From insight to impact: The critical contribution of deal advisors in private equity deal making

As private equity enters a new era of deal-making, deal advisors are in demand to give investors unmatched insights, introductions to new markets, and aid due diligence. Once the preserve of large-cap investors, deal advisors are now on the rise across mid-market and even growth deals. With an uptick of M&A expected in H2 of 2024, investors should zero in on their target sub-sectors and start building long-term relationships now, via an experienced and well-networked dedicated Deal Advisory and Analytics partner.

Following one of the sparsest years for deal flow in a number of years, private equity has started 2024 with a renewed energy for deal-making. Despite the volatility of the economy in recent years, investors have record levels of dry powder to deploy and LPs are starting to get impatient. Pressure to secure an exit strategy is also building; according to PwC, private capital has approximately US$12tn of assets under management (AUM), almost twice the 2019 figure, highlighting significant value is yet to be realised.

It all points to a more buoyant year for M&A and, especially in H2, as political uncertainty in the US and UK should be resolved. Nonetheless, it’s a much different market to 2021/22 when risk appetite was high, and deals progressed at speed. With valuations still down, and debt more expensive, investors must think carefully about the sectors and companies they target, ensuring there are strong levers for organic growth, and that decisions are backed up by thorough market analysis, and due diligence.

Deal advisors: a valuable differentiator.

Amid this more cautious approach to deal-making, the value of deal advisors comes into its own more, enabling investors to parachute sector heavyweights into deal teams to help identify the best targets, aid with approaches, and advise on how best to structure, negotiate, and close a deal. An established fixture of the large-cap market, deal advisors are historically less common in smaller deals. But as the landscape has evolved and LPs have become more demanding of due diligence and sector insights, they are becoming the norm across all levels, giving investors a vital edge against the competition as well as gaining early IC conviction to invest – if they can secure the right individuals.   

A focus on long-term relationships

Demand for deal advisors has shifted from a focus on one-off interactions to longer-term consultative relationships where advisors work with the deal team from sourcing right through to contract signing, and in some cases with a possibility of continuing the journey post-deal as a non-executive board member. This more strategic approach places greater importance on finding the right fit with the target sector and team requirements. It also allows advisors to become embedded in a team, fully understand the intricacies of the deal, proposed value creation strategy, and play a pivotal role in the eventual outcome – and be rewarded accordingly.

Holistic Hybrid Deal Advisory models

This is exactly our focus in The LCap Deal Advisory team, which specialises in sourcing deal advisors for long-term consultative relationships pre-deal as well as conducting arm's length data-driven management assessment through our unique Leadership Dynamics platform. Underpinning this within The LCap Group, Drax, Rowan, and Altus carry out over 400 private equity leadership searches each year, giving us one of the largest leadership networks in the industry to access. We can assess target companies for deal propensity, carry out leadership diligence pre-deal, source senior advisors, and advise on key hires and optimising leadership capital post-deal, reflecting the drive for new models to support private equity in increasing their deal-making conviction.

Move quickly, maximise impact

In summary, Deal Advisors can offer huge value at any stage in the deal process, whether increasing conviction in a decision or helping a firm to avoid the wrong move -  the earlier that an advisor can be brought into the fold the better and the more impact they can provide pre and during a process.