New School Manifesto
Traditional deal making is dead. Whether you’re in private company M&A or investing, the science (and art) of deal making has radically changed. The cause? Trillions of dollars pouring into PE and VC coffers looking for “above market” returns – which, in turn, has increased the competition for private company transactions. This, in addition to increased M&A, as corporate buyers compete for a finite set of prospective targets.
Deal makers can no longer rely on traditional, old-school approaches. Companies are transacting at ever earlier stages and operators are increasingly educated and savvy. If firms aren’t identifying and building relationships with prospects early in their life cycle, they will be cut-out of deals. For investors, relying solely on intermediated deals is increasingly a failing strategy. For M&A professionals, speed and accuracy of deal sourcing and execution is the difference between success and failure.
Fortunately, a “New School” of deal making is upon us. New data services that give visibility into historically opaque private markets are driving an entirely new era of data-driven sourcing strategies. Software systems that enable small teams to have an outsized impact are revolutionizing the business development process. Firms that aren’t aggressively embracing these new techniques – whether they be investors or in M&A – are quickly being surpassed by their peers.
We at SourceScrub believe that reinventing your deal making is no longer optional but required. The following is a set of guiding principles that anchors the New School approach.
- Be an Expert – No business owner/operator wants a generic advisor or capital partner. Deal teams must be experts in their field. That means you must know what you’re doing and have unique insights and experience in your markets. Whether large or small, firms must carefully craft a strategy or set of strategies and be able to follow through with these themes. It puts significant pressure on flawless execution of strategy so that firms can benefit from the insights and experience gained. We believe it’s the consistency of strategy execution that creates a defensible island on which to stand.
- Operating Partner Mindset – Let’s face it, money only goes so far in persuading operators and owners to transact. Businesses are looking for partners who can help them take their game to the next level. For Private Equity and VC, that means operating teams that can dig in with portfolios. For M&A, that means providing value add services and advice well before (and after) transactions. If anything, New School is shift in mindset from being financiers & advisors to being partners.
- Data: Core To Strategy – Data is at the heart of New School. The internet has unlocked a near infinite set of private company signals for investors and M&A professionals to leverage. Acquiring, organizing and making sense of private company data is now a mandatory capability. Best-in-class firms are aggressively restructuring teams and processes to capitalize on these new data sets. The insights generated provide firms with massive competitive advantage as they develop new and unique perspectives on their markets in near real time.
- Direct Origination & Outbound Teams – If New School is nothing else, it’s about being proactive in your deal flow. Investor teams increasingly see direct sourcing as a critical part of their deal flow mix. New School allows even small firms to be highly targeted and efficient in outbound prospecting, enabling a whole new set of firms to go direct. Being able to identify and build relationships with promising prospects early in their company’s life-cycle allows investors to ensure they have a leg up during a banked process. For Bankers, New School revolutionizes the business development process by upleveling the way in which sectors get covered and developed. M&A can be much more methodical in how they establish and build rapport with promising targets.
- Aggressive Technology Adoption – Software is upending deal sourcing. Most firms are well underway with CRM adoption, but advanced firms are moving well beyond with tech stacks and processes that are fundamentally changing the core operations of the firm. Many organizations now have software development teams and data analysts working on proprietary tools, systems, and data models that give them a leg up. In all situations the adoption of tech requires dramatic change within the firm as new roles, processes and budgets are being adopted.
- Speed and Agility – The pace of deal making is faster than ever. As competition heats up for privately held companies, firms have to be able to execute at lighting speed or get left behind. And, as Covid reminds us, the world is changing at hyper speed. What was good strategy one month can completely change the next. Teams must be able to turn on a dime, adapting to market opportunities (and threats) and reworking hypotheses in real time. Agility and speed are table stakes and they are enabled by data, systems and processes that give firms the insights required to adapt.
The New School Manifesto calls for radical change within Private Equity and M&A organizations – and the challenges of this transformation are not to be trivialized. But make no mistake, adaptation is not optional. Many if not most of your competitors are already underway in restructuring not only their deal flow, but their firm’s operations at large. For those who embrace the New School principals, not only will you outperform your peers, you’ll create a foundation of deal flow that will drive returns for years to come.
At SourceScrub, we’ve made it our mission to help you through this transformation and honor those of you that are engaged in the New School journey.