Deal sourcing strategies are core to any private equity firm.
However, advancements in data and technology have empowed firms to take a more rigorous, predictable, and proactive approach to finding and closing deals.
So how do can private equity firms find companies to buy?
David Teten shares that the average investor in a private equity firm will review at least 80 investment opportunities to make just a single investment.
At Riverside Company, just 1% of evaluated deals actually close.
PE firms must take the initiative and cast a wide net to generate as many investment opportunities as possible.
Relationships and intermediary deal flow isn't enough in today's global, competitive market.
Cutting edge PE firms are rethinking dealmaking with data, technology, people, and process to streamline the approach to finding and closing deals.
What are some options?
Hire an In-House Team and build the practice from scratch.
To be in the top quartile of PE firms, you have to build an outbound deal origination muscle. These firms typically hire between .75 and 1.25 dedicated deal sourcers for every investment professional on the team.
But building this is tough and risky.
And the clock is ticking on the LP pref.
Partnering with a firm such as iGOTHAM can dramatically level up your outbound technology efforts and leap frog years of struggle.
Other firms choose to niche down, focus on specific industries and run through a process of market mapping.
Market mapping allows firms to understand the participants, justify an investment, and take a 'know a good company when they see it' mentality.
Finally, top PE firms are constantly looking for Deal Signals .
For example, TA Associates, which seeks to deploy over $3 billion in new investments each year, levererages data, automation and scraping to be scientific about their sourcing initiatives.
Here's a few deal signals to keep on the radar: has the company hired a new CFO?
Are they increasing their speaking engagements at conferences.
Is the velocity of the company's metrics increasing or decreasing? Can you pinpoint when are firms likely to need new capital?
Are you monitoring job postings or website traffic? Unfortunately, this is hard to do at scale, manually.
One question to ask is, what is your edge?
Finally, all the data in the world pales in comparison with a 10 minute phone call with the CEO of your target company.
Before spending on a new data science team, ask, what will generate real results?
What is your strategy and outreach approach to close prime investment targets, before another firm acts?
Imagine you had the ability to connect with companies early in their lifecycles, build a relationship and stay top of mind. Even if the deal goes to auction, you still have an edge.
The Private Equity game has changed.
Deal sourcing is the number one question your limited partners ask, and one of the most crucial determinants in ensuring a private equity firm’s success.
While relationships will always matter, with increasing competition the old-school approach no longer works. Everyone has access to the same bankers and brokers.
The top PE firms, family offices and independent sponsors are deploying data and technology-driven investment strategies to ramp up the number of leads, deals and meetings.
Reach out to learn more at iGOTHAM.
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