The boom in M&A deal volume and the strength in valuations over the past two years fostered what seemed like boundless opportunities for investment banks around the globe. Firms from the world’s largest to small boutique investment banks saw a surplus of inbound opportunities.
But as the US economy continues its shift toward a new market cycle stage fueled by economic uncertainty company valuations are deflating, venture capital funds are investing more cautiously, and founders are working to do more with less as runways are cut short—firms are planning for fewer inbound M&A leads and prioritizing outbound work.
With this in mind, successful firms are focusing more on becoming more efficient networkers, differentiating their brand, and relying more on technology to optimize their operations in the second half of 2022.
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The state of M&A deals and why your business network, brand, and technology matter
Based on conversations with our venture capital clients, Affinity has been able to better assess these economic trends from the perspectives of founders and private companies. Teams that weren’t able to secure the funding they’d hoped for or were unable to realign business practices or brace their balance sheets for the economic downturn are likely to turn to acquisitions to stay afloat.
Although industry experts have observed a slight slowdown in M&A activity, for the most part, 2022 has remained a strong year for M&A deals. These factors together point to a difficult challenge for firms vying to remain competitive. They have to both understand the changes in the market—why M&A is still going strong as the economy tanks—and adapt quickly to ensure a profitable future.
The surplus of investment banks looking for new M&A opportunities means that companies in need of a potential buyout will have options. Firms’ project sourcing techniques must be more intentional, more creative, and faster if they hope to find these opportunities before their competitors do.
Investment banking partners like private equity groups will also be evaluating these same companies in hopes of gaining equity at a discounted rate. Sell-side clients (founders) will be expecting that the investment bank they choose will be able to provide them with the best possible valuation and execute the project quickly in order to sustain their business as venture capital funding dries up. Here are three areas of business development that will help your investment banking firm focus on getting (and staying) ahead of the competition.
1. Network more efficiently to uncover higher probability opportunities
Affinity’s most recent Investment Banking Industry Benchmark Report found that investment banking firms that averaged over 175 warm introductions per month saw their mandates close 21% faster. While every firm is looking for potential introductions, the key is shifting to knowing where to look rather than asking “who do we know at this company” every time an opportunity arises. Increasing the efficiency of your networking efforts should involve:
- Being able to review your firm’s collective network at a glance (i.e., accessing your colleagues’ networks as well as your own)
- Accurately following your connections as they move to new roles
- Tracking which business partners have provided you with the most warm introductions in the past and putting more effort into nurturing those high-value relationships
In an industry where connections are currency, having instant access to more valuable caches makes more lucrative opportunities available. These introductions can also contribute to a faster time to close because you’re able to build trust before a deal ever reaches the table.
2. Build a more personalized brand experience to drive return clients
In addition to spending more time on more high-value connections within your network, you should also keep a keen eye on repeatable client projects. Curating a better client experience can involve more thorough analyses of their past deals and build more accurate short and long lists of companies you’re confident they’ll be interested in.
Accurately tracking their feedback on previous projects is the first step. The next is to blend your insights with enriched firmographic data about the companies you pitched them or companies they’ve previously purchased to identify patterns in what they like or dislike. Deciphering these patterns allows you to be proactive. Proactivity combined with accuracy builds a personalized brand experience that proves you are attentive and ensures your team will be top of mind when new opportunities arise.
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Combining this pattern recognition with more efficient management of your business network also means you can be first to reach out to them. Your outbound sourcing becomes stronger when you can identify their needs before they ask for help, and you can prove that you’re the right firm for the job because you understand those needs.
3. Automate deal flow processes with technology to stay focused on relationship building
Investment banks that are able to make the most impactful and lasting connections are the most successful. In order for these teams to create, navigate, and nurture these connections at scale, they have to establish systematic, repeatable ways to grow those relationships and find new ones.
Technology has enabled boutique and mid-sized firms to more effectively compete with bulge-bracket investment banks and claim a larger piece of the pie. According to Deloitte’s outlook for the 2022, “Firms that can deliver on clients’ expectations for frictionless digital interactions will likely be more successful at growing and maintaining those relationships.”
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With 38% of respondents from the Deloitte Center for Financial Services’ 2022 Global Outlook Survey stating that digitally advanced firms predict significantly better revenue prospects for themselves in 2022, it’s becoming clear that digital interaction is becoming essential to supporting business relationships. I
A driving force for technological growth and technology adoption for digitally advanced firms is automation. By automating and centralizing data capture and relationship data management, teams break down data silos and open the door to team-wide collaboration, networking, and brand building—the high-value work investors are best at.
Automation of data entry and deal flow processes also provide seamless experiences for you and your clients by reducing the need to repeat questions, help you track trends more easily, and deliver reminders for followups at key moments.
A new market with a focus on winning deals by inches
With a growing number of opportunities available and an even larger number of investment banks fighting for their share, it’s vital that firms find new ways to prove themselves. Simply being the best fit for a job isn’t enough.
If inbound opportunities shrink, optimizing an outbound strategy comes down to making more informed business decisions—business decisions motivated by clear, repeatable data. Technology can provide the foundational support to gather that relationship data, and the most successful firms will take that newfound relationship intelligence and firmographic information to find the most lucrative (and likely-to-close) opportunities on the market.
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