LBOnline
I am still actively resisting social media. I can’t stand it. It makes me angry.
I disabled my Facebook account because I was tired of looking at all the Tim Tebow statuses.
I don’t like you, stop sending me invitations on LinkedIn.
I already know Kanye’s retarded, there’s no need to read his Tweets.
Much to my chagrin, as much as I’ve tried to avoid it, it appears to have made its way into deal-making. Axialmarket (https://www.axialmarket.com) seems to have ambitions to be the Facebook of the sponsor community, among I’m sure countless other VC-backed online deal-making sites. As a brief background, the site currently has tools to connect with the sell-side and see what deals they have posted, in hopes of matching up sponsors with companies offline. At work, we signed up more as a curiosity, but have recently seen some of the investment bankers that we have long relationships with cross-post deals they show us on the site.
I don’t feel too good about this. Part of the success that is attributable to PE is the fragmentation of the market. I don’t like how lazy bankers running a sell-side auction process can just throw a company up on the web for the world to see. It effectively neuters any informational advantage that a given sponsor would have. The closed bid auction already fucks buyers over every single time, it is no help to us that these processes will only become that much more competitive.
It’s too easy to make the slippery slope argument, but I don’t like the direction that this is going. I’m not saying that we’re all doomed and everything is going to dot com hell, but you have to wonder. Personally, I can see the smaller, regional investment bankers and business brokers extensively using this in the future to sell whatever piece of shit “grew through the recession” job shop they’re hawking (maybe, even a few genuinely good companies here and there). At this point in time, however, I can’t see the Bulge Bracket or the top Middle Market firms even considering eBay-ing the eBay’s of the world.
What do you guys think? Could technology cause disruption to the sponsor community? Could it replace the mechanisms that are traditionally used by investment bankers? Is the relationship aspect of banking moving in step with our own now virtual personal lives? Or is this all just noise?
Yes it could and I'm not sure what is taking so long. While the relationship aspect may never be gone, a lot of the relationships will move online.
The funny part is 99% of PE shops claim that they don't get into auctions, that they have "proprietary deal flow". In reality, the bankers are shopping that shit around as much as possible. I just see platforms like this making it harder to claim you have "proprietary deal flow"...it may also bid up prices, but that may also convince more businesses to put up the For Sale sign, which could INCREASE the potential deal flow you are seeing.
Personally, I think the funds that will win are the ones that have a way in the future to filter all of this data and all of these potential deals as quickly as possible (more asoociates?) and that have a specific specialty (with operating partners) that can actually bring VALUE to the acquired firm. Then by definition they should be able to bid the same as everyone else and still win the deal.
My 2 cents, Patrick
I can see this for the lower middle market where it's harder to find a buyer/banker but I think it would be harder to catch on for larger deals.
I checked out the site briefly to see but didn't really dive into the details. One thing that I would be concerned with, and companies as well, is issues of confidentiality. Even just the idea of doing a deal is highly confidential not to mention the actual data, quantitative and qualitative, tied to the company. I think how these issues are addressed will determine how much the site is used in larger transactions. I personally wouldn't want my company's info just floating around online.
If it's just a means of finding potential buyers for a client, that's what existing relationships and capiq is for.
It will be interesting to see if either this site or something in the future actually catches on.
In addition to confidentiality, if I was looking to put a company up for sale, I'd only want credible buyers looking at it. Bankers are suppose to be that filter. Having auctions with a ton of people looking at the company would be a nightmare for the seller and their advisor in terms of fair information flow.
but then the intermediaries could just filter out the non-legit buyers based on reputation, track record etc.
I like the idea - would definitely make the private markets more efficient and assets are more likely to go to people who can add differentiated value. Would increase the efficiency of the economy as a whole.
I'm interning with a boutique investment bank and we have just started using Axial. From personal experience, I believe this can be a valuable tool for middle market deals. We have just posted a couple deals, one of which has already attracted the interest of several PE firms that we would not have contacted otherwise. As a result of this, the middle market is already becoming more efficient.
Also, I agree with the comments above in that I don't see this expanding to larger deals that the BB's are working on. These deals are much larger and only well known PE firms would likely be interested.
InefficientMarkets- thanks for bringing up the topic of online deal networks. They are definitely starting to affect the industry.
Two thoughts here.
First, there is no way to search through deals 'posted' on the site because that's not how AxialMarket works. We work the other way around, in much the same manner the real world works. Bankers are returned a list of potential acquirers, not entirely unlike CapIQ, except that our results are based on what you, a sponsor, have indicated you're actively interested in right now. Rather than only being shown deals based on past acquisitions, you can help bankers stay on top of your current acquisition criteria more easily. The banker then looks through the list and connects with the sponsors they feel are the best fits for their deal, the same as they would offline.
Second, you mentioned that you were seeing deals cross-posted on AxialMarket that had been shown to you offline. You'll definitely see this because bankers are using AxialMarket to keep track of their deals and who is involved. They shared it with you on Axial because they knew you were in the deal and wanted to keep everything simple and in one place for themselves. The deals in your awaiting review queue aren't "posted" for anyone to search through, they've been shared with you because the intermediary thought you would be a good fit. There's not just a big list of deals that you can go searching through anywhere on the site. Each deal you're seeing was individually sent to you.
As you said, you don't like 'lazy bankers' who just post deals online and hope for the best. We recognize the problem with "posted deals" and built our model completely differently because of that. Sites like bizbuysell, bizquest and mergernetwork have been around for years and proved that only main street deals can get sold in what are essentially classified ads.
AxialMarket is much more about helping you discover the right people to have conversations with so you can increase your dealflow from people you don't meet at ACG, at the clubhouse, or through your college alumni network. For bankers we help them remember your criteria for each deal they bring to market. But ultimately all of our tools are simply there to help you cultivate the relationships that result in deals.
Good luck and I hope you enjoy your AxialMarket membership.
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