2018 Forecast: 5 Major Trends Hitting the Middle Market – Part 2

Editor’s Note: As the year winds down, dealmakers naturally reflect on the past year and what’s to come in the New Year. Previously, we highlighted the first of the five major trends in private capital markets, The evolution of deal sourcing. Read Part 2 of this Forum series to learn more about the trends we predict, and you can download the entire report here.

Trend 2: Technology moves private capital markets forward

The bottleneck of almost every private equity firm is sourcing. It’s getting more competitive to get deals done and the competition continues to grow. All dealmakers are looking for ways to stay ahead of the competition. Some are hoping technology could be the answer.

2018 should see increased budgets for data monitoring and deal sourcing tools. The Boston Consulting Group recently highlighted a few segment leaders, including the business development network from Axial, customer experience analytics from Klear, and social media monitoring tools from Crimson Hexagon. Given the slow-to-change M&A market, companies like Axial are bridging both the online and offline worlds. The company uses proprietary data and algorithms to curate connections between investors and advisors at regional and national events in addition to its online platform.

Firms like Balance Point are using technology to get very precise, detailed information on firms they are calling on. “Most firms have a CRM, but companies like SourceScrub and Sutton Media have popped up and can be integrated into the CRM giving us more access to our contacts’ deal process. For example, we are able to see the last five deals a bank did and who they did them with. If we weren’t called we want to know why,” says Kaplan. “It’s no longer just call on these guys. It’s more specific, which is helpful.”

Rotunda has begun looking into technology that can help portfolio companies track the sites that customers looked at after they looked at the portfolio companies’ site. “We are in the beginning stages of evaluation of this technology, but believe it could help us narrowly define our competitor set and help us prioritize acquisition targets,” says Lipson.

Gretchen Perkins, a partner with Huron Capital Partners, agrees that the use of technology has grown all in the name of finding the right deal flow. “Firms are spending real dollars on robust CRMs and there are definitely more deal listing services. It’s good for the industry in terms of making it easier to see more deals than you could before, but it can exacerbate an already competitive situation,” she says.

GPs are also trying to drive deal flow by using social media channels to extend their outreach. While it’s hard to quantify the potential impact of using social media, dealmakers are willing to try anything reasonable to gain the upper hand today. “If we can properly target companies using social media that would be extremely helpful. The more progressive firms are moving in this direction,” says Perkins.

Burkhart, who has started a blog discussing different topics around private equity and sourcing, says this has actually brought him deal flow. “My blog is read by more than 7,000 people and my phone rings because people view me as an expert. They ask me questions and it leads to relationships. It’s a warm lead versus the old school way where you hire junior people to bang the phones. You have to be viewed as a decision maker and expert to be taken seriously these days,” says Burkhart.

Click here to download the full report.