Adding Value in M&A: The Road to Proprietary deals 

Developing a clear strategy that aligns with your organization’s overall goals and objectives is essential to adding value as a buyer in M&A transactions. This involves gaining a thorough understanding of your target market, as well as your company’s strengths and weaknesses. 

Approaching potential sellers with diplomacy and professionalism is crucial to a successful M&A transaction. Understanding the seller’s goals, motivations, and concerns is essential to tailoring your approach accordingly. Establishing and maintaining open communication and trust throughout the transaction process is also important.  

To maximize value creation, you should focus on identifying synergies between your organization and the target company. These synergies could include operational efficiencies, cost savings, or revenue growth opportunities. 

Due diligence is a critical part of the M&A process, and it’s essential to conduct it thoroughly and efficiently. This involves assessing the target company’s financial and legal records, as well as its operational and strategic capabilities. By identifying potential risks and opportunities, you can make informed decisions and negotiate favorable terms for the transaction. 

Benefits of Proprietary Deals in Private Equity 

• Proprietary deals are investment opportunities sourced and negotiated directly by private equity firms, providing a competitive advantage in terms of price, timing, and deal structure 
• Private equity firms can access unique investment opportunities that are not available to other investors 

• Proprietary deals allow private equity firms to negotiate better terms and pricing due to the lack of competition 
• Proprietary deals can lead to higher returns and better alignment with the private equity firm’s investment strategy 

The Challenges and Advantages of Proprietary Deals in Private Equity:

Private equity firms use their network of industry contacts, management teams, and other sources of deal flow to source proprietary deals. They also rely on data analytics and other tools to identify potential targets and evaluate their suitability for investment. However, sourcing and executing proprietary deals can be challenging for private equity firms as they need to invest significant resources in building and maintaining relationships with potential targets. 

In conclusion, while proprietary deals offer significant advantages, they require expertise, resources, and careful execution to be successful. 

• Private equity firms rely on industry contacts, management teams, and data analytics to source proprietary deals. 
• Sourcing and executing proprietary deals require significant resources and expertise, as well as the ability to maintain relationships with potential targets despite increased competition. 

Blackmore Partners  utilizes platforms such as: DB hoovers, Pitchbook and Cyndex to help guide our Executives to the right targets when building their funnel. We are purposeful in educating C-suite Executives in the Private Equity world.  

In tandem Blackmore Connects hosts workshops every 9 weeks (about 2 months) to prepare C-suite Executives to meet with 6 – 8 PE firms during our BMC Virtual Conferences we host every 9 weeks (about 2 months) of the year. 

Private equity firms place a high level of importance on the deal structure and achieving a smooth exit. The success of a private equity firm largely depends on having the right strategy and CEO to execute it effectively. However, the demands of the private equity space can be rigorous, and many CEOs in this industry do not last more than three to five years due to the high level of scrutiny and pressure to perform.  

You can learn more about the type of CEO needed for PE in my last blog “The Right Fit: CEO’s Excelling in Private Equity” 

Private equity firms are expected to be creative in their deal structuring and value-add opportunities in 2023. Firms can use their expertise and resources to drive operational improvements and turn around underperforming assets.   

Private equity firms often invest in underperforming assets with the goal of turning them around and creating value. However, this can be a complex and challenging process that requires a clear strategy and careful execution. Turn around strategies are important. 

 Here are some strategies that private equity firms can use to turn around underperforming assets: 

1. Conduct a thorough analysis: Private equity firms must conduct a thorough analysis of the underperforming asset to understand what went wrong and why. This analysis should cover all aspects of the business, including finances, operations, marketing, human resources, and more.
2. Implement cost-cutting measures: Private equity firms may need to implement cost-cutting measures to improve the profitability of the underperforming asset. This may involve reducing staff, renegotiating contracts with suppliers, or finding ways to reduce overhead costs.
3. Focus on core strengths: Private equity firms should focus on the core strengths of the underperforming asset and look for ways to capitalize on those strengths. This may involve introducing new product lines or services, entering new markets, or developing strategic partnerships.
4. Provide strategic guidance: Private equity firms should provide strategic guidance to the management team of the underperforming asset. This may involve helping them develop a new business plan, identifying new growth opportunities, or coaching them on how to improve their leadership skills.
5. Leverage industry expertise: Private equity firms should leverage their industry expertise to identify trends, opportunities, and best practices that can help the underperforming asset succeed. This may involve bringing in outside consultants, networking with industry leaders, or attending industry conferences and events.

Overall, turning around an underperforming asset takes a lot of hard work, strategic planning, and execution. Private equity firms must be willing to invest the time and resources needed to make it happen, and they must work closely with the management team of the underperforming asset to achieve their goals. 

Some PE firms see investing in public companies as a strategy to create value. 

There are several ways private equity firms can create value by investing in public companies: 

1. Activist investing: Private equity firms can acquire a significant stake in a company and use their position to push for changes in management, strategy, or operations that they believe will increase value.
2. Buyouts and takeovers: Private equity firms can buy out a public company, delist it, and then restructure it to improve efficiency, profitability, and growth.
3. Spin-offs and carve-outs: Private equity firms can acquire a part of a public company that is underperforming or not aligned with the core business of the company, and then spin it off or carve it out to create a separate entity that can be managed more efficiently.
4. Distressed investing: Private equity firms can identify public companies that are facing financial, operational, or strategic challenges and acquire them at a discount. They can then restructure or turn around these companies to create value.
5. Growth investing: Private equity firms can identify public companies that have strong growth potential and invest in them to help accelerate their growth. This may involve providing strategic guidance, operational support, or access to capital.

Private equity firms can create value by investing in public companies, but they must choose wisely and actively engage with the companies. Strategic implications are crucial, especially in uncertain economic times. Firms must assess the financial health of potential investments and their ability to withstand economic challenges. 

In Conclusion. 

As we approach the mid-point of 2023, the private equity industry continues to show signs of significant growth, despite ongoing challenges in the current economic environment. With bank failures and a global recession still looming, it remains critical for private equity firms to carefully consider their investment strategies and assess potential risks and opportunities to ensure successful outcomes.

Written by Byron Cowan