Bake-offs and Beauty Contests
Certain picky and select private equity groups are apt to say, “we do not do M&A auctions or competitive bid situations on any of the deals in which we invest.” Put succinctly, such groups want strictly proprietary deals and do not wish to overpay.
I get it. If I ran a private equity group with access to enough dealflow to meet my investment mandate, then I too would be so disciplined. Unfortunately, in today’s market where in-general quality dealflow is short supply, there are fewer and fewer truly off-market, proprietary deals. The best deals always have multiple players at least entertaining the idea of moving forward with an offer. It is unfortunately a “pay-to-play” world out there.
Similarly, sell-side investment bankers are in a similar situation. On the best deals, we rarely have proprietary in-roads with the would-be sellers. In most cases, we are participating in bake-offs and beauty contests, sometimes with some of the most well-known middle-market players in a given market niche and even some good local boutiques, depending on the location of the company in question.
I hate competition as much as our PEG counterparts. It runs contrary to a blue-ocean strategy. Competition increases the work and stress of the pre-pitch phase. Fortunately, competition does have a few perks. First, it hones your pitching skills. I am not in the business of pitching to lose or just to have an educational experience. I am in the business of winning. But, you can always use each beauty contest as a learning experience. Second, bake-offs discpiline the dealmaker. It means we have to show our cards and our ability to get a deal done. It requires more pre-pitch preparation including valuation analysis, industry overview details, comparable transactions analysis and a quality pre-pitch pitchbook. It’s not a perk for the dealmaker, but it keeps investment bankers at the top of their game.
Finally, and most importantly, you miss 100% of the shots you don’t take. In today’s world, failing to compete is a quitters strategy.
We would love the opportunity to be invited to your bake-off when your deal is ripe and ready.
Nate Nead
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