Put Away Power: A Treatise on Deal Distribution & Deal Marketing
No part in the deal process is simple. From origination to closure the process is fraught with complexity. It is one thing to be able to source opportunities, quite another to source quality deals. More difficult still is the successful closure of even the most quality opportunities, particularly those on the retail capital formation side. Under today’s new reality in business finance, the put-away power of quality deals still requires heavy human capital. We have not yet reached the point where equity shares are as easily peddled as the latest Kickstarter project. That eventuality will still require a hands-on focus toward deal closure. Compliance requirements alone are not fully to blame for the lack of speed and efficiency for completing deals (whether retail or institutional). The following includes some consideration on deal marketing and deal distribution.
(D3) Dealflow + Distribution=Dollar$
Deal makers will outline that dealflow combined with deal distribution is the virtuous cycle toward deal success. Even with the difficulties involved with quality deal origination, deal distribution is where the rubber meets the road. As a synonym to deal origination, dealflow not only includes the entire top side of the sales funnel, but what actually filters into the active deal file in the data room. Once marketing, legal and other offering docs are prepared, the modus for deal distribution and the prioritization of outreach begins.
Rifles vs. Shotguns
The decision to use a rifle vs. a shotgun is as much a strategy as it is a tactic in deal distribution. General solicitation may have opened-up thanks to the JOBS Act, but that does not mean using it as the proverbial “shotgun” for deal marketing is the right approach in every situation. To the contrary, many would submit a targeted auction can provide a great deal of value maximization without some of the cat-corralling that occurs in a generally-solicited distribution.
This remains one of the greatest juxtapositions of securities issuance. While general solicitation expands the reach, oftentimes an expanded reach hits at the wrong target. While a broad outbound exposure will market the issuance to more potential investors, the lack of targeting means unaccredited investors and investors whose full-time jobs are not linked to private securities will also see the offering. These factors not only decrease the marketing ROI, but they also can slow the speed of potential closure. In many cases, the ability for a single group or a small group to stroke a single check can significantly increase the speed of deal closure and often ups the quality and sector sophistication of the investor(s) in the deal.
Sourcing and Closing Deals Using Paid Advertising
The number of intelligent investment banks that have nailed the paid advertising click funnel for both deal origination and deal distribution can probably be numbered on one hand. Realizing an effective paid marketing ROI for some eCommerce ads for B2C customers is a piece of cake compared to deal sourcing and deal marketing for large scale M&A and the private placement of securities. The flexibility for deal distribution has greatly expanded with the release of Titles II, III and IV of the JOBS Act, but the market is far from mature when it comes to truly honing positive ROI metrics when sourcing and closing deals using paid online channels.
Because the world of “what we do” as investment bankers is both broad and deep, it may be a bit more helpful to paint a picture of the types of traffic one might hope to generate in doing outbound marketing for investment banking. Here is a list for paid outbound marketing when targeting and originating deals, in order of my personal preference:
- Sell-side mergers and acquisitions
- Buy-side mergers and acquisitions
- Debt issuers for real estate and recapitalizations
- Equity issuers for private placements and capital formation
Not surprisingly, the level of difficulty in capturing quality leads flows in the exact same order. That is, the value of a sell-side M&A opportunity is very high and more difficult to capture using paid online marketing channels. Contrastingly, every Peter, Paul and Mary startup is on Series X, looking to raise $Y.
On the deal distribution side, here is a shortlist for sourcing investors and capital providers, also in order of my personal preference:
- Institutional private equity investors
- Institutional debt investors
- Individual accredited investors
- Individual non-accredited investors
Because capital supply and deal demand far outweigh quality deal supply, the ability to source good institutional private equity players is not difficult, particularly when it comes to M&A. Ask any dealmaker on the sell-side that holds out his/her shingle. The private equity groups (PEGs) typically call once every three months with their one-pagers and deal theses in tow. Unfortunately, lack of differentiation among most of the middle and lower middle-market PEG shops can sometimes make it difficult to target based on the nuanced differences among investors, which is something online deal platforms are looking to solve. Without delving too deeply into the nuances of private equity and private debt investment, it is safe to say the investors that are actively hunting and farming for their own proprietary deals will actively source deals and therefore are much easier to nail down.
Conversely, corralling the cats of individual investors for PPM offerings like Reg CF, 506(c) and Reg A+ can be a difficult task. Apart from the risk of working with individuals, there is also a much higher cost in sourcing such investors for private offerings—paid marketing aside.
