How M&A Industry Specialists Are Gaining The Upper Hand in Business Development

It is no secret that M&A advisors and private equity firms are putting more effort in demonstrating strong industry background to their prospects. A recent Navatar poll of M&A advisors discovered that more than half of advisors consider the firm’s sector reputation and track record as the number one criterion for business development, beating out other factors like the relationships of a superstar banker, cost or breadth of services.

But the point warrants elaboration, because sector expertise is far more than just a selling point – it’s reshaping firms’ entire business model and relationship nurturing philosophy.

Clint Bundy of Bundy Group does a good job explaining the thinking and why it’s happening now:

“We live in an information age where business owners today often know what EBITDA is, what the transaction value multiple ranges are and who some active buyers are in their industry. As an investment bank, we’ve had to step up our own game and offer something beyond what they can learn online.”

Bundy says that providing information to owners, often over a period of months or years, is critical to remaining a sought-after advisor these days. CEOs no longer take calls from bankers to just talk financial numbers, but they will if the sponsor or advisor also has a rich macro view of their sector, including what underlying trends would determine the sector’s future growth, consolidation and state of economic health.

A Proprietary View

The strategy is simple in design yet highly effective in practice. Under the old model, firms would send newsletters, deal announcements and press releases to anyone and everyone willing to listen using one big master list. Bundy and other specialists reject that shotgun approach and slice their lists by sector to ensure prospects only receive information that is specific to their background (healthcare prospects only receive healthcare deals and so on). The strategy is twofold: protect the firm’s brand by consistently delivering relevant information (no one likes spam) and increase their sector visibility to lay the groundwork for a first call that feels less cold, and more like two parties connecting to engage in a reciprocal exchange of information.

“Of course, this means more work creating newsletters and deliverables for each target sector, but it has become imperative to convey your credibility long before you make that first introduction,” says Alex Koles of Evolve Capital.

Attending industry conferences, reading the right trade publications and talking with sector thought leaders are all good sources of information for newsletter campaigns and other marketing deliverables, but savvy advisors also adopt a self-reflected proprietary view of the market to really sell their message.

“And look that means we’re still talking about comps, valuations and financial performance – that’s our bread and butter – but we’re placing it into the context of what it means for their sector,” Koles elaborates.

The goal in each interaction, each touchpoint, is to invariably deliver market information the target finds useful, imprinting in their mind that the relationship has meaning beyond a banker or sponsor searching for new business, or what Brian Weisenberger of Ascendant Capital refers to as the dreaded “sales mentality.”

Too Much of a Good Thing?

Can the strategy be taken too far? If specialists claim an ability to forge deeper relationships with prospects, could “sub-specialists” focused on specific segments of an industry do even better?

Sub-vertical specialization is gaining traction rapidly. In some situations, it’s no longer enough for a firm to specialize in healthcare, they have to be experts in pharmaceuticals. However, the consensus was that there are limits to the specialist business development strategy. If the approach is too refined, it can lead a banker or private equity exec to miss the forest for the trees. Once your specialty is too laser-focused on one corner of the market, it becomes difficult to understand how rumblings in other pockets could ripple into your area, so better to retain a reasonable breadth of perspective.

That said, the specialists have tapped into a marketing strategy that makes intuitive sense: offer people something of value as a way to engage and kick start the relationship. Accordingly expect to see more specialists use their acute sector knowledge as the new central plank of a more sophisticated business development framework.

For more on this trend, see our recent roundtable “The M&A Market Has Specialized By Industry. Why Your Business Development Strategy Should Too.”: