Today, private equity firms and investment banks are under increasing pressure to put their capital to work. As such, the deal pipeline becomes even more of a central focus; however, with so many new players and competition in the marketplace, finding and landing the right deal has become a complicated task. Having a clear understanding of the market landscape is critical to effective deal origination. With that in mind, read on to learn how to effectively research market trends in your target markets, from strategically employing your team efforts to utilizing an M&A platform.
On average, a typical firm will look at 80 investment opportunities before committing to one of them. That's a lot of time dedicated to data research, discussion, and review that could likely be better spent, especially if you could streamline the process and have the insights to eliminate bad deals immediately. Keeping an eye on market trends is one of the optimal ways to best position your firm or bank. This can be accomplished in a variety of ways such as:
Forming Relationships with Experts Within Target Markets - Simply put, it's nearly impossible to have total knowledge of everything going on in every market, especially if they're niche. Therefore, it's best to develop relationships with key figures or investors within those markets who are able to accurately depict where the market is trending or what factors might impact them (for better or worse). By building two-way relationships, you enlist someone who's willing to go to bat on your behalf or can provide key information before it becomes widely known.
Tracking Interest Rates, Commodity Trends, and Labor Costs - In order to cut through the milieu of rumors and tips, it's helpful to be aware of important metrics that impact your target markets. Every day, you should be focusing on three primary metrics:
Interest rates - Impact company spending, loan payments, earnings, and stock prices.
Commodity prices - Such as fuel costs can have a massive impact on a target market's future growth. For example, higher oil costs will dramatically reduce an ocean freight shipping company's future profit.
Labor costs - Increased labor costs or inputs will impact a company's bottom line and ability to grow.
Keeping an Eye on Weekly Market Trends - Watch the news and financial media to identify what's going on in the market overall. Geopolitical developments, higher taxes, currency fluctuations, and other such changes can have a massive impact on a prospective investment deal's potential outlook. By staying abreast with worldwide news, you can better gauge what might be the right or wrong move. This can be done via:
Hiring a Deal Sourcing Specialist - It can be helpful to hire an assignment-based freelancer who specializes in a target market. These types of specialists have a toe in the water, so to speak, and already have a solid understanding of current trends within the field. They've built up the infrastructure and relationships to create a clear picture of that market's landscape, so it makes sense to use their industry-specific knowledge to your advantage. By utilizing them, you save both time and knowledge, ultimately putting someone who knows what they're doing in the optimal position.
Using a Technology Platform - Today, one of the primary ways companies are evaluating measures of business growth and keeping an eye on industry trends involves using powerful online sourcing engines such as Sourcescrub. The platform consolidates data on private and public companies across industries, allowing users to quickly sift through key firmographic details, receive systematic updates on changes in target companies and thereby consistently assess the market landscape. Benefits of such technology include:
The deal origination process is complicated enough without all of the increased competition in the marketplace. Thus, staying on top of key market trends in your target industry has become more important than ever. Knowing where and when to look for an investment means that you can eliminate inopportune deals without wasting time, then jump on great deals before competitors know they exist.
1. Business Insider. Five Best Practices in Sourcing Investments. (2011).
2. Valuation Resources. Private Equity Firms: Industry Analysis, Trends, Statistics, and Forecasts.
3. Barber, F. Harvard Business Review. The Strategic Secret of Private Equity.