“Differentiating Your Private Equity Firm in a Competitive M&A Market”

Sal Piscopo is the founder and managing director Ethereum Advisory Partners.

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The mergers and acquisitions (M&A) landscape is becoming more competitive by the year: more private equity funding raised, more dry powder to go, more aggressive strategic buyers, and more financing options for potential sellers of a company. How can you make sure that your company is positioned in the strongest possible position and presents itself in the best possible light as a top option for that seller? Here are some ways to effectively differentiate your company from the competition.

Industry expertise and track record

All things considered, sellers will be more receptive to potential buyers and investors who have experience in their sector, and even better, a track record of success. Have you invested in a competitor before? Have you had a successful exit? Highlight all of that.

Strategic fit and synergy

If you’re going to compete with strategic buyers, you better be able to articulate why the deal makes sense for the seller beyond the financials. Articulate how the target fits into the investment strategy of an existing portfolio company or why you want to create a new platform in this space, what the market opportunities are, and the operational and financial synergies that could be created by the transaction.

Value Creation Plan

Why does this deal make sense? What is the plan for the future? Provide a clear and compelling strategy for the target company. Will there be significant investments in research and development (R&D) and new platforms, operational improvements, or investments in new talent? Are other acquisitions part of the plan? Yes, your company brings capital, skills, and experience—but what is the vision after the transaction?

Cultural fit

The ability to successfully blend cultures post-transaction is always a key factor in a successful M&A transaction. Show how your company values and respects the target company’s existing culture and employee base. Provide examples of successful cultural integrations in previous transactions.

Building trust and relationships

The immediate concern of current management is that if the company is sold, there could be a complete change of management and job losses. Emphasize how your company is developing relationships with management and employees, as well as other stakeholders, to ensure that everyone’s voice is heard and their needs are addressed. You want the transaction to be seen as a positive milestone for the target company, not a negative event.

Operating Partner Experience and Bench Depth

Be honest about the value your company can bring in terms of talent—operating partners and access to established executives who can help the target company scale and modernize its management team if and where necessary.

Long-term vision and commitment

One of the biggest concerns for potential sellers is the PE firm’s need for an exit—usually within three to five years. Communicate your firm’s commitment to long-term value creation and set realistic expectations and milestones. If there is an exit plan after a certain level of revenue or earnings before interest, taxes, depreciation, and amortization (EBITDA), be upfront about it. Be clear about the direction of the business and what this secondary transaction will look like in due course. If there are no time limits or partnership/holding period limits, be clear about that as well. The lack of pressure to exit in the short term can be a key selling point for the target’s management team.

Financial capacity

A high valuation and offer mean nothing if the buyer can’t close. Make sure to highlight your company’s financial strength, including committed capital in the fund, liquidity, and the ability to not only structure a competitive valuation and deal structure, but also close the deal in a reasonable time frame. The highest valuation doesn’t always win the deal—certainty of closing is just as important.

Speed and non-invasiveness during the process

At the end of the day, the target’s management team is trying to run the business. Researching a potential deal shouldn’t become a cumbersome process. Discuss your company’s ability to move quickly and decisively to a yes or no on the issue of interest, indication of interest (IOI), letter of intent (LOI), and due diligence process. If you can do this effectively, with a compelling valuation, you may be able to outperform the time-consuming competitive sales process, which can be a significant win for your company on many levels.

This is not an exhaustive list; be sure to identify and communicate all of the differentiating factors to potential sellers, as well as to advisors and intermediaries involved in the M&A process. This will help you position your company as the best possible option for a potential seller considering a private equity deal.

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