Introduction to Proprietary Deal Sourcing
Proprietary deal sourcing is the practice of identifying and securing investment opportunities that are exclusive and unique to a particular firm.
A proprietary deal can be:
- a deal in which a given firm is the only bidder, or
- a deal in which a firm is the first of multiple bidders and has a significant advantage in terms of relationship with or access to information about the target company.
Typically, proprietary deals happen when a company isn’t actively looking for an investment. That means they come about in one of two ways:
- The investor has a personal connection to someone at the target company, or
- an intermediary or someone from the PE firm directly approaches a company that matches the firm’s investment strategy.
Why Are Proprietary Deals Important for Private Equity Firms?
Because proprietary deals take place outside of the typical auction process, they’re more likely to save investors money.
Private equity firms that successfully leverage proprietary deal sourcing can bring in higher returns for their investors, giving them a sharp competitive edge. Additionally, proprietary deals keep funnels active even in the most competitive or volatile markets.
Successful private equity fundraising depends on the firm’s ability to demonstrate exceptional investment opportunities. Limited partners (LPs), who provide capital to private equity funds, look for general partners (GPs) with the most compelling and unique investment theses and deal targets.
That means investors have to be able to scour the nooks and crannies of their target industry — and they have to do it before their competitors.
How Proprietary Deals Benefit PE Firms
Because proprietary deals aren’t sourced in the same ways as other deals, PE firms face much less competition. This means they can acquire targets for much better prices than if they were to enter a bidding war with other firms.
Additionally, because proprietary deals often arise from direct relationships with the target company, firms are already equipped with the information and understanding necessary to make a deal successful. This can shorten the timeline for deal execution.
Leveraging Proprietary Search and Technology
But there’s only so far investors can get by solely relying on personal connections and intermediaries. PE firms have to integrate tech solutions into their proprietary deal sourcing processes to maximize their results.
Technology-based deal sourcing platforms like Grata help investors find more companies that align with their investment thesis and fly below the radar.
With Grata’s AI-powered deal sourcing solution, investors can quickly search through over 12M difficult-to-find middle market companies with purpose-built filters, including software classifications, revenue, ownership, funding, and more. The Similar Companies tool uses AI to identify themes and suggest other relevant companies, helping users find a broader pool of potential targets.
This way, Grata users can find targets that other firms miss. Seventy percent of what users see in their search results is unique to the Grata platform, so they can identify a potential deal target first.
Grata’s AI analyst, Ana, also helps dealmakers perform desktop diligence to determine if a possible target should be approached. If they do want to reach out, Grata’s platform provides current, verified contact information for company executives.
Innovations in Proprietary Technology
Nurturing strong relationships is crucial to successful proprietary deal sourcing. Grata’s relationship development features allow dealmakers to search, prioritize, and track every company they’re connected to.
With CRM Intel, Grata users can leverage their firm’s proprietary data from Salesforce, DealCloud, or HubSpot to uncover more deal targets. Users can access their CRM data directly in the Grata platform so they can identify top-scored deal targets and focus on cultivating the most promising opportunities.
Proprietary Technology for the Sell Side
Tech platforms also offer products that serve the sell side of the deal sourcing process.
For example, companies looking to sell their business can use Grata’s Investor Discovery tool to build comprehensive buyer lists and find exit opportunities. Sell-side bankers can also find buyers for clients they’re representing.
Grata users can search across 20,000 financial sponsors and 100,000 strategic buyers based on investment criteria and previous deals.
Analyzing Precedent Transactions in Niche Markets
Grata’s recently launched Market Research products help PE firms analyze the deals happening in markets relevant to their investment strategy.
Grata users can see proprietary transaction data, including deal values and valuations, on any niche market.
Equipped with a full understanding of the space, firms can confidently determine how their deals should be priced.
Grata Optimizes Proprietary Deal Sourcing for Private Equity Firms
Grata’s sourcing automation capabilities have helped numerous PE firms scale their proprietary deal sourcing processes.
With Grata, firms can eliminate companies that don’t fit their investment criteria faster. They can also identify high-priority targets and discover additional niche markets within their industry without all the manual work.
One leading PE firm focused on investing in the healthcare space estimates that its associates reduced their time sourcing deals by 80% after bringing Grata into their process.
To see how Grata can help you optimize your proprietary deal sourcing workflows, schedule a demo today.
