Deal origination is the process of identifying opportunities for investment for enterprises or private equity firms, venture capital firms, as well as other financial players. It involves either spotting potential opportunities for investment as they arise and presenting the opportunities to clients or creating deals for them by acting as intermediaries in transactions.
The traditional method for dealing with sourcing depends on networking and corporate connections, with firms looking to buy companies or raise funds relying upon these sources for information on the market. This process is time-consuming and requires access to businesspeople who are likely to be within the firm’s network, and also a relationship with an intermediary for investment.
Additionally, the larger investment banks have an internal team that is focused on deal sourcing, with finance specialists working all hours to generate leads and a pipeline of possible investments for their businesses. This strategy is based on the reputation and execution capabilities of these professionals. It’s therefore more suitable for established investment firms with an impressive track record of successful deals.
It’s important for any investment bank to discover new deals and maintain an active M&A pipeline, but it is difficult to manage without the right technology and tools. Fortunately, financial technology companies have created platforms that aid finance professionals and investors find and locate potential deal opportunities using automation. These platforms are able to filter inbound and outbound leads based upon predefined criteria such as size of the transaction, industry and location, and can reduce the amount of time searching for opportunities.
Some of these platform providers also provide services that can be used by smaller groups that don’t want or aren’t capable of establishing in-house origination teams. For instance, CAPTARGET is a company that offers the option of a fee-based model to help small brokerage companies and investment banks source deals. These services can help you save money and get more leads as they grant you access to an extensive database.
Apart from these technological solutions they also have other options to source deals. For instance they can send out a monthly schedule of their buy-side and sell-side mandates to prospective clients. They can also identify digital data room potential investment opportunities in the marketplace and present the companies they represent to clients, often earning a commission when the transaction closes. This is a risky and time-consuming method, but it can work provided the banker is in the right relationships with blue-chip clients. A large US investment firm recently concluded two billion dollars of mergers with an Indian firm, following extensive deal-sourcing operations in India. The bank was able to complete the deal thanks to its knowledge of Indian economy and its culture. It also worked with an investment banking firm in India to ensure that it was handled with care. This level of expertise and commitment makes an investment bank a valuable asset for any business.
