Industry knowledge and search strategy of the PPM

September 24, 2021

by a searcher in Milano MI, Italia

Hello everybody,
I have a long-lived question that howevere is still not clear to me..

In one section of the PPM, "Search strategy", I have to declare an initial set of industries of interest.
Now in my mind the selection doesn't start from the industry, but from the opportunity: the market today is competititve, so you can be less picky, and given valuations you have a only a subset of viable opportunities. Out of those opportunities, I am to select the best one given price and industry.

Given my thoughts, do you think I should describe this process or should I present the a subset of industries anyway? If I present the industries, what is the knowledge I am required to have? I think that if I will show industries, potential investors will ask how much I know about them, which I think is risky given that I don't have specific industry knowledge.

Reply by an intermediary
from The University of Chicago in Chicago, IL, USA

Before joining IBM Mr. Gerstner served as chairman and chief executive officer of RJR Nabisco, Inc. Prior to that he served as President of the American Express Company and was a director of the management consulting firm, McKinsey & Co., Inc.
Above is an example of industry knowledge vs. professional skill. A buyer with experience in industry X selling to big box should consider businesses in industry Y selling to big box (or can grow by selling Y products to big box).. In this case one is leveraging sales skills.
Should a searcher with manufacturing experience in, say, liquor industry buy a sales intensive business in same industry or should consider a business in different industry that is manufacturing intensive with large production runs?
CFOs, CPAs, Engineers, Sales people; when they change jobs they leverage skills into different industry.

Reply by a searcher
from IE Business School in Madrid, España

If you will be searching in Italy, industry focus makes little sense. You will still have to add three in the PPM because everyone does but make sure you are open with your potential investors upfront so they know you will be doing an agnostic search. It is more interesting for you to look for examples of real companies that you´d like to acquire and the reasons why. This approach worked great when we were raising our fund.

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