M&A's Computer Overlords
A handful of digital match-making platforms are seeking to disrupt the traditional advisory model.
First-movers of social-networking sites may remember the old Usenet newsgroups. Then came the Friendsters and MySpaces and other copycats, until FaceBook and LinkedIn finally emerged as the networking sites of choice for personal and professional users. It may be about a decade behind, but the market for online M&A match-making sites is undergoing the same evolution. The lingering question from dealmakers, however, is whether the digital options -- powered by algorithms said to meticulously connect buyers and sellers -- can ever come close to replicating the role of real life M&A advisors.
"I've spent about two seconds of my entire life on the notion that you could dis-intermediate the role of an investment banker," claims one non-believer, a mid-market banker. "Anyone who has witnessed two M&A processes -- one well run and one poorly run -- understands the value added."
Operators of the digital match-making sites, however, say they're not necessarily looking to replace investment bankers, but rather complement the role they play and add efficiencies to the process. That's not to say their ambitions aren't high. "Will we be disruptive to the traditional investment banking model? I think that we already are," says Nick Chini, an ex-banker, who now sits as the director and head of CapitalSphere, Inc. -- the latest entrant to the digital dealmaking market.
Chini, himself, is a banker, and still serves as a partner and managing principal of Bainbridge Capital Inc. He has advised on over $2 billion in M&A transactions.
CapitalSphere, with its March launch, joined a growing population of corporate match-making sites. From the relatively simple, such as BizBuySell, to the more elaborate and complex models, be it AxialMarket, MergerID, PE Nexus or CapitalSphere, the market for these services is still in the adoption phase. At this stage, it would be difficult to claim that any one of the players has yet to have the impact that the likes of AngelList has had on venture capital or SecondMarket has had on the buying and selling of restricted or private shares of companies. But Chini and others say the platforms are gaining momentum.
Chini's CapitalSphere only launched in March, and as of April, he said the platform had lined up a population of sellers "in the thousands," with over 300 potential suitors signing on.
Anthony Hill, co-founder and managing partner of alternative match-making platform PE Nexus, which only launched 10 months ago as of May, claims to have approximately 1,300 private equity groups, investment banks and corporate development offices signed on and using the system.
Each platform is distinct. Generally, though, the way they work is that various providers vet users to create a database of assets, potential buyers and even intermediaries. AxialMarket, for instance, has a VP of deal origination whose job it is to oversee the platform's relationships with entrepreneurs and the investment banks. Interested buyers can then track potential opportunities. PE Nexus, as one example, provides a control panel in which users can monitor and gauge deal activity. "Whisper campaigns" is PE Nexus' version the Facebook "Poke," as it allows sellers to solicit direct feedback on the feasibility of a potential deal. Users can also track how many times a potential "deal" has been viewed, saved, or forwarded to other members. The sophistication of the platforms has only improved over time. CapitalSphere employs an algorithm, driven by proprietary inputs, to deliver matches to buyers and sellers.
Of course, these and other offerings share similarities and highlight various distinctions that make each one unique. CapitalSphere's mark is that it has a relationship with Bainbridge, in which the platform, at any point in the transaction, can hand a deal over to actual bankers; MergerID, an affiliate of MergerMarket, generally can only see a deal through up until a signed NDA. Ultimately, it's likely the level -- and quality -- of adoption that will push the platform of choice to the forefront, at which point traditional bankers may become more aware of the digital offering.
For his part, Chini does not anticipate CapitalSphere will do to the investment banking profession what Priceline did to travel agents, but he does expect there will be a ripple effect. "If you look at the universe of prospective sellers -- or prospective entities just in need of capital -- it's a much larger universe than what the banks can effectively reach," he says. In the same breath, though, he believes platforms such as CapitalSphere can mitigate the time, energy and costs required from an entrepreneur or mid-cap company to seek capital. "It essentially lowers the barriers and allows access to the best private equity funds, the best growth equity investors in a much more efficient and effective manner."