Deal Origination And Hollywood Misconceptions
Many misconceptions about private equity persist. They stem from the industry’s nascent years in the 1980s when firms would buy companies using a great deal of leverage, strip their assets, break them apart, add little (or no) value, and make over-sized returns. Movies such as “Wall Street“, “Other People’s Money“, and even “Pretty Woman” helped perpetuate this notion.
One of the most frequent questions posed to me from friends and family whose exposure to private equity, recapitalizations or leveraged buyouts has been limited to watching these movies aside from“so you do what Richard Gere does in Pretty Woman?” is: “How does MCM find micro-cap private companies to acquire?” Before answering this question, let me clear up some Hollywood misconceptions; (1) We are not evil nor do we do hostile takeovers like Gorden Gekko in Wall Street; (2) we are not in the business of “screwing people for money” as Richard Gere tactfully states in Pretty Woman but rather we are in business because of the numerous benefits of a leveraged recapitalization; and, unfortunately, (3) we do not have 37,000 square foot homes on Lily Pond in East Hampton, 100 foot yachts, a G5 idling at Cleveland Hopkins Airport or host million dollar birthday parties with Elton John or P Diddy making guest appearances.
Now, how does MCM find all of these privately held businesses? First and foremost, we target niche manufacturing, value-added distribution and specialty service companies that generate up to $75 million in annual revenues and command transaction values up to $50 million. We then employ a pro-active origination strategy using both traditional and innovative tools in order to identify private companies that fit within our acquisition criteria. The following should provide you with a brief summary of our 5 key channels of distribution for deal flow (in no order of importance or significance to MCM):
Social Media: MCM utilizes social media tools to increase brand recognition, enhance communication with our professional relationships, expand our deal referral network, drive more traffic to our website and, ultimately, to increase deal flow. Our social media efforts include a weekly blog on relevant topics to the M&A community, a FaceBook presence to connect with our followers, personal and a company LinkedIn profile, and an RSS Feed to broadcast the latest happenings at MCM. Check out the benefits of social media in our previous blog entitled “The Social Network and The Future of Business.”
Sell-Side Business Intermediaries: This includes regional investment banks and M&A boutiques and business professionals who represent sellers on a fee basis. MCM communicates with over 4,000 sell-side business intermediaries via face-to-face meetings, email communiques, and direct marketing initiatives. It is essential that we keep this network apprised of our recent investment activities as well as industries of interest for future investment. MCM plays an active role and supporter in numerous trade organizations including the Association of Corporate Growth and the AM&AA.
Buy-Side Business Intermediaries: MCM has managed to identify and build valued relationships with over 100 buy-side intermediaries. These are firms that present investment opportunities to MCM on an exclusive basis and in a “non-auctioned” environment in exchange for a fee should an investment lead consummate in a transaction. We provide these individuals with specific direction on our investment criteria and industries of interest which they use to source investment opportunities.
Retained Searches: On a select basis, we engage buy-side intermediaries on a monthly retainer to perform add-on search work for a portfolio company or if MCM has partnered with a talented operating executive seeking a business to run. Over the past 18-months, MCM has conducted retained searches in the lead-generation industry on behalf of Cole Information Services as well as the specialty composites and life sciences industries.
Direct Marketing Efforts: Through the use of databases, the Internet, trade show publications, and other sources, MCM will, on a limited basis, directly contact CEOs of companies that are of strategic interest.
Despite what you have seen in the movies after we acquire a business we do not play the part of Richard Gere and break them up and sell them in smaller parts for profit. Rather we take the advice of Julia Roberts and work with management to grow the business and “build ships together.” At MCM, we work alongside business owners to increase revenues, grow the bottom line, make acquisitions, build a stronger business and create shareholder value over the long-term. Don’t always believe what you see in the movies.