Written By: Gerald O’Dwyer II
The PE Guru — Blackmore Partners, Inc | October 21, 2024
Introduction:
This manual serves as an exhaustive guide for executives preparing to engage with private equity firms. The process is a 12-24 month journey and should be approached as a systematic and strategic endeavor. The manual underscores the importance of keeping economic benefits in focus to maintain motivation and energy throughout the process. PE is a “contact sport,” meaning it revolves around conversations. Each interaction leads to new insights that accelerate your journey. Executives must aim to build relationships with 200+ PE firms, and utilizing tools like PitchBook is essential for efficiency.
Section 1: Understanding the Private Equity Firm’s Website
When reviewing a PE firm’s website, you must gather intelligence on their investment thesis, track record, and strategy. This will guide your approach and questions when engaging with them.
1.1 Overview and Introduction
- Mission & Vision: Understand the firm’s core values and long-term goals. This helps align your goals with theirs during conversations.
- History: When was the firm founded, and what is its origin story? This gives you context and may provide an opening for discussion.
1.2 Investment Strategy
- Investment Criteria: What kind of companies do they look for? Pay attention to details like revenue size, EBITDA margins, industries of interest, and geographic focus. Matching your profile or target company to these criteria increases your chances of engaging their interest.
- Investment Thesis: Understand their fundamental principles and beliefs behind investment decisions. Knowing this helps you align your presentation and emphasize points they value.
- Holding Period: Understanding how long they typically hold investments can give clues about their strategic patience and how you should frame your own long-term vision.
- Value Creation Strategy: Discover how they grow or improve businesses post-acquisition. This is critical for framing discussions around how you can contribute to their strategy or benefit from their expertise.
1.3 Portfolio
- Current Investments: Familiarize yourself with the sectors and businesses they invest in. This shows you understand their focus and can tailor your approach to fit.
- Historical Investments/Exits: Study past investments to identify their exit strategies and understand their success metrics.
1.4 Team
- Partners & Key Personnel: Identify decision-makers and their backgrounds. Establishing connections with the right individuals increases your chances of securing meaningful conversations.
- Advisory Board: A board of industry experts suggests a strategic approach to their investments and can provide insight into their future focus.
1.5 Performance & Track Record
- Returns: While specifics might not be public, general indications of performance provide clues about the firm’s success and credibility.
- Case Studies: Review any case studies they provide to understand their methods and value-add approach.
1.6 Funds
- Fund Structure & Size: Information on the number and type of funds managed by the PE firm (e.g., buyout, growth funds) helps you understand their resources and investment capacity.
- LPs (Limited Partners): Knowing their primary investors (pension funds, institutional investors, etc.) provides insight into their network and stability.
Section 2: Preparing for PE Firm Engagement
Engagement with PE firms requires understanding their needs and effectively presenting how you or your business align with those needs.
2.1 Preparing Questions Based on Website Insights
- Investment Strategy & Criteria:
- What sectors or industries are you bullish on?
- What is your investment thesis and criteria for evaluating opportunities?
- Portfolio & Track Record:
- Can you share examples of how you added value post-acquisition?
- What do you consider a successful exit, and how have you achieved these in the past?
2.2 Tailoring Your Presentation
- Align with Their Thesis: Ensure your pitch or presentation addresses their investment focus. Highlight how your background or business fits within their strategy.
- Emphasize Economic Benefits: Consistently communicate the financial upside for both parties. Keeping the economic benefits in the forefront helps maintain their interest and keeps you motivated to execute your strategy.
Section 3: Building Relationships – The Contact Sport Approach
Key Point: PE is a “contact sport”—the more conversations you have, the more insights and acceleration you gain. Building relationships with 200+ PE firms requires time, dedication, and strategic tools.
3.1 The 200+ PE Firm Target
- Time-Consuming Process: This is a multi-year effort that must be taken seriously. It’s not just about the quantity but about meaningful, strategic connections.
- Use Tools Efficiently: Platforms like PitchBook are essential to manage this scope efficiently. They provide vital information and help organize your approach.
3.2 Conducting Due Diligence on Firms
- Use Multiple Channels: Don’t just rely on their website. Supplement your research with industry reports, news articles, and professional networks to gather a well-rounded understanding.
- Continual Learning: Each conversation should provide new insights. Take notes, refine your strategy, and build on these learnings in subsequent meetings.
Section 4: Keeping the Economic Benefits as Motivation
4.1 Framing Your Goals
- Focus on Long-Term Returns: Keep the potential financial gains—like equity participation and exit multiples—in mind. This clarity helps drive your actions and maintain momentum.
- Short-Term Wins: Identify smaller milestones that provide immediate feedback and success, such as securing a meeting with a key partner or advancing through the qualification stages.
4.2 Tracking Progress
- Use CRM Systems: Track all conversations and engagements with PE firms. Logging details will help you see patterns, follow up effectively, and ensure no opportunity is missed.
- Measure ROI: Calculate the value of your activities—understand how each action contributes to your economic benefits and adjust your approach if necessary.
Section 5: Navigating the Engagement Process
Note: This is a dynamic and iterative process. You will have many “ah ha” moments that create momentum, but it requires persistence and adaptability.
5.1 Initial Contact and Follow-Up
- Initial Outreach: Tailor your message based on your research. Highlight how you align with their investment thesis and be concise.
- Follow-Up Strategy: Have a robust plan for follow-ups. PE firms are busy, and it may take multiple attempts to get their attention.
5.2 Building a Long-Term Relationship
- Engage Beyond Transactions: Attend industry events, webinars, and conferences they participate in. Regular, multi-channel interactions build rapport and familiarity.
- Show Consistent Value: Over time, demonstrate how you can be a valuable partner. This could be through providing insights, introducing contacts, or showing how you’ve successfully aligned your actions with their feedback.
Section 6: Refining and Evolving Your Strategy
6.1 Review and Reflect Regularly
- Bi-Monthly Check-Ins: Evaluate your progress every two months. Assess what’s working, what isn’t, and where adjustments are needed.
- Leverage Insights: Use the new insights gained from every conversation to refine your pitch, adjust your approach, and develop deeper relationships.
6.2 Learning From Setbacks
- Every No is a Learning Opportunity: If you encounter resistance or rejection, analyze why. Did you misalign your message? Did you fail to emphasize key benefits?
- Adapt and Evolve: Use each interaction as an opportunity to improve and better understand the PE landscape.
Conclusion
This journey is a 12-24 month process that requires a strategic approach, consistent effort, and adaptability. By maintaining a clear focus on economic benefits, understanding that PE is about contact and conversations, and leveraging tools like PitchBook, you set yourself up for success.