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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 on LinkedinNate Nead on Twitter
Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.