The dealmaking ecosystem is teeming with excellent established service providers in traditional areas, such as accounting. But there are also lesser-known companies providing specialized services worth considering. Here are five companies that stand out for their ability to offer useful and innovative services, such as helping to value a deal or evaluate a potential target's relationship with its customers.
1. Axial Networks
Just as LinkedIn and Facebook have changed how colleagues, friends and family members connect, social networks are transforming traditional deal networking. Founded in 2010, Axial Networks Inc. provides an online system to help dealmakers establish and nurture deals.
"It's really a business development tool to help lenders, investors, advisers and CEOs find opportunities. It's how deals can get started," says Axial chief executive Peter Lehrman.
"Axial is gaining traction, because the old way of connecting makes it hard for the right people to consistently find the right opportunities at the right point in time in a hyper-fragmented marketplace. We provide a way for everyone to connect effectively and figure out whether or not to pursue a deal together relatively quickly," Lehrman adds.
Axial boasts 20,000 members, including investment bankers, private equity investors, lenders, and CEOs. About 500 professionals join the network monthly, and there are roughly 200 new sellers going to market each week.
"We view ourselves as a platform to connect people around actionable opportunities. Once people are connected, there's a whole host of things that have to happen," says Lehrman, which is why Axial entered into a partnership with Merrill Datasite, which enables transaction professionals to open up a data room, once a process gets more serious.
"There's a huge amount of due diligence that occurs between identifying an opportunity and consummating a transaction," he says. "Merrill helps customers store all the data that prospective buyers need to see. If sellers decide to share preliminary information, they can easily allow potential buyers to look at their data site with a simple a click of the button from our site."
For more on Axial, see How to Leverage Social Media in Dealmaking.
2. GF Data Resources
In 2006, the founders of GF Data Resources, LLC thought they were doing good for the lower middle-market private equity community when they started collecting data from private equity groups and selling it to other PE groups looking for information on deal values. GF Data's database has become an important tool to the M&A community. Specializing in private equity sponsored transactions with enterprise values of $10 million to $250 million, GF Data is used as a benchmark by PE firms as they value portfolio companies based on fair-value accounting standards.
"There was so little data available for deals in the $10 million to $250 million enterprise value range, which is why we launched the firm. But as the regulatory environment evolved, the need for good comparisons and GF Data has grown enormously," says Graeme Frazier (pictured), a partner with Conshohocken, Pennsylvania-based GF Data.
"GF Data is a great resource for private equity firms who have to meet fair value accounting standards. Normally private equity firms want to carry their companies at around the same multiple they bought them for unless there is a material reason to move that value. We provide the comparisons they need to mark their portfolio companies appropriately."
Today, more than 220 lower middle market private equity firms have participated in GF Data by contributing data on the deals they have completed. More than half of the data comes from Association of Corporate Growth members.
"In addition to being widely used to meet fair value accounting standards, our data allows people to talk about why a company may be worth more or less. You can use it to help define expectations," says Frazier.
For more on GF Data, see Life in the Lower Middle Market.
3. Rkon Technologies
After a merger is completed, the process of integration begins. Information technology integration is often the most difficult piece. Founded in 1998, Rkon Technologies hopes to change all that. "We started out thinking we would consult with companies on how to complete IT integration, but quickly realized many companies didn't have the skill set to implement the integration while keeping the newly purchased company up and running," says Jeff Mullarkey (pictured), CEO of Rkon.
Chicago-based Rkon is able to delve into recently purchased companies and get IT solutions up and running very quickly, thanks to its cloud-based system. Earlier this year, Providence Equity Partners selected Rkon to do an assessment and migrate the IT function for Miller Heiman, a recent acquisition in the professional training industry, on to Rkon's managed and hosted cloud infrastructure.
"When selecting a partner, it's important to choose a managed service provider who has the proper methodology, can handle rapid change and is able to grow with the organization," says Onkar Birk, chief information officer for Miller Heiman.
