PRIVATE EQUITY ROLL-UP STRATEGIES

As private equity groups continue to enter the marketplace and make acquisitions, some believe that it will become more difficult to find the best companies to buy. Market economics and efficiency theory suggest that this viewpoint might hold some water.

However, to better understand how private equity groups will affect the markets they enter, and by extension understand which private equity groups will prevail, it is critical to view companies acquired by private equity groups based on their "Competitive Capabilities."

Competitive Capabilities are sometimes called Core Competencies or Key Success Factors and refer to a set of criteria that companies within any given market segment must succeed at to beat the competition.

For instance, when discussing Competitive Capabilities for companies engaged in global commodities, criteria like efficient production and logistics, access to low cost raw materials, and a strong sales and marketing force would likely be described as things essential for success.

Private equity groups, on the other hand, have an entirely different set of criteria governing success: industry relationships, financial expertise, and access to capital would undoubtedly be named as core to any successful private equity group. However, the most successful private equity groups have already discovered that one absolutely critical element of success is access to competitive intelligence.

Competitive intelligence differs greatly from market research, which those unfamiliar with competitive intelligence often confuse. In nearly every instance, competitive intelligence involves gaining access to human-source intelligence, while market research is usually compiled information that is available across the media or internet in public (open) sources. Unfortunately, many firms that claim to have competitive intelligence capabilities often are really market research firms.

Access to timely competitive intelligence can tell a private equity group, for instance:

• What is the best company to buy based on a roll-up strategy? This could be the best first company to buy (as the platform) or the best add-on (bolt-on) acquisition to make.

• What are the psychological motivations that the seller has? Competitive intelligence can also provide:

• Information from human sources that have worked for target companies, yielding detailed intelligence
• Acquisition searches to identify the most attractive targets to acquire in any industry
• Vet acquisitions with a company's key decision maker to ensure the target is acquirable

These are only a few examples of the tools private equity groups already profiting from competitive intelligence have discovered.

As the private equity market becomes increasingly competitive, access to accurate, timely and confidential competitive intelligence will signal the difference between those private equity groups concerned with buying the best, most strategic companies and those that are less concerned with maximizing value and minimizing risk.

For more information about how CM²'s team could help you, please feel free to contact us.