“We’re a new private equity fund with over $X million in committed capital. We’re looking for companies in North America with over $X million in EBITDA. We are a generalist firm that likes profitable businesses with strong management teams and a good growth strategy. Please reach out if you have any opportunities of interest.”
If you’re an investment banker, you’ve seen an email like this before. “The playbook looks about the same for 5,000 different private equity investors. Out of that message, what was compelling and differentiated them from any other fund? Absolutely nothing,” says Ramsey Goodrich, managing partner at boutique investment bank Carter Morse & Goodrich, who estimates each banker at his firm gets 10 similar messages a day from PE firms looking to network and drum up deal flow.
To be fair, there are variations on the theme. A healthcare specialist PE firm emails a bank that’s never done a healthcare deal. A firm sends an email out with a bulleted list of 20 portfolio companies as “representative transaction history” and no additional context — essentially putting the onus on the banker to do hours of research to figure out the firm’s investment theses. A PE firm calls a bank after seeing a deal announcement, wondering why they weren’t on the buyers’ list (despite the fact that they’d never reached out or even listed their investment interests on their own website).
With so many private equity firms out there today — not to mention strategic acquirers, family offices, independent sponsors, search funds, and other non-traditional buyers — it should come as no surprise that differentiation will take a little legwork. Here are a few tips to get investment bankers’ attention (in a good way) and avoid being a basic buyer.
1. Be specific.
Sending regular emails is a good start… but don’t send emails that could have been sent from a hundred other firms. “Tell me what you’re interested in, but don’t just say a profitable business or something in manufacturing. It’s better to tell me about the portfolio company you’re actively seeking a bolt-on for and what the niche market dynamics are that you’re trying to extrapolate. Tell me that you understand the issues in the industry and therefore can get over some of the basic hurdles. Tell me about an investment thesis you have that you’re trying to get a better understanding of, or about an executive you have that’s perfect in a very narrow niche. I’ll save that email,” says Goodrich.
The more specific, the better. Some buyers may be wary of taking this approach, worried that they’ll turn off bankers who don’t have anything in that specific subsector. Goodrich says the opposite is true. “As a boutique banker, if you tell me you’re looking for a very tiny and specific little niche that’s a bolt-on to a company, with X dynamics with Y end customer, I’ll go find it. Maybe I talked to a company a few years ago but never got anywhere.”
2. Focus on one mandate at a time.
Some firms send out introductory emails with an exhaustive bulleted list of all their portfolio companies. “I don’t have enough hours in the day to research every portfolio company of every private equity firm out there. What I’d rather get is six different emails over the course of six months, each outlining only one portfolio company. If you send an email about the company you’re working with and exactly what you’re looking for, and why, I can forward that to my client, or the lawyer that I know with a client in that space, or the accounting firm we’re friends with. Your mandate could be a great business development tool for my firm. But if you keep it a secret, I can’t help you,” says Goodrich.
3. Respond quickly, and thoughtfully.
If you are approached as a prospective buyer on a project, timely feedback — good or bad — is key. If you’re not interested, providing some insight into why is always appreciated. “Something like, ‘We really liked the space, but we don’t like X aspect of it,’ is really helpful for us. It’s feedback for our client, and it gives us more confidence we’ll get to a closing with the right buyer. Even more importantly, that private equity person just raised up in our ranks, because he or she was thoughtful with their response,” says Goodrich.
4. Make sure your offer is competitive.
If you do submit an offer, make sure it’s competitive with the current market. Most banks track buyer metrics, including valuation ranges on a given project, and being near the median or top tier of bids increases the probability of being included in future processes. Particularly in today’s hot market, such behavior will move you to the bottom of future buyers’ lists every time.
5. Don’t be a dead end.
“Say no quickly if you’re not interested in a deal, but even better, shoot back a quick email with a ‘No, but let me give you two or three groups for which this may be very well suited,’” says Terry Hannafin, managing director at Carter Morse & Goodrich. This kind of reciprocity will curry you favor not only with the bank but with your fellow investors as well.
6. Have an online presence.
Let’s say an investor meets with a banker at a conference. The banker gets a good feeling, but forgets his specific areas of interest, so he looks him up. If your firm website doesn’t make it easy to find your specific criteria and information about your portfolio company, you may have thrown away that opportunity without even realizing it. Being active on social media and networks like Axial is an added benefit. With a growing number of private equity funds and spinouts, bankers are always trying to find new buyers and relationships.
7. Be a nice person.
People want to sell their companies to people they like. Bankers want to work with investors they like. Don’t show up to meetings at a conference with the mentality that you’re there to hand out a hundred business cards and check a few dozen banks off your list. “Take your time. Talk to me about my client. More than your next fund or your assets under management, I want to know about your industry experience, about the trials and tribulations of your last transaction and how your resolved problems, how you relate to (in our case) family businesses. Take the time to make the conversation personal,” says Goodrich. Whether or not an investor follows up after a meeting is another make-or-break moment. “I was recently at an event where I met with 30 private equity firms. Only two followed up. Guess who’s going to see my next deal?”