In an Institutional Investor piece posted earlier this week, author Amy Whyte describes the growing practice of subscription credit facilities. Many private equity, venture capital, private debt, and real assets funds are adopting this approach to use short-term loans, as opposed to or to delay calling in committed capital from their LPs, or investors. Per Whyte, citing Preqin data, the trend has increased significantly beginning with 2010 vintages.
While the use and adoption of different loans is not an alternative sourcing strategy, per se, it does reflect the market chaos in attempting to close deals in a more efficient manner. Market conditions continue to demand firms to rethink their standard process and devise new, inimitable approaches to both source a deal, as well as get the deal across the finish line. To deploy capital on the right transactions, many firms are electing alternative sourcing strategies that offer a unique twist on the deal origination process to compete in this market. A few strategies include direct calling to business owners to avoid intermediated processes, co-investments with peer sponsors, as well as sourcing deals from non-traditional advisors.
Mining for gold in your backyard
One popular alternative sourcing strategy with SPS clients is mining for deal-gold in their pipeline. Thus, transforming a historical pipeline into an active, alternative source for deal flow. The benefit to mining broken deal data is that these transactions have already been vetted and much of the due diligence process completed. It seems like a no-brainer, so why don’t more firms elect this approach?
The easy answer? It can be challenging to match an active pipeline with closed deal data. Moreover, broken processes and transactions that have yet to trade bog down pipelines. However, within the SPS Portal, clients are empowered to cross-reference their internal pipeline with SPS market data to seamlessly ascertain which deals in their pipeline are available and which deals have traded. A firm’s deal pipeline is the Holy Grail of their business and by revisiting a well-maintained pipeline that is matched with accurate, closed deal-data, firms are presented with many potential opportunities to grow their portfolio with collateral that is right in front of their nose. Your next deal may be sitting right on your computer desktop.
On this harvest moon
For several years now, SPS has promoted its Private Equity Harvest Report to encourage alternative sourcing strategies. Many of our clients rely on this annual customized report, which details all private equity portfolio companies that may be ready for exit. The report is a valuable and alternative origination resource to proactively target relevant companies that may be ready to sell in the near term.
The Harvest Report provides detailed statistics on the industries, size ranges, and locations that these potential deals fall within, as well as how many deals in previous iterations have since traded. The June 2018 Edition highlighted more than 5,300 private equity portfolio companies that were acquired between 2011 – 2015, stay tuned for updates on these transactions. Much like mining a deal pipeline is akin to finding a deal on your computer desktop, the Harvest Report is a creative resource to sourcing your next deal. Provide SPS with your criteria and target market, and we will provide you with a cultivated and tailored list of potential deals ready to exit.
As investors continue to find new ways to close deals, whether by new funding capabilities, direct calling, or more data-driven and actionable approaches, there are many opportunities (beyond the Harvest Report and mining deal pipelines) to source quality deals using alternative sourcing strategies. In this market, efficiency and real-time data matter to performing ahead of the pack. For more on various alternative sourcing ideas, contact us.
Last week’s deals today
June 3 – 7, 2019
~116 deals traded
Deal of the week
Broadview Holding (HAL Holding N.V.), a Netherlands-based industrial holding company, completed its acquisition of The Formica Group for $840 million last week. Macquarie Capital acted as the sell-side financial advisor. The target is based in Cincinnati, OH and is a manufacturer of markets laminating and solid surfacing products.
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