SPS - 2017 PE Market Coverage Summary - Buyouts

I recently received my 6th and 4th graders’ state test results. If you’re a parent, let me know if this sounds familiar: I tell myself that if the score is low, then tests don’t really tell me about their true potential. If they’re high, well, that’s a whole different story.

Regardless of where you stand on the state test debate, one thing is clear and applicable in any field: seeing the results of how my son and daughter performed in the context of their peers, as well as their relative growth from the prior year, taken together, tell a meaningful story.

“Can you really picture a PE professional basing an investment thesis on opinion and gut feeling?”

Private equity practitioners in particular are very focused on numbers and facts to help drive performance, and for good reason. The success of their portfolio and returns to their LPs depends on it. Can you really picture a PE professional basing an investment thesis on opinion and gut feeling, instead of actual metrics like size of the company’s market opportunity, current share, financial performance, etc.?

To help illustrate the point, I was recently having lunch with one of our PE firm clients and he asked me what SPS’ gross margins were. I was embarrassed, because I not only didn’t have the answer, I actually forgot which items came below versus above the line so that I could run some rough calculations off the top of my head. His response was, “you gotta’ know that number like that” (snapping his fingers on “that” for emphasis). I couldn’t agree more.

“A little part in all of us cringes at data analysis and its potential to over-complicate things.”

The same applies to private equity deal sourcing, there are certain metrics you just have to know. The 2017 SPS Deal Origination Benchmark Report (DOBR) is the only set of standardized metrics that allow a PE firm to evaluate their deal origination performance in the context of their own progress as well as relative to their peers. The DOBR brings new depth and understanding to private equity deal sourcing, one of the most vital components to a firm’s overall success and among the top areas of diligence on the part of LPs.

A little part in all of us cringes at data analysis and its potential to over-complicate things. Let’s keep in mind that anything mission critical is measured and analyzed to determine ways to improve or get an edge against the competition. Private equity deal origination has evolved in significance to the point where such analysis is necessary. If anything, it’s something to celebrate!

If you are a business development professional and this is still not resonating with you, look at it this way – your importance (and yes, compensation) is on the rise.

For more color on this year’s DOBR results and key takeaways, here’s an article we published in PEHub.

 

 

 

Foot Notes

  • * As of June 2017, based on SPS’ 129 clients that qualified for the annual Deal Origination Benchmark Report (DOBR).
  • ¹ Percentage of completed deals with a PE buyer and sell-side advisor in relevant size ranges and sectors, that were reviewed by a PE firm.
  • ² Mkt Cov of transactions in a PE firm’s target market represented by sell-side advisors closing only 1-2 deals per year to a PE buyer.
  • ³ Mkt Cov of transactions in a PE firm’s target market represented by sell-side advisors closing 3 or more deals per year to a PE buyer.
  • ⁴ Groups defined solely by a PE firm’s target deal size range.
  • ⁵ Groups that invest in various deal size ranges excluding 10-50 MM EV, further segmented by degree of industry focus.
  • ⁶ Groups that invest in various deal size ranges including 10-50 MM EV, further segmented by degree of industry focus.

 

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