As the Fall begins and vacations become a far-off memory, you may be getting that back to school feeling about preparing for your first Deal Market at the M&A Source Conference this November. As Director of Business Development at a private equity fund, I get the opportunity to speak with a lot of advisors and have attended a few Deal Markets over the years. With that experience, I thought it would be helpful to put together a few notes from the private equity perspective that could help you as you prepare for the Deal Market.
Some of you may be thinking that in order to participate in the Deal Market you need a book of deals with CIMs prepared, Q of Es done, data rooms populated, P&Ls clear, cleaned and buffed to a fine sheen (I exaggerate but you get the idea…) The truth is though, that for most private equity groups, as long as the size and the sector is right, we’re always happy to hear about deals whatever stage they are in, from a prospect to a signed engagement. We know that it takes time to build a book of business, and getting even some blind descriptions of businesses you’re speaking to can be helpful.
A prospect in a sector we’re interested, let’s say food manufacturing in our case, even if it could be a few years away from a transaction, is a great thing to put on our radar and gives us a reason to reach out to you and catch up. Also, if you don’t have any deals ready but you’re prospecting in sectors that could be a fit, stop by! It’s always good to put a face to a name and get a sense of the areas you’re working in. Also, as we all know, business owners aren’t ready to sell until they’re ready to sell, but when they’re ready… whether their goal post transaction is a beach house or a new canning line… they want to move quick, and having a few PE groups that you met personally can only be helpful in that situation.
One other area I wanted to touch on, as you prepare brief descriptions of the opportunities that you’re bringing to the Deal Market, you may be tempted to edit out any significant issues each deal has. You might say, let me get a couple PE fish on my hook before I disclose any Big Uglies (the lease is up on the facility, the bank is about to foreclose, there has been a recall, the owner has no succession plan, the books are not kept well, etc.) Now there is a school of thought that it would be better to get a few buyers involved before disclosing these sorts of issues, but remember how you felt when, after you had spent significant time and effort preparing a deal to go to market, your client disclosed to you some unpleasant issue with the company…Why didn’t you tell me before!
You will save yourself a lot of time and trouble by highlighting these issues upfront, because all of these problems can be solved if your buyer is aware of them ahead of time; if they are disclosed, or worse, discovered later, the process becomes much harder, not necessarily because of the issue but because your buyer will be wondering what other surprises might be coming down the line. Early clarity on problems is also a great way to build trust with your buyer and help create a collaborative, problem solving relationship that will be an aid across many transactions. If you disclose as much as you can upfront, you will find buyers who are prepared to work with you and the seller to solve problems and get the deal done.
For example, these are all imperfect businesses or situations that I would be interested in learning more about:
“I’m speaking to a food manufacturer, I don’t have a lot of information but I think they fit your size criteria.”
“They don’t have a succession plan and there are a few generations of owners with different goals.”
“It checks all your boxes but the owner isn’t ready to sell.”
“Their books aren’t in good shape but from my analysis they are in your size range.”
All that said, while all of us are looking to find opportunity at the Deal Market, it can also be a great place to learn and build the relationships that will help get deals across the finish line. Don’t be afraid to ask questions about the buyers, whether at the market or on a follow up call. Learning about how a PE group is structured and what their team looks like can be great color to give a seller as you evaluate bids.
I hope this has been helpful, and if you’re on the fence you might give it a try, and if so, I’ll see you in San Diego!
Alex Welles, Director of Business Development at Union Capital
Alex Welles formerly worked as an Analyst at Granite Capital Partners.
Alex is currently helping to source and analyze new investment opportunities and working on operational improvements at existing portfolio companies.
Alex is a graduate of Wheaton College with a degree in Economics.