New York, October 20, 2021 – Nearly 70% of private equity firms have at least one dedicated business development professional, indicates data from the recently published 2021 Deal Origination Benchmark Report (DOBR) from Sutton Place Strategies, by Bain & Co. (SPS).
Findings from the report have been covered by M&A analysis publication Mergers & Acquisitions.
The report, released annually each fall using last-twelve-months (LTM) data for the year ended June 30, provides detailed analysis into a private equity firm’s deal sourcing strategy compared to its peers, allowing the firm to gauge its performance both individually and in the context of the industry at large.
Each SPS client receives a custom DOBR comparing its market coverage against all private equity firms as well as to other firms in the same peer group, which are defined by deal sourcing strategy and size of targets sought.
Of the 157 participating SPS private equity clients across eight peer groups, sixty-nine percent have dedicated deal origination personnel. This is a ten percent increase compared to the same report in 2019. Following suit with DOBR editions of recent years, once again each of the firms named Best in Class for their peer group have at least one dedicated business development professional.
This emerging emphasis on the business development role is set against a backdrop of heightening difficulty for firms to see a greater share of relevant, actionable deals in their target market. The latest DOBR revealed that private equity firms only saw a median of 15.8% of deals in their target market.
This represents a decrease in median market coverage from the prior year, a shift most evident for middle market-focused PE funds seeking transactions above fifty million dollars of enterprise value. Following the market disruption caused by COVID-19 and dried up deal activity in Q2 2020, deal flow has boomed as the economy has rebounded – with the median number of deals seen by PE firms increasing by 17% as per the latest report. Paired with a simultaneous increase in valuations, PE firms have been left to chase a larger volume of deals alongside more competition than ever.
The uptick in business development roles suggested by the 2021 DOBR mirrors the rising prominence of deal origination as a core practice of private equity funds. A growing number of firms are also adopting deal sourcing data analysis, automation, and technology as tools to measure deal sourcing success and ultimately close more deals, often with less competition.
“With the ability to evaluate market coverage by factors like geography or sell-side process, analyses like the SPS DOBR allows for a broader and more granular view of the market,” said Nadim Malik, founder and CEO of Sutton Place Strategies.
“The results from this year’s SPS DOBR report suggest that while firms are inundated with record deal flow, they are missing a higher share of relevant deals in their target market compared to prior years”.
“By using data analytics, technology, and automation, private equity firms are giving themselves an edge over their competition. This will lead to not just ‘more deals’, rather quality, below-the-radar opportunities that may otherwise fall through the cracks, and ultimately drive fund performance.”
According to SPS data, PE closed deal activity has seen a 55% increase during the first three quarters of 2021 compared to the same period the previous year.
While in many ways the future is impossible to predict in the world of private equity, one trend appears to have earned staying power: prioritizing deal origination efforts offers a competitive edge.