Buyout firms are tightening their focus on increasingly specialized niches as the industry matures and competition intensifies, Deepak Agrawal says.
“People are looking for opportunities beyond what they’ve invested in in the past,” said Agrawal, a co-founder and managing director at Gotham Consulting Partners LLC. Energy investors may try to capitalize on developments in oil shales, for instance, while health care investors are sharpening their approach to concentrate on medical devices or practice management specialties.
And as the economy shows signs of revival, sponsors are looking more closely at beaten-down sectors such as building products and consumer goods, he said.
New York-based Gotham Consulting has an exclusive focus on the buyouts market, providing services supporting due diligence and investment strategy for fund managers and operational improvement at portfolio companies, Agrawal said, describing the firm’s approach as numbers-oriented and data-driven.
He helped found the firm in October 2001, after a stint as a principal with New York Consulting Partners, an operations consulting firm that had been started by former McKinsey & Co. consultants. “That was before having operating partners became the conventional wisdom.”
A decade ago, most buyout pros came from investment banking backgrounds, but today, buyout firms routinely employ their own operating specialists, whether a small group of gatekeepers with the in-field experience to vet deals for more financially oriented partners, or full-blown in-house consulting firms at larger shops—Agrawal particularly cited Kohlberg Kravis Roberts & Co. as an adherent of that approach.
Today Gotham Consulting itself has 25 consultants and 20 operating partners. Agrawal said he personally takes 15 to 20 meetings a month with clients and prospects, typically at the partner level. But just as buyout shops have had to become more sophisticated in their approach to buying and building businesses, so also have their investors become more sophisticated about the asset class.
This puts pressure on the sponsors from both directions, he said. “They have to compete for the money and they have to compete for the deals.”
And with the economy not making life easier—”people have accepted that this is going to be a slow-growth situation”—Agrawal predicted the pressure is only likely to intensify. “I think a lot of firms are going to have a hard time raising money over the next 12, 18, 24 months.”
By Steve Bills