Small Private Equity Firm Origination Case Study

Alex Karlsen

The Client

Formerly independent sponsors, this new, California based 2 MD private equity firm was looking to pivot towards investing their own capital into larger deals. Since they were no longer relying heavily on outside capital sources, and since they had no management fee to offset origination/search costs, the firm was very cost sensitive and hesitant to pay finders fees. Additionally, as a small team, each MD wore many hats leaving the deal origination effort to be handled sporadically.

The Catalyst

As expected, this sporadic origination effort did not produce enough deal flow for the firm to make an investment in their first year of searching. In an ever competitive seller’s market, this small team felt they could not compete on highly visible deals that commanded high price premiums.

Considered Solutions

  • Dedicate one MD’s full-time efforts to origination, a role he had not previously performed.
  • Retain one or more buy side firms to do the heavy lifting, knowing that the success fee implications would be in the hundreds of thousands of dollars range.
  • Outsource the prospecting, outreach, and vetting to CAPTARGET.

Adopted Solution

Weary of losing focus on other high priority initiatives, the firm was reluctant to dedicate one MD to origination full time. They felt that even given the needed hours in the day, they lacked the tools, and strategy to truly scale the effort long term. Additionally, the group was not able to reconcile a success fee-based model to their current strategy and resources.

The group started working with CAPTARGET on a monthly commitment basis.  CAPTARGET executed a search strategy that incorporated both direct outreach and working with on-market intermediary represented deals, carrying a cost of less than $3,000 per month with no obligation to pay any success or other finders fees.

Net Impact

By month 6 of service, the firm had been introduced to more than 50 opportunities and is in diligence on a transaction that is expected to close before year-end. The total cost of sourcing this deal was less than $24,000 with no additional fees being owed at transaction close.

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