Terence Kawaja is Founder and CEO of LUMA Partners, a strategic advisory firm focused at the intersection of media and technology. Terence is a seasoned investment banker with more than 20 years of experience and has advised on over $250 billion of transactions. The Makegood recently spoke with Terence about LUMA Partners’ refreshing investment banking approach.
The Makegood: Terry, you have developed a strategic approach to deal making rather than chase transactions. Can you elaborate on this?
When I launched LUMA Partners the world certainly didn’t need another investment bank — it needed a better one. The typical investment banking model is an inventory model — where the bank signs up a client (takes on inventory) and then runs a process to market the company (sells the inventory). This process-oriented approach is not well suited for today’s fragmented and high growth marketplace. Growth companies that launch process signal adverse selection and large strategic companies don’t buy that way. LUMA intermediates very differently. We work with senior executives at the large strategic buyers in tech, media and marketing to objectively assess inorganic growth strategies and identify targets that makes sense (not that we happen to be selling). Once a match is identified we usually represent the target in the ensuing M&A discussions. The strategics get value-added objective advice and the targets get considered for an exit in an environment where they are not “for sale” — it’s a win-win.
The Makegood: Recently you published the strategic buyer LUMAscape, a chart with 150 of the largest relevant buyers of digital start-ups arranged by type, propensity, capability and motivation. What advantages does it provide for board presentations and investor meetings?
We have mapped over 1,500 growth companies in 7 different digital sectors as well as the relevant financial investors. The Strategic Buyer LUMAscape adds the critical demand side of the M&A marketplace by mapping out the logical buyers. Any company or investor considering potential strategic partners can use this slide as a handy reference tool to identify logical candidates. As always, there is much more thinking behind what gets represented on a static piece of paper. It’s very important to have a deep understanding for why certain companies are pursuing acquisitions.
The Makegood: The LUMAscapes have enjoyed wide appeal with over 600,000 views and downloads and countless references at conferences and in sales decks. From the outside, this looks like a highly effective marketing strategy for LUMA. To what do you attribute their popularity?
There’s absolutely nothing new to industry maps. The LUMAscapes are different for a few reasons. Firstly, they are graphical rather than text-based and we humans process graphics better. Second, they show the inter-relationships of companies rather than just list firms in a
sector. And third, they are dynamic. We change the LUMAscapes constantly based on what we learn and inbound market feedback, thereby leveraging expert crowdsourcing. We achieved broad distribution using more innovative marketing strategies – from substantive presentations made available online to comedy videos. Its content marketing and it works.
The Makegood: From your business model to your marketing strategies it seems LUMA is borrowing a page from some of your innovative tech clients. Do you consider LUMA a disruptor?
Not many in the tech world look too kindly at Wall Street – and for good reason. We are trying to emulate some of the disruptive strategies normally associated with start-ups to banking and believe our differentiated approach better serves both buyers and targets. There’s no reason the entrepreneurial culture cannot apply to an industry like investment banking.
The Makegood: The other week, you lectured at Columbia Business School (09/24). What are your key messages you want your audience to remember?
I talked at a high level about some of the cool trends in digital marketing and encouraged them to seek entrepreneurial opportunities. My key career messages were “think different and laugh” (regardless of the industry you pursue) and suggested that everything I needed to learn about building a successful investment banking practice came from Steve Jobs and Jerry Seinfeld.
The Makegood: What are some of the broad M&A trends that we can anticipate going into 2013?
There are many interesting aspects of the M&A market but I will mention three.
From a buyers perspective, we are seeing an expanding universe of companies with interest in digital media targets – far beyond the “usual suspects.” As the Strategic Buyer LUMAscape illustrates, these buyers herald from different sectors and have differing acquisition motivations and rationales. This is very healthy for the M&A marketplace.
Looking at targets, there has developed a significant divide between sector leaders and the also-rans. While many find venture financing regardless of their place in the spectrum, the M&A markets are not so forgiving. We have seen a bifurcation of deals between top companies that are bought for strategic premiums vs. companies that capitulate and are sold for amounts that don’t provide a positive return to investors. This trend is likely to continue as ubiquitous venture funding dries up and companies are forced to take action. This market rationalization is a good thing for the ecosystem.
The final trend I’d mention relates to the rapid rise of mobile. While many digital companies are disrupting traditional business models and channels, many of these disruptors are, in turn, being disrupted by the growth of mobile usage. This is causing many to explore capabilities in this growing and different channel, often by acquisition. While the mobile targets are strategic, many are early to develop material revenue, creating a challenge for the buyers.
The Makegood: Thanks, Terry.