Regardless of how much we automate investment banking, most mergers and acquisitions will still come from a handshake, a referral or a relationship, not a paid click ad on Google or LinkedIn. There are certainly exceptions to the rule and things are changing, but social capital still holds more sway in the weighted average DealFlow source funnel. Justifying a paid ad campaign also requires both a budget and an eye on long-term results. Paying as much as $20 per click when a typical deal cycle can take anywhere from six months to two years, makes it difficult to measure and doubly difficult to justify the cost. Whether your investment banker does private placements or M&A, the likelihood of their ultimate sourcing and closing success—let alone utilization at all—of paid advertising will be solely dependent on budget (it must be large as the runway may need to be 12 months or more) and direct measurement. If both of those boxes can be checked, there are essentially three funnels that make sense for the would-be advertiser of securities: Google, Facebook and LinkedIn. Each avenue has its weaknesses and strengths as a means of sourcing private security buyers and sellers.
For an issuer to trust a firm’s human capital with their most prized asset (their business), it is likely to take much more time to establish a relationship with a potential client when that client was not a direct referral from another trusted advisor. If an investment banker or M&A advisor enters a beauty contest with a separate group that was a direct referral from a trusted advisor, said banker will need to be on his/her A-game.
Admittedly, the suggestion here is not to discredit using paid advertising, but to focus more on how to use a disciplined approach in doing so. The full extent of how this can be done should more fully be covered in a separate post, but here are some high-level findings from our efforts in this area:
- Facebook has performed very well at targeting accredited investors who may wish to be added to a private database for access to PPMs. This is particularly true for collateralized opportunities like those found in real estate.
- Facebook has performed semi-well in directly targeting CEOs, company sellers and other issuers preparing for a capital event. However, targeting them in this fashion typically—and often inadvertently—yields the lower-hanging fruit of those looking to raise capital.
- LinkedIn works well for targeting business owners broadly, but we have found less-than-positive ROI from paid ads through that channel. LinkedIn works better if you know the who, what and where for the contact you wish to target. You can then use Premium InMail to reach the direct, targeted prospects you wish to source. In other words, rifles beat shotguns and rifles work best when the ammunition is free (or at least $99/mo opposed to a cost per click of $10 to $20).
- Google remains one of the best tools for generating relevant traffic. The highest ROI and best impact on Google is targeting niches where you have a comparative advantage over any competing firm. Perhaps tech mergers or real estate investment banking.
- Targeting investors on Google is anybody’s guess and is likely an advertising blackhole. Investors come and go as they please and are equally difficult to please.
Successful campaigns on Google, Facebook or LinkedIn can be tested with a small budget, but unfortunately the algorithms now favor those with deep pockets. Hence, unless a bank or an issuer has a $5K to $10K per month budget for paid ads for 12 to 24 months, the ability to truly move the needle and scale sourcing and distribution of quality deals is likely dead before it begins.
Quality deals are often hard to come by and even some high quality mid-market CEOs rarely search Google and likely do not maintain, let alone have, an active LinkedIn account. One other thing to note: it is well-advised that issuers, investment bankers and private investors should engage with a firm with direct experience in paid advertising through a specific channel (e.g. Facebook, LinkedIn or Google) for a specific purpose (e.g. PPMs, M&A, investor sourcing). Otherwise, you should be amply-prepared to send your ad dollars into a proverbial blackhole.
To avoid the blackhole scenario, the proverbial “long tail” is where dealmakers are best poised to find success. That is, the best investment bankers target one area of deep expertise, two at the most. Broad investment banks may have experts across multiple sectors, but in most cases, there is an individual investment banker with an individual niche expertise that is the perfect match for any given deal. For paid and organic advertisement, it is also much easier to realize a positive ROI more quickly when you adhere to a target plan at the long tail niche you could best serve. Without a targeted plan, the path toward success can be longer and more arduous.
Bringing together the issuer or seller and the right investment banker is at least one of the goals of our on-going effort to build a meaningful platform.
Regardless of whether an issuer is performing outreach on a retail or institutional deal, the tactics often remain the same, even while the strategy may deviate. Building a targeted list, including email, phone and other direct outreach contact information of potential investors is a key tactic for outbound outreach. However, tactics bifurcate when performing outreach to individuals and institutions. Individual investors, especially those who have not opted-in to a proprietary accredited investor database, may have CAN-SPAM or other restrictions on email and phone. Care is not only required on the outreach, but often mandated by law.Luckily today’s outbound marketing can even be enhanced by more broad-based measures such as television, radio and social media.
Unfortunately, traditional human-based blocking and tackling is still required on outbound marketing efforts. Personal relationships based on respect and trust will likely remain the best approach to successfully targeting investors for the sale of securities. The nature of this market requires that repeat business stem from the same level of trust. That is often why deal makers are typically only as good as their last deal and the most successful out there learn that they ultimately make their money from the deals they don’t do.
- Covid-19 Impact on US Private Capital Raising Activity in 2020 - May 27, 2021
- Healthcare 2021: Trends, M&A & Valuations - May 19, 2021
- 2021 Outlook on Media & Telecom M&A Transactions - May 12, 2021
