Multiples with a high deal? No sweat! Deal Sourcing Lands Value Plays anyway


Record deals were not rated enough to keep financial sponsors on the brink of the ongoing M&A boom, panelists say at today’s Up-and-coming stars of the Private Equity SPEAK. Instead, deal makers deal with higher multipliers by looking for deals before they turn into competitive auctions, structuring deals with conditional payouts, and alerting founders to non-price benefits like partner networks.

Specialized private equity company Motive partner has not slowed capital input in response to market conditions, Vice President Miguel Tejeda said the panel this morning. Instead, the company finds deals on attractive terms by using its network of financial technology industry participants to find potential transactions before they hit the market, and even combs regions outside the innovation hubs of major cities.

“Differentiation in procurement is the biggest driver,” said Tejeda. “When you are vertically focused, you can differentiate yourself; it’s about network and strategy. As part of the deals, we get a number from our network or in a so-called advantage deal, in which we go outside of a sales process. “

It’s an approach that’s also resonating with limited partners, said Karen Nes, Growth Assets Investment Analyst for the Australian pension fund Aware Super. The group manages $ 125 billion in assets.

“We have tended to prefer industry specialists, and that is still the case today,” said Nes. “Family doctors can have lower claims rates and know more about the business. We are looking for managers with a unique sourcing relationship with an industry. “

The relationships that specialist PE firms can bring to potential portfolio companies are a selling point for founders and can set one buyer apart from another in one process, noted Encore consumer capital Co-founder Robert Brown. “We love working with people who care who their partners are,” said Brown.

Structural corrections

Private equity firms can also “downmix” multipliers by purchasing value-adding, lower multiple add-ons for a platform, Tejeda said. The buy-and-build strategy is gaining traction in a highly valued environment.

“We like to combine entry multiples with M&A,” explains Tejeda. “You have to pay for a lot of assets, but we spend time before the acquisition identifying more sensible acquisition companies: ideally peripheral products for the core customer [consumes], with a sticky customer base that you can cross-sell and reduce the entry multiple in the first 6 months to a year. “

Earnouts also provide an attractive structural way to bridge the bid-ask gap, although the risk appetite of the market could reduce the effectiveness of the instrument, the panelists noted.

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