What is PBD (Proactive Business Development)?
PBD is a multi-channel deal sourcing strategy implemented by top PE and corporate M&A teams. It’s a holistic view of private marketing investing, specifically focused on network expansion through six channels.
Some firms lean on more channels than others. For some, the highest ROI is through outbound deal sourcing; others lean toward inbound banked deals. The best way to determine which channels yield the highest returns is to try them and test.
An important note: top firms are viewing PBD as a long game when it comes to sourcing. If you start allocating more resources toward a new channel and expect a deal to close in two months…it’s not likely.
When we say testing, we mean 1-2 years of testing to have enough data to know which channels outperform others and how to best allocate resources and time. But why is it worth the effort? Because proprietary inbound deals are possible and create high returns and are easy to close.
Proprietary Inbound Deals are Possible
Before PBD, the most well-known deal channels were inbound and outbound.
Outbound had higher returns, but inbound deals were easier to execute. These were the two options open to BD teams looking to source deals for their company or firm:
- Outbound deals - obtained by directly contacting companies, executives, and business owners through methods like phone calls and emails. While this approach is challenging, it often leads to higher returns.
- Inbound deals - sourced through bankers, brokers, and deal marketplaces, which are relatively easier to find but tend to have lower returns due to increased competition.
The ideal scenario is to be in the top right quadrant of the matrix where deals are easier to find and offer higher returns. That’s where the 6-deal channels of PBD take place; BD teams being proactive with inbound and referral sources to secure more lucrative deals.
While no deal is easy, some sourcing strategies require significantly more effort than others. Unlike direct proprietary sourcing alone, PBD incorporates multiple channels that result in deals coming to you.
Bankers and Brokers
Wait a minute– doesn’t a deal through bankers classify as an inbound deal? Yes, and no. The PBD approach is different from the typical banked deal. Here’s how:
On average, mid-senior PE professionals have relationships with 5-10 banks. There are 6,000 investment banks in the US. How do you see the other 99%? The PBD channel Bankers and Brokers requires 2 steps.
- Knowing the bankers advising in your industry and sub-industries
- Building relationships with each of them
The reason behind this is this: investment banks, especially smaller ones, do not have time to do extensive research into every project they work on. More likely than not, they will recommend the top names they know. To be on that list, you need relationships with these bankers.
The best way to start these relationships, share your research and learnings with them. You want to be seen as a leader? Be a thought leader in your space.
According to Jonathan Kitchen, Vice Chair, Private Equity, Cozen O’Connor, “If you're at a bank, if you're a sponsor, you’re working with lawyers all the time. You're working with them on deals. You're working on diligence. [The next step is] knowing who's good at what and who else might benefit from that? I think if you have that and if you’re genuine about it, that'll shine through.
See the full conversation with Jonathan Kitchen and others in the Proprietary Inbound: 6 Ways to Get Deals to Come to You webinar.
Accountant and Financial Advisors
According to the Federal Reserve Flow of Funds Report and research by Tiburon Strategic Advisors, boomers are expected to liquidate over $14 trillion in small business valuations. While not every deal will go to private equity, that’s still over 4x the amount of dry powder in need of liquidity.
Who will be the first to know about their retirement? Their accountant and other financial advisors.
You want to know people in the know, and the approach as it is for lawyers. Know who’s advising in your industry, build relationships.
Find out their pain points and how your industry knowledge can make their jobs easier or give them a competitive edge against their competitors.
Investor referrals are much more common in venture capital than in private equity. Virtually all VC deals are proprietary because venture capitalists have relationships with firms who do bigger deals than theirs and those that do smaller deals. The seed investor in particular industry knows the Series A investor, the Series B investor, and so and so.
The benefit of these investor relationships? Getting priority access on deals a larger firm may have passed on.
PE firms mirroring this approach have an edge. They know investors in the industry targeting various ranges of EBITDA. They know who their competitors are, but they also know who is investing above them and may have deals they need to pass on.
It’s a strong position to be the firm that passes along initial due diligence and an intro to the owner of a company that may not be right for your firm based on size to a smaller firm.. This provides value to the business owner and the firm, which can put you top of the list when the company is ready to sell again in the future.
Seeing all PE firms in your space as the competition is a mistake. The best firms have regular check-ins with other investors.
Events and Conferences
Exciting news! You don’t have to attend every conference and event in your industry. That’s too great a strain on your time and resources. But what you do need in insight into who’s attending which events and where you’re time is best spent.
The PBD approach to conferences and events is tactical and data-focused.
- Find the full list of conferences in your industry
- Get the list of attendees
- Access your top targets and reach out to book meetings
- If you book enough meetings, then buy a pass to the event.
Access if the event is worth the time, before you book your flight.
Okay, okay, but how does executive outreach not fall under “Proprietary Outbound” deals?
Great question. Here’s how the PBD approach works differently.
Most BD teams doing direct outbound sourcing approach a business owner with one goal in mind: can I buy your business? If the answer is no. The conversation ends there.
A PBD approach digs deeper.
If that business owner is not interested in selling, it’s likely they know executives who are. They most certainly have industry knowledge that could benefit your firm, and may be interested in a board seat in the future.
“If the timing is misaligned, this idea around deal angles allows the PE firm and the executive to talk about things that are real and current. It builds deeper connectivity between the executives and the P. Firm.” - Scott Estill, Managing Partner, Lancor
See the full conversation with Scott Estill and others in the Proprietary Inbound: 6 Ways to Get Deals to Come to You webinar.
Don’t let a no, end the conversation. PE firms thinking more critically about their networks and the value they can provide to them are gaining a competitive advantage.
Get Started Today
For the full breakdown on proprietary inbound, download the webinar Proprietary Inbound: 6 Ways to Get Deals to Come to You. You’ll hear from 3 experts who share their personal experience of building a network that supports proprietary inbound.
See how Grata supports PBD. Set up a demo.