Private Equity BD: The Insider’s Perspective

As deal flow remains sluggish and competition on deals remains high, private equity groups need to work hard to distinguish their firm from the next. One strategy that has realized some success recently is the employment of the business development professionals to help source new and better opportunities.

To learn more about the details of the business development role, we spoke with three BD professionals from the Axial network — Ransley Carpio of Chardan Capital Markets, Stephen Connor of Hamilton Robinson Capital Partners, and Gretchen Perkins of Huron Capital Partners. Although the three had slightly different approaches and strategies, all three agreed that the BD professional is focused on providing an increased quality and quantity of deal flow.

What is effective outreach?

According to Connor, the volume of interactions and connections is critical to the business development role. “Business development is a numbers game,” explained Connor. “As a firm, we like to plan for 100 connections a week. While the real number may ebb and flow with deal activity, we generally aim for 100.” Connor’s goal of 100 interactions is rooted in the belief that it takes roughly 9 touches to build a solid relationship with an individual.

Carpio agreed with the importance of volume. “You need to start by simply turning over every stone,” he explained. To maximize the efficiency, Carpio has broken his team into an analyst team and an associate team. He explained, “The analysts do the leg work in identifying companies that we want to approach; the associate team actually does the relationship building and outreach.”

Perkins, while also making plenty of phone calls, prioritizes in-person meetings over any other form of contact. “We highly value the in-person outreach,” she explained. “It is the best way to have an effective conversation and educate intermediaries about what is a good Huron deal.” With the in-person meetings in mind, Perkins travels most of the year, regularly attends conferences, and sets up 5-6 meetings a day.

All three explained that their outreach was a mixture of several channels, including their Axial profiles and the new connect functionality in search. Perkins explained, “Axial helps us see 4-5 deals per month that we wouldn’t have seen otherwise.”

How do you measure success?

Although outreach is very easy to track, measuring success becomes a bit more complicated. While Carpio estimates “the average deal origination professional typically develops 1 qualified lead per week,” the funnel of the leads is harder to track and can ebb and flow, often requiring a marathon — not sprinting — mentality.

Connor admitted that there is an element of timing and luck in the process. “Sometimes they have a deal on your first call, which is great. Most of the time, however, it could take months or years to receive a quality lead.”

The most important way to guarantee you are seeing the quality deal — whenever it arises — is be conversant, respectful, and honest with the intermediaries and contacts. “You have to prove you are responsive, attentive, and a credible buyer to each banker, as well,” explained Connor. “I am certain to respond to every deal we receive — even if it is not in our area of focus.” Connor added that by responding to the deals, bankers have a better sense of our area of interest and are appreciative you took the time to answer.

“It is hard to measure an immediate direct correlation between a trip or a meeting and resulting leads. It tends to be very opportunistic,” agreed Perkins. “Deals come in when they come in.  That is why you need to be in front of deal sources consistently.  We focus on positioning ourselves to be more present in the areas where we are seeing the greatest deal flow over time. We keep careful reports of average deal flow and average deal size by region.”

What are the adoption strategies?

As Wayne Sills — Founder of Sills Associates Executive Search Consulting, which provides executive selection assistance to private equity funds — explained in a previous article, the biggest hurdle thus far to bringing a BD professional into a firm has been logistical. “Firms [struggle] to figure out how to bring in a high priced BD specialist if they are halfway through investing a fund,” he explained. While they see the value of having a deal sourcing specialist, they have a hard time dividing up economics midway through the investment period so often they target hiring a BD professional for when they are getting close to closing on their next fund.”

A potential resolution to these economics is to hire an outsourced BD professional. As Carpio explained, “From a numbers standpoint, outsourced efforts tend to be cheaper since they don’t typically require carry and/or benefits. Additionally, you’ll get multiple BD professionals instead of just one.”

However, the outsourced alternative can be less integrated and less comprehensive for the long-term. “The primary benefit of in-house teams is that they will be higher touch, meaning they are developing more meaningful and long-term relationships with bankers and intermediaries,” explained Carpio. “Outsourced teams typically focus on proprietary efforts. If a firm can afford it, having both in-house and outsourced efforts would make the most sense.”

Connor believes that in-house efforts generally offer greater returns because they foster continuity and long-term relationships. “Business development is not a one-time effort,” he explained. “You want continuity for your bankers and intermediaries.”

He continued,“In-house professionals will also be more in-tune with investment criteria because they will be present for many day-to-day conversations and attend investment committee meetings.” While an outsourced team may be able to deliver a larger number of opportunities, an in-house BD professional may drive more quality leads.