In each weekly email, we write a short summary of our learnings from an interview on a particular company that we’ve studied the previous week. We only intend to share our analysis if we feel it’s incremental to what is already known about the business or industry in question.

This week is a little different because GLG, the largest global Expert Network (hereafter EN), filed an S1. We spent the weekend reading the filing and while there are already articles from two great writers here and here, we thought we could share our views on the industry, competitive advantages for EN’s, and our mission at In Practise.

Founded in 1998, GLG, a traditional expert network, is in the business of connecting domain knowledge experts to investors and corporations in 1-hour private phone interviews. Historically, there have been three major users of ENs: strategy consultants, private equity, and hedge funds. Each group uses the service in slightly different ways - this is key to understanding the nature of competitive advantage in this industry.

The way expert networks are used in the private market typically goes something like:

  • Company X is put up for sale
  • Private equity funds simultaneously contact multiple ENs with a project brief to source executives on company X for interviews
  • ENs race to source the most relevant executives to send to the client and schedule interviews
  • The private equity fund, if it takes interest in the deal, commissions strategy consultants to conduct commercial due diligence on company X
  • Strategy consultants contact multiple ENs to schedule interviews with executives
  • Where there is staple financing required, credit funds would also conduct interviews via EN’s on company X
  • Company X is sold, and the process repeats for the next asset for sale

Most large private equity funds have contracts with multiple EN providers to maximise the likelihood of converting project requests into interviews with executives. From a client’s perspective, having multiple networks compete for projects is seen as a way to drive better performance from the EN service provider. In a private market transaction, this often leads to a situation where multiple private equity bidders speak to the same executives, at a similar time, discussing very similar topics.

Shortly thereafter, the PE fund would pay consultants to again conduct similar interviews with similar executives. The consultants then package their interview insights into the commercial due diligence for PE funds who then add their own insights to sell the proposed bid to their investment committee.

The incentives within the private market are also important to the stickiness of EN services. Consultants typically charge back the cost of primary research to their PE client so they don’t directly pay for the primary research. Tight private market bidding deadlines plus the low-cost high-value nature of an expert interview also makes PE funds highly price inelastic. These two dynamics create a sticky revenue base for ENs who serve PE and consulting clients. GLG reports 22 of the 25 top clients have been customers for over a decade and the average wallet retention, a proxy for net dollar spend per client, has been over 90% for the last 10 quarters.

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