How do smaller PE firms find their deals?
I'm talking of business with EBITDAs less than $5MM. Always see smaller PE firms getting into smaller deals. Just saw a small shop acquire a shipping company for less than $30MM. Was always interested how these transactions come about. Is there a broker involved? Who are the major shops that handle this? Personally I always thought some of these smaller deals were pretty cool. Saw some that bought like regional TV stations/media outlets, which I thought is pretty neat too.
I have friends who work for smaller PE shops - their own network - if they are part of a corporate PE/investment group: referrals from their own operating companies - brokers like Huron but also larger banks do smaller deals in their own niche areas (i.e. at the beginning Sustainable Investments were niche before they became mainstream) - simply through their own research and emailing potential targets directly - industry events & exhibitions: Plug And Play, or OEM accelerators/similar
In Europe the vast majority goes trough M&A boutiques / accountants like Big4. Sourcing deals through col calling is like looking for a needle in a haystack - 99% of owners isn't interested in selling (timing/next generation in family/rather sell to competitor because it's easy/want to quit without transition period/etcetcetc).
You're 100% wrong. Many PE funds source proprietary deals (sometimes exclusively)...it's a way to get better prices and not have the asset get bid up in an auction. Deals can be sourced via proprietary relationships, cold calling, networking etc...
Dude, take a good look at the posts in this topic. 90% of the answers is: boutique M&A shop, accountants, investment banks. Not saying you can't do 1-on-1 deals through such channels, but I would not call this proprietary. Have been working with and in PE for long time, and this is just not realistic if you want to maintain steady deal flow. For add ons this is different of course.
Personal network pretty much everything. 75% of my job is public analysis but the other 25% is small PE deals. We keep close ties with mid-market and smaller investment banks, and wealth managers, and you'd be surprised at how often someone has something for us. The hard part is finding the time to look at them all.
Do these smaller M&A banks actually do well/make money, in your estimation?
Definitely, they’re generally specialized in an industry or even sub industry (restaurant banker etc) and do really well for themselves.
They can do very well..limited overhead and other cost saving measures leads to pretty much an eat what you kill compensation structure..$1-$2 million fee from a $50 million transaction pretty much goes into your pockets.
I am interning at a shop like this right now. We look at deals from $2-$20mm EBITDA. Our sourcing really comes down to:
To answer your broker question, sometimes, the ones we reach out to ourselves will usually engage their accountant/lawyer. As for shops that do this, I don’t know if any large PE funds that do this, definitely a ton of small ones. Permanent equity fund comes to mind, look around for tiny shops in large metro areas.
How are the small banks you deal with? Smart? Reputable? Trying to determine the value that these smaller banks actually give their clients.
They're called "Joker Brokers" for a reason
Honestly it depends. We'll see CIMs from Big 4, consulting shops, all the way down to 1-man "M&A" shops listed on local business brokerage sites. I'd say the overwhelming majority weren't necessarily a value-add in any capacity other than connecting us to a seller. We've had some interactions with truly incompetent "bankers" however, those calls are always fun. To answer your questions:
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