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Dating Success Matchmaking With Private Equity

Apr 20, 2011

Would you invest in a company that only closed 1 out of 80 leads? Or a company that typically took one year and 3 professionals just to close a single client? That’s how most Private Equity firms work – according to a survey reviewed in an AltiaMarket.com article. The median investor in private companies reviews over 80 opportunities in order to make 1 investment. The median private equity fund required 3.1 investment team members to close one transaction in one year. By the standards of most traditional sales processes, private equity origination is an extremely low-yielding and labor-intensive process…despite the fact that an effective deal origination process is fundamental to successful investing. So what does this tell us about the chances of obtaining Private Equity business funding? It could imply that there is an excess supply of money out there, and that PEGs are having trouble finding the right type and sufficient quantity of investments. Why not take advantage of this dynamic and take a few simple steps to be in the right place at the right time?

Remember Dating 101? In order to find a good date, you often have to be counter-intuitive. This is why Flower Arranging classes, or Car Mechanics classes often have a surfeit of the wrong sex – perhaps people are trying too hard. The dating scene has changed in many subtle ways over the years, but perhaps the biggest change has been the emergence of social media which has made the chances of finding your perfect mate much greater – if only because it has expanded the available pool beyond your local bar. Private Equity groups are faced with similar changes. Their traditional techniques for sourcing deals all use outbound communication methods such as emails, cold calling, relationships with intermediaries, trades shows and conferences. But new on-line media have changed the landscape. Private equity groups are now being encouraged to try new things. Savvy entrepreneurs can start to take advantage of these recommendations to position themselves for a match-up.

Here are some of the recommendations that PEG funds received to help improve the volume and relevance of their deal flow, with suggestions for how a business owner can get on board.

  1. Create opportunities, instead of waiting for opportunities to appear. A number of the funds use an origination approach that allows them to proactively co-create companies or opportunities. Frontenac Company uses a “CEO1st” strategy, partnering with “deal executives” to source investments in these executives’ focus industries. Could Entrepreneurs approach PEGs to package the sale of their company with an industry CEO?
  2. Use deal signals to look for targets which are both attractive investments and are likely to welcome an outside investor. In order to filter the universe of companies, some investors specifically reach out to companies flashing relevant “deal signals”. These investors are exploiting the wealth of information about private companies available online, increasingly leaked via social media. For example, an increase in Internet traffic is usually a sign of customer traction. A family-run company that hires an outside manager is flashing a signal that the firm may welcome an outside investor. How can your PR campaign get on the radar of PEGs?
  3. Leverage social media. Although private equity funds have been slow to take up social media, some have been more aggressive. For example, HealthPoint Capital, a $750m fund, has made their blog a destination for M&A/investing information in the musculoskeletal sector—specifically orthopedics and dental. Many investors reported that they used Facebook, LinkedIn, and various email lists informally to keep in touch with their professional and personal networks. These can have direct business impact. How can you locate and contribute to industry blogs and LinkedIn groups and get on the radar of investors?

There are several ways that company owners can plug in to the Private equity network. Whether you are considering an exit now, or just want to be open to opportunities it makes sense to start getting on the radar – especially as PEGs turn to social media to identify investment opportunities .

More from David Kirkup…

About the Author

David has over two and a half decades of business experience and is a proven financial management expert. Working in Europe and the USA, David has served as Divisional CFO at a number of Fortune 500 corporations: including Reuters, Marsh & McClennan, Zurich Insurance and ADP as well as numerous small and mid size companies. As part owner of a small software company, he was heavily involved in the marketing efforts and ultimate sale of the company. As CFO with a national PEO firm he dealt with the credit and financial issues facing hundreds of small business clients. David also spent 5 years in Bermuda managing captive insurance companies.

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