Once you understand the deal sourcing process and have a set of sourcing best practices, it’s time to take action. Here are five private equity deal sourcing strategies to help you secure attractive investments. 

Strategy 1: Use Advanced AI or Machine Learning  

Advanced AI and machine learning are two of the most significant advancements in deal sourcing. This technology can automate the search for private equity opportunities and reduce much of the manual labor associated with traditional deal sourcing. 

Machine learning algorithms can scan for possible investments quickly, allowing you to identify opportunities your staff may have ignored or missed. Furthermore, these algorithms can typically provide more in-depth insights about the transaction than manual analysis.

 

Strategy 2: Build your company brand’s reputation 

Before sourcing investments, your firm should have a distinct and consistent brand identity. Building a great brand has risen to the top priority list for private equity firms in recent years. Building a great brand is essential to 70% of private equity firms while moderately crucial to the other 30%. Furthermore, 91% of businesses feel the requirement for a strong brand has increased in the last two years. 

Greater rivalry for private equity investments has fueled this laser emphasis on brand building. It’s also been driven by the market’s fast rising number of private equity companies and heightened fundraising rivalry.

Private equity is built on relationships. The relationships your team members have with current portfolio companies, investment banks, attorneys, peer private equity firms, executives, and other sponsors all contribute to the strength of your firm’s brand. When considering these ties for your team, remember that more than 90% of private equity firms indicate that relevant introductions and the best acquisitions frequently come from current portfolio businesses. 

It cannot be easy to attract deals that suit your criteria if you don’t know what your company stands for or what assets you want in your portfolio. 

Creating a strong identity should contain the following steps: 

  • Identifying your goal 
  • Creating essential values 
  • Identifying target industries and investments 
  • Relationship building with crucial partners 

You’ll be better positioned to obtain a business that suits your specifications if you can clearly describe your firm’s goals and principles. 

 

Strategy 3: Monitor signals and changing trends 

Best practices for finding private equity investments always include research. Specific indicators can assist you in identifying suitable possibilities fast. Keep a watch on the news for any signs of an oncoming economic boom or changing patterns in your target industries; this could indicate the case of new agreements and investments. 

Your firm must monitor necessary transaction signals and proactively source deals to beat the competition. These deal signs include both growth indicators such as:

  • Revenues in the industry are rapidly increasing
  • A market that is fragmented and ready for acquisition
  • Rapid revenue or profit growth
  • A management team with proven experience
  • Market share 

And liquidity indicators such as:

  • A large firm is liquidating its subsidiaries.
  • “The Three Ds” are death, disease, and divorce.
  • An older CEO is looking to retire.
  • Industry consolidation is taking place.

These are excellent approaches to identifying changes or trends before they become generally recognized, providing you an advantage in the PE deal sourcing process. 

 

Strategy 4: Segment your deals 

How do private equity firms find deals that close? One way is segmenting your deal flow so it helps you narrow down the best opportunities.  

For example, you can segment deals by stage of development, size, location, or industry. Segmenting makes it easier to identify the most attractive investments quickly and efficiently. 

You can also use a private equity deal sourcing platform to automatically create filters that segment deals. These segments can notify you when new deals that fit your criteria get added.  

 

Strategy 5: Analyze your deal flow pipeline 

While transaction signals can help private equity teams find profitable deals, they are inadequate. Top-performing private equity firms use analytics and reporting dashboards to get new insights into their data, which aids in the identification of potential transactions based on previous successes. They can utilize this information to make more data-driven decisions about future investments.

Analytics helps deal origination by tracking critical investment information. It enables teams to evaluate and optimize their deal management processes and performance. Custom and easily shared dashboards simplify sharing such information with critical stakeholders like senior leaders, prospective clients, or co-investors.

 

The best private equity deal sourcing platform for your PE firm 

It is essential to start ingesting effective deal sourcing strategies. However, identifying potential investment opportunities can be like finding a needle in a haystack without the right platform. Therefore, finding a platform that provides powerful segmentation and filtering tools is crucial, allowing you to narrow down potential investments based on your specified criteria quickly. This helps eliminate irrelevant data and ensure your parameters are accurately met.

 

A robust deal sourcing platform should offer a range of features and capabilities that streamline identifying, tracking, and reviewing potential investments. At Cyndx, we leverage AI, machine learning and natural language processing to enable private equity firms to make faster and smarter decisions. To see how our platform can generate exclusive deal flow and enhance your private equity deal sourcing strategies, schedule a demo with us today.