In the first half of 2018, PE firms closed over 1,300 middle market deals, outperforming 2017 and reminding the players that M&A is more competitive than ever. With this volume, portfolio managers face mounting pressure to pulse faster, accelerate decision making and win more of the right deals. They need a competitive advantage and the secret weapon is knowledge and conviction. But how can they come to the deal table with knowledge and conviction in a niche industry where they are not the expert?
Therein lies the rub. In evaluating new deals, private equity investors are almost always outside of the industry and rarely have an adequate amount of time or knowledge to make business decisions fast enough.
Many firms start research on their own, which is inefficient and often not comprehensive enough. Others understand the value that advisors who have direct industry experience can quickly bring to the process, and turn to those experts well versed in the industry. Working with knowledgeable experts provides PE with perspectives Google simply can’t match. When it comes to researching a deal, there is no replacement for a lifetime of experience.
Three tactics that accelerate decision making
For PE, the most important asset is time when researching a deal. Private equity firms are consistently under deadline to research an investment or an industry and to decide whether to submit a bid. Conducting due diligence can take a team of 3-4 people weeks to do. PE teams are up against the clock to gather information that will get them to yes or no faster.
Often when submitting an IOI bid, PE firms don’t have weeks to come up to speed. In reality, they only have a matter of days to try to decide if an opportunity makes sense to pour resources into. That’s why they should partner with primary research firms, which can help them cycle through intensive research over the course of a few days and accelerate decision making. Although every process is unique, engaging with a high-touch consultative firm like Apex Leaders can shave weeks off your process by killing deals faster, or by getting you to yes more quickly.
Recognize the difference between knowledge and information
When researching a deal, many firms turn to public articles and market reports to get a better lay of the land. Taking the time to find and review relevant information often eats up valuable time; more than any investment professional can afford. You end up sifting through content that isn’t pertinent and at times comes from questionable sources. However, public information can only take them so far.
At some point, an expert is needed to fill in blanks that can’t be found online. There isn’t enough information available through Google to replace a lifetime of knowledge an expert has gained while working in the industry over time.
Having an expert readily available who is knowledgeable about the industry will help the firm make decisions more quickly. What’s more, the start of a rich relationship with an industry expert can develop into a long-term partnership which pays future dividends. While an expert network can provide assistance, thought partners can create growth well beyond the initial deal. During the course of familiarizing themselves with your firm, industry these industry “River Guides” become well-versed in the nuances of your investment strategy and can tailor their expertise when giving advice about acquisition targets in their industry. Having an established relationship with an industry leader is an invaluable asset to have when time is pressed or you need an outside perspective.
At the end of the day, firms must learn how to use their time efficiently to position themselves at the highest tier of competition. Firms should seek out seasoned advisors to lend expertise and knowledge. This will help give the firm a competitive edge by accelerating decision making. It will also instill the conviction they need to make decisions that will position their firm as the preferred buyer in a competitive process. It will also help lay the groundwork for advisor partnerships PE can leverage as their relationship grows.
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