Some of the best deals need no bankers other than to check a box. Unfortunately, not every deal qualifies as the top 20% according to the Pareto Principle. No, the majority of transactions require a great deal of grunt work and boots-on-the-ground labor to get over the finish line. A silly and false notion has arisen since the rise of online listing and posting platforms for various types of deals–from equity crowdfunding to M&A. That notion is this: deals can get done by just posting to some modern version of yesteryear’s classified, blind business listings and those deals will suddenly get the exposure they need to see a shift in fortune.
It’s this POST AND PRAY mentality that is problematic in today’s extremely active middle-market–for everything from M&A to capital raising. Various platforms exist, allowing private equity and strategic investors and acquirers to view and select businesses as if you are shopping for online clothes. But not every deal wants or needs a platform. It is most likely that the best deals have their five “go to” buyers or investors and the deals get done quickly. If true general solicitation in 506(c) or broad auction in M&A is warranted, then targeted email and phone campaigns will likely also be required.
Similarly, not every investor can be trusted or is fully vetted. In one such scenario, we had a Reg D 506(c) client who listed his deal publicly on several of the more prominent crowdfunding platforms. When we had what seemed like a highly-interested investor that was supposedly qualified by the platform, we scheduled a live meeting in New York to meet and discuss terms of the investment. We booked flights and accommodations. Upon arrival to New York City, the so-called investor completely disappeared. KYC and AML may not catch the potential of a slight-of-hand move by would-be investors.
Fintech platform prognosticators have touted online software platforms as a replacement for a traditional targeted solicitation or matching of investors to their most relevant opportunities. Unfortunately, most accredited investors have jobs and interests in other areas and are likely not to move without a relationship. That group is cat-corralling in its highest sense. Institutional buyers, while more active in their business/deal development efforts, also need some goading by an active investment bankers and deal makers.
Most deals are also only pitched to a handful of would-be buyers and investors, particularly on the M&A side. Knowing the right five to ten buyers means more than the broad shotgun approach to any and all potential suitors. While this is something platforms do very well, it is also the platforms’ Achilles heal. Why does one need a platform when the most relevant “go to” investors can be immediately reached by phone?
Some of the most over-subscribed IPOs could have been completed as as direct offerings, likely without the assistance of a true underwriter or selling group (Facebook and Google come to mind). Those that can succeed will. The rest need to be pushed. Platforms are simply one avenue of distribution that can help pit buyers against one another in a standard M&A auction or help firms looking for growth capital to get more exposure in their own capital raise efforts. However, deal distribution requires more than a post-and-pray mentality. The next time you’re discussing your potential transaction with an investment banker, make sure that if posting to platforms is included in the promotion that they represent <10% of the total effort. Otherwise, a lot more praying than promoting will be required. Real deals need real deal makers.
