CAPTARGET's 2024 Playbook for Quality Lead Flow

As the origination service landscape rapidly evolves, Private Equity and other professional acquirers of companies suddenly have dozens of origination resources to choose from. 

After spending more than a decade helping private equity firms build healthy pipelines, I feel that the recent increase in service providers focusing on sourcing deals has influenced buyers to focus on asking the wrong questions. 

Too often, we are asked ‘who’ a firm should be working with, rather than specifically what the firm should be doing to ensure the success of its origination campaigns.

Regardless of how a buyer addresses its needs for deal flow, there are a clear set of best practices that should be considered. 

Any internal team or third party vendor that deviates from these is likely leaving some level of opportunity untouched, but with a few tweaks to your existing strategy you can likely increase the productivity of your search. 

Scale

After working with more than a thousand PE firms, I believe in one truth - we like to over analyze. This can lead to an unintentional contraction of the prospect pool because buyers often want to screen for perfection of lead criteria prior to engaging with the prospective seller.

One reality I always try to stress to PE buyers is this - you don't know much about a lead until you talk to them.  Database tools are imperfect, self reported information is often outdated and the middle market is generally still loosely covered.

Firms that build or buy lists, only to chop them down to a few perfect potential opportunities are doing themselves a disservice.  Firms with the most productive sourcing efforts cast a wide net, and filter the noise after the fact. 

This may sound laborious but I firmly believe that you should let sellers self identify as good fits, rather than attempting to prescreen them to a level that is often counterproductive.

As an extreme example, the CAPTARGET team once worked with a firm with a 2MM EBITDA threshold that would not look at any company that was reported to have anything less. 

Now, we all know that PE buying is as much art as it is science, and thus we needed to encourage the buyer to cast a wider net.  If a company is reported to have 1.8M in EBITDA, what are the changes that they may actually fit your criteria?

If not this year, maybe next - the point being is, you don't know until you ask. Do not self eliminate opportunity unnecessarily. 

Consistency 

PE work day to day is filled with distractions (believe me, I know, I also run a fund).  One of the most obvious opportunities we see to improve PE buyers’ search efforts is to simply ensure there is a high level of consistency. Starting and stopping the origination process creates all sorts of inefficiencies, including cost inefficiencies that can measurably impact the performance of the search effort. 

If your firm is small, or busy it is best to assign the responsibility of consistency to a third party who can ensure that every week new targets are being identified, approached and followed up with. 

Over time, this level of consistency should create a cascade effect that results in predictable, manageable amounts of deal flow.  ‍

With so many buyers active in the middle market, firms need to be diligent about staying top of mind with sellers…if you don't follow up, someone else will. ‍

Multi Pronged Efforts

The best PE pipeline building efforts are diverse in strategy and tactics. This means, there is no single tool, vendor or approach that firms should rely on fully for their sourcing efforts. Firms should consider diversifying as much as they possibly can. 

This means a highly productive firm might employ a buy-side firm (or two!), work with a company like CAPTARGET to handle the research, outbound and follow up via email, have an outreach effort through platforms like LinkedIn and may even still have an internal champion managing both these vendor relationships and a targeted one to one internal effort as well. 

Tech Considerations

Our team has gone to great lengths to ensure that our technology is working for us, not against us.  Many PE firms do not realize that DNS settings, domain authority and even email client selection all have an impact on your outbound sourcing efforts. 

Your outbound campaigns will not be productive if your ISP has flagged your email as spam, for example.

Additionally, great sourcing efforts are typically supported by strong brands online.  This means your firm should have: positive search engine results, a high quality website, a LinkedIn presence and social proof wherever possible (tombstones are great, but testimonials and off-website coverage of deal activity are better).

Properly executing the above best practices should materially impact your origination campaign outcomes.  It's not particularly difficult to generate leads, but it takes a diligent and deliberate effort to build a self-sustaining healthy pipeline that fully satisfies your appetite for acquisition over a fund's full deployment period. 

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