Sourcing Private Investment Opportunities

In its 2017 edition of the Global Private Equity Report, Bain Capital reports that funds are creating specific sourcing roles to help identify opportunities:

Some PE firms are deploying their advisers in very specific roles. EQT uses experts on call, retaining former senior executives to help pursue assets in industries they know well. Temasek Holdings has taken a slightly different tack, building a network of well-connected executives in Europe and the US—such as PepsiCo CEO Indra Nooyi—who are retained to help with business development. KKR uses regional experts, such as the for- mer president and CEO of Bolloré Africa Logistics, to help expand KKR’s franchise in Africa. And Advent International has invested in about 70 part-time operating partners who are assigned to sector-specific investment teams to focus on sourcing deal opportunities in those sectors.

Based on discussions with private equity professionals, Bain estimates that a substantial amount of time is being devoted to this effort. By role, the amount of time allocated to networking is estimated as follows:

• 50% – Formal Advisors
• 30% – Managing Directors
• 25% – Senior Directors
• 10% to 15% – Junior Directors

Even with this effort, the report estimates that PE funds only see 18% of the deals that might be relevant to them. Please see the report for an excellent chart on page 44.

Private equity professionals are increasingly pointing to sourcing challenges as a new obstacle in identifying attractive opportunities.

“When data research firm Preqin surveyed buyout fund managers in late 2016, 36% of respondents said that it’s more difficult to find attractive investment opportunities compared with a year earlier, and just 2% said it’s easier. Like the latter stages of a gold rush, investors have to get smarter about where and how to dig.”

For every 100 investment opportunities that make it into the pipeline, generally only 1 or 2 of these result in a transaction.