PE Funds that Win - and IB that Tries
TLDR: I'm a MM sellside banker looking for feedback on what best practices PE firms are seeing on pitch processes. To pre-emptively reciprocate, I'm happy to provide some anonymous feedback on what my clients love about top PE firms they ultimately partner with.
In the same way that incoming bankers are looking to break into the industry and want feedback on their resumes and interviews, as a junior originator, sometimes I wish I could get feedback on my pitches and what it takes to win mandates. While I've been modestly successful recently, I would love to up my game if anyone at PE firms could give feedback or pointers on best practices or elements they've seen that have really swayed them to choose one banker over another, especially in competitive "bake-offs or beauty pagents". Situations for both IB and PE where we didn't just win on "valuation".
Below are some notes on what I've seen from some of the best PE firms that have ultimately won in competitive processes and considerations more than just price.
Pre-Emptive Reverse Diligence
One of the early signs of a strong PE firm is when they do a well thought out presentation as their intro for a management presentation. The best ones I've seen are situations where they don't just introduce themselves and their firm, but also some relevant portco's and talk about their thesis in the space. They'll do a short presentation (15 to 30 minutes) on who they are, firms they've invested in, why they are interested in this company/industry. The very best PE firms have a differentiated angle/ability to add value beyond just "capital" and "M&A expertise".
Culture and Good Relationships with Portcos
The best PE firms have good cultures and strong relationships with their portcos. This is especially important for founder owned businesses. In the same way PE will diligence an asset to see how it performed in tough times, businesses want to know that their PE fund will be there, not just to support the growth, but also during tough times. Quick recent example: one business was expecting a rough patch through covid and was looking at laying off staff. However, although near term looked difficult, they wanted to take care of their employees. While many other competitors were doing RIFs and layoffs, they made a tough decision to keep their staff. The positive news is when things started to look better, they were able to ramp their business back up faster than anyone in the space and win a lot of new business (while the competition was looking to hire staff during a broadbased HR shortage). Lucky? Perhaps, but they couldn't have done this without their PE sponsor's blessing.
Senior Attention and Strong Juniors
Another hallmark of a strong buyer is they have the right people in the room. This usually consists of one or two senior bankers (perhaps even a firm founder or chair person - who says hello at the beginning), one or two mid/junior team members, and an operating partner or two (or the appropriate staff from the portco). It's a red flag when there is limited senior attention to the deal, or it doesn't look like they have enough junior resources to staff the transaction properly.
Certainty to Close
As PE firms put their hand up and self select in being more serious as part of a process, the PE firms that have done an extensive amount of diligence on the asset at earlier stages are typically more likely to win. Besides the fact that they are just more knowledgable on the asset itself, it also inspires confidence in the selling company and banker that they are emotionally invested. It also provides confidence that they won't find something unexpected later that they will retrade on.
Another consideration as it relates to certainty to close is being well funded and having ready access to capital. To the extent you already have the money in your pocket, it helps making the closing process shorter and less complex which helps increase certainty to close. Long drown out closing processes, not being commercial on purchase agreement terms, or still needing additional layers of approval (outside of standard regulatory approvals) makes it tougher to move forward.
In any given deal, if I reach out to 100 buyers, I will get 99 "Nos". I'm just looking for that one solid "Yes". The best PE firms I've worked with have been quick and responsive (even with "Nos"). The best "Nos" that I get often come back with healthy feedback too: helping me understand why a particular opportunity is not a good fit so I can be smart and thoughtful about what I show them next time. I want to avoid showing them opportunities that don't align with their style and mandates because I want them to continue to take my calls.
Hopefully this is helpful . To the extent anyone has any pointers on an IB version of this and what PE firms like to see in pitches (or in their relationship withas a whole) I'd be very interested to hear back.