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Private Equity Takes a More Targeted Approach

Business development execs use data and more focused relationships to harness a robust dealmaking environment

Private Equity Takes a More Targeted Approach

Dealmaking in private equity was red hot in 2021, resulting in an excessively busy time for buyout firms across the middle market. In girding themselves for another active year—if one not so frenzied as the previous—finance executives are reestablishing in-person investor connections while diving into data and analytics to better track robust opportunities.

“The M&A environment is going to remain active in 2022,” says Bassem Mansour, co-CEO of Cleveland-based private equity firm Resilience Capital Partners. “Obviously, the year has started off with economic challenges highlighted by the invasion of Ukraine and rising interest rates. But there’s way too much dry powder with both private equity funds and public company borrowing capacity to think it will be a slow or even modest environment.”

This is an excerpt of a report that originally appeared in the Business Development Professionals to Watch special report. Read the full story in the archive.

Illustrated by Daniel Hertzberg.

Although this year’s deal flow is not projected to match that of 2021, interfacing with the right investment bankers is a priority for business development executives like Mansour.

Considering investment banks are narrowing their sales processes, sponsors must maintain meticulous knowledge of specific markets. Mansour’s firm, which focuses on the lower mid-market in industries encompassing life sciences, logistics and automation, drills deep into an investment banker’s niches when pursuing any deal.

“A bank may have a guy good at distribution, or someone who’s good in automation,” says Mansour. “We have that platform available, so they should be thinking of us.”

Casting a Wide Net

Brent Kulman, director of business development for private equity firm Five Points Capital in Winston-Salem, North Carolina, says many private equity groups are aggressively expanding how they identify potential deals.

“Private equity in general is more focused on the staffing aspect of the business,” Kulman says. “Not internal staffing, but finding key executives or board members for your current portfolio companies, or using those resources to distinguish yourself when trying to acquire a new platform. These executives are often so ingrained in their markets, they can identify companies through their networks as well.”

Private equity in general is more focused on the staffing aspect of the business. Not internal staffing, but finding key executives or board members for your current portfolio companies, or using those resources to distinguish yourself when trying to acquire a new platform.

Brent Kulman

Five Points Capital

Adam VeVerka, a partner at Philadelphia-headquartered NewSpring Capital and leader of the private equity firm’s business development efforts, says matching supply to demand in 2022 means taking a multifaceted approach to building relationships.

First, in-person conferences are resuming. As of early March, VeVerka has been on the road for a month, taking regular meetings at a pre-pandemic pace. Leading with relationships is crucial on the buy-side, according to VeVerka, who says he’s more interested in friendly sit-downs over the “speed-dating” scenarios he sometimes finds on the convention circuit.

“Spending time in person with city visits—even outside of a conference scenario—is important,” he says. “I want bankers to remember us, to know our story. When I talk to people, I’ll bring them our portfolio for review. They want to get smart on trends and to know what we’re investing in. They also want to hear about what opportunities could be good for them from a sell-side perspective.”

Bringing Innovation to Market

On the heels of 2021, Pennsylvania-based private equity firm Argosy Capital is now focused on deals available in the manufacturing, B2B and healthcare sectors. Jason Cunningham, Argosy’s vice president of business development, says the pandemic-spurred rise in video conferencing has strengthened the firm’s relationships with investors. Meanwhile, his firm and others pivoted from traditional dealmaking paths, a transformation that included an accelerated migration into the digital realm.

Before March 2020, Argosy had some experience harnessing analytics to determine which banks and prospective sellers to approach. The firm recently upgraded its DealCloud CRM, an interface purpose-built for private equity due to its baked-in contact management and tracking tools. Argosy further invested in tools and databases to track buyout opportunities directly at their source. Proficiency on the sourcing side required precise calculation of individual deal activity.

“I like to look back at opportunities I’ve seen from various intermediaries and track how far we got in the process,” says Cunningham. “We’ve been successful in using data to help us understand where we should be spending our time to maximize our probability of success and be more efficient.”

Kulman of Five Points says more firms are using powerful “intelligence engines” like Grata, which integrates web technology, machine learning and natural language processing to structure data that businesses often post unindexed on their websites to research middle-market companies. (Grata is an endorsed partner of the Association for Corporate Growth.) Cunningham also points to Axial, a deal-sourcing and marketing tool that sources lower middle-market businesses based on geography, EBITDA, industry verticals and additional criteria, as well as Pitchbook and buy-side-focused intermediaries for acquisition opportunities.

Related content: A Data-Driven Approach to Building Better Private Equity Deals

Similar to its fellow private equity firms, Blue Point is using data to track prospective new business. SalesForce software, for example, supports the firm in data tracking and reporting, with an internal digital group parsing exactly where and how Blue Point should spend its time. Deal sizes, capital expenditures and e-commerce trends are just a few benchmarks the company analyzes when weighing a transaction. “Data is very important to us—we just hired an associate to help us from an analytics perspective,” says Kneipp. “Data proves out the right kind of information in terms of what we’re looking to bid on.”

Resilience Capital has been digitally tracing the sell-side for a few years now, to identify high-activity regions and industries, as well as whether a seller is a corporation, family-owned business or private equity sponsor.

“We started tracking analytics within our portfolio companies, too,” says CEO Mansour. “Companies post key performance indicators that we can then compare. We’ll create benchmarks across portfolios to track investments and find pressure points, like commodity or labor inflation in certain industries or geographies.”

Keeping Pace With a Shifting World

Private equity marketing departments are backing business development, working to close deals and even find investors. Cunningham works directly with his PR team to ensure both the marketing and development sides are interacting with the deal source universe in a thoughtful way. “It’s a challenge to stay top-of-mind with sources. For us, it’s making sure the efficiencies are there,” says Cunningham. “We’re also providing investment bankers with content they will find interesting, like deal announcements or referral sources, and we created a website called Argosy Insights that’s focused on the operating side of our portfolio companies. This work marries the business development and marketing functions while presenting the face of the company.”

It’s a challenge to stay top-of-mind with sources. For us, it’s making sure the efficiencies are there

Jason Cunningham

Argosy Capital

At Five Points, marketing is closely intertwined with the business development function, says Kulman. The departments recently acted hand-in-hand on a platform investment in Analytical Technologies Group (ATG), a specialty equipment and maintenance business lacking executive leadership. The marketing team used a prior association with an investment banker representing ATG to remind the firm to consider Five Points as a potential investor. Today, Five Points is also using “micro-marketing” for a more targeted and granular approach to specific industries, Kulman adds.

Related content: Prioritize Marketing After the Deal Is Done

Today, the fast pace of deal activity is prompting some sponsors to raise funds, even as new threats to the market begin to emerge. The private equity community is currently assessing how the conflict in Ukraine might impact private market portfolios. From export curbs to stiff sanctions that restrict Russia’s access to global financial markets, limits on raw materials or petroleum could affect certain manufacturing sectors.

Mansour of Resilience Capital notes, “Conflicts create uncertainty and uncertainty makes people nervous. There may be economic impact that doesn’t affect us, but the uncertainty is problematic.”

Taking the temperature of the larger economy, business confidence is still very strong, notes Cunningham of Argosy. What’s more, private equity is always evolving in the way it nurtures sell-side relationships and uses innovative tools to approach fresh business prospects. “The old way of doing things is not the way people will be doing them in the future,” Cunningham says. “We’re all looking at how we can be more creative and efficient, and making sure we’re seeing the right opportunities for our firm. The future is a blend of old-fashioned business relationships and the data-driven element.”

Douglas J. Guth is a Cleveland-based freelance writer covering the middle market and small business.