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  • Writer's pictureAgu Aarna

Private Equity Deal Sourcing with an Assessment Tool

Ever felt that deal sourcing is taking too much time? Is it a tedious process to assimilate all that information?

Here’s an overview of what is deal sourcing and how you can streamline the process.

What is Deal Sourcing?

In the dynamic realm of private equity (PE), the art of deal or investment sourcing serves as the linchpin for successful investments. Deal sourcing encompasses the strategic process through which private equity firms identify and evaluate potential investment opportunities. This initial phase is pivotal as it lays the foundation for the entire investment journey. The significance of deal sourcing lies in its ability to uncover lucrative investment prospects, allowing PE firms to sift through a myriad of options and pinpoint companies with the greatest potential for growth and profitability. Essentially, deal sourcing is the gateway to unearthing the hidden gems within the market, and dedicating time and resources to this phase is an investment in the future success of the portfolio.

More than Half the Time Spent Comparing Companies

Despite its critical role, deal sourcing is a time-intensive endeavor that demands meticulous attention to detail. A substantial portion of a PE firm's operational bandwidth is dedicated to deal sourcing and business screening - in other words comparing prospects looking for the best possible investment option. This is followed by a significant time investment in due diligence and the initial months post-acquisition. In fact, studies reveal that more than half of the total time spent on an asset is invested in these early stages. Our recent study sheds light on an often-overlooked aspect of this process – the time spent on creating Investment Committee (IC) slides. Even this seemingly administrative task can accumulate to as much as four weeks (depending on the size of the PE), underscoring the need for efficiency and innovation in the deal sourcing landscape.

Why Use an Assessment Tool for Investment Sourcing

Contemporary assessment tools can be a game-changer in the private equity arena. These tools streamline and enhance the deal sourcing process, offering a data-driven approach to identifying and evaluating potential investments. By leveraging such tools, PE firms can optimize their time, reduce manual efforts, standardize their processes, and finally focus on the most promising opportunities. In line with this, we recommend the integration of cutting-edge assessment tools into the deal sourcing workflow, facilitating a more agile and informed decision-making process.

One Example: Leveraging Hiring Data in Deal Origination

Sonar Profiler Assessment Tool - Hiring Trends
Sonar Profiler: Hiring Trends Example

For instance, our Sonar Profiler - a tech assessment tool for deal sourcing - has the ability to provide insights into the tech landscape of target companies. One of the features includes assessing data of the specific tech personnel sought after and recruited by a prospect. Having such information can significantly aid decision-making.

As an example, the sample image above taken from the Profiler tool can help evaluate the investment a prospect is making in their technology:

  • We can see a significant rise in Quality Assurance (QA) needs indicating that there may be quality issues reaching the target market that require mending

  • Additionally, Product Management, and Design resource requirements are also on the rise early in the year indicating that work on defining a better user experience and understanding the end consumer is becoming key for the business. Perhaps this and the previous points may indicate issues in customer retention?

  • Finally, increased data analysis requirements, that also seemed to spike early in the year, could point to the need for the business to understand its product’s core usage metrics aiding in improving customer experience

Such knowledge enables PE firms to gauge the technological prowess and innovation potential of a target company, aligning it with their investment strategy. In addition, such observations can help prepare the deal team for a constructive and efficient management meeting, thus not just reducing time spent evaluating the target, but also positioning the investor as a knowledgeable partner in front of the prospect.

Gain Deeper Deal Origination Insight Today with Our Sonar Profiler

In an era where technology is a key driver of business success, having additional visibility into the tech talent landscape as well as other technical details is a strategic advantage that can influence investment decisions and contribute to the long-term success of the portfolio. As technology continues to evolve, leveraging assessment tools to decode the intricacies of the tech landscape becomes not just advantageous but imperative for private equity firms aiming for sustained growth and profitability.

The Sonar Profiler utilizes a myriad of different public sources as well as our internal benchmark database to build preliminary technology reports of targets without any access required - all presented in an accessible business language. In a matter of seconds the tool can outline tech stacks, security issues, organization composition and much much more. In fact the biggest value add is its ability to make inferences over a large set of diverse data pointing to critical aspects worth noting while sourcing for deals and comparing companies.

 

Intium is an end-to-end service and software platform for maximizing technology ROI. We’d be happy to shed more light on our approach to deal origination.

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