Middle market deal sourcing: Here's what you're up against

Robert Parrish
Assistant Director

Whether you're the CEO of a private equity firm or the director of a family-owned business, identifying a company to purchase is a competitive process. Deal sourcing is a process that helps combat this by facilitating companies looking for investment opportunities on the market.

If you're operating in the middle market, it's essential to know what you're up against so you can outperform competition and land deals. This blog outlines what you're up against when it comes to middle-market dealing sourcing so you can adjust operations accordingly.

1. Increased business development

Business development involves implementing tasks and processes that facilitate business growth. Capital increases in the private markets in recent years have increased the need for business development professionals in mid-market companies. As fundraising cycles shorten, hiring a business development professional makes it easier to deploy capital faster and have more business platforms live-cycling through these funds. Increased business output leads to greater value creation, making it easier to attract investments.

2. Less syndication in co-investments

Co-investments are more broadly syndicated for larger business deals, with sponsors spread out among multiple investors. Yet, in the middle market, sponsors usually contact co-investors early within the sales process upon realising they need additional equity capital. This requires the company to operate with due diligence and under an experienced investment team that understands when to bring in help.

3. Global operations

Having a global operating footprint offers several advantages to mid-market companies, with more firms capitalising on it. It allows for diversification and resilience across market cycles while also providing downside protection. Downside protection involves creating strategies that reduce capital losses by adjusting a portfolio's market exposure where potential losses or market downturns occur. Global operations allow for this by opening you up to expanded markets, thereby giving you more ways to adjust the business portfolio. It also gives you access to low-cost resources and diverse talent pools.

4. Combining technology with a personal touch

Firms are continuously incorporating new technologies to stay ahead of trends and capitalise on the business advancements they offer. Yet, especially in the mid-market, it doesn't take long for competitor companies to learn about the tools you're using and adopt them in their own operations. For this reason, it's essential to evaluate new technologies in light of the investment teams' bandwidth. This involves determining how you can leverage team skills to best manage new resources and better implement them into deal-sourcing processes. This leads to greater assimilation of technologies and gives you a competitive edge over other businesses. Technology shouldn't direct teams, it should be the other way around.

Keeping up to date with mid-market advancement when it comes to deal sourcing is essential to stay ahead of the game. Contact us at GVP today to find out how to best navigate competition when sourcing investment opportunities.

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