Due to some of our online exposure, we see deals across every imaginable sector and size. An oft-repeated question poised by would-be business sellers and equity issuers is this: “what experience do you have in doing deals in the __________ sector?” In many cases, either we or our extended team have some direct or indirect experience in the sector(s) which we are pitching. It greatly underscores the importance of becoming an Expert Generalist, something that was likely coined by Orit Gadiesh, the Bain & Co. chairman, but made popular by Berkshire’s Charlie Munger. The concept of an Expert Generalist is as follows:
Draw on a broad pattern of diverse knowledge across multiple disciplines and dig deep to understand more fully the nuances of each.
This type of pattern is needed, especially in lower middle-market M&A where the broad spectrum of potential strategic buyers is ever-changing, especially as industries expand and morph their respective areas of interest over time. A great example of this is the manufacturing business with direct interest in a seemingly unrelated software company (and who was willing to pay a premium for it) because there were some horizontal market synergies. Understanding broadly helps a sell-side M&A advisor to connect the dots on the most likely potential suitor willing to pay the highest possible premium.
Furthermore–and according to Munger–expert generalists also benefit by having the following characteristics:
Getting to the point of truly being an expert generalist requires even more discipline than most would admit. It requires discipline and interest across numerous market and sectors, including the time spent researching buyers, sellers, investors, trends and technologies across varying, yet always-connected disciplines.
The young and inexperienced will often tout experience in a given space without having had direct, hands-on experience there. Part of being an expert generalist includes a dose of intellectual humility and self-awareness. Knowing that you not only do not know everything about a given discipline is not the only pre-requisite, it also causes one to admit that “you don’t know what you don’t know.” This type of ignorance card is perhaps the worst possible case imaginable. In the case of the true expert generalist, self-awareness and enough breadth and depth understanding of the sector in question should at least provide enough cursory data points for understanding 1) what one does not know and (perhaps more importantly) 2) who can I tap as a trusted advisor resource to assist on this transaction to take it from where it is to where it needs to be.
It would appear we all have a ways to go in understanding true expert generalist techniques compared to Charlie Munger who–according to Bill Gates–even is somewhat of an expert generalist in the mating patters of naked mole rats. That does not mean that when it comes to corporate finance in particular verticals, that M&A investment bankers cannot all do a good job of getting up-to-speed on every nuance of each potential deal. In such cases, combining external expert resources and applying typical deal transaction processes and marketing materials with the right marketing contact data (both from experience and research) is what creates quality, closed deals across numerous sectors.