Friday, April 27, 2007

Deal sourcing - the old fashioned way

Throughout my more-than-a-decade long career in Investment Banking, both as an external consultant and in my in-house avatar, I have tried several techniques to source deals. From leveraging close personal relationships, affiliated funds, Investment Bankers and industry grapevine to sourcing deals from other financial intermediaries or even participating in downright auctions through club deals.

What did I leave out ?

It is deal flow emerging from proprietary research, which stands out for its enormous value potential and distinct personality trait. I am far more clued in a deal that I have researched upfront, took time to get upclose with the management and have spent enough time studying their strategies translating into results. Well, to the argument that who has the time, my ready answer is “start scanning early”.

On an average, at any given point in time I’ll be tracking at least three prospective investments very closely. At times, not to lose sight I buy some stock personally so that it figures prominently in my portfolio which I keep a close weekly watch on. As a scrupulous deal maker, I get out of the position immediately before I start peddling the deal to PE funds – to qualify for the full disclosure. My previous post here was one such.

This is significantly better than getting into the rat race for more deals without a care for end result, value unlocking potential - that is. Perhaps even better than hiring star leaders or marquee name rainmakers like an Anil Singhvi or a Mohit Bhatnagar who have an exemplary track record in their respective domains. Here’s why. This very domain expertise could prejudice their vision over the prospects of other businesses, giving rise to missed opportunities or having to build an anti portfolio, like the one Bessemer has. As a PE fund manager, the demand on the individual is of a different kind – a pulse for an early opportunity over a broader spectrum and by extension, scope for an earliest, IRR optimising exit.

Longevity of PE as a long time, credible asset class amongst accredited investors depends largely on building outstanding deal sourcing and investment processes. Especially in times like these when there are several sophisticated HNIs and Institutional investors dotting the field, looking for interesting avenues to apply their wealth, brand building thro track record of consistent performance metrics matters all the more.
Some of the interesting articles on related topics be found here, here, here, and here.

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