When BD teams think about deal flow it’s usually through two channels: 1) Proprietary sourcing to extend your firm’s network and get in front of targets directly and 2) Fielding inbound banked deals. For too many firms, the strategic sourcing options end there.
Proprietary outbound sourcing and inbound banked deals are table stakes for PE business development, but there are two other deal channels that often go overlooked.
Relationships with financial advisors and other investors.
They don’t produce immediate results, so only BD teams playing the long game are pursuing deal flow through these channels. Building a communication cadence with these two groups can yield proprietary deals that are both high returns and easy to execute.
Why should you allocate precious BD analysts’ time to connecting with lawyers and accountants?
According to the Federal Reserve Flow of Funds Report and research by Tiburon Strategic Advisors, boomers are expected to liquidate over $14 trillion in small business valuations in the upcoming years.
Who will be the first to know about their retirement? Maybe family and friends, closely followed by their lawyer and their accountant.
You want to stay connected to people in the know. This can look like quarterly check-ins with M&A advisors specifically working with business owners in your industry.
Building a referral program does not happen overnight, but one that is up and running is highly lucrative. The result is a potential proprietary deal that comes directly to you.
According to Jonathan Kitchen, Vice Chair, Private Equity, Cozen O’Connor, “If you're at a bank or if you're a sponsor, you’re working with lawyers all the time. You're working with them on deals. You're working on diligence. [The next step is] knowing who's good at what and who else might benefit from that.”
Investor referrals are much more common in venture capital than in private equity. Virtually all VC deals are proprietary because VCs have relationships with firms who do bigger deals than theirs and those who do smaller deals. The seed investor, in particular, industry knows the Series A investor, the pre-seed investor, and so and so.
The benefit of these investor relationships? Getting priority access on deals a larger firm may have passed on.
PE firms mirroring this approach have an edge. They know investors in the industry targeting various ranges of EBITDA. They know who their competitors are, but they also know who is investing above them and may have deals they need to pass on.
It’s a strong position to be the firm that passes along initial due diligence and an intro to a smaller firm. This provides value to the business owner and the firm, which can put you top of the list when the company is ready to sell again in the future.
Seeing all PE firms in your space as the competition is a mistake. The best firms have regular check-ins with other investors.
PBD considers all deal sourcing channels and how to best capture the attention of each group. Grata is the only BD platform where you can find private company data, M&A advisors and investors in your industry, and track your deal funnel all in one place.
Book a Demo