LITMIR.BIZ

Now it is time to hit the road and meet companies in real life. This is the last step of the framework; however, you may find yourself having to repeat it over and over again, sometimes over a long period of time. The objective of this step is to make a strong connection with your deal target, learn more about its business and create actionable next steps that ultimately lead to a transaction. Since you have been evaluating the company only from the outside so far, it is difficult to predict where there might be vulnerabilities or mutual deal breakers. I recommend treading carefully: listen, observe, turn up your charisma to the max and be prepared to embrace your inner diplomat. It is worth keeping in mind that some of the company employees you will meet might feel anxious and uneasy about your visit, especially if they have limited experience dealing with investors. Be prepared to put them at ease.

      Is there a wrong way to conduct your first meeting with the company? Yes, absolutely. In my experience, this happens when investors do not listen patiently enough to the company and prioritize their own needs over those of the deal target. For example, sometimes you just have to let the CEO veer off-topic for a period of time to avoid alienating him. Also, you have to suppress your inner desire to jump straight into clinical detail, even if you suspect potential deal breakers in these areas. As a rule, exploring recent strategic failures, asking pointed questions about the financials, or requesting a detailed data set are not appropriate actions at this stage. Stay away from sensitive topics and proprietary information, especially if you have not yet signed a confidentiality agreement. In summary, the first meeting with the company should not feel like an interrogation. It should feel like a friendly conversation between two likeminded parties forming a productive long-term partnership.

Is there a good template to follow for your first meeting with the company? Yes, absolutely. However, you need to go beyond private equity and look further afield into other areas where professional success stems from total mastery of communication and people skills. I personally found it useful to look into the field of sales. Yes, you read it right, sales. Many private equity investors are hesitant to admit that they are salespeople of their capital and value-added involvement in portfolio companies. They have to court companies, sometimes for years, to close a deal. That's not too dissimilar to what people do in sales, right? This is the logic that compelled me to investigate the techniques used by sales professionals and tone them down a few notches to make them appropriate for the more introspective field of private equity. Holmes (2007) provided a useful outline of key sales skills in his popular sales and marketing book. Let's take a look at these skills applied to the situation of a private equity investor meeting a promising deal target for the first time:

      What happens next? There are three possible scenarios. The first one is that the initial meeting equipped you with enough disappointing information about the business to enable you to conclude that you are not interested in moving forward. In this case, it is best to thank the management team for their time, provide them with your honest feedback about why the company does not quite fit your mandate at present and discuss what business adjustments would be required for this decision to change in the future. The second scenario is that you like the business but you sense that the company will not be ready to accept a private equity investment for a considerable time. In this case, you need to make sure that you communicate your continued interest and schedule a follow-up meeting at some point in the future. I believe that keeping in touch with the company will allow you to build a good relationship with the management team over time and enable you to create enough neural pathways in their minds that might ultimately pave the way to a transaction with your fund.

The third and best scenario is that you like the business, and the company owners are ready to consider a potential investment from your fund. It means that the thematic sourcing approached worked and you are ready to start work on a new transaction, possibly even a proprietary one. Now is a good time to sign a confidentiality agreement and request enough information regarding company operations, business strategy, growth opportunities and financial performance to properly evaluate this investment opportunity.

      Well, you have made it to the end of the ICEBERG Roadmap™. I know: it is a long and arduous journey to read through these 7 steps in detail. However, I believe that this framework (or your own adapted version thereof) will improve your deal sourcing approach and ability to deliver deals. Hopefully, proprietary ones.

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