Proprietary Deals: Sponsors Say They Close Plenty

Deal sponsors say they buy more companies through proprietary transactions—purchases without a competitor—than they do auctioned deals.

That’s according to a spring survey of deal sponsors conducted by PrivateEquityCareer.com, publisher of the weekly Private Equity Career News. The survey was designed to reveal how private equity firms and other deal sponsors find transactions, along with what resources they devote to finding them.

On average, participants in the survey said that 39 percent of their closed deals came from a proprietary source. Another 36 percent of their deals came from limited auctions, while 25 percent came from broad-based auctions.

The results were similar for both small firms with less than $1 billion under management and for large firms with $1 billion or more under management. However, large firms do say they participate in more broad-based auctions on average compared with small firms—32 percent of the time vs. 21 percent.

All told, 100 firms participated in the survey, including buyout firms (44 percent), independent sponsors (22 percent), family offices (12 percent) and growth equity firms (9 percent). Participants in the survey had a median of $350 million in assets under management and an average of $1.3 billion; small firms in the survey had a median of $200 million in assets under management and an average of $244 million; large firms in the survey had a median of $2.5 billion in assets under management and an average of $3.4 billion.

A large majority of participants in the survey (77 percent of those who answered the question) have at least one professional devoted full-time to deal origination. Small participants have both a median and average of one deal origination professional, large firms two and four.

And where do deals come from? Both small and large firms point to sell-side intermediaries and company owners as their most valuable sources of deal flow. Large and small firms alike say buyside intermediaries are valuable, according to the survey. Large firms, more-so than small firms, also point to independent sponsors and fund sponsors as valuable sources.

Deal sponsors naturally log in and review many more deals than they consummate, although the steepness of the funnel is surprising. Respondents on average log in 708 deals or teasers in a typical year and review 248 offering memoranda; of those they close on average three platform deals and seven add-on acquisitions.

For small firms in the survey, 694 deals or teasers logged and 224 offering memoranda reviewed on average result in two closed platforms and four add-ons. For large firms in the survey, 985 deals or teasers logged and 373 offering memoranda reviewed on average turn into five platform deals and 18 add-on acquisitions.

For more, head to PrivateEquityCareer.com or contact the author at dtoll@privateequitycareer.com.

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