Deal Origination and Cold Calls: Low Hanging Fruit
When faced with the task of deal origination, one quickly realises there’s low-hanging deal fruit and five-storey high deal fruit. What I mean is that some deals are much easier to find, negotiate and close than others. However, most of the low-hanging deal fruit is hotly contested, ergo, it’s highly price-inflated, ergo, it doesn’t make the best investment sense, ergo, it’s not so fruity after all. But, who said life was easy anyway?
At the other extreme, more difficult deal origination sources (such as those that require complex collaboration) often just waste time; this becomes obvious after one or two drawn-out failures. (They get your hopes up when you’re a greenhorn, but you quickly learn to save time in future.) So this begs the question, what is the sweet spot for mid-market private equity?
Well, I believe the cumquat of deal origination (read: sweet, yet salty; succulent, yet bite-sized), is the deal that isn’t hotly contested because it isn’t shopped around, but it should be hotly contested because it represents great value and great potential. This deal originates via a cold call or a warm lead from an industry event. Often, in this deal Elysium, the vendor is a business owner that is great at their trade, but isn’t financially sophisticated enough to have approached an investment bank. The business may not be in the most obvious industry for value creation, but the product or service offering will have a quirky competitive advantage that is brilliant in its simplicity. This deal origination is probably right under your nose.
In short, it’s not the low-hanging fruit you should be after; it’s the fruit sitting on the ground under a big leaf that if approached correctly, doesn’t even require the raising of an arm to grasp. The beauty is that even though deal origination fruit so close, the majority won’t take time to look under the cover/leaf.
