... start a PE fund

[newinny]

This is more of a thought problem than a real life dilemma. I was wondering what the strategies are that PE funds use to find and identify potential acquisitions.

Let's say capital is no problem and you have access to up to $100MM. Modeling and technical skills are also no problem as you and your partners have experience in IB at bulge bracket banks.

Now the question is how do you find potential acquisitions without tripping over other sponsors? Is there a yellow pages of companies for sale?

 

[Douglas]

Originally Posted by newinny

Is there a yellow pages of companies for sale?
Yes. Bizbuysell.com. However, most PE firms use brokers to do focused searches within their target areas. There's a healthy network of these sorts of firms and they contact sell-side brokers (who of course are contacting them as well to pimp their wares - and of course most of these firms work both sides anyways) as well as cold-call companies to rustle up prospects.

 

[Dashaansafin]

Duh relationships....

 

[newinny]

Originally Posted by Dashaansafin

Duh relationships....
Well I'm thinking of a hypothetical scenario where I and my partners work in a place where we have no relationships, i.e. South America. I just went to a PE conference where partners all said they felt the market was saturated and that all companies were at extreme valuations inside the States. I could partner up with someone in the country but I'd also like to figure out some other avenues.

 

[Douglas]

Do you have a target industry? If so, you can just network in that industry, try to meet execs and owners, and pitch your angle.

You can also just cold call like crazy but that's pretty tough unless you have multiple outlets for the "yeses" as a broker might. Or you could focus your cold calls by industry, geography, whatever.

But honestly I think your best solution is going to be finding an in-country broker to do a search for you. He'll have the contacts too to maybe find a company that's already on the market.

Maybe a real PE guy can chime in here, but this is my understanding of how it works in my experience on the buying side of things.

 

[tj100]

Different firms have different models.

Most firms narrow their focus by industry, deal size, and deal/investment profile, (as well as geography - many partnership agreements specifically limit the geography that a fund can invest in).

There are three primary sources of dealflow:

(1) Relationships/'connections'/personal referrals from people you've done business with in the past. This often yields the highest quality, but lowest volume of opportunities.

(2) Sell-side investment bankers. Maintaining relationships with M&A bankers is key to making the model work. You keep them apprised of what kinds of companies you're looking for, they call you when they have something even remotely close.

(3) Cold calls. Some firms do this, other firms don't. It's a ton of work, but is a potentially good source of proprietary dealflow. Obviously, you kiss a lot of frogs.

 

[newinny]

Originally Posted by tj100

Different firms have different models.

Most firms narrow their focus by industry, deal size, and deal/investment profile, (as well as geography - many partnership agreements specifically limit the geography that a fund can invest in).

There are three primary sources of dealflow:

(1) Relationships/'connections'/personal referrals from people you've done business with in the past. This often yields the highest quality, but lowest volume of opportunities.

(2) Sell-side investment bankers. Maintaining relationships with M&A bankers is key to making the model work. You keep them apprised of what kinds of companies you're looking for, they call you when they have something even remotely close.

(3) Cold calls. Some firms do this, other firms don't. It's a ton of work, but is a potentially good source of proprietary dealflow. Obviously, you kiss a lot of frogs.


Thanks, awesome info!

Don't happen to know the names of any middle-market IB's in South America?

 

[newinny]

Originally Posted by Douglas

Do you have a target industry? If so, you can just network in that industry, try to meet execs and owners, and pitch your angle. You can also just cold call like crazy but that's pretty tough unless you have multiple outlets for the "yeses" as a broker might. Or you could focus your cold calls by industry, geography, whatever. But honestly I think your best solution is going to be finding an in-country broker to do a search for you. He'll have the contacts too to maybe find a company that's already on the market. Maybe a real PE guy can chime in here, but this is my understanding of how it works in my experience on the buying side of things.
Don't really have a target. I have valuation experience in communications groups but that wouldn't be the target industry.

 

[tj100]

Originally Posted by newinny

Don't happen to know the names of any middle-market IB's in South America?

Not off the top of my head. Take a look at M&A International and see who their local affiliates are.

 

[Douglas]

Also, check out ACG. I presume they're like a kid brother to M&A Intl. They are focused specifically on the middle market.

 

[MetroStyles]

I started a hedge fund solely using advice from StyleForum.net and ended up retiring at 24. Good luck!

 

[otc]

Originally Posted by MetroStyles

I started a hedge fund solely using advice from StyleForum.net and ended up retiring at 24. Good luck!

I also did very well with the "go short on any SF recommendation" strategy

 

[newinny]

WAYWN Capital

 

[MetroStyles]

Originally Posted by otc

I also did very well with the "go short on any SF recommendation" strategy

Chumps go short, winners size down 2.

 

[tj100]

Originally Posted by Douglas

Also, check out ACG. I presume they're like a kid brother to M&A Intl. They are focused specifically on the middle market.

The two are a little different. M&A International is an alliance of middle-market firms that gives each member some operating ability in a wide range of countries, because member firms have pre-negotiated cooperation agreements among themselves. It's sort of like the Star Alliance of middle-market investment banking.

ACG is more of a pure industry association / networking group, mostly focused on M&A bankers and financial sponsors.