You've heard the cliché that getting more deal flow is a numbers game. In a Business Insider article from March 29, 2011, entitled "Five Best Practices In Sourcing Investments," David Teten, CEO of Navon Partners, outlines the 5 key strategies that should be employed by private equity firms to secure more deal flow:
- Build a specialized outbound origination program.
- Create opportunities, instead of waiting for opportunities to appear.
- Use deal signals to look for targets which are both attractive investments, and are likely to welcome an outside investor.
- Install a professional CRM system.
- Leverage social media.
Private equity firms have mastered strategies 1 through 4, but the use of social media as a deal origination tool is in its infancy. The PE industry has not following their VC brethren in embracing social media as a legitimate method of sourcing investments. It is hard to argue that in the coming years, the importance of online deal sourcing will increase. More traditional approaches of deal origination such as referrals or relationships development will always be necessary but social media will be very complementary to these efforts.
For clarity, the concept of social media deal sourcing should be encompassing of all online tactics used to drive deal flow. It is more that just signing up for a Twitter account or joining an online deal sourcing network. We see a significant opportunity for innovate private equity firms to take the lead in using various online strategies and tactics to unearth more relevant opportunities. Let's explore these in depth:
Educational Content Marketing
Some people call this "thought leadership" but we think that sound pretentious to many entreprenuers. Educational content marketing is simply providing valuable information to your target audience in a non-salesy way. This is a long term strategy to build brand awareness and demonstrate expertise. It might not drive leads in the short term, but it will differentiate private equity from their competitors in the long term. This can be valuable when a business owner is performing their own due diligence on which private equity partner to select in a competitive auction process.
Online content is disseminated in consumable, bit-sized chucks. Be sure to write with your audience in mind. In the case of driving deal flow, your audience is the mid-market entrepreneur. The content should strike a balance between being informative, but not too technical. It should also highlight the strengths of your firm with might include industry or transaction type (MBO, succession, etc.) expertise.
Using different content types such as webinars, videos, podcasts, or written articles, allows the audience to get a feel for your firm's culture, which goes a long way to impress potential acquisition targets. Here is an example of a webinar with Evolution Capital Partners.
Here is a great and simple content idea for private equity groups; create a podcast with the CEOs of your platform companies. The CEOs could share their stories on selecting the PE group and working with them to drive value. This would build a tremendous amount of credibility with other business owners and may drive some interesting leads.
Niche Online Media Channels
After you have created educational content, seek media outlets that cater to an audience that fits your niche target demographics. Are you looking for acquisition opportunities in the automotive parts and accessories sector? Write a case study for assembly.com (a monthly trade magazine read by 54,000 engineers and managers responsible for manufacturing and designing cars) on how your private equity firm has helped other companies in this sector increase value. Here's an insider's secret; many online publications welcome a content share, where you don't even have to pay to publicize the article.
When choosing a media outlet, be skeptical of the traffic metrics that the online publications is claiming to have. Be sure to ask for supporting information from Google Analytics to back up the quoted number of unique visitors per month on the site. Other tools like Alexa, SEMrush or Compete are useful to rank websites and find traffic statistic. Some other questions to ask when assessing an online media channel include:
- What tactics will be used to drive qualified leads and targeted deal flow?
- What is the demographics of the audience?
- How many people subscribe to dedicated email newsletters?
Targeted Lead Capture
Whereas educational content marketing is used to build brands, targeted lead capture incorporates tactics to gather information on potential opportunities. The idea is to offer something of value in exchange for a target's contact information. Some ideas for 'capture content' used to obtain a target's information might include:
- An ebook titled: "The Five Things to Watch Out for When Partnering with Private Equity"
- A webinar on "How Operating Partners Can Work With PE Groups to Find the Perfect Acquisition Target?"
- Checklist or scorecard use by your firm to evaluate potential acquisition targets.
Here is an example of capture content used by Hadley Capital where they offered up a sample LOI along with an educational article that walks the entrepreneur thought all the relevant points. Content ideas are only limited to one's imagination.
Of equal importance, is the strategic placement of the content across the website. Traditional methods include banner ads or customized landing pages with attention grabbing "calls to action." A less sexy, but effective placement is call the targeted text link. As an example, Divestopedia ranks high on Google searches for a number of specific M&A terms in our glossary. So targeted text links for our download titled "An Entrepreneur's Guide to Executing an MBO" can be strategically placed under the related terms 'MBO, Buy-in Management Buy-out, and Mezzanine Debt'. Effectively, we have pre-qualified leads based on what is being searched for online.
Dedicated Email Blast
Most mass email communication from private equity groups that cross our inbox either announces a deal closing (yahoo!) or provides an introduction to the PE's investment criteria. We believe there is significant room for improvement with this online strategy. Here are some of our thoughts:
- From our experience, providing valuable content rather than generic announcements, will reduce the number of people that hit the "unsubscribe button".
- Great capture content would allow dedicated emails to be used as a lead generation tool and allow the PE firm to measure the effectiveness of a mail-out.
- Having the email sent from a third party online media channel appears more legitimate and less self promotional.
Promotion of Buy-side Mandates
Buy-side mandates, essentially, are another form of content that highlights a sector where you would like to source new deals. They are more detailed than general investment criteria, and the ideal mandate should include:
- A clear headline that succinctly describes what you are looking for;
- An overview that describe the private equity firm and their expertise;
- An investment thesis that summarizes why they are searching for the specific target (i.e add-on vs. platform); and
- A investment criteria that highlights attributes or transactional situations that would make an opportunity attractive.
The obvious benefit of buy-mandates is that it lets M&A professionals and business owners know exactly what type of deal your are looking for. This increases the chance of being included in a deal that is not widely marketed. Mr. Teten's article also cites that private investors have found that openly discussing their investment theses increases their perceived expertise and trustworthiness, and thus generates deal flow.