How do top PE firms source proprietary deals?

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AcadiFi · Accepted Answer

Proprietary deal flow means transactions not shopped through competitive auctions run by investment banks. These deals often close at lower entry multiples (1-2x EBITDA cheaper) and carry higher return potential because of limited competition.

Sourcing channels that PE firms cultivate:

1. **Industry executive networks** — operating partners and sector specialists who know founders/CEOs personally from careers in the space. A healthcare-focused firm with ex-hospital system CEOs as advisors often hears about family-owned ambulatory chains considering transactions before any banker is hired.

2. **Family office and founder networks** — trust-based introductions where reputation for fair dealing and honoring handshake terms is the currency. Founders of family businesses often prefer continuity over highest price.

3. **Cold outreach and thematic mapping** — systematic research identifying all companies in a sub-sector, ranking them by fit, and contacting owners over multiple years. Some firms maintain 5+ year courtship cycles.

4. **Portfolio company add-ons** — a platform investment generates bolt-on opportunities. Managers of existing portfolio companies often bring smaller deals to their PE owner first.

5. **Sector conferences and trade groups** — sponsoring industry events and speaking engagements builds visibility that leads to inbound inquiries.

6. **Repeat backers of management teams** — back a CEO on one successful deal and that CEO brings the next opportunity proactively.

Example: Westbrae Capital, a lower-middle-market industrials firm, reports 78% of closed deals were proprietary or limited-process. They maintain a 10,000-company sector database, with 3 associates dedicated to cold outreach, averaging 40 CEO calls per week. Over 5 years this produced 120 NDAs and 22 closings.

Proprietary sourcing is hard to build — it requires patience, sector discipline, and reputation.

How do top PE firms source proprietary deals?

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