Few tasks are more important to the performance of a private equity company than a solid deal origination strategy. As per research conducted by Tenten Advisors, the average PE firm reviews 80 potential deals before committing to one.
Additionally, it is essential to note that the PE deal evaluation process requires a small force. Closing deals require an average of two management meetings, 20 meetings with companies that are targeted and three due diligence reviews, and three full-time investment team members. With all that is to be considered, there is no wonder companies that invest in private equity are always seeking better strategies and tools that can streamline their deal-making process.
The best firms always look for ways to enhance their business development initiatives and locate the best new Private Equity deals.
Find out more about PE deal origination strategies that can change the game for your company.
1. Continuously monitoring liquidity and growth signals
PE firms need to keep track of deal signals and take proactive steps to source deals. These deal signals include both growth signals like:
- Rapid growth in the industry’s revenues
- A fragmented market is a good option for purchase
- Rapid growth in revenues and profits
- An experienced, proven management team
- Market share of the leading sector as well as the opportunity to be the market-leading player
Liquidity signals include:
- A major corporation that has slashed its subsidiaries
- Death, illness, or divorce
- An older CEO is looking to retire
- Consolidation that occurs within the industry
2. Data analytics to keep their fingers at the forefront of market developments
Although deal signals can assist PE deal teams gain an accurate pulse on profitable opportunities and finding the most lucrative deals, they do not suffice by themselves. The most successful PE firms employ analytics and dashboards for reporting to gain new insight into their data. They also find opportunities for deals and make more informed decisions.
With the appropriate data partners, PE firms can spot the prevalent trends in a particular market and know how the market is changing. These pulse points and others are a powerful way to evaluate the potential of private equity investments.
3. A strong brand presence
Creating an established brand has been the top priority for PE companies in recent years. According to Pitchbook statistics, 70 percent of PE firms say that creating strong brands is crucial, while 30% think it’s not that significant. In addition, 91% of companies believe that the need to develop a strong brand has grown in the last two years.
This attention to PE firms results from increased competition in private equity investments. This is also a result of the rapid growth of PE firms on the market and the increase in the fundraising competition.
The relationships that are vital to private equity. The strength of your company’s brand is based on the relationships that your team members share. There are many kinds of connections that you can cultivate, which include portfolio companies already in place and investment banks, lawyers and peer equity companies, executives, and many other sponsors. A study has found that over 90 percent of PE companies say that they receive meaningful introductions, and the most lucrative deals are often sourced from portfolio companies already in place.
The Future of PE Deal Sourcing
According to a study by PEHub, a greater emphasis on deal origination is essential for PE companies and helps to increase deal sources. The trick is to take a proactive approach and implement a multi-tiered approach for connecting with connections within your network.
Private equity firms need to be resourceful in generating the most investment opportunities feasible as fast as possible. By following these tips for deal sourcing for PE companies, your company can get a head start in sourcing high-quality deals before your competitors do.
Being East Africa’s leading legal and investment advisory firm, Shikana Group always works closely with its clients to help them source, scrutinize, arrange, and manage the best deal origination strategy and acquisition prospects.
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