COMPETITION DURING A gold rush is truly staggering. The Klondike Gold Rush of 1896 saw an estimated 100,000 prospectors braving the icy uplands of Yukon Territory in Canada to strike it rich.
The population of frontier town Dawson City ballooned from 500 to 30,000 in less than two years. While the majority returned penniless, a few did become genuine overnight millionaires. But, surprisingly, they were not the ones who happened to strike their pick in the right place. Instead, they were those who were savvy enough to build a reputation as credible and worthwhile business partners, enabling them to take minority stakes in mining sites that had already shown signs of promise.
One of the most successful, Alex McDonald, owned interests in more than 75 mines. His reputation as a dealmaker, financier, and connector gave him the clout to buy stakes in the most lucrative assets that were already generating gold, leaving very little to chance or luck.
McDonald came to mind as I was skimming through last quarter’s M&A statistics. We’ve just had the busiest summer for mega deals in 30 years, according to Refinitiv. And it doesn’t look like that’s letting up any time soon. Weak companies are chasing deals to restructure in the hope of surviving Covid and many executives, who previously put M&A on ice, are returning to the office to pick up where they left off.
I expect many of my advisory colleagues in the City are understandably excited at this modern equivalent of a gold rush. Even more so because this M&A wave is happening as flows of private capital continue to accelerate into the City. Family offices, who were previously periphery players in the investment world, have gone mainstream. They now manage in excess of $5.9 trillion, according to UBS. I can imagine bankers salivating at the prospect of pitching an acquisition drive to their family office clients. Fancy picking up a retail brand?
A factory? An office block?
40% of people perceived the lack of information about someone online as a red mark against their credibility
But private investors considering such deals would do well to heed the lessons of Alex McDonald. Firstly, a gold rush is much more competitive than you might first think. It’s difficult to access the most lucrative deals and assets – and if no one else is chasing the deal, is it really worth it? Secondly, and perhaps more importantly, your reputation as a credible dealmaker, your business track-record, and your established network are all critical to giving you the important competitive edge you need to break into the best deals, co-investments, and partnerships.
And yet this is, sadly, where many family offices and private investors let themselves down. Historically, the world of private capital has been notoriously, albeit understandably, private. Family offices say little about themselves, their value-add, and their track-record, worrying it could attract the wrong type of interest.
But there is being private – and then there is sinking your credibility. Speaking from direct experience, there are significant private individuals who still choose to do all of their business from Gmail or Hotmail accounts, have no digital presence, and whose online footprint says very little, if anything, about their corporate history. In the advisory world, we have quietly accepted that that is how family offices operate. But has anyone told them they are leaving money on the table?
In a market where competition to access the best deals is tough, this simply does not cut it. Other parties expect to know who they are doing business with, their track record, and even their personal and business outlook. And that judgement is made quickly, usually on the basis of an online search. This fact will concentrate the mind: 40 percent of people perceived the lack of information about someone online as a red mark against their credibility, according to research conducted by Transmission Private. So, if you’re invisible but trying to invest in a business, buy an asset, or strike a co-investment, you go straight to the back of the queue.
There are some family offices who are doing an incredible job. KIRKBI A/S is leading the pack. The holding company of the Danish family behind Lego, KIRKBI has invested substantially in its communications and online profile. And while the mission-focussed language and modern branding of its website will not be appropriate for all families, it gives the Kristiansen family justified weight, standing, and credibility. Their reputation precedes them.
There's a famous black-and-white photograph from the Klondike Gold Rush: it shows a queue of hundreds of people, backpacks loaded with mining gear, ascending Chilkoot Pass. As we go into the equivalent of a modern-day gold rush, people will be queueing up to access the best deals over the coming 12 months. Make sure you are at the front of the pack by putting your reputation first.
Jordan Greenaway is Managing Partner of Transmission Private, a communications firm that advises successful individuals, investors, entrepreneurs and private clients on their reputation. transmission-private.com