White Noise Shootouts In The PE Corral

Private equity plays a hugely important role in our economy, but alas, business owners are looking for a reason to not answer the phone when a private equity firm calls. Here’s my take on situation…replete with a few tips for cutting through the clutter.

By Bill Snow  

The phone rings. The caller ID display indicates the caller is some sort of private equity (PE) creature. Or worse, some ilk of investment banker probably calling on behalf of some sort of private equity firm.

For most people, this might be an interesting call. However, for a certain class of people – we call them business owners – these calls are the reason voicemail was invented. Heck, if voicemails were filed in a cabinet, these calls would go straight to the “do not answer, do not acknowledge, do not respond” file.

For the uninitiated, this is the “we’re different, we have money, we have industry experience, and we want to buy your company” call. These calls typically are made by young go-getters – we call them newly minted MBAs – and they are very excited about their new duties. Well, at least when they initially begin making the calls. You see, some of these newly minted MBAs may have actually spent time in sales, so they know firsthand the rejection faced by salespeople. Did I say rejection? I’m sorry. I meant indifference.

Anyone who has spent time in sales knows full well the lack of response is often worse than a firm “no.” So spending time in sales means one thing…thinking about spending time on the buy side. After dealing with wave after wave of rejection and indifference, who wouldn’t dream about being the one who decides what, or if, to buy?

So now the newly minted MBAs are on the buy side. Or so they think. What they will eventually learn is in the weird world of M&A, things are reversed: Buyers are actually sellers and sellers are buyers.

PE firms raise money from a slew of usual suspects – we call them limited partners – and these usual suspects (pensions, insurance companies, university endowments, etc.) are looking for a return on investment. A good return, mind you. So the PE firms want to deploy that money. Did I say want? Sorry, I meant to say “need.” You see, if that money sits unused in PE firms’ coffers, the usual suspects start to get itchy and may start to demand their money back. So PE firms need to deploy that money. They need to make investments.

This is why the roles in M&A get reversed. All this money is actually a mere commodity for the business owner. Dollars from Fund A are actually the exact same as dollars from Fund B. People who employ fancy words – we call them business writers – use the business school word fungible to describe this phenomenon. A business owner with a solid company, good growth, and strong profit margins, is in the driver’s seat of the fungible world of private equity.

As a result, the constant and consistently consistent messaging from PE firms becomes background buzz – we call this white noise – for many business owners. If you’d like to see that rephrased in an algebraic formula, here goes:

Being the driver’s seat + constantly hearing the same story = background buzz

In this fungible world, PE firms can find it difficult to differentiate themselves. Money is money and plenty of firms have money. Almost every firm says they’re different and has industry experience. So instead of leading with the lines that everyone else uses, what can the earnest PE phone dialer (or their investment banking proxy) do to cut through the clutter?

Short of the best method – we call this owning a complementary portfolio company – have something to say! From my experience of making these sorts of calls – I’m the ilk of creature we call an investment banker – I wasn’t the only one calling business owners. Plenty of firms have money and were making the exact same call as me. If the script offers little more than the old “we have money and want to buy your company” line, the business owner isn’t going to have much interest in further discussions.

The key is to fight through the myopia we all have. It’s easy to forget we’re not the only ones making these calls. It’s easy to lose sight of the fact business owners receive this type of call ALL THE TIME. So the question becomes, how can I have something to say? Here are few ideas:

  • Tout industry knowledge – Demonstrating that you’re conversational in the industry is a great what to differentiate yourself from the masses. Talk about recent MA& transitions and trends. Talk about developments and changes and challenges particular to the owner’s industry. Give your opinion or better still, ask the owner for his opinion on some recent change or development.
  • Build a rapport – If you’re rushing to complete all the calls on your list in as little as time as possible, you run the risk of failing to connect with the people you’re calling. You’re just “dialing for dollars” at that point. Take the time to get to know the person you’re calling. Talk about sports or travel or food, wherever the muse of the conversation takes you. This might sound vacuous, but often the only want to stand out from the crowd is to jettison the canned speech and have a real conversation.
  • Demonstrate openness – In other words, eschew the cloak and dagger techniques (“I can’t tell you the company’s name”) that far too often pop up during these calls. Be open and forthright and if you’re seeking to make add on acquisitions for a particular company, you don’t hurt yourself by divulging the company’s name. After all, what harm will come if competitors know your portfolio company (or client’s company) is so successful that they’re seeking to make add on acquisitions?
  • Use your personality – Business owners don’t want to speak to automatons programmed to provide safe, bland, and pre-approved answers. They want to speak to a real person. Don’t be afraid to stand out. Keep it professional, of course, but go on, speak your mind! Give your opinion. Your honest opinion. Make ’em laugh. Be yourself.
  • Avoid hubris – Demonstrating your personality is not a bad thing, but don’t go overboard and become the quintessential slick salesperson. Style, elan, and flash do not trump substance.

Having something to say is all well and good, of course, but it your witty repartee will go for naught if you fail to heed perhaps the most important lesson: Make sure you speak with the decision maker! Don’t get caught in what I call “Screenerland,” you’ll never get out of it. Don’t pour your heart out the CEO’s assistant, don’t get side tracked with the owner’s lawyer, don’t waste your time with an influencer.  Get to the decision maker.