Why Has The Private Equity Business Development Role Grown?
Deloitte Insights estimates that private equity assets under management will grow to $2.5 trillion by 2025, spurred in part by growth drivers during and after the COVID-19 pandemic. For many reasons, this environment has created a demand for private equity business development roles to help structure and maintain processes.
Increased Capital
Lower interest rates during the pandemic caused investors to flock to PE, driving up the total private equity capital available. In mid-2020, we saw record-breaking private equity capital, and the trend hasn't slowed. With so much capital flooding in, firms can take advantage of many opportunities, but they may need assistance with the details.
Increasing Competition
All that capital brings with it a lot of competition. More money funds more PE firms, and existing firms can be more active in the markets. Record deal volumes were seen even before the COVID-19 pandemic in 2018, and the competition continues to grow. PE business development is necessary if companies want to succeed in such an environment.
Need For Leverage
Growing investment teams and portfolios create more to manage and may overburden senior management. Dedicated business development teams or professionals relieve this strain and help ensure firms can scale.
How Has Private Equity Helped During The Pandemic?
Private equity provided some foundational support during the COVID-19 pandemic, bolstering companies and investments during cash crises or business struggles. For example, Jeffrey Bartel of Miami, the Chairman and Managing Director of the Hamptons Group, notes that his company looked for opportunities to invest in areas, such as real estate, that would bounce back, but might need a cash influx during the pandemic.
Private equity investments helped support and grow businesses during the pandemic in several ways.
• Managing or supporting supply chain and logistics
• Building digital capabilities that let businesses thrive in remote work or service environments
• Maintaining business continuity, including access to data as people moved away from central office environments.
• Securing financing to cover business expenses during lackluster revenue months at the height of the pandemic
Market Stress Imposed By The Pandemic
How has the pandemic affected the market? One of the biggest impacts relates to corporate credit losses. Fully leveraged organizations across a wide variety of industries don't have as much wiggle room coming out of the pandemic, and continued economic struggles could lead to insolvencies, bankruptcies, and defaults.
BIS, which owns 63 central banks, took a deep dive into credit loss data related to the pandemic. According to its findings, this is a definite stressor, but it may not be as much of a stressor as during the Great Recession.
Another impact imposed by the pandemic relates to challenging evaluations. In unprecedented times, it's not always possible to use precedent data and methods for evaluating the value and future of a business or endeavor. Instead, business development professionals must draw from their own knowledge, existing data, and predictions about pandemic impacts to make decisions about investments.
Reduced liquidity of bonds and prime money market funds are also a factor. Investors poured money into such markets as a way to hold ready cash and then pulled vast amounts out during the pandemic to cover expenses or shore up cash needs. The waves made by investors were so prominent in these markets that the SEC is responding to the crisis with new rules and regulations.
Old Strategies Are On The Way Out
On top of financial challenges, businesses phase out the following strategies that simply no longer work.
Conferences And Tradeshows
Before COVID-19 made professionals and investors rethink the value of large physical gatherings, and these tactics were ebbing. The sheer resource drain a large conference or tradeshow causes for sponsoring organizations and participants made them prohibitive in many industries as economic belts tightened. With the integration of CRMs and digital communications, these touchpoints become less critical.
High-Volume / Low-Value City Visits
Choosing a city and cramming the calendar with face-to-face meetups and handshakes is definitely out of vogue. Certainly, bankers and buyers may be more likely to say yes to a meeting "since you're already in town", but the sum value of the meeting is the same as that which can be achieved in a virtual web call — and at less cost and risk for both parties.
Book Collection
Instead of concentrating solely on filling the top of the funnel with potentials of any quality, business development professionals are moving to a more holistic approach. Quality leads and nurtures are more important than thousands of opportunities the business can’t act on.
Top Private Equity Business Development Strategies Used Today
With old strategies waning, what business development strategies for private equity are coming up? Here are a few strategies business development professionals should be eyeing.
Digital Marketing For Lead Development
For years, B2C businesses have leveraged the power of digital marketing to connect with consumers. It's time for private equity firms to do the same. Investors and others turn to the internet to find opportunities, and digital marketing ensures they can connect with and evaluate PE firms in the following ways.
Thesis Development
A plan to add value to acquired businesses remains one of the most important private equity business development tools.
Technology And Data Mining
Choosing a suitable investment and creating a viable plan for adding value has always been challenging. In the muddied economic waters following the COVID-19 pandemic, it requires even more information. Mining data and using technology to analyze it is a must for PE firms and investors alike.
Specialization
One way to reduce the burden of gathering data and making knowledge-backed choices is to specialize, which can be applied to various opportunities within the same field.
Jeffrey Bartel of Florida is leading the way with private equity business development strategies following the COVID-19 pandemic. Read more about important PE strategies in his Forbes articles.
