Deal origination is a process performed by investment bankers, lawyers, or other representatives of the investment industry. It involves the search for target companies for deals. Since transactions are considered to be the main source of income for investment bankers, this process is very important, but also quite complex. In this article, we will take a closer look at the concept of deal origination, its goals, strategies, and working principle.
What is deal origination?
Through deal origination, investment organizations find new opportunities for profitable transactions. Both venture capitalists and bankers, for whom brokering is their main source of income, are involved.
Smaller brokers are selling small family businesses that don’t exceed the few hundred thousand dollar marks, but at the top of the market, Wall Street investment bankers are selling large businesses with complex infrastructures and thousands of employees.
How deal flow works
There are two ways to find a deal: either investors look for, and contact, companies that plan to sell businesses, or they find them themselves and offer to do the transaction.
According to the vendor’s firm size, it will determine the success and speed of the deal, since the smaller the business, the more effort it will have to put into making things work.
Small brokers, in search of potential clients, send out emails with their offers to small businesses, counting on the fact that some of them may need their services. This works the other way around, if your small business wants to do a deal to expand its reach, you have to do the research and be willing to do the deal.
It’s the same with large investment firms, they only work with large representatives in the marketplace.
Common methods for M&A deals
With the advent of technology, the work of investment bankers has noticeably diminished. They now have easier ways to find clients. They mostly use the following methods to make deals:
- Mailing lists
Investment organizations engage in monthly mailing lists of companies with which they have a credential for their prospective or former customers. These mailings then have several advantages; they make potential clients aware of possible and prospective deals they might do, and they also remind them of themselves. Thus, investment firms greatly increase the chance that if their client needs to make a deal they will turn to them.
- Corporate sites
If potential sellers or buyers are thinking about an M&A deal, they start looking for investment bankers in their area and the same line of business as them through the Internet. That’s why you should think about the quality design of your website, because the first impression, after all, has an important role to play. Develop your website and regularly update important information about your activities.
- Creating a network
No modern transaction is without networking. Investment bankers act as an intermediary in a special network between companies that do not know each other but are of great value to each other. By bringing them together they take the first step in forming an M&A transaction.
Creating a network is a key action to closing a deal, because even if you don’t have luck with any of the above methods for finding and initiating a deal, you may still be approached by your peers at other investment firms, as you may have valuable connections.