Hiring a Placement Agent to Market Mezzanine Capital and Growth Equity Investors
Posted on Friday, March 18th, 2011 at 12:15 am.
A placement agent is a financial firm who act as an intermediary in the world of fundraising. Sometimes it is an individual but more often a firm, who assists entrepreneurs, private companies, or institutional investors who are willing and capable of investing a private equity fund. Basically, they match cash-hungry funds with cash-rich investors. They are often structured as groups within huge investment banking firms such as Credit Suisse Private Fund Group and UBS Investment Bank, or as separate boutique investment banks such as MVision Private Equity Advisers and Campbell Lutyens.
In the context of private equity, a placement agent serves several functions for a company such as raise mezzanine capital or venture capital, as well as raise investor commitments to new private equity funds. The market is very competitive especially with the advancement of media and technology, and the need of a placement agent is now certainly arising in this new economic environment. They are crucial to fundraising for emerging markets of private equity funds.
A company usually hires a placement agent in order not to spend too much of its own time seeking for mezzanine capital or growth equity investors. Sometimes the lender also commissions an agent so that the fund partners can aim attention at management issues rather than focusing on how to raise venture capital. Mounir Guen, chief executive of MVision says, “A placement agent is a necessity.” Why? “Because if the job is done well it brings a level of sophistication and experience to the fundraising process.” This is because financial institutions have become more crucial and sophisticated in evaluating potential investments.
In the past, these agents were hired to introduce private equity funds to the investors or to what they termed as limited partners (LP), and simply congratulated after a job well done. But today, they are highly valued advisors who understand and know their limited partners and the market’s appetite for different approaches. They also advise and assist fund managers and help develop marketing strategies. Their critical responsibility is constantly trying to satisfy their limited partners and value their judgment in order to establish long term and deep relationship.
Placement agents can bring a myriad of relationships with growth equity investors, mezzanine capital firms, or venture capitalists. They can cherry-pick investors that are likely to come into a particular fund, increasing efficiency and minimizing risk in the fundraising project, according to James Coleman who joined Deloitte LLP after UBS Investment Bank, two of the globally known financial services firms. They can also advise some existing owners of private equity assets on secondary market sales of their interests.
Placement agents are mostly compensated through fees ranging from 1 percent to 3 percent by the companies or individuals who raise capitals. Sometimes their fees and terms of engagement would extremely vary depending on the length of time to execute the fund and based on the amount of money raised.