to make US mid-market funds their main focus in 2017; and about the same expect private equity bets to deliver 11 percent annual returns in the medium-term. Yet that same survey found 64 percent of investors fear “too much money [is] pursuing too few attractive opportunities”. So investors seem to be aware of their own herd mentality, but trust the private equity sector enough to continue delivering satisfying returns during this anticipated M&A uptick.

Can private equity deliver? That depends on a number of factors, but private equity firms must fully leverage their core strengths of relationship building and due diligence if they want to win the best deals. Not every firm accomplishes this. Or at least isn’t accomplishing this to a sufficient enough degree. Below, we list three of those under-leveraged deal strategies.

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In 2017, Private Equity Faces its Greatest Test Yet

Navatar Helps Private Equity Professionals Win DelasIf you factor in co-investments, separate accounts and direct investments – three channels investors are increasingly using to pump money into the private equity sector – 2017 is shaping up to be a record year for the asset class. The industry is on pace to raise a wallet-busting $691 billion in commitments this year, about 10 percent more than the previous high mark. That’s on top of an estimated $1 trillion in dry powder already waiting to be deployed.

All this capital raising is good news, right? Maybe, because at the same time that cash is flooding into the sector private equity deals are getting smaller. Deals under the $25 million mark accounted for nearly half of activity thus far in 2016, representing the highest proportion since 2009. Observers chalk this up to a number of reasons, including rich stock prices and increased regulatory scrutiny, but our guess is that private equity firms are seeing better opportunity for returns at the smaller end of the market, where greater growth and operational wins are to be had.

Which takes us to a bigger point: it’s getting tougher these days for private equity firms to source the types of deals they want. The problem is that flood of capital chasing smaller deals combined with more competition. During the 15-year period from 2000 to 2014, the number of active private equity firms globally exploded 143 percent to 3,530. Intensifying competition further is a migration of large buyout shops moving down market in search of yield amid today’s low interest rate environment, and other kinds of entities with access to cheap debt, including sovereign wealth funds and pension funds with direct investment capabilities, entering the field.

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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:

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The Easily Avoidable Mistake That Private Equity Managers Break When Engaging M&A Advisors

How to Improve Private Equity Deal Sourcing

You would be forgiven for believing that most private equity deals are sourced independently given the amount of time fund managers spend describing their “proprietary deal flow”, a persistent industry catchphrase. In fact, it is intermediaries that are the biggest deal flow spigot. That’s truer now than ever – a trend not lost on investors, who now pepper managers with questions about their relationships with investment bankers and brokers during marketing meetings. Managers not very good at engaging intermediaries not only risk losing out on prize deals, but increasingly so capital commitments too.

So how can managers improve their outreach and relationship with M&A bankers?

It’s a question we posed to four of the best intermediaries in the field as part of a wider roundtable on deal sourcing strategies, a conversation co-moderated by Blackford Capital’s Martin Stein, who provided the conversation crucial buy-side perspective.

One key lesson emerging from the roundtable discussion is the importance of being responsive.   Continue Reading →

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Are Private Equity Deal Makers Seeing Increased Competition?

“Competition is heating up in the world of private equity,” says William Alden in his Dealbook article.  According to him, private equity executives are noticing an increase in competition for deals in the last year or so. Several say that, in the face of competing bids, they have been forced to sit on the sidelines more often than they would like.

Is this competition primarily due to low interest rates and generous bank financing, as the article suggests?  To a certain extent, that is true. However, there are other important factors at play, that may be worth exploring, as well.

To quote the article further:

“We’ve been a little less active than we would have liked to have been in the last 18 months,” Joseph Baratta, the global head of private equity at the Blackstone Group, said at a venture capital and private equity conference. “We’re not finding that edge. We’re being a little more disciplined on that value metric.”