"We had to design and build a new system while keeping the division running," says Mullarkey. "Being on the cloud is critical because we also have a certain amount of building blocks in place to help us move quickly before the migration even takes place. Many think IT is portable, but it's not and it's often the piece that can kill a deal, or slow it down and impact the profit and loss statement. We build systems to help make the process easier and more manageable."
Rkon starts by assessing the current IT, then quickly develops a project plan and maps out the interdependencies and constraints. There isn't enough time to build complete IT infrastructure, so often Rkon starts the migration before a deal is complete - designing components as they go to migrate faster.
Rkon then develops a bridge strategy that duplicates existing systems and opportunistically transforms certain services. Once that happens, Rkon completes the integration.
4. Sutton Place Strategies
Seeing the greatest number of relevant deals is one of the most important aspects of being a dealmaker. However, it's almost impossible for dealmakers to actually see all of the transactions that are happening in their sector.
Enter Sutton Place Strategies. The New York-based information services firm assists investors in optimizing business development plans and deal sourcing effectiveness.
Various private equity firms have used Sutton Place's services. They include HighRoad Capital Partners, Huron Capital Partners, Little John & Co., Freeman Spogli & Co. and Moelis Capital.
"Deal sourcing is so competitive today. We track all the transactions that have been completed in the M&A universe using a variety of methods and we are able to show clients how many deals in their space they are not seeing on a regular basis," says Nadim Malik (pictured), founder of Sutton Place. "We can let clients know what their level of market coverage is, and who the relevant deal sources are that they ought to be spending more time with, which is very important."
Founded in 2009, Sutton Place has worked with more than 130 private equity firms. "I saw a gap in terms of metrics and raw data and launched the company," says Malik, who has a background in data collection after working at Thomson Reuters and The Deal.
"Deal sourcing is a critical component of the dealmaking process," Malik adds. "Contrary to popular belief, the deal market is still very inefficient, and investors can outperform the competition if they are seeing deals that others aren't."
5. Walker Information
Walker Information Inc. has been providing companies with information about their customers for decades.
Established in 1939 by Dorothy "Tommie" Walker, the firm began by conducting door-to-door surveys for banks, grocery stores, and other retail businesses. Today, the firm, led by third-generation family member Steve Walker, focuses on customer satisfaction measurement, adding private equity firms as customers in recent years.
"We were doing customer due diligence for big strategic buyers for 25 years and then it dawned on us about three years ago that middle-market private equity companies were making the most acquisitions and building middle-market companies," says Bruce Kidd (pictured), a senior vice president with Walker. "We thought, 'Could our methodology work for private equity firms?' and we decided, 'Of course it could.'"
Rather than wait until the acquisition is completed, Walker starts a process once a buyer is serious about a target and is ready to collect intelligence on the seller's customer relationships. It is often too difficult for buyers to go about this alone because the seller is often protective of customer lists, and customers' confidence could be shaken if they know a sale is in process.
However, Walker is an independent third party that can come into the process leaving everyone more comfortable. Once engaged, professionals at Walker will get in touch with customers as an independent third party and conduct interviews with the target's top customers. The interviews are positioned as a customer-loyalty assessment for the target, and there is no mention of a transaction.
Based on the interviews, Walker is able to generate crucial customer intelligence for the buyer. Additionally, Walker is able to give buyers and sellers tangible suggestions for improvement and growth strategies, based on customer feedback.
"After talking with many private equity firms, we realized they try to do this work themselves, but often can't really get it done very effectively. This is why our customer insights have become so important to them," says Kidd.
Walker provides clients with data, such as what the customers say they care about, their level of engagement, the competitive landscape and, perhaps most importantly, what the company can do to strengthen its relationships with customers going forward.
"Their primary goal is to build companies, and we provide key analytics and action plans to accomplish that," Kidd adds. "This whole process is about the customer relationships behind the numbers on a financial statement, and we are experts at figuring out those relationships and getting the buyers the information they need to do the best job with customers going forward."