Armed with record amounts of dry powder, private equity firms are actively competing for deals and going head-to-head with corporate strategic acquirers, who may find that their traditional means of sourcing and tracking opportunities has put them at a distinct disadvantage in today’s market.
These corporate dealmakers will need to strengthen their technology capabilities if they’re going to find high-quality companies, build relationships with founders, and ultimately win out over private equity firms that have steadily increased their technology spending.
For now, corporate dealmakers’ tech stack does not stack up.
One advantage for private capital investors generally is their ability to change their thesis as needed. Through its private equity investment arms, a hedge fund like Two Sigma can (and does) just as easily invest in healthcare in Texas as cybersecurity in New York.
Corporate acquirers, on the other hand, have a narrower investment mandate because they can only buy companies that complement their existing business. But there is an upside to this focused approach.
Targeted acquisition briefs allow corporate development teams to become experts in their industry and to know their space inside and out. They are laser-focused on finding companies that fit their business model, have complementary products or services, and sell to the same or adjacent customers. Yet even with very targeted search criteria, these teams face a technological limitation: Databases cannot produce results when it comes to this kind of targeted search.
Despite the clear need for robust search technology, corporate M&A teams haven’t invested to the extent of their private equity peers.
Post-pandemic, PE firms doubled down on technology spending, and tech budgets are expected to keep rising each year, according to Private Equity Wire. But data suggests their corporate counterparts haven’t followed suit.
A survey of corporate development teams by private equity firm Lion Equity Partners revealed that almost 60% of respondents are still using Excel to track their deal sourcing pipelines, and an additional 12% are not formally tracking those opportunities at all.
When it comes to company research or target communication, strategic acquirers are losing ground and will start losing more deals without a single source of truth. Corporate M&A teams need to start investing in technology to ensure communication is clear between employees (connecting “boots on the ground– a company’s sales and customer service teams–with the corporate dealmakers) and to ensure that the pipeline is strong by nurturing relationships.
Attending to founder and CEO relationships at any stage of the deal life cycle requires highly personalized, high-touch interactions that technology can’t replace. But corporate development teams can use tools to support the efforts of courting a company before it’s ready to seek investors. Many turn to email marketing software such as Mailchimp to assist in the segmentation and personalization of their outreach.
Automated signals can help teams determine when and how to best contact CEOs. A platform with automated B2B search capabilities can help improve this process by sending alerts based on certain triggers, such as a funding round or the addition of a marquee name to the company’s board or leadership team.
By having all this information consolidated in one place and taking advantage of real-time notifications, corporate dealmakers won’t go several months without engaging targets. They can make prospect nurturing a routine part of their workflow.
Onward and Upward
Technology-driven data and research are critical to optimizing the deal life cycle. Corporate development teams need these capabilities, along with companion integration and services, to drive successful inorganic growth. At Grata, we’ve created a private company intelligence engine with all these capabilities to help firms discover comprehensive company data and unlock the middle market.
By leveraging the right technology and services, corporate M&A teams can achieve market-wide visibility, and automate prospect identification, nurturing and outreach, while performing comprehensive due diligence and closing the right deals even faster.
Nevin Raj is the chief operating officer and co-founder of Grata, a private company intelligence engine for middle-market dealmakers.