Port Co or PE Outreach? Which is better when searching for add-ons?

Gabe Galvez

Much of the origination work we handle for private equity groups involves searching for add-on acquisitions.  

This means we send a lot of email campaigns on behalf of private equity buyers.

A common question we get is this: “Should the firm or the portfolio company handle the outreach?”.  

Private equity buyers should know that 'who' sends the email has significant impact on how often a willing business owner responds to the outreach.

Of course, every element of an email focused sourcing campaign has some influence on success rates (email copy, send times, subject lines etc.).

But buyers who are actively seeking growth through “add-on” acquisitions are in this unique position. The contact they use to initiate conversations with potential sellers can come from the firm level (name@pefirm.com) or from the portfolio company level (name@portco.com)

While both have some specific benefits, the data supports the claim that business owners are more likely to respond to a “strategic” buyer (a.k.a. the portfolio company option) than a private equity buyer.

In fact, a business owner is approximately 3 times more likely to respond to message directly from a portfolio company than a private equity buyer.

Why?

Here are some of the more common reasons, based on our research and experience sourcing for clients for nearly a decade.

Sourcing from the portfolio company level can accomplish a few things:

  • Immediate differentiation - with more than ten thousand active middle market buyers, simply being another private equity fund is not enough to stand out from the constant noise.
  • Perceived parity in expertise - business owners (and people in general) prefer to talk to others with shared experience and interests.  Outreach from portfolio companies helps shed the misconception that private equity buyers only focused on transactional financial gain.
  • Stronger sense of valuation - potential strategic buyers will have a better understanding of business valuation because of shared experience, as well as a higher likelihood of cost saving synergies.

In addition, we find that many of our private equity clients pass our sourcing costs along to the portfolio company. This is a secondary point, but it can help spread the costs of identifying add-ons throughout the portfolio, rather than drawing down from the firm's operating budget.

If your firm is actively sourcing add-on’s, you would be wise to consider shifting your search strategy to be from a portfolio company.  

To learn more about how we help private equity firms originate new opportunities without requiring the payment of success fees click here.

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