A mid-market private equity firm will often review hundreds, if not thousands of potential deals per year. That’s not just astounding for its sheer volume, but also for the speed at which the review process needs to happen. Team members work weekends and after hours, wading through massive amounts of information — some of which ends up not being relevant to the deal at hand.
PE often falls into the trap of spending too much time researching information, when they could save time by combining that researched information with knowledge (or what we like to call applied information) by experienced advisors.
Once your PE firm receives official notice a company is for sale, you generally have two weeks or less to submit a bid or IOI. This leaves your team with tight timelines and limited resources. Too often, high-salaried executives and other team members spend precious time on research trying to determine if they should move forward and at what price when their skills could better be applied elsewhere. At the same time, junior level investors are exposed to the bulk of these deals and need a faster way to get through the options.
To get to a yes or no investment answer faster, PE firms like yours could better spend their time combining “know how” with “know who.” And that’s exactly what we’ll show you how to do in this post.
Given fast deal timelines, your firm needs to be able to access solid rationale and logic to determine the next steps. First, you have to figure out if you want to enter the industry. Your deal team should also look at the big picture — identifying trends that aren’t currently impacting the industry, but could in the future.
Next, you need to decide if this is a company you want to own. Is it worth your time to submit an LOI? You must get through the stages of interest and determine bid price.
How PE gathers information in a compressed timeline
To find the facts and information you need about a deal, PE firms like yours use a number of methods:
- Viewing of industry reports distributed by consulting firms. These are shopped to all PE firms and have little differentiation. They have high-level insights, but few details.
- Digging into industry financials to establish a norm. These financials, however, don’t take into account future forecasts.
- Searching databases focused on privately held firms, like Pitchbook, to verify numbers. Keep in mind, the numbers provided in these reports are only as accurate as the firm reports them and don’t include any future forecasting information. The reports generally receive a confidence rating of less than 100% in databases. To make an investment solely based on information gathered from databases is risky.
- Speaking with advisors and experts. These conversations give more color to the industry and future forecast, but there are limitations to each person’s view. Perspectives can be subjective instead of objective. That being said, this is where you can gain the knowledge you need beyond basic information. More on that in the next section of this post.
Unique benefits of speaking with advisors
The success of the deal (and their firm) depends on whether you can make informed decisions and reach the right data points as you move forward. Advisors and experts can provide you with the applied knowledge you need to move deals across the finish line. You can get insider information other generalist PE firms won’t have access to. Private-equity-centric human capital firms like Apex Leaders connect you with these experts.
By speaking with advisors in the industry, your firm will appear more competent to the seller. You will stand out because you’ve “done your homework” and know what’s going on in the industry. This shows the seller greater commitment, thought partnership, and forward thinking.
If as a PE firm you’re able to show conviction to your investment thesis in the space, this can signal to the seller that it’s better to select you as a committed partner now, rather than face you in the future as a competitor. Even if the seller opts not to move forward with your firm in the end (or vice versa), you can still pursue other companies in the space with a leg up on other firms, based on your increased knowledge.
Conducting research vs. speaking with advisors
Your best path to yes or no is to combine information with applied knowledge — or to conduct research and speak with advisors. The key is combining information with knowledge. Without question, you should read industry reports. But you should also speak with advisors to identify blind spots that aren’t available in reports.
By speaking with expert advisors, you can get the real story along with the financial numbers a target company might provide. Advisors can help validate financial numbers and paint a bigger picture, identifying what an industry looks like now and forecasting what it will be in the future.
When your firm is ready to speak with advisors, don’t waste time trying to connect with advisors who may be of value on their own. Partner with a human capital firm like Apex Leaders that has expertise in honing in on the right individuals, vetting individuals for specific knowledge and setting up meetings — one that has a dialed, repeatable process in place.
Accessing advisors and experts
Don’t waste time researching information that isn’t relevant to the deal at hand. Combine knowledge with information to get to yes or no faster. Speak with experts who can add applied knowledge to help you close the deal. Apex Leaders can connect you with advisors who have experience, insights, and relationships that go well beyond your firm’s network.
Invest or Walk
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