Sourcing middle market deals continues to evolve with the proliferation of differentiated service providers. Business development, which has typically been conducted internally or through buy-side firms, is now being thought of and done in different, more efficient ways. Two companies leading this charge are CAPTARGET and Axial.
While both companies aim to deliver a similar result of efficient business development for middle market buyers, their models of doing so are differentiated.
This article will (i) provide an introduction into both CAPTARGET and Axial and their respective business models; and (ii) compare and contrasts both service providers based on what problems they solve, what value they provide, what customer types they target and how much they cost.
CAPTARGET utilizes its own support staff to provide deal origination services to private equity firms and corporate buyers. The company has a large team of full time employees comprised of former M&A and private equity professional that are very familiar with the middle market space.
The goal is for the client to offload its business development responsibilities to CAPTARGET employees in order to provide the client with more efficient deal sourcing while still maintaining control and continuity within the firm. CAPTARGET does this in the following ways:
The self-proclaimed “Match.com for middle market corporate finance”, Axial’s key service is an online technology platform that helps private companies raise capital or sell by matching sellers and borrowers with buyers and lenders. In 2016, there were 6,726 deals that were marketed through the Axial platform, which led to 647 closed transactions.
Axial does this in the following way:
Private equity firms and corporate development typically source transactions through either internal efforts or a buy-side firm. Professionals at these firms are rarely dedicated solely to business development (though this is not the case in all instances). Therefore, much of the outreach is done by partners and those on deal teams.
While internal efforts are likely the cheapest option, they take away a significant amount of time from professionals that could otherwise be spent on transaction execution, portfolio management or other important activities.
Buy-side firms, on the other hand, allow private equity firms to focus on transaction and portfolio management rather than research and outreach. However, finder fees tend costs tend to be significant. In addition, there is limited visibility into the deal generation process as the buy-side firms work independently from their private equity clients. Since they are paid finder fees, buy-side firms are incentivized to shop their deals around to as many of their clients as possible, thus making their services less value add to a single client.
CAPTARGET combines the best of both worlds of internal sourcing and buy-side efforts. CAPTARGET represents itself as an extension of the private equity firm, rather than a third party. Therefore, all sourced opportunities only go to the private equity firm. All business development efforts are conducted by CAPTARGET. Unlike buy-side firms that are paid large finder fees, CAPTARGET charges a low monthly fee (with options of success fees based on the service type).
On average, CAPTARGET sets up 200 calls per client per years, leading to 10 LOI’s issued and two transactions closed.
Founded in 2009, Axial was founded to solve for the inefficiencies in the middle market by matching sellers and borrowers with buyers and lenders through both its online platform and through offline events. There are thousands of buyers and sellers; however, the parties often have trouble connection. Axial has challenged this by creating three complementary services to connect buyers and sellers.
The first and primary service is its online platform where Axial matches buyers and sellers based on preferences and fit.
Axial has boasted impressive stats with over 2,000 transactions completed totaling over $25B in transaction volume since inception. The network is large with 2.1MM member connections and 2,714 active advisory firms, and growing.
The second service Axial provides is organizing approximately 25 networking events per year. Unlike typical networking events where each party is responsible for setting meetings, Axial takes responsibility for setting up meetings for parties based on fit. This allows for very productive marketing without the time and effort it takes to set up those meetings.
Finally, Axial provides consulting services that aid in boosting success from business development efforts of a firm. This information has been gathered through studying over 150 investment firms and learning best practices to boost deal flow. According to Axial, deal flow is boosted by an average of 32%.
CAPTARGET is targeted towards private equity firms and corporate development arms of companies that are seeking proprietary buying opportunities. CAPTARGET is useful for companies that do not have their own business development arm, but would like to keep these functions in-house. Thus allowing them to focus on overseeing transactions and portfolio management.
CAPTARGET’s turnkey services provide for a proprietary source of deal flow to these firms. By offloading business development to CAPTARGET, they can focus on deal activity and not spend extra time (or money) sourcing new opportunities.
Importantly, CAPTARGET’s services keep business development ‘in-house’ as an extension of the firm.
Axial serves advisors / intermediaries, company management, family offices, lenders and private equity firms. For advisors and intermediaries, Axial widens access to buyers, particularly those that are lesser known, such as family offices and new financial sponsors. For company management, Axial helps find investors, lenders, buyers and acquisition targets by matching the goals of the business with real-time criteria of the buy-side.
For private equity firms, family offices, investors and lenders, Axial helps improve middle market coverage, increase deal flow and build long term relationships with advisory firms.
Axial is helpful for customers that want to augment their origination and networking channels through the Axial network.
CAPTARGET’s pricing ranges from $1,000 a month to $3,000 to month, depending on level of service. For non-proprietary origination through sourcing from advisory firms and investment banking, the price begins at $1,000 a month. For high-touch sourcing, the price ranges between $2,000 a month and $3,000 a month, depending on whether a finder fee is paid. The commitment for the service is a minimum of twelve months.
Here is an overview of CAPTARGET pricing.
Axial does not publish public pricing. The service can typically range in monthly costs from a few thousand dollars per month up to $8,000 or more. Ultimate pricing depends on the level of service. The base level of service includes the use of Axial’s platform. As Axial provides more service, including networking / meeting set ups and consulting, the price can increase.
While both Axial and CAPTARGET provide similar service offerings, the way in which they do it is very different. Choosing a provider will depend on your own specific deal sourcing needs.
Both CAPTARGET and Axial provide strong service offerings to firms in the middle market corporate finance space. CAPTARGET takes a more high-touch approach, working as an extension of their private equity and corporate development clients who want to offload business development activities, but also want to keep the operation within the firm.
Axial provides different levels of service; however, their most used service is their technology marketplace that matches the sell-side with the buy-side. Axial’s clients go beyond buy-side private equity and corporate development arms, to also include sell-side parties including investment banks, advisory firms and companies seeking to raise capital or sell. Depending on their level of service, Axial’s clients typically use the service as another avenue for deal sourcing.
Clients utilizing Axial’s higher levels of service are provided with strengthened business development capabilities, including consulting and networking events. CAPTARGET’s pricing tends to be more affordable at between $1,000 and $3,000 per month ($12,000 – $36,000 per year) relative to Axial’s services which vary greatly.
Read more about each provider here: