Luck is not a strategy
According to statistics from IBIS, an analysis and reporting company, there are nearly 14,000 private equity firms active in the United States. While this includes venture capital and other investment vehicles, this number is so impressively large that it shows that private equity firms operate in a highly competitive market environment.
We work closely with many of these companies and notice time and again, especially at the beginning of the cooperation, that the PE houses are not clear about themselves, or their own company.
Private equity companies also need unique selling propositions
It is a bit curious that PEs try to figure out the strategic fit and the USP in their due diligences, but in their own business development this important point is completely neglected.
With such a large number of market participants trying to acquire the best targets to provide the best possible return to their investors, the details are critical.
Luck is not a strategy
This already starts with the search for suitable targets. Small PEs usually do not have their own sourcing team and rely on outside input. They rely on the well-known brokers and sell side consultants to deliver a suitable target. However, this is not a strategy. Simply put, it is pure luck and you leave the most important process for portfolio growth to chance. Active sourcing is the solution. Professional active sourcing. This is a full time job that does not allow analysts or interns in the company to do it on the side. Unfortunately, we still see that this is the daily routine in American PE companies.
Why exactly us?
Since PEs are reluctant to pay retainers or hourly fees, a finders fee is usually agreed with potential brokers or consultants. However, this low fee is usually not exclusive (if it is exclusive, it is significantly higher), which leads to the same target being presented to several PEs. Consequently, the target is in quite a good negotiating position and will ask the potential acquirer the following questions:
- What are you offering me besides money for my business?
- What will my role be in a new corporate environment?
- What benefit do my customers get from selling to you?
Three simple questions. Dear reader, believe us, we already know the answers beforehand, because these questions are answered by most people in the same way. Let me guess:
To 1. Reverse shareholding with the chance of significantly more money at the planned exit after 5 to 7 years.
To 2. Continue to drive the company forward as Managing Director. Of course we take work off your hands and centralize services like accounting, invoicing, HR, marketing.
To 3. Customers have a wider range of services and can be served fully and US wide.
So, did I guess well? Yes, I know… it’s not quite that simple. I just want to show that PEs should also think about their story and also have to generate real added value in this market environment. Anyone can collect and buy targets. Meaningful integration is difficult.
Feel free to contact us. We have been delivering acquisition services for many decades and specialize in private equity. It doesn’t cost to ask. 😉