Like Mr. Baratta, Candice Szu, a senior vice president at the Carlyle Group, emphasized the importance of finding an “edge” in competitive situations. That often means bringing a particular expertise in an effort to make an offer more compelling, she said. “It’s something we always ask ourselves: What can we bring to the table that’s a little different?”

Why do Blackstone and Carlyle need an “edge,” one may ask?  Firms like these traditionally had unmatched resources and reach which, in the past, helped them uncover deals that others couldn’t.  However, that has changed.  Today, smaller private equity funds are also able to get to the same opportunities, thanks to social media and specialized deal marketplaces (such as Navatar Deal Connect).  Smaller funds are getting savvy at securing a large inflow of deals and becoming efficient at processing  them rapidly, thanks to the latest cloud-based tools and databases, that can easily match or exceed the infrastructure of larger firms.  Armed with the new tools, they are able to level the playing field with a more “personalized” approach, causing larger players to have to find an “edge” to compete.

A good example of how smaller firms are competing, is outlined by Martin Stein (Managing Director at Blackford Capital), in this webinar.  Blackford, a middle market private equity firm focused on manufacturing & distribution, has mastered the science behind widening their reach to get in front of the right deals.

In addition, there are margin pressures, as the article points out.  Private equity managers must find cheap investments at a time when stocks are near historic highs.

Though private equity firms will continue to hunt for bargains, returns may not be as high in the future as they have been in the past, David M. Rubenstein, a co-founder and co-chief executive of Carlyle, said in a keynote speech on Sunday.

“The days of getting fabulously rich in private equity may be a little bit behind us,” Mr. Rubenstein said.

Are the low returns a temporary phenomenon, due to interest rates and other factors? Or are they here to stay? I’m no private equity guru, so I will leave that to the experts.

But I do believe that competition can’t be all that bad.  It may lead to better times ahead, for the industry.

Alok Misra

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Strategic Buyers Increase Media M&A Activity On Navatar Deal Connect

According to a survey released today by M&A firm AdMedia Partners, an overwhelming majority (81 percent) of senior executives at leading content, marketing services and marketing technology companies believe mergers and acquisitions by strategic buyers in the industry will rise in the coming year.

We are beginning to see it unfold.  Just a few days ago, Atlanta based Cox Media sold three Connecticut radio stations to Connoisseur Media in Westport, CT.  Inside Radio reports on FCC filings that show Cox is also selling stations in Alabama, South Carolina, Hawaii and Virginia to Summit Media and private equity firm High Point Summit.

Cox Media also started using Navatar Corporate Development CRM service last July, after the company announced a new strategy focused on larger markets, cross market collaboration and heightened impact in fewer markets.  They are clearly executing that strategy.

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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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How Salesforce CRM Helps Private Equity Funds Improve Deal Sourcing & Portfolio Performance

The private equity business requires a lot of focus – focus on fundraising, on finding the right deals, on company performance – before it can deliver successful returns for its limited partners.

Distractions can be plenty.  Martin Stein, Managing Director of Blackford Capital, who is one of the most tech-savvy private equity professionals, discusses some of these issues in a new video. He outlines why focus is so critical in the private equity world.

Martin has been one of the early adopters of cloud technologies and social media, deploying Navatar Private Equity CRM, which is built on the Salesforce platform, at Blackford Capital 3-4 years ago. Blackford Capital is a private investment firm that acquires, manages, and grows middle-market manufacturing, distribution, and service companies. Blackford also uses Navatar Deal Connect for deal sourcing and building intermediary relationships.

According to Martin, the cloud has helped Blackford Capital focus their time and efforts a lot less on deal sourcing, so they can allocate more time towards their portfolio companies. He adds:

In the end, it is finding a good deal and managing that deal effectively that allows us to drive higher returns for our LPs.” 

In addition to the video, do not miss the recorded webinar, The New Rules of Private Equity, with Martin Stein, to learn about the detailed metrics that Blackford uses to improve operating performance. When it comes to focus, Martin is one of the pros in the business.

Alok Misra

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