Senior Associate Sourcing Deal From Personal Network - Finder’s Fee?
A family friend who owns & runs a decently sized mid market business (roughly $100m revenue / $15-$20m EBITDA) is aiming to bring his company to market for a sale. After a brief conversation together and realization that this would represent a nice fit with the mandate of the private equity firm that I currently work for, the family friend has decided that he would be open to engaging directly with me / my firm without launching a competitive process.
I am hoping to solicit feedback from the WSO community on how to best capitalize on this opportunity and get a sense of whether there is precedent to receive a special finder’s fee or other type of economics for sourcing a deal of this magnitude for our fund (platform investment with an equity check comparable to other deals we do). If so, any recommendations on how to best communicate this to my team and negotiate for participation in the deal beyond my current carried interest allocation (e.g., an upfront success fee or incremental profits interests) would be helpful.
For reference, I am currently a senior associate and will be promoted to vice president within the year.
You’re getting nothing but some goodwill in the firm which you should be happy with.
If this is your perspective, get ready for a long career of getting used and not compensated properly while your peers who try to angle the situation, negotiate, and throw a fit for not being rewarded get way ahead of you.
You should push heavily for economics you likely won’t get a finders fee for host of reasons incl conflicts but you should get economics for sure (aka carry). Do not take no for an answer
The conflict of interest you highlight makes sense. Thankfully, I’m just a lowly junior employee with no ultimate sway in what deals cross the finish line - decision to invest would largely be made completely independently of my feelings.
Separately - How do the business development / origination professionals within a PE firm typically get compensated when a deal that they source is consummated by the investment team? Perhaps there is a way to align with this structure?
Yea there can be deal bonuses even for deal professionals but these aren’t life changing amounts. You should focus on economics it’ll align incentives and showcase your commitment to the deal too. You can also probably negotiate a large amount
Your family member might be better off maximizing valuation. 1x higher multiple will be worth more
bumping this. tell your friend to launch a competitive process.
Our fund offers $50k flat bonus for sourcing a platform. I wouldn’t expect anything more than that, as sourcing is a big part of the job (even if technically not so much at your level)
Sign the deal yourself (LOI it to an LLC you create).
Do the good-guy (and also easiest) move and give your current firm a first look. Offer them 1-and-10, a straight split on fees. If they blink, go hit the money circuit to raise it yourself. There are a couple dozen places that exist exactly for situations like this.
You can go to funds: this is the easiest route but least lucrative. You'll receive lowest economics but people really want to transact, they have a business and have to deploy capital in order the keep the gears churning. Getting a 5% performance fee is a win here.
You can hit the search fund LP universe. Their problem is a scarcity of quality deals. Most searchers are unproven and it's really a blind bet they'll find a willing seller at all, let alone one with a decent asset. You have a (presumably quality, or at least not tiny) committed, proprietary asset and a willing seller. This is the medium difficulty and medium upside route. This would be in the 'unfunded search' bucket, so you should not accept economics below 1-and-15. And there are all kind of pref structures you can pursue that minimize the true equity check.
You can hit the fundless sponsor universe. This is the highest difficulty and highest upside path. There are institutional investors who have no problem paying full-freight or higher for good investors who do good deals. The problem is that it takes forever to find them, awhile to get a meeting, quite some time to establish a relationship, and (worst of all) a murky process to get them to close. The good news is that once you've done any kind of deal on your own, every one of those steps compresses dramatically. Walking in with your first is an exercise in torture. Someone hearing about one you've already done will often reach out proactively, or if you're the one initiating, is way more receptive than if you're just getting started.
I don't think you realize what you've got in your lap. If your family friend is willing to play ball with you on this (give you a six-month, or even just three, window of exclusivity to run with this before initiating a process), you have a rare gem.
You can trawl my comment history and find numerous stories I've shared of real people I know who have gone down one or more of these paths outlined here.
Won't you get fired for signing the deal yourself? This is a conflict of interest from an employee standpoint - if I as an investor/employee of a fund take the deal myself before "showing" it to my fund, I've placed myself in front of my investors.
We're allowed to do our own deals in theory, but the fund will have had to pass on it first before we can do it.
agree, think this is a fireable offense at worst and a massive conflict at best... at minimum is an outside business activity that'd need to be approved prior to starting, and firm would obviously say no to this
Think the rest of the advice on this thread is good. You can't expect a finder's fee but should get more than your usual amount of carry
Yes, obviously, sorry for omitting the clear step - if the seller will play ball, quit the day job (and you can de-risk the quitting by having soft, plausibly deniable conversations with capital partners before doing it) because this is more valuable than a run-of-the-mill senior associate position.
Who gives a flying fuck if he is fired? JFC
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