There are less than four working weeks left in 2018, and what a year it has been for M&A. For the next several posts, the Source will focus on year-end strategy tips and insights to prepare for a successful 2019.
Evaluating tier-one relationships should not be a daunting task. In fact, it should be a rewarding exercise to help to improve a firm’s business development strategy. The first step in the evaluation process involves identifying which firms and relationships to prioritize, by establishing which relationships are worth nurturing, which are in good standing, and those relationships that may not be relevant to your strategy next year.
To rank or not to rank?
To purposefully rank intermediaries by tiers, incorporate various metrics and data points that add value to the analysis. Begin with an evaluation of the firm’s sell-side process. This involves gauging the type of closing process that each firm typically runs. Perhaps you would like to source limited or boutique deals next year, look to advisors that employ a more nuanced approached and avoid broad auction processes by showing deals to fewer investors.
Valuable insight is obtainable by examining the number of deals a firm brings to market versus actually closes in a certain period. Which leads to the next valuable metric in the ranking process, what is this intermediary’s success rate? For each deal that this particular intermediary brought to market in a given time-period, knowing what percent of those deals actually closed will provide awareness into the firm’s achievement of bringing quality deals across the finish line.
Another important metric to consider when prioritizing relationships is to assess the relevancy of a firm’s deal flow. This is easily quantifiable by calculating what percent of deals the intermediary closed were relevant to your criteria. If it is below a certain threshold, it might be time to mark this relationship as a tier-two.
Are you covering the right relationships?
Computing your firm’s market coverage of an intermediary is important when prioritizing relationships. In this instance, it is important to understand what percent of the relevant deals closed by a certain advisoryour firm saw. Let’s delve deeper into this market coverage analysis. Of the intermediaries on your tier-one list, have these firms closed more or less relevant deals in the last twelve months compared with the previous LTM period? If the answer is more, this firm is trending and you should continue to prioritize the relationship. Moreover, if this is a new advisor to your target market, there is an opportunity to build and prioritize this relationship in 2019, if they are actively closing deals in your target. On the other hand, when evaluating your list of advisors, it may appear that you have a low-coverage rate of an active intermediary in your target market. Appraising your market coverage of your tier-one relationships can yield valuable insight on where to focus your time.
December is a good time to index your relationships to prioritize them for the coming year. Part of the evaluation of these tier-one relationships may involve meeting with a few advisors to analyze your market coverage results. This will help pinpoint certain sectors or transaction types that the firm is not thinking of you for, but should be. Perhaps this exercise illustrates that this tier-one relationship is not a great source of relevant deal flow, as you previously thought. If that is the case, certainly other intermediaries could be a better use of your valuable time.
Employing a thorough, data-driven approach will paint a clear picture of which relationships should continue to be nurtured, and which may not need the attention. If interested in an intermediary analysis for your relationships, contact SPS.
Last week’s deals today
November 12 – 23, 2018
Deal of the week
Apollo Management through its portfolio company, RCCH HealthCare Partners, completed its acquisition of LifePoint Health Inc. for $5.6 billion. Goldman Sachs acted as the sell-side financial advisor for the transaction and White & Case provided sell-side legal advisory services. LifePoint Health will continue to be based in Brentwood, Tennessee.
Most active subsectors
- IT: Software & services
- Industrial: Equipment & products
- Food: Consumable food products
- Services: Data & information
Most active cities
- New York