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How Investment Banks Can Better Leverage Data Sources for Deal Flow

By: John Rakowski, Clearsight Advisors

Deal flow is a critical component of all M&A activity. A firm could have an overflow of opportunities, but the quality of those deals is crucial to success. If any deal sourcing efforts are leading to low-quality opportunities, you’re wasting time and resources.

The key to uncovering better opportunities with stronger potential for a transaction is utilizing the best data sources. Equipped with the right technology, investment banks can quickly leverage data to improve deal flow and maximize success.

The Transformation of Technology

In the past, a firm might have used a few different sources to find leads, relying on Google or LinkedIn searches and similar tools. Deal sourcing was also largely partner-driven and dependent on referral relationships. The outputs of these concurrent efforts often resulted in disparate data and tracking inefficiencies.

The rise of new deal flow software then started to transform the process of deal flow management. From tools like CapIQ to Pitchbook, resources started to become more advanced and centralized. Analysts had access to public company information, including details for valuation work and history of M&A transactions. This helped identify trends in relevant sectors and build themes around them. However, these tools still had critical knowledge gaps, particularly when it came to private equity and deal sourcing.  

The area that needed the most help was filling the top of the funnel. We needed to identify more potential deals and get in front of better-qualified companies to understand investment opportunities. Relying only on partners didn’t allow for adequate scaling and the existing management software wasn’t sufficient to fill the gap.

A New Tool for Deal Sourcing

SourceScrub, a tool developed to improve deal flow management, is something I use as a lead generation engine to locate interesting investment opportunities that aren’t currently on my radar and then track them in SalesForce.

Whether conducting research on companies in a certain geography or planning for an upcoming conference, analysts can easily identify companies that should be on a target list via automated list scrubbing functionalities. You can also perform this research within a certain sector of interest to build new themes based on your target criteria.

A lot of banks are missing opportunities when they rely on traditional methods of deal sourcing, and this is where new technology workflows can be most advantageous.

Identifying Untapped Opportunities

Investment banks can have a fairly defined universe for targeting, yet often still miss details that inform the best potential companies to target. Many banks, especially mid-tier banks, could benefit from additional tagging conventions that make the company screening process much easier.

The use of technology in this way is especially helpful when it comes to companies that don’t attend conferences and therefore wouldn’t be on publicly available lists. Unless you have a connection to introduce you to these companies, you’ll often miss them entirely.

By specifying company criteria and incorporating tagging in a platform like SourceScrub, analysts can be automatically notified of new companies that fit their criteria. For example, if you’re targeting companies that have raised $10-20 million of capital and still have control, you can set that criterion to find the best targets. This enables you to easily stay up to date and not miss any potential opportunities.

It can also assist you in locating companies that may actually be right under your nose. When I was only relying on Google searches for my deal sourcing, I now know I was missing hundreds of companies that were within driving distance of my office. Firms can get lucky, but overall they’ll have to spend hours of searching via this process to find the right business. And that search will still only yield half the results. The SourceScrub functionalities now allow you to filter that search, ensure you’re seeing all the options, and identify the right opportunities within minutes.

Leveraging Data to Improve Results

The right data sourcing platform has the ability to impact every point of your deal flow management. From identifying the right targets to tracking opportunities over time, platforms like SourceScrub can augment all of your efforts. Technology is becoming more and more important to establish a competitive edge in a quickly changing M&A landscape. Utilizing the right deal flow software can lead to success for all parties – more strategic deal origination for your team and stronger investment opportunities for your partners.