From Bridesmaid to Bride: How to Win a Sell-Side Mandate from a PE Fund

From Bridesmaid to Bride: How to Win a Sell-Side Mandate from a PE Fund

Here’s a brain teaser for you – if a private equity fund invites four investment banks to pitch for one of their portfolio companies, how many groups will come in second?  Answer: three.

All kidding aside, the “you were our next favorite” speech, at best, offers cold comfort to the teams who put in countless hours on tight deadlines to prepare the intellectually rigorous and aesthetically pristine materials required to present qualifications, positioning perspectives and the ever-critical opinions on valuation.  I remember this frustration well from my days as an investment banking analyst whose job was to take the laboring oar in pulling these tomes together. So, amongst a competitive field of talented advisors, how does an investment bank go from bridesmaid to bride when a private equity fund decides to sell?  Please read on.

  1. Specialize. Private equity funds realize that an investment bank with focused industry experience will reduce the pain of the CIM & Management Presentation drafting processes and be able to quickly develop effective positioning strategy with a keen nose for the likely clearing valuation.  We also expect such a group to be well connected to the field of probable buyers.  If you advertise a specific industry vertical on your website with recent and numerous relevant closed transactions to the portfolio company in question you will be much more likely to make it onto the list when a PE firm starts to make calls.  And, on the topic of websites, it helps if you include the contact information of the bankers focusing on that vertical – it has never made sense to me why some groups hide such basic information from potential customers as names, phone numbers and email addresses.  Also, don’t presume that a fund has entrenched banking relationships that are all but promised certain mandates – we want to go with the best group for the job, and a recent transaction in the same sector as our portfolio company may be enough to win the mandate.
  2. Express Interest in Specific Portfolio Companies. The most unproductive meetings are with intermediaries who are ill-informed about portfolio companies and register a generic interest to help us sell them.  Conversely, a fantastic way rise to the top of a PE professional’s consciousness is to succinctly approach him or her with a simple email about a particular portfolio company and why you think your experience could be helpful in some capacity.  For instance, if you sell a business in the same industry, send a personalized email advertising the closing as opposed to an anonymous blast.  Similarly, if you are aware of executives that could serve as value-added board members or even members of the team, never hesitate to offer up an introduction.  We don’t claim to have a monopoly on good ideas and always value creative input about ways to enhance the value of our holdings.
  3. Develop Relationships Early in the Investment Cycle. By the time a fund starts thinking about exiting an investment, it’s possible that they already have their short list of potential advisors in mind, and it’s too late to get a shot at the mandate.  Play the long game, and make sure you are investing the time to build lasting relationships with funds that own companies that you think you may want to help sell one day.  As the saying goes, people want to do business with those that they know, like and trust, and the process of getting to that point can take time.  And, never underestimate the value of an in-person meeting.
  4. Consistent Communication. All of us, investors and advisors alike, are bombarded with so much information these days that sometimes it’s simply the last person that reached out to us that we remember.  Enhance the odds of being remembered by creating a regular cadence to your outreach.  If your communications are too sporadic then you run the risk of an advisor selection decision occurring in between touches that are too far apart. The investment banks that do it best set recurring 90-day calendar appointments which have the ancillary benefit of building deeper relationships.  If I can remember and ask you about non-business items specific to you (e.g. vacations, family, personal interests, etc.) without glancing at the CRM to recall our prior discussion, then you are doing a great job.
  5. Create Internal Advocates. A great way to do this is by forging a symbiotic relationship with a PE firm’s deal sourcing professional(s).  Through these connections, you will gain insights into portfolio companies in exchange for information regarding deals in your pipeline that will be coming to market.  Many times, the deal sourcing team will influence which investment banks are brought into a pitch, so it’s best to create strong alliances with these individuals while also getting their help in accessing other team members focused on portfolio company governance that you don’t already know.  As a general rule, the best way to ensure a healthy dialogue is to make sure new opportunities are being shown to the deal sourcing professional rather than going around them to try and impress what may be perceived to be the decision makers regarding banker selection.  If a PE fund has created a business development function, then they’ve signaled that they want new opportunities to flow through that team.  Best to help make them look good.
  6. Make Sure We’re Seeing All Deals Relevant to Our Investment Criteria. Whether the fund chooses to pursue a new deal or not, new deals are a fantastic way to advertise your firm and activity.  Also, it can sting if a fund sees an announcement about a successful closing for an opportunity they weren’t privy to.  This is another arena where a firm’s sourcing team can be helpful – if you are unsure about whether a fund should show up on the buyers list, reach out to your contact to have the conversation vs. making assumptions.  We want to hear from you.

To all our friends in the investment banking community, we hope these ideas are helpful and provide some transparency around our thought process.  We look forward to hearing from you and doing business together.

About ClearLight Partners

ClearLight is a private equity firm headquartered in Southern California that invests in established, profitable middle-market companies in a range of industry sectors. Investment candidates are typically generating between $4-15 million of EBITDA (or, Operating Profit) and are operating in industries with strong growth prospects.  Since inception, ClearLight has raised $900 million in capital across three funds from a single limited partner. The ClearLight team has extensive operating and financial experience and a history of successfully partnering with owners and management teams to drive growth and create value.  For more information, visit www.clearlightpartners.com.