An Open Discussion - Understanding the Differentiators of Our Firms: I-Banks and PE Firms

After perusing the WSO forums for over a year now and loving all the incredible insights and learnings that others have shared, I have decided that it is about time to create a post discussion myself. While I do not claim to have any great wisdoms or incredible experiences to share, my hope is that this thread will provoke further thoughts/questions/answers that will guide each of us (a) who currently are employed at a PE firm or I-bank to understand what makes our company value-add/different from others (b) who are seeking opportunities in either of these fields to better identify what groups they would like to be a part of.

THE OVERARCHING QUESTION/DISCUSSION: "What differentiates your firm (either PE/I-bank/M&A Advisory Shop) from the rest?" (OR, if you are not currently employed at such a company, "What I-bank/M&A Advisory Shops/PE firms stick out in your mind and why?")

Before I begin explaining WHY this question came up, I would love to provide a short background/introduction. I am 24 years old and I Graduated in 2013 with an Economics degree. I enjoy hockey (and anything else competitive), hiking (and anything else outdoors), Uno Attack (especially when I win), Austrian Economics (Bastiat is meh boy!), asking questions and discovering Truth. I am currently an Analyst (have been here for just over one year) at a boutique M&A Advisory shop that serves business owners with revenues between $5m-300m. Most of our clients are sell-side deals. A majority of the days there are only three people in the office – the two Managing Partners and myself. Since the founding partner processes outloud, there are a number of times where I will be sitting in his office listening and asking questions as we brainstorm through different solutions to complex problems.

As I am sure most of you know, the life of an analyst at a boutique M&A Advisory shop can be drastically different than the experiences of an analyst at a Bulge Bracket I-Bank. As is the case with most small companies, I wear a number of different hats. This involves completing back, middle and front office work and being exposed to almost anything else a standard M&A deal entails. Part of that (which gets me to my original question) is having conversations with 10-40 different private equity firms and being exposed to 1-2 pitches to business owners in any given week. Recently, each of these endeavors has caused me to reflect on the question of differentiation from two perspectives.

REGARDING THE CONVERSATIONS WITH PE FIRMS: Often PE firms will call/visit us/buy me or the Managing Partners lunch in order to provide an introduction to their firm, to learn about our current clientele and pipeline, and hope, that when we pick up an additional sell-side opportunity, we will remember them. A majority of the time, these conversations will go something like this (this is VERY bare bones)….We learn a little bit about their background, they provide an introduction to their firm and what they believe makes them different, I/we give them a quick overview on what our group focuses on, they share their target criteria, I/we share our current clients and what we have in our pipeline, and we move forward on any deals that make sense.

As the # of conversations with different PE firms has increased, I realized that what many PE firms claim as “differentiators” sound exactly the same as their competitors. For instance, about 70% of the time, I hear this one…. “We are not the typical PE firm, we really do work with and value the ownership/operating team. We are not there to just lay down the iron fist and tell them what to do. We really are looking for a partnership.” Or “We really believe in culture and building relationships with the owner/operators.” Are either of these points’ negative/bad? Not at all! But since a majority of firms make these claims (without saying why/how), points like these seem to be lackluster. On the other hand, a couple of months ago I received a call from a PE guy who understood what his competitors were saying and knew how to properly communicate what made his company different from the rest. He had three main points. This is from my notes(summarized).
1. “We work with the owner/operators. I know that a lot of PE firms say they are looking for a true partnership with the owners/operators of the acquired company. Well, truth is, as I am sure you are well aware…..that some PE firms really do and some don’t. With our firm, we really do and we are comfortable proving it as well – In the case of a potential deal, if it is needed, I would be comfortable scheduling a call with any of the executives in our portfolio to discuss this with you.”
2. “We are creative and flexible. Because of the way our fund is structured, we have the flexibility to structure the deal in a manner that makes the most sense for the owner. He proceeded to tell a story to demonstrate this.”
3. “Focused. While we will give a look at anything that fits our general criteria, we have been successful with and are passionate for the following industries xxx xxx xxx. He then shared a story on how they were able to add value to a portfolio company in one of those industries.”
Simple, but really effective. To this day I remember the name of that firm (which I don’t feel comfortable sharing) and make sure that if we have any deals that fit their criteria, to reach out to them.

REGARDING THE BUSINESS PITCHES TO BUSINESS OWNERS: The M&A Advisory shop I work at is continuously looking to improve and hone our answers to the following questions, “How do we properly communicate the value we will add to this business owner? How do we properly communicate how we are different than our competitors?” However, as I have continued to reflect on these questions, I can’t help but wonder if our pitches sometimes sound similar to the PE pitches. While I truly believe we add a tremendous amount of value and have seen what we pitch to owners play out, I still wonder if the WAY in which we communicate it upfront is in THE most effective manner.

That is why I wanted to leave it open for discussion in the monkey community!!

SO….BACK TO THE ORIGINAL QUESTION(S):
"What differentiates your firm (either PE/I-bank/M&A Advisory Shop) from the rest?"
1. Processes?
2. Relationships?
3. Knowledge base?
4. Expertise?
5. Experience?
6. Others?
(if you are not currently employed at such a company) "What I-bank/M&A Advisory Shops/PE firms stick out in your mind and why?")
What are common items that I-Banks “claim” to be?/What are some cliché buzzwords that are thrown around?
How does your firm communicate its value add to a prospective client?
And then finally, what do you feel is the best way to communicate this to a prospect client?
1. Presentation?
2. Informal?
3. Indirect?
4. Face to Face?
5. Hand-outs?
6. Research?
7. Phone/Conference Call?

IN THE END - I think it is important to note, that my firm (along with many other boutique M&A advisory shops) are not often competing against each other in bake-offs or RFPs (at least in my short experience in the industry). Instead, we are often competing against the owners themselves. More often than not, my firm is the only group presenting to the potential client. Convincing a business owner with a company that has revenues from 5m-80m to use an M&A Advisor, rather than go through the process alone, is possibly one of the hardest sells I have ever witnessed in my life. I say all this because I don’t think that sharing insights to the questions that have been posed with each other will give up our companies’ competitive edges, but rather, I think understanding and helping each other properly communicate the items that really make each of our firms unique and value-add will dramatically increase the number of clients we ALL will be able to retain and in turn, add value to the business owners themselves.

Any thoughts/comments are welcomed.