For the past few years, the financial industry has been on a roller coaster ride: bank failures, rampant inflation, fluctuating interest rates, impacts from global strife, and more. For investment banking and private equity firms, the effect on deal flow has been profound.
Many firms made platform investments as valuations peaked and deal volume entered a period of decline. Meanwhile, dry powder — which now sits at a record $2.59 trillion — is only increasing the pressure to transact.
As we enter a new year with a more hopeful outlook, we decided to ask twenty top dealmakers three important questions to better understand their strategies for success going into 2024:
Their answers had several clear themes, including investing in humans and AI, being creative, and cutting your losses — and you can read about them all in this guide. However, we wanted to dive a little deeper. So we invited three key industry players to weigh in on the results in a recent webinar hosted by our Chief Marketing Officer, Mike Waite:
Let's check out their discussion around three of the top strategies.
Ever since ChatGPT exploded onto the market in late 2022, AI has seen incredible growth in both interest and capability. While still in early days of learning and exploration, it’s clear that AI can and should be a valuable part of dealmakers' toolkits this year. One of the key tactics offered by our panelists is using AI to process and work through all the data that firms collect.
Charles Shannon, VP of Corp Dev at Tennant, uses AI to accelerate the work he does as a one-man corporate development department. Mapping markets is incredibly important for his role, but sorting through hundreds of potential investment opportunities is simply too much for one person to do. "If you've ever spent an all-nighter scrubbing M&A comps," he laughed, "you know the pain." To help, his firm enlisted an AI company to help him prioritize his list of targets and provide a clear roadmap of what opportunities to chase first.
Brandon Knapp, Founder & Managing Director of Evercap Advisors, also discussed AI’s potential to help attract and retain talent. Even with a very low 3.7% US unemployment rate in January 2024, younger generations — especially GenZ — tend to switch jobs more often in search of higher titles and better pay. AI has the potential to help firms identify processes and methods for making it easier to keep all employees happy, especially in turnover-heavy markets.
With 2021 vintage valuations, current market conditions, and increased competition for deals putting firms in a tough spot, pressure to transact is high. But to successfully navigate this environment, dealmakers need to push their creative side to the limit.
Structured deals and other deal types, such as minority recaps, might be more viable tactics to secure deals in a less-than-optimal and highly competitive environment. On top of that, longer earnout periods, contingent value rights, and perhaps even phase transactions will all likely make appearances this year.
Firms should also consider specializing and "niching down." Jordan Margolin, Head of BizDev at VSS, said his firm is getting more creative by focusing on specific subsectors within much larger industries. Finally, all our panelists agreed that add-on acquisitions should be a main tactic in dealmakers' kits this year to help bring down the multiples on platform investments.
M&A has always been a business built on networking and relationships, and that's not changing any time soon. Cutting through the noise, however, means dealmakers must find new ways to connect and provide value. Margolin believes one popular tech industry tactic, content marketing, will be the next big thing for private equity.
Especially as the "dark funnel" continues to grow, as most buyer research is done before ever engaging with a brand (or firm), providing value — without asking for anything in return — and having an online presence will be crucial. Firms may consider creating educational white papers and engaging in other thought leadership activities to set themselves apart from competitors.
Knapp also offered LinkedIn as a valuable resource to not only post on but also connect with others in the industry, as well as founders and other stakeholders at potential investment opportunities. Carefully crafted, hyper-personalized direct mail is being revitalized as a means to make an impression and build rapport since email inboxes are so inundated with messages.
Our panel offered many more insights, strategies, and predictions for the year ahead, from little-known secrets of how to catch the attention of founders to processes sure to boost outreach success. This webinar is full of wisdom you don't want to miss, and you can watch the full thing on-demand: Dealmaking in 2024: Time for Transformations.