Do you wonder how many deals you don’t see?
With so many deal origination options and strategies out there, picking the right one can be hard. Most private equity buyers we work with can’t dedicate personnel to managing multiple deal origination channels full-time. In this post, we review a few of these options and touch on some low-cost solutions to help increase your deal flow.
Going to events is a great way to make face to face connections with both intermediaries and business owners. The value of those relationships can be huge, but the cost is typically high both in time and money. Networking is difficult to scale and like all relationships, your network needs to be maintained. If your networking efforts are not supported by other periodic outreach you may have little to show as a result. Everyone should network, but everyone should also have other channels of sourcing.
Many firms hire a single dedicated professional accountable for all things deal flow related. These origination managers may manage multi-channel efforts allowing for potential higher ROI on the cost of origination. However, there is a significant investment in hiring which many smaller firms have difficulty justifying.
There are a number of deal aggregation platforms available online. The leader is arguably Axial market which does a great job, but the model is not without its challenges. The cost for these platforms is typically much less than a single internal hire, offering a level of cost savings and automation attractive to small firms. What the user may gain in ease of data availability they may loose is deal exposure. Since many of these platforms are exclusively opt-in based both a buyer and a seller need to agree to use the platform independently to connect. If a seller does not want to list a deal, no one will ever see that deal. Unless the entire market is represented online, opportunities will always be missed.
Propriety search partners
Groups like ours and a few others provide fee for service proprietary origination services. These can be cost effective alternatives to retaining a buy-side firm and paying success fees. Our deal origination service is short-term and more affordable than most of the options listed above, but it does ask you to make some concessions. Since we are not a buy-side firm we focus on prospect identification, high-level qualification and appointment setting. Although you may save significantly over working with a buy-side firm, your team will often have to absorb some of the work handled by a full service buy-side firm.
Buy-side firms offer a comprehensive one stop solution to your deal flow origination needs. These groups typically handle sourcing, solicitation, qualification and even some of the negotiation process. For this soup to nuts solution you should expect to pay both a monthly retainer and a success fee. While both fee ranges vary, the buy-side solution is certainly the most expensive. Buyers may find that they are uncomfortable with the risk of investing in many months worth of retainers for no results, which is why the buy-side service space is fairly consolidated among a few dozen, high-quality firms that specialize in the service.
Tips to increase the effectiveness of your deal flow generation efforts:
For our private equity clients looking for a low cost origination solution we recommend asking everyone what they are working on. We do this for our clients by maintaining a 4,500 contact M&A directory. We test the information quarterly and maintain a dialog with hundreds of M&A firms daily to ensure that we know how to reach the brokers who have live deals. While we used to sell this directory, we have created a lower cost alternative that has really worked wonders generating deal flow for our clients. Regardless of if our team provides the service or not, here is how it works:
- Direct email everyone you can get a hold of – there is no telling who is working on what, and as a buyer most will want to talk to you.
- Be clear with your criteria, let the intermediaries know you cannot deviate and do not want to discuss outside of the box opportunities.
- Use a stand alone inbox for inbound leads – this allows you to inject a filter into the process to limit the amount of noise such a wide campaign may create. We typically run our clients’ secondary inboxes and filter out the obvious poor fits before they even know about it.
- Follow up methodically – sending an email here or there will not keep you top of mind. There are more than 9,000 other middle market private equity groups out there looking for their next deal too. Following up monthly or even quarterly ensures you build a healthy pipeline without investing too much of your own teams time.
We provide this service to our clients for as little as $500 per month and often see a significant uptick in in-bound deal flow. It takes no work from our clients – leads just show up in your inbox! While the service is not on our website currently, it is quickly growing in popularity because it works!
If you are a small group looking to supercharge your in-bound deal flow, or if you are a more established firm looking to add a low cost sourcing channel, consider this type of outreach – it works!