The Myth of Proprietary Deal Flow
March 9, 2020
‘Is there really such a thing as proprietary deal flow?’. The answer is imperfect to say the least.
The universe is finite.
The number of companies acquirable by a conventional PE firm in North America is a topic of debate. We believe that number to be somewhere just above 250,000 companies. Regardless what the exact number is, we can all agree that the inventory is finite.
There are 10,000+ active professional buyers in the marketplace. We can assume that most of these companies have heard from a buyer at some point in recent history. That said, there are nearly no true proprietary deals if we measure solely on an exposure basis.
Diamonds in the rough.
Assume most PE profiled companies have heard from a buyer at some point. If this is the case, we would argue that firms need to worry less about the proprietary nature of the lead and more about winning the top of mind contest with business owners in verticals they invest in to.
Said another way: The chances of finding your next deal – that diamond in the rough – are increased significantly if you consistently contact business owners directly.
Business owners are busy, and distracted. They probably don’t want to hear from you today. They also typically have no idea who to talk to once they do decide to sell their business. Do they need a banker? Do they call a lawyer? Can they deal with a PE buyer on their own?
The decision to entertain a sale can come at any time and is often not lead by design but by circumstance.
What’s important is that you are the message in their inbox or are known to be the best buyer the day they decide they are ready.
Consider incorporating the following into your sourcing effort (or engaging us to support your origination full cycle):
- Continually expand your target lists. Audiences fatigue and industries change…we add new targets to our client’s lists monthly.
- Be deliberate in your follow up. Silence from a target is not necessarily due to lack of interest.
- Own the idea that you do not need to be the first buyer to solicit the target – you just have to be perceived as the best buyer.
It may take weeks. It may take months. It doesn’t matter. Top of mind buyers win more offers!
Our origination services make it incredibly affordable to consistently make contact with thousands of business owners that meet your criteria annually. With sourcing costs starting at $1k per month and no requirement to pay success fees we can supercharge your firm’s sourcing effort.