Private equity firms look for new ways to expand their marketing

Finding off-market targets can be challenging in a competitive deal environment. To position themselves for success, private equity firms – especially mid-market and lower-mid-market firms – are ramping up hiring of business development professionals to scale their presence, find unique proprietary opportunities and deploy capital faster.

“Dedicated business development teams are not new but what’s new is having more people dedicated to that effort,” said VSS’s managing partner Jeffrey Stevenson, who focuses on healthcare IT deals.

The firm recently hired its second business development professional and has been putting more effort into having a dedicated team. “On average, we see about 500 deals a year,” Stevenson said.

Building up a business development team will help VSS take advantage of the opportunities it comes across, the firm told affiliate title Buyouts.

What’s really creating the need

The influx of capital within the private markets over the years is driving the need for business development professionals, said Erin Carroll, partner at BraddockMatthews, an executive search firm.

Fundraising cycles have shortened and in turn, increased the velocity of deployment. “They [firms] need a pipeline of deals,” she said.

Dealflow for lower-mid-market firms like VSS stems from their relationships with intermediaries, bankers, lawyers and brokers. “It’s a combination of approaches: from direct calling to dealing with boutique investment banks, attending virtual or in-person conferences,” Stevenson said.

About five years ago, this effort of knowing industry experts was shared within the deal team; partners and principals wore many hats. “But [partners] just became so busy with managing the portfolio that there was less time left for shaking hands and visiting conferences,” said Mac Lothrop, director of business development at Trivest
Partners.

“Dedicated business development teams are not new but what’s new is having more people dedicated to that effort”
Jeffrey Stevenson
VSS

Now, in addition to the deal team, business development professionals share the heavy lifting.

At mid-market firms like Trivest Partners, having a business development team has reduced the time frame for investments. “Velocity is the reason this is happening; it’s the desire for GPs to deploy capital fast and get more platforms cycling through the funds,” an investment professional told Buyouts.

Trivest has roughly 30 to 40 portfolio companies with eight business development professionals devoted to different geographies.

Having people on the ground has increased the top of the funnel dealflow or flow of opportunities, said Lothrop who sources deals in the Northeast.

Beyond sourcing, the other piece of it is technology and explosion of PE spinouts, according to Carroll.

Firms are working on CRMs such as DealCloud to track dealflow. These create efficiencies but there just isn’t enough time for investment professionals to understand all the new technology being introduced in the market.

The story differs for large buyouts, which typically participate in competitive auction processes. “Once you go above $10 million of EBTIDA [target size], there aren’t many proprietary deals available; everything is coming from a sophisticated bank,” Lothrop said.

The recruiting landscape

Anibal Montes, head of ESG and associate of business development and investor relations at WM Partners, agrees. “For a big firm with an established name, the pipeline really works out almost by itself; people are looking to partner with the largest names in the industry.”

On the flip side, at the smaller firms there’s more leg work needed by business development professionals to be recognized as a potential partner, Montes said.

“The competition is fierce – you need people who can maintain and establish relationships and not just source deals,” he adds.

For recruiting firm BraddockMatthews, the business development workload increased 60 percent from 2020 to third quarter 2021. The demand for building out business development teams has grown meaningfully in the past few years, according to Carroll.

That said, the pick-up in hiring is less robust at the senior levels.

After nearly 12 years of employment with Clearlight Partners, business development professional Mark Gartner went back to the job market in 2020.

He searched hard for roughly 10 months before joining LA-based RLH Equity Partners.

“RLH was a perfect fit,” Gartner said. “I chatted with a lot of firms; sometimes the position is right, but the culture is wrong.”

In his view, the market just had a handful of opportunities for someone in the senior capacity, but hundreds of seats are available for lesser experienced business development professionals, he said.

Just like partner roles in PE firms, the industry has fewer senior business development positions vacant. Carroll ascribes this to the difficulty in integrating senior professionals at smaller firms. “It could be disruptive [to the firm],” she said.

There’s also the question of compensation mixed with the executive’s style of sourcing. “When you are a little bit further in your career, the cultural fit has to be so perfectly aligned,” Carroll said.

In the end, it’s about your brand

Firms, in general, are adopting a more pro-active marketing lens whether it’s through the hiring of business development professionals or external marketing agencies.

Marketing and communications have always been a key part of the business development role. “It’s [the job] is about finding ways to be in front of people who can help you increase your firm’s presence in the market,” said Montes.

The percentage of PE firms with at least one full-time business development professional rose to 64 percent in 2020 as compared with 47 percent in 2017, according to Sutton Place Strategies, a deal transaction database.

Another example is 51 Labs, a New York-based marketing agency, which focuses on private equity firms and works a lot with emerging managers.

“Emerging managers have a heightened sense of differentiation; they need to tell their story,” said Jordan Selleck, co-founder of 51 Labs, speaking from his Atlanta home.

Selleck’s firm undertakes projects that involve making brand videos for portfolio companies and publishing weekly LinkedIn posts on the behalf of the PE firm. Cost per project can range from $25,000 to $100,000.

From his vantage point, price is not the sole determinant of winning deals. “All stakeholders [LPs and businesses] want transparency and authenticity [from PE firms],” Selleck said.

Ultimately, marketing is just another way for PE firms to be more competitive and differentiable, said Carroll. “It’s all about unifying the brand in the market; who are we, what do we stand for and how do we present ourselves.”

This article first appeared in affiliate publication Buyouts