The Work Behind a First Conversation

When I worked inside private equity, the investment team would build conviction in a sector, define the buy box and put a conversion assumption into the origination plan. If we engaged a given share of the universe, how many opportunities would that produce? Would that be enough to meet our capital deployment goals?

Across fifty or more sectors, those forecasts were often a long way from what happened. The conversion assumption went into the plan before anyone had spoken to an owner. What the plan rarely captured was how often those owners had already been approached, or what it would take to get their attention.

After ten years of sourcing proprietary transactions, I am careful about carrying those assumptions from one industry into another. Even similar results in the first few months can conceal very different work ahead.

At Grey Fox, we track transaction activity alongside the work it takes to reach owners. I can be a little maniacal about that second part. I want to know what went into a conversion rate before I use it to plan the next search. Two of this year’s searches show why that matters.

Similar starts, different searches

Take our work in data services and wealth management. Their phone connect rates were nearly identical: one owner connection for every 22 dials. After a month, fewer than one in five companies in either search had reached a first owner conversation.

The two searches stayed close for about three months. After that, data services kept adding first conversations and wealth management added few.

The number of outreach attempts behind those conversations revealed another difference.

A touch is an attempt by phone, email or LinkedIn. The touch counts below cover owners with whom an initial conversation took place. The phone connect rate covers every dial we made.

The median was four touches in data services and six in wealth management. That two-touch gap hid a much larger difference: a quarter of the first conversations in wealth management took at least 25 attempts. In data services, only one of 65 did.

Public registrations and filings make wealth management straightforward for buyers to map, and many start from the same list. By the time we called, many owners had already heard from a long line of buyers and had stopped answering. Those who did answer early were often easy to talk to. Their work is built on relationships.

The early conversations gave us an incomplete picture. Owners who were easier to reach appeared first in the results. Those who required sustained follow-up appeared months later.

Judged on its first quarter, wealth management looked like data services. A conversion assumption set from those weeks would have been close for one search and well off for the other.

Persistence and judgment

An owner who takes longer to reach may still have a business that fits the mandate and a reason to consider a transaction. Silence alone is a poor basis for judging either. Sometimes those owners are the best ones.

We keep the history of each approach so the originator can see what has been tried and decide what to do next. We train our originators to draw on patterns we have seen over years of sector searches. That experience informs when to follow up, which channel to use and what might make a conversation worth the owner’s time.

In data services, for example, 20% of first owner conversations happened on LinkedIn. In wealth management, what most often kept an owner on the phone was the question of how a retiring partner would be bought out. Those observations shape how we approach the owners we have yet to reach.

Across the eight sectors in this sample, we qualified thirteen companies whose owners we reached after 25 or more touches. Four are live deals in our pipeline today, and three of those are now at LOI.

When an investment team puts a conversion assumption into an origination plan, it is also making an assumption about the time and effort required to deliver it. That deserves the same scrutiny as the sector thesis. If the deployment target depends on owners who take months to engage, the plan has to account for those months and the work they require.